Metro Bank shares plummeted after the lender announced that plans to reform its calculation of capital requirements have been rebuffed by the banking watchdog.
For the last five years, Metro Bank has been working with the Prudential Regulation Authority (PRA) to secure approval for the use of internal risk models for its residential mortgage business.
A capital charge refers to the amount of capital a bank must hold against its assets.
This would mean Metro Bank would hold a lower level of capital against mortgage lending than using the PRA’s standardised models. The UK’s largest banks are already able to use internal models.
However, in a statement out this morning, the bank said “the PRA has indicated that at this stage more work is required by the company which means approval will not be attained during 2023.”
“There is no certainty that approval will be obtained, the timing of any approval or the level of any reduction in risk weighted assets and consequential reduction in regulatory capital requirements that might be achieved,” the bank continued.
Shares in Metro Bank were trading over eight per cent lower on Tuesday.
The bank has been attempting to recover from an accounting scandal for the past few years. Although the bank has been profitable for three consecutive quarters, analysts at Peel Hunt said it is facing a capital shortfall which prevents it from expanding its lending book and generating higher returns.
The investment case in Metro Bank remains “uninteresting while the capital shortfall persists,” the analysts said. However, they suggested that the bank could become “highly attractive” if approval from the PRA is secured, as that would enable the bank to scale up its lending activity.