Paragon to Apply for Banking Licence.

by Mark Johnston

Paragon to Apply for Banking Licence.

It seems that new banks have slowly begun to surface since the 2008 financial crisis, looking to fill the gap as the biggest lenders focus on shrinking their balance sheets and building up capital to meet new regulations.

Although the banking sector is currently dominated by 5 banks: HSBC, Barclays, Royal bank of Scotland (RBS) and Santander.

However, in March this year the Prudential Regulation Authority, announced new rules that meant that new start up banks would no longer need as much capital as their established rivals.

Capital requirements will be lighter for the first three to five years as long as a new bank can show deposits are insured and that it can be wound up without destabilising markets.

These new rules are designed to encourage competition to Britain’s already established lenders.

Therefore, Paragon, the buy to let mortgage provider, is one of the first to apply for a banking licence in order to kickstart its consumer lending business.

This particular lender currently specialises in mortgages for residential landlords.

In the aftermath of the financial crisis this lender decided to close itself to any new business, this decision therefore meant that they survived the crash that brought down several of its peers.

Paragon has it seems has performed strongly despite the economic crisis especially as landlords have fully taken advantage of a booming rental market while first time home buyers struggle to get on the housing ladder.

The lenders buy to let business is booming, with the mortgage pipeline at the end of March up to £240 million from £100 million a year ago. Profits were £48.2 million in the six months to 31 March, a rise of 10 per cent on the same period last year.

John Heron, Director of Mortgages at Paragon, said that lending is expected to continue growing: “The increased funding capacity combined with our ability to fund at tighter margins has allowed us to compete much more effectively in our core market and lay the foundations for further and sustainable growth in the coming months.”

Nigel Terrington, chief executive of Paragon, said “We had already decided to pursue the consumer finance market through a banking route. At one point we were pursuing entry via an acquisition but we changed that plan to go the organic route”.

Most of this lenders challengers, such as Aldermore and Shawbrook, are not looking to offer all banking services, but are instead focusing on particular areas of the market where they believe they can compete with larger operators.

Paragon is currently waiting for the Financial Services Authority (FSA) to approve a banking licence for it, at which point it can start taking retail deposits.  The lender therefore hopes to launch their banking services by 2014.

A Financial Service Authority (FSA) spokesperson said that the process typically takes around six months, but they do not publish any information on applications made for banking licences until a licence is granted.


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