Vanquis Banking Group Maps Cautious Earnings Recovery

Vanquis Banking Group plc ((GB:VANQ)) has held its Q4 earnings call. Read on for the main highlights of the call.

Vanquis Banking Group’s latest earnings call painted a cautiously upbeat picture, with a long-awaited return to profit and solid balance growth offset by margin pressure and lingering problem areas. Management struck a confident tone on cost cuts, capital strength and technology delivery, but acknowledged that vehicle finance losses, lower coverage ratios and regulatory uncertainty still cloud the outlook.

Return to Profitability

Vanquis swung back into the black with profit before tax of £8.3m for FY 2025, reversing a £138m loss a year earlier. Profit attributable to shareholders came in at £8.2m, signalling that the heavy clean-up of 2024 has largely passed even if overall returns remain modest at this stage.

Strong Balance Growth and Deposit Funding

Customer interest-earning balances climbed 22% to above £2.8bn, beating guidance that had pointed to more than £2.7bn. Retail deposits neared £3bn and now provide about 90% of total funding, giving the group a relatively low-cost and sticky funding base compared with wholesale-dependent peers.

Credit Card Performance

The Credit Cards business was a major profit engine, delivering £38.2m of profit, up 27% year-on-year as balances grew 19%. Asset quality also improved, with gross charge-offs down 19% to a 12.7% rate and cost of risk at 10.2%, the low end of guidance, supporting a strong 15.6% risk-adjusted margin.

Second Charge Mortgage Growth and Profitability

Second Charge Mortgages continued their rapid expansion with balances just under £600m and a profit of £5.4m for the year. The risk-adjusted margin increased to 2.8% and the average loan-to-value sits around 70%, while low risk-weighted asset density makes this a capital-efficient growth driver despite its lower headline margin.

Material Transformation Savings and Gateway Progress

Cost transformation is ahead of plan, with £28.8m of savings delivered in 2025 versus a £15m target, easing pressure on the income statement. Management said the core elements of the Gateway technology programme are now substantively delivered, with a further £23m–£28m of savings targeted in 2026 as the new platform scales.

Operating Cost Reduction and Efficiency Gains

Total operating costs fell 33% year-on-year, helped by the absence of large 2024 one-offs, while underlying costs excluding notable items dropped 9%. That delivered 11% positive cost/income jaws and pushed the cost/income ratio down to 58.4%, supporting the case for further operational leverage as balances grow.

Improved Credit Metrics and Impairment Trends

Group impairment charges declined 2% with gross charge-offs down 5%, taking the overall cost of risk to 7.3% despite rapid balance growth. Management highlighted improving credit metrics and promised greater transparency on product-level cost-of-risk, which will be key as volumes accelerate from here.

Capital Strength and Optimization

The group reinforced its capital stack by issuing £60m of AT1 in the second half and tendering £58.5m of Tier 2 paper, lifting the Tier 1 ratio to 19.3%. The CET1 ratio stands at 16.5%, giving a surplus of 5.2 percentage points, or about £107m, above the 11.3% regulatory minimum and providing ample room to support growth.

Funding, Liquidity and Asset Buffer

Vanquis continues to run a sizeable liquidity cushion, holding £653m of excess high-quality liquid assets above regulatory requirements. Management has diversified the liquid asset buffer and deployed £250m into U.K. gilts to enhance returns, even though this larger pool contributes to some net interest margin dilution.

Customer and Operational Improvements

Digital engagement is building, with Snoop active users up 12% to 328,000, including 43,000 Vanquis customers, hinting at cross-sell potential. Operational metrics also improved, with complaint handling costs down 10%, fraud losses cut by 25% and colleague engagement jumping 13 points to 73%, helping the group secure Great Place to Work certification.

Vehicle Finance Remains Loss-Making

Vehicle Finance is still a drag, posting a £12.7m loss despite year-on-year improvement and an 8% reduction in balances as new business was throttled before the new platform launch. The cost/income ratio remains a hefty 69.9%, and management guided that real profitability will only emerge after the Gateway platform is fully implemented and scale is rebuilt from the second half of 2026.

Net Interest Margin Dilution from Mix Shift

Reported net interest margin slipped to 16.8% in 2025, with a 170 basis point hit from shifting the loan book toward lower-margin but safer second charge mortgages. A larger liquid asset buffer shaved a further 30 basis points, and management expects NIM to fall again to about 15.5% in 2026 and 14.5% in 2027.

Coverage Ratio and ECL Reduction

Expected credit losses fell 7% even as gross receivables rose 21%, pushing the group coverage ratio down to 8.4%, a move management says reflects improving risk quality. Nonetheless, the lower coverage level could draw investor scrutiny given the planned expansion of the balance sheet and the cyclical nature of Vanquis’s customer base.

Corporate Centre Losses and Snoop Visibility

The slimmed-down corporate centre continues to post roughly £20m of annual losses excluding notable items, limiting overall group profitability. Because the unit aggregates Snoop, savings, liquid asset returns and unallocated funding costs, investors still lack clear visibility on Snoop’s standalone margins and its path to breakeven.

Regulatory Uncertainty and Motor Finance Redress

Vanquis booked a £3m provision for potential motor finance redress, acknowledging an evolving regulatory landscape even as it argues its exposure is relatively limited. The final structure and scope of any compensation framework are not yet settled, leaving some residual regulatory and financial risk around the motor book.

Expectations of Higher Impairment with Growth

Management warned that impairment is likely to rise in 2026 as faster lending growth feeds through into normal seasoning of new vintages. While they aim to keep cost-of-risk and product-level metrics within guided ranges, investors should brace for some near-term pressure on credit ratios as the balance sheet scales.

ROTE Still Well Below Target

Return on tangible equity was just 2.3% in FY 2025, in line with guidance but far below the mid-teens ambition for 2027, highlighting the distance still to travel. The path to target returns depends on delivering volume growth, further cost cuts and turning around underperforming areas such as vehicle finance and the corporate centre.

Forward Guidance and Multi-Year Targets

Looking ahead, management guided to statutory ROTE in the low double digits by 2026 and mid-teens by 2027, underpinned by interest-earning balances rising above £3.3bn in 2026 and £3.7bn in 2027. NIM is expected to drift down to around 15.5% in 2026 and 14.5% in 2027, offset by risk-adjusted margins above 9%, a cost/income ratio falling into the mid-40s and a CET1 ratio maintained above 14.5% as profits become more weighted to the second half of 2026.

The call underscored a company that has stabilised and is now leaning back into growth, but with clear execution challenges ahead. For investors, the story is increasingly about whether Vanquis can turn solid capital and deposit foundations, improving costs and a growing secured book into sustainably higher returns without sacrificing credit quality or tripping over regulatory hurdles.