Metro Bank warns capital levels remain below regulators' expectations

LONDON (Reuters) - Britain's Metro Bank reported a 2% increase in lending for the third quarter, but warned its capital levels remain below buffers expected by regulators as it grapples with the impact of the COVID-19 pandemic.

The lender did not provide an update on its bottom line, after it swung to a 240 million pounds ($311.52 million) loss in the first six months of the year following provisions to cover expected loan losses.

Metro said that while its core capital ratio including additional funding known as MREL stood at 20%, in line with requirements, that level was below the excess buffer required by regulators.

It may have to raise more funds, pending a review into capital requirements by the Bank of England expected to complete by the end of the year.

In an encouraging sign, the bank said the number of borrowers deferring payments on loans under a government support scheme fell to less than 3.5% of the retail mortgage portfolio, down from 16% at the end of the second quarter.

Metro Bank, whose shares have collapsed since it disclosed a major accounting error in January last year, has since battled to restore investor confidence amid a bleak economic outlook and low interest rates that squeeze profits.

The lender was founded in 2015 to take on incumbent high street banks by aiming to offer better service through its brightly coloured city-centre branches.

Metro Bank in August bought peer-to-peer lender RateSetter as it tries to improve revenues.

The upstart lender is the first British bank to give a snapshot of its third quarter performance, with Barclays to follow on Friday.

($1 = 0.7704 pounds)

(Reporting By Lawrence White, Editing by Sinead Cruise)