Rising interest rates are normally good for banks so investors may be puzzled why FTSE 250 lender Vanquis Banking (VANQ) has plunged nearly 20% in six weeks to 183.6p, putting the company firmly in relegation territory from the mid-cap index.The business, previously called Provident Financial, is trying to change its spots, shifting away from higher-risk, poor credit borrowers to a more mainstream, lower credit threat provider, hence the new name earlier this year.

Previously accused of handing out unaffordable loans to cash-strapped borrowers, change was probably inevitable, even if it means lower gross margins.

But a lender doesn’t change its whole loan book overnight and investors are clearly worried about Vanquis’ long-tail of higher-risk borrowers, especially with interest rates seen staying higher for longer.

This can be managed by most borrowers in regular employment with a little belt-tightening and a modicum of financial discipline, but that could change if recession bites, and widespread workforce cuts emerge.

We are not close to such a scenario now, but things can change quickly, and investors are clearly discounting potential financial threats.

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