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August 10 2020

Monzo capital requirement was raised by the Bank of England

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Monzo bank is now obliged to have a capital worth of 13.6 percent of its risk-weighted assets to be protected against potential losses.

These capital requirements were increased by the Bank of England while Monzo was in the process of raising £60 million in top-up funding. But the paper value of the challenger bank dropped from £2.0 billion to £1.25 billion at that point.

Read also: Monzo’s valuation drops by 40% to £1.25B as it sealed a £60M funding round

Before the rule change, Monzo was required to have capital worth at 9 percent of its risk-weighted assets as a shield against losses.

Documents circulated to existing investors in May revealed that the backers were warned that the bank “needs at least £20 million to avoid breaching regulatory capital requirements”, the Financial Times reported.

Regulatory experts told FT the central bank was implementing higher standards among fast-growing, so-called challenger banks, the name given startup digital banks, as a condition of easing restrictions that have limited competition.

On the reported figures Monzo said: “All banks, including Monzo, must ensure they plan their capital requirements effectively and hold sufficient capital to meet their current and future needs. Monzo continually reviews its capital requirements as part of the Internal Capital Adequacy Assessment Process”.

Monzo bank’s losses jumped from £47.2m to £113.8m amid a hiring spree, marketing and US expansion. This sharp increase in losses is not getting covered by Monzo’s rise in revenues from 19.7m to £67.2m.

Monzo’s directors to compile its results under the basis of there being: “material uncertainties, which may cast doubt over the Group’s ability to continue as a going concern.”

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