Metro Bank loss narrows to £70.7m as bank vows to put compliance issues behind it
Higher interest rates helped Metro Bank narrow its loss for the year as the bank attempts to put a series of compliance missteps behind it.
Metro Bank’s pretax loss narrowed to £70.7m in 2022, as the bank saw revenue jump 31 per cent on the back of higher interest rates. The bank noted it was profitable in the final quarter, ahead of its intention to break-even in the first quarter of 2023.
Investec’s Ian Gordon said the bank is “on the cusp of a return to statutory profitability”.
Banks have seen their income boosted by the Bank of England’s attempt to stave off inflation with a succession of interest rate hikes. The base rate now stands at four per cent, the highest since the financial crisis.
The bank’s net interest margin widened to 1.92 per cent in the year. In the second half of the year alone, it saw a net interest margin of 2.11 per cent. Net interest margin is the difference between what banks pay and receive in interest.
However, going forward into 2023 it anticipates a net interest margin of just 1.92 per cent, which the bank noted was limited by “fewer anticipated base rate moves.”
Analysts at Jefferies said they forecast net interest margin can continue rising in 2023 due to growth in unsecured loans and the impact of higher rates transmitting through the balance sheet.
Metro Bank said underlying costs had reduced three per cent, despite inflationary pressures, reflecting actions to control costs and leverage the fixed cost base.
It put aside £39.9m for expected credit losses, reflecting the darkening economic environment. Frumkin said there’s “no early signs of credit stress” but the bank “remains watchful”.
CEO Daniel Frumkin said: “I’m pleased with Metro Bank’s performance over the past year and the successful completion of our transformation plan.”
“We returned to profitability, resolved our legacy issues and further strengthened the foundations for future sustainable growth. While I remain confident in the underlying business, material headwinds do exist, including the macro-economic environment and increasing competition for liabilities.”
In 2022, Metro Bank had to deal with a few compliance issues, including a long-standing investigation into historical risk-weighted assets reporting for which it was given a £10m fine last December.
Frumkin said “we can now put this legacy issue firmly behind us, having greatly improved our reporting processes and controls.”
2023 will remain a “transitional” year for the bank. It is targeting a mid-single digital return on tangible equity – a key measure of bank profitability – by 2024.
It will also resume expanding stores in “important economic areas” in the north of England such as Newcastle, Leeds and Hull. Frumkin told investors that “physical presence is about brand building as much as customer service.”