Vanquis Banking Group plc

Good morning, everyone. Thanks for joining us for 2026 half year results webcast and conference call. I'm Ian McLaughlin, the Chief Executive Officer of Bankless and I'm joined as usual by our Chief Financial Officer Dave Watts. Dave, good morning and welcome. Good morning, Ian. I'll start with an overview of our performance and the updates to our outlook that we've announced this morning. Dave will then take you through some more detail on our numbers and guidance and I'll come back to summarise and then of course, we'll be happy to take your questions. So if I can take you straight to slide four, the first half of 2026 represented another period of significant progress for Bankless. We continued to lay the foundations for sustainable, profitable growth and attractive returns over the medium term. Let me draw out a couple of key points here. Firstly, we delivered a further two quarters of profitable growth. Statutory profit before tax increased by 44% year-on-year to £8.9 million, so exceeding the profit that we delivered for the whole of 2025. Secondly, gross customer interest earning balances increased by 24% year-on-year to more than £3 billion, principally reflecting growth in second-charge mortgages and in credit cards, and this supported an 8% increase in income. Importantly, that growth was delivered while maintaining stable credit quality, reflecting our disciplined underwriting and the continued financial resilience of our customers. We also continue to improve our operational efficiency while still investing in the capabilities needed to support the future scalability of this business. Now Dave will take you through the key financial metrics on our capital position in more detail shortly but at the bottom of the slide you can see that our progress in transforming Banquis and serving customers who are underserved by mainstream banks was recognized through two Euromoney awards for excellence the best bank transformation in Europe and best for consumer lending in the UK on behalf of all our colleagues we were very pleased with that recognition we know we have more to do but we are growing with discipline improving efficiency and building a stronger foundation for sustainable profitability Let me now turn to some of the specifics that we delivered during the first half to support the medium term success of the business. And we've made significant progress operationally, delivering tangible improvements across all three pillars of our strategy to serve more, serve responsibly and scale profitably. Now, I won't cover every initiative on the slide, but I will talk to four areas that we believe are particularly important. First, you underserved more. We are broadening our proposition by developing an installment lending solution to reflect customer demand and the introduction of regulation in the buy now pay later market. We're also delivering an enhanced prime upgrade credit card proposition for customers whose financial resilience that we've helped to improve over time and who may otherwise be in a position to move away from us to a prime lender. These initiatives will allow us to build deeper and longer lasting customer relationships. Secondly, underserved responsibly, we continue to see strong evidence that the improvements we're making are translating into better customer experiences. Our customer satisfaction index score increased to 83.2, extending our outperformance against the industry benchmark, which stands now at 82. And for the first time, we achieved service mark accreditation from the Institute of Customer Service. This external recognition again is particularly important because it reflects not only the service that customers receive today, which has been through a period of significant change, but also shows that the standards, culture and processes that we are embedding across the organization are working. Thirdly, and perhaps the most significant operational milestone in the first half, we successfully migrated all our existing credit card customers to our new mobile banking app, which was built in-house and led by our Snoop engineering team as part of our gateway technology transformation program. This was a large and complex build and migration, completed while not just maintaining, but improving our customer service experience as I've just described. The app has also received external recognition as the market's best mobile app redesign, as you can see from the logo on the slide. Now the importance of this goes well beyond completing just a technology build and migration. This new app is one of the most important deliverables in Gateway. It gives us a single modern tech platform through which we can deepen customer engagement, increase self-service, launch new functionality more quickly and therefore reduce our cost to serve. This will help us build the operating leverage needed to reduce our cost income ratio over time. Finally, we continue to evolve and scale our use of AI across customer service, analytics, decisioning and colleague productivity. Another milestone was when our first customer facing agent went live in June, helping us to improve customer outcomes, make faster and more consistent decisions and operate more efficiently. Taking together everything on this slide demonstrates that we are translating our strategic goals into tangible operational delivery. Broadening our propositions, improving our customer experience and leveraging technology to build the modern, scalable infrastructure needed to support sustainable growth and stronger returns. Everything I've described so far provides an important foundation for the future success of this business. We are continuing to make progress. However, we have had to adapt to two emerging headwinds as we begin to see the impact of increasing economic uncertainty emerge, particularly during the second quarter. The first of these was lower than expected utilization by existing credit card customers. And secondly, an increased IFRS 9 impairment provision related to forecast UK unemployment. Taking each in turn, macro uncertainty has led to more cautious customer behaviour, with spending lower than we had anticipated. Customers are still increasing spending, just not by as much as we had originally planned. And to illustrate this, our spend per active customer has increased by 10% year on year, but the initiatives we had launched to support this carried an expectation of more than a 15% uplift. We do know, though, that on the same basis, spending among relevant competitors actually declined by 1% over the same period. So our customers are spending more on our cards, and we are outperforming the market, just not by as much as we had originally planned for. This resulted in credit card income in the first half being around £7 million lower than we had expected. So we are taking actions to address that, as you would expect. The second headwind I referenced was the additional impairment provision taken to reflect a forecast increase in UK unemployment. As you all know, IFRS 9 requires us to recognise potential impairment using forward-looking assumptions. We therefore have increased our provision by £8.5 million. The provision was based on the latest forecast published at the end of June which assumed that UK unemployment would rise to a peak of 5.7% from a forecast peak of 5.1% at the start of the year. Together, these two factors reduced our first half profitability by approximately £15 million relative to our expectations. However, credit card balances did increase by 2% during the half to 1.55 billion. But this growth was driven more by new customers, including 3.0% balance transfers and other promotional products, where balances are initially lower yielding than those of existing customers. And this change in mix shows in the reduction in asset yield from 26.5% in the second half of last year to 25.5% in the first half of this year. in total new customer balances added 127 million pounds but partially offset by a 98 million or six percent reduction in balances held by our existing customers so the benefits from our back book stimulation initiatives including prize draws and bankless rewards cashback helped to mitigate but did not fully offset the lower utilization by existing customers Then when we look at our other product lines vehicle finance balances were in line with our expectations and second charge mortgages continued to deliver strong growth as you can see on the slide. I will provide some more product detail in a moment because this is important but our overall message is that balance growth has remained resilient across the group though mix is moving. The two headwinds were therefore clear. Lower than expected balances amongst higher yielding existing credit card customers and the additional macroeconomic impairment provision for unemployment. We are obviously keeping these under very close review and will update on any further changes. Let me now take you through that further product detail that I mentioned to show why we remain confident in our outlook. And you can see the credit card detail on slide seven. The point at which new lending begins to contribute to earnings is central to understanding our medium term outlook for cards. Back in 2024, credit card balances reduced by 10% as we restructured the business, meaning there are fewer balances reaching maturity and then contributing to profitability in 2026 and beyond than would ordinarily be the case. In contrast, in 2025, we grew credit card balances by 19% and the income contribution from that 2025 growth builds over time. As balance transfers mature and promotional periods end, customers move onto representative APRs, driving our interest earning balances. And this is all progressing in line with our expectations. As a result, the 25 front book is expected to make a meaningful contribution to profitability from 2027. We intend to grow balances through the second half of this year at a similar rate to the second half of 2025, primarily through new customer acquisition. We then plan to deliver a similar full year rate of balance growth through 2027. We continue to price appropriately for risk and in line with consumer duty. You can see on this slide how these balances translate into profitability through the cumulative profit before tax generated by a typical credit builder customer and a typical balance transfer customer. And new credit builder customers typically become profitable after around three and a half years, whereas balance transfer customers become profitable in under two years once the promotional period has ended. In both cases, profitability then continues to build as the relationship develops. The chart on the right demonstrates the same effect across the portfolio. Newer vintages initially have lower asset yields, but those yields then improve progressively. We're planning on the basis that the more cautious spending behaviour that we've seen in the second quarter of this year continues. We will therefore focus on acquiring more new customers and building sustainable returns as those balances become interest earning over time. And this gives us confidence that the customer growth delivered since 2025 will make a more meaningful contribution to our profitability from 2027. If I move to slide eight and vehicle finance, this product was profitable in the first half. and performed in line with our expectations. Our priority during 2026, as I've said before, is to complete the build of the new onboarding and servicing technology platform for vehicle finance. We will maintain profitable lending in the meantime and balances remain broadly stable as planned at 707 million as of the end of June. As previously guided, we will increase balance growth in vehicle finance from 2027 supported by the new tech platform and that platform will provide better connectivity with our broker network, enhanced underwriting and pricing and faster service for brokers and customers and these improvements will support higher profitability from 2027. As the slide shows, vehicle finance customers become profitable relatively quickly, meaning that the growth we expect to originate from 2027 will begin contributing to earnings within the first year. By turn to second charge mortgages in slide 9, this business continued to deliver strong growth. Balances increased by 34% during the first half. reaching £800 million and this growth contributed to increased profitability. We expect balances here to continue growing at a similar rate, approximately £30 million per month. While competitive pressures are resulting in some yield compression, new lending continues to exceed our rooty hurdle and will support our further profit growth. As the chart shows, second charge mortgages contribute to profitability from the outset, making them an important driver of the group's medium term earnings as balances continue to build. Okay, so as a result of the second quarter headwinds I've described, we have updated our financial guidance through to 2027 and you can see this on slide 10. The guidance assumes that the more cautious spending behaviour seen in the second quarter continues at those current levels, and that balance growth is therefore increasingly driven by new customer acquisition. Doing this does moderate our returns in the near term, as I've just shown on the previous slide, but it strengthens the future earnings base as those new balances begin to contribute more income. We continue to expect gross customer interest earning balances to exceed 3.3 billion by the end of 2026 and exceed 3.7 billion by the end of 2027 Reflecting that lower than expected credit card utilization by existing customers and the greater proportion of newly originated balances, we now expect net interest margin to be approximately 14.5% in 2026 and more than 13% in 2027. Risk adjusted margin is also expected to exceed 8.5% in 2026 and 8% in 2027. and it's important to note that our revised margin guidance principally reflects the product and customer mix of our growth rather than any change in underlying credit quality. The lower near-term income outlook also affects our operating leverage. We therefore expect the cost of income ratio to be in the low 50s in 2026 and the mid to high 40s in 2027. As those recently originated balances mature and contribute more income and further transformation savings are delivered. Taken together, these factors mean that we now expect statutory return on tangible equity to be in single digits in 2026 compared with our previous expectation of low double digits. It's worth noting that the additional IFRS 9 impairment provision alone accounts for approximately 2.4 percentage points of this change in our ROTI guidance. This change also reflects the lower near-term income contribution from existing credit card customers and our increased lending to new customers to build future earnings. We did consider all of the options available to us as these headwinds emerged. Constraining new lending volumes could protect short term profitability, but it would just weaken the future earnings base and limit our ability to deliver sustainable returns over the medium and longer term. We therefore rejected that option. We now expect the growing earnings contribution from the 2025 and 2026 credit card vintages continued balance growth and further operating efficiencies to support low double-digit return on tangible equity in 2027 with mid-teens return on tangible equity now expected in 2028. On capital, our position remains strong and supports our growth plans. Dave will cover this in more detail shortly. The board's confidence in our medium term outlook together with the strength of our capital position supports our intention to re-establish a modest dividend with our full year 2026 results alongside the outline of our wider capital allocation framework and distribution policy. We will therefore continue to grow this business while delivering the transformation benefits and operating efficiencies needed to materially improve returns in 2027 and achieve mid-teens ROTI in 2028. And that approach is designed to create stronger, more sustainable profitability and long-term shareholder value. While the timing of profitability improvement has changed as a result of the headwinds I've described, the fundamentals of our medium-term investment case remain intact. And this confidence is underpinned by the points that you can see on slide 11. We continue to see significant growth potential in the large underserved UK retail market. Our plans are supported by the completion of our technology transformation, lower operating costs, increased capital capacity from 2027 and through continued delivery against our balanced growth ambitions. These strengths reinforce our confidence in the strategy and in our ability to build a higher quality, more profitable business. Our objective remains clear to deliver better outcomes for the customers we serve and stronger, more sustainable returns for our shareholders. With that, I'll now pause and hand you over to Dave to run you through the detail of the financials.

Thank you, Ian. Let me start with a summary of the Group's financial headlines for the first half of 2026 as set out on slide 12. As Ian highlighted, we generated a profit before tax of £8.9 million, up 44% year-on-year. Balances grew 8% in the six months to June and 24% year-on-year. Average balances grew at a similar rate, up 25% year-on-year. However the mix of this balance growth in credit cards and in lower risk low margin second charge mortgages has reduced net interest margin to 15%. Impairment charges increased 35% year-on-year driven by the growth in balances and £8.5 million increasing the IFS 9 provision for macroeconomic uncertainty. Despite this Impairment charges reduced 2% when compared to the second half of last year, reflecting the stable credit quality of our portfolio. Operating costs decreased 8% year-on-year, generating 16% positive cost-to-income cures and reducing the cost-to-income ratio by 9.4 percentage points to 53.1%. This delivered a rota of 2.5%. Slide 14 summarises the drivers of our growth in Gross Customer Interest Earning Balances which reached over £3 billion at the end of June. Ian went through the drivers of the balance movements by product earlier, so I will not cover this again. Our pricing discipline ensures that all new lending hurdles our mid-teens ROCE target. However, the mix of growth has been a meaningful impact on NIM as can be seen on slide 15. 1.4% of the group neem reduction was driven by product mix. Second-charge mortgages grew from 13% of average balances in 1.525 to 24% of average balances in 1.526, contributing a lower asset yield of 6.8%. At the same time, the proportion of credit card and vehicle finance average balances reduced 3% and 8% respectively. This has a dilutive effect on NIM given their asset yields of 25.5% and 17.4% respectively in 1.526. 1.2% of the Group NIM reduction was driven by asset yield. Credit card asset yield reduced 2.3% to 25.5% as growth of SKU tools initially, lower yielding new business, couple wheel reduction, higher yielding existing customer balances for the reasons described earlier. Second-charge mortgages yield reduced 0.8% to 6.8%, reflecting pricing pressure from increased competition. Conversely, vehicle finance asset yield increased 0.5% to 17.4%, driven by repricing initiatives. The combined credit card and vehicle finance name remained strong at 18.9%. Slide 16 summarises the impairment charge which increased 35% year-on-year. However, the charge reduced 2% half-on-half despite an 8% growth in balances. Group gross charge-offs increased 12% and within this, credit card gross charge-offs increased 17%. This was in line with the expectations given the increase in average balances year-on-year and the maturity of new customer business written in 2025. Importantly, the credit card gross charge-off rate remains stable at 13.7%. This is a key performance indicator which we monitor in our credit cards business. This increase in gross charge-off was partially offset by a small reduction in IFRS 9 Modelled Impairment. In summary, the underlying credit quality of our portfolio remains stable, with a group cost of risk of 7%. As shown on slide 17, total operating costs reduced 8% year-on-year, driven by the £11.5 million reduction in complaint costs. This reduction reflects the positive impact of the FOSS commencing charging of CMCs to submit claims from 1 April 2025. Transformation cost savings of £7.8 million has facilitated additional investment for growth in the business and has helped to offset inflation. This investment includes expanded use of AI across the business. This will be a key part of continuous IT improvement once the Gateway program concludes later this year. This investment will pay back in increased transformation savings which we now expect to be 30 to 35 million pounds out to 2028 compared to the previous guidance of 23 to 28 million pounds out to 2027. Investment in credit card and credit risk expertise go the 2% increase in headcount Slide 18 summarizes the segmental performance of the Group by product The key message here is that all three lending products were profitable in the first half with improving operational efficiency Let me now touch upon the performance of each of the lending products in turn starting with credit cards on slide 19 The business delivered a profit before tax of £12.8 million, marginally up year on year. This was driven by the 18% increase in average gross customer interest earning balances, which more than offset the decrease in asset yield and NIM that we have already talked about. A further increase in 0% balance transfer and promotional products to 17% of the portfolio driven by the new customer growth reduced the weighted average APR from 35.5% in June 2025 to 32.8% in June 2026 The cost of risk was 11% in the first half at the lower end of the guided range despite the majority of the increased macroeconomic impairment provision being attributed to credit cards Slide 20 covers vehicle finance. While balances remained stable, repricing initiatives improved the weighted average APR by 20 basis points to 29.3%. The 5.1% cost of risk was at the lower end of the guided range. The cost-income ratio improved 12 percentage points to 59%. However, the operational efficiency of the business still needs to improve. This will be delivered by both income growth and cost efficiency once we are using the new platform across our broker network in 2027. This will enable us to build both scale and to automate processes. As you can see on slide 21 and as Ian has mentioned, second charge mortgages continued their strong growth with profit before tax increasing to £7.1 million. The cost of risk remained low at 0.2%, with only one customer having defaulted in the last two years. Our portfolio has a weighted average loan-to-value of the combined first and second charge mortgages in the low 70s. This underpins our confidence in guiding to a cost of risk below 1%. In addition, as the product is secured, the growth is capital efficient as it attracts a lower risk weighting than credit cards and vehicle finance. Liquidity and funding remain a core strength as shown on slide 22. High quality liquid assets increased 22% in the first half to over £1.2 billion. This was proven by our first credit card asset backed security public issuance in June. We've also been more proactive in the investment of our HQLA with 34% now invested higher returning assets including UK gilts, T-bills and other sovereign equivalent instruments The liquidity coverage ratio reduced to 221% well above the 100% regulatory minimum This reduction was driven by upcoming fixed-term savings maturities and increased ISA balances Total funding increased 32% year-on-year and 13% in the first half reflecting the increased funding requirement for higher lending balances The increase in retail deposits, which represent circa 84% of the Group's funding, was driven by the growth in ISAs as we broadened the product range. ISAs are generally sticky balances which now account for over £1 billion of the nearly £3.2 billion of retail deposits that we now hold. Average deposit rates reduce year on year. However, given the increase in swap rates in recent months, we would expect industry deposit pricing to increase created a potential headwind for our future funding costs. We have factored this into our updated guidance. We continue to deploy capital for growth as set out on slide 23. As expected, the Group C21 capital ratio reduced by 90 basis points to 15.6% in the first half. and 9% growth in net receivables, translated to £108 million of RWA growth, accounting for 80 basis points of the ratios reduction. Continued investment in the technology transformation of the business via Gateway drove increased intangible spend, which also consumes capital. This was partially offset by the £4.4 million of statutory profit. The Group continues to maintain significant surplus CQ1 capital currently £93 million above the 11.3% disclosed regulatory minimum We further optimised our capital stack in 2Q26 as set out on slide 24 We tendered £100 million of outstanding Tier 2 capital by concurrently issuing the equivalent amount via new issuance at tighter spreads This transaction had no impact on the total capital ratio However, we have an additional £41.5 million of the original tier 2 instrument which is not effective for capital purposes based on our current business plans This is subject to call in October of this year which if called will reduce the total capital ratio by 1.9% Importantly, we have surplus capital at each of the CG1, Tier 1 and total capital levels to deliver our growth plans As you will be aware the group will be subject to a new regulatory capital framework from the start of next year when the Basel 3.1 rules come into effect and the group adopts the Small Domestic Deposit Takers or SDGT regime The impacts of this regulatory change are set out on slide 25 Under Basel 3.1 we expect RWs to increase by around 15% This is driven by a 10% risk weighting on undrawn credit card balances and an increased risk weighting on higher loan-to-value second-charge mortgages. There is also a new calculation method for operational risk that drives RWA inflation. Importantly, these regulatory changes also drive lower CP1 ratio requirements, with the disclosed requirement reducing from 11.3% to 9.9% on a pro forma basis. These are transitional capital requirements. A formal CCREP review of our final capital requirements is expected in 2027. However, given the currency now provided by the PRA, the Board are confident to reduce the target CT1 ratio from greater than 14.5% to greater than 12% from the start of 2027. This effectively creates £15 million of additional CT1 capital to support our balanced growth plans. Slide 26 provides further detail on the updated financial guidance that Ian summarised earlier. We remain confident in our balanced growth guidance and all our products are expected to grow by the end of next year, with the proportion of second-charge mortgages continuing to increase. As previously guided, the continued mixed shift towards this lower risk, lower margin for us is a key driver of our reducing net interest margin guidance. However, The main reason for the revision downwards is the source of growth in credit cards. We are now assuming that this growth continues to be driven by the initially lower yielding new customer business rather than higher yielding back book growth. This dynamic also drives the reduction in our risk adjusted margin expectations. Note that our cost of risk guidance for all three lending products which underpins our risk adjusted margin guidance remains unchanged. As a result of the reduced income expectation from the lower NIM, we have marginally increased our cost-income ratio guidance. Note that this reducing trend will be driven by both higher income and lower costs, with the expectation that year-on-year costs will be lower in each year of 2026 and 2027. Before handing you back to Ian, slide 27 lays out an illustrative updated structurally roti bridge for 2026 and 2027. The reduced income expectation in both years is driven by the lower than expected credit card utilization for higher yielding existing customers. This drives some offsetting reduction impairment on back book credit card customers. However, in 2026 this is expected to be broadly offset by the increase in the IFS 9 impairment provision the income growth next year although lower than originally expected will be driven by maturing new credit card customer balances alongside continued growth in second charge mortgages and vehicle finance which has a faster profitability payback with that I'll hand you back to Ian thanks Dave so to conclude

We demonstrated continued progress in the first half, though more cautious credit card spending than planned for, and the additional IFRS 9 provision on unemployment has affected our near-term performance and outlook. We are having to adapt to these headwinds, but must not lose sight of the progress being made. Our profitability is increasing, our first half PBT exceeding the profit delivered for the whole of 2025. We grew balances by 8% during the half. We maintained stable credit quality across the portfolio. Our net interest margin and risk-adjusted margin reflect the changing mix of growth in second charge mortgages and credit cards. And we maintained a clear focus on cost discipline, delivering transformation savings while continuing to invest in the business and to complete the gateway technology transformation. And as David just said, our capital funding and liquidity position also remains strong, providing capacity to support growth. The headwinds we've described today will slow returns in the near term, assuming that they persist. But we've made an active decision to drive more new credit card lending to compensate, and this will contribute more to income over time. together with continued balance growth and further efficiency benefits. This gives us confidence in a material improvement in profitability from 2027. That confidence together with our strong capital position supports the board's intention to re-establish a modest dividend with our full year 2026 results, assuming no further significant changes in the UK economy. In the meantime, we remain focused on delivering our strategy, serving more customers and building a more efficient and sustainably profitable Bankless. Thank you. We'll now be happy to take your questions.

Thank you, Ian. To ask a question, please press star fold by one on your telephone keypad now. If you change your mind, please press star fold by two. When preparing to ask a question, please ensure your device is unmuted locally. We'll pause here briefly as questions are being registered. We have a question from Abed Hussain from Panmure Librem. The line is now open.

Oh, hi. Morning, everyone. Thanks for taking my questions. I've got three questions if I can. The first one is on card utilization. in the second quarter. Can you help me? Can you separate how much is macro versus customer migrating or something else? And what's the signal you're watching for a recovery in spend? Or have I got that wrong? Do you not need that spend to come through to meet your new guidance? So that's the first question. And then the second one is on the mid-team 2028 ROTD. What's the split between the new cards, vintage, seasoning, cost and time ratio improvement, and second-charge mortgages scaling? Which of those has the widest range of outcomes? Or I suppose put it another way, where do you have the most control? And then the final question is on Basel 3.1. we have some 15 billion surplus. Where does that get deployed first? Thank you.

Good morning. Thank you for those three. I'll take the first one and then Dave, we can come to you and then I'll take the seconds and maybe you can comment on the third one about Basel 3.1 in particular. So look, there's a mix of factors at play here, Abbott, as we just said in the presentation. So we are definitely seeing while the card spend of existing customers is increasing it's not increasing as much as we'd originally planned right I said that a couple of minutes ago but it is increasing and it is increasing more than our competitors so we are watching that very carefully which kind of links to your second question about you know what are the triggers but what we can't do is you know rely on that miraculously bouncing back that wouldn't be a sensible way to plan so what what you've seen us do which you know these things happen in in any business it doesn't always go the way you exactly plan it at outset so we are reacting we are we've worked out what we think the best way to drive growth that we can control which is based on our confidence of the 19% cards growth that we delivered in 2025 so we're going back to that now we have the capital clarity for the rest of this year and into 2027. And we firmly believe that is within our control. As I said, we did it last year. There's no reason we shouldn't be able to do it this year. So I think that is really important. Dave, do you want to add anything on that? no okay okay and then to your second question on the mid-teens row t uh 2028 but there are three asset lines at play here and we've always said we try to resist locking ourselves into we expect x on this y on that and z on that we deploy our capital where we see the best opportunity for a return and we'll continue to do that but you know second charge mortgages is performing very consistently and steadily and as I said on in the slides you know it pays back very quickly but at a lower rate so we'd expect that to be a bit of an underpin for the business going forward the vehicle finance you didn't ask about but I'll add in anyway from 2027 we believe we can much more efficiently grow that as we get the new operating platform in place that I've talked about at length so we're feeling good about that and then on the cards again where it contributes is that 2025 increased book growth, seasons and matures from 2027 onwards in terms of delivering profitability. So all three products actually come into play 2027 onwards which gives us the confidence for 2028 and beyond. So I'll maybe pause there. Dave, anything you want to add to those first two?

Just on the relative point, as we've already set out in the presentation, we could control costs more than anything else so we said that costs will be lower in 26 and 25 and then 27 will be lower than 26 so we should expect a degree of trajectory on the same lines on that one which will help the roti out in 2028. Moving on to the Basel 3.1 look first of all it's positive we've got clarity on what our requirements are going to be from the 1st of January 2027 and it's also positive to see that we are about 15 million pounds more capital deploying to assets for growth in the future so where we deploy that exactly the instead where the best returning product is from a capital perspective and we're very comfortable that we can deploy that in a new customer growth and credit cards great thank you Albert thank you thank you the next question is from Gary Greenwood from Shore Capital your line is now open morning Gary

Hi, can you hear me okay? We can, glad to see you.

I've got three questions if I can. So the first was, I recall you saying that all of your new lending achieves your 15 cent return on tangible equity target. you see your credit cards certainly for new customers take sort of two or three years before they turn profitable so when you're talking about that 15% new lending is that more like an IRR or a return on maturity because presumably they're then sort of return negative on day one that was the first question second just on vehicle finance I think previously sort of indicated the balances would start growing again in the second half of this year I think you're now signaling that will be 2027 so a slight delay to expectation there and then lastly I think in your sort of pretty much your opening remarks you talked about potential to start an installment credit offering so if you could just talk a little bit about what you're thinking about doing there given that certainly they talk about credit business installment credits not with a great hunting ground so to the group in the past super thank you Gary let me let me take the first one then so in fact David might just come to you on this the new lending and roti and Gary's question sorry you were slightly muffled Gary was just for everyone

is the roti hurdling at outset or when the product matures post two years?

Thanks for the question Gary, it's basically at the lifetime of the product.

That's one of Dave's second answers.

I hope that's quite clear so literally you know you look at the marginal capital deployment what's your return on that one there for that product lifetime we know the average life of a vehicle finance transaction is between 30 months and 36 months and we do that return on that basis. that clears the hurdle. Hope that's clear.

Very clear. And Gary, then on your vehicle finance question, this is one to watch at the minute. We are you know we are really focused on getting the new platform out because this product has still got a roughly a 70% cost income ratio in it which is too high so we are thoughtful and careful about not putting too much new business through that because it is inefficient compared to where we know we can get it to we'd rather hold back on the growth till the new platforms in place that said we do see opportunity in that market so we are in discussions with the teams right now as table what does that look like for the second half of the year and how we how do we best calibrate that for not writing lots of volume but at you know expensive underlying cost to do so versus there is opportunity and you've seen you know we've squeezed our pricing up a little bit in that in in that product line and I think that's very indicative of the way we're thinking about it if we can if we can get the top line to move up a little bit then that kind of covers the higher cost to serve or cost to implement that we're currently

sort of stuck with on the current platform so I think one to watch but again Dave anything you want to add on that I mean just a couple of points to raise on that one Ian last year you saw the volume the receivables come down in vehicle clients what you've seen the first half this year to maintain the same level and the operating efficiency associated that has improved so we are doing the best we can to deliver the vehicle clients lending with improved efficiency

yeah okay and then Gary's your third question and look you you've got as much history with this business as anyone and more than I do installment lending I mentioned in my remarks a couple of minutes ago we do see an opportunity and a demand in in our customer base for this kind of thing it's primarily being being fulfilled by buy now pay later obviously the regulation is changing on that and therefore we are almost reacting to customer demand but in cards not as a standalone product so we're looking at installment options in the cards line rather than something you know brand new as a product line that as you said may trigger some memories and some fears in people so just to reassure on that but again Dave anything you want to add on that one I need to add that it's continued to meet the needs of our customer yeah so would that be used more for customers that are sort of

finding the environment a bit more challenging and therefore an installment products may be a better option in terms of sort of managing their exposure or is it just for all customers? Is it a risk management product or is it a growth product?

Yeah so it's a reaction as we said to the customer demand so if someone is in a store and has an option of the store credit or that we could offer a similar installment product in our cards we'd rather than spend the money on the card but but we you know we understand they like the idea of installment so it's very much in that space Gary that we're looking at oh okay understood thanks very much right thank you Gary thank you Gary as a reminder to ask a question please press star four by one on your telephone keypad now

The next question is from Harry McMillan from Berenberg. Your line is now open.

Morning, Harry. Morning, Harry.

Morning. Morning. So two from me, if I may. So first one, just good to see the book growth and second charge mortgages in the half. I was just wondering, could you elaborate on some of the competitive pressures that you're seeing in this division and how you expect to see impact book growth and yields going forward? And then on the second one, I just wanted to ask, is there any danger that length and maturity of two years per balance transfer customer or 3.5 years per credit card bill the customer is pushed out? And if so, is there any mitigating action that you can take?

Thank you. Thank you Harry, I'll take the first one then maybe David if you want to take the second one about the maturity period. So look second charge growth second charge mortgage has been a great growth story for us we started this around two years ago and we're over 800 million of a book now with our two forward flow providers that are long-term agreements so we really like this market it fits very much to our purpose you know we are seeing somewhere between 80 and 85 percent of the customers that take out a second charge mortgages are using it for total or partial debt consolidation. So this is people using a product that we support to rearrange their finances and to give themselves some breathing room. And I think that's a really healthy thing. We are seeing that market grew considerably and it's sort of growing exponentially almost it's higher growth this year I think about 27% up year on year. So we are growing in a growing market. we've got substantial market share now between our two forward flow providers and the business is running at a steady beat as I mentioned of about 30 million a month So that's all good and we like that. I think your question that was around there's a little bit of impact on yield that you can see coming through and that's sort of natural. I've said in presentations before that when we stand up and say hey look you can you know grow 800 million in a relatively short period of time of course our competitors are going to react to that and go that looks like a great idea maybe we should do that too so we are seeing a little bit more of that but not substantially and we're very confident that we can hold our share because what where we differentiate isn't actually on price and yield it's on the service and the proposition to the mortgage brokers that specialise in this market and that's much harder to replicate if you're coming into a market reactively rather than in a very considered way as we did so we're feeling pretty good about that of course like all our asset products we watch carefully but so far so good it's performing very well again David anything you want to add

just two points from a returns perspective it clears our mid-teens roti target and secondly as I mentioned earlier we've only had one customer written off and the cost of risk is very very low yeah okay and if I turn to your second question then Dave do you want to pick that one up on the could you see the return profile go out yeah so I mean clearly we look for all our products and we've given a nice synopsis of balance transfer and a credit builder and within the balance transfers there's different balance transfer products here so this is a illustrating example in place here today we haven't seen any tool pushing out on those returns horizons from there so we're comfortable with what we've got at the moment and that's the basis which we're pricing our products on. Thank you Harry.

Thank you both.

As a final reminder to ask any further questions please press star 4 by 1 on your telephone keypad now. It appears we have no further questions, so I'd like to hand back to the management team for closing remarks.

Shall we maybe go to any questions?

Yes, there are a few questions on the website, or the webcast I should say, so let me take those. There's two from Ross Luckman from Peel Hunt related to the credit card business and really an extension from Harry's second question there. So first one being, what is the broad split of the front book growth between balance transfers and the credit builder cards? and have you and have you seen competition responding to the involving environment is there increased competition for new customers in these areas and then secondly on again related to credit cards how if at all does the change in customer behavior on the back book change the medium-term growth opportunity for and the earnings potential for the business so I suppose that's a question around what we're assuming around the back book in our in our guidance yeah

Okay so look Dave maybe I'll come to you on that first one in terms of what we're seeing in split in terms of VTs and Credit Builder in terms of the new business flow.

It's probably 50-50 a new business coming through in between the VTs and the Credit Builder.

Yeah good and look to the broader question then about Are we seeing any change in competition in cards? Is there anything that we're seeing in the back book? I think nothing other than what we've already described in the remarks that we've made so far. you know it's a really interesting one this back book spend as I said I want to be re-emphasizing to be very clear our active cards customers are spending more with us I gave you that stats of you know they're up 10 percent our relevant peer group is minus one so we are winning but not as much as we'd assumed when we originally did the plan a couple of years ago so so that that is quite a change and we're planning on the basis that those behaviors continue through the plan period to the end of 27 so we're not expecting them to to worsen we're not expecting them to miraculously turn around and improve obviously if anything changes we will we will come back and let you know but i think i would make the point that normally in a business like this where you're dealing with less prime customers your worry is at the other end of the spectrum which is you know your expected credit losses and other things going bad um actually what we're seeing is that the support that we're giving to our customers to help them improve their financial resilience and their sensible approach to uncertainty is to spend less, save a little bit more and create a bit of headroom. I think over time that will turn out to be very positive, but it obviously has an impact in the plan assumptions that we had on backward retail spend. in the short term and that's why bringing more of those type of customers in is actually a very good thing as they season and mature but it does take longer for them to season and mature than if it was the existing customers spending so there's a really interesting dynamic here but I you know we obviously have to change our planning and drive a different way of of getting to our end result but we're not seeing any issue with getting to the end result as Dave described all of the business that we're writing across all three products hurdles so eventually if it hurdles mid-teens roti as it comes in eventually you get to mid-teens roti the question is how quickly and that's what this moderated consumer confidence has

has eased us back on as we change the mix so just to reiterate some of my remarks earlier again Dave anything you want to add I mean just a couple of points we will always react to how our customers behavior changes over a period of time that's the most appropriate way to run a business and hence as Ian said we're planning our business on that basis there and as we've talked about in previous presentation is a big underserved market out there which we need to go and and serve more into so there is the actual demand for the products we are offering in the credit card business.

Thank you both and the final question on the webcast is very much around the macro so essentially they're suggesting that would you agree that this seems to be an inflection point for Vanquist and in fact Vanquist should benefit from a weaker economy in the long term but the extent of the UK weakness and uncertainty that we've seen, I suppose, referring to the dynamics around credit card spending of our existing customers has outweighed that. And once the UK recovery starts, that should be a win-win for us, I suppose. Some comments on that would be helpful.

Yeah, I mean, I sort of covered it in my in my previous answer. But I think we are being sensible here. Some things have not worked quite in line with our original plan assumptions. As I said, we are growing, we're just not growing quite as much in that cards back book as we'd originally planned. And therefore we are reacting to put a different plan in place that still gets us to our destination. and you know our experience I think in our careers never mind just with Bankless is you always learn more when things don't go quite the way you planned but that's the time for cool heads sharp pencils resilience and kind of working out okay if that's changed how do we still get to the destination that we want to get to and that's exactly the process that we're going through I think the underlying question in what you've read out James is you know are we expecting to get a win from the UK economy I mean you know that would be great if it happens but actually we're planning on a very sensible basis on what we factually can see at the minute and assuming that persists over this period and therefore reacting to make sure that we can still deliver what we want to deliver albeit in a different way by bringing more new customers in with that delay and profitability curve that we've already talked about David and if you want to add any more there

I mean I think I had us on the we've called out the 8.5 million macro adjustment for the IFS provisioning accounting it is provisioning accounting under IFS 9 we can't change that clearly if we get an outlook for unemployment that improves from the peak forecast of 5.7% at the moment you get a natural unwind of that over a period of time and the final point I'd make just to come back on that again is

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 it's just the shape of how we're going to get there needs to change a bit to react to those two headwinds that I've spent a lot of time describing so I think that's a very important point to end on yeah yeah no further questions on the webcast so Ian back to you to close okay so look I think that's hopefully been helpful to give you a bit of context around what happens why it happens what's within our control directly what is more market related and most importantly as a relatively experienced management team what are we going to do about it we have a plan that takes us forward we have a really committed team that if you look below the level of the headlines from this morning there are some great things being delivered that will absolutely underpin the success of this business that's what we need to focus on going forward if things get easier great but actually we're planning for things to stay as they are and still achieve our goals and I think that's the key message for today Dave want to say anything no thank you okay thank you all very much for your attention and we look forward to seeing you on the road thank you