By Eva Mathews and Iain Withers
(Reuters) -British bank Virgin Money (LON:VMUK) missed full-year profit forecasts on Thursday, after it set aside more cash to cover loan defaults as stubborn inflation and steep borrowing costs squeeze household finances.
Lenders face a tough economic outlook due to a higher risk of unpaid loans in a cost-of-living crisis and margin pressure from fierce competition for savings and mortgage products.
High interest rates are "building stress" on borrowers, Virgin Money CEO David Duffy said, after the bank set aside 309 million pounds ($385 million) in full-year results to cover potential soured loans, up from 52 million pounds the prior year.
The company's pre-tax profit slumped 42% to 345 million pounds ($430 million) for the 12 months to Sept. 30, compared with a 430 million pounds average of analyst estimates compiled by the company.
Analysts at JPMorgan (NYSE:JPM) described the results as "mixed", but said higher costs would likely lead to analyst downgrades to its earnings outlook.
Shares in the lender fell 2% in early trading and were last down 0.7% at 155.85 pence at 0829 GMT.
The owner of the former Glasgow-based Clydesdale Bank also announced an additional share buyback plan of 150 million pounds.
The bank's increase in bad debt provisions reflected a "conservative" stance and loan arrears were low, Duffy said.
Virgin Money said it would also invest millions of pounds in increasing its digital services and protecting customers from emerging risks including cyberattacks using artificial intelligence.
For the financial year 2024, Virgin Money expects a net interest margin (NIM) — a key measure of a bank's underlying profitability — of 1.90%-1.95%, compared with analysts' view of 1.90%.
($1 = 0.8025 pounds)