Vanquis Banking Group plc (LSE:VANQ) has lowered its profitability expectations for 2026 and 2027 after rising credit losses and household affordability pressures contributed to a small loss in the third quarter, despite continued growth in customer lending balances.
The specialist lender reported gross customer interest-earning balances of £3.21 billion at 30 September 2026, representing a 5% increase from the previous quarter and 21% growth year on year.
However, signs of financial pressure among certain credit card customers towards the end of the quarter led to higher charge-offs and increased expected credit loss provisions.
Vanquis now expects negligible statutory return on tangible equity (ROTE) in 2026, compared with previous guidance for a low single-digit return. The company has also reduced its expectations for 2027 and 2028, assuming the recent deterioration in credit performance continues.
Customer Lending Balances Rise to £3.21 Billion
Vanquis reported gross customer interest-earning balances of £3.21 billion at the end of September, compared with £3.05 billion at the end of June and £2.65 billion a year earlier.
Net receivables increased 5% during the quarter to £3.09 billion, representing annual growth of 23%.
Credit Card balances increased modestly, supported by new customer acquisitions and the expected conversion of maturing balance transfers into interest-earning balances.
However, spending among existing customers remained cautious as the company maintained tighter lending criteria in response to economic uncertainty.
Vehicle Finance balances were broadly unchanged, reflecting a measured approach to new lending ahead of the introduction of a new onboarding and servicing platform.
Second Charge Mortgage balances continued to expand through forward-flow origination agreements with partners, exceeding £900 million at the end of September.
The shift towards secured mortgage lending forms part of Vanquis’s strategy to develop a lower-risk lending portfolio.
Net Interest Margin Holds at 14.8% as Credit Costs Increase
Vanquis reported a year-to-date net interest margin (NIM) of 14.8%, compared with 15.0% at the end of June and 17.0% a year earlier.
The 20-basis-point quarterly reduction reflected the growing proportion of lower-risk, lower-margin Second Charge Mortgages and an increase in promotional Credit Card balances, which initially generate lower yields.
The group’s year-to-date risk-adjusted margin (RAM) declined to 8.5% from 9.3% at the end of June and 11.6% in September 2025.
The decline reflected both lower net interest margins and higher impairment costs.
Vanquis reported a year-to-date cost of risk of 7.6%, an increase of 60 basis points from the previous quarter.
The lender said the deterioration in credit performance became more apparent towards the end of September, particularly within certain Credit Card customer groups.
Household Affordability Pressures Lead to Higher Credit Losses
Vanquis said customers had generally remained resilient during the quarter, but rising living costs began to affect affordability among some credit card borrowers.
The company reported an increase in Credit Card charge-offs, largely associated with a wider industry rise in individual insolvencies.
When customers enter certain insolvency arrangements, outstanding credit balances are immediately charged off, rather than following the normal progression through delinquency stages.
Vanquis said the increase in charge-offs did not reflect a notable deterioration in overall delinquency trends.
Nevertheless, the company recognised higher IFRS 9 expected credit loss provisions to account for the risk of continued elevated charge-offs.
The additional impairment charges contributed to a small loss during the third quarter.
Management is now assuming that pressure on household finances will persist into 2027 and has adjusted its lending growth plans accordingly.
The group intends to respond through tighter underwriting standards, moderated balance growth and further cost reductions.
Vanquis Reduces 2026 and 2027 Lending Growth Forecasts
Vanquis has lowered its expectations for customer lending balances over the next two years.
Gross customer interest-earning balances are now forecast to reach approximately £3.3 billion by the end of 2026, compared with previous guidance for more than £3.3 billion.
For 2027, the company expects balances of approximately £3.4 billion, down from its earlier target of more than £3.7 billion.
Despite the slower growth outlook, Vanquis maintained its net interest margin guidance.
The company continues to expect NIM of approximately 14.5% in 2026 and more than 13% in 2027.
However, risk-adjusted margin expectations have been reduced to reflect the weaker credit environment.
Vanquis now forecasts RAM of approximately 8.0% in 2026, compared with previous guidance of more than 8.5%.
For 2027, RAM is expected to reach approximately 7.5%, down from the previous target of more than 8.0%.
Profitability Guidance Cut Through 2028
Vanquis has revised its statutory return on tangible equity expectations following the increase in impairment charges and additional restructuring costs.
The group now expects negligible statutory ROTE in 2026, compared with its previous forecast for a low single-digit return.
Assuming the weaker credit performance observed towards the end of the third quarter continues, Vanquis expects statutory ROTE in the low single digits during 2027, rather than the low double digits previously anticipated.
For 2028, the company now expects a low double-digit return, compared with its previous mid-teens guidance.
Despite the reductions, management continues to anticipate improved profitability in both 2027 and 2028.
The company has maintained its cost-to-income ratio targets of the low 50s for 2026 and the mid-to-high 40s for 2027.
Technology Programme Expected to Deliver £30 Million to £35 Million in Savings
Vanquis is implementing additional organisational changes intended to simplify its operating structure and improve efficiency.
These measures have resulted in modest severance costs during the third quarter.
The group’s Gateway technology platform is also approaching completion.
Vanquis expects the transformation programme to generate cumulative cost savings of between £30 million and £35 million over the 2026–2028 period.
The savings are expected to come from operational improvements, increased automation and the responsible use of artificial intelligence.
Management said the cost initiatives would support its efforts to improve profitability while maintaining a more cautious approach to lending growth.
CET1 Capital Ratio Falls to 14.8%
Vanquis reported a Common Equity Tier 1 (CET1) capital ratio of 14.8% at the end of September, down from 15.6% at the end of June and 17.4% a year earlier.
The decline reflected the deployment of capital to support growth.
Following the redemption of £41.5 million in surplus Tier 2 capital during October, Vanquis said it had completed its planned capital optimisation initiatives.
The group is also preparing for the introduction of Basel 3.1 and the Small Domestic Deposit Takers (SDDT) regime on 1 January 2027.
The new regulatory framework is expected to increase surplus capital by approximately £15 million.
Under the revised capital treatment, the group’s September 2026 CET1 ratio would have been 12.8%, above its 2027 target of more than 12%.
In anticipation of the transition, Vanquis has reduced its 2026 CET1 guidance under the existing regime to more than 14%, from more than 14.5% previously.
CEO Succession Update Expected in November
Vanquis also provided an update on its leadership transition following the announcement on 11 September that Chief Executive Officer Ian McLaughlin intended to step down.
The Board expects to announce further details regarding his succession in November 2026.
Separately, the company confirmed that legal proceedings between Vanquis Bank Limited and claims management company TMS Legal Limited have concluded on confidential, mutually acceptable terms.
No financial details of the settlement were disclosed.
Vanquis Banking Group Outlook
Vanquis enters the final quarter of 2026 with continued growth in lending balances but increased uncertainty surrounding credit performance and household affordability.
The company expects customer interest-earning balances to reach approximately £3.3 billion by year-end, while maintaining its net interest margin target of around 14.5%.
However, higher credit losses have prompted reductions to risk-adjusted margin and profitability forecasts through 2028.
Management is responding by moderating lending growth, tightening underwriting and accelerating efficiency measures.
The group continues to expect improving profitability over the next two years, supported by planned cost savings and technology investment, although the pace of recovery will depend partly on future credit performance.
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