Glasgow's Virgin Money sees credit card arrears rise while others stash the cash

Virgin Money, the Glasgow-headquartered banking group, has further hiked its provision for bad debts after seeing a rise in borrowers falling behind with credit card payments, though other customers have been squirreling away more money as savings rates improve.

The group, which has largely phased out its historic customer-facing Clydesdale Bank and Yorkshire Bank brands, said third-quarter provisions for loans expected to turn sour rose to £547 million from £526m in the previous three months, seeing it take a £55m impairment charge in the quarter to the end of June. It said that, while overall borrower arrears remain “modest”, it continues to see a “gradual increase in credit card arrears”. Overall unsecured lending grew 2.4 per cent in its third quarter, mainly driven by credit card growth.

The group’s latest figures showed a 0.4 per cent fall in mortgage lending to £57.5 billion in the three-month period in what it described as a “subdued” market with borrowers facing soaring costs of fixed-rate deals after a flurry of interest rate rises. Mortgage costs recently hit highs not seen for 15 years as interest rates have risen to 5 per cent in the battle to control inflation.

In its latest update, the firm said customer deposits grew 5 per cent to £67.3bn amid a trend for households to deposit more cash into bank accounts as savings rates have increased. The lender also said borrowers are opting for shorter fixed-rate mortgage deals due to the current high mortgage costs, while it added that overall spending has remained strong. It is seeing customers prioritise spending on holidays and eating out and “things they can enjoy” rather than goods.

Glasgow-headquartered banking group Virgin Money has largely phased out the historic customer-facing Clydesdale Bank and Yorkshire Bank brands.

Virgin Money also said it is ramping up its restructuring activity, having last month revealed that it plans to shut almost a third of its bank branches amid the push towards online banking. It is axing 39 branches, which will leave it with 91 across the UK, in a move that is putting 255 jobs at risk.

Chief executive David Duffy said: “Our overall credit quality remains stable and we are fully committed to doing the right thing by our customers, through competitive rates, innovative products and proactive communication, as well as supporting government initiatives to help people through the current challenging environment.”

Gary Greenwood, banking analyst at brokerage Shore Capital, noted: “Virgin Money UK has reported a robust Q3 performance which demonstrates broad stability across key financial metrics. Credit quality remains broadly stable overall although there has been a continual increase in credit card arrears from low levels. Following a strong performance in the latest Bank of England stress test, management has indicated that it plans to deliver share buybacks of up to £175m this year. Costs in Q3 were stable versus the [first-half] run rate as a reduction in temporary costs offset inflationary pressure.”

Virgin Money has launched a £50m share buyback to return cash to investors and confirmed that it expects about £175m in total under the programme in 2022-23, with “more to follow” by the end of next year.