Commentary on Half-Year Report

04 August 2020                                                                                                                 

 

PERMANENT TSB GROUP HOLDINGS PLC (the "Bank")

HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2020

Permanent TSB Group Holdings plc ("PTSB", "the Bank") today reports its half year results for 2020.

 

'In my first six weeks as CEO of Permanent TSB, I have set out a new purpose for the organisation which is centred on building trust with our customers and connecting with the Bank's community heritage. We have put that purpose into action and put in place a range of supports, including; c.10.5k mortgage payment breaks; term loan payment breaks; temporary overdraft and credit card limit increases; and over €1m in incentives and rewards back to customers. In addition, we have kept all of our 76 branches open to serve our customers, we are supporting valuable societal and citizenship projects, such as our recent partnership with Ó Cualann Cohousing Alliance and in recent days, the Bank has announced significant reductions to our Fixed and Variable mortgage rates for both new and existing customers, rewarding our customers and allowing us to compete effectively in the market.

The first quarter saw a positive start to the year, while the second quarter has been dominated by the impact of Covid-19. As customers embraced the Government imposed lockdown, the Bank saw new business volumes and transactional banking activities reduced to levels lower than the Bank has seen in recent years, but we are pleased to say that volumes have increased again as the phased approach to opening up the Irish economy emerges. As guided in the Bank's most recent trading update, the second quarter has been led by the macro-economic environment and the impact this has had on credit provisioning models. In this regard the Bank reports, in its Interim results, provisions for expected credit losses totalling €75 million reflecting a prudent estimate ahead of what remains an uncertain macro-economic outlook. At the same time, the Bank's capital ratios and liquidity levels with a CET1 ratio (fully loaded) of 13.9% and a liquidity coverage ratio of 208% respectively, remain above management and regulatory minimums.

The severity and duration of the Covid-19 pandemic and its impact on the economy remains unpredictable. However, I am confident of the Bank's ability to remain resilient, to continue to support our customers, colleagues and communities building on our well established franchise in the Irish market.'

Eamonn Crowley, Chief Executive

 

Key Points:

 

·      Loss before tax of €57m

·      Operating profit before impairment and exceptional items of €23m

·      Net Interest Margin (NIM) of 1.75%

·      Total new lending volumes of €0.6 billion; decreased by 16% year-on-year (YoY)

·      Market share of new mortgage lending at 15.2%¹, up from 14.7% at June 2019

·      A net impairment charge of €75 million

·      Operating cost of €142m; 2% lower YoY; Regulatory Charges of €20m

·      NPL Ratio of 6.8%

·      The Bank maintains strong capital and liquidity positions: CET1 ratio (fully loaded) of 13.9%, and Liquidity Coverage Ratio of 208%.

·      The Bank approved c.10.5k mortgage payment breaks; c. €1.6bn or 10% of total gross loans. The most recent data shows that c.50%² no longer require a payment break. The maximum Covid-19 payment break is for up to six months, on all applications approved before the 30th of September 2020.

 

¹ BPFI as at 30 June 2020

² Data as at the 29^th of July 2020

 

 

Business Performance

·      The Bank has announced significant reductions to both fixed and variable mortgage rates for new and existing customers, where they can now avail of fixed rates for terms between 3 and 7 years, with rates as low as 2.95% for a 3 year fixed product.

·      The headline SVR (Standard Variable Rate) will fall by 0.55% (over half a percent) from 4.50% to 3.95%. The MVR (Managed Variable Rate) for existing customers will also reduce by up to 0.35%.

·      These rate reductions go a long way to addressing the discrepancy which traditionally existed between pricing for new and existing mortgage customers.

·      The Bank has also announced a three-year partnership with the O'Cualann Cohousing Alliance, supporting the agency's work developing affordable housing schemes across the country. The partnership will see the Bank donate €350k to O'Cualann, which will be used to accelerate its plans to develop 1,800 affordable houses over the next three years.

·      Digital customers continue to grow with more than 650k active customers online, an increase of c.10% on 2019.

·      The Bank has made significant gains in its Relationship NPS, increasing from +3 at Dec 2019 to +14 at June 2020, placing the Bank first in the market.

 

 

Balance Sheet

 

Capital

 

·      The Bank's Common Equity Tier 1 (CET 1) ratio on a fully loaded basis is 13.9% at 30 June 2020; the CET1 ratio on a transitional basis is 16.5%; and, the Total Capital ratio on a transitional basis is 17.9%.

·      All ratios are lower than those reported at 31 December 2019 (pro-forma CET1 fully loaded 15.0%; CET1 transitional basis 18.1%; Total Capital transitional basis 19.6%) primarily due to the loss in the period and the increase in the Bank's risk weighted assets due to the Payment Break population, which remain classified as performing in the period.

·      Based on the most recent regulatory guidance, reducing the Counter Cyclical Buffer from 1.0% to 0% and a reduction in the Bank's P2R as a result of the introduction of the CRDV Regulatory amendments, the Bank's CET1 regulatory requirement has reduced from 11.45% to 8.94%, Total Capital regulatory requirement has reduced from 14.95% to 13.95%, both on a transitional basis.

 

Regulatory Capital Requirements

	CET1 Ratio %		Total Capital Ratio %
Transitional Basis	01 Jan 2020	30 Jun 2020	01 Jan 2020	30 Jun 2020
Pillar 1	4.50%	4.50%	8.00%	8.00%
Pillar 2 Requirement (P2R)	3.45%	1.94%	3.45%	3.45%
Capital Conservation Buffer (CCB)	2.50%	2.50%	2.50%	2.50%
Counter Cyclical Buffer (CCyB)	1.00%	0.00%	1.00%	0.00%
Total Requirement	11.45%	8.94%	14.95%	13.95%

 

 

 

Funding

 

·    The Bank's funding position remains strong. All funding and liquidity metrics are above regulatory requirements with the Liquidity Coverage Ratio (LCR) at 208%.

·    On 28 April 2020, S&P revised downward their outlook of industry risk for all banks in Ireland due to the expected impact of Covid-19. As a result, the outlook for PTSB PLC and PTSB Group Holdings PLC has been moved to negative from stable, with our ratings being affirmed.

·    The Bank has received confirmation of revised MREL requirements, reflecting the reduction in the Counter Cyclical Buffer (CCyB) from 1% to 0%, and has been given an extended transitional period of six months to 30 June 2021 to comply with this requirement. The Bank awaits confirmation of a new MREL decision by early 2021 based on the Bank Resolution and Recovery Directive 2 (BRRD2) framework.

 

Customer Balances

 

·    Customer deposits of €17.8 billion at 30 June 2020 are €0.6 billion higher than 31 December 2019, with current account balances up 15% from December 2019. The loan to deposit ratio was 87% at the end of June 2020.

·    The total performing loan book is €15.1bn at 30 June 2020, slightly lower than the total performing loan book at 31 December 2019 as the pace of repayments exceeds that of new business.

·    Total new lending of €0.6bn reduced by 16% YoY as Covid-19 impacted all new lending activity; new mortgage lending of €0.5bn reduced by 14% YoY while the new lending market reduced by 16%. As a result, H1 2020 market share of mortgage drawdowns was 15.2%¹, up from 14.7% at H1'19.

·    Non-performing loans of €1.1 billion at 30 June 2020 remain broadly in line with the balances at December 2019, where organic cures were offset by new defaults.

·    The Bank approved c.10.5k mortgage payment breaks; c. €1.6bn or 10% of total gross loans. Current records show that c.50%² no longer require a payment break. The maximum Covid-19 payment break is for a period of up to six months, for all applications approved before 30 September 2020.

 

¹ BPFI as at 30 June 2020

² Data as at the 29^th of July 2020

 

 

Financial Performance - H1 2020

 

·    YTD NIM of 1.75% is in line with revised guidance provided in the Q1 2020 Trading Update. Net interest income from our performing loan book was stable in H1 2020 supported by the active management of the Bank's cost of funds, partly offset by reduced income from non-performing loans (NPLs) due to loan sales in H2 2019 and lower income from the maturities of higher yielding treasury assets.

·    Fees and commissions have reduced by €1m vs the prior year as Covid-19 had a material impact on transactional activity in April and May 2020 together with an increase in the payment of rewards to customers. Net other income has reduced due to lower gains from the sale of properties in possession in H1 2020 compared to H1 2019. The stock of properties in possession has reduced by c. 21% YoY to 343 properties at the end of June 2020.

·    Underlying operating expenses (excluding regulatory charges and costs associated with Covid 19) of €142m were €3m (2%) lower year on year and within management expectations. We continue to focus on delivering cost saving initiatives to allow for the investment required to deliver both business efficiencies and drive digital transformation.

·    The Bank incurred €4m of Covid 19 costs in its immediate response to ensuring continuity of service, in a safe and secure way, as the country embraced the Government imposed lock down.

·    Regulatory charges amounted to €20m, an increase of €2m YoY. The Bank levy of c. €24 million is due to be paid in the second half of the year.

·    The deterioration in economic conditions has led to a total Expected Credit Loss (ECL) of €75m for H1'20, which compares to a €5m charge at H1'19. The impact of Covid-19 remains uncertain and therefore the Bank is maintaining a prudent approach to the loan portfolio including the future impact from Payment Breaks.

 

 

 

 

 

 

Outlook

 

Looking ahead, the outlook remains uncertain, recovery being dictated by the containment of the Covid-19 virus and the Government led phases of reopening of the economy. March and April 2020 saw a sharp decline in activity, but since then there has been a stabilisation, and in recent weeks a recovery in transactional activity. Household spending has been curtailed, resulting in substantial build-up of deposits and a reduction in demand for credit. As previously indicated;

 

·    Lower business activity in quarter two has impacted gross lending volumes; however July has shown more positive signs of recovery, we anticipate 2020 new lending could be c. 40% lower than 2019 volumes (€1.7bn).

·    NIM is expected to decline to low 170 basis points, reflecting the low interest rate environment and growth in liquid assets.

·    Achieving cost reductions in the current economic environment will prove challenging; however, the Bank retains its outlook that operating costs will remain stable in 2020; the Bank is committed to delivering cost savings in the medium term.

·    97% of total performing assets are secured residential mortgages; as such, the full year loan loss experience will be directly linked to the emerging macro-economic indicators and impact of payment breaks issued in 2020.

·    The reopening of the economy, recent declines in unemployment data, the resilience of the housing market and a Government Stimulus Programme now in place, shows more encouraging indicators than previously anticipated. The Bank will keep the ECL under constant review throughout the second half of the year.

·    Capital remains strong, having assessed a range of scenarios, the CET1 ratio will remain well above the Bank's minimum regulatory requirements.

                               

The Bank's Response to Covid-19

 

·    Payment Breaks on Mortgage and Term Loan accounts for a period of up to 6 months.

·    An online portal facilitating Payment Breaks for customers.

·    New or additional working capital facilities to SME customers to help them manage temporary cash flow shortages.

·    Supporting customers; with priority banking in branch and over the phone for our elderly and vulnerable customers, contactless payment limits were increased from €30 to €50 per transaction, no contactless fees applied, unlimited 10c cashback payments together with Go Rewards, in quarter two, on debit card transactions for Explore Current Account customers.

·    Social distancing and increased hygiene measures remains an important feature in all of our branches nationwide.

·    Redeployment of over one hundred staff to our contact centres to support in answering customer queries; four new regional centres opened.

·    All 76 branches remain open to meet our customer and community needs; the Bank remains operationally resilient with over 1,200 colleagues working remotely.

 

 

-            Ends           -

 

 

 

 

 

For Further Information Please Contact:

 

Eamonn Crowley | Chief Executive Officer | [email protected] | +353 1 669 5354

 

Nicola O'Brien | Head of External Reporting & Investor Relations | [email protected] | +353 87 148 2275

 

Leontia Fannin | Head of Corporate Affairs and Communications | [email protected] | +353 87 973 3143

 

 

 

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.