Permanent TSB (PTSB) must shift a further €550 million in problem loans before it will meet its own targets – and get a hearing from regulators on lifting a ban on paying dividends.
The bank disclosed in its interim results, published on Thursday, that it has €1.7 billion of NPLs on its balance sheet, equivalent to 10 per cent of its loan book, having reduced the ratio from an eye-watering 28 per cent at the start of 2018. Last year, it sold €3.4 billion in non-performing mortgages in the face of considerable political opposition.
PTSB has a target of cutting its soured loans to a "mid-single-digit ratio" over the "medium term", though chief executive Jeremy Masding let it slip to reporters in February that he aimed to reach that level by the end of this year.
Loan
The bank told reporters in a presentation on Thursday that €300 million of its problem loans are on a path to be cured over the next 18 months. That suggests it needs to dispose of €550 million of NPLs – assuming, of course, that the size of its loan book remains stable.
Group chief financial officer Eamonn Crowley said that loan sales, a bond market refinancing, known as securitisation, on which the bank relied last year to move €1.3 billion of restructured NPLs off its books, and taking part in mortgage-to-rent schemes are all on the table.
Still, Masding is hopeful that NPLs-reduction progress since the beginning of last year should finally lead to more comfortable conversations with banking supervisors at the European Central Bank (ECB) than the bank has had in recent years.
He told analysts that he’d be “very disappointed” if the ECB didn’t lower the minimum level of money – known as common equity tier 1 capital – that PTSB must hold to protect itself against a shock loss.
Against the tide of rising regulatory demands, PTSB has raised its medium-term common equity tier 1 capital ratio target to 13 per cent from 12 per cent previously. While it was comfortably above target, at 14.4 per cent, at the end of June, challenges remain.
Masding, who took the helm at the lender in 2012 and oversaw a massive restructuring of the group against all the odds since then, also has his sights on regulators lifting a “dividend blocker” that has left PTSB alone among the State’s surviving banks in not returning to shareholder payments since the onset of the financial crisis.
This is not to suggest that PTSB is in any position to return to paying dividends for some years.
Programme
The bank has just started off on a €100 million, three-year technology investment programme which it is aiming to fund by recycling money it is scraping out from cost-cutting over the period. The bank doesn’t have access to the pots of cash available to bigger rivals to launch a massive IT programme.
In addition, PTSB – whose business is dominated by mortgages, 57 per cent of which track the ECB’s main rate – is the most exposed Irish bank to delays by the Frankfurt-based central bank in increasing its rates. Indeed, monetary easing is the game in town again, in light of deteriorating euro-zone economic data in recent times.
And then there’s Brexit. PTSB, having been forced under its post-bailout EU restructuring plan to sell its €6.5 billion UK loan book a few years ago, may not be directly exposed to the impact of Brexit on the British economy. But it will be hit by an expected second-wave effect on Ireland.
Masding knows all too well that PTSB is not yet delivering the returns expected of a bank and that it remains the subject of perennial merger talk. But he has appealed for time to boost the bank’s earnings and value. Up until now, he has been firefighting.
“Who knows what the outcome will be, but it won’t be from the lack of trying,” he said on Thursday.
