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Metro Bank, a UK challenger bank, has faced setbacks in its quest to secure capital relief from the Bank of England for mortgage lending. The bank announced that it is unlikely to obtain approval to use advanced internal models for its mortgage book until at least 2024. The Prudential Regulation Authority (PRA) has indicated that further work is required, and there is no certainty of approval.
The use of advanced models would allow Metro Bank and other challenger banks to calculate the riskiness of loans based on their own history, rather than relying on standardised approaches. This could lead to increased profitability and potentially allow these banks to lend more or return capital to shareholders.
Delays in approvals have been attributed to staff shortages in the PRA teams involved in the discussions, as well as the heavy workload resulting from Brexit and the UK government’s regulatory reform agenda. The urgency to reach an agreement with the UK regulator is driven by the upcoming implementation of Basel IV global capital rules in 2025, which impose stricter treatments on certain assets.
Metro Bank, founded in 2010, became the UK’s first new high street bank in over a century. However, it faced a scandal in 2019 due to misleading investors about risk-weighted assets, resulting in significant fines and the departure of key figures. Despite recent improvements in performance, Metro Bank’s shares remain significantly below their 2018 peak.
The Prudential Regulation Authority and Metro Bank declined to comment further on the matter.
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