Vanquis Banking Group PLC on Wednesday said it may have to raise its provision for motor finance mis-selling, while it forecast a lower net interest margin as it takes on more lower-risk mortgage business.
The Bradford, England-based lender said gross customer interest earning balances increased by 18% to £2.65 billion in the three months to September from £2.25 billion the year prior, or by 7.7% from the previous quarter.
Credit card balances increased for the second consecutive quarter, Vehicle Finance balances declined in line with expectations, and mortgage balances continued to grow at a steady monthly rate.
Net receivables jumped 21% to £2.51 billion from £2.08 billion a year ago, reflecting growth in interest-earning balances, lower impairment coverage and robust credit performance in credit cards and vehicle finance.
The company has set aside £3.0 million relating to motor finance mis-selling and expects its exposure to be limited.
But it cautioned that if proposals from the Financial Conduct Authority are fully implemented, an additional liability of £4.0 million may arise, primarily due to increased operating costs associated with customer outreach.
The common equity tier 1 ratio fell to 17.4% from 18.7%, reflecting the deployment of capital to support growth.
Chief Executive Officer Ian McLaughlin said product margins remained ‘resilient and profitable’ in the quarter and the firm delivered a statutory profit in the quarter and across the nine months to the end of September, reflecting ‘sustained operational momentum’.
‘We remain on track to achieve a low single-digit statutory return on tangible equity for the full year, consistent with previous guidance,’ he added.
The firm expects full-year customer interest-earning balances to be more than £2.7 billion, up from more than £2.6 billion before, reflecting deliberate additional volume growth in lower-risk, but lower margin second charge mortgages.
As a result, net interest margin is now expected to be less than 16.5% compared to prior guidance of below 17%.
‘These mix effects are expected to broadly offset, leaving net interest income in line with prior expectations,’ the firm added.
Shares in Vanquis Banking were up 0.7% at 114.00 pence each in London on Wednesday.
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