Atom Bank has become the latest UK digital lender to swing to its first annual pretax profit, with the group benefiting from higher interest rates and a jump in mortgage lending.
The Durham-based lender, which launched in 2016 as the UK’s first app-based bank, posted a pretax profit of £7m in 2023, swinging from a £10.1m loss in 2022.
Atom’s operating profit surged 600 per cent year on year to £27m, while its costs up ticked up just four per cent, which it said demonstrated “the success of its efficient, sustainable and scalable business model”.
Reduced fintech investment over the last two years has forced many firms to focus on profitability instead of growth at all costs. As well as Atom, fellow start-ups Monzo, Clearbank and Zopa have all posted their first annual profits this year.
Atom’s earnings were boosted by a 40 per cent increase in its loan book to £4.1bn, with a 55 per cent jump in residential mortgage balances to £3.2bn.
UK mortgage lending was broadly subdued for much of last year as the prospect of higher interest rates put off borrowers. Atom said it had “navigated a difficult market” that had contracted by 25 per cent, while raising its own residential mortgage completions 20 per cent to nearly £1.6bn.
Atom, like other UK banks, saw a rise in lending income last year, helped by rate hikes from the Bank of England. Its net interest income – the difference between what it pays out to savers and receives in interest from loans – jumped 31 per cent to £100m, while its net interest margin remained stable at 2.8 per cent.
The bank added that it continued to draw in customers with attractive savings rates. Atom’s deposit beta – the share of rate hikes that banks pass on to interest rates on deposits – stands at 88 per cent, which it said “comfortably outperformed” the big banks.
Although Atom secured its banking licence first, it has grown more slowly than rivals Starling and Monzo – with a large difference being that Atom does not offer current accounts.
The bank’s valuation took a hit last November after raising more than £100m from existing shareholders including Spanish bank BBVA and private equity firm Toscafund. The funding round valued Atom at £362m, down from £435m at the start of 2022.
Atom ended the financial year with 0.3 per cent of its residential loans in arrears or subject to forbearance measures, with this figure at 0.7 per cent across its whole lending portfolio.