Fitch update30 Sep 2019 20:53
https://www.fitchratings.com/site/pr/10091176
Fitch Downgrades Metro Bank to 'BB'; on Rating Watch Negative
Earnings and profitability are weak and below industry average. We expect further pressure on the bank's profitability if it needs to slow down loan growth, reduce RWA, or incur higher funding costs if it manages to raise SNP in 2019 and 2020. Current profitability plans also leave little room for absorbing potentially higher loan impairment charges or regulatory costs.
Metro Bank's capitalisation is comfortable, with a common equity Tier 1 (CET1) capital ratio of 16.1% at end-1H19, following a capital raise and based on pro forma RWAs after a loan portfolio sale in July 2019. However, Metro Bank's typically fast growth is highly capital-consumptive and the low retained earnings are unlikely to be sufficient to finance its growth ambitions until AIRB is granted. This renders our view of capital as only just in line with the bank's risk appetite. We expect the bank to maintain a CET1 ratio of more than 12% and a leverage ratio, calculated under Capital Requirement Regulations, of greater than 4% in the medium term, as targeted.
Metro Bank's funding is predominantly through deposits, but the bank is required to meet its MREL requirement (21.5% of RWA by January 2020 and 22.5% by 2022) by issuing eligible debt. Based on end-1H19 RWA (pro-forma after the sale), we estimate that at least GBP250 million of loss-absorbing debt is required to meet the requirement at the start of 2020, and additional amounts will be needed to match the bank's RWA growth. Inability to raise this debt in public markets in 3Q19, despite a generous coupon of 7.5%, indicates significant confidence sensitivity.
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