Starling Bank has stepped up enforcement actions against lenders that borrowed money guaranteed by the government during the Covid crisis.
According to a report in the Financial Times, the digital bank is actively pursuing several debtors that have never or barely traded as it grapples with increasing loan defaults and a regulatory investigation into its crime controls.
Since May, Starling has filed winding-up petitions against 24 companies that defaulted on loans, the report said.
Many of these entities have reported minimal business activity, with some never filing accounts and others being dormant since their incorporation.
The London-based fintech’s legal action coincided as it reported a rise in loan defaults in its last financial year and an ongoing investigation by the Financial Conduct Authority (FCA) into its anti-money laundering and financial crime systems.
Starling disclosed in its annual report that the FCA had launched the investigation in November and warned that the probe could have a material impact on the company.
In its filings, it said that 90% of its £830 million in outstanding loans to small and medium-sized enterprises (SMEs) are backed by the UK government.
In 2021, Starling was owed over £2.1 billion in government-backed debt, accessed through pandemic lending schemes such as the Bounce Back Loan Scheme (BBLS), the Coronavirus Business Interruption Loan Scheme (CBILS), and the Recovery Loan Scheme (RLS).
Since 2021, the government has paid off about £630 million of Starling’s impaired Bounce Back loan debt.
A Starling Bank spokesperson told the FT: “We have an ongoing process of reviewing of all our lending and take a proactive stance on recovery of defaulted loans.”
Starling is continuing to work with law enforcement and other agencies to identify and report suspected fraud and wrongdoing, the spokesperson added.
The bank set aside £13.9 million for bad loans in the year ending March, a 40% increase from the previous year, as default rates in its SME loan book rose.
Starlng also reported 4.2 million customers signed up to the mobile-online challenger bank, while pre-tax profits rose to £301.1 million in the year to April, a nearly 55% jump compared to 2023.
During the period, the total amount deposited was up by 4% to £11 billion though gross lending fell to £4.7bn (FY23: £4.9bn)