Starling Bank turns a profit on mortgage loan growth

Starling Bank turns a profit on mortgage loan growth

British digital bank Starling has reported its first annual profit after breaking into the mortgage market with a series of portfolio acquisitions.

The app-based bank posted a pre-tax profit of £32.1mn for the year to the end of March, reversing a £13.7mn loss in the same period a year earlier.

Revenues were boosted by the bank’s move into the residential home loans sector, increasing more than 90 per cent to £188.1mn.

The results reflect Starling’s strategy to diversify away from government-backed lending schemes, with bounce back loans making up the bulk of its lending to small businesses.

The bank, whose investors include Goldman Sachs and Jupiter Asset Management, had originally primarily courted retail customers, but pivoted to target companies at the start of the pandemic.

These rescue loan schemes helped Starling to increase its small business lending to more than £2.2bn, although the balance has shrunk to £2bn as customers have started to repay their loans.

However, concerns are mounting over the extent of fraudulent bounce back loan applications. The former anti-fraud minister Lord Agnew complained that the government had poor oversight over the scheme, which offered up to £50,000 to struggling small businesses during the pandemic with lighter customer checks than traditional lending.

Lord Agnew singled out Starling, claiming the bank had acted against the interests of the government and taxpayers.

“Lord Agnew is just wrong,” said Anne Boden on Thursday. “Starling has done a fantastic job in making sure we did all the checks necessary and more.”

Starling said mortgage lending reached £1.2bn. Last July, the bank struck a £50mn deal to acquire buy-to-let mortgage group Fleet Mortgages. In June, it made another acquisition of a loan portfolio from specialist lender Masthaven, worth about £500mn.

Starling’s valuation doubled to more than £2.5bn in April, although it lags behind fintech Revolut, which was valued at $33bn in a funding round last July.

On Monday, the challenger bank announced that it was withdrawing its application for a banking business in Ireland. Boden said Starling was focusing instead on its cloud banking platform Engine, which it licences to other companies looking to process payments, card transactions, and open customer accounts.

https://www.ft.com/content/b7aabc11-3ee3-496e-b357-84773b1061f0

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