UK digital bank Starling on track to increase annual profit after Covid loan increase

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Starling, a UK-based digital bank, is on track to hit its first full year of profitability after its participation in government loan programs to bail out Covid-19 led to rapid revenue increases.

Anne Boden, CEO of Starling, said the bank is “pulling out” of its peer startups, pending a potential initial public offering by early 2023.

The bank said Thursday that its pre-tax loss for the last fiscal year has narrowed, adding that its results have continued to improve.

Starling, backed by Goldman Sachs, follows a more traditional banking business model than some fintech peers such as Monzo and Revolut, focusing on building a large lending business out of its own balance sheet.

It reported a net loss of £ 23 million for the 16 months ended March 31, compared to a £ 52 million loss in the 12 months to November 2019. Revenue increased by almost 600% and administrative expenses by 90%. The annual report covered an unusually long period as the bank moved to the end of the new fiscal year.

Revenue continued to grow in the first quarter of the new fiscal year, nearly tripling from the prior year and generating a pre-tax profit of £ 7.3 million.

By the time of the pandemic last year, the bank had issued only a small amount, but its loan portfolio increased from 54 million pounds to more than 2.2 billion pounds, mainly thanks to government loans for business interruption in connection with the coronavirus and repayable loans.

The loan schemes, especially the loan repayments, did not involve strict credit checks, and the FDA had previously estimated that bankruptcy and fraud losses from the programs would cost the government. about 27 billion pounds

Boden said that “Starling has always had very strict anti-fraud processes,” and predicted that the level of fraud and default among customers would be lower than predicted for the entire industry.

The original rescue loan schemes came to an end in March, and the new Recovery Loan Scheme had relatively low consumptionbut Boden said Starling has “a range of initiatives” to maintain momentum and continue to grow its balance sheet. Efforts include concluding direct flow agreements with specialized non-bank lenders and the possible acquisition of other lending companies.

Starling’s score rose above 1 billion pounds after a £ 272m fundraising round in March, and it raised another £ 50m from Goldman Sachs next month, but that figure is overshadowed rival Revolut which was valued at $ 33 billion following the announcement of new investments last week.

Revolut, which focused on rapid international expansion rather than building full banking services in a single market, has attracted more than 16 million customers compared to Starling’s 2 million customers, but the latter has more customer deposits.

Boden said: “We never looked for clients just for their sake. … … We have clients who use us for real banking, and this can be seen in our account balances and total deposits. “

The preliminary estimate for Revolut was “interesting,” she said, but Starling will focus on making sure it “reaches the right value when we sail and on a very solid foundation.”

She added that the company is aiming for an IPO in late 2022 or early 2023, but said that “the important thing is that we are going to do it in due time. We will not be forced to do this, because now it is fashionable. “



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