Britain’s challenger banks continue to outperform their established peers, but the market is becoming more “difficult and fragmented”, a report has indicated.
Return on equity for the smaller challengers averaged 17 per cent and 9.5 per cent for the larger upstarts, against 4.6 per cent for the big high street banks, according to the study by KPMG.
Challenger banks have increased lending by 32 per cent compared with a 5 per cent decline for the “big five”, the report noted.
Catherine Burnet, head of financial services for KPMG in Scotland, said: “Many challenger banks offer a high quality service while operating more efficiently than the big five, albeit in niche markets.
“I expect to see the divergence between large and small challengers widen. Several challenger banks have targeted profitable niches such as buy-to-let or specialist commercial lending but competition is reaching saturation.”