2017 Annual Results Commentary

07:00hrs 14 March 2018

 

PERMANENT TSB GROUP HOLDINGS PLC

 

2017 ANNUAL RESULTS FOR THE 12 MONTHS ENDED 31 DECEMBER 2017

 

Permanent TSB Group Holdings plc ('the Bank') today reports its full year results for 2017.

 

 

Key Points:

 

·     Profit After Tax of €40 million compares to a Loss After Tax of €266 million for 2016

·     74% increase in new lending volumes to over €1 billion

·     12.6% Residential Mortgage Market Share

·     Net Interest Margin (NIM) increased by 32 basis points to 1.80% from 1.48% in 2016

·     Operating Expenses reduced by €12 million (4%)

·     Non-Performing Loans (NPLs) reduced by €0.6 billion (10%)

·     14% increase in new Current Account openings, 10% increase in balances

·     30% increase in Active Mobile Customers

·     €500 million of five year Residential Mortgage Backed Securities (RMBS) placed at a cost of approximately 0.10%

·     ECB Funding reduced to 1% of Total Funding

·     Fully Loaded Common Equity Tier 1 (CET1) ratio improved to 15.0%

 

 

 

Jeremy Masding, Chief Executive, said:

 

"I am pleased to report a successful commercial year for the Bank where we have lent over €1 billion to the Irish economy. This is an increase of over 70% year-on-year. Crucially, we have regained our natural market share in the residential mortgage market; this has increased to 12.6% in 2017 from a low single digit in 2012. We are also reporting our first full year profit in a decade of €40 million. We have reduced our NPLs by 10%. The Bank's Fully Loaded CET1 ratio improved to 15.0% and we remain well above the regulatory minimum capital requirement.  The strong capital base gives us the capacity to manage down the NPL ratio and to invest in the business.

 

Against the backdrop of a growing Irish economy, the Bank's results show that we are making steady progress towards building a focused, low risk business that delivers shareholder value through providing outstanding service to our customers. Of course, there remain challenges in transforming the Bank; in particular, the high level of NPLs that must be reduced to meet both our own and our regulator's desire for a safer Bank that can continue to contribute to the growth of the Irish economy. We believe we have the right strategy and sufficient capital to address these challenges and to deliver our strategic objectives."

 

 

 

Business Performance

 

·    The Bank continues to acquire new customers. Customer activity continues to increase; for example, active mobile customers increased by 30%.

·    New Current Accounts opening increased by 14% to 42,000. Current Account balances increased by 10% to €3.8 billion.

·    Retail Deposit balances increased by 4% in the year primarily through successful retention of maturing fixed rate deposits.

·    Total New Lending volumes grew by 74% to approximately €1 billion.

·    Mortgage Lending grew by 77% (compared to a market growth of 29%) significantly outperforming the market. As a result, mortgage market share increased to 12.6% compared to 9.1% in 2016.

·    Consumer Lending and SME Lending increased by 48% to €90 million and 75% to €18 million respectively. 60% of Consumer Lending originated from voice and digital channels.

·    Net Promoter Score¹ increased to +15 placing the Bank in second place in the market.

·    All of the customers impacted by the Tracker Mortgage review have been placed on the right rate and contacted with a redress and compensation payment offer; 91% of customers have been fully redressed.

 

Profitability

               

·    NIM increased by 32 basis points to 1.80% from 1.48% in 2016 primarily reflecting lower Cost of Funds.

·    Total Income increased by €11 million (3%) to €443 million compared to €432 million in 2016 mainly due to increase in Net Interest Income.

·    Operating Expenses including Bank Levy and Regulatory Charges reduced by €12 million (4%) to €329 million. This is driven by a reduction in the Bank Levy and Regulatory Charges offset by increases in Staff Costs and Depreciation & Amortisation charges.

·    Cost Income Ratio (excluding Regulatory Charges) reduced by 1 percentage point to 64% reflecting the increase in Total Income.

·    Impairment charge of €49 million reflects a prudent approach to the NPL strategy as previously highlighted.

·    Profit for the year of €40 million compares to a Loss of €266 million for 2016 which included a significant loss from deleveraging of the non-core UK loan book.

 

 

Balance Sheet

 

Customer Balances

 

·    Customer Deposits amounted to €17.0 billion (84% from Retail Deposits), unchanged from December 2016 and represent 83% of Total Funding.

·    Gross Loans amounted to €20.6 billion, reducing by €0.7 billion (3%) from December 2016 as repayments and redemptions exceeded new lending.

·    Loan To Deposit ratio was 108%, marginally improving from 111% in 2016 primarily reflecting a decrease in Net Loans.

 

 

 

Non-Performing Loans

 

·     NPLs reduced by €0.6 billion (10%) to €5.3 billion primarily due to reduced default flows, an increase in cures and the targeted voluntary surrender programme undertaken on the Buy-To-Let portfolio.

·     The Bank launched a sale process for €3.7 billion of NPLs in February (Project Glas).

·     Project Glas consists of €2.8 billion of Home Loans and €0.9 billion of Buy-To-Let loans. Of the €2.8 billion in Home Loans, €1.9 billion related to Untreated Loans where there is lack of affordability or engagement.

·     Project Glas also includes €0.9 billion of Split mortgages which remain classified as NPLs.

·     In order to create a safer Bank and to meet regulatory (SSM) guidance, we are targeting a single digit NPL ratio over the medium term as highlighted at the Interim Results last year; we believe we are adequately capitalised to do so.

 

 

Funding and Capital

 

·     ECB Funding reduced by €1.2 billion to €0.2 billion (1% of Total Funding) which represents funding from the TLTRO Scheme; this is expected to mature in 2018.

·     Strong liquidity position with Net Stable Funding Ratio at 114% and Liquidity Coverage Ratio at 165%.

·     MREL indicative target set at 25.8% - issuances manageable at approximately €0.9 billion over the next three years.

·     Fully Loaded (CET1) Ratio increased by 15.0% compared to 14.9% at 31 December 2016 while the Transitional CET 1 ratio marginally reduced to 17.1%.

·     The Total Capital Ratio was 16.2% on a Fully Loaded Basis and 18.4% on a Transitional Basis.

·     Risk Weighted Assets (RWAs) amounted to €10.6 billion, unchanged from the 31 December 2016 level.

·     Expected incremental impact from the Targeted Review of Internal Models (TRIM) remains unchanged from previous guidance at 2.5% on the CET1 ratio.

·     IFRS 9 transition adjustments, which are phased in over five years, reduced the Transitional capital ratio by 6bps on 1 Jan 2018 - full loaded impact of €100m (107bps).

 

Guidance and Outlook

·     Performing Loan book expected to return to growth in 2019.

·     NIM is expected to improve towards mid 1.80% in 2018.

·     NPL ratio is expected to reduce to a single digit ratio in the medium term.

·     Operating Expenses expected to remain broadly flat as savings from non-recurring projects are utilised for investment in enhancing capabilities to support growth.

·     The Irish economy remains supportive with strong employment growth and a growing housing market translating to robust customer demand for credit.

·     The mortgage market remains competitive. Efficient distribution and disciplined pricing, coupled with a strong intermediary proposition, positions us well for future growth opportunities.

 

 

Ends

For further information, please contact:
Investors and Analysts		Media
Eamonn Crowley Chief Financial Officer [email protected] +353 1 669 5354	Rajesh Manirajan Head of Investor Relations [email protected] +353 1 669 5622	Ray Gordon Gordon MRM [email protected] +353 87 241 7373

 

Note on forward-looking information:

 

This Announcement contains forward-looking statements, which are subject to risks and uncertainties because they relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Bank or the industry in which it operates, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements referred to in this paragraph speak only as at the date of this Announcement. The Bank undertakes no obligation to release publicly any revision or updates to these forward-looking statements to reflect future events, circumstances, unanticipated events, new information or otherwise except as required by law or by any appropriate regulatory authority.