…By Joseph Benjamin for TDPel Media.
Virgin Money, the challenger bank founded by entrepreneur Sir Richard Branson, has reported a 23% drop in underlying pre-tax profits to £312m in the six months to March 31, compared to the same period a year ago.
The bank has set aside £144m to cover expected bad debts due to increased arrears among customers.
Virgin Money has cited interest rate rises and high inflation as factors that have led to UK businesses and households experiencing financial stress.
The bank is also bracing for a normalisation of the credit cycle, leading to an increase in arrears.
While the number of customers in financial distress remains low, the bank believes it will have to increase provision coverage.
Swap rates, which lenders use to price mortgages, have been “volatile” during the bank’s first financial quarter.
This was caused by the failures of Silicon Valley Bank and other US regional banks and Credit Suisse, which have sent jitters through the financial markets.
Despite the current financial turmoil, Virgin Money’s underlying net interest income has jumped by 9% over the period to £855m.
The bank’s deposits also grew by 2.6% to £67bn.
Virgin Money has invested in cost-of-living support networks for customers, including call centre teams and a hub with money-saving suggestions and budgeting tools.
It has also experienced a growth in customer numbers and is planning on launching further customer-centric products in the second half of the year.
Analysis and Commentary
Virgin Money’s drop in profits comes as the banking industry faces a volatile financial environment, caused by rising interest rates and high inflation.
These conditions have led to affordability tightening for many UK businesses and individuals, which has contributed to increased arrears among customers.
The bank has set aside £144m to cover expected bad debts, more than six times the amount it set aside last year.
While the number of customers in financial distress remains low, Virgin Money is preparing for arrears numbers to increase as the credit cycle normalises.
Despite these challenges, Virgin Money’s underlying net interest income increased by 9% over the period to £855m, and the bank saw customers putting more money into the bank, with deposits growing by 2.6% to £67bn.
The bank has also invested in cost-of-living support networks for customers, which has led to a significant decrease in call waiting times compared to last year.
As a challenger bank, Virgin Money has managed to differentiate itself in the market by offering customer-centric products and services.
Its investment in cost-of-living support networks and the development of a hub with money-saving suggestions and budgeting tools shows that the bank is focused on its customers’ financial well-being.
It remains to be seen how the bank will navigate the challenges of the current financial environment and continue to grow its customer base.