Home Economics Virgin Cash income hit by rising dangerous mortgage provisions

Virgin Cash income hit by rising dangerous mortgage provisions

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Virgin Cash income hit by rising dangerous mortgage provisions

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Virgin Cash has missed revenue expectations because it made an even bigger than anticipated provision for dangerous loans to account for rising bank card arrears owing to the price of dwelling disaster.

The challenger financial institution reported statutory revenue earlier than tax of £345mn within the yr to September 30, down from £595mn in 2022 and under analyst forecasts of £430mn.

The hit to income was largely due to a soar within the quantity the lender put aside for dangerous loans to account for rising arrears in its bank card enterprise amid a dismal financial outlook.

Virgin Cash reported a credit score impairment cost of £309mn, larger than market expectations of £282mn. The soar, which is an nearly sixfold improve on final yr’s cost of £52mn, comes after the lender up to date its mannequin for credit score losses to mirror a deterioration within the financial system and better ranges of buyer indebtedness.

Virgin Cash mentioned it anticipated a “continued improve in arrears” within the subsequent monetary yr, largely centered on its bank cards portfolio, which grew by 10 per cent this yr as customers turned to credit score within the face of rising costs.

Chief monetary officer Clifford Abrahams mentioned customers who had been hit by larger mortgage charges have been more and more utilizing bank cards to easy their consumption on discretionary spending.

“We see a variety of transactions on our journey bank cards and there’s nonetheless a post-Covid impact of individuals spending extra going out and travelling to go on vacation,” he mentioned.

The FTSE 250 lender mentioned the reduction it had provided clients struggling to pay their bank card payments, reminiscent of an extension in compensation phrases, had additionally elevated in step with arrears.

The proportion of bank card balances reaching greater than 90 days late elevated to 1.7 per cent, from 1.2 per cent the earlier yr, whereas the worth of bank card balances having to be written off jumped to £116mn from £79mn over the identical interval.

Virgin Cash additionally took a £45mn impairment hit after it delayed the launch of a digital mortgage brokerage platform.

“We’re not fairly positive if this financial institution is department or digital led,” mentioned Benjamin Toms, an analyst at RBC. “It appears like a variety of funding remains to be required to compete with massive UK friends.”

Virgin Cash chief govt David Duffy mentioned: “We spent a bunch of time engaged on [the platform] and on the finish of the day once we have been doing the testing for deployment we weren’t assured within the robustness of the information we have been seeing.”

The financial institution, which was created following a 2018 takeover by rival CYBG, mentioned it might purchase again as much as £150mn of its personal shares earlier than Might 2024 in Thursday’s replace. It’s planning to reward shareholders with a last strange dividend of 2p per strange share for the monetary yr.

Shares fell by nearly 4 per cent in morning buying and selling on Thursday, and are down nearly 20 per cent within the yr up to now, after the sector was hit by concern of contagion following the collapse of Silicon Valley Financial institution and bother at different lenders together with rival Metro Financial institution.

Gary Greenwood, an analyst at Shore Capital, mentioned the financial institution’s poor report of assembly expectations meant it’d wrestle within the close to time period with out a change of management.

“I don’t actually care what different folks assume,” mentioned Duffy. “I don’t have any conversations about that with anyone apart from the board.”

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