Vanquis sees chance of higher motor charge but keeps provision on hold

(Alliance News) - 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 GBP2.65 billion in the three months to September from GBP2.25 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 GBP2.51 billion from GBP2.08 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 GBP3.0 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 GBP4.0 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 GBP2.7 billion, up from more than GBP2.6 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.

By Jeremy Cutler, Alliance News reporter

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