Shares soared as FTSE 250 lender swung to £98m profit
A Metro Bank branch in Sheffield(Image: PA)
Metro Bank has returned to the black as the firm’s shift towards small business lending delivered a boost in revenue.
The FTSE 250 lender posted a pre-tax profit of just over £98m – a 15-year peak and significant turnaround from losses of £14m the previous year.
The reversal arrived as Metro recorded 67 per cent growth in new corporate, commercial and small and medium-sized enterprise (SME) lending – a sector the bank has targeted as central to its recovery plan.
Shares in the company climbed as much as seven per cent following the announcement to 122.36p. Over the past 12 months, the stock has gained more than 40 per cent.
Turnover at the firm increased 16 per cent to just above £585m as lending in the group’s focus segment expanded 56 per cent year-on-year to £5.2bn, as reported by City AM.
Metro is amongst several banks that have moved into the SME lending market amid a retreat from industry heavyweights, with the sector typically delivering higher margins for lenders as they can command elevated interest rates.
The segment also emphasises relationship-building with businesses compared to lending to large corporations, which can seek the most competitive debt globally.
“We are capturing market share in our target segments and have a deep pipeline of attractive lending opportunities,” said Daniel Frumkin, Metro’s chief executive.
He noted that the bank’s emphasis on the “execution of our strategy and pivot to high margin business” had contributed to a surge in profits whilst reducing expenses.
Operating costs plummeted seven per cent year-on-year to £473m, surpassing previous predictions of a four to five per cent decrease.
The bank has outlined plans for its return on tangible equity – a crucial measure of profitability – to more than double from the current level of 6.4 per cent over the forthcoming 6 months and nearly triple over 18 months.
The lender is also anticipated to greatly benefit from the alterations to the MREL regime announced in Rachel Reeves’ regulatory reforms at Mansion House last year.
Established in the aftermath of the 2008 financial crisis, minimum requirement for own funds and eligible liabilities (MREL) rules impose strict tailored requirements for banks with assets between £15-25bn. The Bank of England is poised to raise the threshold following consultation.
Metro has been reclassified as a transfer firm under the system, a move that liberates the bank’s balance sheet with reduced costs. The company stated it unlocks “significant capacity for growth”.