Challenger banks are still at least a year away from being able to fully compete with the dominant UK lenders, according to the chief executive of Aldermore.
Phillip Monks, who founded the first UK challenger bank 10 years ago, said the main players in the sector must secure a licence to adopt an internal ratings-based approach to credit risk – like the major banks – in order to compete.
Aldermore, and similar businesses in the sector, are in the process of obtaining the licence but it will take at least another year, Monks said.
“If you look at the whole challenger bank experiment, the aim was to create diversification but that hasn’t been achieved yet because the big banks still have dominance,” Monks told City A.M.
“For banks of our age, it will be next year at the earliest,” he added as Aldermore reported strong results for the first half of this year despite Brexit uncertainty and competition in the sector.
Profits were up 18.9 per cent from £62.8m in the first half of last year to £74.7m in the same period of 2019 and loan growth hit four per cent, rising to £9.4bn.
Return on equity also grew from 13 per cent to 16 per cent.