Vanquis Pivots to New-Customer Growth as Two Headwinds Trim Near-Term Returns

Vanquis Banking Group's half-year 2026 results reveal a company in transition, actively choosing a path that sacrifices near-term profitability for a more sustainable earnings base. The UK subprime lender reported statutory profit before tax of £8.9 million, up 44% year-on-year, and gross customer interest-earning balances grew 24% to over £3 billion. Yet the market's focus is on two emerging headwinds that forced a guidance revision: lower-than-expected utilisation by existing credit card customers and an increased IFRS 9 impairment provision tied to a forecast rise in UK unemployment.

Two Headwinds, One Strategy

CEO Ian McLaughlin explained the situation bluntly: “macro uncertainty has led to more cautious customer behaviour with spending lower than we had anticipated.” — Ian Michael McLaughlin, Chief Executive Officer · 2026-07-30 The company's active cardholders are spending 10% more year-on-year, but the internal plan had assumed a >15% uplift. Meanwhile, a £8.5 million impairment provision was added after the latest unemployment forecast peaked at 5.7% versus 5.1% at the start of the year. These two factors reduced H1 profitability by around £15 million relative to expectations.

Rather than pulling back on new lending to protect short-term returns, Vanquis is doubling down on acquiring new customers. As McLaughlin put it, “constraining new lending volumes could protect short-term profitability, but it would just weaken the future earnings base.” — Ian Michael McLaughlin, Chief Executive Officer · 2026-07-30 CFO Dave Watts added, “Impairment charges increased 35% year-on-year, driven by the growth in balances and the £8.5 million increase in the IFRS 9 provision for macroeconomic uncertainty.” — David Watts, Chief Financial Officer · 2026-07-30

A Mid-Teens ROTE by 2028

The revised guidance sets net interest margin around 14.5% for 2026 and above 13% for 2027, with statutory ROTE in single digits this year, low double-digit in 2027, and mid-teens by 2028. The margin pressure stems largely from product mix: Second charge mortgages now account for a growing share of balances at a lower yield, while Vehicle Finance remains stable. The company is prioritising new Credit card customers, many of whom start with 0% balance transfers, diluting the immediate yield but building a profitable back book over time.

McLaughlin highlighted the structural logic: “new credit builder customers typically become profitable after around 3.5 years, whereas balance transfer customers become profitable in under 2 years once the promotional period has ended.” — Ian Michael McLaughlin, Chief Executive Officer · 2026-07-30 The 2025 vintage of cards is expected to contribute "meaningfully" to profitability from 2027.

On capital, Basel 3.1 clarity has allowed the board to lower the targeted CET1 ratio from >14.5% to >12% effective 2027, unlocking roughly £15 million of additional capital for growth. CFO Dave Watts noted, “we're very comfortable that we can deploy that in new customer growth in credit cards.” — David Watts, Chief Financial Officer · 2026-07-30

Dividend Returns as a Confidence Signal

Perhaps the most striking signal is the Board's intention to reinstate a modest dividend with full-year 2026 results, assuming no further significant UK economic deterioration. McLaughlin said,

don't underestimate the Board's intention on dividend that we've announced as well. I think that's a really important signal that both the Board and management remain absolutely confident that we can get to where we want to get to.

The company's operational progress continues, with the successful migration of all credit card customers to a new in-house mobile app and the scaling of AI in customer service. technology transformation is expected to drive more than £30 million of savings by 2028.

Vanquis is clearly positioning for the long term, betting that new customer acquisition will more than offset the current cautious spending among the back book. The market's reaction will hinge on whether these new vintages indeed mature as expected. As McLaughlin concluded, “we have a plan that takes us forward... we're planning for things to stay as they are and still achieve our goals.” — Ian Michael McLaughlin, Chief Executive Officer · 2026-07-30