Starling Bank has reported a 26% fall in pre-tax profit to £223m in its latest annual results, after revealing it had set aside cash to cover issues relating to COVID loan repayments.

The digital challenger bank, which said it had recognised one-off costs relating to “two legacy matters”, did report a revenue jump to £714m, up from £682m in the previous year.

Starling Bank, publishing its financial results for the year to 31 March, also revealed that its customer deposits reached a record £12.1bn, up from £11bn in the previous financial year, which it said had demonstrated “growing confidence” in the bank and its services.

The bank also reported that its capital surplus has grown by 40% to over £400m.

Group chief executive at Starling Bank, Raman Bhatia, said: “These results represent an important milestone, marking the group’s fourth consecutive year of profitability and revenue growth. This performance derives from our commitment to providing customers with innovative banking solutions and exceptional service.

“We are particularly pleased with Starling Bank’s success in attracting new customers, as evidenced by the continued growth in our deposit base and open accounts.”

However, as reported last October, FY25 saw Starling Bank settle a £29m fine from the Financial Conduct Authority (FCA) relating to the onboarding of high-risk customers, in breach of agreed restrictions and sanctions screening processes.

The bank also recognised a £28.2m provision related to the voluntary removal of the government guarantee on a limited number of loans issued under the Bounce Back Loan Scheme, which the bank determined may not comply with the guarantee requirement.

Starling said these “proactive” steps evidenced a commitment to addressing legacy matters.

“In the last year we demonstrated our commitment to addressing legacy matters, investing in our people and capabilities so we now move forward from a position of strength,” Bhatia added.

“We will leverage our robust capital position to continue to scale our growth in the UK by helping our customers become better with money.”

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