Permanent TSB Group Holdings plc (‘the Bank’)
Interim Management Statement – Q1 2021 Update
“The Bank has been extremely resilient since the onset of the Covid-19 pandemic, evident from business performance which continues to grow and trend very positively following a strong quarter four 2020. The Bank’s mortgage drawdown volumes in quarter one were c. 30% higher than the same period last year and mortgage applications and approvals are also materially ahead versus the prior year.
We have also recently announced our commitment of €50 million in additional investment in the Bank’s technology infrastructure and digital capability, as well as the launch of our digital current account. This builds on the existing €100 million multi-year investment programme, as the Bank prepares for a significant expansion of customers and services over the coming years, bringing an enhanced digital experience for customers.
We remain focussed on our ambition of becoming Ireland’s best personal and small business bank. As an Irish brand with people and community at the heart of our approach, we are very confident in our ability to continue to grow and provide real choice and value for customers in the Irish market.
Negotiations are continuing with NatWest in relation to acquiring certain aspects of Ulster Bank’s Retail and SME business. Until these negotiations have concluded there can be no certainty that an acquisition will occur or on what terms. Any agreement reached will need to provide certainty and clarity for associated customers and employees, be supportive to the overall commercial position of Permanent TSB and value accretive for our shareholders.”
Eamonn Crowley, Chief Executive
Key Points:
Business Performance
New mortgage lending of €0.4 billion grew by 30% year-on-year (YoY), outperforming the mortgage market which grew by 7%. Market share of mortgage drawdowns grew from 15.3% at December 2020 to 17.9% at March 2021 (Q1’20 14.7%). Whilst the mortgage market in Ireland is estimated to grow 13% from €8.4 billion in 2020 to c. €9.5 billion in 2021, it remains competitive. We continue to manage our offering carefully by maintaining price discipline and credit underwriting standards.
The Bank is working in partnership with the Strategic Banking Corporation of Ireland (SBCI), providing €50m in low-cost loans under the Irish Government’s Future Growth Loan Scheme for SMEs. Having received applications significantly in excess of the €50m, we are currently working with these customers as they proceed to drawdown. While the prolonged level 5 restrictions in Ireland has had an impact on consumer and business activity, the planned phased re-opening of the economy over the coming months has increased consumer and business sentiment with firms being more optimistic, seeing new opportunities emerging.
We continue to make progress in our multi-year technology and digital programme, successfully delivering an upgrade to the Bank’s core platforms and making significant improvements to digital services via the mobile App and web portal. From May 2021 we will deliver the current account opening via the App, a new digital process which will allow customers to apply for a current account online in less than 10 minutes, a seamless on-boarding journey for customers. The Bank recently announced its intention to increase its total investment in technology infrastructure and digital capability by an additional €50 million to circa €150 million, which will allow the Bank prepare for a significant expansion of customers and services over the coming years, bringing an enhanced digital experience for customers.
Income
Net interest income decreased by 10% in the first quarter of 2021, when compared to the same period in 2020. This reflects lower income post the performing loan sale transaction (Glenbeigh II) in quarter four 2020, together with lower treasury income as a result of the low interest rate environment. The net interest margin of 1.56% includes a 20 basis points cost related to excess liquidity due to the proceeds received from the performing loan sale transaction (Glenbeigh II) and elevated customer deposits. The Bank expects to increase NIM to in excess of 1.60% in 2021, as we continue to lend and actively manage deposit costs. Fees and commission income is lower when compared to the prior year, as re-entering level 5 restrictions had an impact on transactional activity in January, however since then fees and commissions have returned to pre Covid-19 levels.
Costs
The Bank continues to maintain tight control over the administrative cost base while investing in transformation and absorbing cost inflation. Operating expenses are in line with the prior year, with lower administrative costs being offset by higher depreciation & amortisation. The voluntary redundancy scheme, which concluded in quarter one 2021, will result in circa 300 FTE exits commencing in May and continuing through the course of 2021.
Balance Sheet
Customer deposits of €18.3 billion at 31 March 2021 are €0.3 billion higher than 31 December 2020, reflecting an increase in current accounts to €6.1 billion. The loan to deposit ratio of 77% at the end of March 2021 provides the Bank with a strong liquidity position and significant potential to lend.
The total performing loan book of €13.8 billion at 31 March 2021, is in line with the total performing loan book at 31 December 2020 with new business being offset by repayments and redemptions. Non-performing loans of €1.1 billion at 31 March 2021 are in line with balances at 31 December 2020, where organic cures were offset by new defaults. We continue to take a prudent approach to provisioning, maintaining post model adjusted ECL allowances, in light of the material level of government supports still in place for businesses and households. Macroeconomic assumptions impacting credit impairment will be reviewed in quarter two, with any updates required reflected as part of the half-year credit impairment process.
The Bank continues to support and engage with all customers who require assistance as a result of the Covid-19 pandemic. All Covid-19 mortgage payment breaks have now expired. At the end of quarter one, 5% of payment break customers (c. €100m) have required further forbearance measures resulting in reclassification to stage three. The Bank anticipates that a further 4% (c. €80m) of expired mortgage payment break customers are likely to require additional forbearance measures.
Capital
The Common Equity Tier 1 (CET 1) ratio on a fully loaded basis increased by 50 basis points to 15.6% at 31 March 2021 compared to 15.1% at 31 December 2020. The movement reflects the benefits from prudential add backs on intangible assets.
The CET1 ratio on a transitional basis of 17.8% at 31 March 2021 reduced from 18.1% at 31 December 2020, regulatory requirement for CET1 on a transitional basis is currently 8.94%. The Total Capital ratio on a transitional basis was 19.8% at the end of March 2021, regulatory requirement for Total Capital on a transitional basis is currently 13.95%.
Capital remains strong and having assessed a range of scenarios, the CET1 ratio will remain above the Bank's minimum regulatory requirements.
