“The Bank is competing successfully, maintaining new mortgage market share at 17.5% and delivering a strong financial performance. We are also making good progress in SME lending, with an increase of 43% from the prior period.
We have made substantial progress on our digital transformation journey, following the announcement of an additional €50m investment in technology infrastructure and digital capability earlier this year. This has included an upgrade of the Bank’s core platforms, desktop and app services; a new digital process for opening current accounts; the introduction of Apple Pay; and, a partnership with Irish fintech Credit Logic. This week, our Personal and SME customers will also benefit from Google Pay, enabling customers to pay for goods and services with their Android devices.
We are focusing intently on the opportunities arising from the potential acquisition of a major part of the Ulster Bank retail and SME business. We are building on our Memorandum of Understanding with NatWest Group and the parties are working towards legally binding agreements.
In addition to the Ulster Bank assets we are proposing to acquire, we are also ready to welcome Ulster Bank current account and deposit customers who will need a new bank. Through our branches in communities throughout Ireland, our online and phone channels and our enhanced digital app, we are here to support these customers in moving their business to Permanent TSB.”
Eamonn Crowley, Chief Executive
Key Highlights Q3 2021:
Business Performance
New mortgage lending of €1.3 billion grew by 56% YoY, significantly outperforming the mortgage market which grew by 32%. Market share of mortgage drawdowns grew from 15.3% at December 2020 to 17.5% at September 2021. Whilst the mortgage market in Ireland is estimated to grow 19% from €8.4 billion in 2020 to c. €10 billion in 2021, it remains competitive.
SME Lending totalling €58 million YTD reflects an increase of 43% from the prior period. Our partnerships with the Strategic Banking Corporation of Ireland (SBCI), Bibby Financial Services Ireland, Digital Business Ireland and WorldPay from FIS will provide us with an excellent platform to build on the momentum generated to date. Our existing €50m SME lending partnership with the SBCI was fully subscribed within 2 months of launch.
Income
Net interest income decreased by 10% compared to the same period in 2020. This reflects lower income post the sale of performing loans (Glenbeigh II) in Q4 2020, lower treasury income as a result of the low interest rate environment and lower income on the residential mortgage portfolio following the introduction of more competitive lending rates for customers in Q3 2020.
The net interest margin of 1.49% includes a 25 basis points cost related to holding higher levels of excess liquidity. While credit formation has been strong in 2021, the Bank continues to have excess liquidity as a result of the proceeds received from the sale of performing loans in Q4 2020 and continued growth in customer deposits. Although the yield on lending assets remains stable, the Bank expects the NIM to remain at c.150bps for the remainder of 2021.
Fees and commission income of €25 million was broadly in line with the prior year as transactional activity continues to recover to pre-Covid levels.
Costs
Cost management remains a key focus as the Bank continues to invest to support its transformation and absorb cost inflation. Operating expenses are €10m higher than the prior year as we accelerate investment in our digital capability to meet customer demands. The Bank will continue to make underlying savings in administrative expenses to offset higher depreciation and amortisation.
Balance Sheet
Customer deposits of €18.9 billion at 30 September 2021 are €0.9 billion higher than 31 December 2020, reflecting a 19% increase in current account balances to €6.9 billion. The loan to deposit ratio of 76% at the end of September 2021 provides the Bank with a strong liquidity position and significant capacity to lend.
The total performing loan book of €13.9 billion at 30 September 2021 is €0.2bn higher than at 31 December 2020. The Residential Home Loan book has grown 1% since December 2020 as the pace of new lending exceeds repayments.
Non-performing loans of €1.0 billion at 30 September 2021 are c. €0.1 billion lower than balances at 31 December 2020, with lower levels of new defaults in the period and higher organic cures.
Capital
The Common Equity Tier 1 (CET 1) ratio on a fully loaded basis of 15.1% is in line with 31 December 2020.
The CET1 ratio on a transitional basis of 17.2% at 30 September 2021 reduced from 18.1% at 31 December 2020, the regulatory requirement for CET1 on a transitional basis is currently 8.94%. The Total Capital ratio on a transitional basis was 22.1% at the end of September 2021. The regulatory requirement for Total Capital on a transitional basis is currently 13.95%3.
Capital remains strong and having assessed a range of scenarios, the CET1 ratio will remain above the Bank's minimum regulatory requirements.
2021 Outlook
Business activity and demand remain strong as the Bank moves into the final quarter of the year. Market share of mortgage applications and drawdowns are higher than for the same period last year, while approvals are also significantly ahead leading to a strong pipeline of business. Significantly, we expect new lending volumes for this year to be ahead of both 2020 and 2019 volumes.
NIM is expected to remain at c.150 basis points due to the cost of holding excess liquidity at negative yields, together with the lower reinvestment rates on treasury assets and continued price competition in the mortgage market.
In order to ensure our digital and sales service continues to meet customers’ changing demands, the Bank continues to invest in this area. As a result, operating expenses for 2021 are expected to be c.3% higher than the prior year.
The macroeconomic environment in Ireland continues to trend positively. GDP for 2021 is expected to be c.10% while house price inflation is currently at c.10.9% as demand significantly outweighs supply.
Other
On 23rd July 2021, the Bank entered into a Memorandum of Understanding (“MoU”) with NatWest Group plc regarding a potential acquisition involving certain elements of the Ulster Bank Retail and SME business in the Republic of Ireland (the "Potential Transaction"). The parties continue to work together with a view to entering into legally binding agreements over the coming months. Until an acquisition is finally concluded there can be no certainty that an acquisition will occur or on what terms.
Although Ulster Bank current account and deposit customers will not form part of the Potential Transaction, the Bank welcomes these customers to move their business to us through our branch network, online or digital app offerings.
