The Virgin Money UK PLC (ASX: VUK) share price will be one to watch on Wednesday following the after-market release of its third quarter update.
How did Virgin Money perform in the third quarter?
For the three months ended June 30, the UK-based bank reported a 4.8% increase in customer deposits to £67.7 billion. This was driven primarily by lower Personal customer spending during lockdown and Business customers maintaining higher levels of liquidity.
Virgin Money reported a 1% reduction in its Mortgage portfolio to £58.9 billion. This reflects the effective closure of the new purchase market under lockdown, partially offset by improved retention rates.
Pleasingly, the bank experienced a 5.7% increase in Business lending growth to £8.8 billion during the quarter. Management advised that this was driven by significant demand for the Government backed lending schemes. A total of £619 million of BBLS and £248 million of CBILS lending were provided at end of June.
Unsurprisingly, Personal lending reduced 2.7% during the quarter to £5.2 billion. This was due to lower credit card balances.
Net interest margin in line with expectations.
During the third quarter the bank's Net Interest Margin (NIM) declined in line with expectations to 147 basis points. This means Virgin Money's NIM now stands at 157 basis points for the 9 months.
Management revealed that this reduction was due to the immediate asset repricing following the base rate reduction and cost of holding excess customer deposits.
The good news is that liability repricing actions will drive an improvement in its NIM in the fourth quarter. As a result, management continues to expect a FY 2020 NIM of 155 basis points to 160 basis points.
Asset quality.
Virgin Money advised that it hasn't seen any significant specific provisions or credit losses in relation to the pandemic given a backdrop of Government support and forbearance measures.
Nevertheless, it has updated its impairment models incorporating more cautious economic scenarios and refined its overlays to reflect payment holiday assumptions. This has resulted in a prudent net increase in its provisions of £42 million, primarily in Mortgages and Personal.
"A severely disrupted environment."
Virgin Money's Chief Executive Officer, David Duffy, was pleased with the company's performance during the pandemic.
He commented: "I am pleased with the way the Group has performed during the pandemic. In a severely disrupted environment we are delivering on what we set out in May; to safeguard the health and wellbeing of our colleagues, customers and communities while protecting the bank."
"Our Q3 financial results reflect lower demand from consumers due to the pandemic, but strong demand from businesses for Government supported schemes, with the Group further increasing its provisions to reflect the uncertain economic outlook while maintaining a focus on margin, cost and capital management," he added.
The chief executive also advised that the bank has been supporting its customers during these difficult times.
He explained: "We have now granted c.67k mortgage and c.53k personal payment holidays, and we've supported c.25k business customers with lending arrangements. We know that things may yet get more difficult for many of our customers, but we are determined to continue to support their needs where we can and to fulfil our role in the economic recovery."
Despite the pandemic, the company remains focused on the future and disrupting the status quo.
Mr Duffy concluded: "We have now recommenced our transformation and rebrand activity, taking what we have learned through the pandemic to deliver on our mission to disrupt the status quo as a full-service digital bank."
