Virgin Money profits soar on the back of ‘market-beating’ product growth

UK challenger bank Virgin Money, which is headquartered in Newcastle but employs 200 at its Edinburgh hub in the capital’s St Andrew Square, increased its underlying pre-tax profits 28 per cent to £273.3 million last year, with total income up 13.5 per cent to £666 million.

Shares in Virgin Money jumped 5.7 per cent on the news yesterday as the results, which were ahead of consensus forecasts of £260 million, saw the lender raise its total dividend 18 per cent.

Announcing the positive results, chief executive Jayne-Anne Gadhia said the bank, set up by Sir Richard Branson and which now has 3.34 million customers, had generated market beating growth across its core products last year, with mortgage balances up 13 per cent and retail deposits 10 per cent.

The company also reported stronger capital reserves and increased its return on tangible equity to 14 per cent, a key aim at the time of Virgin’s initial public offering in 2014.

“It’s true we are meeting or beating our targets and that feels good, and I think that is in the share price (reaction)”, Ms Gadhia said.

Ms Gadhia added: “We continue to experience robust customer demand and stable customer behaviour in a resilient housing market, and we expect to maintain double-digit returns in 2018.

“We definitely don’t see any macro-economic worries that would temper the housing and mortgage market. That’s strong and resilient at the moment.”

Gross mortgage lending lifted to £8.4 billion in the year, giving Virgin Money a 3.3 per cent share of the UK mortgage market.

However, Ms Gadhia said she was prepared to see this share reduce rather than just chase volume if already competitive lending competition intensified.

Virgin Money’s credit card balances rose 24 per cent to £3 billion in 2017, with most of the growth coming from customers who already had deposit accounts.

Virgin had been the subject of some criticism last year for focusing on growing its credit card business, with institutions including the Financial Conduct Authority and Bank of England raising concerns that the pace of growth was becoming unsustainable.

However, the bumper profits were helped by lower impairment charges than analysts had forecast, which Ms Gadhia said vindicated the bank’s approach to lending.

She said: “Arrears are so low because we have a very low risk appetite and a very high credit standard — the quality of our portfolio is coming through very clearly now. “The market had been taking more risk, and growth was getting riskier … we held our nerve and managed to grow in prime cards all the way through.”

Bad debts went up to £44 million from £38 million, but that was in line with higher revenues, Ms Gadhia added.

Net interest margin – the difference between what the bank charges borrowers and pays savers, and a crucial reference point in the industry – was 1.72 per cent as previously guided.

The bank’s move into small business banking, which began in January with an SME savings account, is targeting some £5bn of deposits within five years.

Ms Gadhia said Virgin Money planned to set up a current account for smaller businesses “by the end of 2018”.

Virgin is also investing heavily in a digital bank it expects to launch next year.