Metro Bank Holdings PLC on Wednesday said it returned to profit for the first time in five years as deposits ticked higher and costs declined.

Shares in Metro Bank rose 0.6% to 34.60 pence in London on Wednesday morning.

In 2023, the London-based retail bank reported a statutory pretax profit of £30.5 million, the first time since 2018, swinging from a pretax loss of £70.7 million in 2022. On an underlying basis, the pretax loss narrowed to £16.9 million from £50.6 million.

Underlying revenue grew by 5% to £546.5 million from £522.1 million, reflecting asset rotation and increased yields plus 12% growth in capital efficient fee income, whilst costs marginally reduced.

Underlying net interest income increased by 2% to £411.9 million from £404.2 million driven by improvements in net interest margin which rose 6 basis points to 1.98% in 2023 from 1.92%.

The latter reflected improved yields on new lending and treasury investments offset by the impact of increased cost of deposits in the fourth quarter following the successful deposit campaign.

Metro Bank highlighted continued growth in personal and business current accounts, opening 246,000 accounts in the year with over 52,000 of those in the fourth quarter.

The bank ended 2023 with deposits of £15.62 billion, down 2.4% from £16.01 billion in 2022, but up 0.6% from £15.53 billion at June 30, 2023.

The lender said the position had further increased to £16.5 billion by February of the current year.

However, the price for securing extra business rose. The cost of deposits was 0.97% in 2023, rising from 0.20% in 2022, reflecting rising base rates, the impact of the deposit campaign in the fourth quarter, and as customers shift away from current accounts towards higher earning savings and fixed term accounts.

Underlying net fee and other income increased by 12% to £131.9 million from £117.9 million reflecting strong underlying customer acquisition and increased transactional volumes.

Assets grew 0.6% to £22.25 billion from £22.12 billion while loans fell 6.1% to £12.30 billion from £13.10 billion.

The CET1 capital ratio improved to 13.1% from 10.3%.

Underlying costs reduced to £530.2 million from £532.8 million despite a backdrop of inflationary pressures.

Metro Bank said it was on track to deliver £50 million of annualised cost savings in the first quarter of 2024 as previously announced, which will result in the loss of 1,000 jobs by mid-April, around 22% of the bank’s headcount.

A further £30 million of annualised cost savings is expected to be delivered by the end of 2024.

Metro Bank launched its cost-cutting plan last November after Metro Bank shareholders approved a funding package worth £925 million to secure its future on Britain’s high streets.

Shareholders gave the green light to a capital fundraise which saw Colombian billionaire Jaime Gilinski Bacal become a majority shareholder in the group with a 53% stake.

Gilinski Bacal appointed himself to the Metro Bank board as a non-executive director in January.

Chief Executive Daniel Frumkin said he was pleased to ‘return to profit on a statutory basis and deliver our best half-year results for several years’.

‘I remain confident in our ability to be the number one community bank,’ he added.

Speaking to the Press Association, Frumkin said that turnaround actions ‘will have an impact on results in 2024 and said it may have to shrink its deposit base to improve its banking margins’.

But he said the group was not set to return to underlying profitability until 2025.

‘We expect the fourth quarter of 2024 to be better than the first quarter and we expect the momentum coming out of 2024 to allow us to make money in 2025,’ he said.

Metro Bank said no decision has been made regarding the group‘s advanced internal rating-based application.

In September, the bank revealed the Prudential Regulation Authority had informed Metro that more work is required for its AIRB application for residential mortgages, which will now not be approved in 2023.

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