Metro Bank Holdings PLC (LSE:MTRO) said it will sell its prime residential mortgage book to NatWest Group PLC (LSE:NWG) for around £2.5 billion, according to an update on Friday.
It comes as Metro looks to streamline its balance sheet and "enhance risk-adjusted returns on capital".
A Metro Bank statement said: "The sale creates additional lending capacity to enable Metro Bank to continue its asset rotation towards higher yielding commercial, corporate, SME lending and specialist mortgages."
Metro said the 4.2% on gross book value would result in an estimated £105 million loss due to the loans being originally given out during a lower rate environment.
Daniel Frumkin, Metro Bank’s chief executive officer, said: “The sale of part of our residential mortgage portfolio is earnings, NIM and capital ratio accretive."
Earlier this month, Sky News reported details about the potential after a deal with Barclays fell through in December 2023.
According to the report, it believed Metro’s mortgage book was worth at least £3 billion, but could fetch up to £4 billion.