Vanquis Banking Group (LSE:VANQ) warned on Thursday that statutory return on tangible equity (ROTE) guidance for 2027 and 2028 would be cut if the weaker credit performance seen late in the third quarter persists, as rising cost of living pressures pushed the London-listed consumer credit group to a small loss for the quarter.
The specialist lender, which focuses on credit cards, vehicle finance and second-charge mortgages for UK consumers, said gross customer interest-earning balances grew 5% quarter-on-quarter and 21% year-on-year to £3,208m in the three months to 30 September.
Net receivables rose 5% in the quarter and 23% year-on-year to £3,085m.
Year-to-date net interest margin (NIM) eased 20 basis points in the third quarter to 14.8%, which Vanquis attributed to a deliberate shift toward lower-yield second-charge mortgages and continued growth in promotional credit card balances.
The risk-adjusted margin (RAM) fell a sharper 80 basis points quarter-on-quarter to 8.5% year-to-date, as year-to-date cost of risk rose 60 basis points to 7.6%.
Vanquis said signs of affordability pressure emerged in some credit card customer cohorts toward the end of the quarter, driving a rise in charge-offs linked to an industry-wide increase in individual insolvencies rather than a broader deterioration in delinquencies.
That prompted higher IFRS 9 expected credit loss provisions and, combined with the margin pressure, tipped the group to a small loss for the quarter.
"The business is deploying a range of levers to respond to continued near-term uncertainty," the group said, adding that management is prudently assuming the pressure on household finances persists into 2027 and has moderated its near-term balance growth ambition accordingly.
The CET1 capital ratio fell 80 basis points in the quarter to 14.8%, reflecting continued capital deployment for growth; Vanquis said it has completed its planned capital optimisation initiatives following the October call of £41.5m of surplus Tier 2 capital.
Vanquis now expects gross interest-earning balances of around £3.3bn by the end of 2026, down from previous guidance of more than £3.3bn, and around £3.4bn by the end of 2027, down from more than £3.7bn previously.
RAM guidance has been cut to around 8.0% for 2026 and around 7.5% for 2027, from more than 8.5% and more than 8.0% respectively, though NIM guidance of around 14.5% for 2026 and above 13% for 2027 is unchanged, as is cost-to-income guidance of low 50s in 2026 and mid-to-high 40s in 2027.
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Statutory ROTE for 2026 is now expected to be negligible, and the group said that if the weaker credit performance seen late in the third quarter persists, it would expect low single-digit statutory ROTE in 2027 and low double-digits in 2028, down from prior guidance of low double-digits in 2027 and mid-teens in 2028.
Vanquis also trimmed its 2026 CET1 ratio guidance to above 14.0% from above 14.5% previously, citing the anticipated transition to the Basel 3.1 and SDDT capital regime from 1 January 2027, under which September's CET1 ratio would have stood at 12.8%, 80 basis points above the group's above-12.0% guidance for 2027.
On the technology front, the Gateway platform build is nearing completion and is now expected to deliver cumulative transformation cost savings of £30m to £35m across 2026 to 2028, up from the previous £23m-£28m estimate across 2026 and 2027.