Vanquis profit rises 44%, but lower margins push returns further out

Vanquis Banking Group delivered stronger first-half profit and continued lending growth, but the quality and timing of that growth created a more complicated picture for shareholders.

Statutory profit before tax from continuing operations rose 44% to £8.9 million. That already exceeds the £8.3 million reported for the whole of 2025, despite an £8.5 million increase in the macroeconomic impairment provision.

However, cautious spending by existing credit card customers and a greater reliance on newly acquired customers reduced asset yields. Management has consequently lowered its net interest margin and return expectations for 2026 and 2027.

The result is a familiar trade-off: Vanquis is growing, cutting costs and improving its technology, but shareholders may need to wait longer for that growth to translate into stronger returns.

Investors can read the original company announcement or visit the Vanquis Banking Group PLC company page for further coverage.

Vanquis interim results at a glance

Key figure	First half 2026	First half 2025	Change
Total income	£237.5 million	£219.7 million	8%
Net interest income	£218.1 million	£202.2 million	8%
Impairment charges	£102.4 million	£76.1 million	35% increase
Operating costs	£126.2 million	£137.4 million	8% reduction
Profit before tax from continuing operations	£8.9 million	£6.2 million	44%
Gross customer interest-earning balances	£3.05 billion	£2.46 billion	24%
Net interest margin	15.0%	17.4%	2.4 percentage point reduction
Cost-to-income ratio	53.1%	62.5%	9.4 percentage point improvement
Return on tangible equity	2.5%	3.1%	0.6 percentage point reduction
Basic earnings per share	1.8p	2.2p	18% reduction

Profit growth was helped by lower costs

The headline profit increase is encouraging. Total income grew 8%, while operating costs fell 8% to £126.2 million.

Lower complaint costs provided £11.5 million of the reduction, while transformation savings contributed £7.8 million. This helped the cost-to-income ratio improve from 62.5% to 53.1%. The ratio shows how much of a bank's income is consumed by operating costs, so a lower figure is generally preferable.

Vanquis now expects its transformation programme to produce £30 million to £35 million of savings between 2026 and 2028. That is ahead of its previous expectation of £23 million to £28 million between 2026 and 2027.

The Gateway technology programme remains on track for completion in 2026. All credit card customers have now been transferred to the new mobile app, while Vanquis is investing in automation and an expanded use of artificial intelligence.

This matters because the investment case depends partly on Vanquis becoming a more efficient and scalable lender. The upgraded savings target suggests management sees greater cost-cutting potential, although some benefits now stretch into 2028.

Lending grew, but margins moved in the wrong direction

Gross customer interest-earning balances reached £3.05 billion, up 8% since December 2025 and 24% year-on-year.

Second charge mortgages were the main growth engine. Balances increased 34% over six months to £800 million and more than doubled year-on-year. Profit before tax from this division rose to £7.1 million from £2.4 million.

Credit card balances increased 2% over six months to £1.55 billion, while vehicle finance balances were broadly unchanged at £707 million.

The problem is that not every pound of growth produces the same return. Second charge mortgages are lower-risk but also lower-margin than credit cards. Meanwhile, much of the credit card expansion came from new customers using 0% balance transfers and promotional products.

New credit card balances take around two years to become profitable, according to Vanquis. Existing customers also spent and borrowed less than expected as economic uncertainty encouraged more cautious behaviour.

These factors pushed the group net interest margin down from 17.4% to 15.0%. Net interest margin, or NIM, measures the difference between lending income and funding costs relative to average customer balances.

Excluding second charge mortgages, NIM was more resilient at 18.9%, compared with 19.5% a year earlier. Even so, the direction of travel explains why management has reduced its near-term guidance.

Impairments are higher, although underlying credit quality remains stable

Impairment charges increased 35% to £102.4 million. This included an £8.5 million increase in the IFRS 9 macroeconomic provision, reflecting a forecast that peak UK unemployment will rise to 5.7%, compared with the previous 5.1% forecast.

IFRS 9 requires lenders to recognise expected credit losses before customers necessarily default. A higher provision therefore represents management preparing for potentially weaker economic conditions rather than confirming that losses have already occurred.

The cost of risk increased from 6.6% to 7.0%, but improved from 7.9% in the second half of 2025. Vanquis said every product remained at the lower end of its guided cost-of-risk range.

That is an important positive. Balance growth naturally increases the absolute impairment charge, and the portfolio has not shown a sharp deterioration so far. Nevertheless, the more cautious unemployment assumption underlines the sensitivity of the business to household finances.

Guidance has been reduced

The most important negative in the announcement is the revised returns outlook.

Guidance	2026	2027
Customer interest-earning balances	More than £3.3 billion	More than £3.7 billion
Net interest margin	Around 14.5%	More than 13.0%
Risk-adjusted margin	More than 8.5%	More than 8.0%
Cost-to-income ratio	Low 50% range	Mid-to-high 40% range
Return on tangible equity	Low single digits	Low double digits

Vanquis previously expected a 2026 net interest margin of around 15.5%, a risk-adjusted margin above 9.5% and a cost-to-income ratio in the high 40% range.

Most significantly, 2026 return on tangible equity guidance has moved from low double digits to low single digits. The group now expects low double-digit returns in 2027 and mid-teens returns in 2028.

Return on tangible equity, or ROTE, measures profit generated from shareholders' tangible capital. It is a useful indicator of whether a bank is producing an attractive return from the equity supporting its operations.

The lending targets are unchanged, so this is not a warning about an inability to grow. Instead, Vanquis expects the growth mix to generate lower returns in the near term.

Capital and liquidity remain supportive

The Common Equity Tier 1 ratio, a core measure of financial strength, declined from 16.5% in December to 15.6%. This remained above the group's disclosed requirement and combined regulatory buffers of 11.3%, leaving £93 million of surplus CET1 capital.

High-quality liquid assets rose 22% to £1.22 billion, while the liquidity coverage ratio stood at 221%. Retail deposits increased 6% over six months to £3.18 billion and represented 84.2% of total funding.

Vanquis expects its CET1 ratio to remain above 14.5% during 2026. It also expects regulatory changes from January 2027 to create additional surplus capital capacity, although risk-weighted assets are forecast to rise by approximately 15% on a June 2026 pro forma basis.

A modest dividend could return with the full-year results

No interim dividend was declared, as previously guided. Capital deployment remains focused on funding balance-sheet growth.

However, the board intends to re-establish a modest dividend alongside the full-year 2026 results, assuming there is no significant deterioration in the UK economy.

That wording makes the dividend conditional rather than guaranteed. It is still a potentially important step for shareholders, but the size of the proposed payment was not disclosed.

What investors should watch next

Vanquis has made measurable progress. Profit before tax increased, operating costs declined, the technology programme remains on schedule and second charge mortgages are growing strongly. Credit quality also appears stable despite a more cautious economic provision.

The weaker point is profitability per pound lent. Falling credit card yields, lower existing-customer spending and the rapid growth of lower-margin mortgages have pushed meaningful returns further into the future.

The next tests are whether credit card customers resume spending, whether new customer balances mature as expected, and whether the larger transformation savings arrive without further delays or additional cost pressure.

For now, Vanquis is building a larger and more efficient bank, but the revised guidance shows that scale alone is not enough. The investment case increasingly depends on management converting today’s balance growth into the mid-teens return on tangible equity targeted for 2028.