Starling Bank has announced a significant 25% decrease in its annual profits, largely attributing the drop to £28 million in losses from government-backed Covid-19 “bounce back” loans. The digital bank’s CEO, Raman Bhatia, candidly admitted that “weak controls” within the institution were responsible for these substantial losses, precluding them from seeking government guarantees that would have shifted the burden to taxpayers. This admission marks a stark reversal from previous denials regarding their handling of the scheme.
The “bounce back loan” (BBL) scheme was designed to rapidly inject funds into small businesses during the pandemic, offering loans up to £50,000 with 100% taxpayer-backed guarantees. However, Starling’s internal review revealed that a portion of these loans were approved without the necessary due diligence, making them ineligible for the government’s safety net. This revelation comes on the heels of a hefty £29 million fine imposed by the City regulator for “shockingly lax” financial crime controls, further eroding the bank’s profitability.
Collectively, the BBL losses and the regulatory fine have slashed Starling’s profit for the year ending March to £223 million, a sharp decline from £301 million a year prior. The bank’s leadership is now considering potential remuneration adjustments for executives, though details remain scarce. This period of financial setbacks is a critical test for Starling as it seeks to rebuild trust and fortify its operational foundations for future growth.
