Virgin Money, a prominent high street lender, has raised its provision for bad debts to nearly £550 million.
This decision comes in response to an increase in borrowers facing financial pressures, leading to credit card payment defaults.
The group reported a rise in provisions for loans expected to turn sour in the third quarter, reaching £547 million, resulting in a £55 million impairment charge in the period ending June 30.
Rising Credit Card Arrears and Modest Borrower Arrears:
While the overall level of borrower arrears remains modest, Virgin Money has observed a gradual rise in credit card arrears.
This has contributed to a 2.4% growth in overall unsecured lending during the third quarter, largely driven by credit card expansion.
Subdued Mortgage Market Amidst Surging Costs:
Virgin Money’s mortgage lending saw a 0.4% decrease, amounting to £57.5 billion in the three months to June 30.
The mortgage market was characterized as “subdued,” with borrowers facing soaring fixed-rate deal costs following multiple interest rate increases.
Although mortgage costs reached a 15-year high due to the battle against inflation, they have slightly eased following recent data indicating a slowdown in price rises.
Restructuring and Branch Closures:
In response to the increasing shift towards online banking, Virgin Money is actively pursuing restructuring measures.
The lender previously announced plans to close nearly a third of its bank branches, and it is now proceeding with the closure of another 39 branches, leaving a total of 91 branches across the UK.
Unfortunately, this move puts 255 jobs at risk.
Growing Customer Deposits and Preference for Shorter Fixed-Rate Deals:
Customer deposits have experienced a 5% increase, amounting to £67.3 billion.
This growth is attributed to the current trend of households depositing more cash into bank accounts due to higher savings rates.
Additionally, borrowers are opting for shorter fixed-rate mortgage deals as a response to the elevated mortgage costs.
Despite the challenges, overall consumer spending remains robust.
Customer Spending Habits Amidst Cost-of-Living Pressures:
In light of cost-of-living pressures, Virgin Money has noticed a shift in customer spending patterns.
Customers prioritize spending on experiences such as holidays, eating out, and leisure activities rather than material goods.
Share Buyback and Commitment to Customers:
Virgin Money has launched a £50 million share buyback program to return cash to its investors.
The company expects about £175 million to be allocated under this program in 2022-23, with more to follow by the end of the following year.
The Chief Executive Officer, David Duffy, reaffirms the company’s commitment to its customers, providing competitive rates, innovative products, and proactive communication.
Moreover, Virgin Money supports government initiatives aimed at assisting people during the current challenging economic environment.
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