October 25, 2017 / 7:34 AM / a year ago

UPDATE 2-Britain's Metro Bank profit jumps as lending and customer numbers rise

* Metro Bank aims to challenge established lenders

* Bank adds 79,000 customer accounts in Q3

* Q3 underlying pretax at 7.2 million pounds

* Total loans jump 66 percent to 8.61 billion pounds (Adds CEO comments, details)

By Noor Zainab Hussain

Oct 25 (Reuters) - British lender Metro Bank Plc posted a jump in third-quarter profit, driven by strong growth in residential mortgages and commercial lending and a rise in customer numbers.

The company, which was the first new retail bank in 100 years to establish a presence in UK town centres, said underlying profit before tax reached 7.2 million pounds ($9.5 million) in the quarter ended Sept. 30.

The bank, which said it added 79,000 customers in the quarter, reported profit of 600,000 pounds a year earlier.

Chief Executive Craig Donaldson said he expected mortgage lending to hold up even with the 25 basis point rise in interest rates that is expected to be announced by the Bank of England.

“It (interest rates) only came down 25 basis points 12 months ago and therefore the 25 basis points rise will not create shocks and I am not concerned,” Donaldson told Reuters.

Most economists polled by Reuters predict the Bank of England will raise borrowing costs for the first time in more than a decade on Nov. 2.

Metro’s residential mortgages rose 72 percent to 5.50 billion pounds in the quarter amidst signs that housing market activity is slowing. The number of mortgages approved for house purchase fell to 66,580 in August from 68,452 in July, according to Bank of England data.

Metro Bank, one of several “challenger” banks offering UK consumers an alternative to established lenders such as Lloyds and Barclays, also said it would bid for funds available to challenger banks under a so-called “alternative remedies” package from Royal Bank of Scotland (RBS).

The funds, intended to boost lending to small and medium size businesses (SMEs), were agreed by RBS as part of a state aid settlement as an alternative to the spinoff of its Williams & Glyn brand.

“We’re a proven challenger... and we think it’s very important that the Williams & Glyn money is used to continue to create challenge and not to reinforce the big five,” Donaldson said, adding that Metro would use the 120 million pounds it would bid for to create jobs and move into new areas.

Analysts at Jefferies said Metro was likely to take advantage of the package for challenger banks that offer SMEs current or checking accounts. They said it could provide further free funding for the bank.

The bank, which had opened 50 branches this year, wants to open five more in 2017 and 12 branches next year. The expansion would create more than 600 jobs, Donaldson said.

$1 = 0.7614 pounds Reporting by Noor Zainab Hussain in Bengaluru; Editing by David Holmes and Edmund Blair

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