Virgin Money lifts NIM outlook on economic recovery, higher rates
UK lender Virgin Money on Tuesday said lifted guidance for its net interest margin – the difference between borrowing and savings rates – as the economy recovered from the Covid pandemic and inflation pushed up the cost of loans.
The bank guided for a NIM of around 175 basis points for 2022, with growth in higher-yielding lending offset by mortgage competition and normalisation of the savings market over the remainder of the year.
Virgin’s first quarter NIM rose to 177bps from 170 at the end of the previous three months as it said trading was in line with expectations.
Deposits for the three months ended to December 31 rose 1.2% to £31bn, while overall deposits fell 2% to £65.5bn.
The bank’s common equity Tier 1 ratio – a key measure of balance-sheet strength – rose 30 basis points to 15.2%, driven by strong profitability and lower risk-weighted assets.
“The UK economic outlook remains positive, including expectations for a continued recovery in GDP growth and lower unemployment, despite the recent spike in Covid case numbers driven by the Omicron variant,” Virgin said in a trading update.
“Following the (Bank of England’s) Monetary Policy Committee's decision to increase rates in December, the group also notes market expectations that further rate rises could follow in 2022 given higher inflation. Overall, despite the uncertainty posed by new variants and concerns over inflation, the strengthening backdrop and easing of government restrictions give some scope for greater optimism about the pace of the recovery.”
Total credit card spending rose as new accounts opened exceeded 132,000 in the quarter - the highest since the start of the pandemic.
However, there was a decline in mortgages lending and business lending owing to a fall in government-backed lending in the sector and weaker market demand.