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Virgin Money shares surge as rising rates of interest provide healthy growth in profits

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Virgin Money shares surge as rising rates of interest and bank card sales provide healthy growth in profits

  • The financial services company saw its shares expand by 11.8% to 162.75p
  • Earnings growth was boosted by a £180million increase in interest income 
  • High demand for mortgages and bank cards also uplifted the firm’s profits

Virgin Money UK shares soared essentially the most of any FTSE 350 firm on Monday morning after the lender reported bumper annual results on the back of successive base rate hikes.

The financial services company saw its shares expand by 11.8 per cent to 162.75p because it revealed statutory profits grew by 13 per cent year-on-year to £537million within the 12 months ending September.

Earnings growth was boosted by a £180million rise in net interest income, about half of which was related to liquid assets, with trading further supported by strong levels of unsecured and mortgage lending.

Profitability: Virgin Money’s earnings growth was boosted by a £180million rise in net interest income and strong levels of unsecured and mortgage lending

The Bank of England increased the UK rate of interest on six consecutive occasions through the period, as a way to combat surging inflation caused mainly by higher energy and food costs.

This has led to a windfall for UK banks, though they’ve also benefited from persistently high demand for mortgages as house prices continued to succeed in even greater heights.

Total lending at Virgin Money increased by 0.8 per cent to £72.6billion, buoyed by record bank card sales and a rebound in consumer spending after the previous 12 months’s harsh lockdown restrictions led non-essential stores to temporarily close.

Profitability also received an uplift from the lower cost of adjusting items, resembling restructuring charges related to the group’s digital investments and payment protection insurance refunds.

The lower costs helped offset a £52million impairment charge the business took out to cover possible defaults because it warned of a more uncertain economic outlook.

David Duffy, the group’s chief executive, said: ‘Following a positive recovery in expectations post-Covid, recent events have seen forecasts deteriorate. 

‘As we enter a more volatile environment, with higher inflation and rates, we’re rigorously monitoring for any impacts.’

Yet, the previous Clydesdale Bank boss said the firm had ‘a prudently underwritten loan book, robust coverage, and a defensive asset mix’ and was ‘ready and in a position to proceed supporting the shoppers, colleagues and communities [it] serves.’

The robust performance meant Virgin Money was in a position to announce £267million in dividends and share buybacks for investors, having returned just £14million to investors within the 2021 financial 12 months.

Alongside this, the Newcastle-based company declared today that almost all of its 7,500 employees would receive a ten per cent top-up on their pay to assist them deal with the worsening inflationary environment.

The primary instalment shall be handed out in January, with the second following in July and comes on top of a £1,000 cost-of-living payment handed out in August.

Russ Mould, AJ Bell’s investment director, said: ‘The higher-than-expected dividend and buyback from Virgin Money are excellent news on their very own but are also crucial for what they are saying about management’s confidence within the outlook for the business.’

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