Metro Bank Holdings PLC (LSE:MTRO) shares fell 7% to 94.3p after the UK regulator said its application for improved residential mortgage accreditation needs more work.
The challenger bank no longer expects to receive approval for the more profitable approach to home loan lending in 2023.
This followed the Prudential Regulation Authority telling Metro “more work is required by the company”.
Metro has spent five years pursuing its bid to use internal models, so-called advanced internal rating-based (AIRB) system, which allows banks to rely on their own history rather than standardised approaches to calculate loan risk.
The AIRB approval is important for Metro Bank because it would allow it to be more flexible in its product offering, free up capital, and loosen constraints in how it puts deposits to work.
Currently, Metro Bank can only deploy them in zero-risk or low-risk weighted ways, which caps its profits.