Virgin Money profit rises but cautions on margins

FTSE 250 challenger bank Virgin Money reported a 28% increase in underlying full-year profit on Tuesday amid robust customer demand and growth across its core products, although it warned that net interest margins for 2018 will be at the lower end of the range.

In the year to the end of December 2017, underlying pre-tax profit rose to £273.3m from £213.3m, while return on tangible equity improved to 14% from 12.4%.

Statutory basic earnings per share increased to 37.8p from 29.4p in 2016 and the company recommended a final dividend of 4.1p per share, resulting in a total dividend for the year of 6p per share, up 17.6% on the year.

Total income was up 13.5% to £666m as the bank’s cost to income ratio dropped from 57.2% to 52.3%, while retail deposit balances increased by 10% to £30.8bn and mortgage balances were up 13% to £33.7bn.

However, Virgin also cautioned on Tuesday that net interest margins for this year will come in at the lower end of its range of 165 to 170 basis points, as a result of lower front book spreads in the mortgage market.

Chief executive Jayne-Anne Gadhia said: "We generated market-beating growth across our core products as we continued to capture high-quality market share in mortgages and credit cards. We maintained our uncompromising focus on asset quality and we continued to improve our operating leverage.

"In doing so, we met or exceeded all of our financial targets for the year."

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

At 0805 GMT, the shares were up 4.4% to 276p.