The boss of Paragon Banking Group has acquisitions in mind after the lender received a major tailwind from regulatory reforms this year.
Nigel Terrington has said the loosening of banks’ capital requirement rules, known as MREL (minimum requirement for own funds and eligible liabilities), will open up further growth prospects for mid-cap lenders.
The boss of the FTSE 250 lender had been one of the most vocal critics of the current threshold, previously writing in City AM that changing the threshold would allow mid-tier banks to “do even more to power the UK’s economic future”.
Introduced in the fallout of the 2008 financial crisis, MREL rules dictate strict tailored requirements for banks possessing assets between £15bn-£25bn and act as a regulatory buffer to ensure lenders can be safely resolved in a crisis without taxpayer bailouts.
The Bank of England raised the threshold to £25bn-£40bn in July, an increase from the £20bn-£30bn originally floated in the consultation.
This gives firms like Paragon further breathing room to pursue more aggressive growth strategies without immediately encountering costly regulatory requirements.
“It was a barrier to growth and they’ve moved up the threshold quite materially… it presents more opportunities to pursue an acquisitive strategy”, Terrington said.
He added: “Before it was like: ‘That’s a good acquisition, I want to do that’ – and then you realise you get dragged into MREL.”
Consolidation has hit the banking sector over the last year with major deals from the industry’s giants including Santander snapping up TSB for £2.7bn and Barclays’ £600m takeover of Tesco Bank.
When asked if Paragon would play a part in this going forward, Terrington said M&A marks a “strategic opportunity” but added “there’s lots you look at… you’ve got to make sure it’s the right one.”
Paragon to push back on motor finance redress
Terrington’s remarks come after Paragon released its final results for the financial year ending 30 September, 2025.
The bank’s pre-tax profit fell broadly in line with expectations, edging up 1.1 per cent to £256.5m.
The group proposed a final dividend of 30.3p per share, taking the overall for the year to 40.4p marking an 8.7 per cent increase on the previous year.
It came as net interest income jumped to £502.3m, up from £483.2m in 2024. The group’s loan book expanded four per cent to £16.3bn.
But this growth was partially offset by a doubling of provisions for potential sour loans, which hit £27m, nearly double the £14m consensus.
Terrington said the provisioning was “very, very largely focused on our development finance business”.
He said the key drivers were related to loans written in 2023 hit by the rapidly rising interest rates as well as “supply chain disruptions” hitting lending to housebuilders.
“It’s a very narrow, contained roof of customers,” the bank chief said.
Terrington also weighed in on the brewing motor finance row engulfing the City after Paragon hiked its provisions to £26m, from £7m previously.
The bank joins a number of car finance lenders forced to drastically increase provisions after the City watchdog gave additional details on its motor finance redress scheme.
Lloyds Banking Group – which owns the UK’s largest car finance provider Black Horse – was forced to hike provisions to £2bn from £1.2bn whilst Close Brothers near-doubled its funds set aside to £300m.
Both firms took a swing at the Financial Conduct Authority (FCA) for what they regarded as a “disproportionate” scheme.
Terrington said: “There’ll be a lot of pushback coming from the industry and from us”.
He added: “There should be some understanding or application for where we genuinely provided low rates of interest to customers, therefore there was good cost, a number benefits and low commissions, equally good customer benefits.
“There’s kind of no recognition of that at all.”