Shares in Metro Bank (LSE:MTRO) and OSB Group (LSE:OSB) rose sharply on Friday, gaining around 2% and 3% respectively, after both lenders secured regulatory approval to leave a debt structure that has been weighing heavily on their interest costs.
The Prudential Regulation Authority confirmed that the two banks will be reclassified as transfer firms under the Minimum Requirement for Own Funds and Eligible Liabilities (MREL), with the change taking effect from 1 January 2026.
The move is expected to deliver meaningful financial relief. Metro Bank, the UK challenger lender, currently services £525 million of MREL debt issued in November 2023 at a coupon of 12%. OSB Group, which focuses on specialist buy-to-let lending, has £700 million of MREL instruments outstanding, carrying a weighted average interest rate of 9.14% and resulting in roughly £64 million of gross annual interest expense.
RBC analysts said removing the burden of MREL interest “should provide a c.4pp annualised uplift” to Metro Bank’s return on tangible equity from FY28E. For OSB, the analysts estimate that avoiding interest payments on both existing and potential future MREL issuance “is equivalent to c.13% of FY27E PBT.”
The regulatory shift follows the Bank of England’s announcement on 15 July to increase the MREL total asset threshold to a range of £25–40 billion from the previous £15–25 billion. Metro Bank reported assets of about £16 billion at the end of the third quarter of 2025, while OSB’s balance sheet stood at roughly £31 billion, leaving both institutions either below or close to the revised threshold.
MREL rules require banks to maintain a layer of loss-absorbing debt to protect taxpayers in the event of a resolution, but the framework applies on an all-or-nothing basis, meaning banks must either comply in full or not at all.
With the reclassification secured, both lenders now face strategic decisions over whether to allow their existing MREL bonds to mature naturally or to redeem them early. Calling the debt ahead of schedule would immediately affect capital ratios, as the securities are currently trading above par.
RBC estimates that an early redemption would result in an initial hit of more than 110 basis points to Metro Bank’s Common Equity Tier 1 ratio, while OSB would see an impact of around 60 basis points. That said, the earnings upside would start straight away. For OSB, RBC calculates “a CET1 payback from lower interest of c.1.1yrs,” indicating that the capital impact could be recouped relatively quickly through interest savings.
OSB said it “will update the market on what this means for its capital and funding plans” alongside its FY25 results. Metro Bank has yet to outline its intentions.
Beyond the immediate profit effect, RBC analysts believe OSB may now have scope to lower its CET1 capital target of around 14%, which currently sits above peer averages. They note that the higher target was driven by rating agency considerations linked to potential MREL issuance, a constraint that has now been removed.
“A 100bps reduction in the CET1 target would free up c.£120m of capital,” equivalent to about 5.5% of the group’s market capitalisation, the brokerage said.
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