Impact of Banking Sector Changes on Metro Bank's Performance

This report analyzes the impact of banking sector changes on Metro Bank's performance, including changes in bank regulations and the increasing influence of FinTech developments. The report also includes a detailed analysis of Metro Bank's financial ratios using ratio analysis.

Modern banking

Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Introduction of Metro bank along with its nature and business activities...................................1
Critically analysis of the bank’s assets & liability and income structure that has changed over
the time........................................................................................................................................1
Critically evaluating bank’s performance over the period by using ratio analysis......................3
Critically evaluating the ways in which banking sector changes impacts the Metro bank’s
performance.................................................................................................................................8
Assessment of an expected future performance of Metro bank..................................................8
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
The concept of modern banking is referred as the banking activities which are conducted
using electronic modes. This banking approach no longer follows the traditional way and is
highly based upon the technology (Begenau and Landvoigt, 2018). The main aim of this report is
to build an understanding regarding traditional and modern financial intermediary theories along
with analysing financial performance of a bank and how it can be managed. For this purpose, a
large scale listed bank has been selected which is the Metro bank. This bank is a commercial
financial intermediary that is listed on the London stock exchange.
In this report, detail information of the selected bank is discussed along with its nature and
business activities. Furthermore, in this report assets and liabilities along with income structure
of Metro bank are also critically analysed that are supported by graphs and tables. The method of
ratio analysis is used for analysing the bank’s performance on the basis of four distinct ratios.
Lastly, in this report an analysis have been made regarding the factors which impact on the
selected bank’s performance.
MAIN BODY
Introduction of Metro bank along with its nature and business activities
Metro bank is a public limited company which operates in United Kingdom. The nature of
this bank is that it is a retail and commercial bank which sells its banking products and services
to earn profit and ensure growth and survival. The headquarters of this bank is in London, United
Kingdom and is operating in total 70 locations. The business activities of Metro bank include
accepting deposits, granting loans and the products of this bank include credit cards, consumer
banking and corporate banking (Annual reports of Metro Bank Plc. 2020).
This bank is a high revenue generating organisation which is listed at London stock
exchange.
Critically analysis of the bank’s assets & liability and income structure that has changed over the
time
Metro Bank is a large scale bank which is currently facing record revenues. The income
structure of this company is analysed below by considering their net sales from previous years.
Year 2015 2016 2017 2018 2019
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Turnove
r
120.2 195.11 293.7 404.1 415.6
Net
profit
-49.2 -16.75 10.8 27.1 -182.6
The income which Metro Bank plc. has acquired is presented in a graph above which this
company has earned from their sales revenue. It can be seen from above graph that the sales
revenue of this company is continuously increasing every year which implies that this bank is
continuously associating with new clients. The pattern of increasing revenue is not followed by
the net profit of Metro Bank Plc. as the till 2018, the profit of this company was increasing but in
year 2019, Metro Plc. faced immense loss of 182 thousand pounds. The income of Metro Plc. has
changed over time and the biggest reason behind the losses of this company is the BREXIT
impact which declines the income of this company in year 2019.
Assets and liabilities of Metro Bank Plc. are gathered from the annual reports of this
company. This information is presented below using a graph and table.
2019 2018 2017 2016
Total assets 21,400,00
0
21,647,00
0
16,355,35
5
10,057,28
8
Total
liabilities
19,817,00
0
20,244,00
0
15,259,46
6 9,252,753
2

2019 2018 2017 2016
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
Total assets
Total liabilities
From the graphical representation, the trend of Metro Bank Plc.’s assets and liabilities can
be acquired. The total assets of this company are increasing every year due to which it can be
said that the assets of this company are showing increasing trend. On the other hand, total
liabilities of Metro Bank has also changed over time as till 2018, the liabilities of this company
were continuously increasing resulting in appropriate debt equity ratio but in year 2019, the
value of total liabilities decline and resulted in non suitable debt ratio and current ratio.
Critically evaluating bank’s performance over the period by using ratio analysis
It is important to analyse an organisation’s performance in order to identify their position
in market. The best technique or tool to critically analyse the Metro Bank Plc.’s financial
performance is ratio analysis. It must be noted that ratio analysis is a quantitative method that
helps in gaining information regarding company’s profitability, liquidity, solvency and others.
This analysis also helps in the comparative assessment between companies and between years of
the same company. The period of 2017 to 2019 is considered as must crucial for this company
due to commencement and execution of BREXIT; considering this the ratio analysis of these
years will be calculated and critically analysed.
Ratios which are considered for analysing the financial performance of Metro Bank Plc.
are profitability, efficiency, asset quality and capital adequacy ratios. All these ratios are
identified and presented below along with their interpretation for the selected period of 3 years.
Profitability ratios:
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Net profit margin – this ratio is the measure which helps in calculating the ability of an
organisation to earn profit against the revenue which has been earned by them (Bianco and
Sardoni, 2018). For the banking and financial industry, it is even more important to have an
increasing and high ration which can ensure the interest of the investors. This ratio is calculated
below using this formula Net profit / Net revenue *100.
2017 2018 2019
Net profit margin 3.68 6.71 -43.94
2017 2018 2019
-50
-40
-30
-20
-10
0
10 3.68 6.71
-43.94
Net profit margin
Net profit margin
It can be seen from the above tabular and graphical representation that net profit margin
of Metro Bank increased in 2018 but then decreased highly in 2019. This decrease is the reason
of external factors such as BREXIT due to which operating expenses of this company increased
and the management of the company was unable to acquire profit and resulted in having loss
margin of 43%.
Return on equity – This ratio and financial metric which allows an individual to
determine the probability of a business in return to the equity which has been invested in that
business (Carruthers, 2018). The main stakeholder of this ratio is shareholder as they can know
the return value which they can receive against their equity. This ratio is computed below using
formula of: Net income / Shareholder’s equity.
2017 2018 2019
ROE 1.14 2.17 -12.23
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2017 2018 2019
-14
-12
-10
-8
-6
-4
-2
0
2
4
1.14 2.17
-12.23
ROE
ROE
Similar to net profit margin, the ROE also increased in 2018 and then immensely
decreased in 2019. The operations of Metro Bank Plc. are confined to United Kingdom and this
region was facing various political and economic changes due to which ROE of this company
has been highly impacted.
Efficiency ratios:
Fixed Asset Turnover – Efficiency ratios are the measures which are used to map the
efficiency of the company (Danyali, 2018). One of such ratios is fixed asset turnover, this
measures indicates that how well an organisation can use its fixed asset to generate revenue in
the company. The calculated fixed asset turnover ratio is presented below using the formula of
Net sales / average fixed assets.
2017 2018 2019
Fixed Asset Turnover 1.04 1.06 0.64
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2017 2018 2019
0
0.2
0.4
0.6
0.8
1
1.2
1.04 1.06
0.64
Fixed Asset Turnover
Fixed Asset Turnover
The above graphic representation makes clear that fixed asset turnover increased from
2017 to 2018 with a uniform pace but in 2019 it declined and resulted in half of the usual ratio.
This uneven growth in fixed asset turnover represents that the company is not properly able to
tuen the value of fixed assets into sales revenue.
Asset quality ratios:
Loan impairment ratio – Asset quality ratios are the measures which help in checking the
quality of the bank customer portfolio. There are various metrics through which asset quality of
Metro Bank can be analysed; out of them the loan impairment ratio is selected. This ratio helps
in calculating the doubtful loans against the total assets of that Bank. The loan impairment
charge for Metro Bank is acquired from the exceptional items charge from the income statement
of this company (Harmening, 2018). The formula using which this ratio has been calculated
below is Loan impairment charge / total assets.
2017 2018 2019
Exceptional Items -0.7 -8.6 -133.7
Total assets 16,355 21,647 21,400
Loan impairment ratio -4.28 -0.0003 -0.006
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From the above calculation, it has been seen that loan impairment ration of this company
is increasing every year which is the result of low doutbul debts of this company which indicates
effective opertaive system of this Bank. Such ratio can help Bank to attract investors.
Capital adequacy ratios:
Gross gearing – capital adequacy ratios are the measures which help in calculating the
bank’s capital to risk rate. Such ratios help the financial leverage of the company (Korzeb and
Samaniego-Medina, 2019). Out of these ratios, the ratio of gross gearing is selected which helps
in measuring the company’s financial leverage by dividing the total liabilities from stockholder’s
equity.
2017 2018 2019
Gross gearing 0 17.75 58.88
2017 2018 2019
0
10
20
30
40
50
60
70
0
17.75
58.88
Gross gearing
Gross gearing
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From the above analysis, it has been seen that gross greating ratio of this company is
continously increasing which means the company is becoming more able to acquire high equity
and the capital adequacy in this Bank is higher.
From the above overall analysis, it has been clear that besides year 2019, this Bank has
been proven to efectively operating in market by earning relibale revenues and incomes.
Critically evaluating the ways in which banking sector changes impacts the Metro bank’s
performance
Changes in bank regulation:
The banking industry of United kingdom is the collection of all the banking institutions
which operate in the region of UK. All the banking institutions are authorised and regulated by a
central authority which is known as Financial conduct authority. This institution provides certain
guidelines and policies which are mandatory to be followed by every bank. Any change in these
guidelines or regulations influence the operations of banks. Due to Brexit, the banking
regulations in United kingdom changed which impacted every bank including Metro Bank Plc.
On year 2019, FCA changed overdraft regulations due to which banks had to ‘re design their
overdraft products. This change in bank regulation impacted Metro Bank due to liabilities of this
company showed a declining trend which further impacted the debt equity ratio of this company.
Another banking regulation which changed in 2019 was that FCA increased the consumer
protection on banking products. This regulation was amended to control the push payment scams
and protect the interest of vulnerable customers. This change in regulation resulted in changes in
electronic transactions policies due to which Metro Bank faced heavy losses in 2019 (Majid,
2020).
Increase impact of FinTech developments on banking business
Fin tech refers to the financial technology that aims to compete with traditional banking
system in order to provide convince to consumers. Fintech is an emerging industry which a is
continuously developing due to which traditional banking system of United kingdom has be
highly influenced. The sector of Fintech is a collection of organisations that use technology to
provide financial services to their customers. The industry of Fintech is changing the perception
of people and ‘re shaping the financial system of entire world. Like any country, United
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kingdom is also influenced by Fintech due to which banking institutions of this region are
influenced adversely.
Due to high innovation in the Fintech projects, the organisations of Fintech is acquiring
success over grabbing attention of investors. Due to innovative products and services, the
investment flow which was usually in the support of Banking institution, is now exploring their
portfolio and investing fintech organisation, due to which it is hard for banking organisations like
Metro Bank to operate in absence of adequate capital. As analysed in ratio analysis, a major
reason for Metro Bank to face losses is their lack of capital (Popova and Butakova, 2019).
Consolidation in the banking sector of the particular country
Metro Bank Plc. Is a large scale financial institution of United Kingdom which is
impacted by every activity in the banking industry. The major factor due to which profitability
and survival chances of an organisation gets impacted is the consolidation of competitors brands.
This type of issue results in increase in market share of the consolidated companies which
obviously reducing market share of other companies. The reason behind declining market share
and profitability of Metro Bank is the major consolidations in the industry. The recent example
of such consolidation is Shawbrook and FirstRand’s £1.1bn purchase of Aldermore (Pilnik,
Radionov and Yazykov, 2018).
In case of losses and lost of market share, financial institutions opt for consolidation. This
option of merging of two or more companies into one is most use in financial sector. This
method of consolidation allows losses making organisations to merge their operations, market
share and goodwill by which they gain high share in market and also consolidation also helps in
to be in news which attracts attention of consumers as well.
Issues relevant to the changes observed in the global banking markets or particular
country’s banking markets
After the global recession, the banking sector of United kingdom faced a firm stability
until 2018 and this stability resulted in various issues which were bought due to changes in
banking market of United Kingdom. The industry of Banking has recently faced various changes
which includes changes in strategic regulations, promotion of electronic transactions, product
amendments for retail banking sector and empathises on mobile banking services. All these
changes influenced the operations of Metro Bank Plc. Due to which they have to ‘re design and
develop their services as well as their strategies to compete in market (Smolyansky, 2019).
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Assessment of an expected future performance of Metro bank
From the analysis which has been conducted above, it has been observed that from last
ten years Metro Bank Plc is operating smoothly as it’s profits and revenues are increasing which
an increasing rate. The banking institution which has been selected for this report is Metro Bank
which is listed on London stock exchange and only operate till the boundaries of United
Kingdom. The position of this company was shattered due to economic breakdown and global
recession which happened a decade ago. The years past decade was well used by Metro Bank to
‘re introduce their products and services in market so that they can earn reliable profits and
survive in a competitive market of United Kingdom. Observing the above analysis, ensured the
success of this company which they were enjoying till 2019. The revenues and profits of this
company was at its peak and this company also acquired their record sales.
This success of Metro Bank Plc get influenced due to Brexit implementation in 2019 that
also lead to heavy losses to this company. The future of this company will also have to suffer the
consequences of Brexit and the future complications which are ahead of the operationsof this
bank due to global medical breakdown (Covid 19).
CONCLUSION
From the above report, it has been concluded that modern baking is the system which
empathise on electronic transactions and financial technology institutions. The above report is
the summarization of financial performance and position of Metro Bank Plc in United Kingdom
market from which it has been concluded that Metro Plc was in good position until Brexit
consequences impacted the operations of this company and also the future of this bank has to
suffer due to recent complications of global economic breakdown due to Covid 19.
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REFERENCES
Books and Journals
Begenau, J., & Landvoigt, T. (2018). Financial regulation in a quantitative model of the modern
banking system. Available at SSRN 2748206.
Bianco, A., & Sardoni, C. (2018). Banking theories and macroeconomics. Journal of Post
Keynesian Economics. 41(2). 165-184.
Carruthers, B. G. (2018). What Is Sociological About Banks and Banking?. In The sociology of
economic life (pp. 242-263). Routledge.
Danyali, A. A. (2018). Factors influencing customers’ change of behaviors from online banking
to mobile banking in Tejarat Bank, Iran. Journal of Organizational Change Management.
Harmening, D. M. (2018). Modern blood banking & transfusion practices. FA Davis.
Korzeb, Z., & Samaniego-Medina, R. (2019). Sustainability Performance. A Comparative
Analysis in the Polish Banking Sector. Sustainability. 11(3). 653.
Majid, M. A. (2020). The Input Requirements of Conventional and Shariahcompliant
Banking. International Journal of Banking and Finance. 7(1). 51-78.
Pilnik, N., Radionov, S., & Yazykov, A. (2018). The Optimal Behavior Model of the Modern
Russian Banking System. HSE Economic Journal. 22(3). 418-447.
Popova, N. A., & Butakova, N. G. (2019, January). Research of a possibility of using blockchain
technology without tokens to protect banking transactions. In 2019 IEEE Conference of
Russian Young Researchers in Electrical and Electronic Engineering (EIConRus) (pp.
1764-1768). IEEE.
Smolyansky, M. (2019). Policy externalities and banking integration. Journal of Financial
Economics. 132(3). 118-139.
Online
Annual reports of Metro Bank Plc. 2020. [Online]. Available through:
<https://www.metrobankonline.co.uk/investor-relations/>
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