Virgin Money UK (VMUK.L) shares slid on Wednesday as it reported a 77% decline in underlying profits, after setting aside a “conservative” £501m ($658m) to cover potential bad loans.
It became the latest bank to set aside more cash for feared credit losses, in a sign of lenders’ concerns over the economic outlook for the UK. Its total credit provisions now stand at £735m.
Chief executive David Duffy said it was “too early” to incorporate potential vaccines into its near-term forecasts, and said he expected unemployment to rise and government stimulus to be cut back.
The company recorded underlying profits before tax of £124m ($165.5m) in its full-year results, down 77% year-on-year. It posted a £141m post-tax loss on a statutory basis, when restructuring programmes and acquisition-related costs are factored in.
Shares were trading more than 6% lower in early trading in London, after a fortnight largely heading higher as vaccine advances have lifted cyclical stocks like banks.
The company, which operates the Clydesdale Bank and Yorkshire Bank as well as Virgin Money brands in the UK, said its balance sheet remained “robust.” Some 81% of its lending is made up of “prime, high-quality mortgages,” according to its latest statement.
It told investors: “While it is clear that the near-term economic outlook is challenging, we have not yet seen significant specific provisions or credit losses in relation to the pandemic.”
Virgin Money said it had granted around 67,000 mortgage payment holidays to customers earlier this year, with up to one in 10 customers still not making regular payments.
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Its total lending was down by 0.7% to £72.5bn, with mortgage lending down by 3% to £58.8bn, attributed to “disciplined pricing” and the property market shutdown earlier this year. The lender withdrew its lowest-deposit mortgages in June, before reintroducing 90% loan-to-value mortgages in August.
“While the outlook remains very uncertain and the range of potential outcomes is wide, Virgin Money enters this period from a position of strength,” said Duffy.
“Over the coming months, we anticipate an increase in specific credit losses as unemployment starts to rise and as the government stimulus reduces, and we expect limited customer demand for lending. We recognise the very recent news of potential vaccines, but believe it is too early to incorporate this into our near-term forecasts at present.”