Metro Bank's (MTRO) revelation that it had mis-categorised certain property and buy-to-let loans was bad enough news. But a trading update shows some commercial customers reacted by pulling their deposits in the first three months of 2019. Customer deposits fell 3.6 per cent in the period to £15bn, which when combined with 7 per cent lending growth meant the loan-to-deposit ratio increased to 100 per cent – well above management’s 85-90 per cent target range.
Due to the weaker first quarter, the challenger bank said it expected deposit growth for 2019 to be slower than a 20 per cent-a-year medium-term target. Pre-tax profits declined by almost a third, which management blamed on accounting changes and interest expenses on its tier two debt. The net interest margin also declined by 12 basis points on the prior quarter, partly due to lower-yielding lending during the final months of 2018.
In January, management revealed that it had incorrectly categorised certain commercial loans secured on property and certain specialist buy-to-let loans to large portfolio landlords for the purposes of calculating risk-weightings. Since then, plans have been launched to raise £350m via a share placing to boost capital levels. This trading update contained no further details on the fundraising, scheduled for the current quarter, other than a reference to its use to "fund strategic growth".
