Good morning, everyone. Thank you for joining us for Vanquis Banking Group's full year 2025 results. I'm Ian McLaughlin, the Chief Executive Officer of Vanquis, and I'm joined this morning by our Chief Financial Officer, Dave Watts. Dave, good morning.
Good morning.
I'll start with an overview of our performance in 2025. Dave will then take you through the financial results in more detail, and I will then come back to talk about the strategic priorities, and Dave will then end by covering our financial guidance through to full year 2027. After that, as usual, we'll be happy to take your questions. If I can take you to slide 4, you can see how our full-year performance compares against both the prior year and against the guidance that we set out at the start of 2025. The headline here is simple: We delivered a performance that was at or better than all of our key commitments for the year.
Most importantly, after the turnaround of the business in 2024, where we delivered a loss before tax of GBP 138 million, we returned to profitability in 2025, with a profit before tax of GBP 8.3 million. During the year, we also took the opportunity to deploy capital to accelerate balance growth, which will support our future profitability. You can see that in our customer interest earning balances, which ended the year at GBP 2.8 billion, ahead of our guidance of greater than GBP 2.7 billion. Therefore, well ahead of our original 2025 goal of greater than GBP 2.6 billion. Net interest margin was 16.8%, reflecting a deliberate shift in mix towards lower risk, secured lending in second charge mortgages, as we've signaled previously.
Excluding this, NIM actually increased by 50 basis points, reflecting our continued pricing discipline in cards and vehicle finance. Our cost-to-income ratio was in the high 50s, again, in line with guidance and reflecting our improving operating efficiency. Return on tangible equity was 2.3%, consistent with our guidance for a low single-digit return. Following the AT1 capital issuance in the second half of the year, our Tier 1 ratio increased to 19.3%, putting us in a strong position to support the next phase of our strategy. While there's always more to do, we have delivered what we said we would in 2025, growing in a resilient and sustainable manner, with margins and costs under tight control.
After what is now 5 quarters of consecutive book growth and 4 quarters of consecutive profitability, you can see that the actions that we've been taking over the past 2 years are translating into more predictable and sustainable financial outcomes. Slide 5 sets out the underlying actions we've taken to deliver the results that I've just discussed, and I'll step through a few of these. Firstly, as I've already mentioned, we accelerated our balance growth, but we did so with discipline, actively managing mix to maximize returns on deployed capital. Secondly, we continued to make strong progress on Gateway, our technology transformation program. The fundamentals of Gateway are now substantively delivered, and the program will complete this year. We also delivered further transformation cost savings, with efficiency gains creating positive operating leverage as the business continued to scale.
Credit quality remains robust, reflecting continued customer resilience and responsible lending across all our portfolios, and we continued to develop our customer proposition. A bit more on that in a moment. Taken together, these actions will allow us to continue to transform the bank. Slide 6 highlights the progress we made across our customer proposition and on risk management during 2025. We continued to strengthen all our product offerings, balancing growth, risk discipline, and good customer outcomes, and we got busy. In credit cards, for example, we launched 66 new product variants, including credit builder, balance transfer, and other promotional offers. We also expanded our retail savings range, including new ISAs and the Snoop-branded easy access account, strengthening deposit growth, product flexibility, and cost-efficient funding. Snoop continues to play an increasingly important role in our ecosystem, helping customers with their money management.
Active users were up 12% to 328,000, including 43,000 Vanquis customers. We also grew our partnership with Fair Finance. In 2025, this helped 20,000 applicants to identify around GBP 34 million in potential annual benefit entitlements. That's an average of over GBP 1,750 per annum per person, so genuinely helping people transform their financial lives for the better. We also delivered a profile-raising campaign to refresh and relaunch the Vanquis brand with our target customers, including our successful partnership with the Professional Darts Corporation. We also introduced a new consistent customer satisfaction measure across the group during the year, giving us a more data-driven view of customer experience. Our overall CSI, customer satisfaction score, averaged 83.7 in 2025, and this is supported by consistently excellent Trustpilot ratings across both Vanquis and Moneybarn brands.
Fundamentally, of course, Vanquis is a risk management business. We have therefore prioritized making meaningful improvements to our risk management capabilities. In vehicle finance, we developed a new credit decisioning platform, improving the speed, consistency, and quality of our lending decisions, and this contributed to the improved risk-adjusted margin performance in the business. In credit cards, we made many improvements to our credit risk scorecards through the year and to our affordability assessments, and we are upgrading the decisioning platform alongside other technology improvements, which I'll turn to in more detail on slide 7. We launched our new mobile app as part of an enhanced digital onboarding journey, underpinning our clear focus on improving customer engagement, conversion, and retention. Last February, we centralized around 30 billion rows of customer product and decisioning data onto a single modern platform, significantly strengthening analytics, insight, and decision-making capabilities.
In operations, we expanded the use of digital tools, AI, and self-service functionality across key processes, again, significantly improving efficiency, and the impact here is tangible. Complaint handling costs, for example, were down 10%, and fraud losses fell by 25% in 2025 as a result of these improved processes. We're applying this disciplined approach across every aspect of our business. A good example, we've reviewed our property footprint and reduced space at our Bradford headquarters by over 70%, as we modernize and rightsize to align with current and future workplace needs. Finally, all we have delivered is down to the engagement and efforts of our fantastic people, and we were pleased to see that colleague engagement improved significantly through the year, up 13 points to 73%.
That improvement reflects growing confidence in the direction and performance of our business and resulted in Vanquis being certified as a great place to work for the first time ever. As I said earlier, there's more to do. We are not finished yet. Hopefully, you can see that the progress made in 2025 is tangible. We are seeing a positive response from colleagues and from customers. Alongside this internal progress, I should note that the external headwinds of 2024 and 2025 have also largely receded. For example, elevated FOS fees from unmerited CMC complaints. Dave will touch on that shortly and remind you that our exposure to motor finance commissions is differentiated and any potential liability remains limited for Vanquis. Overall, the two words I've used most to describe 2025 are discipline and delivery.
Both of these will serve us well as we take this business forward from here. With that, I'll now hand over to Dave to take you through the financials in more detail. Dave, over to you.
Thank you, Ian. I'm pleased to present our results today, given the significant progress we have made in 2025. Slide 9 summarizes my headlines before I go into more detail. Our return to profitability was achieved by growing income, reducing costs, and importantly, the non-repeat of the notable items that we reported in 2024. This is evidence that the financial impact of the business turnaround is firmly behind us, and we were able to focus on sustainable, profitable growth in 2025. With this backdrop, we accelerated balanced growth to build scale and drive long-term profitability. This was aided by our first AT1 issuance in October last year, which freed up additional capital to be deployed for growth. This growth comes with upfront IFRS 9 impairment charges, although credit quality remains strong and write-offs decreased.
We maintained our cost discipline, delivering ongoing cost savings in excess of our commitment for the year. At the same time, we continued to invest in improving the fundamentals of the business, including our technology capabilities by the Gateway Transformation program. Following the new FOS fee charging structure implemented in April last year, we saw a material reduction in CMC claims to FOS, resulting in much lower complaint costs in 2025. We also continued to dynamically manage liquidity and funding. We diversified our liquid asset buffer investments to generate higher returns. We introduced new savings products to provide more stability and flexibility while lowering our cost of funds. As a reminder, our exposure to motor finance commissions is differentiated and any potential liability is limited.
While the final scope and mechanics of the FCA compensation scheme remain subject to change, we did recognize the GBP 3 million provision in 3Q 2025. You can find further details on why our exposure is differentiated in the appendix. Going into more detail, slide 10 summarizes the group's performance for 2025. We generated a profit from continuing operations of GBP 8.3 million, supported by a 5% growth in risk-adjusted income and a 33% reduction in operating costs. Excluding notable items, costs were down 9%, meaning the group generated 11% positive cost income jaws. After factoring in tax, the profit from discontinued operations related to the sale of the personal loans business and AT1 coupon costs, profit attributable to shareholders was GBP 8.2 million.
We grew customer interest earning balances by 22% to over GBP 2.8 billion. On slide 11, you can see what this meant for our financial KPIs. GBP 8.2 million of bottom line profits translates into a return on tangible equity of 2.3%, in line with our guidance. This was driven by an improvement in the cost-to-income ratio to 58.4%, again, in line with guidance. As we previously guided to, asset yield, NIM, and total income margin all reduced, driven by the deliberate growth in lower margin and lower risk second charge mortgages. The reduction in risk-adjusted margin to 11% was smaller, only 80 basis points, reflecting a 110 basis points reduction in the cost of risk.
With greater clarity on the cost of risk across our products, we intend to focus on risk-adjusted margin as a core metric going forward. The NIM drivers are set out on slide 12. A small 20 basis points reduction in asset yield was more than offset by a 50 basis points improvement from lower funding costs. This net positive outcome was more than offset by a 170 basis points dilution due to a shift in mix towards second charge mortgages and a 30 basis points reduction from a larger liquid asset buffer. As a result, NIM decreased at 16.8%. To highlight the group's pricing discipline, excluding second charge mortgages, NIM increased 50 basis points year-on-year to 19.4%.
After factoring balance growth, net interest income rose by 3% in 2025. Importantly, it rose by 6% in the second half of the year. Slide 13 details our customer interest earning balances, which increased to over GBP 2.8 billion. Credit card balances increased 19%. This reflected both new customer acquisitions and increased card utilization by existing customers. Vehicle finance balances reduced by 8% as we managed new business growth while we developed the new onboarding and servicing platform. second charge mortgages continued to grow strongly, increasing by over GBP 380 million. Gross and net receivables increased by 21% and 25% respectively. Importantly, we now have established debt sale programs in both credit cards and vehicle finance, with the vehicle finance post charge of asset continuing to reduce following the completion of a number of debt sales.
Further details are set out in the appendix. Slide 14 summarizes the year-on-year impairment charge movement. Bottom line, impairment reduced by 2%, driven by a 5% reduction in gross charge-offs. Within this, credit card gross charge-offs reduced by 19% to a gross charge-off rate of 12.7%. This highlights the improving quality of the portfolio. Back book credit risk improved, with fewer negative stage migrations and lower impairment releases from write-offs and debt sales. In summary, the overall group cost of risk has reduced to 7.3%, with all products coming within guided expectations, reflecting our responsible approach to lending. As you would expect, we anticipate impairment will increase in 2026, in line with balance growth, and have slightly refined the cost of risk guidance by product on this slide.
In the appendix, we have included a slide on expected credit losses and coverage ratios. ECLs reduced 7%, despite a 21% increase in gross receivables, reflecting increased Stage 1 and Stage 2 balances and a reduction in Stage 3. As a result of this improving credit quality, the group coverage ratio reduced to 8.4%. We remain comfortable with the current coverage ratio based on a clearer understanding of the credit risk of our portfolios. Turning to operating costs on slide 15. Total operating costs fell 33%, primarily due to the absence of 2024's notable items. Costs, excluding notable items, reduced 9%, with transformation savings and lower complaint costs more than offsetting growth and inflation-related increases. We delivered GBP 28.8 million of transformation cost savings in 2025, well above the GBP 15 million we committed to.
This included an acceleration of some Gateway technology-driven savings into 2025. Complaint costs reduced 44% to GBP 26.6 million. This amount includes the GBP 3 million provision for motor finance redress. Excluding this provision, total complaint costs reduced to GBP 7.5 million in the second half, a much lower run rate than previously. As set out in the appendix, the material drop in false referrals from CMCs following the introduction of the new false charging structure in April was the main driver of the reduction. We did accrue discretionary staff costs, having not paid bonuses to colleagues for the last two years. This, alongside a 10% increase in customer focus FTE to over 2% increase in staff and outsourced people costs, albeit outsourced FTE reduced by 28% in the year. We have embedded cost discipline across the business.
We expect operating costs to reduce further in 2026 and in 2027, driven by both Gateway and broader operating efficiency enhancements. Let me now touch upon the performance of each of the lending products, starting with credit cards on slide 16. The business delivered a profit of GBP 38.2 million, up 27%. This is while growing interest-only balances by 19%, which drove a 13% increase in impairment charges due to the expected IFRS 9 impairment provision on origination. At 10.2%, the cost of risk was at the lower end of the guided range, with 19% lower gross charge-offs, as mentioned earlier, highlighting the improved quality of the book. With the portfolio having reduced 10% in 2024, balances at the end of 2025 were 7% higher than two years ago.
The improved quality has been driven by the actions taken by the new experienced cars management team, following their granular vintage analysis review. Asset yield declined 80 basis points to 27.1%. This was driven by the weighted average APR of the portfolio reducing to 33.7%, due to the increased take-up of balance transfers and 0% promotional offers, which increased to 15% of the portfolio. These offers are effective acquisition tools that are expected to drive further interest income over time. Excluding these offers, the weighted average APR increased to 39.6%, reflecting our disciplined risk-based pricing strategy. Combined with lower funding costs, NIM only reduced 50 basis points to 23.3%, while risk-adjusted margin was 15.6%. Overall, we are well positioned for continued profitable growth.
We would, however, expect balances to grow at more moderate levels in 2026 and beyond. Slide 17 covers vehicle finance. Balances reduced by 8% as we managed new business volumes ahead of the new platform launch, which will be delivered by a Gateway in the second half of 2026. The business remained loss-making, although the loss reduced materially year-on-year to GBP 12.7 million. Repricing actions lifted the weighted average APR to 29.1%, boosting both asset yield and NIM by 0.7%. Combined with a reduction in the cost of risk to 5.6%, risk-adjusted margin increased to 7.4%, driving a 31% increase in risk-adjusted income to GBP 54.2 million. Operating costs reduced by 17% to GBP 66.9 million.
The resulting cost-to-income ratio of 69.9% remains far too high. Post the launch of the new platform, building scale and automating processes will be the key to improving efficiency. Second Charge Mortgages continued their strong growth, as shown on slide 18. Balances reached just under GBP 600 million. Risk-adjusted margin increased to 2.8%, and the business delivered a profit of GBP 5.4 million. With a weighted average loan-to-value on the combined first and Second Charge Mortgages of just over 70%, the cost of risk remains low. As a secure product, Second Charge Mortgages have a low RWA density, driving attractive returns on capital. We have rapidly become a market leader in this space. Through strong origination partnerships, we remain excited about its growth potential, with the overall market originations growing annually at mid-teens percentages in recent years.
Slide 19 shows the streamlined corporate center following the reallocation of both funding and operating costs to product lines. Excluding notable items, the corporate center has reported a loss of circa GBP 20 million in each of the last 2 years. It includes returns from the liquid asset buffer, interest costs from unallocated Tier 2 capital, and operating costs from retail savings and Snoop. Liquidity and funding remain core strengths, as shown on slide 20. At year-end, we held GBP 653 million of excess high-quality liquid assets over the regulatory minimum. We continue to improve returns from the liquid asset buffer, with GBP 250 million now invested in U.K. gilts. Retail deposits have grown to nearly GBP 3 billion, representing close to 90% of total funding.
We have diversified our deposit mix, introducing both fixed and instant access ISAs, as well as Snoop-branded easy access accounts. The former provides increased stability in the retail funding base, while the growth in easy access accounts provides more pricing flexibility and has contributed to the reduction in the cost of funds over the last 12 months. We also tendered GBP 58.5 million of our outstanding Tier 2 capital. This further reduced funding costs and was part of a broader capital optimization transaction, which is summarized on slide 21. At the end of the third quarter, we successfully issued GBP 60 million of AT1 capital and concurrently executed a Tier 2 tender. This transaction had no impact on the total capital ratio, as the Tier 2 capital was replaced with AT1. The group retains a significant total capital surplus above its regulatory minimum.
The key to the transaction was that we were able to improve the efficiency of our Tier 1 capital stack, increasing the surplus above the regulatory minimum, which was previously all held in the CET1 capital. With this transaction, the binding capital measure for the group is now the CET1 ratio. With the regulatory minimum 230 basis points lower than the Tier 1 minimum, this transaction has freed up additional capital to deploy for profitable growth, which we accelerated in 2025, as can be seen on slide 22. The CET1 capital ratio reduced by 2.3% to 16.5% as the 25% increase in net receivables equated to GBP 304 million of RWA growth. This was partially offset by the capital benefit from the statutory profit in 2025 and the personal loan sale.
We expect profits to become a more significant, positive contributor to the ratio in future years. At 16.5%, the group retains a surplus of 5.2% above that 11.3% regulatory minimum. This equates to GBP 107 million of surplus CET1 capital. The group's disclosed and undisclosed capital requirements were also reviewed by the regulator in the second half of last year, which gives us confidence to reduce our target ratio to greater than 14.5%, which I will cover later. Ultimately, our capital strength and the expectation of increased future profits supports our continued growth plans and the execution of our strategy.
Finally, before I hand you back to Ian, given that Vanquis is now a cleaner, more stable and predictable business, I would expect the level of detail required in our content to reduce in future presentations. Ian will now talk you through our strategic priorities before I return to summarize our financial guidance.
Dave, thank you. I'd now like to take you through the market opportunity and how we will complete what is year 3 of our current strategic plan that will take us through to 2027. Slide 24 shows how we frame our strategy in terms of our purpose and our ambition. Vanquis, as you know, is a specialist bank with a clear social purpose, focused on serving customers who are underserved by mainstream lenders. Our purpose is to deliver caring banking so our customers can make the most of life's opportunities. That means different things to different people. It might be accessing credit when it matters most, improving your credit profile to unlock better options, or simply feeling more in control of your money. Caring banking is about how we show up for our customers, whatever stage of their financial journey that they happen to be at.
It means understanding customers' needs, earning their trust, supporting them to make healthy financial choices, and being there for them when it matters most and when they need us most. Our ambition then builds upon that purpose. We aim to be the U.K.'s most trusted and inclusive specialist bank, unlocking financial opportunity for underserved customers and helping them thrive. That ambition is very deliberate. It recognizes the scale of the market we serve and the responsibility that comes with serving these customers. This brings me to our strategy on slide 25. This is deliberately simple and practical, built around a new three-pillar framework: serve more, serve responsibly, and scale profitably. This is not a change in direction for us. It's just a clearer articulation of how we run and grow the business as we continue to move from turnaround towards sustainable growth.
To give some more depth to these three pillars, serve more is about widening access to responsible, affordable credit and deepening long-term customer relationships. Serve responsibly ensures that growth is predictable, well controlled, with strong affordability, disciplined risk decisions, and consistently good customer outcomes delivered. Scale profitably is how we turn that growth into returns through the disciplined cost control, capital allocation, and margin management that you are seeing us deliver and as Dave has just discussed in detail. Gateway underpins all three of these pillars by providing a modern, efficient technology platform to grow on and supports a lower run rate cost base. Together, these pillars link growth, control, and returns and provide the framework that guides the decisions that we make and execute day by day.
Looking now at slide 26, this addresses one of the questions that I'm most regularly asked, which is: What is the total market opportunity that Vanquis is focused on delivering to? What this shows you is the U.K. has a large and persistent underserved adult population. Our research indicates that over 24 million U.K. adults face barriers to accessing mainstream credit. This is therefore not a niche segment. It represents more than half of the adult population who have an active credit profile. Importantly, this is a structural feature of the U.K. market rather than a cyclical one. At Vanquis, we exist to serve this segment responsibly, providing access to credit where it's affordable, appropriate, and introducing customers to other solutions if we can't immediately serve them.
Our existing product set allows us to address a large proportion of this market within our current risk appetite, within credit cards, vehicle finance, and second charge mortgages, as Dave has just described. On slide 27, you can see how we think about the market opportunity through to 2027 and how importantly we will grow within it in a disciplined way. We plan to grow balances across all our asset products, but that growth will be deliberate and phased. Credit cards will continue to grow, but at a moderated pace compared to the 19% in 2025. Vehicle finance growth is more back-ended, linked to the completion of our new onboarding and servicing platform under Gateway. From the second half of 2026, vehicle finance will become an increasingly cost-efficient line of growth, facilitated through the strong broker relationship that we have retained.
Second charge mortgages plays a different role in our mix. As you know, this is a secured product with a lower risk weight density. It's become very successful for us, and we expect the rate of growth to continue at broadly similar levels. As this drives a mix shift over time, our group risk-adjusted margins will naturally change to reflect this, but the business we are writing remains attractive across all products and consistent with our return targets. Overall, what you're seeing us do is about balance, growing, but managing mix and quality carefully so that we convert that growth into sustainable returns. Slide 28 is where serve responsibly underpins our ability to deliver the strategy with that discipline. Responsible lending is not a constraint on growth for us. It's actually what ensures that our growth is sustainable and predictable.
In credit cards, more granular risk-based pricing allows us to widen access to credit while ensuring pricing accurately reflects individual risk and affordability, and that allows us to grow the book while maintaining credit quality and customer outcomes. In vehicle finance, you can see we've rebalanced the APR mix and tightened alignment between risk, pricing, and returns. Again, this will support controlled growth as the platform scales. The second charge mortgage product is primarily used for debt consolidation, enabling customers who have lower monthly outgoings and resulting in improved financial resilience for them. Loan-to-value ratios remain well controlled, as Dave mentioned, and that underpins the strong returns as this portfolio continues to grow. These disciplines support responsible growth, protect customer outcomes, and deliver predictable performance across credit cycles.
Slide 29 shows how we support customers to improve their financial health. Snoop is central to this, as I've mentioned. It acts as a key enabler of our inclusion strategy and long-term growth model. Using open banking data and AI, Snoop helps customers manage everyday money, helps them build confidence, and develop healthier financial behaviors. For many users, this translates into meaningful savings over time, through better bill management, smarter spending, and easier supplier switching. For those customers who are not yet ready or we're able to offer credit right now, the program we've delivered with Fair Finance provides a responsible alternative for them. The Vanquis Foundation and our community partners extend this support, investing in financial education, inclusion initiatives, and accessible debt advice to build capability with customers earlier and reduce long-term financial exclusion.
Turning to slide 30, again, building on Dave's earlier comments, our banking license gives us a clear and durable funding advantage. Retail deposits provide a stable, low-cost funding that many specialist lenders do not have access to. Through 2025, as you've seen, our deposit costs reduced steadily. This reflects a combination of lower interest rates and a shift towards lower-cost savings products. You can see this clearly in the funding mix on the slide. This has allowed us to price competitively, protecting margins, and improving overall funding efficiency. We will continue to diversify and optimize our deposit base as we look ahead, expanding flexible savings products and using Snoop as a scalable distribution channel to support efficient, low-cost, deposit-led growth. In short, our funding advantage strengthens our margins, improves resilience across the cycle, and underpins our ability to grow profitably over time.
Coming back to Gateway on slide 31, it's been an underlying theme of my remarks, as it is the catalyst that underpins our long-term growth and innovation agenda. It's a fundamental reset to address the previous underinvestment in technology, which this business was suffering from. It will enable us to operate as a modern, efficient, and digital-first bank and to scale. Importantly, as you can see on the left-hand side of the slide, the majority of Gateway's core capabilities have already been delivered, with clear progress across customer experience, control, and resilience. Gateway is now an operational platform with regular feature releases and improvements. For example, we've already launched a chat channel for customers and are deploying agentic AI agents to improve service quality and to reduce our costs.
Looking ahead, the last major components of Gateway complete in 2026, and the benefits then become structural through fewer systems, streamlined processes, and improved automation, which in turn means improved resilience, lower run rate costs, and better operating leverage. In short, Gateway is the strategic enabler of our business, allowing us to complete those three pillars of serve more, serve responsibly, and scale profitably. Let me pause there as we'll come back to expand further on our next three-year strategic cycle at a future date. Our focus for now remains on disciplined execution and delivering 2026 as planned. I'll now hand back to Dave to talk through our guidance.
Thanks, Ian. Slide 33 summarizes the guidance we have laid out this morning.
Importantly, we remain on track to deliver our statutory ROTE guidance of low double digits for 2026 and mid-teens for 2027. I would expect profits to be higher in the second half of the year compared to the first half, as balances mature and interest income builds. We now expect balances in 2026 to exceed GBP 3.3 billion, and to increase to greater than GBP 3.7 billion by the end of 2027, as we balance growth with the improved profits required to deliver the higher ROTEs we are targeting. The balance base and the deliberate change in product mix that Ian has talked about, including a greater proportion of second charge mortgages, is expected to result in a continued reduction in NIM to around 15.5% in 2026 and 14.5% in 2027.
Now that we have a greater clarity on the cost of risk across our products and to better align to how we assess the performance of the respective products, we've also introduced risk-adjusted margin guidance. This is expected to reduce both in 2026 and in 2027, but remain above 9.5% and 9% in the respective years. Again, this is driven by the increasing proportion of second charge mortgages. Alongside income growth, continued cost discipline will be a key lever of the improving profit trajectory over the next two years. This will drive cost-to-income ratio down from the high 50s in 2025 to the high 40s in 2026, and the mid-40s in 2027. Turning to slide 34, the bridge on the left-hand side provides an indicative view of how we expect to deliver mid-teens ROTE by 2027.
As you can see, risk-adjusted income growth is a meaningful contributor, but continued cost takeout is also a significant lever. This will be achieved through ongoing transformation savings, including an additional GBP 23 million-GBP 28 million from the completion of Gateway and an ongoing focus on cost discipline, driving further operational efficiencies across the group. At the same time, we will continue to invest in our business. As set out in slide 35, we will continue to deploy capital for growth near term. As I have mentioned, we are now comfortable operating with a CET1 ratio guidance of greater than 14.5%. This follows the capital optimization transaction that we executed last year, the reducing risk profile of the business, and the outcome of the recent regulatory review of the group's capital requirements.
The existing capital capacity, alongside the capital accretion we expect to generate from increased profits over the next two years, means that we are well positioned to deliver the growth we are targeting. Having achieved what we said we'd do in 2025, we remain laser focused on the execution of our plan and are fully committed to delivering sustainable, long-term value for our shareholders. With that, I'll hand you back to Ian.
Thank you, Dave. Turning to slide 37, let me close by bringing together our key messages from today. Vanquis is built on a set of clear and durable strengths. We operate in a large and structurally underserved U.K. market with persistent demand for responsible credit. We have a customer proposition designed to help them to build better financial resilience. Our banking license provides a cost-effective, deposit-led funding model, and Gateway gives us a modern, efficient, and scalable technology platform. These strengths are brought together through a clear and practical strategy, as I've described, with serve more, serve responsibly, and scale profitably. The strategic framework that we now have in place will allow us to build on the progress that you can see in these 2025 results. We can continue to grow sustainably, strengthening our franchise and delivering attractive long-term returns.
That is how we will create long-term value for customers, colleagues, and our shareholders. Thank you for listening. I will now hand back to the operator to open the line for questions.
Thank you. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question is from Gary Greenwood from Shore Capital. Your line is now open. Please go ahead.
Morning, Gary.
Morning, Gary.
Morning, chaps. Thanks for taking my questions. I've got three, hopefully not two long ones. The first one was on 2CM and the sort of strong growth you're putting on there. Just trying to get a better understanding of what your secret sauce there is in terms of how you're taking market share. Are you just pricing more aggressively, or is there something else that's allowing you to grow faster than the market? Second one on vehicle finance is when you're expecting that business to move into profit. I presume when sort of Gateway's been fully delivered, but does that mean profitability full year 2026, or are we looking at full year 2027? Lastly, on costs. I think you said costs would come down in each of the next 2 years.
Just looking at consensus, that's got costs coming down in 2026, but going up in 2027. It looks like cost forecasts need to come down in 2027. I'm just wondering why you think the sort of absolute base for costs will be, because I'm guessing they'll probably grow beyond 2027. I'm just trying to get an idea of the trust level.
Gary, thank you. First out of the, out of the door with a question is always so much appreciated. Let me take the first one on second charge mortgages. As you said, it's been a, it's been a really good growth story for us, and we expect that to continue. We've got 2 forward flow agreements in place that are covering nearly 20% of the market now, and it's a growing market. We're being very careful about pricing, so we're not pricing to win business. In fact, we're quite, you know, we, we monitor that on a, on a very regular basis, and we're holding that very firm. It is a growing market.
There are some new competitors coming in that create a bit of price pressure. Overall, we are growing in a growing market, and we're very happy with the way that's going for us. About 75% of the customers that we've taken on are using it for some proportion of debt consolidation, so it fits really nicely with the purpose that I've just talked about. Dave, anything you want to add on second charge?
Nothing else to add, Ian.
Yeah. Onwards and upwards with that. There is a really important point here. You know, we'll allocate our capital to where we think we're going to get the best return. It's a balance between the asset products on an ongoing basis. That then brings me to vehicle finance. As you've seen, we've, you know, we've moderated our growth quite carefully through 2025 in advance of that Gateway platform build that I talked about in my remarks a little while ago. That will really be the catalyst for scalable, profitable growth. We are looking, you can see in our numbers that we did price up a little bit in that market, even through 2025. We're looking at how quickly can we get it to profitability through this year.
Then there's a real step up that happens when the cost to serve those customers and process that business through our lovely brokers, comes down as we get Gateway's vehicle finance platform in place. Again, Dave, anything you want to add on that one?
Just a couple of things to add there, Ian. You've seen balances came down by 8% in 2025 as we managed our new customer business. That will continue that same sort of rate in the first half of this year, 2026. That should stop at that point and start as the new Gateway application comes on board, start growing towards the tail end of 2026 and grow further into 2027, which will be the real catalyst for growth and our profitability in the vehicle finance business.
Gary, there's a really important point here that, you know, all of our products should be profitable on a standalone individual basis, so that's what we're aiming for. If we're not actually there already, as we are with cards and second charge mortgages, we've certainly got a plan to get there as soon as possible. I think that probably covers that one. Dave, do you want to do costs? Obviously, that's been a big, big feature of our results over the last couple years.
As we covered in the presentation, in 2025, we delivered over GBP 28.8 million worth of cost savings, which exceeded our GBP 15 million of commitment in 2025. Part of that's going to roll through into the 2026 numbers. We've also committed to delivering another GBP 23 million-GBP 28 million of Gateway savings in 2026. The complaints numbers you saw have come down in the second half year to sort of GBP 7.5 million. We'd like that to be at that level or slightly lower as we go through into 2026. There's other aspects of operational efficiency we're still looking at, whilst at the same time, we are still continuing to invest in the business as we go further forward. As we've laid out, we expect 2026 costs to come down from 2025.
2027 also be lower than 2026, but we're not going to guide on an absolute amount of cost.
All I'd add to that one, Gary, is, look, you know, there's that old adage about you can't cut yourself to greatness. There was definitely opportunity for us to take some, you know, some costs out of the business. We've done that and done that in a very disciplined way. I think we've beaten every single cost objective that we've put out since Dave and I started. You can. You know, that's something that we're good at, but it's not something we particularly enjoy. We want to get into a cycle where we're investing into the business, but how we invest will be much more around areas like data, like credit risk, and into technology with benefits from AI will flow through over the next couple of years as well.
you know, I think we're in a good place on costs, but we will continue that discipline of making sure we're investing where it generates a return.
Just to clarify, will 2027 be the sort of trough for cost, and cost will grow thereafter?
Gary, I'm going to stick to what we said so far. 2027 will be lower than 2026. It comes down to what our forward-looking strategy would be, which I think, we'll come back to the market probably next year.
Okay. Thanks very much.
Thank you, Gary. Gabrielle, have we other questions?
Yes. Our next question is from Rae Maile from Panmure Liberum. Your line is now open. Please go ahead.
Morning, gents. Rae Maile from Panmure Liberum. Two rather bigger natured questions. Firstly, can you talk a little bit about the regulatory environment these days? Obviously, shareholders will know that regulation has been the bugbear of the non-standard market for many years. I wonder, how has the regulatory environment developed over a period of time, and certainly, how has the company's relationship with the regulator changed over the last couple of years? Secondly, Ian, you touched on the question of competition in second charge mortgages. Could you talk more generally about the competitive environment that the business is facing, please?
Thank you, Rae. Two really good questions. Let me take the regulatory one first, as I probably, with our chief risk officer and Dave Watts, you know, spend more time in front of regulators than anyone else in the business, and rightly so. My view is we've got a very supportive relationship. It's challenging, as you'd expect. I'm a firm believer, and I've said this for decades of my career, that you get the regulation that you deserve in the end, and I think, you know, regulators are seeing that what we're doing is well-grounded in good customer outcomes, that we're trying to serve a market, that, you know, we define, as you've just seen the numbers that we've presented, there's a big underserved base out there that need help, and that supply-demand equation is out of whack at the minute.
There's more customer demand for less standard credit than there is supply into that market. You know, that's what underpins our investment thesis and our purpose, which, as I've described, is grounded in helping those customers when they often struggle to get help from other places. I would comment on as well as FCA, its PRA, Treasury have been incredibly supportive as well. There's a big government agenda, obviously, then behind this, which I think is in our favor, too. You've seen tangible outcomes from those relationships. You know, they're not just a nice, fluffy thing in itself, it's actually about what changes as a result.
Dave might want to comment on PRA and the Prudential regulation in a second, but we certainly saw FOS changes and CMC charging changes, which were, I think, a very tangible outcome of very constructive conversations that we and other banks had been having with Treasury. I'm very pleased about that as well. I think so far, so good. You know, the relationships are incredibly important to us going forward, hence, I guess, your question. We'll continue to invest in them and be open and transparent, and do the right things for customers, as you'd expect. Dave, do you want to comment on PRA?
Good morning, Rae. Look, we have a good working relationship with the PRA over the last 2 years. I think you get some productive outcomes from opening up to your regulators and being clear, and with great clarity of how the business is operating, what it's doing. I think that was recognized in terms of a sort of positive triennial CSREP review with the PRA at the tail end of 2025, which I commented on earlier on. Yeah, and I expect to have a good, productive relationship with them going forwards.
Rae, if I turn to your question on competition, and thank you, as you described it, for the two sort of higher level questions. I mean, back to my point about supply and demand. You know, we've got less than 2 million customers, and there's an opportunity pool of over 20 million, say 24 million, as we've just described, so there's a lot of room here. There is a, you know, a really good target addressable market available to us. In cards, if I just take the products, it's pretty stable. We haven't seen anything dramatic in terms of new competitors coming in. We watch that on a daily basis. And obviously, our pricing reflects, you know, what other activity is going on around us, too.
You know, you've seen in our NIM numbers and our risk-adjusted NIM, in particular, that we're very disciplined on our pricing, and there are times that we will pull back a little bit if we do believe we're getting squeezed. 2CM, I mentioned earlier on that. You know, broadly, we see that there's plenty of room for us to grow. Vehicle finance is probably the watch one, because obviously we've got the FCA redress scheme. We'll get the details on that towards the end of March, based on current plans, and we'll see what happens to that market. I would expect there to be some people will choose not to participate. As that market gets through redress and cleans up, then there may be other people that will choose to come in.
We'll keep an eye on that, but, you know, as I said, the key message for us is we've got a sort of 10x customer demand opportunity for Vanquis, and that's very exciting, and that's what we're focused on delivering to. That's great. Thank you very much indeed. Thank you, Rae.
Thank you, Rae. Our next question is from James Allen, from Berenberg. Your line is now open. Please go ahead.
Hi, James.
Hi. Morning, Ian. Morning, Dave. Three questions from me, if I can. First one, you're clearly making good strides on improving return on tangible equity. I was just wondering where you would like to get to on a steady state basis on that metric beyond FY 2027. Second question, the rationale for the AT1, being excluded in the ROTE calc, presumably that's just to preserve the focus on returns for common equity shareholders when looking at that metric. Final question: my understanding is you can't necessarily promote Vanquis products over other banks on Snoop at the moment, but is there any kind of potential change in regulation that may be coming in at some point that maybe would allow you to direct more customers into Vanquis products via Snoop? Thank you.
James, thank you. I'll leave the AT1 ROTE calculation one to Dave in a second. If I start with, you know, what's our ROTE trajectory, I think what you're seeing with Dave and I, and the board, and our management teams is, you know, when we commit to something, we really commit to it. We committed to getting to low single-digit ROTE in 2025. That's exactly what we've done. We've got a clear commitment for low double-digit ROTE for this year, we've got a mid-teens ROTE commitment for 2027. That's as far as we're going in terms of our commitments. Underneath that, of course, we're looking at, as we go through every day, week, and month, quarter of this business, we're learning as we go, and we're spotting new opportunities, we will keep that all under review.
We, as Dave mentioned earlier, I think to Gary's question, we'll come back sort of this time or early in 2027 to talk about that next strategic cycle, that next sort of 3-year phase, and we'll update on ROTE on that. What you can expect from us for this year is an absolute focus on delivering what we've committed in terms of our ROTE guidance. Dave, anything you want to add on that one?
No, I think you've covered it in detail, Ian.
do you want to do the AT1 calculations, ROTE costs?
James, you're correct on your understanding of that part there. I'm glad that the clarity we've given in the presentation has enabled you to get to that position. Yeah, it's to focus on the equity shareholders.
I won't add anything to that. On Snoop and Vanquis. Look, Snoop has been a fantastic acquisition for us on a range of levels, but the quality of the customer proposition and how we're tangibly able to show customers how to manage their money better is perfect for Vanquis, and we're seeing that penetration into our customer base grow very nicely. Snoop itself is continuing to grow, as you can see from our numbers as well, that works well. I think your question is a very good one about what more can we do to combine those two things.
We are in the midst of rolling out a new mobile app for our customers at the minute, and what that will allow us to do is take some of those facilities and functionality that live in Snoop at the minute and begin to get that through into the wider Vanquis customer base, which we're very excited about. There's all sorts of things about T's and C's and permissions and so on, that sit behind that are more complicated than anyone could imagine, but we are working our way through that very well. You know, that, you know, Snoop remains as a great example of how we help customers, even if they can't access credit for us. Very similar to what we're doing with Fair Finance. It sits in that not yet proposition bucket that I talked about earlier and is critical.
We also brought in an amazing management team with Snoop, who we've deployed across many senior roles over the across the bank, rather than just in Snoop. Also a fantastic data insight engine, where we're able to package up insights to our customers and present them, as we do quarterly. Actually, they're very useful to other businesses as to what the buying habits of this customer base look like. Snoop continues to be a very important part of our proposition. Again, Dave, anything that you want to add?
Yeah, I think as you said, Ian, the integration of the staff has been excellent for Vanquis Group as a whole. As we go further forwards in the near term and the medium term, greater integration of Snoop into the Vanquis banking app is going to be one of our priorities as we look forwards.
Yeah. Thank you, James. Hopefully, that covers your questions.
That's very clear. Yeah, thank you very much, guys.
See you soon.
Thank you, James. Our next question is from Edward Firth, from Keefe, Bruyette & Woods. Your line is now open. Please go ahead.
Good morning, Ed.
Yeah, good morning, everybody, and thanks for taking my question. If I looked on, I think it was slide 15, I think last year there were around GBP 26 million of costs related to complaint handling. I mean, over time, is that like a 0 number or can you give us some idea of where you think that number will fall to on a sort of annualized basis, what you think is a reasonable number? That'll be my first question.
The second question was, and I guess it's slightly a Snoop-related question, but, you know, a lot of the growth at the moment is coming through from second charge mortgages, which is a new product that you introduced, and that sort of massively exceeded expectations, well, certainly my expectations anyway. Do you still look for other products? Are you still looking at other areas that you could see potential for a sort of similar startup or startup product line? I guess that's particularly related to Snoop, where I guess you must have, you know, very good visibility on Snoop customers and the sort of products that they may or may not need.
I'm just wondering, you know, are you still looking at other areas where we can perhaps get a similar performance that we've seen on the second charge mortgages? I guess the final question, they're all sort of broadly related. I mean, Snoop's doing well, but if I look in your centrals, it looks like it costs still GBP 50 million-GBP 20 million a year, something like that. You don't give us it precisely, but I guess that's the biggest driver of centrals. Can you give us an idea, do you have some visibility at some point, or what would be needed to get us to profitability for that business? Thanks very much.
Ed, thank you. Your line cut in and out a little bit there. Let me just repeat the questions to make sure that everyone heard them. I think I caught them. First one, costs on complaints and what's a steady state? I'll maybe let Dave pick that up. Second one, on second charge mortgages, are there other products like that? We've obviously shown that we can launch a new product into a new market and do very well very quickly. What else are we thinking about? I think the third one, if I caught it right, was about Snoop costs and central costs and Snoop profitability. I'll maybe come to Dave on that one as well. Dave, do you want to start with the complaints?
Ed, good morning, and thanks for the question. On slide 43, it gives a more in-depth viewpoint, looking at complaints in place there. What you will see, I think you asked the question specifically about resource handling costs, and Ian touched earlier on in his presentation about a 10% reduction for some of the technology we've introduced through the Gateway program there. We're making progress. We talked about the second half of the year having an overall cost of complaints, excluding the vehicle finance, FCA commission provision in place there, about GBP 7.5 million. With better customer outcomes delivered as part of our technology upgrades, we'd hope that number to come down, but that would be a number we'd hope to beat in the first half of next year and the second half of next year.
That's the complaint cost from there. Hopefully, that's covered. Anything else to add on that, Ian?
I think, you know, obviously, you want every customer to be completely happy all the time. Every, you know, any good business would aim for that, but there is a practical reality that there will always be a level of customer interaction, and we will always stand up and do that as well as we possibly can. It's part of our customer focus and our proposition. Nothing more on that from me. If we take the second charge mortgage example, Ed, you know, there's a market that we weren't in 2 years ago that we're now with those 2 forward flow arrangements I mentioned, if not market leading, certainly in the top 3. That has gone very well for us.
We've learned a lot from that. We are always looking at what our customers spend or our analysis of what their needs may be, and what does that mean for other things that we could expand our proposition into? You've seen us expand into not yet, as we describe it. Where do we hit our credit, you know, our ability to offer credit, that limit, and then how do we help the customers if they sit at that point in time outside that limit? Hence, the Fair Finance and Snoop conversations that we've already had. Yes, we are looking at, you know, a range of other things. We've got plenty of room to grow, though, in the current product set as it stands. You know, don't expect anything, you know, immediate in terms of next steps.
This is about maturing and settling our tech platform and our new operating model that we've spent the last sort of a year or two building and growing where we can see the demand is today, as well as understanding where we might expand to in the future. I'll not say any more on that. I don't think there's anything from you, Dave.
Just to reiterate, there is significant market opportunity in the products we're actually offering to our customers at this point in time.
Agreed. Then the Snoop costs and central costs. Dave, do you want to take that?
We've got the corporate center, which contains a number of items. You know, a half year we did a sort of recutting of our product portfolio profitability, which did move some costs from the corporate center to give greater clarity of our vehicle finance, second charge mortgages, and credit cards profitability, which I think it's landing quite well. What we've got listed in the corporate center is not just Snoop income and cost, it's got some unallocated treasury result. It's got the costs associated with our retail savings business and some other sort. It's almost immaterial central items in place there. I wouldn't just read that as pure Snoop. It's got a bundle of items in there.
As Ian covered it on the previous question, as Snoop has delivered more than just purely the revenues that come with the actual business per se, it's the management team and how they're helping out drive the overall bank further forwards on its digitization. Hope that's helpful. Ed, if you've got any further questions, I'm happy to take them offline with you at a later date.
Okay. Thanks so much.
Thanks, Ed.
Thank you, Edward. Our next question is from Jackie Ineke, from Spring Investments. Your line is now open. Please go ahead.
Morning, Jackie.
Morning, Jackie.
Thanks. Good morning. Good morning, both. Hi. So I'm from the credit side. We're very happy holders of your AT1s and Tier 2s. Thanks for the good results. I have a couple of questions. First of all, just in terms of capital management, you have your Tier 2 outstanding. It's got an October call date. I understand from the change in regulations that you can tender those Tier 2s before the call date. I was just wondering if you're giving that any consideration. Obviously, it's trading well above par, so it might not work in terms of economics. If you could give me your thoughts on that would be great. The second question is very much bigger picture. You've talked about, you know, the competitive environment and the opportunities.
You know, comparing you guys to the bigger U.K. banks, you have a very differentiated strategy. I was just wondering if there had been any approaches or any talks with any of the larger banks. I know that's not what you want to do now, and you're in the middle of a, you know, very strongly performing strategy, have you been approached, and what's going on there? Thank you.
I will let you cover the Tier 2, Dave, while I think about the second question.
Thanks, Ian. Jackie, thanks for your question. You'd understand we can't speculate on such tender offers at this point in time. We do note the call date. I think what's worthwhile bringing out is we did a big capital optimization transaction end of last year, where we issued GBP 60 million of AT1 and bought back GBP 58.5 million of Tier 2, bringing down the level down to GBP 141.5. That is dealt with quite a lot of the excess Tier 2 capital we had issued into the marketplace. We still have some excess at this time, which obviously will be considered as part of what we may do later on this year. I can't add any more at this stage.
Thank you.
I'm glad you're a happy holder, Jackie.
Yeah.
That's very good to hear. On the, you know, what's going on around us in the market, we don't spend a huge amount of time sort of thinking about this really, Jackie. I mean, our job, and I think hopefully that's been very clear from previous presentations and this one, is to make Vanquis into the very best entity that we can make it for our customers and our colleagues and our investors, and that's what we're absolutely focused on. Do you know, you know, do conversations come around every now and then? Yes, if there's anything reportable at any stage, obviously, we know our responsibilities, but for now, our absolute focus is delivering to the opportunity that we've got right in front of us.
Got it. Thanks, guys.
Thank you.
Thank you, Jackie. I will now hand over to James Cranstoun, Head of Investor Relations. Please go ahead.
Hi. There's actually no further questions on the webcast, so I think we can hand back to Ian and Dave to close.
Okay. Well, look, thank you, everybody, for your attention this morning, for your very good questions. We always enjoy that. I know we'll see many of you over the next couple of days. We look forward to those conversations as well. Just as I end, I'll go back to what I said in my remarks earlier. I'd really like to just thank our customers for their, you know, enjoying the support that we're trying to give them, you know, that they are, they are the lifeblood of our business, as I described. I would also like to thank everyone in the organization. You know, it has been a horrid couple of years.
We are definitely back on the path that we wanted to be on now, that's down to the efforts of our colleagues, the support of our board. I'd like to thank our investors as well. You know, their patience, understanding, and support has been fantastic through this. You, to the question earlier, also to our regulators and treasury, who've also been very helpful. Look, we're on a good path now. There's a lot of work still to do, you know, it's a much better position than this business was in previously, I'm delighted about that, and I'm very grateful for the hard work. On that basis, Gabrielle, I think we will end the call there.
Thank you, everyone. This concludes today's Vanquis Banking Group full year results 2025. Thank you for joining. You may now disconnect your line.