Starling sees profits surge, flags rise in bad loans

(Sharecast News) - Challenger Starling Bank posted a jump in annual profits on Wednesday and reiterated its commitment to a possible stock market debut, despite a jump in bad loan provisions The digital-only lender said revenues in the year to 31 March surged 51% to £682.2m, while pre-tax profits rose 55% to £301.1m, helped by higher interest rates.

Total deposits were 4% stronger at £11bn, while gross lending dipped to £4.7bn from £4.9bn.

However, total impairments and charge-offs increased by 39%, to £13.9m. Starling flagged a rise in mortgage arrears as well as increased default rates in the unsecured proportion of SME lending.

Starling - which has 4.2m customer accounts, up from 3.6m a year ago - has around 9% of the UK market for SME banking.

David Sproul, chair, said: "Starling is now an established part of the UK banking scene. The percentage of active accounts now stands at nearly 80%, while total transactions rose by 21% to £174.1bn during the year.

"We have more customers using our services more often, continuing to deepen their relationship with us."

The fintech is also investing in Engine by Starling, which franchises its software to other banks. Starling said it had signed two clients, AMP in Australia and Salt in Romania, during the year.

John Mountain, interim chief executive, added: "This is our third full year of profitability, demonstrating a robust financial performance.

"It was a breakthrough year for Starling as we became a global provider of banking software as a service. We've invested heavily in Engine because we're confident it can one day become as big as the UK bank, or bigger."

Mountain added that the privately-owned lender remained "very committed" to a possible initial public offering.

He said: "A number of shareholders' investment strategies are based around a public-private approach. The timing we need to look at, but we're very committed to that."

He added that the London Stock Exchange would be a "natural fit", with plans regularly discussed by both the board and shareholders.

Mountain took over as interim chief executive last year after founder Anne Boden stepped down.

His replacement, Raman Bhatia, is due to take over later this month. Bhatia is currently chief executive of energy provider Ovo.