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Virgin Cash has missed revenue expectations because it made an even bigger than anticipated provision for dangerous loans to account for rising bank card arrears owing to the price of residing disaster.
The challenger financial institution posted statutory revenue earlier than tax of £345mn within the 12 months to September 30, down from £595mn in 2022 and beneath analyst forecasts of £430mn.
The hit to income was largely due to a soar within the quantity the lender had put aside for dangerous loans to account for rising arrears in its bank card enterprise amid a dismal financial outlook.
Virgin Cash reported a credit score impairment cost of £309mn, greater than market expectations of £282mn. The soar, which is an nearly sixfold enhance on final 12 months’s cost of £52mn, comes after the lender updated its model for credit score losses to mirror a deterioration within the financial system and better ranges of shoppers indebtedness.
Virgin Money stated it anticipated a “continued enhance in arrears” within the subsequent monetary 12 months, largely targeted on its bank cards portfolio, which grew by 10 per cent this 12 months as shoppers turned to credit score within the face of rising costs.
The FTSE 250 lender stated the aid it had provided prospects struggling to pay their bank card payments, similar to an extension in reimbursement phrases, had additionally elevated according to arrears.
The proportion of bank card balances reaching greater than 90 days overdue elevated to 1.7 per cent, from 1.2 per cent the earlier 12 months, whereas the worth of bank card balances having to be written off jumped to £116mn from £79mn over the identical interval.
The financial institution, which was created following a 2018 takeover by rival CYBG, stated it will purchase again as much as £150mn of its personal shares earlier than Might 2024. It stated it deliberate to reward shareholders with a closing odd dividend of 2p per odd share for the monetary 12 months.
Shares in Virgin Cash have declined 16 per cent within the 12 months to this point because the sector was hit by concern of contagion following the collapse of Silicon Valley Financial institution and hassle at different lender together with rival Metro Financial institution.