Paragon Banking Group Reaffirms Guidance, Signals Improved Margin Outlook

Paragon Banking Group PLC reaffirmed its full-year guidance in a third-quarter trading statement on Wednesday, signaling that its net interest margin for the second half of the year could exceed previous expectations.

Margin Outlook Improves

The specialist lender maintained its full-year guidance for a net interest margin (NIM) of approximately 300 basis points. According to the company's statement, performance in the second half may now improve from levels that were anticipated at the time of its interim results.

Paragon's NIM in the first half of 2026 was 308 basis points, which implied a potential decline to as low as 292 basis points in the second half to meet the full-year target. The latest update suggests a less severe contraction in this key profitability metric.

Loan and Deposit Activity

Loan growth remained modest in the quarter ending in June, expanding 3.0% year-on-year, which implies a quarterly increase of approximately 0.5%. The bank attributed slower momentum in April and May to rising interest rates and reduced confidence following the start of Middle East hostilities, though it noted a recovery in June.

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To support future growth, Paragon has added two new teams to expand its agricultural client base and develop its bridging loan capabilities. The bank estimates these initiatives could add about one percentage point to loan growth over the next two years. On the funding side, deposit balances declined by £200 million, a significantly slower pace than the £600 million to £700 million reduction seen in the second quarter.

Asset Quality and Capital Strength

Paragon reported strong asset quality, with arrears on its buy-to-let loan book decreasing by 10 basis points to 40 basis points during the quarter. The bank also noted a continued reduction in impairments within its development finance portfolio.

The company's capital position remains robust, with a pro-forma common equity tier 1 (CET1) ratio estimated at 13.6% to 13.7% at the end of the quarter. This figure includes an approximate 50 basis point benefit from the disposal of its SFS business, which was completed in July 2026.