PTSB’s share of the mortgage market crept higher in the second quarter from recent lows, the bank said, as it returned to offering competitive rates. It comes as pretax profit for the first six months of the year almost tripled to €75 million.
PTSB’s mortgage market share had plunged to 13.4 per cent in the fourth quarter of last year from 15.5 per cent a year earlier, as switching activity in the market declined and the bank refused to compete as aggressively as AIB and Bank of Ireland on pricing. This is because it currently has to set aside more expensive capital against home loans than its rivals.
However, it has since moved to cut rates, resulting in its share edging slightly higher to 13.5 per cent in the second quarter with the bank reporting a “strong pipeline of activity” on Thursday.
It comes as the smallest of the three remaining domestic banks in the State is working on reducing the perceived risk of its loan book – a legacy of the arrears crisis – in the eyes of regulators on an accounting basis.
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PTSB’s surge in profits, which beat market expectations for a figure of €61 million, was helped as the bank released €20 million of bad loan loss provisions, compared with a €9 million charge it took for the same period last year. It also went from booking €60 million of exceptional costs a year ago – mainly costs and charges relating to loans acquired from Ulster Bank – to posting a net €7 million charge for the first half of this year.
Shares in the bank rose as much as 7.8 per cent on Thursday, though they remain down 30 per cent over the past 12 months.
Net interest income rose by 4 per cent on the year to €311 million as loans to customers increased to €21.3 billion from €20.1 billion. However, its net interest margin – the difference between the average rates at which it funds itself and lends on to customers – fell by 0.02 percentage points to 2.27 per cent as it upped its deposits pricing to win customers. Its deposit base increased by €600 million in the first six months to €23.6 billion.
Interest-bearing deposits grew by €1.1 billion or 21 per cent from December, while non-interest-bearing deposits were €0.5 billion, or 3 per cent, lower, it said.
The bank’s chief executive, Eamonn Crowley, unveiled its future dividend policy after regulators moved late last year to lift a block on shareholder distributions that had been imposed during the financial crisis.
“The bank’s ambition is to recommence shareholder distributions over the medium term, subject to available surplus capital, regulatory and shareholder approval. It is anticipated the bank will recommence with a modest distribution, building towards a target payout ratio of up to circa 40 per cent of [net profit] through the medium term,” it said.
Mr Crowley said it would likely be early 2026 before an initial dividend is paid out. Analysts estimate PTSB could also free up €270 million of expensive capital on its balance sheet under a project to convince regulators to allow it reduce the implied riskiness of its mortgage book.
Every €100 of mortgages the bank issues has a so-called risk weighting of about 40 per cent, against which it must hold capital, compared to an average of 25 per cent for its two larger rivals. The high risk-weighted assets density is a result of the bank’s experience of the arrears crisis following the financial crash, when as much as 28 per cent of its mortgages were non-performing.
Mr Crowley reiterated that the bank plans to reduce its cost/income ratio to 60 per cent over the medium term from the 73 per cent recorded in the first half of this year. Costs rose on the year as a result of employee numbers rising more than 5 per cent to 3,240. That included staff who transferred with Ulster Bank loans, as well as wage inflation and investments.
The chief executive said employee numbers will decline naturally over the coming years as exits in the normal course of business outstrip new hiring. He added that there are “no plans at the moment” for official redundancy programmes.
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