Metro bank makes headway winning council business
0Challenger banks are set to benefit in the coming year from councils loosening restrictions that prevent deposits with unrated banks, according to a commercial banking director at Metro Bank.
Speaking to Room151, Sam Mackenzie-Carmichael, commercial banking director, said Metro has already picked up contracts for a number of local authority deposit accounts since entering the market a year ago.
And she said the number is expected to increase next year, due to a shift in rules expected in many of this year’s treasury management strategies.
“This year we are seeing more councils giving themselves the room to bank with unrated banks in their TMS documents.” she said.
“There seems to have been a move for authorities to allow themselves to also consider the model of individual banks, looking at factors including capital adequacy and the level of assets to liabilities, in addition to existing ratings.”
Treasury advisor Arlingclose confirmed to Room151 that a standard template TMS issued to local authorities this year includes the ability for councils to bank with unrated banks, and that many are adjusting their TMS documents accordingly.
One factor is understood to be the expected downgrade of a number of the larger banks following new bail-in regulations which would leave them without government support in any future credit crisis. Additionally, the fall-out from the Icelandic crisis means ratings are no longer seen as completely reliable predictors of future bank stability.
Councils considering depositing cash with unrated banks would be expected to consider a number of factors, including capital strength, quality of loans, diversification, liquidity and how stable funding is.
Makenzie said Metro’s capital adequacy ratio – the ratio of its capital to its risk – is currently 28%, while its leverage ratio – tier one capital ratio divided by the firm’s average total consolidated assets – is 13%.
The fact that the bank, which only formed four and a half years ago, has no legacy of bad loans is a factor in its favour, she said. It is also benefiting from pressure on councils to diversify their deposits, she added.
Mackenzie would not reveal the exact number of council clients Metro has taken on, but said that it was in single figures.
The London Borough of Newham was one of the first to switch its deposit account to Metro, she said.
“Councils do not need to put their deposit accounts out to tender, and most of our new customers came across after meeting our chief executive at an event last year.”
The bank offers fixed term accounts ranging from overnight (paying 0.25% interest) to five years. The one year account currently pays 0.95%.
“The most popular account has been 100 day notice account created for the sector, which pays 0.8%,” she said. “We report our figures quarterly, so if a council sees something they don’t like then they can give notice easily.”
Mackenzie added that the bank was currently looking at whether to apply for a credit rating.
In addition, her team is aiming to launch a transactional banking service for councils by the end of this year aimed at councils in London and the South East, she said.
“Deposit accounts can work all over the country, but all of our branches are in concentrated in the South East, so transactional accounts would only work if a council is near a branch,” she added.
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