UK Edition
Virgin Money profits boom as customers splurge on credit cards
Virgin Money’s profits rocketed in the first half of the year as its strategy of offering cheap credit cards paid off.
The challenger bank made pre-tax profits of £93.7m, a jump of 70pc year on year.
One main driver of that growth was a splurge by credit card customers who now have £2.1bn of debt on their plastic, almost double the £1.1bn balance they held a year ago.
The bank hopes to continue that growth, planning to increase credit card balances by another 50pc to £3bn by the end of next year. It is currently offering one credit card deal with 0pc interest for 40 months.
Credit cards now account for more than one-third of Virgin Money’s entire earnings.
Such exposure to consumer debt at a time of economic uncertainty could be seen as a risk, but the bank argues its arrears are very low. Just 0.75pc of customers are behind by two or more payments on their cards, compared with an average of 2.5pc across the industry.
Virgin also increased mortgage lending, giving out £3.6bn of loans in the first half of the year, up 44pc on the same period of 2015.
“Since the vote to leave the EU we have experienced continued strong customer demand and no evidence of changes in customer behaviour,” said chief executive Jayne-Anne Gadhia.
“Virgin Money is in a strong position to deal with a period of post-referendum uncertainty as a low-risk retail bank with a high-quality asset base and unburdened by legacy conduct issues.”
However the bank is putting its plans to enter the small business market on hold until the economic picture becomes clearer.
"It is difficult for any business to get into a new asset class at a time of economic uncertainty - it is just a timing point. If the economy levels out and we all know what is going to happen sooner rather than later, then we will be back there sooner rather than later," said Ms Gadhia.
Virgin’s shares jumped 6.4pc on the strong profit figures – though at 260p they remain well below the pre-referendum level of 366.4p, and 2014’s flotation price of 283p.
Meanwhile Provident Financial also reported rapid growth with profits up almost 50pc to £165.4m for the first six months.
The consumer credit-focused group increased lending with a direct mail marketing programme as well as a new guarantor loan scheme called Glo for customers with poor credit ratings.
Chief executive Peter Crook said he was in talks to offer store cards - credit cards branded with retailers' names - to online retailers, which would further accelerate growth.
He joined Ms Gadhia in remaining confident following the Brexit vote.
"There has been a lot of doom-mongering and I don't subscribe to it personally. We may see a bit of a slowdown... right now our loan volumes and new customer activity are performing really well," said Mr Crook.
"There is no obvious lack of confidence among our customers. They are typically not home owners, so while businesses which are more linked to the housing market may see slower times ahead, that is not really the case of the customers we're serving.
"I expect most of them probably voted to leave, so they're perfectly happy," he said.
Analysts said that growth in new customers was a relief after fears that Provident was running out of steam.
“Customer acquisition momentum is now rebuilding after a disappointing first quarter, with a strong uplift in activity noted since the refresh of the direct mailing programme in May,” said Gary Greenwood at Shore Capital.
“This bodes well for performance in the second half, which should help to assuage market fears that the business is stalling.”
Provident’s shares climbed 2.5pc on the results.