Paragon Bank will act as a sister brand to the existing Paragon Mortgages proposition and will launch with a range of savings and loan products.

The bank will be based in Solihull and the group said it would bring extra choice to the UK financial market.

It said it would look to distribute its loan products through established intermediary channels while using the internet to promote its range of savings products.

Former ING Direct chief executive Richard Doe will take up a managing director role at the new bank.

The firm will initially offer car finance loans before expanding into easy access and fixed rate accounts by the end of the spring. Personal loans will be available through brokers later in the year.

John Heron, managing director of Paragon Mortgages, said: “This is a significant strategic step for the group. Paragon Bank provides further expansion and diversification of our funding capability which in turn will facilitate the diversification of our lending.

“This will see the group returning to sectors where it has previously been a major competitor – car finance and personal loans – and will provide a spring-board for greater innovation going forward.”