Update: Virgin Money UK PLC (Holding Company) Clydesdale Bank PLC (Lead Bank)

VMUK's strategy has remained consistent over the last two years. Its focus is on delivering profitable growth by undertaking a digital transformation to drive cost efficiencies while positioning itself to leverage the wider Virgin brand. The bank has made good progress in delivering this strategy over the last 24 months, in our view. In particular, it has consistently improved its cost-to-income ratio (52% in FY22 versus 59% in FY20; see chart 2) and launched several new digital offerings to boost its business and consumer lending franchises. Over the medium term, we expect VMUK to maintain its strong business performance fueled by its digital strategy and rising interest income as rates peak. We anticipate that the increase in impairments will somewhat

...We expect Virgin Money UK PLC (VMUK) to remain resilient to the challenging U.K. economic environment. Despite VMUK's strong performance over the last 24 months, we expect risks from the uncertain U.K. economy to crystallize as impairments normalize in 2023, which could strain asset quality and earnings. This is not a unique challenge for VMUK--see Interest Income Fuels Bumper U.K. Bank Profits As Rates Near Their Peak, published March 10, 2023. However, our stable outlook on the bank supports our view that it will remain resilient throughout the economic downturn. We expect VMUK's earnings to decline in 2023 compared with 2022 due to the competitive mortgage market, higher funding costs, and tighter lending criteria in response to the rising cost of living. However, as rates peak, we expect the increase in interest income to partly offset this. We expect both stage 3 loans (1.43% at year-end September 2022, according to our measure) and impairment charges (36bps as of Q1 December 2022...

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