Starling defends Bounce Back Loan record

Alternative loansDigital bank

Data released this week shows Starling had fraud rates up to 2.5 times higher in its bounce loan provision than the industry average.

Image source: Anne Boden/Starling Bank

Lenders have recorded at least £1.1 billion in fraudulent loans under the UK government’s Bounce Back Loan scheme, official data showed this week.

The figures, which run to July 31, 2022, give the most granular prompt yet on how the £46billion in taxpayer-backed loans made during the coronavirus pandemic are performing.

A total of £263million has been disbursed to lenders against loans suspected of fraud since the scheme launched in April 2022. It closed on March 31, 2021.

Borrowers were granted a payment holiday for the first year after taking out a loan. The interest was paid by the government through a business interruption indemnity. After the one-year payment holiday expired, borrowers had to start making monthly repayments plus interest.

Starling Bank, which came under criticism from Lord Agnew for its BBL policy in recent months, flagged £44.65m of loans as suspected fraudulent and in full default. He believes the total fraudulent loan figure on his books under the scheme is around £92m.

This figure is more than double the figure recorded by Barclays Bank, the biggest user of the scheme, accounting for almost a quarter of the total figure, according the temperature.

Starling accounted for 3.44% of the total value taken from the scheme, or £1.6bn, compared to 23.12% for Barclays, or £10.8bn.

“We welcome the release of this data. Throughout the life of the BBL program and beyond, Starling has taken a strong and proactive stance to protect taxpayers’ money, as well as to support our customers and help them repay their loans. We are supporting customers through the Pay as You Grow program and following a strong recovery path,” Starling said in a statement to AltFi.

Direct comparisons between Starling Bank and other lenders are difficult, they added, due to “data limitations and different characteristics of each lender’s customer base”.

“These differences proved to be a great advantage for SMEs at the height of the pandemic, as it meant businesses of all shapes and sizes could be accommodated by different lenders ready to meet their specific needs,” Starling said in a statement to AltFi.

One reason for this specifically, Starling said, is that a large portion of its BBL clients “were relatively ‘young’ companies, which have a higher likelihood of failure than more established companies.”

Big banks – Barclays, NatWest, Lloyds, HSBC and Santander made up the bulk of BBL’s lending, accounting for 85.28% of total lending.

“Many of the big banks were lending only, or primarily, to their existing customers with whom they may have had a long-standing relationship. They accepted none, or very few, new business customers, unlike Starling, which is remained open to new business throughout,” Starling said.

“We have excellent processes to detect fraud and where we suspected fraud we defaulted on loans and started our collection process quickly,” he added.

Subscribe to our newsletter

Comments are closed.