Metro Bank returns to profit on higher interest rates and cost controls

Receive free Metro Bank updates

We’ll send you a myFT Daily Digest email rounding up the latest Metro Bank news every morning.

High street challenger Metro Bank has reported its first half-year profit since a 2019 scandal in which investors were misled over a key risk measure, as higher interest rates boosted its turnaround efforts.

The lender posted underlying pre-tax profits of £16.1mn in the six months to the end of June, up from a loss of £48mn the previous year and ahead of a consensus figure of £6mn. The lender’s earnings were pushed up by cost efficiencies and rising interest rates.

Revenues for the first half of the year rose 20 per cent year on year to £286.4mn, but missed analyst estimates of £308mn.

“We’re proving we have a stable bank with a strategy that works,” said chief executive Daniel Frumkin. “We maintain our view that 2023 is a transitional year for Metro.”

Metro became the first new high street bank in more than 100 years when it launched in 2010 but has struggled since 2019 when it published an incorrect figure for its risk-weighted assets, a metric used to calculate how much capital banks need to hold.

Shares fell 39 per cent after the bank admitted the £900mn error, for which it has paid more than £15mn in regulatory fines. They remain down by more than 95 per cent from their peak in 2018.

Frumkin said that despite macroeconomic headwinds, overall arrears were low, although the rate at which customers were prepaying unsecured personal loans, such as credit cards, had slowed.

“It might be the case that people are hoarding cash a bit to stay safe, but we’re not seeing any underlying issues,” he said.

Despite inflation, total operating expenses for the half year fell by 3 per cent to £258.2mn, reflecting cost-saving measures including more use of automation.

Interest rates, which reached 5 per cent in June, helped boost the bank’s net interest margin — the difference between what it offers depositors and what it charges for loans — by 41 basis points year on year, to 2.14 per cent.

However, that benefit was offset by the higher cost of customer deposits, as lenders come under political pressure to improve their offers. On Monday, the Financial Conduct Authority told banks with the lowest rates to justify by August how their products meet its new “consumer duty” which mandates “fair outcomes”. Frumkin said Metro was not among those lenders.

The bank is also continuing to expand its branch network, a unique approach in an age of digital banks. 11 more stores are planned for the north of England in 2024 and 2025.

Metro Bank did not update its guidance for the year, which includes a return on tangible equity, a measure of profitability, of mid-single digits by 2024.

“Some investors may be disappointed at the slow pace of profitability build and management’s decision to retain rather than bump up FY24 ROTE guidance,” said John Cronin, an analyst at Goodbody.

Shares rose about 3 per cent in early trading, giving the bank a market cap of £209mn.