The near 5 per cent uplift in Permanent TSB’s share price in Dublin on Tuesday indicated that its third-quarter trading statement was well received by the markets after weeks of volatility in the share price.

This was certainly a positive backdrop for the bank’s senior executives on the day they met the EU-IMF troika, who were in town for their latest post-bailout catch up.

"All in all, a positive trading update showing continued progress in underlying profitability and signalling continued improvement in asset quality," was how Investec analyst John Cronin summed up PTSB's statement, adding that he would have welcomed more disclosure around capital levels.

Goodbody Stockbrokers analyst Eamonn Hughes said the statement was in line with expectations, but noted the extension of the bank levy out to 2021 could delay its medium-term return on equity target of 10 per cent by a year, to 2019.

Cost of regulation

The increasing cost of regulation is becoming an issue for our domestic banks. In addition to the extension of the levy (which generates €150 million a year for the State), the Central Bank wants the banks to pay for 100 per cent of their supervisory costs, while they are also being tapped to fund the EU's new Bank Recovery and Resolution Directive (BRRD) fund.

In the case of PTSB, the BRRD figure could be a double-digit millions of euro figure – a big number for a small bank exposed solely to the Irish retail lending market.

PTSB’s market update told us its net interest margin – a key performance metric – increased to 1.07 per cent for the first nine months of the year, excluding fees connected with the bank guarantee, and had improved to 1.26 per cent in the third quarter.

This is still short of AIB and Bank of Ireland, but it represents progress nonetheless.

The bank also said its cost-income ratio had reduced, as has its impairment charge. Its mortgage arrears levels declined further in the third quarter, and 76 per cent of the cases identified in the mortgage redress scandal dating from July have been settled.

Retail deposits were in line with expectations, while current account balances were up 6 per cent since last December.

There was, however, an interesting line on mortgage lending. “Mortgage drawdowns have trended broadly in line with the same period last year in a market which has not grown as fast as expected, albeit we see this as a short-term supply lag,” the bank said.

Flat mortgage lending

In other words, mortgage lending is flat. This shouldn’t be the case when the economy is clearly in recovery mode and is classed as the fastest-growing in the EU.

It’s not the kind of trajectory that the bank’s management team would have had in mind at the start of 2013 when they were plotting its long-term recovery after years standing still post the crash.

“It is clear that industry-wide mortgage drawdowns look set to disappoint for the full year,” Cronin said.

AIB could shed a little more light on this issue when it publishes its own interim management statement, which is expected some time next week.

Last week Bank of Ireland gave little away, save to say that it continued to see “increasing demand” for credit in Ireland.

On Friday, the Banking and Payments Federation Ireland will publish mortgage drawdown figures for October and approvals data for September. The expectation is that it will provide further evidence of a deceleration in mortgage lending.

A lack of supply is one major reason why mortgage lending is being held back, along with the Central Bank’s new lending rules, which were introduced at the beginning of this year.

Should we be worried by this?

As majority shareholders in both PTSB and AIB, anything that weighs on their profitability should concern taxpayers. And a lack of new lending is not good for generating profits.

Central Bank rules

The Government has announced some measures to help boost supply, including using the National Asset Management Agency to help oil the wheels, but the Central Bank has so far resisted calls from Minister for Finance Michael Noonan to reconsider its new mortgage lending rules.

A change of course on this issue seems unlikely under new governor Philip Lane.

The supply issue will most likely work itself out in the medium term, while everyone will just have to adjust to the new lending rules.

Concerns about mortgage lending certainly aren’t troubling Cronin. He’s sticking with his 12-month price target of €6.05 for PTSB, which is based largely around provision writebacks of €750 million from a stock of about €2 billion as the property market here continues to heal. Twitter: @CiaranHancock1