* 9-month gross mortgage lending up 19 pct
* Strongest quarter ever for mortgages- CEO
* To issue Coco bonds this week
* Partnered with former Barclays CEO to build digital bank (Adds details, CEO comments, share movement)
By Noor Zainab Hussain
Nov 1 (Reuters) - Virgin Money Holdings Plc joinedother British banks in reporting resilient demand followingBritain's vote to leave the European Union, saying it had itsstrongest ever quarter for mortgage lending after the Junereferendum.
The so-called challenger bank reported a 19 percent rise ingross mortgage lending to 6.5 billion pounds ($7.94 billion) forthe January-September period, representing a 3.6 percent shareof the UK mortgage market, according to Bank of England data.
"Post the referendum vote, we had our strongest quarter everfor mortgages and credit card business grew strongly too," ChiefExecutive Officer Jayne-Anne Gadhia told Reuters.
Some economists were predicting the onset of recession inBritain following the surprise vote to leave the European Union,warning it would likely trigger higher bad debts and poorerlending volumes at banks already challenged by rock-bottominterest rates.
But recent data have suggested the economy and housingmarket remains upbeat and results last week from Barclays Plc and Lloyds Banking Group have defied thepessimism.
The Newcastle-based company said income had suffered as aresult of August's base rate cut and its 2016 net interestmargin would dip below 160 basis points.
The lender's shares were down 2.2 percent at 321.5 pence at1202 GMT, underperforming the FTSE 350 Banks Index.
The bank also gave no update on when it might resume a planto begin lending to small and medium-sized firms (SMEs), aftermothballing the initiative in the wake of Britain's vote toleave the European Union.
"That's definitely one of those things that we will wait tosee once everything settles down post-Article 50 and when weknow how Brexit will happen," Gadhia said.
Gadhia said the bank had a robust mortgage pipeline at thestart of its final quarter and it was on track to end the yearwith "solid" double digit returns.
Credit card balances rose to 2.2 billion pounds at the endof September, 41 percent higher than full-year 2015,demonstrating strong demand for consumer debt.
However, growth slowed in the third quarter after the banktightened credit scores for card applications after thereferendum, as it stepped up efforts to protect the creditquality of new lending.
It remains on course to meet a target of 3 billion pounds incard balances by the end of 2017.
The bank also said it had teamed up with former Barclays Plc CEO Antony Jenkins' 10x Future Technologies to buildVirgin Money's digital bank.
The bank also accelerated plans to issue about 160 millionpounds of new contingent convertible bonds, to support lendinggrowth and help its capital and leverage position.($1 = 0.8181 pounds) (Reporting by Noor Zainab Hussain in Bengaluru; Editing bySinead Cruise and Louise Heavens)
Barclays (BARC)
Lloyds (LLOY)