By Scott Wright
SHARES in Clydesdale Bank owner Virgin Money UK closed up nearly eight per cent last night after first-quarter results showed it returned to statutory profitability and made no further provision for bad loans amid the continuing economic fallout from coronavirus.
But the institution set aside a further £49 million for payment protection insurance (PPI) pay-outs after processing of final complaints was completed on January 25. It highlighted a higher conversion of inquiries into actual complaints as the process ended, as well as higher levels of average redress and uphold rates.
The bank has now processed around 740,000 complaints arising from the PPI scandal at a cost of £3.1 billion.
Chief executive David Duffy flagged a “positive first quarter” as the bank returned to the black, while maintaining its cautious outlook regarding the UK economy.
Although the vaccine roll-out and Brexit deal offered signs of encouragement, the bank noted that continuing restrictions to curb the spread of coronavirus are “likely to delay the pace of normalised economic and transaction activity.”
Mr Duffy said: “Given the current UK-wide restrictions and ongoing uncertainty, we maintain the cautious economic outlook we outlined in November and our full year guidance remains broadly unchanged.”
READ MORE: Scott Wright: Bank support vital as UK faces ‘darkest hour’
Pressure imposed on households and businesses from the current lockdown – all of Scotland has been placed in the strictest level of restrictions since late December – has led to speculation that major banks will increase their provisions for loan defaults.
Virgin booked an impairment charge of £500 million to provide for potential loan losses when it reported its full-year results in November.
But it said yesterday that it had “not yet seen any material changes in overall portfolio asset quality, nor been required to make any significant Covid-related specific provisions.”
It added: “Arrears have increased modestly in the quarter, from the subside levels seen at FY20 but remain below historic average levels as customers benefit from the support available.”
The bank has balance sheet provisions of £726m, compared with £735m in 2020.
Virgin reported that customer deposits had increased by 0.9 per cent in the first quarter. This came as Covid restrictions resulted in lower personal customer spending, with businesses maintaining high levels of liquidity.
David Duffy, chief executive, Virgin Money UK
The impact of Covid restrictions on consumer activity was also reflected on personal lending in the first quarter, which fell by 2% to £5.1n amid lower credit card spending and reduced demand for personal loans.
Mortgages were down 0.2% at £58.2bn, with the bank highlighting its focus on “margin management and prudent underwriting standards given the uncertain macroeconomic outlook.”
Business lending was 0.1% higher at £8.9bn, with credit provided via Government-backed bounce back loans up 14% to £923m, and through coronavirus business interruption loans up 19% at £422m.
Mr Duffy said: “Virgin Money had a profitable and positive first quarter and continued to prioritise our customers and colleagues through this uncertain external environment including through payment holidays and Government lending schemes.”
He added: “The Group remains strongly capitalised and we have good momentum as we look out into the remainder of the year.”
READ MORE: Clydesdale Bank owner signals it may close more Scottish branches
Virgin Money UK was formed by the merger of CYBG, then owner of the Clydesdale and Yorkshire Banks, in a £1.7 billion deal in 208. It is on track to remove the Clydesdale name from its branches by the end of March under plans to rebrand its high street presence as Virgin Money.
The group now has 55 branches in Scotland following a programme to shrink the network in recent years.
On Monday, the bank confirmed the appointment of Clifford Abrahams as its new chief financial officer (CFO), after receiving regulatory approval. Mr Abrahams, who will join the board on March 8, is currently CFO at ABN Amro.
Shares closed up 10.10p at 142p.
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