RBC CAPITAL MARKETS
They could want the banking licence to offer term deposits to fund their consumer finance business. This would diversify Paragon’s sources of funding and make it less reliant on the wholesale funding markets. However, there would be a duration mismatch.
I would expect the platform to be used to garner retail funding in order to back growth in consumer lending rather than buy to let. Given the lack of competition from big banks at present, we believe that now is a good time for alternative lenders to grow their loan books.
The attraction is that the banking licence offers deposit accounts and Savings bonds which Paragon could use as a source of retail funding. This would diversify Paragon’s sources of funding and enable it to meet the demand it is experiencing from retail borrowers.