The bank, which is dealing with the first recession since it was established a decade ago, announced £112m of expected credit losses in the six months to June, up from just £4.4m in the same period last year. The vast majority of the total — £97m — was due to changes in economic forecasts rather than actual customer defaults.
Government rescue schemes and programmes such as loan repayment holidays have so far kept customer default rates low, but banks are predicting a sharp increase later in the year as more businesses collapse and the unemployment rate rises.
Metro Bank insisted the disruption caused by coronavirus had not derailed its turnround plans. The group recently announced a four-year restructuring programme based on cutting costs and shifting its focus towards more profitable areas of lending, after a reporting error last year forced it to abandon its previous strategy of rapidly expanding its branch network and lending in the highly competitive mortgage market. Earlier this week it agreed to buy peer-to-peer lender RateSetter in a £12m deal to help it push into other types of consumer lending.
Chief executive Dan Frumkin said that “while the pandemic has weighed heavily on our financial performance, we’ve made early progress delivering against the strategic priorities”.
In the short term, however, restructuring costs added to its losses due to a number of one-off costs such as write-offs relating to the early exit from an expensive central London office.
Total revenue in the first half of the year dropped 29 per cent year on year, to £153m. Operating costs rose 13 per cent mainly due to the restructuring and a slight increase in day-to-day expenses as it adapted to the pandemic and opened six new branches.