Challenger banks set to face a squeeze.

The UK banking sector faces a profitability roadblock that will give the industry’s challengers an “existential” turning point.

Fresh data from KPMG suggests the industry’s average return on equity will fall to eight per cent come 2027 down from 13 per cent four years prior.

This is set to spark an £11bn reduction in pre-tax earnings and follow on from a £3.7bn downturn in sector-wide profit in 2024.

For challengers, this marks both a problem and opportunity, Peter Westlake, head of challenger banks and building societies at KPMG UK, told City AM .

“What these newer banks lacked and what is now non-negotiable for this type of business mode is scale.

“Without it, they struggle to deliver returns above their cost of equity. Despite stro

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