CEO warns on outlook
Profits rise at Virgin on cheap money
Chief executive Jayne-Anne Gadhia said new bank surcharges and regulatory concerns over the buy-to-let market were weighing on the sector.
“The macro environment has changed materially for banks like Virgin Money over the past 12 months,” she said in a company statement.
“In particular, the year has seen the introduction of a new bank tax surcharge, the timetable for UK rate rises continues to be pushed back and we have seen regulatory concerns in the buy-to-let mortgage market.
“In addition, there are the emerging capital regulations from Europe. This has resulted in uncertainty relating to the potential for continued growth and profitability for banks of our scale in the sector. We think very carefully about our operating environment to ensure the business is able to continue delivering sustainable success for all stakeholders.”
She said the bank had anticipated two interest rate rises last year that did not materialise.
“When the Bank Rate does begin to rise, subsequent increases are expected to be gradual and limited,” she said.
“We are very clear on the concerns raised by policymakers regarding the buy-to-let market. We are also very aware of the risks posed should the market become overheated, and the associated economic and political risks.
“The lack of housing supply in the UK supports the demand for private rented accommodation and a material number of people are going to want to rent for the foreseeable future.
“We have built our participation in the buy-to-let market with that in mind. We focus on buy-to-let for retail customers, rather than portfolio landlords, and our affordability and rental cover requirements are among the most prudent in the sector.”
· Underlying profit before tax increased by 53% to £160.3 million, from £104.8 million in 2014.
· Underlying net interest margin increased to 165 basis points, from 150 basis points in 2014.
· Underlying cost:income ratio improved to 63.6%, from 72.5% in 2014.
· Underlying return on tangible equity increased to 10.9% in 2015 from 7.4% in 2014.
· Statutory profit before tax of £138 million, compared to a statutory profit before tax of £34 million in 2014.
· The board recommends a final dividend of 3.1p per ordinary share. The total dividend for the year will be 4.5p per ordinary share.
· Strong capital position, with a Common Equity Tier 1 ratio of 17.5% at 31 December 2015.
· Total capital ratio of 20.2% and a leverage ratio of 4% at 31 December 2015.
· Mortgage arrears held at low levels, with loans over three months in arrears of 0.22% compared with the latest industry average of 1.12%.
· Low credit card arrears maintained, with credit card balances two or more payments in arrears of 0.96%, compared with the latest industry average of 2.7%.