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You Can’t Go Wrong With These Challenger Banks: Banco Santander SA, OneSavings Bank PLC, Shawbrook Group PLC, Aldermore Group PLC & Virgin Money Holdings (UK) PLC

Santander (LSE: BNC) technically isn’t a challenger bank… however, the group’s UK operations have been shaking up the high-street banking market for years and, thanks to this success, a spin-off is on the cards.

A spin-off of Santander’s UK retail operations has been in the pipeline for some time, although management has ruled out a separation this year. Still, when the separation does take place, investors will be able to buy into one of the UK’s fastest growing high-street banks.

During 2014, Santander UK saw its pre-tax profit jump by 26%. The number of customers using the bank’s services rose by a third to 3.6m while lending to UK companies increased by 8% to £24bn.

The City’s top banking analysts estimate that there could be £100bn of lending “up for grabs” in the UK over the next five years, as the ‘big four’, RBS, Lloyds, Barclays and HSBC continue to retreat from the high-street. Santander UK is well placed to grab a share of this.

But to let boom 

OneSavings (LSE: OSB) is concentrating its growth efforts on the UK buy to let mortgage market, which is growing rapidly. Also, the bank recently entered the UK business banking market. 

According to City forecasts, OneSavings’ earnings per share will increase by a quarter this year to 31p — more than double the level reported for 2013. Analysts have pencilled in further earnings per share growth of 19% for 2016. 

OneSavings currently trades at a forward P/E of 10.4 and supports a dividend yield of 2.4%. 

Commercial bank 

Shawbrook (LSE: SHAW) is a business focused bank. Along with loans to small and medium-sized enterprises, Shawbrook offers commercial mortgages and asset-backed finance. Last year the size of the bank’s loan book expanded by £900m to £2.3bn. 

Analysts expect Shawbrook to report earnings per share of 25.7p for 2015. Based on these estimates, the company is trading at a forward P/E of 12.8.

Over the long-term, the bank is looking to pay out 30% of underlying earnings to shareholders via a dividend. 

Explosive growth 

Aldermore (LSE: ALD) is led by ex-Barclays executive Phillip Monks, who founded the business during 2009.  

City analysts believe that as the UK economic recovery starts to gain traction, Aldermore’s earnings per share will surge by 61% during 2015, with further growth of 30% pencilled in for 2016.

These figures indicate that Aldermore’s earnings have roughly doubled in the short space of only two years. 

Aldermore currently trades at a forward P/E of 14 and a PEG ratio of 0.2. A PEG ratio of less than one indicates that the group offers growth at a reasonable price. 

Working for customers 

Virgin Money (LSE: VM) has been built with the retail customer in mind. For example, Virgin’s opening hours are designed to help customers with busy working schedules. Moreover, the bank offers a number of customer-centric services and more competitive products. 

This approach seems to be working. 

Virgin’s mortgage balances rose 11.8% during 2014, compared to the market average of 1.4%, while net lending expanded by 10.2% during the year. Credit card balances rose 41%, and retail deposits ticked higher by 6%, to end the year at £22.4bn. 

Unfortunately, for this kind of growth you have to pay a premium.

Virgin’s shares are currently trading at a forward P/E of 19.3. Earnings per share are only expected to expand by 4% this year. But the bank is supposed to return to growth during 2016.

Analysts believe that Virgin’s earnings per share could grow by as much as 52% during 2016. 

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended shares in HSBC Holdings and Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.