Virgin Money UK PLC (LSE:VMUK) warned it expects a much tougher second half of 2023 as it moves nearer a takeover by building society Nationwide.
Net interest margins (NIM) will come under pressure NIM relative to the first half of its fiscal year, said the bank, primarily reflecting a lower expected contribution from credit cards and ongoing competition.
Cost pressures from inflation and investment will only be partially mitigated by the ongoing cost savings programme, Virgin Money added.
Virgin shareholders vote on whether to accept the Nationwide offer on 22 May, with directors of the bank already giving their approval.
Controversially, members of Nationwide, which is still a mutual society are not being given a vote on the deal.
In the half year to the end of March 2024, Virgin's loan book was stable at £72.7bn with higher business and unsecured lending offset by lower mortgage balances.
Mortgages were 2% lower at £56.6bn, reflecting a subdued market though applications have started to pick up.
Business lending was 7% higher at £9.3bn, driven by strong demand in sector specialisms while unsecured lending rose 3% in to £6.7bn, driven by 5% growth in credit card lending.
Customer deposits were 2% higher £68.2bn while credit quality was said to be "solid".
NIM for the first half are expected to be at the upper end of the 190-195bps guidance for the 2024 financial year.
David Duffy, chief executive, said: "While we expect there to be headwinds through the second half of the year, we remain well placed to deliver growth in our target segments."
Nationwide’s offer values Virgin at £2.8 billion and consists of 218p cash plus a 2p dividend.