However, the British challenger bank, which is being bought by rival CYBG, forecast a drop in full-year banking net interest margin (NIM), a measure of lending profitability.

"The ongoing competition in the mortgage market and differential between front and back book margins has, as expected, impacted our banking net interest margin," the company said.

The lender expects a full-year banking NIM of about 1.62 percent, lower than the 1.72 percent reported in 2017, as it reported a drop in first-half margins.

The company, backed by founder Richard Branson, said credit card balances were 3.1 billion pounds at the end of the first half of the year, up from 2.76 billion pounds at the corresponding period a year earlier.

First-half underlying pretax profit rose to 141.6 million pounds, higher than analysts' average estimate of 137 million pounds, according to Thomson Reuters I/B/E/S.

The bank, which listed on London's main market in 2014 to help break up the dominance of Britain's biggest banks, said CET1 ratio, a closely watched measure of balance sheet strength, stood at 16.3 percent, higher than 13.8 percent last year. It guided to a CET1 ratio of 15.5 percent for the year.

The company had an about 2.2 percent share of the gross lending market as of end-May, highlighting the difficulties faced by newer players such as Virgin Money in challenging the established market grip of Britain's biggest lenders.

(Reporting by Noor Zainab Hussain and Muvija M in Bengaluru; Editing by Amrutha Gayathri)