By Esha Vaish and Noor Zainab Hussain
(Reuters) - Virgin Money (L:VM) has deferred plans to begin lending to small and medium-sized firms (SMEs) and said it would keep a tighter lid on costs, responding to economic uncertainties sparked by Britain's vote to leave the European Union.
The so-called British challenger bank would probably slow new hiring, Chief Executive Jayne-Anne Gadhia said on Tuesday, as it braces for interest rates staying low for longer, which could pressure banks' financial performance and net interest margins.
"We're prioritising our investment programme .... Our logic is that provided we can control costs well, we can actually continue to deliver on our expected outcome despite the fact that environment is a new one," Gadhia said.
Virgin Money said customer demand had stayed strong after the Brexit vote, helping send its shares up 7 percent to 263 pence by 1132 GMT, though they remained well below their 366.4 pence closing level the day before the vote.
Its half-year results also beat expectations, helped largely by lower-than-expected costs, analysts said.
The update helped allay concerns over the ability of newer banks to challenge the big, established lenders after the Leave vote, as they could struggle to cope with an economic downturn, especially in the SME sector.
Virgin Money had said in October it was evaluating plans for SME services and hired George Ashworth, managing director of ABN AMRO (AS:ABNd) Lease's UK branch, to develop a strategy for that sector.
Gadhia said on Tuesday Virgin Money would redirect resources earmarked for SME expansion to grow its online bank and boost performance, as Brexit had created significant uncertainty for the economy.
Virgin Money said its relatively small market share and current account base would allow it to better guard against any margin pressures, with the Bank of England expected to cut interest rates further.
The broadest business confidence survey since Brexit showed last week that Britain's economy was shrinking.
"I think our particular scale helps ... the banks with the big ... current account bases are more likely to see margin squeeze than we are," Gadhia said.
Virgin Money's underlying pretax profit increased 53 percent to 101.8 million pounds in the six months ended June 30. Its cost-income ratio improved to 58.8 percent from 68.3 percent a year earlier.
"Virgin Money continues to represent very good value as the improving operating efficiency should underpin significant balance sheet growth for very little incremental cost," Numis analysts wrote.