Metro Bank disappoints despite record deposit growth

Metro Bank welcomed record deposits and grew lending 11% in the first quarter but its key net interest margin slipped slightly.

Net interest margin, banks' crucial measure of the difference between lending and saving rates, declined to 2.02% in the three months to 31 March from 2.03% in the fourth quarter of last year, though was still up on the 1.96% at the start of last year.

Moreover, the loan to deposit ratio slipped to 72% from 74% in the fourth quarter, although was above the 69% in the first last year.

But while that might have disappointed investors, the innovative challenger bank impressed with 15% growth in deposits on the preceding quarter to £9.01bn, with more than £1bn deposited during the quarter for the first time as it added a record 72,000 new customer accounts to 987,000.

Lending meanwhile increased 11% quarter-on-quarter to £6.5bn.

On total revenue up 7% to £61.9m, underlying profit before tax for the quarter came in at £2.0m, up from £1.5m in Q4 and a £9.6m loss in Q1. A statutory profit of £1m was reported as bank eyes a first full year of profitability.

"We have now delivered three consecutive quarters of profitability and for the first time have exceeded £1bn net growth in deposits in a single quarter whilst also reducing the cost of those deposits," said chief executive Craig Donaldson, as the cost of deposits dropped to 61 basis points from 66bp in the preceding quarter.

He said Metro remained on track to open a further ten stores before the year end.

Non-performing loans were a low 0.18% of the portfolio and the loan loss reserve as a percentage of non-performing loans was 77%, while the Common Equity Tier 1 Capital as a percentage of risk weighted assets was 15.9%.

Shares in Metro fell almost 3% in early trade on Wednesday, having been closing in on February's all-time high above 3,600p.

Jefferies analysts said they view asset growth as "critical" to achieving 2020's profitability targets but would have "preferred to see a rising loan/deposit ratio".

They added that the fall in the loan-deposit ratio was “slightly disappointing... though perhaps understandable given the better unit economics on deposits".

"MTRO is awash in cheap liquidity and we will watch closely how it is deployed over the coming quarters given we are anchoring to management's circa-80% target by 2020."