Paragon Banking backs guidance as Q1 new lending rises 41%

In an update for the 1 October to 31 December 2018, the company said new business flows rose to £660m, with total mortgages up 22.4% to £448.6m and total commercial lending up 105.1% to £211.9m.

In mortgages, lending volumes reflected the strong opening pipeline level. Paragon said lending to complex landlords, including those operating through incorporated structures, continues to dominate new business flows, with professional landlord lending rising to 87.5% of completions from 66.7% in the same quarter of the previous year.

Meanwhile, the December buy-to-let pipeline stood at £729.1m, up 17.8% from December 2017.

Buy-to-let redemption levels reduced during the quarter, to £227m from £286.5m in the same quarter last year, representing an annualised rate of 8.9% versus 11.8% the year before.

In commercial lending, Paragon said each product line division showed strong growth levels, most notably the asset finance and development finance businesses.

The company said its deposit raising continues to form the foundation of its funding programme, with the value of outstanding deposits rising to £5.6bn by the end of the quarter from £5.3bn at the end of September.

Chief executive Nigel Terrington said: "The group has started the year well, delivering strong lending growth across all our core business areas. Our retail deposit base continues to grow, creating further efficiencies in our funding structure. We remain confident in the outlook, but will maintain our capital, liquidity and broader risk disciplines in case the external operating environment should deteriorate."

At 0930 GMT, the shares were up 0.9% to 414.20p.

Russ Mould, investment director at AJ Bell, said: "After the recent shocker of a profit warning from Metro Bank there may have been some trepidation ahead of FTSE 250 banking sector peer Paragon’s trading update today.

"Despite the patchy nature of the company’s long-term track record, it turns out investors needn’t have worried as the group delivered strong growth across all areas.

"Paragon is a very different animal to Metro Bank in that it is not a challenger or rival to the high street banks with lots of physical branches, instead it is a provider of specialist finance, particularly buy-to-let loans. Regulatory changes in the buy-to-let market mean Paragon now principally serves professional landlords.

"Traditionalists will be pleased to see that deposits continue to be a central plank of the bank’s funding model. After all, good old-fashioned banking should involve taking in deposits and then lending that money to individuals and businesses.

"One area the market is likely to be alive to in the current environment is the level of bad debts but, as yet, Paragon is not seeing any evidence of these coming through."