Virgin Money UK has today reported a 77% drop in annual underlying pre-tax profit, as it took a £501m impairment charge against an expected surge in bad loans in Britain's coronavirus-driven economic downturn. 

The UK's sixth-largest lender reported an underlying pretax profit of £124m for the 12 months ended September 30, compared to a profit of £539m a year earlier. 

The company, which had previously announced loss provisions of £232m, said it now had a total of £735m in provisions on its balance sheet. 

"While we are yet to see any material impacts of the pandemic on the credit quality of our loan book, our results reflect a cautious and conservative approach," chief executive David Duffy said in the results statement. 

"Although the Covid-19 vaccine news is a strong cause of hope for the future, the economic benefits are still some way off," David Duffy added. 

Banks globally are preparing for a surge in bad loans at a time when low interest rates aimed at rekindling economic growth have squeezed net interest margins (NIM), a traditional source of profit. 

Virgin Money said its NIM stood at 1.56% for the full year and had inched up to 1.52% in the fourth quarter from 1.47% in the previous three months.