Paragon Bank: Stamp duty boost offsets motor finance provision
Specialist lender Paragon Banking Group bolstered its profit in the first half of the financial year as increased lending managed to offshore a motor finance provision.
The FTSE 250 bank’s pre-tax profit surged 26.7 per cent to £149.4m, up from £146.4 in the first half of 2024.
This was driven by 4.9 per cent expansion in its loan book, as it continued to meet its 2025 business targets.
Mortgage lending soared 25.1 per cent to £810m with the period falling in line with Chancellor Rachel Reeves deadline for stamp duty changes. Top lenders boosted takings on the back of the threshold changes as Brits flocked to beat the exemption adjustments.
Reeves changed zero rate thresholds for main residences, which dropped from £250,000 to £125,000 with first-time homebuyer thresholds dropping from £425,000 to £300,000.
The increased activity helped offset a 3.7 per cent slump in commercial lending to £570m. The firm said growth in small- and medium-sized enterprise lending and development finance was offset by repayments in structured lending, due to timing differences in how new loans were used.
Operating expenses fell 0.8 per cent to £89.3m, which the bank said came “despite the continued inflationary environment”.
Paragon’s net interest margin – a crucial metric for banks that indicate its profitability from lending – remained steady at 3.13 per cent. This only marginally dropped from 3.14 per cent at the end of 2024.
The bank extended its share buy-back programme by £50m, reaching £100m for the financial year.
Paragon’s motor finance threat
The strong performance in Paragon’s loan book helped offset a £6.5m provision made for its motor finance business.
The historic saga, which has haunted banks of all sizes, headed to the Supreme Court in early May where lenders Close Brothers and First Rand aimed to overturn the Court of Appeal’s October ruling.
The highest court in the land is expected to give its verdict on the summer into whether it was unlawful for banks to pay a commission to a car dealer without the customer’s informed consent.
Lloyds currently leads the pack for the highest provision made at £1.2bn. Ratings agency Moody’s has predicted total compensation could be north of £30bn.
Paragon’s impairment charged increased by £5m, which it said reflected its development finance portfolio.
Nigel Terrington, chief executive of Paragon, said: “With strong momentum and a resilient business model, we are well placed to navigate the evolving external environment and remain optimistic about the remainder of the financial year and beyond.”