* Bank says competitive trends in mortgage market persist
* Shares hit by margin pressure, competition
* Stock falls 13.6 pct, eyes worst day since Brexit vote
* Graphic: tmsnrt.rs/2PhGXmp (Recasts with shares, CEO comments, graphic)
By Muvija M and Noor Zainab Hussain
Oct 24 (Reuters) - Shares of British lender Metro Bank fell over 13 percent on Wednesday as a squeeze on margins and competitive pressures in the mortgage market took the shine off a doubling of profit in the third quarter.
Metro’s net interest margin (NIM) - the difference between the interest it receives and the amount paid out - fell to 1.77 percent at the end of September from 1.94 percent a year earlier.
Shares of the bank, set up to challenge the dominance of Britain’s big lenders after the financial crisis, fell as much as 13.6 percent to 2,224 pence and were on track for their worst day since Britain voted to leave the European Union in 2016.
“While compression (in NIM) had been expected, the pace of erosion here is substantial and is a function of the company’s substantive bias towards mortgage lending (84 percent of the loan book) as well as higher deposit costs,” Goodbody analyst John Cronin said.
“We have consistently expressed our firm view that Metro’s model is not conducive to the achievement of its RoE (Return On Equity) targets and that the market valuation does not reflect this dynamic.”
Chief Executive Craig Donaldson attributed NIM compression to the bank raising debt at the end of the second quarter, saying customer NIM, which excludes the cost of debt, edged up.
The bank has raised 303 million pounds this year to replenish funds as it aims to more than double its loan book within three years. Cronin said Metro may need to raise more cash by 2020.
Metro Bank said in a statement that total NIM had also been hurt by competition in Britain’s mortgage market, already smarting from the country’s subdued housing market after the Brexit vote.
“Competitive trends in the mortgage market... have persisted despite the base rate increase in August,” it said.
Metro’s comments came after a Bank of England survey this month said increasingly cautious lenders expect to scale back mortgage lending in the next three months to the greatest extent since the 2008 financial crisis.
Donaldson said Metro would continue to lend as long as it was at the right risk and at a fair price.
Third-quarter underlying pretax profit at the lender, which was the first new UK high street bank in 150 years when it launched in 2010, rose to 15.1 million pounds ($19.59 million) from 7.2 million pounds a year earlier.
($1 = 0.7709 pounds)
Reporting by Muvija M and Noor Zainab Hussain in Bengaluru; Editing by Jan Harvey