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Virgin Money: A bull signal for banks?

Mid-cap lender holds firm amid turbulence
Virgin Money: A bull signal for banks?
  • Virgin Money hints that the credit markets have not been badly impacted by turbulence
  • Lending might be flat, but asset quality remains robust
IC TIP: Buy at 140p

Despite a return to statutory profit in the three months to December 2020, trading at Virgin Money UK (VMUK) suggests both the lender and its customer base remain cautious about the economic outlook.

Efforts by business customers to shore up liquidity and subdued consumer spending meant deposits edged up another 0.9 per cent to £68.1bn, while the mortgage book fell slightly as Virgin focused on margin management and underwriting standards amid a booming housing market. Business lending was also flat, as the gap left by a sharp pullback in regular lending was filled by another £1.3bn in government-backed loan issuance.

This doesn’t mean credit markets are deteriorating. The company has “not seen material changes in asset quality or specific provisions to date”, which meant bad loan reserves fell slightly compared with last September. At 10 basis points, the lender’s cost of risk for the quarter sets a benchmark for larger rivals when they announce full-year numbers later this month.

Buttressed by further improvement in capital – notwithstanding another £49m PPI charge – shares in the lender were boosted by theses numbers and now trade at 152p.