Interim profits at Virgin Money have fallen amid higher provisions for a potential increase in customer arrears, new results show.
The challenger bank - which has its main bases in Newcastle, Glasgow and Leeds - reported underlying pre-tax profit of £312m for the six months to the end of March, down from £371m in the same period last year.
Impairment losses on credit exposures - the money put aside for losses on bad loans - rocketed to £144m from £21m, a move that chief executive David Duffy said was down to the bank's updating of modelling that anticipates stresses in the economy, but not an actual reflection of what Virgin was experiencing across its customer base.
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He told BusinessLive: "We're not seeing any material deterioration in any of the asset categories on our books. What we've done is update our macroeconomic models, which we are required to do, and most of the other banks did in the last quarter - and we caught that model up ourselves now, and that's what you get. You get a provision for a macro model basis, anticipating the stresses in the economy but we have not seen any stresses to date in our books."
Investors on the London Stock Exchange were shown total underlying operating income of £933m, up from £848m in the same period of 2022. And Virgin hailed increases in its net interest margin - a key performance measures - which it said had reached 1.91% over the six months, from 1.83%.
In a call with journalists, Mr Duffy also said the bank's mortgage business was trading at historical highs with no signs of stress in its lending book. The FTSE 250 bank's mortgage lending was only slightly lower across the six months at £57.6bn, compared with £58.1bn, owing to what Virgin said was a "muted" economic backdrop that now showed signs of improving.
However, credit card spending and business lending both grew as the bank said 'business as usual' accounts offset a reduction in lending. Virgin controls about 8% of the UK credit card market and said it had noticed customers spending broadly in line with last year, despite inflation, and a big uptick in air travel, holiday and hospitality purchases. Meanwhile the appetite for high street buying, including home improvements, was less.
Mr Duffy said: "More people are choosing to bank with Virgin Money. While the past six months have seen turbulence in the economy and in the financial system, we have continued to focus on our target areas, growing customer numbers and deposits thanks to our new and existing digital products. Further customer-centric product launches are coming in the second half of the year.
"We have a strong capital position and we've significantly grown pre-provision profit, while continuing our prudent approach. As the UK economy stabilises in the months ahead, we have a high degree of confidence in our long-term plans."
The majority of Virgin Money employees will receive a 10% pay increase during 2023.
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