A ramping up in lending to riskier borrowers and an anticipated uptick in defaults caused by inflation surging to a 40-year high has led Metro Bank to set aside millions of pounds of loan-loss reserves.
The lender, which has been grappling with severe under performance for years, narrowed losses in the six months to June to just over £60m, down from over £106m in the previous six months, it announced today.
A near £18m build up in reserves to deal with souring loans over the first half of this year, compared to just under £8m in the second half of last year, curbed Metro Bank’s campaign to drive down losses.
UK inflation has soared to a 40-year high of 9.4 per cent, and is expected to top 12 per cent in October when another hike to the energy price cap lands, raising the risk of borrowers being unable to service their debts.
That intensifying risk has led some of the UK’s biggest banks to increase funds set aside to cope with losing money they have loaned.
Metro Bank also said it has increased unsecured credit lending in the first half of this year, which typically carries a bigger chance of borrowers defaulting.
The bank embarked on a huge restructuring programme over the past two years in a bid to revive shareholders’ confidence.
“This progress clearly demonstrates the value of our proposition and underlines our commitment to becoming the UK’s best community bank,” Daniel Frumkin, chief executive of Metro Bank, said.
Since the beginning of this year, Metro Bank’s share price has tumbled over 15 per cent, reflecting poor sentiment toward the lender.