(Adds quote, details from statement) July 28 (Reuters) - Virgin Money set aside a further 42 million pounds to cover a possible rise in troubled mortgages and personal loans on Tuesday but the UK's sixth largest bank said it was yet to see any spike in credit losses linked to the COVID-19 pandemic. The modest rise pushed the lender's total balance sheet credit provisions to 584 million pounds. It had reported a first-half loss in May after setting aside 232 million pounds ($298.47 million) to cover bad loans and likely defaults as a result of the global public health crisis. Shares were trading 1.6% higher at 0714 GMT. Virgin Money, one of several smaller lenders seeking to challenge the dominance of the likes of NatWest Group , Barclays and HSBC , said its common equity tier one capital ratio - a key measure of financial strength - rose by around 30 basis points to 13.3% in the quarter to end-June. However, its net interest margin (NIM) -the difference between what banks earn from loans and pay for deposits - slipped to 147 basis points from 163 basis points in the preceding quarter. That reflected the impact of this year's interest rate cuts by the Bank of England, which slashed rates to near zero in March in an effort to stabilise Britain's virus-hit economy. The cuts are expected to squeeze profit margins at all banks, and are likely to hurt smaller lenders like Virgin Money and Metro Bank hardest. In another sign of the sector's challenging business outlook, Virgin Money also reported a 0.4% dip in customer lending to 72.9 billion pounds as a slowdown in the UK housing market during lockdown crushed demand for mortgages. "The UK economy is emerging from lockdown and we have seen increased consumer spending and economic activity in recent weeks," the bank said. "However the economic outlook remains highly uncertain and it may be some months before the full extent of the impact of the lockdown on the Group's customers is visible, once Government and other support measures are withdrawn." ($1 = 0.7777 pounds) ($1 = 0.7773 pounds) (Reporting by Muvija M in Bengaluru, editing by Sinead Cruise)
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