Annual Financial Report

RNS Number : 3887T

Metro Bank PLC

24 March 2021

 

Legal Entity Identifier: 213800X5WU57YL9GPK89

METRO BANK PLC (the "Company")

PUBLICATION OF ANNUAL REPORT AND ACCOUNTS

Following the release on 24 February 2021 of the Company's preliminary results for the financial year ended 31 December 2020 (the "Preliminary Announcement"), the Company is pleased to announce that it has today published its Annual Report and financial statements for the financial year ended 31 December 2020 (the "2020 Annual Report and Accounts") and is available for viewing in the Investor Relations section of the Company's website at  www.metrobankonline.co.uk .

The 2021 Annual General Meeting of Shareholders is currently scheduled to take place on 18 May 2021. An announcement with further details including publication of the 2021 Notice of Annual General Meeting will be circulated in due course.

Hard copies of the 2020 Annual Report and Accounts will be mailed in due course to those shareholders who have elected to receive them. Copies of the 2020 Annual Report and Accounts have also been submitted to the National Storage Mechanism and will shortly be available for inspection at  https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

The Disclosure Guidance and Transparency Rules (DTR) require that an announcement of the publication of an annual report should include the disclosure of such information from the annual report as is of a type that would be required to be disseminated in a half-yearly report in compliance with the DTR 6.3.5(2) disclosure requirement,  in unedited full text through a Regulatory Information Service . Accordingly, these disclosures are made in the Appendix below.

The Appendix to this announcement contains the following additional information for the purposes of compliance with DTR 6.3.5 only:

 a description of the principal risks and uncertainties relating to the Company;

 indication of important events during the year;

 a note on related party transactions; and

 directors' responsibilities statement.

The Preliminary Announcement included a set of condensed financial statements.   Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service.

Enquiries

For further information on this announcement, please contact:

Metro Bank PLC

Investor Relations

Jo Roberts

[phone]

[e-mail]  

Media Relations

Tina Coates / Abigail Whittaker

[phone]  /  [phone]

[e-mail]

Teneo

Charles Armitstead / Haya Herbert ‐ Burns

[phone]  /  [phone]

[e-mail]  

APPENDIX 

References to page numbers and notes to the accounts made in the Appendix refer to page numbers and notes to the accounts in the 2020 Annual Report and Accounts. This announcement should be read in conjunction with, and is not a substitute for reading, the full 2020 Annual Report and Accounts.

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties relating to the Company are set out on pages 26-53 of the 2020 Annual Report and Accounts . The following is extracted in full and unedited text from the 2020 Annual Report and Accounts :

Changes in principal risks and risk profile

In line with the UK Corporate Governance Code requirements, we have performed a robust assessment of the principal and emerging risks we face, including those that could result in events or circumstances that might threaten our business model, future performance, solvency or liquidity, and reputation. In deciding on the classification of principal risks, we considered the potential impact and probability of the related events and circumstances and the timescale over which they may occur. The principal risk categories remain similar to those outlined in the Annual Report and Accounts 2019, with changes relating to the identification of capital risk as a principal risk and the recognition of climate risk as a cross-cutting risk, which manifests through the existing principal risk framework.

An overview of the principal risks and how they have changed over the year are set out on pages 28 to 29. While further information on all of the principal risks can be found on pages 30 to 51 of the Risk report.

During the year, we have been working hard to support our customers and minimise the impact of COVID-19 for businesses and households across the UK, maintaining our customer service operations and store distribution with minimal interruption. We have also participated in the various UK Government-backed loan schemes for businesses, in addition to offering payment holidays to mortgage, personal and business customers.

Our response to the pandemic demonstrates the robustness of our approach to risk management and mitigation as we continue to successfully manage these events. Like many businesses, COVID-19 has, however, increased our risk profile. The measures introduced to support the economy create new operational, conduct and financial risks for the Bank. These risks are being managed and will be monitored over time.

The table below summarises the changes in our principal risks since 2019 and the key risk implications of the pandemic.

Principal risk	Risk Movement in 2020	Impact of COVID-19
1. Credit risk The risk of financial loss should our borrowers or counterparties fail to fulfil their contractual obligations in full and on time.	Although the impacts on our retail and business credit portfolios are yet to fully manifest, it is clear that the level of risk has increased, with levels of defaults expected to increase over time, particularly once government support schemes come to an end.	We have participated in regulatory and government support schemes, with a priority focus on supporting existing customers through COVID-19. Capital repayment holidays, interest free overdrafts (for retail customers) and extensions of credit, as well as other flexible supporting measures, continue to be provided and monitored. Policies, risk appetite, credit decisioning and supporting frameworks have been reviewed and updated to reflect the changing environment and risk profiles.
2. Operational risk The risk that events arising from inadequate or failed internal processes, people and systems, or from external events cause regulatory censure, reputational damage, financial loss, service disruption and/or detriment to our FANS.	The risk has increased, driven by increased remote working, the implementation of new processes and pressure on customer support areas arising from changing customer needs, which could lead to increased errors or delays and subsequent losses.	COVID-19 brought heightened people risk as some of our colleagues worked to keep our stores open, whilst others worked from home. It also necessitated changes to working practices, which are managed closely via an enhanced governance structure. We are now investigating permanent improvements that can be made.
3. Liquidity and funding risk The risk that we fail to meet our short-term obligations as they fall due. The risk that we cannot fund assets that are difficult to monetise at short notice (i.e. illiquid assets) with funding that is behaviourally or contractually long term (i.e. stable funding).	Liquidity and funding risk has decreased during the year, increasing stability.	The impact of COVID-19 has resulted in an overall improvement to our overall liquidity profile through improved deposit balances and participation in the Bounce Back Loan Scheme, with clients placing funds drawn-down on deposit, prior to their utilisation. This effect has been observed across the industry and is anticipated will be temporary in nature.
4. Market risk The risk of loss arising from movements in market prices. Market risk is the risk posed to earnings, economic value or capital that arises from changes in interest rates, market prices or foreign exchange rates.	Market risk has remained stable through the year.	Not directly impacted by COVID-19, we are able to manage and hedge interest rate risk through different rate environments.
5. Financial crime risk The risk of financial loss or reputational damage due to regulatory fines, restriction or suspension of business, or cost of mandatory corrective action as a result of failing to comply with prevailing legal and regulatory requirements relating to financial crime.	The risk has decreased during the year due to enhancements made to our AML and Sanctions controls through the Financial Crime Improvement Programme. Overall fraud attacks continue to significantly increase in line with what is being seen across the industry, year on year; albeit, in 2020, fraud losses have reduced from 2019.	New government support schemes have provided opportunities for fraudsters and we have implemented controls to counter their attempts.
6. Regulatory compliance risk The risk of: failing to understand and comply with relevant laws and regulatory requirements; not keeping regulators informed of relevant issues; not responding effectively to information requests or failing to meet regulatory deadlines; or obstructing the regulator.	We remain exposed to regulatory and compliance risk as a result of significant ongoing and new regulatory change. We will seek to comply with all regulations as they evolve, and as customer expectations continue to develop.	We have deployed multiple new policies and processes to implement government, regulatory and central bank COVID-19 support measures. Additional regulatory and compliance risks are associated with adherence to both COVID-19-specific regulatory guidance and with existing regulation. Consequently, additional risk assessments, governance processes and assurance activities have been deployed across the Bank.
7. Conduct risk The risk of treating customers unfairly and delivering poor outcomes that lead to customer detriment, such as financial loss and/or distress and inconvenience. This can also result in wider adverse impacts, for example, loss of our FANS, reputational damage, regulatory and/or legal action.	The risk has increased driven by the impact of the external environment, namely COVID-19 and the UK economy, where customers are increasingly more vulnerable to dramatic income changes, job losses and behavioural changes driven by social/political agendas.	COVID-19 has generally had a detrimental impact on customers' financial stability and affordability due to income loss caused by furlough and/or complete job loss. This has resulted in increased reliance on savings, inability to meet repayment demands and the need for the regulator and lenders to introduce enhanced forbearance measures, such as payment deferrals. We have now sought to include some of these measures as part of our ongoing collections strategy.
8. Model risk The risk of potential loss and regulatory non-compliance due to decisions that could be principally based on the output of models, due to errors in the development, implementation or use of such models.	The risk has increased as a result of the rapid application of COVID-19 model adjustments.	The uncertain economic environment has affected all model components including input data, default markers, outputs, model accuracy and performance.
9. Capital risk The risk that we fail to meet minimum regulatory capital (and MREL) requirements. Management of capital is essential to the prudent management of our balance sheet, ensuring our resilience under stress, and the maintenance of the confidence of our current and potential creditors (including bondholders, the bond market, and customers) and key stakeholders in the pursuit of our business strategy.	Our capital ratios were broadly flat year-on-year. We took action to strengthen our MREL resources through the sale of a portfolio of owner occupied residential mortgages, which is in line with our strategy to enhance risk-adjusted returns on capital through the ongoing focus on balance sheet optimisation. We also purchased the peer-to-peer lender RateSetter, to provide unsecured personal loans direct to customers.	There have been several regulatory capital developments in the UK and Europe in response to COVID-19, which have reduced certain capital requirements for banks across the industry. Additionally, in order to provide operational capacity for banks to respond to the immediate financial stability priorities resulting from the impact of COVID-19, both the PRA and Basel communicated revised timelines across key regulatory initiatives.

Further information on our principal risks are set out on pages 30 to 51.

1. Credit risk
Definition Credit risk is the risk of financial loss should our borrowers or counterparties fail to fulfil their contractual obligations in full and on time.		Change since 2019: Increased

Appetite

We have a moderate appetite for credit risk. As part of our strategic priorities we are rebalancing our lending mix, increasing the proportion of unsecured lending which will lead to an increased level of credit risk. Our tolerance for credit loss has been set within our ability to meet our capital requirements but also reflects the increased level of risks associated with COVID-19. Our metrics, and how we monitor them, will allow for informed decisions and meaningful risk management action to take place to ensure our capital and other resources are adequate in order to achieve our long-term strategic objectives.

Mitigation

Lending and collateral

Our foremost exposure to credit risk is through the loans, limits and advances we make available to our customers. We primarily mitigate credit risk through holding collateral against our residential mortgage and commercial term loan portfolios. Collateral is usually held in the form of real estate, guarantees, debentures and other liens that we can call upon in the event of the borrower defaulting. At 31 December 2020, 84% (31 December 2019: 95%) of our loans consisted of retail mortgages and commercial term loans secured on collateral, with average debt-to-value of 56% (2019: 59%) and 56% (2019: 60%) respectively.

Our exposure to loans of greater than 100% debt to value (or where no real estate collateral is present) remains low at less than 1% of retail mortgage lending (31 December 2019: less than 1%) and 12% of commercial term lending (31 December 2019: 11%). In the retail mortgage lending portfolio, these loans have principally been part of portfolios we have acquired. For commercial term lending, additional forms of collateral (such as debentures or unsupported guarantees giving recourse to our customers) are excluded from these debt-to-value figures, so the true credit risk exposure on these loans is lower and is underwritten on the strength of all types of collateral.

Table 1: Retail mortgage lending by DTV

	31 December 2020 £'million			31 December 2019 £'million
	Retail owner occupied	Retail buy-to-let	Total retail mortgages	Retail owner occupied	Retail buy-to-let	Total retail mortgages
Audited
DTV ratio
Less than 50%	1,855	502	2,357	2,647	464	3,111
51-60%	842	390	1,232	1,383	393	1,776
61-70%	836	533	1,369	1,422	505	1,927
71-80%	1,084	407	1,491	1,813	554	2,367
81-90%	359	4	363	1,201	13	1,214
91-100%	74	-	74	23	-	23
More than 100%	1	5	6	4	8	12
Total retail mortgage lending	5,051	1,841	6,892	8,493	1,937	10,430

Table 2: Commercial term lending by DTV (excluding BBLS)

	31 December 2020 £'million			31 December 2019 £'million
	Professional buy-to-let	Other term loans	Total commercial term loans	Professional buy-to-let	Other term loans	Total commercial term loans
Audited
DTV ratio
Less than 50%	353	876	1,229	363	911	1,274
51-60%	261	546	807	283	535	818
61-70%	351	255	606	404	343	747
71-80%	133	100	233	135	86	221
81-90%	9	51	60	10	31	41
91-100%	6	13	19	12	37	49
More than 100%	4	411	415	12	384	396
Total commercial term loans	1,117	2,252	3,369	1,219	2,327	3,546

We have developed an automated credit approval process for consumer lending and retail mortgages utilising credit scorecards, affordability calculators and policy rules. This is supported by a team of skilled manual underwriters for more complex decisions, who operate within agreed delegated lending authorities, and a clear Credit Policy and Lending Standards.

All commercial lending is individually reviewed. This is undertaken by Relationship Managers and a specialist team of commercial underwriters, reviewing these proposals in accordance with agreed delegated lending authorities. It is underpinned by a commercial lending policy supported by sector specific standards and guidelines.

Undrawn commitments

At 31 December 2020, we had undrawn loan facilities of £769 million (2019: £726 million). This includes commitments of £351 million (2019: £296 million) in respect of credit card and overdraft facilities. These commitments represent agreements to lend in the future, subject to certain conditions. Such commitments are cancellable, subject to notice requirements, and given their nature are not expected to be drawn down to the full level of exposure. We mitigate credit risk in respect of these undrawn balances by regular customer monitoring to allow undrawn limits to be removed if we observe credit quality deterioration. We also have exposure to Invoice Finance assets (£36 million drawn on limits of £138 million) where the amount drawn is capped both by the discounted value of available invoices and a set relationship cap. Similarly, we have a small exposure to Commercial Real Estate Development Finance, where a limit to draw down is agreed in principle and funds are released in stages, throughout the development and following satisfactory surveyor reports. In commercial lending, undrawn commitments are regularly reviewed to ensure relationship caps remain appropriate. This has been particularly evident during 2020 as we continue to support customers through COVID-19.

Interest-only lending

We have exposure to refinance risk. This is the risk from loans to customers who are subject to a bullet or balloon payment at contractual maturity but who find themselves unable to refinance or otherwise make this payment. At 31 December 2020, this risk arises principally in the mortgage book where the exposure to interest-only loans stands at £4.1 billion (31 December 2019: £4.4 billion). There is further exposure to refinance risk in the Commercial Book of £1.3 billion (31 December 2019: £1.5 billion) from interest-only loans and a portion of amortising term loans.

All borrowers of interest-only lending are assessed as being able to refinance the lending at the end of the term or have an appropriate repayment plan in place. These loans are also appropriately collateralised (see lending and collateral section on page 30), ensuring we have a first charge in the event of default by the borrower. The reduction in owner occupied mortgages is as a result of the £3.1 billion retail mortgage sale, agreed in December 2020.

Table 3: Retail mortgage lending by repayment type

Audited	31 December 2020 £'million			31 December 2019 £'million
	Retail owner occupied	Retail buy-to-let	Total retail mortgages	Retail owner occupied	Retail buy-to-let	Total retail mortgages
Repayment
Interest	2,337	1,751	4,088	2,573	1,834	4,407
Capital and interest	2,714	90	2,804	5,920	103	6,023
Total retail mortgage lending	5,051	1,841	6,892	8,493	1,937	10,430

Table 4: Commercial term lending (excluding BBLS)

Audited	31 December 2020 £'million			31 December 2019 £'million
	Professional buy-to-let	Other term loans	Total commercial term loans	Professional buy-to-let	Other term loans	Total commercial term loans
Repayment
Interest	1,058	281	1,339	1,155	328	1,483
Capital and interest	59	1,971	2,030	64	1,999	2,063
Total commercial term loans	1,117	2,252	3,369	1,219	2,327	3,546

Sector exposure

We manage the level of credit risk concentration based on individual borrowing entities and sector. Our credit risk appetite includes limits for high risk sectors and/or high levels of concentration.

Within commercial lending we set credit risk policy and lending standards for key sectors. We have specialist sector lending teams including in healthcare, hospitality, and property.

Over 2020, we have observed that some sectors have been more severely impacted by COVID-19 lockdowns. Hospitality has experienced a more significant reduction in income than other sectors, and as a consequence we are seeing higher levels of COVID-19 support required by these customers.

Table 5: Commercial term lending by sector exposure (excluding BBLS)

Audited	31 December 2020 £'million			31 December 2019 £'million
	Professional buy-to-let	Other term loans	Total commercial term loans	Professional buy-to-let	Other term loans	Total commercial term loans
Industry sector
Real estate (rent, buy and sell)	1,117	1,032	2,149	1,219	1,155	2,374
Hospitality	-	376	376	-	308	308
Health and social work	-	248	248	-	263	263
Legal, accountancy and consultancy	-	208	208	-	236	236
Retail	-	107	107	-	100	100
Real estate (development)	-	60	60	-	62	62
Recreation, cultural and sport	-	53	53	-	51	51
Construction	-	36	36	-	35	35
Education	-	30	30	-	30	30
Real estate (management of)	-	10	10	-	11	11
Investment and unit trusts	-	9	9	-	8	8
Other	-	83	83	-	68	68
Total commercial term loans	1,117	2,252	3,369	1,219	2,327	3,546

Geographic exposure

We also manage our lending exposure by region. Our current residential mortgage and commercial term lending is concentrated within London and the South East, which is broadly representative of our current customer base and store footprint. We are expanding our footprint over time to reduce geographical concentration of lending. All of our current loans' exposures are secured on UK-based collateral. A geographic analysis of the location of retail mortgage collateral and commercial term loan (excluding BBLS) collateral is set out below:

Table 6: Retail mortgages by geographic exposure

Audited	31 December 2020 £'million			31 December 2019 £'million
	Retail owner occupied	Retail buy-to-let	Total retail mortgages	Retail owner occupied	Retail buy-to-let	Total retail mortgages
Region
Greater London	2,213	1,147	3,360	3,424	1,197	4,621
South East	1,157	309	1,466	2,094	337	2,431
South West	433	91	524	738	97	835
East of England	298	73	371	570	76	646
North West	265	63	328	482	66	548
West Midlands	179	58	237	340	62	402
Yorkshire and the Humber	139	37	176	275	37	312
East Midlands	131	25	156	243	26	269
Wales	102	21	123	169	21	190
North East	62	10	72	93	11	104
Scotland	72	7	79	65	7	72
Total retail mortgage lending	5,051	1,841	6,892	8,493	1,937	10,430

Table 7: Commercial term loans by geographic exposure (excluding BBLS)

Audited	31 December 2020 £'million			31 December 2019 £'million
	Professional buy-to-let	Other term loans	Total commercial term loans	Professional buy-to-let	Other term loans	Total commercial term loans
Region
Greater London	780	1,358	2,138	850	1,414	2,264
South East	205	399	604	224	424	648
South West	31	156	187	52	156	208
East of England	48	67	115	35	104	139
North West	20	146	166	21	115	136
West Midlands	10	66	76	11	49	60
Yorkshire and the Humber	3	13	16	11	26	37
East Midlands	11	18	29	5	12	17
Wales	5	10	15	4	10	14
North East	3	18	21	4	9	13
Scotland	1	-	1	1	3	4
Northern Ireland	-	1	1	1	5	6
Total commercial term loans	1,117	2,252	3,369	1,219	2,327	3,546

Investment securities

As well as our loans and advances, the other main area where we are exposed to credit risk is within our Treasury portfolio. At 31 December 2020 we held £3.4 billion (31 December 2019: £2.6 billion) of investment securities, which are used for balance sheet and liquidity management purposes, of which £3.4 billion (31 December 2019: £2.4 billion) is eligible as collateral at the BoE.

We hold investment securities at amortised cost or fair value through other comprehensive income depending on our intentions regarding each asset. We do not hold investment securities at fair value through profit and loss.

Table 8: Investment securities by credit rating

	31 December 2020 £'million			31 December 2019 £'million
Audited	Investment securities held at amortised cost	Investment securities held at FVOCI	Total	Investment securities held at amortised cost	Investment securities held at FVOCI	Total
Credit rating
AAA	2,184	385	2,569	1,943	156	2,099
AA- to AA+	456	388	844	144	255	399
A- to A+	-	-	-	67	-	67
Lower than A-	-	-	-	-	-	-
Total	2,640	773	3,413	2,154	411	2,565

We have a robust securities investment policy which requires us to invest in high-quality liquid debt instruments. At 31 December 2020, 75% of our investment securities were rated as AAA (31 December 2019: 82%) with a further 25% (31 December 2019: 16%) rated AA- or higher.

Additionally, we hold £3.0 billion (31 December 2019: £3.0 billion) in cash balances, which is either held by ourselves or at the BoE, where there is minimal credit exposure.

Oversight

Credit risk is overseen by the Chief Risk Officer (supported by the Chief Credit Officer), Executive Risk Committee and Risk Oversight Committee.

The Credit Risk function reports to the Chief Risk Officer and is led by the Chief Credit Officer. It is responsible for:

• Recommending and overseeing credit risk appetite limits.

• Maintaining credit risk policies and standards.

• Overseeing credit risk strategies in accordance with policies and risk appetite.

• Providing an independent review of individual commercial credit proposals and renewals of loan facilities.

• Monitoring credit risk performance and reporting to the Executive Risk Committee and Risk of Committee.

• Developing and monitoring credit risk models.

• Ensuring appropriate IFRS 9 credit provisions.

• Developing and overseeing of retail collections and recoveries strategies.

• Managing commercial collections and recoveries strategy and activities.

In addition, our Treasury Risk team, which is led by the Director of Prudential Risk and reports to the Chief Risk Officer, supports the development and implementation of applicable policies and procedures and monitors the credit risk aspects of the Treasury portfolio.

Measurement

Economic weightings

We measure credit quality for impairment purposes under IFRS 9. We have taken a cautious approach to assessing our impairment provisions in order to set aside appropriate portfolio provision coverage for the anticipated economic deterioration and increase in credit losses that is expected over the coming period.

Our IFRS9 models utilise a blend of several economic scenarios provided by Moody's Analytics. The weightings of these scenarios reflect the UK economic outlook arising from COVID-19 and Brexit. The macroeconomic assumptions applied can be found on page 208. Our credit risk models are subject to internal model governance including independent validation. We undertake annual model reviews and have regular model performance monitoring in place.

The impairment provisions recognised during the year reflect our best estimate of the level of provisions required for future credit losses as calibrated under our conservative weighted economic assumptions and following the application of expert credit risk judgement overlays.

Use of Post Model Adjustments and Post Model Overlays

To supplement the models, we also applied expert credit risk judgement through post model adjustments and post model overlays.

Post Model Adjustments refer to increases/decreases in ECL to address known model limitations, either in model methodology or model inputs. These rely on analysis of model inputs and parameters to determine the change required to improve model accuracy. These may be applied at an aggregated level, however they will usually be applied at account level.

Post Model Overlays reflect management judgement. These rely more heavily on expert judgement and will usually be applied at an aggregated level. For example, where recent changes in market and economic conditions have not yet been captured in the macroeconomic factor inputs to models (e.g. industry specific stress event).

The appropriateness of post model adjustments and post model overlays is subject to rigorous review and challenge, including review by the Audit Committee (see page 94).

Further details on our use of post model adjustments and post model overlays can be found on page 210.

Regulatory measurement

As of 31 December 2020, all exposures are measured under the standardised approach for credit risk for regulatory capital. We are parallel-running the AIRB rating system for residential mortgages and have rolled out use of commercial rating and slotting models during 2020.

Monitoring

We monitor credit risk performance through a suite of reports covering performance against risk appetite limits and key credit risk metrics, including: new business flow; portfolio quality; early warning indicators; arrears and recovery performance; sector and geographical concentration; and exceptions to lending policy. Reports are provided to ERC, the ROC and the Board on a monthly basis. Credit risk performance is supported by portfolio reviews and deep dives on material portfolios and key credit risk themes.

Early Warning and Non-performing loans

In line with IFRS 9, we allocate all loans into Stages 1, 2 and 3 to reflect likelihood of loss.

• Stage 1 includes those loans where the credit risk has not increased significantly since the loan was originally agreed.

• Stage 2 includes those loans where the credit risk has increased significantly, but which are not impaired.

• Stage 3 includes loans which are non-performing.

The risk of loss increases through these stages. Under IFRS 9, the potential for a loan to default is calculated on a 12-month horizon at Stage 1, and a lifetime horizon at Stages 2 and 3.

COVID-19 has been a significant factor in customers' ability to make payments. We have worked with customers to assist with how best to manage repayments, and have provided payment deferral options as an option, in line with regulatory guidance. This customer support package has kept arrears lower, and is expected to make return to repayment easier for most customers - a trend we have seen as customers have begun to roll off payment holidays.

We expect to see increasing numbers of customers experiencing financial difficulties, as restrictions continue to impact trading, liquidity is used up, and repayments start to fall due on government support loans. Commercial customers are managed through early warning categorisation where there are early signs of financial difficulty. The overriding objective is to identify, at an early stage, those customers for whom we believe repayment difficulties may develop, thereby allowing timely engagement and appropriate corrective action to be taken. Early Warning categorisation supports IFRS 9 Stage Allocation.

In Retail, we monitor for early signs of financial difficulty to enable appropriate customer support.

COVID-19 has also materially impacted the volume of lending in Early Warning categories over 2020. The main sector exposures within Early Warning categories reflect the key commercial term lending industry sectors: Real Estate; Hospitality; Recreation, Cultural and Sport are particularly affected. The majority of customers in Early Warning categories have received COVID-19 support including payment holidays or government backed loans, and we anticipate an increase in the number of customers requiring further COVID support.

Non-performing loans

Non-performing loans are loans that have more than three instalments unpaid (90+ days past due) or where the debtor is assessed as unlikely to pay our credit obligations in full without recourse to legal action to recover the debts in full, regardless of the existence of any past-due amount or of the number of days past due. All non-performing loans are included within Stage 3.

Where a debtor is facing difficulties meeting financial commitments, Metro Bank is able to offer forbearance. Forbearance is a concession either through a change to the terms and conditions of the loan, or a refinance of the loan. To be forborne, the customer is in or is about to face financial difficulties. Loans which have been renegotiated within existing credit policy where the customer is not in financial difficulties are not forborne. All forborne loans are included within Stage 3. Customers who have sought COVID support in the form of payment deferrals or temporary conversion to interest only payments are not considered forborne, by virtue of having sought that support. However, this may be a contributing factor for an account to be allocated in Stage 2.

Commercial loans in Stage 3 are individually assessed with consideration for the collateral provided against the loan. Provisions are reported and overseen through Impairment Committee to Executive Risk Committee.

COVID

COVID-19 has and will continue to materially impact the volume of lending classified as Stage 2 and Stage 3. In anticipation of this, a number of model adjustments have been put in place to reflect those losses, the full extent of which has yet to materialise.

Table 9: Non-performing loans

Group	31 December 2020		31 December 2019
	Non-performing loans £'million	Non-performing loan ratio	Non-performing loans £'million	Non-performing loan ratio
Retail-residential mortgages	118	1.70%	25	0.24%
Retail-consumer and other	13	6.13%	10	4.30%
Commercial (including asset and invoice finance)	127	2.48%	42	1.12%
Total	258	2.10%	77	0.53%

The deterioration of the non-performing loan ratio from 31 December 2019 to 31 December 2020 for all portfolios is primarily driven by customers who have received temporary COVID-19 support measures and now require further forbearance support which has been classified as unlikeliness to pay criteria in the definition of default.

Cost of risk

Cost of risk is credit impairment charges expressed as a percentage of average gross lending. The increase has been primarily driven by COVID-19. There has been a significant deterioration in macroeconomic scenarios as well as increases in arrears and forbearance. This has driven an overall increase in the ECL expense.

Table 10: Cost of risk

Group	2020	2019
Retail-residential mortgages	0.19%	0.00%
Retail-consumer and other	5.97%	1.92%
Commercial (including asset and invoice finance)	1.99%	0.11%
Average cost of risk	0.86%	0.08%

Regulatory and Government support schemes

We have remained focused on supporting customers through COVID-19 and have participated in the various Government support schemes. Payment deferrals and temporary payment conversion to interest-only for loans, interest-free overdrafts, and extensions of credit have all been made available.

We have provided BBLS to our customers with loans of between £2,000 and £50,000. These are available for up to 10 years, with no repayments due in the first year, at a fixed rate. Changes made as part of the 'Pay as you Grow' scheme allow customers to apply for an interest only payment period of six months (up to a maximum of three periods) with an additional payment deferral period, for both capital and interest, also up to six months. These loans are 100% guaranteed by the government.

CBILS allows for loans of over £50,000 to a maximum of £5 million. These have been made available at variable rates of lending with no arrangement fees and 0% interest for the first 12 months. The Government has guaranteed 80% of the loss and pays the fees as well as the interest for the first 12 months. The maximum term of these loans is six years.

CLBILS provides loans of over £50,000, up to a maximum of £200 million. These have also been made available at a variable rate of lending, with terms ranging between three months and three years. The government guarantees 80% of any loss on these loans.

At 31 December 2020 we have £1.35 billion of loans for BBLS, £114 million (with a further £19 million approved) in CBILS and £27 million (with further £3 million approved) in CLBILS. Whilst these loans are guaranteed by the government, costs to collect are expected, and the risks associated from these loans is being closely monitored and reassessed where necessary, particularly as new government guidance is made available.

Table 11: COVID-19 Government Backed Loans

Group	Number of Customers	Drawn Balance £'million	Average Loan Amount £'000
BBLS	36,139	1,353	37
CBILS	277	114	411
CLBILS	3	27	9,122
Total	36,419	1,494	41

COVID-19 support measures

COVID-19 support measures including payment deferrals and temporary payment conversions to interest only have been made available as part of our commitment to support our customers through COVID-19.

Less than 1% of mortgage customers currently have part or full payment deferrals. 22% of all mortgage customers have been granted deferrals in 2020 and 1% of customers remain. Of those customers who took a payment deferral, 90% have returned to full contractual payments with only 6% moving into arrears or requiring additional support.

7% of commercial customers currently have COVID-19 support measures in place, predominantly capital and interest payment holidays. 75% of commercial customers who have previously been granted COVID-19 support have now returned to full contractual terms.

Of our retail unsecured customers, 1% of customers have currently been granted payment deferral; 8% have taken a payment deferral over 2020 with 85% of those returning to contractual payments. Of those that have returned, 33% have moved into arrears or require additional support.

Table 12: COVID-19 support

	Granted to Date		31 December 2020
Group	Total Balances £'million	% of Total Balances	Total Balances £'million	% of Total Balances
Retail Mortgages	1,540	22%	68	1%
Commercial Lending	1,011	29%	251	7%
Retail Unsecured	13	8%	2	1%
Total	2,564	24%	321	3%

2. Operational risk
Definition Operational risk is the risk that events arising from inadequate or failed internal processes, people and systems, or from external events cause regulatory censure, reputational damage, financial loss, service disruption and/or detriment to our FANS.		Change since 2019: Increased

Appetite

We maintain a low appetite for Operational Risk. We aim to minimise incidents and losses arising from operational risk issues by maintaining a resilient infrastructure, including robust systems, employing and training the right colleagues, minimising the impact of external events and having a framework in place to ensure that operational risks are captured, monitored and mitigated.

Mitigation

Policies

We have detailed policies, procedures and controls in place that are designed to mitigate operational risks both through minimising impacts suffered in the normal course of business (expected losses) and to avoid or reduce the likelihood of suffering a large extreme (or unexpected) loss.

Cyber and information security

Our Chief Information Security Officer (CISO) is responsible for ensuring robust cyber and information security. We continuously invest in our cyber and information security infrastructure in order to improve services, protect customer data and minimise the risk of disruption. We also take pre-emptive actions to safeguard the end-to-end resilience of critical processes. We continue to enhance the control environment, recognising the changing cyber landscape and the increased focus on digital capabilities and reliance on home working, as well as the changing risk profile of the business.

Operational resilience

Operational resilience is demonstrated in the mitigation of risks that impact our people, technology, third parties, and premises. By identifying critical end-to-end processes, focus can be given to those processes and the controls in place, including management of the technology upon which they rely, to minimise disruption. The need for strong operational resilience is inherent in the provision of services to customers. As customer expectations and use of services evolves we will need to maintain focus on the resilience of services. COVID-19 highlights the ongoing exposure to external risks and threats that can be unpredictable in nature and widespread in impact. Our response to COVID-19 to date has ensured that critical services have continued in the safest manner possible for both customers and colleagues. The ongoing nature of the pandemic will continue to present risks to our resilience and these are monitored continually.

Culture and training

As we evolve, we aim to do so safely through continued investment in training our colleagues. This enables them to deliver the right outcomes to our FANS, whilst maintaining a safe, reliable and resilient banking operation.

Measurement

Material operational risk events are identified, reviewed and escalated in line with criteria set out in the Risk Management Framework. Root cause analysis is undertaken and action plans are implemented. Losses may result from both internal and external events, and are categorised using risk categories aligned to Basel II. We also measure operational risk using a number of quantitative metrics. These KRIs are defined, reported against and escalated to the Business Risk Committees, Executive Risk Committee and Risk Oversight Committee.

We also develop and maintain a suite of operational risk scenarios using internal and external data. These scenarios provide insights into the stresses the business could be subject to given extreme circumstances. Scenarios cover all material operational risks including execution of change, failures to core processes or contagion risk from a third party. Scenarios are owned by senior management custodians with review and challenge provided by the Risk function, Executive Risk Committee and Risk Oversight Committee, as part of the ICAAP process.

Monitoring

We have built detection capabilities to monitor and alert us about system attacks and we use incident management procedures and playbooks to respond to attacks accordingly.

We continuously develop and embed our approach to the management of operational risks, with the aim of maintaining robust operational processes, systems and controls, including conducting Risk and Control Self-Assessments across the Bank.

Operational risk is overseen by the CRO, Business Risk Committees, Executive Risk Committee and Risk Oversight Committee.

3. Liquidity and funding risk
Definition Liquidity Risk is the risk that we fail to meets our short-term obligations as they fall due. Funding Risk is the risk that we cannot fund assets that are difficult to monetise at short notice (i.e. illiquid assets) with funding that is behaviourally or contractually long term (i.e. stable funding).		Change since 2019: Decreased

Appetite

We have a moderate appetite for Liquidity Risk and Funding Risk. We shall be able to survive a combined name-specific and market-wide liquidity stress event for at least three months, at a level of severity determined by our internal stress test, utilising our Liquidity Pool. Equally, we shall maintain a prudent funding profile by using stable funding to fund illiquid assets, without reliance
on wholesale funding markets, whilst ensuring that funding is not inappropriately concentrated by customer, sector, or term,
as identified during our liquidity stress testing.

Mitigation

Deposit-funded approach

We aim to attract deposits that are diverse and are low cost, which are less sensitive to competition within the deposit market. At 31 December 2020, 44.3% of our deposits came from commercial customers (31 December 2019: 40%) with the remaining 56% (31 December 2019: 60%) coming from retail customers. Additionally, 39% of deposits at year end (31 December 2019: 29%) were
in the form of current accounts, with the remainder split between a combination of instant access and fixed-term savings products. In 2020 our cost of deposits was 0.65% (2019: 0.78%).

Our deposit base during the year and at year end remains stable and resilient throughout the pandemic, with retail deposits forming a higher portion of our balance sheet than commercial deposits.

Liquidity management

We continue to hold a prudent level of liquidity to cover unexpected outflows, ensuring that we are able to meet financial commitments for an extended period. We recognise the potential difficulties in monetising certain assets, so set higher-quality targets for liquid assets for the earlier part of a stress period. We have assessed the level of liquidity necessary to cover both systemic and idiosyncratic risks and maintain an appropriate liquidity buffer at all times. Our Liquidity Coverage Ratio ensures
that we comply with our own risk appetite as well as regulatory requirements.

Our liquidity portfolio consists of cash and balances at the BoE as well as high-quality liquid assets (HQLAs) that are available to monetise in the event of stress.

The tables on page 41 set out the maturity structure of our financial assets and liabilities by their earliest possible contractual maturity date; this differs from the behavioural maturity characteristics in both normal and stressed conditions. The behavioural maturity of customer deposits is much longer than their contractual maturity. On a contractual basis, these are repayable on demand or at short notice; however, in reality, they are static in nature and provide long-term stable funding for our operations and liquidity. Equally, our loans and advances to customers - specifically mortgages - are lent on longer contractual terms; however, are often redeemed or remortgaged earlier.

The total balances depicted in the analysis do not reconcile with the carrying amounts as disclosed in the Consolidated Balance Sheet. This is because the maturity analysis incorporates all the expected future cash flows (including interest), on an undiscounted basis.

Recovery planning

The Recovery Plan details a series of indicators that would tend to suggest a stress event may be in train. It assigns responsibilities and actions to key individuals, specifies timeframes, and establishes the Recovery Committee chaired by the CFO, which sits as required in the event of a liquidity stress.

Term Funding Scheme repayments

Term Funding Scheme (TFS) closed to further drawdowns in February 2018. Our drawdowns of £3,801 million will mature in 2020, 2021 and 2022 in the amounts of £543 million, £2,778 million and £480 million respectively. In March 2020, the Bank of England announced a revised TFS with additional incentives for SMEs. In December 2020, TFSME drawdowns were undertaken for £550 million with an expected maturity of 2024. We intend to continue to utilise the TFSME scheme in 2021 while our existing TFS drawings will be repaid using a combination of excess liquidity and by utilising TFSME.

Table 13: Contractual maturity

Audited	Carrying value	Repayable on demand £'million	Up to 3 months £'million	3-6 months  £'million	6-12 months £'million	1-5 years £'million	Over 5 years £'million	No contractual maturity £'million	Total £'million
31 December 2020
Cash and balances with the Bank of England	2,993	2,993	-	-	-	-	-	-	2,993
Loans and advances to customers	12,385	-	332	281	634	4,551	11,424	284	17,506
Investment securities	3,413	-	87	233	221	2,768	140	59	3,508
Other assets	3,788	-	2,568	-	-	-	-	1,220	3,788
Total assets	22,579	2,993	2,987	514	855	7,319	11,564	1,563	27,795
Deposits from customers	(16,072)	(12,550)	(641)	(864)	(1,233)	(702)	-	(119)	(16,109)
Deposits from central banks	(3,808)	-	(692)	(588)	(1,500)	(1,033)	-	-	(3,813)
Debt securities	(600)	-	-	(23)	(24)	(719)	-	-	(766)
Repurchase agreements	(196)	-	-	-	(49)	(155)	-	-	(204)
Lease Liabilities	(327)	-	(7)	(7)	(15)	(115)	(273)	-	(417)
Other liabilities	(287)	-	-	-	-	-	-	(287)	(287)
Total liabilities	(21,290)	(12,550)	(1,340)	(1,482)	(2,821)	(2,724)	(273)	(406)	(21,596)
Equity	(1,289)	-	-	-	-	-	-	(1,289)	(1,289)
Total Equity and liabilities	(22,579)	(12,550)	(1,340)	(1,482)	(2,821)	(2,724)	(273)	(1,695)	(22,885)
Derivative cashflows		-	(3)		(3)	(2)	-	-
Cumulative liquidity gap		(9,557)	(7,913)	(8,882)	(10,851)	(6,258)	5,033
Audited	Carrying value	Repayable on demand  £'million	Up to 3 months £'million	3-6 months  £'million	6-12 months  £'million	1-5 years £'million	Over 5 years £'million	No contractual maturity £'million	Total £'million
31 December 2019
Cash and balances with the Bank of England	2,989	2,989	-	-	-	-	-	-	2,989
Loans and advances to customers	14,681	-	349	317	584	4,191	16,893	395	22,729
Investment securities	2,565	-	209	229	74	1,924	215	60	2,711
Other assets	1,165	-	-	-	-	-	-	1,165	1,165
Total assets	21,400	2,989	558	546	658	6,115	17,108	1,620	29,594
Deposits from customers	(14,477)	(9,720)	(601)	(1,102)	(1,838)	(1,178)	-	(115)	(14,554)
Deposits from central banks	(3,801)	-	(6)	(7)	(556)	(3,274)	-	-	(3,843)
Debt securities	(591)	-	-	(23)	(23)	(766)	-	-	(812)
Repurchase agreements	(250)	-	(54)	-	-	(204)	-	-	(258)
Lease Liabilities	(341)	-	(7)	(7)	(14)	(119)	(329)	-	(476)
Other liabilities	(357)	-	-	-	-	-	-	(357)	(357)
Total liabilities		(9,720)	(668)	(1,139)	(2,431)	(5,541)	(329)	(472)	(20,300)
Equity	(1,583)	-	-	-	-	-	-	(1,583)	(1,583)
Total Equity and liabilities	(21,400)	(9,720)	(668)	(1,139)	(2,431)	(5,541)	(329)	(2,055)	(21,883)
Derivative cashflows		-	(2)		(2)	(9)	-	-
Cumulative liquidity gap		(6,731)	(6,843)	(7,437)	(9,212)	(8,647)	8,132

Measurement

Our asset and liability management system is used to capture all positions across the Bank and evaluate their liquidity. We calculate our LCR and performs stress testing of our liquidity daily. Forward-looking short-range forecasts are produced at least monthly.

Early warning indicators are set out in the Recovery Plan. Colleagues monitor these on a regular basis and bump-up any triggers.

A cost of funds model is used to help colleagues account for liquidity, capital and interest rate risk in pricing.

We perform an ILAAP every year for the identification, measurement, management and monitoring of liquidity, having due regard for the PRA Rulebook section 'Internal Liquidity Adequacy Assessment'. The Treasury team seeks ILAAP input from a range of teams including Finance, Risk, and Products, before taking the ILAAP through a robust governance process.

The conclusions of the ILAAP are reviewed and approved by the Board, assisting in: identification of our material liquidity risks; deciding the management of material liquidity risks; and determining the Board's risk appetite.

For liquidity risk, we assess against internal and external requirements. The chief external requirement is the LCR, and a series of internal requirements are set and maintained through our ILAAP.

Monitoring

The Treasury function has responsibility for our compliance with liquidity policy and strategy. We have a dedicated Treasury Risk team who monitor our liquidity and funding risk including ensuring compliance with the policies we have development. The Regulatory Reporting team also monitors compliance with LCR.

The Asset & Liability Committee is responsible for liquidity and funding risk. Liquidity and funding cannot be considered in isolation, and we have regard to liquidity risk, profitability and capital optimisation when considering funding sources. Our LCR has remained strong throughout the year, ending 2020 at 187% (2019: 197%).

4. Market risk
Definition Market risk is the risk of loss arising from movements in market prices. It is the risk posed to earnings, economic value or capital that arises from changes in interest rates, market prices or foreign exchange rates.		Change since 2019: No change

Appetite

We have a moderate appetite for Market Risk, and do not have a trading book. Market Risk arises naturally as a result of taking deposits from customers and lending to customers. Market Risk is closely monitored and managed to ensure the level of risk remains within appetite, with key metrics reported to senior management and the Board.

Mitigation

Interest rate risk

We benefit from natural offsetting between certain assets and liabilities, which may be based on both the contractual and behavioural characteristics of these positions. Where natural hedging is insufficient, we hedge net interest rate risk exposures appropriately, including, where necessary, with the use of interest rate derivatives. We enter into derivatives only for hedging purposes and not as part of customer transactions or for speculative purposes.

Our Treasury and Treasury Risk teams work closely together to ensure that risks are managed appropriately - and that we are well-positioned to avoid losses outside our appetite, in the event of unexpected market moves.

We have hedge accounting solutions in place to reduce the volatility in the income statement arising from these hedging activities.

Foreign exchange exposure

We have very limited exposure to foreign exchange risk. Foreign exchange assets and liabilities are matched off closely in each of the currencies we operate and less than 5% of our assets and liabilities are in currencies other than pounds sterling. We do not have any operations outside the United Kingdom. We offer currency accounts and foreign exchange facilities to facilitate basic customer requirements only.

Measurement

We measure interest rate risk exposure using methods including the following:

• Economic value sensitivity: calculating repricing mismatches across our assets and liabilities and then evaluating the change in value arising from a change in the yield curve. Our risk appetite scenario is based on a parallel rate movement of 2% to all interest rates, but we evaluate based on a series of other parallel and non-parallel rate changes. The scenarios are designed to replicate severe but plausible economic events and to have regard to risks that would not be evident through the use of parallel
shocks alone.

• Interest income sensitivity: the impact on 12-month future income arising from various interest rate shifts. Our risk appetite scenarios are based on parallel rate movements of 2% and of divergences of up to 1.15% between BoE base rate and LIBOR against a constant balance sheet. We also evaluate a series of other parallel, non-parallel and non-instantaneous rate changes.

• Interest rate gaps: calculating the net difference between total assets and total liabilities across a range of time buckets.

The frequency of calculating and reporting each measure varies from daily to quarterly, appropriate to each risk type.

We use an integrated ALM system, which consolidates all our positions and enables the measurement and management of interest rate repricing profiles for the entire Bank. The model takes into account behavioural assumptions as specified in our Market Risk Policy. Material assumptions can be updated more frequently at the request of business areas, in response to changing market conditions or customer behaviours. The model also takes into account future contracted or expected growth in lending and deposits.

We measure and monitor our exposures to foreign exchange risk daily and do not maintain net exposures overnight in any currency other than pounds sterling, above 5% of our total assets and liabilities.

Monitoring

Interest rate risk

Interest rate risk measures have limits set against them through the Market Risk Policy, and these are monitored on a regular basis by the Treasury Risk team. Measures close to the limits are escalated to Treasury in order to ensure prompt action and limit excesses are escalated to the Asset & Liability Committee. A digest of interest rate risk measures and details of any excesses are presented monthly at the Asset & Liability Committee.

Internal Asset & Liability Committee Limits are set for the economic value of equity and net interest income based on the worse of a +200bps or -200bps instantaneous symmetrical parallel shock to interest rates. The economic value of equity and net interest income limits are monitored daily by risk. Performance against limits is reported monthly to the Asset & Liability Committee (with exceptions communicated by email) and more regularly to senior management, as well as being noted by the ROC and the Board.

Furthermore, limits are set for a set of asymmetrical movements between LIBOR and the BoE base rate. Our Treasury Risk function runs a series of other interest rate risk simulations on a monthly basis to ensure that the Asset & Liability Committee is kept updated of any other risks not captured by the policy measures.

We enter into hedging arrangements when the natural hedging in our book is insufficient to enable us to remain within our limits.

All derivatives are entered into macro or micro fair value hedge accounting arrangements in order to minimise volatility in the profit and loss account.

The tables on page 44 set out the interest rate risk repricing gaps of our balance sheet in the specified time buckets, indicating how much of each type of asset and liability reprices in the indicated periods, after applying expected non-contractual and out-of-course early repayments in line with the Market Risk Policy. During 2020 we have updated the tables to better reflect our behavioural assumptions on deposits and equity as well as to provide increased granularity. The comparative tables for 2019 have also been updated to reflect these changes.

Table 14: Repricing analysis

31 December 2020	Up to 3 months £'million	3-6 months £'million	6-12 months £'million	1-5 years £'million	Over 5 years £'million	Non-interest bearing £'million	Total £'million
Cash and balances with the Bank of England	2,913	-	-	-	-	80	2,993
Loans and advances to customers1	4,665	538	1,083	5,924	175	-	12,385
Investment securities	2,343	65	-	910	95	-	3,413
Other assets	2,568	-	-	-	-	1,220	3,788
Total assets	12,489	603	1,083	6,834	270	1,300	22,579
Deposits from customers	(8,761)	(1,091)	(1,657)	(4,563)	-	-	(16,072)
Deposits from central banks and repurchase agreements	(3,808)	-	(47)	(149)	-	-	(4,004)
Debt securities	-	-	-	(600)	-	-	(600)
Other liabilities2	-	-	-	-	-	(614)	(614)
Equity	(886)	(40)	(79)	(284)	-	-	(1,289)
Total equity and liabilities	(13,455)	(1,131)	(1,783)	(5,596)	-	(614)	(22,579)
Interest rate derivatives	389	(125)	-	(264)	-	-
Interest rate sensitivity gap	(577)	(653)	(700)	974	270	686	-
Cumulative gap	(577)	(1,230)	(1,930)	(956)	(686)	-	-
31 December 2019	Up to 3 months £'million	3-6 months £'million	6-12 months £'million	1-5 years £'million	Over 5 years £'million	Non-interest bearing £'million	Total £'million
Cash and balances with the Bank of England	2,989	-	-	-	-	-	2,989
Loans and advances to customers	4,565	639	1,506	7,962	9	-	14,681
Investment securities	2,068	-	3	472	22	-	2,565
Other assets	-	-	-	-	-	1,165	1,165
Total assets	9,622	639	1,509	8,434	31	1,165	21,400
Deposits from customers	(6,462)	(1,212)	(2,066)	(4,737)	-	-	(14,477)
Deposits from central banks and repurchase agreements	(3,855)	-	-	(196)	-	-	(4,051)
Debt securities	-	-	-	(591)	-	-	(591)
Other liabilities2	-	-	-	-	-	(698)	(698)
Equity	(634)	(50)	(100)	(799)	-	-	(1,583)
Total equity and liabilities	(10,951)	(1,262)	(2,166)	(6,323)	-	(698)	(21,400)
Interest rate derivatives	964	(90)	(245)	(628)		-
Interest rate sensitivity gap	(365)	(713)	(902)	1,483	30	467	-
Cumulative gap	(365)	(1,078)	(1,980)	(497)	(467)	-	-

1. Loans and advances to customers at 31 December 2020 includes the £295 million of loans and advances classified as held for sale.

2. Other liabilities includes lease liabilities which are shown as non-interest bearing category. Whilst interest expense is recognised on these liabilities within the income statement this interest is not paid like other financial liabilities. The maturities of the lease liabilities shown on the balance sheet are set out below:

Lease liability maturity profile

Audited	Up to 3 months £'million	3-6 months £'million	6-12 months £'million	1-5 years £'million	Over 5 years £'million	Total £'million
31 December 2020	(7)	(7)	(15)	(102)	(196)	(327)
31 December 2019	(7)	(7)	(14)	(101)	(212)	(341)

A positive interest rate sensitivity gap exists when more assets than liabilities reprice during a given period. A positive gap position tends to benefit net interest income in an environment where interest rates are rising; however, the actual effect will depend on multiple factors, including actual repayment dates and interest rate sensitivities within the banding periods. The converse is true for a negative interest rate sensitivity gap.

The table below shows the sensitivity arising from the standard scenario of a +200bps and -200bps parallel interest rate shock upon projected net interest income for a one-year forecasting period.

Table 15: Interest rate sensitivity

Sensitivity of projected net interest income to parallel interest rate shock for a one-year forecasting period	200bps increase £'million	200bps decrease (not floored at zero) £'million
31 December 2020	19.8	(20.1)
31 December 2019	8.1	(8.2)

5. Financial crime risk
Definition Financial crime risk is the risk of financial loss or reputational damage due to regulatory fines, restriction or suspension of business, or cost of mandatory corrective action as  a result of failing to comply with prevailing legal and regulatory requirements relating to financial crime.		Change since 2019: Decreased

Appetite

We have no appetite for establishing or maintaining customer relationships or executing transactions that facilitate financial crime and have no appetite for sanctions breaches. Relationships with customers where it is felt that the financial crime risks are too great to manage effectively will be ended and continual investment is made in our expertise, partnerships and systems to improve our management of risk in this area. We will not tolerate any deliberate breach of financial crime laws and regulations that apply to our business and the transactions we undertake.

Mitigation

Investment in our systems and controls

We continue to conduct horizon scanning activity to identify emerging trends and typologies as well as to identify and prepare for new legislation and regulation. This includes participating in key industry forums (or associations) such as those hosted by UK Finance. As required, we will update our control framework to ensure emerging risks are identified and mitigated. We updated all our Financial Crime policies and standards in 2020 to ensure alignment with regulatory obligations.

Our Financial Crime Improvement Programme, which was mobilised in 2019, continued to deliver enhancements to our business-wide financial crime systems and controls throughout 2020. This programme will continue to deliver a Bank-wide framework to ensure Financial Crime controls are designed in line with regulatory requirements and build new capability to manage financial crime risk into 2021.

Resourcing and training

Resourcing continues to be a significant focus for the Bank to ensure the Financial Crime Framework is implemented effectively. Headcount has increased across all lines of defence and we have recruited additional specialist resource in 2020 to support operational teams in the first line of defence and to bolster second line Financial Crime Policy, Advisory and Assurance functions. We continue to invest in our colleagues' development to improve their capabilities through industry-recognised financial crime qualifications. All colleagues receive financial crime training, which is updated to reflect new requirements, ensuring our colleagues are able to meet their personal regulatory obligations and assist us in achieving our risk appetite and financial crime obligations.

Sanctions compliance

We continue to review our sanctions compliance framework with the support of external advisers, following our notifications to regulators on the sanctions matters discovered in 2017 and 2019.

The Financial Crime Improvement Programme has delivered multiple enhancements to our sanctions compliance capabilities in 2020 and will continue to do so throughout 2021.

Anti-money laundering and combating terrorist financing prevention

We comply with all relevant UK Anti-Money Laundering and Combating Terrorist Financing legislation. The Financial Crime Improvement Programme continues to deliver enhancements to our customer due diligence capabilities, transaction monitoring, customer and payment screening capabilities. The programme ensures we continue to effectively prevent, detect and treat potential out-of-appetite financial crime activities.

Anti-bribery and corruption and anti-tax evasion compliance

We comply with the UK Bribery Act 2010 and have zero tolerance for undertaking and/or facilitating bribery and/or corruption and will always avoid giving or receiving improper financial or other benefits in our business operations. We also comply with the Criminal Finances Act 2017 and have a zero tolerance approach to any facilitation of tax evasion. We are committed to acting professionally, fairly and with integrity in all our business dealings and relationships.

Fraud prevention

We have continued to invest in fraud prevention tools and further capability in 2020. This, in addition to historic investment,
has resulted in significant savings by preventing attempted frauds against our customers and the Bank itself.

During the pandemic, we have seen fraudsters continue to target customers through authorised and unauthorised payment fraud attempts. Alongside this we have also seen an increase in the use of social engineering techniques to attempt to obtain customers' personal and security details, using reasons related to COVID-19 and scams topical to the pandemic, including pets, vaccines and personal protective equipment. We have continued to share fraud prevention trends and best practice via our various communication channels to help our customers protect against such attacks.

We have supported our customers during these difficult times by providing government-funded schemes and we have implemented fraud capabilities to limit attempted fraud against these schemes. We have worked closely with the British Business Bank, other banks, network operators and law enforcement to identify and reduce the fraud risk in relation to BBLS applications.

In 2021, we will continue to work closely with stakeholders to help prevent and protect our customers from fraud.

Measurement

The Financial Crime Risk team own our control framework with accountability for execution owned by our colleagues across the first line. The Risk team defines our risk appetite and recommends this to the Board for approval. In order to monitor the effectiveness of our control framework and the alignment with our risk appetite, KPIs are defined, reported against and escalated through to the ROC. We report monthly on our Bank-wide account opening pass rates, fraud volumes and associated operational losses through this process.

Monitoring

Our policy framework also sets out key requirements which must be complied with consistently to manage our various risks.

We have risk-based audit and assurance plans to monitor the effectiveness of our controls. Dedicated and skilled resources are in place to complete these reviews, with findings and recommendations tracked through our financial crime governance structure.

We maintain policies and compliance standards, aligned to our legal and regulatory obligations, which also articulate our risk appetite.

Each year we complete a financial crime risk assessment to ensure that our financial crime control framework is commensurate and robust to manage our inherent business risks across each financial crime area.

We participate in external industry forums, including being an active member of the Cyber Defence Alliance and liaise with government bodies such as UK Finance, the Home Office, HMRC, the Financial Conduct Authority and law enforcement to support our identification of new and evolving risks.

6. Regulatory and compliance risk
Definition Regulatory and compliance risk is the risk of failing to understand and comply with relevant laws and regulatory requirements; not keeping regulators informed of relevant issues; not responding effectively to information requests nor meeting regulatory deadlines; or obstructing the regulator.		Change since 2019: No change

Appetite

We have no appetite for actions that result in breaches of regulation or for inaction to address systemic process and control failures leading to material non-compliance. Notwithstanding the complexity and volume of the regulatory agenda, we ensure that all mandatory requirements are prioritised with sufficient resources to implement within required timescales in a customer-focused manner.

Mitigation

The following controls and procedures help to mitigate regulatory and compliance risk:

• A clearly defined compliance policy statement (with supporting policy standards) and Regulatory Appetite Statements signed off by the Board.

• Ongoing development, maintenance and reporting of risk appetite measures for regulatory and compliance risk to the Executive Risk Committee and the Board.

• Maintenance of proactive and coordinated engagement with our key regulators.

• Continual assessment of evolving regulatory requirements, including regulatory business plans and thematic reviews.

• Consideration of regulatory requirements in the context of product and proposition development and associated appropriate governance.

• Oversight of key regulatory implementations, including PSD2.

• Oversight of regulatory and compliance risks and issues in relevant governance bodies.

• Ongoing review and tracking of known regulatory and compliance issues and remediation actions being taken.

• A risk-based assurance framework, designed to monitor compliance with regulation and assess customer outcomes.

Our Board, Risk Oversight Committee and Executive Committee (via the Executive Risk Committee) continue to monitor and oversee our focus on maintaining regulatory compliance. This includes periodic reporting on regulatory themes, regulatory changes on the horizon and the regulatory environment, alongside supporting key risk measures and Board-approved policies and standards.

Measurement

Regulatory and compliance risks are measured against a defined set of Board-approved risk appetite metrics relating to regulatory breaches, and past due regulatory implementations and actions. Thresholds are set and form part of the Board-approved Risk Appetite Statement.

Monitoring

Regulatory and compliance risk is considered by all three lines of defence as part of their oversight and assurance activities. A risk assurance plan, approved by the Executive Risk Committee on an annual basis, independently assesses areas of the control framework underpinning compliance with laws and regulations.

7. Conduct risk
Definition Conduct risk is the risk of treating customers unfairly and delivering poor outcomes that lead to customer detriment, such as financial loss and/or distress and inconvenience. This can also result in wider adverse impacts, for example, loss of customers, reputational damage, regulatory investigations and/or legal action.		Change since 2019: Increased

Appetite

We have no appetite for conduct risks that knowingly deliver inappropriate customer outcomes, which may lead to customer detriment. Where inappropriate outcomes are identified, these are remediated quickly to minimise risk and reduce harm to our customers.

Mitigation

Our simple, transparent and fairly-priced products and activities continue to help ensure that conduct risk is minimised. Our colleagues are fully-trained in all relevant products and services and these are delivered with exceptional levels of service to customers through all channels, with openness and transparency, supported by robust management controls and quality assurance measures. Our products are reviewed regularly to ensure they continue to meet customer needs and perform as expected. We are committed to ensuring communications are clear, fair and not misleading. We do not use sales incentives in stores, nor is there a perception amongst colleagues that they exist in any unofficial manner.

Make every wrong right

Our service-led business model gives us an inherent advantage over peers. We are committed to doing the right thing for our customers and to making any wrongs right. Where conduct risks are identified, resources and expertise are dedicated to swift remediation action to appropriately mitigate any issues, avoid recurrence and, if detriment has occurred, the scale of the harm is quantified to address this with impacted customers. This is possible because of our clear risk framework which includes defined  first line ownership, review stages and challenge by the second line, and assurance from the third line.

In 2019, we made a provision of £12 million for customer remediation, which predominately related to non-compliance with certain requirements to provide SMS warning alerts to customers regarding overdraft charges. The error was subsequently corrected and the Competition and Markets Authority was informed. We pride ourselves on providing exceptional levels of service and we regret the impact on customers. All customers have now been contacted and the remediation project has been completed.

Measurement

We measure conduct risk through Risk Appetite Metrics which are centred around product governance, compliance monitoring, analysis of expressions of dissatisfaction, root cause analysis, 'Voice of the Customer' surveys and reporting through customer treatment forums. Key Risk Indicators are also defined, reported against and escalated to the Risk Oversight Committee. We view the effective management of conduct risk as being evidenced by low levels of poor customer outcomes and evidence of robust controls, meaning that the right internal processes are being followed to deliver these outcomes.

Monitoring

As well as monitoring the trends in the metrics outlined above, we analyse the root cause of complaints and any underlying trends, to identify opportunities to improve service provision while delivering consistently fair outcomes for customers.

8. Model risk
Definition Model risk can be defined as the potential loss that we may incur, as a consequence of decisions that could be principally based on the output of models, due to errors in the development, implementation or use of such models. Model risk can lead to financial loss, poor business and strategic decisions, and reputational damage. Model risk covers all models and is not limited to credit risk models.		Change since 2019: Increased

Appetite

We have only a moderate appetite for risk due to errors in the development, implementation or use of models, which we mitigate via effective governance over the specification and design, implementation and running of our models and over model input data.

Mitigation

Governance

The main mitigant to model risk is the robust governance process we have established. This includes two dedicated
model committees:

• Model Oversight Committee - which is the designated committee for the management of model risk.

• Model Governance Committee - which is the technical committee overseeing the model risk life cycle.

Material models are presented to the Model Oversight Committee for approval via the Model Governance Committee, ahead of implementation or model changes.

The Model Oversight Committee defines and approves standards relevant to model risk and recommends policies and model risk appetite to the Risk Oversight Committee for approval on an annual basis. The Model Governance Committee owns the minimum standards and target operating models to mitigate model risk. It also defines roles and responsibilities, with clear ownership
and accountability.

The Model Governance function maintains a model inventory, which records key features of models including ownership and review schedules. The Model Governance function also tracks model risk and actions from both the Model Oversight Committee and Model Governance Committee.

Independent review

We have established an independent Model Validation team, which is part of our Prudential Risk function. This is managed by
a team of experts, independent from model development. This team is responsible for reviewing model development submissions and maintains a model validation action log to track model risk remediation plans. Models are also subject to internal and external audit as well as regulatory reviews.

Measurement

We measure model risk using a set of model performance indicators which form part of our Key Risk Indicators are regularly reported and discussed at the Model Governance Committee, Model Oversight Committee, Risk Oversight Committee and Board. On a monthly basis, the Model Governance Committee reviews any material validation actions and tracks their closure.

Monitoring

A dedicated Model Monitoring team is responsible for assessing the ongoing performance of credit risk models against pre-specified tolerances approved by the Model Governance Committee as part of model monitoring standards.

Model performance is regularly monitored, and results are discussed both at the Model Governance Committee and Model Oversight Committee, where actions are agreed and tracked to completion. Non-credit risk models are also subject to monitoring according to metrics and a schedule agreed at Model Governance Committee, however, this monitoring is undertaken by the appropriate user areas rather than by the Model Monitoring team.

9. Capital risk
Definition Capital Risk is the risk that we fail to meet minimum regulatory capital (and MREL) requirements. Management of capital is essential to the prudent management of our balance sheet, ensuring our resilience under stress and the maintenance of the confidence of our current and potential creditors (including bondholders, the bond market, and customers) and key stakeholders in the pursuit of our business strategy.		Change since 2019: No change

Appetite

We have a low appetite for Capital Risk and our aim is to maintain a surplus of capital resources above regulatory requirements.

Mitigation

We manage our capital risk via our Capital Adequacy Framework which includes policies, strategy, limit setting, continuous monitoring and stress testing. Our ICAAP is a key component of this framework and is used to analyse material risks and assess our strategy and objectives under various stress scenarios. Capital ratios continued to be maintained within Board risk appetite and regulatory requirements throughout 2020.

Sustainable profit growth

The main mitigation to capital risk is the sustainable generation of additional capital through the accumulation of profits. The Board and Executive Committee are focused on ensuring the successful delivery of the strategic plan to ensure the return to sustainable profitability.

Balance sheet optimisation

Another key mitigation that we can use to manage capital risk is the efficient deployment of our existing capital resources. One of our strategic priorities is improving our balance sheet optimisation to ensure we maximise our risk-adjusted returns whilst remaining above regulatory requirements. As part of this approach we executed a sale of a portfolio of residential mortgages in December 2020 which increased our MREL resources, through a combination of reducing our RWAs and the recognition of a gain on sale.

Raising of additional capital

As we grow we need to raise additional regulatory capital to support lending growth. The ability to raise additional capital, as well as the associated cost, is dependent upon market conditions and perceptions. The sale of the mortgage portfolio removed the need for us to raise additional capital in the near term.

Measurement

We measure our capital resources in line with regulatory requirements. In order to appropriately manage our capital resources, we produce regular reports on the current and forecasted level of capital for the Board and the Executive Leadership Team. This includes the undertaking of routine stress testing on an ongoing basis.

The key assumptions and risk drivers used to create the stress tests are regularly monitored and reported, and are used in determining how we will evolve our capital resources and ensure they are appropriate for growth.

The ICAAP is used to assess the adequacy and efficiency of our capital resources required to support our business model.

Monitoring

We consider both short-term forecasts and medium-term plans, and our overall agreed risk appetite.

We also develop appropriate strategies under market stress conditions to manage those risks to capital and consider both past events and customer behaviour to inform our analysis, and to validate our robustness. This process is used to ensure that we apply appropriate management buffers to regulatory capital requirements in line with risk appetite.

We manage and monitor capital in accordance with prudential rules issued by the PRA and FCA, in line with the EU Capital Requirements Directive, in addition to our own internal reporting measures. We are committed to maintaining a strong capital base under both existing and future regulatory requirements.

We are working to ensure we are compliant with the incoming CRD V / CRR 2 requirements, which were published in June 2019; and the recent PRA consultation CP17/20 (CRD V: Further Implementation) detailing the transitional changes in the UK regulatory framework required as a result of the exit from the European Union.

Table 16: Capital resources

Audited	31 December 2020 £'million	31 December 2019 £'million
Ordinary share capital	-	-
Share premium	1,964	1,964
Retained earnings	(694)	(392)
Other reserves	19	11
Intangible assets	(254)	(168)
Other regulatory adjustments	157	12
Total Tier 1 capital (CET1)	1,192	1,427
Debt securities (Tier 2)	249	249
Total Tier 2 capital	249	249
Total regulatory capital	1,441	1,676

Emerging risks

In addition to our principals, we monitor other potentially significant emerging risks.

We consider emerging risks to be evolving threats which cannot yet be quantified, with the potential to significantly impact the Bank's strategy, financial performance, operational resilience and/or reputation. The emerging risks are continually assessed and reviewed through a horizon scanning process, with escalation and reporting to the Board as necessary. The horizon scanning process fully considers all relevant internal and external factors and is designed to capture those risks which are present but have not yet fully crystallised, as well as those which are expected to crystallise in the future.

Macroeconomic environment

The full extent of the economic impacts from COVID-19 are yet to be seen. The duration and depth of the downturn is uncertain and risks to credit and margin performance are expected, with significant disruption to both supply and demand already occurring. Increasing levels of unemployment could impact customers' ability to repay their lending. The efficacy of monetary and fiscal policy, and the speed and ability with which the UK can return to 'normal' operating conditions, will determine the overall economic impact for the UK.

Mitigating actions

We continue to monitor economic and political developments in light of the ongoing uncertainty, considering potential consequences for our customers, products and operating model. We actively monitor our credit portfolios and undertake robust internal stress testing to identify sectors that may come under stress as a result of an economic slowdown in the UK.

Climate risk

There is significant uncertainty around the time horizon over which climate risks will materialise, as well as the exact way in which they will occur. Climate risk is classified as a cross-cutting risk type that manifests through other principal risks - primarily strategic risk, credit risk and operational risk. We are exposed to physical, transition and reputation risks arising from climate change.

Our mortgage portfolio represents a significant proportion of our customer lending. Increases in extreme variability in weather patterns may lead to increased incidence and severity of physical risks which, in addition to the disruption felt by customers, can lead to a decrease in the valuations of property taken as collateral to mitigate credit risk. In addition, tightening minimum energy efficiency standards for domestic buildings could impact the value of mortgaged properties or the ability of borrowers to service debt. We have low levels of lending to carbon-related assets, however, we may be exposed to future transition risks through the business portfolio.

Mitigating actions

The Chief Risk Officer has Senior Manager Responsibility for our approach to managing financial risks from climate change. We continue to consider climate change in our Risk Management Framework, in line with our plan to align to regulatory expectations. The Executive Risk Committee has responsibility for overseeing our exposures and approach to managing the financial risks from climate change. The Committee will receive regular updates on progress against the plan through the Bank Risk Report and special papers.

Analysis of current river and sea flood risk to properties within the mortgage portfolio has been undertaken as an initial step in assessing the physical risk to our lending. Scenario analysis work will be undertaken to consider the longer-term impacts, as well as the high degree of uncertainty. Transition risk within the mortgage portfolio will also be considered with an assessment of the energy efficiency of properties and we intend to use this information to support our customers to 'green' their homes. An assessment of sectors (and sub ‑ sectors) that may have a higher likelihood of being impacted by transition risks from moving to a lower carbon environment has been performed, to increase understanding of the possible risks facing our customers, and support prioritisation of areas where further analysis is required. Building scenario analysis capability is a key component of work planned for 2021.

Regulatory change

The suite of government support measures introduced in reaction to the economic pressures created by COVID-19 are complex and nuanced. Any sudden
or unexpected change to the rules and regulations governing the measures
could create material market disruption, requiring large-scale prioritisation decisions in a fast-paced environment. Beyond COVID-19, there is continued evolution of the regulatory landscape and the requirement to respond to ongoing prudential and conduct driven initiatives.

Mitigating actions

We continue to monitor emerging regulatory initiatives to identify potential impacts on our business model and ensure we are well placed to respond with effective regulatory change management. We continue to work with regulators to ensure we meet all regulatory obligations, with identified implications of upcoming regulatory activity incorporated into the strategic planning cycle.

Digitisation

COVID-19 has accelerated the digitisation of the banking industry in the space of a few months and is likely to lead to rapid change over the coming years as the industry rapidly adapts to customers' evolving behaviours. This is spurring an acceleration of investment and delivery by both incumbent banks and neo-banks to provide enhanced digital propositions to customers in both the consumer and business markets.

Mitigating actions

The Bank's strategy had always been predicated on new and exciting digital propositions, with the implications of the pandemic both supporting that ambition, but also accelerating the timeframe for delivery. Our rapid response to the pandemic has demonstrated our ability to implement change and digital solutions swiftly. We are therefore continuously evaluating the timetable and investment profile of our strategy. We are continuing with our investment and digital development in the near term to position us for the future.

SIGNIFICANT EVENTS

In September 2020, as part of our strategy to enhance returns and ambition to grow unsecured lending, we acquired Retail Money Market Ltd (RateSetter). RateSetter's originating and underwriting capability will enable us to rapidly accelerate this ambition via an existing, scalable platform.

In December 2020 we announced the sale of a portfolio of owner occupied residential mortgages, the transaction completed in February 2021. The portfolio had a gross book value of £3,044 million resulting in a total cash consideration of £3,127 million.

RELATED PARTIES

Key management personnel

Our key management personnel, and persons connected with them, are considered to be related parties. Key management personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Group. The Directors and members of the Executive Leadership Team are considered to be the key management personnel for disclosure purposes.

Key management compensation

Total compensation cost for key management personnel for the year by category of benefit was as follows:

Group	2020 £'million	2019 £'million
Short-term benefits	5.3	5.8
Post-employment benefits	0.1	-
Share-based payment costs	0.7	1.7
Total compensation for key management personnel	6.1	7.5

Short-term employee benefits include salary, medical insurance, bonuses and cash allowances paid to key management personnel. The share-based payment cost represents the IFRS 2 charge for the year which includes awards granted in prior years that have not yet vested.

Banking transactions with key management personnel

We provide banking services to Directors and other key management personnel and persons connected to them. Loan transactions during the year and the balances outstanding at 31 December were as follows:

Group	2020 £'million	2019 £'million
Loans outstanding at 1 January	0.7	3.8
Loans relating to persons and companies newly considered related parties	1.8	-
Loans relating to persons and companies no longer considered related parties	(0.6)	(3.1)
Loans issued during the year	-	0.2
Loan repayments during the year	-	0.2
Loans outstanding as at 31 December	1.9	0.7
Interest expense on loans payable to the Group (£'000)	34	90

There were three (31 December 2019: five) loans outstanding at 31 December 2020 totalling £1.9 million (31 December 2019:£0.7 million). Of these, two are residential mortgages secured on property and one is an asset finance loan; all loans were provided on our standard commercial terms.

In addition to the loans detailed above, we have issued credit cards and granted overdraft facilities on current accounts to Directors and key management personnel.

Credit card balances outstanding at 31 December were as follows:

Group	2020 £'000	2019 £'000
Credit cards outstanding as at 31 December	22	16

Deposit balances outstanding at 31 December were as follows:

Group	2020 £'million	2019 £'million
Deposits held at 1 January	3.3	4.5
Deposits relating to persons and companies newly considered related parties	0.2	2.1
Deposits relating to persons and companies no longer considered related parties	(0.3)	(1.8)
Net amounts withdrawn	(1.1)	(1.5)
Deposits outstanding as at 31 December	2.1	3.3

Transactions with Group companies

Details of transactions with Group companies can be found within note 39.

Other transactions with related parties

During the year, architecture, design and branding services were provided to us by InterArch, Inc., ('InterArch') a firm which is owned by Shirley Hill, the wife of Vernon W. Hill II. Vernon W. Hill II was Chairman until 23 October 2019 and a Board member until 17 December 2019 when he stepped down.

He retains an honorary role as Chairman Emeritus. By virtue of his previous position in the Bank, as well as status of founder, InterArch continues to be considered a related party. The creative and brand services contract and architectural design service contract ended on 27 February 2020. In order to ensure the smooth transition to new providers, we entered into a short agreement with InterArch to support the transition until the end of June 2020. This process has now fully completed.

The following transactions were carried out with InterArch during the year:

Group	2020 £'000	2019 £'000
Architectural design services	388	4,885
Creative and brand services	333	428
Total purchase of services with entities connected to key management personnel	721	5,313
Amounts outstanding as at 31 December owed by Metro Bank	-	82

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS

Our directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the group financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) no 1606/2002 as it applies in the European Union and parent company financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

Under company law, directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of the profit or loss of the Group for that period. In preparing the financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• state whether applicable international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) no 1606/2002 as it applies in the European Union have been followed for the group financial statements and international accounting standards in conformity with the requirements of the Companies Act 2006 have been followed for the parent company financial statements, subject to any material departures disclosed and explained in the financial statements;

• make judgements and accounting estimates that are reasonable and prudent; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and parent company will continue in business.

The directors are also responsible for safeguarding the assets of the Group and parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's and parent company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and parent company and enable them to ensure that the financial statements and the directors' Remuneration Report comply with the companies Act 2006.

The directors are responsible for the maintenance and integrity of the information included on our website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' confirmations

The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's and parent company's position and performance, business model and strategy.

Each of the directors, whose names and functions are listed in pages 78 and 79 confirm that, to the best of their knowledge:

• the Group financial statements, which have been prepared in accordance with international accounting standards in conformity with the requirements of the companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) no 1606/2002 as it applies in the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the Group;

• the parent company financial statements, which have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, give a true and fair view of the assets, liabilities, financial position and loss of the parent company; and

• the strategic Report includes a fair review of the development and performance of the business and the position of the Group and parent company, together with a description of the principal risks and uncertainties that it faces.

Statement of disclosure of information to auditors

Each director in office at the date of this report, and whose name is listed on pages 78 and 79, confirms that to the best of their knowledge:

• there is no relevant audit information of which the Group and parent company's auditors are unaware; and

• all reasonable steps that they ought to have taken as a director to make themselves aware of any relevant audit information, and to establish that the Group and parent company's auditors are aware of the information, have been taken.

The confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006.

About Metro Bank

Metro Bank serves more than two million customer accounts and is celebrated for its exceptional customer experience. It is the highest rated high street bank for overall service quality for personal and business customers and the number one bank for service in stores in the Competition and Market Authority's Service Quality Survey in February 2021. It was recognised as 'Bank of the Year' at the 2020 MoneyAge Awards and 'Banking Brand of The Year' at the Moneynet Personal Finance Awards 2021.

The community bank offers retail, business, commercial and private banking services, and prides itself on giving customers the choice to bank however, whenever and wherever they choose, and supporting the customers and communities it serves. Whether that's through its network of 77 stores open seven days a week, early until late, 362 days a year; on the phone through its UK-based 24/7 contact centres; or online through its internet banking or award-winning mobile app: the bank offers customers real choice.

Metro Bank PLC. Registered in England and Wales. Company number: 6419578. Registered office: One Southampton Row, London, WC1B 5HA. 'Metrobank' is the registered trademark of Metro Bank PLC.

It is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. Most relevant deposits are protected by the Financial Services Compensation Scheme. For further information about the Scheme refer to the FSCS website www.fscs.org.uk .

All Metro Bank products are subject to status and approval.

Metro Bank PLC is an independent UK bank - it is not affiliated with any other bank or organisation (including the METRO newspaper or its publishers) anywhere in the world. Please refer to Metro Bank using the full name. 

 

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