Metro Bank increases bad loans provisions as cost-of-living crisis bites

By Sinchita Mitra

(Reuters) -Metro Bank ramped up its provisions for bad loans more than 75% to 40 million pounds in 2022 as the British mid-sized lender pointed to the beginning of a "potentially more challenging phase of the credit cycle".

Bank profits have been lifted by successive rate hikes by the Bank of England, enabling them to make more money on lending to consumers and businesses, despite the threat to the economy posed by elevated levels of inflation.

London-based Metro Bank said on Thursday the majority of the loan loss-related provision was due to a 33 million pounds ($39.54 million) increase in impairments on loans to consumers, although the lender added it was yet to see any signs of significant distress among customers.

The company's shares were trading down nearly 3.7% at 144 pence as at 1132 GMT.

Metro Bank's annual losses fell by about two-thirds in 2022 to 50.6 million pounds. It also reported its first quarterly profit since 2019 in the final three months of the year, as it benefited from rising interest rates and cost cuts.

The bank did not provide a figure for its fourth-quarter profit.

The lender's net interest margin, a key measure for profitability, improved by 52 basis points to 1.92% over the year, but that bounce failed to impress investors.

The bank also said it had resolved its main legacy issues, which included fines and regulatory investigations over an accounting error in 2019 and a probe into possible sanctions breaches by the Office of Foreign Assets Control on its handling of money from Cuba and Iran.

The latter closed with no financial penalty, it said.

Metro Bank said it would resume branch expansions in the coming year and look to raise additional regulatory debt to support its capital levels, as and when conditions allowed.

In February, the Bank of England said it was looking at easing some regulatory burdens on smaller lenders to promote the financial sector's post-Brexit global competitiveness.

($1 = 0.8347 pounds)

(Reporting by Sinchita Mitra in Bengaluru; Editing by Sherry Jacob-Phillips and Shounak Dasgupta)