Monzo Achieves First Annual Profit Despite Surge in Bad Loans

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Monzo has recorded its first annual profit despite a significant rise in provisions for potential bad loans, as the digital bank’s lending portfolio expands and arrears increase.

TS Anil, Monzo’s chief executive, celebrated a “landmark year” for the nine-year-old company after annual results revealed a shift from a pre-tax loss of £116.3 million in 2023 to a profit of £15.4 million in the 13 months to the end of March. This marks Monzo’s first time in the black.

Gross revenues more than doubled to £880 million from £355.6 million, while the group’s deposit base soared by 88 per cent to £11.2 billion during the period, which included a change of year-end from February to March.

However, Monzo’s provisions for future expected credit losses rose sharply to £176.9 million from £101.2 million the previous year.

Anil explained that this 75 per cent increase in bad debt provision was in line with the 84 per cent rise in Monzo’s total lending balances, which reached £1.4 billion.

The bank’s lending has expanded rapidly, partly due to its move into the “buy now pay later” market through its Flex product. Customer borrowing, including overdrafts and Flex, rose to £1.5 billion from £540 million a year earlier.

Nonetheless, provisions were also driven higher by a growing number of borrowers falling behind on debt repayments, with about £49 million of gross lending in arrears and £84.6 million in default.

“We saw some minor increases in arrears as the cost-of-living crisis played out,” Anil noted, adding that Monzo lends “only a small portion of our balance sheet”.

Monzo’s loan-to-deposit ratio is under 15 per cent, and its realised losses as a percentage of average balances saw a “marginal increase” to 9.75 per cent from 7.58 per cent, according to Anil. Realised and expected credit losses totalled £204 million.

“We’ve always been incredibly disciplined with our lending,” he insisted.

Monzo is among a group of young online-only lenders and fintechs, including Starling Bank and Revolut, gaining market share from major high street banks. Founded in 2015, Monzo now serves 9.7 million customers, including over 400,000 business clients, and has been under Anil’s leadership for four years.

Like other banks, Monzo has benefited from higher interest rates, with its net interest income — the difference between what it charges on loans and pays for deposits — rising by 167 per cent to about £438 million.

The bank is now eyeing international expansion. While Monzo already operates in the US, it announced plans on Monday to enter continental Europe by opening an office in Dublin “in the coming months”.

Monzo is seen as a strong candidate for a stock market flotation, but Anil said it was too early to speculate on such plans.

Three years ago, Monzo disclosed that the Financial Conduct Authority (FCA) was investigating potential breaches of anti-money laundering regulations. On Monday, Monzo revealed that the FCA had notified the bank in November that “it was no longer assessing criminal liability” related to the potential breaches, but the inquiry would continue as a civil matter.

“This could have a negative impact on our financial position, but we won’t know when or what the outcome will be for some time,” Monzo stated.

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