Challenger bank Virgin Money (VMUK.L) has taken a £232m ($289m) charge to cover the potential impact of the COVID-19 pandemic.
Virgin Money said on Wednesday it had set aside £232m over the last 6 months to cover an expected increase in losses, with £146m of the provisions directly linked to COVID-19.
The group, which also runs the Clydesdale Bank and Yorkshire Bank, set aside just £77m to cover losses in the same period a year earlier.
The increase in loss coverage was based on modelling of “severe” multi-year downturn in the UK that sees GDP fall by 10% and unemployment peak at 9.7%. The assumptions are more pessimistic than those used at rivals like Barclays and Lloyds.
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The increase in loss provisions weighed on Virgin Money’s profits. The bank made a loss of £7m in the 6 months to 31 March 2020, compared to a profit of £9m a year earlier. Income fell 3% to £817m.
“The COVID-19 outbreak and its impact on the nation’s businesses and consumers has markedly changed the operating environment,” chief executive David Duffy said in a statement.
“While we delivered a resilient performance and continued to make good progress on our self-help strategy in the first half of the year, our primary objective now is safeguarding the health and well-being of our colleagues, customers and communities while also protecting the bank.”
Like other rivals, Virgin Money said it is helping its customers to weather the pandemic. The bank has granted 40,000 loan repayment holidays and 60,000 mortgage holidays. Virgin has also granted support to 4,500 business customers, including extending coronavirus business interruption loans (CBILs) worth £135m.
“We have rapidly adapted our operations, products and services and I am extremely proud of how our colleagues have risen to the challenge and continued to provide the very best support and advice to our customers,” Duffy said.
“We continue to work closely with Government, regulators and the industry to ensure we maximise our support to customers and the UK economy.”
Duffy said the pandemic would “have long-lasting and wide-ranging effects on how companies do business and on what customers will expect”. He said Virgin Money was “well-equipped to support changing customer needs and play our part in the UK’s economic recovery”.
Shares in the bank rose 8% in early trade in London.