Clydesdale Bank owner Virgin Money sets aside more than £200m as bad debts jump
Clydesdale Bank owner Virgin Money has seen underlying profits more than halve after taking a £232 million hit as it braces for a jump in bad loans as a result of the coronavirus crisis.
The Glasgow-headquartered lender, formerly known as CYBG, posted underlying pre-tax profits of £120m for the six months to the end of March, down 58 per cent on a year earlier. On a statutory basis, the group swung to a £7m interim loss from profits of £42m a year ago.
Total charges included an extra £164m set aside for Covid-19 related impairments amid expectations for rising bad debts as customers default on loans.
The group revealed it already has around 1.2 per cent of it credit card customers, some 12,000, that are in arrears by three months or more.
Payment holidays have been granted to some 60,000 affected mortgage borrowers, 32,000 credit card customers and 8,000 personal loan customers.
The group has also received 5,640 applications for the new bounce-back loan scheme aimed at small firms since it was launched at the start of this week.
Chief executive David Duffy said: “The Covid-19 outbreak and its impact on the nation’s businesses and consumers has markedly changed the operating environment, driving an increased impairment charge of £232m against future loan losses and a reduction in underlying profitability.
“Amid the uncertainty, it is clear that the pandemic will have long-lasting and wide-ranging effects on how companies do business and on what customers will expect from the organisations they choose to interact with.”
At the end of March, the group said it had shelved plans to cut about 500 jobs and shut or merge more than 50 branches across the UK due to the coronavirus crisis.
It said it was halting the changes first announced in February to bring together the Clydesdale and Yorkshire banking brands with Virgin Money, with aims to restart this programme in the new financial year instead.
The re-branding programme will see the phasing out of the centuries-old Clydesdale Bank name, along with the Yorkshire Bank brand.
Shore Capital analyst Gary Greenwood noted: “While profitability is clearly under pressure due to Covid-19 and is also being held back at a statutory level due to merger-related costs… we do not view these factors as being permanent and expect profitability to recover sharply in due course.”
Meanwhile, the UK Treasury announced that more than 69,000 bounce-back loans worth more than £2 billion had been approved during the first 24 hours of the scheme.
The seven largest lenders – Barclays, Danske, HSBC, Lloyds, RBS, Santander and Virgin Money – received more than 130,000 loan applications on the first day of the scheme.