Starling Bank reported its third annual profit after higher interest rates helped boost revenue, as the British mobile lender seeks to roll out its banking software globally.

The bank posted a pretax profit of £301.1 million ($384 million) for the 12 months through March compared with £195 million a year earlier, with revenue jumping to £682.2 million. Its net interest margin rose to 4.3%, from 2.7% a year ago, according to a statement Wednesday.

Starling is one of the UK’s largest mobile-only banks, with 4.2 million customer accounts. Growth in its £11 billion deposit base slowed to 4% last year.

Overall lending fell slightly to £4.7 billion during the year as Starling’s role as one of the biggest lenders in the government-backed Covid business recovery program runs down. It set aside £26.5 million for small business loans it feared could default, up from £20.2 million the previous year.

Starling is targeting more secured lending such as buy-to-let mortgages, according to interim Chief Executive Officer John Mountain. The group’s Fleet Mortgages buy-to-let loan portfolio grew by 51% to £2.3 billion over the past year.

The firm spent more on hiring and technology over the year, meaning its costs rose more than 50%. It added nearly 900 staff to take its total headcount to 3,660.

Former Ovo Energy Ltd. CEO Raman Bhatia is due to take the top job at Starling on June 24. He joins a year after the departure of founder Anne Boden, who stepped down after nine years to avoid any potential conflicts of interest with her stake in the business.

Software Growth

The bank’s Engine service, which sells banking software to other companies, generated £2.3 million in fees last year — a small part of the group’s £119 million total, but an area Starling wants to expand globally. It had signed two contracts with partners in Australia and Romania, and is eyeing opportunities across Europe, Southeast Asia and the Middle East.

Starling is “heavily investing in” its software business, with aims of it becoming as big as core banking, Mountain said.

One of Starling’s biggest backers, investment trust Chrysalis, recently speculated the digital lender could reach a valuation of nearly £10 billion within the next few years off the back of its software unit.

Mountain told journalists on a call the bank’s eventual initial public offering was being “extensively discussed” with investors and others, though no decisions have been made on timing. Starling is a UK company and London would be “a natural home” for its listing, he added.

Starling is the latest London-headquartered challenger bank to enjoy a profitable year after rapid growth and investment in the sector. Monzo reported its maiden profit at the start of this month, while Zopa Bank turned its first annual profit in April.

–By Aisha S Gani (Bloomberg News)