Metro Bank shares surge as lender returns to profit

Metro Bank shares surge as lender returns to profit and says it’s seen no signs of increased stress on customers amid the cost-of-living crunch

  • Metro Bank shares surged over 13% following the group’s update today
  • The lender returned to profit in September and is enjoying higher margins  

Metro Bank shares saw a double-digit spike today after the group announced it returned to profit in September. 

While the UK languishes in a cost-of-living crisis, the bank said it bolstered its bottom line after enjoying higher margins and harnessing a steely focus on cost discipline. 

For the third quarter, Metro Bank posted a 17 basis point rise in net interest margins in comparison to the prior three-month period to reach 1.98 per cent.   

Back in the black: Metro Bank announced it returned to profit in September 

‘Active balance sheet management and prevailing interest rates supported exit NIM of 2.04 per cent’, the group said.

Daniel Frumkin, Metro Bank’s boss, highlighted the return to profitability was on both an underlying and statutory basis, attributing this to a ‘supportive’ interest rate environment, together with a tight control on costs and risks.

He said: ‘Whilst we remain watchful of economic conditions and continue to monitor our credit metrics closely, our book remains in good health.’

Metro Bank shares rose 13.77 per cent or 10.02p to 82.82p this morning, but the lender’s share price has fallen over 20 per cent in the last year.  

The bank’s loan-to-deposit ratio increased by three percentage points during the period, when compared to the prior quarter, reaching 78 per cent, as loans grew 4 per cent to £12.83billion.

On mortgages, Metro Bank said: ‘Residential mortgages and consumer unsecured lending grew, partially offset by repayments of government-backed lending and reduction in Commercial real estate lending.’ 

Current and savings accounts continued to grow, with their share of the firm’s deposit base jumping to 96 per cent, offset by a targeted reduction in higher-cost fixed term deposits, the lender said.

Metro Bank incurred a £10million charge in the quarter linked to probability-weighted estimates of credit losses.

But, it said: ‘There has been no deterioration in early warning indicators and no signs of stress or increased delinquency across the customer base.

‘Although mindful of the macro environment, minimum regulatory capital requirements are expected to be met without needing to take any market-dependent balance sheet action.’

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

Commenting on Metro Bank’s update, Russ Mould, investment director at AJ Bell, said: ‘A long overdue return to profit at Metro Bank comes after shareholders have endured a world of pain for years.

‘The company’s branch-led model, focus on customer service and little quirks like free water and biscuits for dogs helped it make a big noise when it first joined the UK stock market six-and-a-half years ago. 

‘Ultimately it couldn’t back this up when it came to the fundamentals of earnings and cash flow. It still needs to convince the market it is now on a sustainable path.’

Victoria Scholar, head of investment at Interactive Investor, said: ‘Investors are cheering Metro Bank’s upbeat trading statement this morning, with the Bank of England’s rate hiking path helping to drive profitability at the challenger bank.

‘Despite macroeconomic pressures from a looming recession and the cost-of-living crisis, the British lender painted a positive picture of the consumer, which appears to remain robust at least for now with few indications of loan defaults as of yet.’