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Metro Bank has reported a 33 per cent increase in profit over the past quarter and a record surge in deposit growth but the challenger remains under pressure to boost lending.

The challenger bank, which focuses on customer service by opening stores, made pretax profit of £2m in the three months to the end of March, up from £1.5m at the end of last year and reversing a £9.6m loss in the first quarter of 2016.

The results, which mark the third consecutive quarter of profit, put the lender on track to post its first year of profitability in 2017.

Craig Donaldson, chief executive of the bank, said Metro exceeded £1bn of net growth in deposits for the first time over the quarter, taking the total balance to £9bn at the end of March.

However, analysts at Jefferies said:

We would have preferred to see a rising loan/deposit ratio and view asset growth as critical to achieving 2020 profitability targets.

They said that the fall in the loan-deposit ratio from 74 per cent to 72 per cent over the quarter was “slightly disappointing”.

Lending increased by 11 per cent over the quarter, with gross loans amounting to £6.5bn of which about £4bn represents mortgages and £2.3bn commercial loans.

The bank struck a partnership with peer-to-peer platform Zopa a couple of years ago as a way to channel excess deposits into loans.

Metro is planning on open a further 10 new stores this year, despite the expense of running branches as other banks continue to shrink their networks. Operating expenses are increasing at an annual growth rate of 26 per cent.

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