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Hello, and welcome to the Metro Bank Q1 Results Call. [Operator Instructions]Today, I am pleased to present Vernon Hill, Chairman; Craig Donaldson, CEO; and David Arden, CFO.Speakers, please begin your call.
Good afternoon in London, and good morning in America. This is your Chairman, Vernon Hill. We're pleased -- with me is Craig Donaldson, CEO; and David Arden, who is CFO. And we're going to begin with Craig highlighting our results for quarter 1.
I'm not used to be handed over so fast, so you called me out for that. Can I just stop by saying, first of all, welcome, David Arden. Obviously, he is amongst [indiscernible] and has held in really well, the new thinner and younger Mike Brierley. So turning to quarter 1.I was really pleased with the momentum in quarter 1. Our deposits were up over GBP 1 billion delivering GBP 6.3 million per store per month and that was achieved with a stable cost of deposits of 56 bps. Lending up over GBP 1.3 billion. Of course, there was GBP 500 million of book purchase in there. Well, that moved our loan-to-deposit ratio up to 86%, and that drove our customer NIM up to 2.24%, up 3 bps on the quarter. And this is all achieved whilst our cost of risk has remained extremely strong. NIM was down 2 bps, but that was due to strong down GBP 0.5 billion more from TFS. TFS is now closed. We won't, therefore, be drawing any more money from it. What we've begun to see is NIM now trend up towards customer NIM, and customer NIM will continue to trend up as we continue to increase our loan-to-deposit ratio, as we continue to manage to our stable cost of deposits and as we see yields start to move up in the marketplace. We've definitely seen a movement in yield on mortgages and on consumer finance.Whilst doing that, of course, we continue to invest in the organization. We currently have 5 stores inbuilt. We'll be starting another 2 store build-outs next week. So sooner, we'll have 7 stores inbuilt. And we've also been investing heavily in our digital offering. We launched our current account online earlier this year. It's going very, very well. We're 1 of only 3 organizations in the U.K. that can do this straight through from account opening using "selfie" ID&V as we integrate with more FinTech companies. And we've seen a good number of customers opening their accounts online, 70% of which are around our stores with no cannibalization of the stock formed, which is superb. And interestingly, almost 70% of those who've opened their accounts around the stores have gone into collect their cards. Proving this bricks and clicks works, as we're delivering our retail concept of click and collect, which is what we've always been saying. So we continue to invest in our organization for the long-term growth.We also finally did deliver continued profit growth, and I expect us to continue to do that every quarter. Our profit is up 21% quarter-on-quarter and that will continue as the trend throughout this year and towards 2020, towards 2023 and beyond.And then I would say we've obviously come up with clarity on our debt raise. We expect to be raising Q2 debt during 2018. We're giving clarity on that. The exact amount is to be decided but will have to be around GBP 0.25 billion, GBP 250 million as our first launch to create the right environment for future raises. We have no expectation of an equity raise this year -- so I'll just repeat that, we have no expectation of an equity raise this year. We are currently working through our ICAAP and expecting to receive a relief from Pillar 2A offset and are currently also working through our AIRB and expect to see some relief from that next year.So I think that's a very brief runaround of the organization. While I sit here today, I'm very pleased with the momentum that is absolutely continued from last year into this, and very focused on delivering the 2020 numbers and the 2023 numbers. Vernon?
Thank you, Craig.
Well, actually David, would you like to add anything?
David, would you like to say anything?
Yes, sure, Vernon. Just to say hello, everybody. It's great to be here along the side of Vernon and Craig. I'd reiterate, everything that has been said, we've delivered. A really strong results in Q1, and the clear momentum in the business continues at pace. So it's great to be here. We're looking forward to it.
Thank you, David.I guess we'll now open the lines for questions. Who is first? Who would like to ask one first?
[Operator Instructions] And the first question is from the line of Michael Perito from KBW.
I've a few questions. You guys highlight the TFS impact on the NIM. But I was curious, if it also -- if you can maybe kind of backout how it impacts the ROE? I'm assuming it probably weighs on it a bit because the balance sheet is a little inflated. And I was just curious if you guys have looked at that as well?
Well, honestly, Mike, no. I don't think it inflates the ROE. Let me come back to that...
Deflates. I would think you have weighed on it a little, right, just because the balance sheet is probably a little bigger than it would normally be with the TFS outstanding?
A little, but let me come back to that because I don't think there's much in it to concern.
Yes.
Okay, okay. I was just curious. And then, on the ROE capital discussion, so it sounds like there is no debt at some point this year, no plans for common equity. As you look at some of the relief you're going to get from AIRB and then also your comments, Craig, about how you expect the ROE to continue to expand. Are you willing to extend further out beyond this year in terms of the common equity need? I mean, it would seem like you guys would be good a little further than even this year if all those things come to fruition as planned. I'm just curious what your overall thoughts are on those items and how they can impact your common equity need beyond the 2018 time frame?
So, Mike, as you know, when we talk about our capital raises and our debt raises, it's all about creating growth. It's all capital growth. So it's predicated on the continued growth of the organization, which -- with the momentum we brought are fundamentally expected to come through. The answer to your question though was tied up and what happens with AIRB and what we're doing there. So, do I expect this to raise equity next year? At this point, I don't have the answer for you because AIRB will have a significant impact on the company when it comes through and we're working that through, so definitely debt this year. I can't confirm or deny equity next year, but we'll definitely be doing debt next year as we go into our MREL program.
Okay. Can you just remind us when you rolled out the 2023 targets last year, what -- I know the ROE had a range of 17% to 19%, I believe, and you mentioned on the call that at Q4 that it was kind of dependent on what you did from a common equity perspective. If -- is that's still the case? I guess, like if you were to raise common equity next year, would that still be in line with the 2023 17% to 19% ROE that you kind of laid out? Or does that potentially alter that lower if you come to market before 2020 for additional common equity?
No. We consider that if we did the equity raise, we'll be within the 17% to 19%.
Absolutely.
Okay.
We would not see an impact. The whole -- sorry, I was going to say, Mike, the whole point of 17% to 19% was, to say, we did do an equity raise that pushes to the lower end of the 17% to 19%. And therefore, it's already within the 2023 numbers.
Okay, helpful. And then, just the customer NIM moving up, it was good to see and you mentioned broadly how you're starting to see some yield reprieve as you had the 25 basis point move in the base rate over there. I'm just curious if you can maybe give us more color on what you're seeing in the market on incremental loan production in terms of rates and mortgages, consumer and commercial and just to give us a better idea of how the customer NIM could track in the next few quarters here?
Well, we know that it took some time for rates to move post the base rate move. And it was only probably in the last 4 weeks that we're seeing yields start to move out. So we're seeing yields move out on mortgages. Not Westfield kind enough to put a press release out, which is very unusual, saying they were putting that rates up by 15 bps. Barclays followed 2 days later, moving up 12 bps. And apart from 1 or 2 outliers here, everybody in the market has been moving out. Slope rates are -- in fact, the slope rates of 37 bps only and there is no doubt that is causing some organizations some pressure. And I do expect to see some continued movement out there. As we naturally hedged our balance sheet, of course, the slope rate doesn't play into our management of our NIM. On Consumer front, once again, we have started to see some moveout, a little bit more market actually than it has been in the mortgage market. And therefore, that's becoming much more attractive from a risk-return basis and would expect us to do some more lending into that space as we move forward. But we, of course, would never compromise the risk return. And then, finally on Commercial, we're seeing no movement yet on the yield going up. The commercial loan yield lags whatever happens in mortgages. So I think over the next sort of 12 weeks, I'd expect to see some yield movement in Commercial as well. So we're seeing yield moving up in 2 to 3 areas that we play in. And really importantly, though, what we haven't seen is any movement on the cost of deposits, which is being stable at around 56 bps and that, obviously, as we've said, as well as the loan-to-deposit ratio going up, will drive the customer NIM up.
Okay. Great. But the commercial yields overall, there is still probably what like 125 bps to 150 bps over the mortgage and consumer -- I'm sorry, over the mortgage at this point, even after the raise or?
Yes, pretty much. I mean, obviously, that's been compressed a little by mortgages going up, but that's why I expect to see Commercial move on. And as we've always said that business is a huge important part of our business, 53% of our deposits in our business and commercial customers. And last year, we won 17% of the business, which is a London and the Southeast. So it's very important that we continue to do that for our fee income and also for our customer NIM. But if anything, we're winning over 1,000 business customers every week who're walking into our stores and opening accounts with us and that's not slowing down.
And next question is from the line of Joseph Dickerson from Jefferies.
Just a couple of quick ones. Craig, can you -- what's the timing do you think of the IRB relief, #1 on capital, #2 on capital? Could you just repeat, I missed your comments around ICAAP and Pillar 2? Is it that you expect a reduction in the Pillar 2 requirement? And then secondly, outline from digital investments, can you maybe talk a little bit more about that? What you're investing in? And how you guys get your -- consistently get your digital offering right? We've obviously got a competitor in the market whose customers seem to have been without any sort of technology for about a week and presumably...
What's the name of that bank, Joe?
I don't know, I actually can't see the 3 letters on their -- on their branches. So I forgot. But presumably, that dislocation could be good for you, but also what is that, that you do where you get tuck right and what are you investing in? And how's that going to pay off in the future?
Thanks, Joe. So trend on IRB relief, we will -- it might be reasonable that nothing this year. And that when we do get, they are expected to be into the second half of 2019. I don't expect anything before that. The regulator has been very clear with us, we are in a process. I believe the process is going well. We've had several meetings and we have several more in the diary. But it is a long drawn-out process of working through all of the models and getting the regulators comfortable going well. The Pillar 2A offset was introduced on 1st of January this year, additional banks that are on the standardized approach who are holding too much capital in their Pillar 1 as they trend towards AIRB. One might say, that is exactly what we are. Therefore, you can put in your ICAAP a -- why you would reduce the Pillar 2A to offset some of the significant overage. It could be like Metro Bank would be holding. Our ICAAP has been submitted. I'm actually sitting down to regulate again on May 7 to go through that. They've been pushing ICAAP to then go through something called a SREP, which is basically a viva. And then, I would expect us to get a letter, a small period after that telling us what to expect. We are right in the middle of that process. So I was hoping we will see some benefit from that significantly earlier. And it is actually exactly what Metro Bank is, what this has been built for. So I'd be very disappointed if we didn't see the impact positively as we go into the third quarter. And then, the third point is investment in digital, how do you consistently get it right and how will it pay off? So I think for me, there are 3 parts to -- well, not just digital, but that the whole architecture and technical staff in the organization. One part is to make sure you don't have legacy to make sure that you are running it properly and you are managing it and investing and keeping it relevant. We are doing that. We are upgrading, we are 100% patched. We joined something called the site of centralized to make sure that we're aware of things as they are proactively managing what is happening out there. We also, obviously, work closely with a number of companies, Gartner and a number of the advisory firms, making sure we're aware of what is changing out there. We also have people like Gene Lockhart who is sitting in our board, who is very, very close to whole technology environment and is constantly bringing new opportunities and ideas to us, to talk about -- and actually sitting with 2 different CEOs of tech companies on the West Coast of America on Friday to see what we might do together. So you've got to stay relevant, you've got to stay close and most of all, you've got to stay resilient and you've got to make sure the trainings are on time.
Joe, this is Vernon. Just to make one comment to reinforce Craig. As you know, we have the only modern core IT system in the banks in Britain. And if you don't have that, none of the tech staffs work. So, Craig and his team do a great job, but fundamentally, it's about the size and the strength of the core.
Also as we move forward, what we also have within what Vernon just said is we go through different levels where you then pay -- you get your economies of scale. And as you grow, you see in economies of scale going through. As we go through this year into '19, we have a couple of trigger points with different suppliers where we'll see some of those economies of scale come through.
We might say, Craig, also to tell -- talking about how your next big steps in digital are in the Business and Commercial side.
Absolutely. So looks like, you then, how do you get it right? Well, again, obviously, we just go in live with our API gateway, that has been a big project for us. And then we've got to find the right partners. We believe the API gateway, its business customers are the most underserved and that's where the biggest opportunities are. And we've been working with a number of business federations and we announced an alliance with Wondershare Data with our business customers and support and taking learning from them about what we can do. So staying close to our customers, so then we can leverage them as the key. And finally, it's about offering straight to processing. Launching current account online means we've got hundreds of customers not putting into store because they would rather open it online. And then we've got them coming into collect their cards rather than just posting in apps. After we're seeing more and more things put online, offering more choice to customers, integrating bricks and clicks, we definitely see an opportunity to drive productivity and efficiency and reduce our cost of growth as more and more of that migrates online and it's even more so to businesses.
And next question is from the line of Rob Noble with RBC.
Just a question on the deposit market. We've seen sort of Lloyds and Santander U.K., both see a slowdown in growth and then in some cases, a decline in deposits. Obviously, you're not seeing that. Is there something going on in the wider market in terms of pricing and competition for deposits that you're kind of running underneath?
Well, the model we're having, it's all around sort of convenience across bricks and clicks and we continue to build online customers on that. So we haven't seen the slowdown, we're still winning a number of customers. Like I said, yesterday alone we had, I think around 1,400 people opened accounts with us and bring their deposits to us and that continues. So we're sourcing a significant growth in our noninterest-bearing liabilities over 31% growth in year-on-year. And that continues again. And as we win through the service convenience, we do not play in the price again. Interestingly, since the withdrawal of TFS, I think it's fair to say, we have seen the rates online go up. But because we don't really play in that space at all, it has very little to no impact, and that's why I commented on stable 56 bps cost of deposits. And there's a separate thing we're seeing, I believe more securitizations come to market in the first quarter of the year than we saw in the whole of last year, telling that some people are definitely seeing their cost of funds go up, which I expect to see come through in yield on lending as we go through this year.
And, Rob, you probably remember, it's not as much about the deposit rates, it's about the mix of business. And our model draws a very high percentage of current accounts. I think the end of this quarter was 31% of our deposits in there. And our current accounts, as in no interest grew 51%, that's inherently in the Metro Bank model.
And the next question is from the line of James McCormick from FMCG.
As you continue to report these truly astonishing numbers, I think we've talked before about the numbers in terms of branch growth are beyond anything that I believe that it would be fair to say, any U.S. bank has ever seen probably even 5x what any bank has ever seen. And now, you've got the digital coming on. A couple of questions on this: A, Craig, can you tell us a little bit on what you are observing? I know it's early days for the online current account, but a little bit more about what you're seeing in terms of volumes. What your thesis is about the 70% of the customers that are near the branch and the other ones are a little further away?
Jim, thanks. So to me, what we're seeing at the moment. So we're seeing CAO, as you call, the current account online, delivering around about a performance of 10 stores in current account openings. So that's very strong, with no advertising as we continue to...
The current account online opens as many current accounts as 10 of our average stores.
Yes, exactly right, Vernon. And that's without any advertising and that's without us -- what we're doing now is smoothing the funnel to make it better and better and better. And that, Jim, with no marketing spend at all. So that's very good. What's even more pleasing is, our brand recognition is 89% where we have stores, and there's no doubt our brand recognition is the thing that's playing in, the one we're getting 70% of our accounts opened around the stores with no cannibalization. Well, with that said, there are a number of customers who are attracted to the Metro Bank brand, who want the ability for bricks and clicks, who want to open online and then use the stores they wish when they want to. And then, like I said, because so many people coming to track their cards, it's showing the ability to fulfill at point-of-sale is what they want. So it's absolutely reinforcing the model at the moment, but its early days and we need to get more days...
And, Jim, you and I have discussed this. The new paradigm in retailing is the experience and Metro Bank is uniquely positioned to provide this unusual experience stores mobile online, and it's really the experience we work on.
More than unusual, I'd say exceptional.
Exceptional, I'm sorry. Any option?
I mean, if you're clicking along at the equivalent of 10 stores and the average store has about over GBP 100 million per year, that is well of the get-go. It seems like you're growing at about $1 billion in current account balances per year and that's without any marketing. It just seems so incredible. How do we believe they'll exist?
Jim, let's come back to the point. It's very positive. It's a really positive start. And it's only -- one of the things that we're developing at the moment. We have our artificial intelligence insights, which is going on to the mobile app. We're building out our current account online. We'll be building out our business account online, and building that out over the coming months. And it's a very exciting space. And you're absolutely right, it's about the integration of the bricks and clicks. And from Joe's previous question, when you look at productivity and efficiency, giving customers the choice actually does drive benefits to the organization and deepens the relationship. So it's a real win for us.
And, Jim, we will be disclosing more of the current account online quarter-by-quarter as we get more experience. And we are also...
You're probably aware that the bricks and click model has been revalidated by Chase -- JPMorgan Chase with their announcement in the last week of -- considerably more branches being opened rather than less. As they find out that the combination works because, of course, they're one of the major banks in terms of digital conveniences as well. So it is kind of interesting that, that view is reversing itself from branches or debt to we need more branches. And, of course, that's one of the better performing retail banks in the United States right now.
Thank you, Jim.
Thank you, Jim. Anything else?
Just one question. With some of the branches are sitting there with -- you tell me, I think it's -- if I'm remembering the numbers right, 400 million or even above that, do you see any sort of capacity concerns where your branches are already -- the average branch in the United States is only about 50 million, some of the ones in metropolitan areas are more than that, 100 million, 150 million? Your multiple is higher than that I think, but what about capacity? Do you just run out of room?
Dollars. Jim, in dollars, we're approaching average branch size of USD 400 million per branch. And you and I both know that's basically 10x the American average. There is no constraints on the size and capacity of the store. And in that sense, online and mobile health, you remember that there is a commerce we should get 120,000 people through a branch every month. Even with these gigantic volumes, you don't get the customer visits that we've used to before mobile.
And this is the whole in the bricks and clicks. And as we migrate more and more offerings on to the clicks part, not just the bricks, it'll drive more and more productivity and efficiency into the organization, Jim, which means the stores can grow much, much, much bigger than we ever envisaged.
Okay, Jim, is that it?
And next question is from the line of Glenn Greenberg from Brave Warrior Advisors.
My questions have been answered. It was just that low at the beginning of the meeting. I thought they're couple of interesting questions, but other people asked.
And next question is from the line of Nick Baker from Goldman Sachs.
Just 2 from me. Just on capital. I was hoping I might be able to flash out some of the moving parts that you saw in the quarter on the CET1 ratio. So specifically, just how much of the contribution to the movement was the day 1 impact of IFRS 9? And also the reset of your operational risk-weighted assets? And then the second one, just as we look through '18, you said you've got 5 stores inbuilt currently and other 2 coming online in the next couple of weeks. What is the reasonable expectation that we should have for the amount of operating leverage, which is likely to come through specifically in '18? And how much as you go towards your 2020 target level is going to be more back-end loaded?
All right. So in terms of first part of the question on CET1 in the first quarter. From my impression, we saw an immediate decreased equity of GBP 12 million. Not a big deal in the amount for us particularly because of the high unsecured loan book and minimal unsecured consumer lending. The other 2 big moving parts in the quarter was the annual step-on in the reset on operational risk RWAs. And, of course, as Craig alluded to earlier, we brought GBP 0.5 billion loan book and maybe the 3 big moving parts in the quarter.
On the cost side, Nick, and the leverage, we were never going to grow our cost in a straight line down towards the 2020 and 2023 numbers. And there is no doubt that we will make the right decisions for the long-term growth of the organization. However, you will see the cost-to-income ratio go down as you go through this year. It'll speed up into '19 and then through '20 as the economies of scale and the productivity things we're talking about. But it's on the phrase, not a straight line as we are investing. And we've got to make the right decisions for the long term, not to manage a quarter-by-quarter cost to play.
And that you asked about the number of stores, Nick, Vernon. We think we're going to be around 12. And no matter what I've done my whole life, over in the second half of the year, you'll see the majority on this year till that way.
And next question is from the line of Chris Cant from Autonomous.
I just had a straightforward one to start. You discussed your Pillar 2A. Could you please disclose your current Pillar 2A CET1 buffer requirement given that, that's now a PRA requirement to do this?
Yes, Nick, (sic) [ Chris ] that we're just waiting for them to go through ROC. Once they go through ROC, we'll get them published and they should -- well, we have a long time in advance of when they have to be published under guidance. So no problem in that, that affect coming just ROC was very busy signing off the ICAAP and doing a few other things. So next ROCs that we signed off and then we'll get them published, that will be in advance of any of the regulatory requirements.
The regulatory requirement was 1 Jan '18?
On Pillar 2 -- it's up towards the 30th of June, it's not Pillar 3.
Pillar 3 [indiscernible].
No, your...
And to say so -- and my apologies, Nick (sic) [ Chris ]. It hasn't changed because we haven't had an ICAAP. So this way, that is the same as it was before.
But you've never disclosed this. You haven't ever disclosed to us your Pillar 2A CET1 buffer requirement? There is a requirement to do so now, so could you please...
This will be only by the end of 2018, Chris.
No, from the 1st of January 2018, there was a policy statement in December from the PRA saying that firms are expected to disclose this as of 1st of January 2018?
Post that most recent ICAAP and we've got our most recent ICAAP.
We're going through that. As I literally explained, I'm meeting the regulator for the final meetings on the ICAAP on May 7, from which we'll get our latest word and then we'll publish. My apologies, Chris, I think it's Pillar 3.
It's great. Please, could you tell us your current one then, because that was what the policy statement said you should do. I mean, the policy statement in December said that a respondent to the consultation had asked whether disclosure could be delayed to align with the ongoing process. It's around Pillar 2A refinement and the regulator rejected that request, and said all firms should disclose this. So please, can you disclose your current Pillar 2A requirement?
Well, Nick (sic) [ Chris ], let me get the numbers and I'll come back to you.
Yes, it's Chris, sorry.
Chris.
Okay, fine. And then, on your noninterest-bearing accounts, you talked about the 51% growth year-over-year. I think you've relabeled this now as current accounts. And I think the GBP 3.7 billion you disclosed at full year '17 was overstated by about 6%, 6% of that being interest-bearing account. So what proportion of the current account figure you've disclosed today of GBP 3.9 billion relates to interest-bearing accounts, please? And what proportion of your deposit book overall is truly noninterest-bearing versus the 32% you talked about the full year '17?
So you're right. We had some IP address -- IP accounts in there. So there's a small disconnect -- a small disconnect has been cleaned and it's been cleaned out all the time. It's an exceptionally small number with small and 6% you said, so it has very little to no bearing on the numbers at all.
Okay. So what proportion of your accounts are currently truly noninterest-bearing?
Over 30%, 31% as it stands at. We cleaned that out -- Chris, you were very kind to point that out to us post the annual accounts coming on. So obviously, we've taken to the cleansing.
You haven't restated the full year number, you've just relabeled as current accounts rather than noninterest-bearing accounts?
No, what we've done is, Chris, we took your feedback. We then -- we have changed that out, which is why it now is 31% of total deposits, not 32% of total deposits.
And there are current accounts.
Okay, fine. And then finally on customer NIM, you talked again about headline NIM trending towards customer NIM over time. Obviously, you're planning to do some debt issuance. I think this regulatory debt issuance will be excluded from your customer NIM calculation. So could you give us a sense of how you expect the gap between customer NIM and headline NIM to look in 2021 once the TFS carry trades drop out?
I would expect them to be much, much closer. We see only real difference exactly like you said, being the debts that we raised, but if you think about, we go around about GBP 3.8 billion of TFS, on balance sheet of about GBP 16 billion. By the time we get out in 2021, we're going to be around GBP 35 billion plus and the debt compared to that will be less than TFS. So just the lower pigment, this means that the NIM by then is fundamentally much, much closer to the customer NIM.
The regulatory that's going to be a lot more expensive than TFS in terms of the negative NII costs that you're excluding from the calculation. There might be a small that's going to be a multiple of the cost now?
I wouldn't suggest. So, no, when you look at the pricing that's being coming through, no, significantly no. Also will be used -- we'll use more of that for our lending. And therefore, no, it really, really closes the gap significantly. Today, we're sitting, at the end of quarter 1, 185 for NIM and 224 for customer NIM, and I would expect the gap to be significantly, significantly closed by the time we're out to the end of 2021.
And next question is from John Cronin from Goodbody.
Just a kickoff. Looked complement again, you'd a very strong quarter-on-quarter growth in deposits. And just 2 questions -- 2 questions in relation to that: A is, look, given how successful your -- your level to the online offering in terms of generating deposit growth? Should we expect a pickup in that growth rate quarter-on-quarter? And then also, why was other income growth or fee income growth just 2% quarter-on-quarter in the context of that deposit growth?
So I mean, on the deposit growth, no, we will stick within our guidelines, John, of GBP 5.5 million just over to GBP 6.5 million. I don't expect to go outside of that in any meaningful way as we go forward. Again, it's dangerous talking quarter-on-quarter because we have a number of moving parts, should we say. And then, the movement quarter 4 and quarter 1 were 2%, we do get hit by the data release in February, which just hurt us a little bit. But on the bottom line, the fees were well on time for us in Q1, I wasn't -- there was nothing in there that worried me. Over the long term, you would expect fees to particularly as we pivot towards Commercial and you're right, there's more scope for us on the income side to thrive more fees, particularly as we pivot towards Commercial.
And that we had a very strong fee play actually in Q1 as far as we were concerned. But we have a very strong growth in deposits over the top end of our rating.
Okay. And then in relation to the Tier 2 issuance that's planned for this year and that's -- I guess, just a follow-on from Chris' questions in relation to the cost of that plus more particularly around pricing and given you've said that there is no expectation of an equity raise this year as your CET1 capital ratio was 13.6% and Q1 and is trending down as the business grows. And how should we -- how do you reasonably expect to get away at debt issuance in the context of declining CET1 capital as reasonable with pricing?
Well, one, because we've got so much demand from people we've been talking to. And I believe that demand drives pricing. Remember that the reduction in our CET1 is because of the strong growth. And that is absolutely fundamentally growing this organization the right way. Our capital raise -- sorry, our debt raise is all about continued growth, which drives our profitability. And therefore, as far as we're concerned with the banks we've spoken to and with the debt purchases in the market, there seem to be a lots of market for our debt that we'll go out with. And from the pricing we've seen, it's just a little our first full year of profit. We're going to have 7 quarter of profitable growth -- growth profit increase quarter-after-quarter. And it seems to be very, very popular from people's -- the conversations we had with people. So now, I don't share any of the concerns at all actually, John. Thank you.
Okay. Is it fair to say in that context then that there would not to be necessarily traditional institutional holders of such debt instruments that would be targeted?
I would say, we always talked to our existing shareholders. And, of course, we'll be talking to the traditional existing debt purchases. We are growing a bank for the long term, like we've always said, 4% of the U.K. market is a GBP 100 billion in deposits. Of course, we're going to be talking to everybody, but we'll always be talking to our shareholders as well.
Okay. And look, finally, just one short question on the liquid asset contribution to net interest income. Clearly, that's going to decrease as a proportion of the interest income as the business continues to grow, but I just want to make sure in terms of your conversations with the PRA around the Pillar 2A offset that there is no interplay there between what might come down the tracks and time with ring-fencing requirements and -- or are those completely separate discussions?
No. We're very comfortable. David, you've got anything you want to add?
I can't see any challenge that's known.
That certainly being nothing we're worried about. We've worked through being looking at the options. No, there are no issues at all at this stage. Thank you, John.
And the next question is from the line of Alexander Medhurst from Berenberg.
As many of my questions have been answered, so maybe just one very quick factual question. Would you mind just giving a bit of color reiterating the minimum CET1 ratio you'd be kind of comfortable at before RWA relief comes through next year? That's pretty much it from me.
Thank you, Alex. And I'm pleased we've answered some of your questions already. That's very positive. So yes, we went out and said that we were looking -- giving guidance around 12%. That is significantly above our regulatory requirements and is a very generous. If we were to dip below 12% as we trended towards AIRB relief, I will be very comfortable with that. So we set 12%, our previous guidance was 11%. If we were to trend down below 12% towards 11% while we wait to see AIRB, we would be able to regulate requirements and I would not be uncomfortable as long as I was very comfortable and confident, that would be reversed in short order. So yes, 12% is what we said, 11% is where we were before. Happy, we'll trend below 12% if needed because we'll make long-term decisions, but only if I was happy that we fully expected it to be reversed quickly.
I'm not looking at the timing on the AIRB submission if one can get relief.
Is that Okay, Alex? Do we have any more questions?
Currently, no further questions registered now.
Should I just say then, thank you ever so much. I think, specifically most people we've had on the call was over 90 participants. So thank you ever so much. I'm very proud of what we're building at Metro Bank. And I would just like to say to all of our shareholders who've come on the journey with us and continuing on the journey with us, thank you for your support as always. Thank you. And I hope I look forward to speaking to you and seeing many of you during Q2.
Thank you.
And this now concludes the conference call. Thank you all for attending. You may now disconnect your lines.