Metro Bank shares surge as lender returns to profit

Shares of Metro Bank saw a double-digit spike today after the group announced it was returning to profits in September.

As the UK languishes in a cost of living crisis, the bank said it has improved its profits following higher margins and a strong focus on cost discipline.

For the third quarter, Metro Bank posted an increase in net interest margins of 17 basis points compared to the prior three-month period to 1.98 percent.

Active balance sheet management and prevailing interest rates supported exit NIM of 2.04%, the group said.

Metro Bank chief Daniel Frumkin stressed that the return to profitability was both an underlying and statutory basis, attributing this to a “supportive” interest rate environment, along with tight control of costs and risks.

He said: “While we remain vigilant about economic conditions and continue to monitor our credit statistics closely, our book remains in good health.”

Metro Bank shares rose 13.77 percent or 10.02p to 82.82p this morning, but the lender’s stock price has fallen more than 20 percent in the past year.

The bank’s loan-to-deposit ratio rose three percentage points over the period compared to the previous quarter, reaching 78 percent, while loans grew 4 percent to £12.83 billion.

On mortgages, Metro Bank said, “The growth in residential mortgages and unsecured consumer loans was partially offset by repayments of government-backed loans and reductions in lending for commercial real estate.”

Current and savings accounts continued to grow, with their share of the company’s deposit base rising to 96 percent, offset by a targeted reduction in more expensive term deposits, the lender said.

Metro Bank incurred a £10 million charge in the quarter related to probability-weighted loan loss estimates.

But it said: ‘There is no deterioration in early warning indicators and there are no signs of stress or increased delinquency in the customer base.

“While taking into account the macro environment, minimum regulatory capital requirements are expected to be met without the need for market-dependent balance sheet measures.”

Last week Lloyds Banking Group, the UK’s largest lender, revealed it had set aside £668 million to cover credit losses in the third quarter.

Commenting on Metro Bank’s update, Russ Mold, investment director at AJ Bell, said: “A long-awaited return to profit at Metro Bank comes after shareholders endured years of pain.

The company’s industry-led model, focus on customer service and minor quirks like free water and biscuits for dogs helped it make a lot of noise when it first entered the UK stock market six and a half years ago.

“Ultimately, it couldn’t support this when it came to the fundamentals of earnings and cash flow. It still has to convince the market that it is now on the sustainable path.’

Victoria Scholar, head of investment at Interactive Investor, said: “Investors are applauding Metro Bank’s optimistic trading statement this morning, with the Bank of England’s rate hike path helping boost the challenger bank’s profitability.

“Despite macroeconomic pressures from an impending recession and the cost of living crisis, the UK lender painted a positive picture of the consumer, which appears to remain robust at least for now with little evidence of default so far.”