Paragon Bank set to deliver strong results as interest rates rise
Paragon Bank is set to post another strong set of results this week as analysts expect the FTSE 250 lender to benefit from rising interest rates.
The lender, which specialises in providing finance to buy-to-let landlords and SMEs, had a strong 2022 and looks set to repeat the strong performances of other major UK lenders when it reports its half-year results on Tuesday.
In 2022, the Solihull-headquartered bank posted a pre-tax profit of £417.9m, up from from £213.7m the year before, as its balance sheet benefited from the Bank of England’s multiple interest rate hikes. Its net interest margin (NIM), the difference between what it pays out and receives in interest, widened by 30 basis points.
Domestically-focused banks in the FTSE 100 beat expectations with their results for the first quarter, although some signalled more difficult times ahead.
While rising rates have boosted banks’ bottom line, it also puts increasing pressure on borrowers. The level of households falling into arrears ticked up in the first quarter while repossessions also increased.
“The Big 5 are predicting a ‘normalisation’ of loan losses for this year and it will be interesting to see if Paragon does the same,” AJ Bell’s Russ Mould said.
However, Paragon takes a fairly conservative approach to lending and so investors expect it to be well insulated from any problems that do emerge. Last year its loan impairments were just £14m.
Mould also pointed out that “the bank is well capitalised and currently confident enough to be running a share buyback.”
Despite its strong recent performance, Paragon’s shares are trading nearly 16 per cent lower in the year to date.