After Metro Bank announced it was extending its range of asset finance and lending into the professional lending sphere, Brian Cantwell caught up with Richard Saulet, Metro Bank’s director of SME finance, to talk about market competition and the bank’s plans in the leasing market.
Metro Bank entered the leasing market three years ago when it bought a business called SME Finance. It was predominantly an invoice finance business, with a small asset finance arm attached and over the last three years Saulet says it has grown substantially.
“We have focused on a couple of areas while working very hard with our commercial and regional banking teams,” said Saulet. “We are a bank, not a bank with a leasing company. We are a Metro Bank business which happens to have a product line called leasing, or asset finance, and we see a massive opportunity for us within our franchise, within the Metro Bank business, to use asset finance as a way of growing our business and deepening our relationships with customers.”
This ranges from cross-selling in the retail branch to SME owners who bank their current accounts with Metro, to introducing people with whom they have an asset finance relationship to others, said Saulet.
“The Metro model is built on converting retail customers in the branch to other products, including leveraging the relationship.”
LL: So Metro Bank goes direct and through intermediaries?
Saulet: We are doing a lot of work through intermediaries in the market. It’s a hugely important market for us within asset finance, and I can not see that changing. We have got a really good broker programme in place for broker partners to join us and we are always looking to grow the programme. Metro are looking to compete in the same way that many other leasing businesses are looking to compete: win deals and grow the business. If, off the back of that, a customer wants a bank account, our answer is yes.
We are good at managing brokers, across asset finance, to invoice finance and mortgages. Predominantly it is a hard asset business. We do have appetite for softer assets, and areas that we can grow, where we have the skills and experience to do it, where it adds values to our customers.
We are doing some really good business on prestige cars, for example. We have a private bank; as a result of this, we have a lot of customers who like investing in prestige cars. This is a really great opportunity for us to build a wider relationship with the customer base to build asset finance.
LL: So why the move into professions funding?
We have got good skills, experience and knowledge in the professions sector. Across the bank we have good relationships with a range of professionals, particularly lawyers and accountants, with savings products that allow them to manage client funds.
Why would we not want to leverage that relationship and have a conversation about how they are funding their professional training? It wouldn’t mean that it’s only available to other customers: it’s a starting point.
We don’t target people explicitly with asset finance – it’s part of a relationship. We have really good relationships with our customers. If a need comes out of it that we are able to help with, then that is the model.
LL: Why the need for product diversification?
The leasing market is getting more and more competitive. Asset finance is a growth area, you can see more and more entrants coming in. Deals are being very hard fought-over: not only are you getting deals with multiple brokers, but multiple funders.
That competition is a consistent thing. I would imagine as the market continues to grow, that the competition could increase.
The professional sector is a good sector where you understand your covenant and you understand your clients. So I would see it as an area which will get more and more competitive. From our point of view, if you can start with a relationship, then you are at an advantage. That is one of the areas that we think could go well.
LL: Is professions lending low-risk?
It is effectively unsecured lending. You need to make sure you have a great understanding of your covenant; you need a good relationship with the lessee; the law firm or whichever business you are lending to has a good provenance; those are all the mitigants that you would expect to come into a deal.
As a bank-owned asset finance business, we start all of our underwriting decisions with who the person is, and pay great attention to the underwriting. As a result we understand this area well.
Asset finance businesses often start with the asset and then work their way backwards. We always start with the person and then work to the asset. If you are comfortable with the person you are lending to, that will help you know better how the business is going to perform, how it services debt, and how the asset plays into that.
LL: On total market growth vs market share
The FLA data shows market growth, and with that in mind, I would expect to see it growing. There are a growing range of funders that want the returns and the margins that you get in our markets.
We are very clear on our appetite, we are clear on the returns that we expect, and we’ll operate within those parameters.
Metro Bank is one of the few lenders that will encourage an underwriter to go out and meet the customer. For us that is an important service as it allows the customer to see how seriously we are taking the relationship that we want to build with them, and it gives us a really good insight into the type of lending that we have got.
I think we will start to look at all sorts of other avenues to the market, but right now we have rich seam of clients who are accountants and law firms, and we have got some really great routes to market.
What we have never done, and will never do, is to go from being a reasonable size to a massive size overnight. You have got to learn, you have got to grow and expand and manage your risk as you grow. For us that is absolutely crucial.
We see our strategy as taking on associated markets that support Metro Bank, and starting to slowly expand. We have five or six new markets that we would like to go into: prestige cars is one of them.
Some of them are markets that you would expect us to be in; our focus for now is getting right the markets that we have agreed to be in.