Permanent TSB (PTSB) has forecast that it will take a €50 million bad loans charge in the first half of this year as a result of the coronavirus crisis, though it managed to remain profitable in the first three months of the year as its portfolio remained "stable".
While the bank warned that the “outlook for profitability is challenging”, it is confident that its capital reserves level will remain above minimum levels required by regulators, even after assessing “a range of scenarios”.
New lending is expected to fall between 40 per cent and 50 per cent from the €1.7 billion figure delivered in 2019, while non-interest income will also be dented by lower business activity, it said.
The mortgage lender has approved payment breaks on 10,000 loans, equating to 9 per cent of its total loanbook by value, it said in a trading update on Thursday.
Payment breaks
“Ninety-seven per cent of total performing assets are secured residential mortgages; as such, the full-year loan loss experience will be directly linked to a mix of: the payment breaks issued in first half 2020; the resultant timeline over which business activity and employment levels begin to recover from the Covid-19 pandemic; and the macro-economic impact on the house price index,” the bank said.
Bank of Ireland, AIB and Ulster Bank have booked more than €500 million of loan impairment charges between them for the first quarter, mainly due to the fact that they are have large levels of loans to small- and medium-sized businesses that have been hit by lockdowns and the economic crisis.
However, the more mortgage-focused PTSB and KBC Bank Ireland have not taken Covid-19 loan provisions yet, as they try to work out how many home-owners availing of temporary payment breaks may ultimately have longer-term problems.
“Clearly, it’s all about what happens from now in relation to Covid-19 on impairments and the sharply shrinking new business activity,” said Goodbody Stockbrokers analyst Eamonn Hughes.
PTSB’s current plan to take a €50 million first-half impairment charge “is a reasonable starting point, but we would anticipate the charge continues to rise” in the second half, he said.
Stable performance
PTSB said its business and financial performance remained stable in the first quarter, though new lending began to decline towards the end of the quarter as the Covid-19 situation unfolded.
"The pandemic is having an unprecedented social impact on people and businesses in Ireland, and across the world," said outgoing chief executive Jeremy Masding. "The resultant economic impact and outlook is challenging with the long-term consequences of Covid-19 largely dependent on its severity and, the ensuing timeline over which business activity and employment levels begin to recover."
Still, Mr Masding added: “Following significant progress made over the last number of years through increasing new lending; reducing non-performing loans (NPLs); maintaining profitability; and, strengthening capital, the bank is currently in a strong position to deal with a significant economic downturn.”
The bank had a common equity Tier 1 capital ratio – a key measure of financial strength – of 15.2 per cent at the end of March, compared to a minimum level of 8.94 per cent that is demanded by regulators.
