Metro Bank reveals riskier commercial loan portfolio

Metro Bank has disclosed that it failed to have enough capital backing some commercial loans because of an accounting error, sending shares in the upstart challenger to Britain's big high-street lenders to their worst one-day loss.

The bank, which has expanded rapidly to 66 UK branches since launching in 2010, also issued a profit warning, saying its full-year profits and capital levels would be weaker than expected after a “soft” end to the year.

Metro Bank’s shares were down nearly 40 per cent in late trading.

The lender’s risk-weighted assets jumped to £8.9 billion (€10.21 billion) – up from £7.4 billion at the end of September and about £900 million higher than analyst estimates – a change that revealed the bank was more exposed to riskier loans, including commercial mortgages.

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The increase was driven partly by planned loan growth, but was also inflated by an adjustment in the weighting for riskiness given to some of its commercial property and other specialist loans.

Metro said it had not seen any deterioration in the performance of the loans, but discovered they had previously been included in the wrong risk band, meaning it did not have as much capital to fund them as it should have.

The bank said it found the error during an end-of-year review, but some analysts had previously warned about its risk weightings. Christopher Cant, analyst at Autonomous, noted that its credit risk density was unusually low compared to peers such as CYBG as early as September 2017. – Copyright The Financial Times Limited 2019