Digital challenger bank Starling has made a surprising move, declaring it will not seek government reimbursement for £28 million in losses stemming from its participation in the Covid-19 “bounce back loan” scheme. The decision comes with a frank confession from CEO Raman Bhatia, who stated that the bank’s own “weak controls” during the loan application process were the direct cause of these losses, rendering them ineligible for the taxpayer-funded guarantee.
This public acknowledgment reignites the long-standing debate surrounding Starling’s role in the BBL scheme. The initiative, aimed at supporting small businesses during lockdown, guaranteed loans with zero risk to the banks themselves, as taxpayers were set to cover all defaults. However, Starling’s internal audit uncovered that some loans were issued without proper verification, meaning they failed to meet the scheme’s requirements for government coverage.
The £28 million hit, combined with a recent £29 million fine for inadequate financial crime safeguards, has significantly impacted Starling’s financial performance. Annual profits for the year to March have fallen by 25% to £223 million. While the bank is committed to strengthening its compliance frameworks, this period represents a challenging chapter as it strives to regain regulatory confidence and secure its future trajectory.