Metro Bank, the FTSE 250 challenger bank, has increased the size of its mortgage book by 15 per cent with the purchase of a portfolio of loans from private equity group Cerberus, as the bank chases ambitious targets to grow profits over the next three years.
The bank will pay £596.7m – a discount to the loans’ face value – for the portfolio,, which is mainly made up of buy-to-let mortgages and Metro said has a similar credit risk profile to its current mortgage book.
Metro had just over £4bn worth of residential mortgages on its balance sheet at the end of March.
Metro Bank said the purchase will increase its loan to deposit ratio to around 78 per cent, putting it within touching distance of its target of an 80 per cent ratio by 2020.
The rapidly growing bank is on track to record its first full year of profit in its current financial year, but it has come under pressure to boost its lending. Analysts at Jefferies noted after Metro’s most recent trading update that they wanted to see faster increases in the loan to deposit ratio, with growth “critical to achieving 2020 profitability targets”.
Craig Donaldson, Metro Bank chief executive, said:
Our lending and deposit growth has gone from strength to strength and the acquisition of this high-quality loan portfolio supports our high-growth, organic business model as we track ever closer to our 2020 guidance.
The portfolio complements our existing mortgage book and demonstrates our willingness and ability, helped by our strong deposit growth, to take advantage of opportunities as they arise.