The bank completed £2.2bn of new retail mortgage lending last year, down from more than £4bn in 2018, as the lender admitted to “a moderation of loan growth” in the final three months of 2019.
Like other lenders the intense mortgage market competition also hit Metro Bank’s finances with its net interest margin (NIM) falling from 1.81 per cent at the end of 2018 to 1.51 per cent.
As a result, the bank said it was putting a new plan in place to turnaround it’s fortunes which includes a focus on moving into specialist and niche mortgage lending.
In its annual report, the lender said it wanted to “develop product capabilities to allow participation in better yielding specialist mortgages”.
It added: “Metro Bank will optimise its balance sheet and asset mix while focusing on risk adjusted return on regulatory capital.
“In the short-term, tactical asset disposals will be considered, and in the longer term a number of funding diversification options will be considered to deliver greater risk adjusted returns on capital.
“The bank will seek a better yielding asset book and improved returns on regulatory capital by rebalancing its lending mix towards areas such as specialist mortgages, SMEs and unsecured loans.”
The recovery plan also halves the number of stores to be opened in the North of England by 2025 from 30 to 15.
Overall, Metro suffered a £130.8m pre-tax loss in 2019, down from a £40.6m profit in 2018, which it cited as primarily reflecting a £68m write-down of intangible assets.
Its retail mortgage loan book grew to £10.4bn, up from £9.6bn, with £8.5bn of this being residential. However, the buy-to-let book shrank from £2.3bn to £1.9bn.
It capped a year in which it pulled its commercial portfolio buy-to-let mortgage products, was investigated by regulators for miscalculating its mortgage book risk, had to raise £375m to protect its capital position and then swallowed £1.8m loss on £521m sale of its retail buy-to-let loan book.
Founder Vernon Hill also stepped down earlier than expected in October, while Craig Donaldson stepped down at the end of the year as CEO, he will remain available to the board as an adviser until the end of 2020.
Dan Frumkin, who joined Metro Bank in September 2019 as chief transformation officer, was appointed as interim CEO from 1 January and confirmed as CEO on 19 February.
Niche mortgage lending
Writing in the report, Frumkin added: “We need to deepen relationships with our customers by improving the range of our products and their availability through new and existing channels.
“For example, we intend to meet more customer needs by offering a broader range of unsecured customer loans, SME lending products, business and personal credit cards and niche mortgages, all while maintaining our disciplined attitude towards underwriting.”
He continued: “The loan portfolio composition will shift over the life of the plan. Unsecured credit will be offered to SME and retail customers, applying risk based pricing.
“Niche mortgage lending will become a larger share of our mortgage operations and commercial lending to our valued customers will continue to grow.”