SHARES in the owner of the former Clydesdale Bank were down nearly six per cent this morning after the lender reported an increased impairment charge for bad debts and signalled that arrears will rise amid the challenging economic outlook.

Virgin Money booked impairment losses on credit exposures of £144 million for the six months to March 31, up from £21m at the same stage last year, which contributed to statutory profits before tax falling by 25% to £236m from £315m in the first half.

This was despite total underlying operating income rising by 10% to £933m as the bank benefited from rising interest rates. Underlying operating profit before impairment losses increased to £456m in the first half from £392m at the same stage last year.

Chief executive David 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 bank noted that the economic backdrop covered by the six-month period had been “subdued, with several economic indicators forecast to remain weak in the near term before improving into FY24”.

It highlighted the progressive increase in interest rates by the Bank of England – the base rate is currently 4.25% - and the impact on market sentiment following the collapse of Silicon Valley Bank and other regional lenders in the US, as well as challenges at some European banks.

UBS completed an emergency takeover of troubled Credit Suisse in March.

Virgin Money said: “Recent rate rises and ongoing inflationary impacts have seen affordability tighten for many UK businesses and individuals, and the group remains ready to support our customers as required. Pleasingly for now, the number of customers in financial distress remains low, but we continue to expect arrears numbers to increase as the credit cycle normalises and have increased our provision coverage during H1.”

Virgin announced a dividend of 3.3p for the first half and pledged further share  buybacks, subject to Bank of England stress tests.

Shares in the bank were trading at 144.64p at 11.05am, down 5.6% on the day.