Starling Bank has posted its third full year of profitability as the digital-only lender grew its customer base and reaped the benefits of higher interest rates ahead of a planned IPO.
The firm reported a pretax profit of £301.1m for the year ending on 31 March 2024, up 55 per cent from £194.6m the year before. Starling, founded in 2014, reported its first annual profit in 2022.
Its revenue increased to £682.2m from £452.8m in 2023. Major UK banks received a profit boost from the Bank of England’s interest rate hikes last year, which allowed them to charge more for loans.
Starling posted a net interest income – the difference between what it pays out to savers and receives in interest from loans – of £592.9m for the year, up from £348.9m in 2023. Its net interest margin grew to 4.34 per cent to 2.72 per cent.
The bank’s loan balances jumped to £2.3bn from £1.5bn, although its total gross lending dropped some £200m to £4.7bn. Starling has increasingly concentrated on mortgages, with home loans now accounting for 81.7 per cent of its lending, up from 70.5 per cent last year.
Starling’s Fleet Mortgages business, which specialises in buy-to-let, grew its mortgage portfolio by 51 per cent to £2.3bn.
The bank set aside £47.0m for bad loans, up from £34.5m a year before. It attributed the rise to an “increase in default rates on unsecured lending and mortgage portfolio seasoning”.
Digital banks like Starling and Monzo – which posted its first annual profit earlier this month – have exploded in popularity in recent years and pose an increasing challenge to Britain’s biggest lenders as their slick mobile-first offerings attract millions of consumers.
Starling now boasts more than 4.2m accounts, adding roughly 600,000 over the year. The bank grew its deposits to nearly £11.0bn from £10.6bn.
Staff costs jumped 69 per cent to £230.4m as Starling’s headcount grew by 898 to 3,660 over the year. The group has focused on hiring for its recently-launched tech unit, Engine, which white-labels Starling’s software platform to banks in other countries.
The results are the first published since founder Anne Boden stepped down as chief executive last June. Reports quickly surfaced that her departure followed a row with investors over the firm’s valuation falling by at least £1bn when fund manager Jupiter sold its holding.
Boden, who still sits on Starling’s board, said her decision was driven by a desire to split up her role as a major shareholder and CEO. Raman Bhatia is due to join Starling as its new permanent CEO on 24 June, previously heading up energy firm Ovo.
News of Starling’s sustained and growing profitability will buoy investors ahead of an expected big-ticket stock market listing. Starling was last officially valued at £2.5bn in 2022.
In 2021, Boden outlined plans for a London float in 2022 or 2023, although plans were put on ice after she stepped down.
Interim boss John Mountain told reporters on Wednesday that Starling was still targeting an IPO and was not considering other markets than London.