Metro Bank returns to profitability, strengthens capital with £584m loan sale

Metro Bank has reported a statutory profit after tax of £42.5 million for 2024, marking a major turnaround driven by strategic cost reductions, balance sheet optimisation, and a shift toward high-yield lending. After a challenging first half, the bank recorded an underlying profit of £12.8 million in H2 2024, exceeding its earlier guidance of returning to profitability in Q4.

The full-year results highlight Metro Bank’s efforts to improve efficiency and reposition its lending strategy. Net interest margin (NIM) reached 2.65% at year-end, surpassing expectations and reflecting the bank’s focus on more profitable lending segments. Meanwhile, the cost of deposits continued to decline, standing at 1.40% at the end of 2024, down from a peak of 2.29% in February.

To further optimise its balance sheet, Metro Bank has confirmed the sale of a £584 million portfolio of performing unsecured personal loans. This transaction, expected to close by late Q1 2025, will boost the bank’s CET1 capital ratio and MREL ratio, creating additional capacity for higher-yielding corporate, commercial, and SME lending.

Metro Bank’s Strong H2 Performance Reaffirms Profitability Strategy

Metro Bank’s return to profitability in the second half of 2024 marks a significant milestone in its turnaround plan. The bank’s underlying loss before tax for the full year stood at £14 million, a notable improvement from the previous year’s £16.9 million loss. More importantly, the bank’s performance in H2 demonstrated the success of its strategic shift, with a £12.8 million underlying profit, reversing the £26.8 million loss recorded in H1.

This turnaround was largely driven by improvements in net interest income, which rose 20% in H2 2024 compared to the first half. The bank’s decision to pivot toward corporate, commercial, and SME lending contributed to this growth, as these segments typically yield higher margins than retail lending.

Despite a statutory loss before tax of £212.1 million due to one-time charges, including a £101.6 million loss on the mortgage sale, Metro Bank’s £42.5 million profit after tax was bolstered by the recognition of a deferred tax asset, reflecting the bank’s expectation of sustained future profitability.

Loan Sale Strengthens Metro Bank’s Capital Position

As part of its balance sheet optimisation, Metro Bank has confirmed the sale of a £584 million portfolio of performing unsecured personal loans. The transaction will immediately strengthen the bank’s CET1 capital ratio, improving it by approximately 81 basis points to a pro forma 13.4%. Similarly, the total capital plus MREL ratio will increase by 129 basis points, reaching 24.5% upon completion.

The sale aligns with Metro Bank’s broader strategy of shifting away from unsecured retail lending toward specialist mortgages, corporate, and SME lending. The transaction will also generate an estimated £11 million day-one gain on sale, although it will have a minimal impact on net interest margin and overall earnings.

Metro Bank’s recent financial results underscore this transition. New corporate and commercial loan originations increased by 71% in 2024, demonstrating the bank’s focus on higher-margin lending segments. This move is expected to provide stronger risk-adjusted returns, particularly as the bank continues to scale its specialist mortgage offerings.

Improving Deposit Efficiency and Liquidity

Metro Bank has also taken significant steps to reduce funding costs by optimising its deposit base. Total customer deposits declined by 7% to £14.5 billion at the end of 2024, reflecting a deliberate effort to phase out high-cost fixed-term deposits. This shift has helped bring down the cost of deposits to 1.40%, a sharp reduction from 2.29% in early 2024.

The bank’s liquidity coverage ratio (LCR) stood at 337% at year-end, while the loan-to-deposit ratio improved to 62%, providing Metro Bank with flexibility to fund its future lending expansion. With a stronger capital base and reduced funding costs, the bank is well-positioned to pursue its growth strategy in SME and specialist lending.

Investor Sentiment and Market Outlook

Metro Bank’s stock has seen renewed interest from investors following its improved financial performance and balance sheet restructuring. Analysts have highlighted the bank’s CET1 capital ratio boost from the loan sale as a key factor in enhancing financial resilience.

The market is closely watching how Metro Bank leverages its stronger capital position to drive loan growth in its priority segments. The bank’s transition toward specialist lending and risk-adjusted capital allocation is in line with broader industry trends, where financial institutions are prioritising secured lending over unsecured personal loans.

Looking Ahead: Metro Bank’s Path to Sustainable Growth

With a solid foundation in place, Metro Bank is now focused on expanding its high-margin lending segments while maintaining capital discipline. The bank’s ability to sustain net interest margin growth will be a key indicator of future profitability, particularly as it scales its corporate, SME, and specialist mortgage lending.

The sale of the unsecured loan portfolio is a crucial step in this transformation, allowing Metro Bank to reinvest in lending areas that offer higher returns and lower risk exposure. With its CET1 capital ratio set to improve further post-sale, the bank is expected to remain well-capitalised as it pursues its long-term strategic goals.

As Metro Bank continues its shift towards specialist lending, the industry will closely monitor how effectively it deploys its strengthened capital base to drive sustainable revenue growth. With a clear focus on profitability, risk-adjusted lending, and operational efficiency, the bank appears well-positioned to navigate the evolving financial landscape.