May 6, 2020 / 9:41 AM / a month ago

Britain's mid-sized banks coping with coronavirus, but warn of pain ahead

LONDON (Reuters) - A slew of Britain’s mid-sized banks on Wednesday reported steady deposits and demand in the face of the COVID-19 pandemic, but warned it was too early to assess the long-term damage of the outbreak to their businesses.

Signage is seen outside a branch of Virgin Money in Manchester, Britain, November 20, 2018. REUTERS/Phil Noble/Files

The lockdown in late March to contain the spread of the new coronavirus has brought the economy to a near halt, prompting bigger banks last week to set aside provisions for loan losses in case businesses and consumers struggle to pay them back.

Virgin Money made a first-half pretax loss after booking a 232 million pound ($289 million) provision for bad loans and likely defaults due to the pandemic, but reported a higher than expected capital buffer of 13% that steadied investor nerves.

The bank, which became the UK’s sixth-largest lender following its takeover by CYBG, reported a pre-tax loss of 7 million pounds for the six months ended March 31, compared to a 9 million pound profit a year earlier.

The firm made a 22 million pound after-tax profit thanks to a 29 million pound tax credit.

Smaller rival OneSavings Bank said its net loans and retail deposits held firm in the first quarter, as did its 2.66% net interest margin - a key measure of underlying profitability - despite the tough market conditions.

“It is too soon to say what the longer term impact will be on our business, but we entered this period with a strong and secured balance sheet, sensible LTVs and strong risk management capabilities, equipping us well to navigate the current situation,” OneSavings Bank Chief Executive Andy Golding said.

Shares in Virgin Money were up 11% at 1128 GMT, while OneSavings gained 7%.

Metro Bank failed to reassure its investors with its thin quarterly trading update, reporting a modest dip in lending alongside a 77 million pound rise in total deposits. Its shares fell 3%.

Metro entered the crisis in bad shape after an accounting blunder last year decimated its stock market value, forced out its top bosses, and triggered an ongoing regulatory investigation.

The bank said it remained “difficult to predict with any certainty” how the outbreak would impact its customers and would provide an update when it reported half-year results, but said key capital ratios remained in excess of regulatory minimums.

“Metro’s limited Q1 trading update may be a hostage to fortune in terms of what it does not disclose as opposed to what it does,” Jefferies analyst Joe Dickerson said in a note.

Unlisted Co-op Bank reported a further quarterly pretax loss - of 27 million pounds - but said this was in line with company expectations. Impairments nearly tripled to 2.9 million pounds, although Goodbody analyst John Cronin said they remained relatively benign.

The flurry of updates comes after Britain’s biggest banks RBS, Lloyds, HSBC and Barclays set aside 6.7 billion pounds in provisions for likely loan losses last week.

Virgin Money said it would delay the rebranding of Clydesdale and Yorkshire Bank for a year due to the impact of the crisis, although Chief Executive David Duffy told reporters the bank was committed to doing this over time.

Duffy said the bank’s credit card business had not been impacted so far by the crisis, but the bank had provisioned for impairments to rise this year.

“It’s a very high quality credit card book with very affluent customers,” he said.

Commenting on bad loan provisioning, he said: “I don’t have a crystal ball but we have tried to be very conservative.”

Citing a lower capital buffer relative to peers, analysts had been concerned Virgin Money might need to raise additional capital, but a common equity tier 1 ratio of 13% was welcomed by analysts at Citi as “a big positive”.

Virgin Money Chief Financial Officer Ian Smith said the bank still had “a very substantial buffer” to the regulatory requirement of 10%.

($1 = 0.8040 pounds)

Additional reporting by Muvija M; Editing by Jan Harvey and Elaine Hardcastle

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