UPDATE 2-Aldermore doubles profit, challenging big British banks

* FY underlying pretax profit 56 mln stg

* Lending up 42 percent to 4.8 bln stg

* CEO says bank picking up business from 'big 4' banks

* Says bank did not hold takeover talks with TSB (Adds chief executive comments)

By Matt Scuffham

LONDON, Feb 17 (Reuters) - British bank Aldermore said its pretax profit more than doubled in 2014and its profit margin improved as it increased lending to smallfirms and homeowners, picking up customers from bigger rivals.

Aldermore, founded in 2009 by former Barclays executive Phillip Monks with backing from private equity firmAnaCap, has established itself among the newcomers trying tochallenge Britain's largest banks.

The bank said on Tuesday its underling pretax profit grew to56 million pounds ($86 million) in 2014, while its net interestmargin, the difference between the rate at which a bank lendsand what it pays to savers, expanded by 40 basis points to 3.4percent.

Aldermore, which does not have branches, focuses on lendingto small businesses, as well as on savings products and homeloans. It has picked up customers from larger banks which aredownsizing and building capital to meet tougher regulations.

Its founder and chief executive officer Monks said Aldermorewas taking customers from bigger rivals such as Royal Bank ofScotland, Lloyds Banking Group, Barclays and HSBC.

"Customers are coming to us in droves ... they're stillfinding the big banks very, very difficult to deal with," Monkstold Reuters in an interview.

British regulators and lawmakers are keen for banks such asAldermore to challenge the dominance of the so-called 'BigFour', which provide nine out of every 10 business loans. Thecountry's competition watchdog is investigating banking servicesfor small businesses.

Aldermore said its net lending to customers grew 42 percentto 4.8 billion pounds last year and said it expected its netlending to grow in line with the current rate in 2015.

Monks said he expected Aldermore's return on equity (RoE), ameasure of profitability, to hit 20 percent by the end of 2016,earlier than an original target of 2017. The bank's RoEincreased by 3 percentage points to 15 percent in 2014.

Last October, Aldermore cancelled a planned stock marketlisting which would have valued the business at about 800million pounds, after a fall in stock markets sapped investorinterest in new listings.

The bank plans to relaunch its initial public offering butMonks declined to comment on the likely timing. He said a reportin The Times newspaper which said that Aldermore had held talksover a takeover by TSB was incorrect.

"I haven't had any conversations with TSB," he said.

($1 = 0.6509 pounds) (Editing by Liisa Tuhkanen)