Vanquis Banking Group (LON:VANQ) reported first-half statutory profit before tax of £8.9 million, a 44% increase from a year earlier and more than the group generated in the full year of 2025, as loan balances expanded and operating costs declined.
Chief Executive Officer Ian McLaughlin said gross customer interest-earning balances rose 24% year-over-year to more than £3 billion, led by growth in Second Charge Mortgages and Credit Cards. Income increased 8%, while management said credit quality remained stable despite a more uncertain economic backdrop.
Credit card spending and impairment provision pressure outlook
McLaughlin said spending per active credit card customer increased 10% year-over-year, but this was below the company’s expectation for an uplift of more than 15%. He said comparable spending among relevant competitors declined 1% over the period.
Lower utilization among existing credit card customers reduced first-half credit card income by around £7 million versus expectations. Vanquis also took an additional £8.5 million IFRS 9 impairment provision based on an end-June forecast that U.K. unemployment could peak at 5.7%, compared with a 5.1% peak forecast at the beginning of the year.
Credit card balances increased 2% during the half to £1.55 billion. However, the increase was driven by new-customer lending, including 0% balance transfers and other promotional products, while balances held by existing customers fell £98 million, or 6%. New-customer balances rose £127 million.
The change in mix lowered the credit card asset yield to 25.5% in the first half from 26.5% in the second half of 2025. CFO Dave Watts said the proportion of 0% balance transfer and promotional products in the credit card portfolio rose to 17%, reducing the weighted average APR to 32.8% from 35.5% a year earlier.
Management said it will plan on the assumption that cautious spending behavior continues, rather than relying on a recovery in existing customer utilization. The company intends to increase new-customer acquisition, with new business broadly split 50/50 between balance transfers and Credit Builder cards, according to Watts.
Mortgage growth offsets slower card economics
Second Charge Mortgages continued to be a key growth driver. Balances rose 34% during the first half to £800 million, and the business generated profit before tax of £7.1 million. McLaughlin said the company expects balances to continue growing at about £30 million per month.
While competitive conditions have created some yield pressure, Vanquis said new mortgage lending continues to exceed its return-on-tangible-equity hurdle. Watts said the segment’s cost of risk was 0.2%, with one customer defaulting over the past two years, and the combined loan-to-value ratio of first- and second-charge mortgages was in the low 70s.
Vehicle Finance balances remained broadly stable at £707 million and the business was profitable in the first half. Vanquis said it is prioritizing completion of a new onboarding and servicing platform before accelerating lending growth, which it now expects from 2027. The company said repricing increased Vehicle Finance’s weighted average APR by 20 basis points to 29.3%.
McLaughlin also said Vanquis is developing installment-payment options within its card proposition in response to customer demand and upcoming Buy Now, Pay Later regulation. He emphasized that the initiative is not intended as a separate installment lending business.
Costs, technology and capital position
Operating costs fell 8% year-over-year, aided by an £11.5 million reduction in complaint costs and £7.8 million of transformation cost savings. The group’s cost-to-income ratio improved by 9.4 percentage points to 53.1%.
Vanquis said it expects transformation savings of £30 million to £35 million through 2028, compared with earlier guidance of £23 million to £28 million through 2027. The company continues to invest in artificial intelligence, credit card capabilities and credit-risk expertise.
During the period, Vanquis migrated all existing credit card customers to its internally developed mobile banking app under its Gateway technology transformation program. McLaughlin said the platform is intended to improve customer engagement and self-service, speed product launches and reduce the cost to serve. The company’s first customer-facing AI agent went live in June.
Liquidity remained above regulatory requirements, with high-quality liquid assets rising 22% in the half to more than £1.2 billion. The liquidity coverage ratio was 221%, compared with the 100% regulatory minimum. Retail deposits accounted for about 84% of total funding, while ISA balances exceeded £1 billion of nearly £3.2 billion in retail deposits.
The CET1 capital ratio declined 90 basis points to 15.6%, reflecting growth in receivables and investment in the technology transformation. The group reported £93 million of surplus CET1 capital above its 11.3% disclosed regulatory minimum.
Revised guidance and dividend intention
Vanquis continues to expect gross customer interest-earning balances to exceed £3.3 billion at the end of 2026 and £3.7 billion at the end of 2027. But it lowered its near-term profitability expectations due to the greater proportion of lower-yielding new credit card balances and the lower utilization of existing customer accounts.
- Net interest margin is now expected to be about 14.5% in 2026 and above 13% in 2027.
- Risk-adjusted margin is expected to exceed 8.5% in 2026 and 8% in 2027.
- The cost-to-income ratio is projected to be in the low 50s in 2026 and the mid-to-high 40s in 2027.
- Statutory return on tangible equity is expected to be in single digits in 2026, before returning to low double digits in 2027 and reaching the mid-teens in 2028.
Watts said the group’s cost-of-risk assumptions for its three lending products remain unchanged. He added that the new Basel 3.1 and small domestic deposit takers regulatory framework is expected to increase risk-weighted assets by about 15%, but reduce the pro forma CET1 requirement to 9.9% from 11.3%.
The board intends to reestablish a modest dividend with full-year 2026 results, subject to no further significant changes in the U.K. economy. McLaughlin said management had rejected cutting new lending to protect short-term profitability, arguing that such a move would weaken the company’s future earnings base.
About Vanquis Banking Group (LON:VANQ)
We’re Vanquis Banking Group plc, an FTSE All Share company and a leading specialist bank, established in 1880. We lend responsibly, providing tailored products and services to 1.75 million UK customers through Vanquis, Moneybarn, and Snoop.
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