Starling Bank has reported its first annual profit thanks to a surge in lending, though executives played down the impact that a controversial boom in Covid loans had on its path to profit.
The chief executive and founder, Anne Boden, said the latest set of earnings were a “landmark” for the eight-year-old digital bank. Starling, which is backed by investors including Goldman Sachs and Austrian billionaire Harald McPike, swung to an inaugural annual profit of £32m for the year to March, from a loss of nearly £14m over the previous 12 months.
That swing was due to a jump in fees from loans that pushed revenue up 93% to £188m.
However, executives said profits were driven by home loans, following its acquisition of Fleet Mortgages last year, rather than its handling of bounce back loans and coronavirus business interruption loans, which were intended to support small businesses at the height of the Covid crisis. Those loans are covered by taxpayer cash if customers default.
A spokesperson for the bank said those government-backed loans made up about 20% of Starling’s revenues, and currently account for 44% of Starling’s loan book.
But Boden, a former Royal Bank of Scotland and Allied Irish Banks executive, played down the impact that the Covid schemes had on the company’s path to profit. “Would we have been profitable if we had not done Covid loans? Yes, we would.”
She added that the loans would make up a smaller proportion of its loan book going forward, as Starling pushes into other forms of lending.
The chief executive was forced to defend the bank’s handling of the Covid loans last month after former minister Lord Agnew claimed Starling had used the program “against the government’s and taxpayer’s interests”, and as a “cost-free marketing exercise to build their loan book and so their company valuation”. He also accused the bank of failing to properly review borrowers.
Boden rejected Agnew’s claims at the time. She said the bank had introduced extra checks including for sole traders, and had excluded all non-active companies, and those that were incorporated after 1 March 2020 – the cut-off point for accessing the Covid loans – from the scheme.
She added: “The comments raised by Lord Agnew about not checking the turnover of businesses or submitting suspicious activity reports are absolutely and utterly wrong and I must ask him to withdraw the statement.”
Boden has since accused the Tory peer of “defamatory statements”, and confirmed on Thursday that Agnew had turned down an offer to meet with the bank after she wrote to the Tory peer regarding his comments.
While questions have been raised about its pace of customer growth And the ability to conduct proper checks as a result, Starling has said its own cutting edge technology allowed it to attract new customers at a faster pace than big banks, despite having fewer than 2,000 staff.
Starling confirmed on Thursday that it had opened another 600,000 customer accounts over the past year, bringing its total to 2.7m.
Boden assured funding that Agnew’s comments had not influenced investors’ commitment to Starling which was valued at £2.5bn earlier this year through a £400m round.
With its first annual profit under its belt, Starling will now push ahead with plans for an eventual stock exchange flotation, but given current market conditions, Boden said an initial public offering may not take place until 2024.
The planned IPO is likely to result in a hefty payout for Starling’s top funder, McPike, despite his stake having dropped from 56% to 36% over the past year.
Boden said McPike’s stake, which is held via his special purpose vehicle JTC Starling Holdings, was diluted through recent funding rounds, rather than having been reduced through a sale of his shares.