According to the latest financial report from Metro Bank, retail mortgages are the largest component of its lending book at 63 per cent, up from 58 per cent in 2022.
The majority of lending was to retail owner-occupied at around £6bn, with almost £2bn emanating from retail buy to let (BTL).
The report added that, over the next three years, over £4.1bn of fixed rate mortgages would mature with an average blended yield of less than 3.7 per cent.
The company added that 80 per cent of new originations in 2023 were below 80 per cent loan to value (LTV), which is in line with 2022 figures.
The firm reported statutory profit before tax of £30.5m, the first time it has reported a profit since 2018.
There has also been a 67 per cent YOY reduction in underlying loss to £16.9m.
Metro Bank will ‘pivot to more specialist mortgages’
Metro Bank said that it was pivoting its strategy towards SME, commercial and specialist mortgages.
It said that, on the specialist mortgage side, recent investment would “enhance product offerings”.
“Metro Bank’s operating model is tailored to more complex underwriting, which enables the group to meet the needs of more customers and scale underserved markets whilst offering improved risk-adjusted returns,” it said.
The company said that, following feedback from the Prudential Regulatory Authority (PRA), it would not receive advanced internal rating-based (AIRB) approval in 2023 and its focus was to “participate in niche parts of the mortgage market where our manual underwriting capacity is a competitive advantage”.
AIRB approval would mean that the bank is permitted to use its internal risk models to determine how much capital it needs to set aside.
It continued that it will likely “seek to compete less for vanilla mortgages” where AIRB-approved competitors have an advantage of a “materially lower risk-weighted asset (RWA) weightage”.
Metro Bank said that the move to commercial and specialist lending would “drive higher-risk adjusted returns but will also increase risk density”.
“In order to meet customer demand and improve profitability, we will manage the balance sheet to optimise returns, which may include (but is not limited to) periodically utilising capital buffers or electing to access capital markets to support growth,” it said.
Capital position speculation led to ‘outflow of customer deposits’
Metro Bank said that its results were “impacted by the setback” to achieving its AIRB accreditation, and media reports are speculating about its capital position.
It noted that speculation around its capital position had “led to an outflow of customer deposits, with a notable decrease in current accounts balances”.
“Our strong levels of liquidity and prudent approach meant these outflows were manageable and we were able to quickly replace these balances with longer-term deposits, albeit at a higher cost, which contributed to a material increase in our cost of deposits in the fourth quarter,” it said.
The company secured a £925m finance package in October comprising £150m of new equity and £175m of new minimum requirement for own funds and eligible liabilities (MREL) issuance. It has also obtained £600m of debt refinancing.
Metro Bank ‘performed strongly’ in 2023
Daniel Frumkin, chief executive officer at Metro Bank, said: “Overall, Metro Bank performed strongly in 2023 as we continued to position the business for growth. We were pleased to return to profit on a statutory basis and deliver our best half-year results for several years.
“After addressing our capital position in Q4, we also launched a successful deposit campaign, with deposits totalling £16.5bn as at the end of February 2024.
He continued: “During the year, we also launched a cost-saving plan that included reducing store hours and roles across the organisation. These efforts will ensure the bank is right-sized for the future, with a strong focus on both digital and great customer service.”
The firm confirmed earlier this year that it would reduce its headcount by 20 per cent, which would lead to a cost-saving of £30m per year.
Frumkin said that looking ahead he was “confident in our ability to be the number one community bank”.
“The work we have undertaken this year has laid the path to become a structurally profitable business, and our focus towards the SME, commercial and specialist mortgages sector presents an exciting opportunity in an underserved area of the market.
“I remain grateful for the continued support of our colleagues, customers and shareholders as we embark on the next chapter of our journey,” he said.
