Paragon aims to set up a new bank next year

buy-to-let mortgage provider Paragon plans to set up a bank next year, taking advantage of new rules designed to encourage competition to Britain’s established lenders.

Under pressure from lawmakers to increase choice in a sector dominated by five banks, the financial regulator said in March that start-up banks would no longer need as much capital as their established rivals.

Chief executive Nigel Terrington said the change had prompted Paragon to end talks to buy the banking subsidiary of National Counties Building Society and to apply for a banking licence instead.

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“We’d already decided to pursue the consumer finance market through a banking route,” he said. “At one point we were pursuing entry via an acquisition but we changed that plan to go the organic route,” he said.

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.

Mr Terrington said Paragon’s bank would launch in 2014, offering deposit-funded consumer finance lending including personal loans and car loans.

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.

Paragon posted a 10 per cent increase in underlying pre-tax profit in the first half of its fiscal year.

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