* Shares fall as much as 5 percent
* Bank blames lower rates on new mortgages
* SME push, shelved on Brexit fears, is revived (Recasts, adds share price fall)
By Emma Rumney and Lawrence White
LONDON, Nov 16 (Reuters) - Virgin Money shares fell 5 percent on Thursday as the bank said its share of the mortgage market would be at the low end of its previously predicted range and that its net interest margin would also shrink.
One of the largest of a new breed of ‘challenger’ banks that launched in Britain after the 2008 financial crisis, Virgin Money has walked a difficult line between pushing for loan growth and maintaining profitability.
The lender said its net interest margin, a key profitability metric that measures the gap between what it pays depositors and charges borrowers, would shrink to between 1.65 and 1.7 percent in 2018 due to lower rates on new mortgages.
Virgin Money shares fell as much as 5 percent before recovering some ground. They were down 3.2 percent by 0825 GMT.
The bank said it remained largely on track to hit its full-year targets, but said its share of gross mortgage lending was likely to be at the lower end of its previously guided range of 3 to 3.5 percent in 2018.
Virgin Money also revived plans to enter the small to medium-sized business (SME) banking market, one year after shelving them due to an uncertain outlook for Britain’s economy following its vote to leave the European Union.
Virgin Money said it would now open an SME banking business in January 2018.
The bank said it is targeting 5 billion pounds worth of SME deposits within five years.
Jayne-Anne Gadhia, the bank’s chief executive, said the move would help transform Virgin Money’s market presence.
“This will... lay the foundations for potential broader future development in this attractive, but poorly served market,” she said.
Although the British economy has showed some signs of a slowing down in recent months, it has so far largely resisted the dire predictions made before and after the vote to leave the European Union in June 2016.
Virgin Money said the economy remained supportive, with low unemployment, a resilient housing market and, in its experience, robust consumer demand and stable customer behaviour.
Virgin Money also laid out plans for its “digital bank” - a platform due to start a trial in the second half of 2018 and launch fully the following year.
The bank said it hoped the new digital current account would get 5 billion pounds of customer deposits within five years. (Editing by Edmund Blair)