Metro Bank increasing its foothold in B2B lending space

Summary

• Metro Bank has been successful in acquiring a portfolio of loans at par value on 2 February.
• The shares of the bank rose in Tuesday’s trading session by 4.03 per cent.

After announcing its intentions to acquire the peer-to-peer lender RateSetter in August last year for £12 million, Metro Bank PLC (LON: MTRO) has reported the purchase of a portfolio of loans at par value from P2P investors who have invested through the RateSetter platform.  

In its latest move, the high street bank said that the financial consideration for the acquisition would be worth £384 million. However, the exact amount may differ, depending on the amortization that might take place between date of announcement and the transaction completion date, which is estimated to be April.  The purchase of the unsecured consumer lending book of RateSetter’s would aid Metro Bank’s strategy to diversify away from mortgage lending. 

(Image Source: © Kalkine Group 2021)

On 2 February, the lender said that the portfolio has a total book value of £384 million with an average total gross yield of around 8 per cent. The well-seasoned portfolio, which is known to deliver a consistent credit performance, consists of unsecured consumer loans and is fast amortising with only two years of an average weighted loan term remaining.  

Company’s take 

Daniel Frumkin, Metro Bank CEO, said the addition of this portfolio to the loan book of the bank is a step ahead towards stimulating its presence in the unsecured lending market.  

Impact of this acquisition 

During the sale of £3 billion residential mortgage portfolio announced in December, the company's pro forma CET1 ratio was roughly 16.3 per cent and its pro forma total capital plus MREL ratio was approximately 24.2 per cent as of 30 September 2020. 

However, when transaction closes in April, it is estimated that the pro forma CET1 ratio would reduce by roughly 0.6 per cent and the pro forma total capital plus MREL ratio by approximately 0.9 per cent. 

The shares of Metro Bank closed at GBX 122.50 on Tuesday, 2 February, after the announcement of the acquisition, rising by 4.03 per cent from the previous day’s trading session.  

Related Read: Metro Bank Gives Wings To Its Unsecured Lending Ambition By Acquiring Ratesetter, The Move Could Strengthen Bank’s Footing In The Market 

Online lending market in the UK 

The old-schooled, traditional lending services have evolved into online lending services with a technology push. It has led to an increase in efficiency and transparency for customers trying to access the financial services.

A variety of financial services, ranging from online payments to online money transfers, are being provided by the fintechs. In recent years, there has been immense expansion in the fintech sector, which has contributed to the employment opportunities and making its presence felt everywhere.  

The fintech industry is playing a vital role in integrating the British economy with the world by ensuring safer and faster transactions.  

The UK is known to be a leading Fintech hub in the world. Currently, it is the largest P2P lending market in the European region. Looking at the global perspective, China and the US are the two dominating forces that have surpassed the UK in terms of peer-to-peer investing.  

Despite various challenges, such as heightened competition, regulatory scrutiny and Brexit, the UK has still witnessed a rapid growth in P2P lending in the last decade. 

The Covid-19 opportunity 

The disruptions brought about by the coronavirus pandemic has undulated through society, particularly impacting the small and medium-sized enterprises in the country. Notwithstanding, the coronavirus period witnessed a rapid increase in the adoption of online small business lending by the fintech industry. 

The business activity levels of the existing online purchasing and transactions has suddenly surged after the outbreak. Gigantic capital investments have been started and the sector is rapidly attracting investors. 

Diversity of funding 

The fintech funding models are online portals that help lenders to connect with borrowers. We have mentioned some of the major names of the UK fintech sector:  

Zopa: Founded in 2005 and based in London, Zopa is the first platform of its kind in the world. It facilitates funding in personal lending at a minimum investment of £10.  

RateSetter: The UK-based company facilitates funding in personal, real estate and SME business lending to UK individuals and companies at a minimum investment of £10. It was established in 2010 by Peter Behrens and Rhydian Lewis.  

Landlordinvest: The company, which was floated in 2014, facilitates funding for real estate lending to UK property professionals and offers loans to real estate developers for both residential buy-to-let at a minimum investment of £100.  

Funding Circle UK: This platform facilitates funding for SME businesses, offering unsecured loans to small firms. It was founded in 2010 in London and has its branches spread across the US, Netherlands, and Germany.  

AxiaFunder: The online lender facilitates funding towards commercial litigation, offering financing for any commercial court cases such as commercial fraud, professional negligence, and general commercial litigation cases for business cases primarily in the UK, at a minimum investment of £500.