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Metro Bank shares dive on margin pressures

Last updated: 20:08 24 Oct 2018 AEDT, First published: 18:00 24 Oct 2018 AEDT

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The bank's customer numbers have exceeded the 1.5mln customer mark for the first time

Metro Bank said continued “competitive trends” in the mortgage market had dented its margins in the year to date, knocking its shares.

The challenger bank said while it continues to manage the cost of deposits, competition in residential mortgages continues to exert pressure on asset yields which led to margins narrowing by 15 basis points to 1.82% in the nine months to the end of September.

READ: Metro Bank raises around £303mln via share placing to bolster regulatory capital requirements; trading strong

Despite this, Metro on Tuesday reported a doubling of its third-quarter profit to £10.0mln and said it had exceeded the 1.5mln customer mark for the first time. Profits trebled to £25.1mln in the first nine months of the year.

The bank, which was launched in 2010, raised £303mln this year to top up its funds after it acquired a large mortgage portfolio.

The FTSE 250-listed bank said deposits grew 38% in the third quarter to £14.8bn, while loans increased 52% to £13.1bn and assets grew 41% to £20.6mln.

“We delivered double-digit growth in deposits, record lending growth year-on-year and for the fourth successive quarter exceeded £1 billion in net lending,” CEO Craig Donaldson said in a statement.

Mortgage market competition 

However, Donaldson added that recent competitive trends in the mortgage market had continued despite the Bank of England having hiked the base rate in August and that it would focus on growing low-risk assets.

Figures from Moneyfacts earlier this month showed a drop in the average two-year fixed rate mortgage, despite the recent interest rate rise.

“The drop in mortgage rates is down to fierce competition among lenders, particularly those who want to attract homeowners seeking to re-mortgage," analysts at AJ Bell said in a note to clients.

“It appears to be a good time to get a mortgage judging by how rife competition is among lenders. Metro Bank’s margins are being squeezed as it fights for business which explains why its share price got a hammering,” they added.

Shares in Metro Bank pared some of their early losses but were still 6.7% down at 2,402.0p in mid-morning shares.

- adds analyst comment and updates share price - 

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