Monzo, the digital banking pioneer, has achieved its first annual profit, defying a significant rise in bad loan provisions.
With revenues doubling and deposits increasing massively, Monzo heralds a transformative year, establishing its financial robustness.
Record-Breaking Profit
Monzo has reported its first annual profit, even as it set aside more money for potentially bad loans. The bank’s lending portfolio has expanded, leading to an increase in overdue loans. TS Anil, the CEO, called it a ‘landmark year’ as Monzo’s pre-tax loss of £116.3 million in 2023 turned into a profit of £15.4 million by the end of March.
Gross revenues more than doubled to £880 million from £355.6 million. Additionally, deposits surged by 88% to £11.2 billion, following a change of year-end from February to March. However, provisions for future expected credit losses rose sharply to £176.9 million from £101.2 million the previous year.
Increased Lending and Provisions
Anil attributed the 75% increase in bad debt provision to an 84% rise in Monzo’s total lending balances, which reached £1.4 billion. The bank’s lending has grown rapidly, partly due to its foray into the ‘buy now pay later’ market via its Flex product.
Customer borrowing, including overdrafts and Flex, rose to £1.5 billion from £540 million. Provisions also grew as more borrowers lagged on repayments, with £49 million in arrears and £84.6 million in default.
Disciplined Lending
Monzo’s loan-to-deposit ratio is under 15%, and realised losses as a percentage of average balances increased slightly to 9.75% from 7.58%. Realised and expected credit losses totalled £204 million.
‘We’ve always been incredibly disciplined with our lending,’ Anil insisted.
Monzo is part of a new wave of online-only banks and fintechs like Starling Bank and Revolut, which are gaining ground on traditional high street banks.
Customer Growth
Founded in 2015, Monzo now boasts 9.7 million customers, including over 400,000 business clients. The bank has been under Anil’s leadership for four years.
Like other banks, Monzo has benefited from higher interest rates. Its net interest income — the difference between what it charges on loans and pays for deposits — rose by 167% to about £438 million.
Expansion Plans
Monzo has set its sights on international expansion. Although it already operates in the US, it plans to establish an office in Dublin soon.
Monzo is viewed as a strong candidate for a stock market flotation, yet Anil mentioned that it was too soon to discuss such plans.
Regulatory Challenges
Three years ago, Monzo revealed that the Financial Conduct Authority (FCA) was investigating potential breaches of anti-money laundering regulations.
Recently, Monzo announced that the FCA had informed the bank in November that ‘it was no longer assessing criminal liability’ regarding the potential breaches. However, the inquiry continues as a civil matter.
‘This could negatively impact our financial position, but we won’t know when or what the outcome will be for some time,’ Monzo stated.
Monzo’s journey from significant losses to recording its first annual profit is noteworthy. Despite rising loan defaults and regulatory challenges, the bank’s robust growth and expansion plans underline its potential for future success.
As Monzo continues to expand internationally, its disciplined approach to lending and increasing customer base set it up for long-term growth and stability.