TIDMIL0A TIDM73HR
RNS Number : 8404T
Permanent TSB Group Holdings PLC
27 July 2022
27 July 2022
Permanent TSB Group Holdings plc ('the Bank')
Interim results for half year ended 30 June 2022
"We have reached another significant milestone on our
transformation journey with the approval of the Competition &
Consumer Protection Commission (CCPC) together with the Bank's
shareholders to complete the acquisition of approximately EUR7.6bn
of the Ulster Bank Retail, SME and Asset Finance business in the
Republic of Ireland. While subject to regulatory approval, all
parties are working towards completing the acquisition of the
performing non-tracker residential mortgage business of Ulster Bank
in Q4 2022 and it is currently anticipated that the acquisition of
the 25 branches, Business Direct (micro-SME) and Lombard (Asset
Finance) businesses will complete in Q1 2023, but in all cases no
later than 30 June 2023.
We are continuing to attract tens of thousands of new customers
to Permanent TSB, opening c.70k new deposit and current accounts
throughout the first half of the year, an increase of c.130% when
compared to the same period last year. Customers are also
increasingly choosing our digital account opening process, with 69%
of new current accounts being opened via the Permanent TSB app in
June, evidence of the investment the Bank has made to further
enhance digital services for customers.
The Bank delivered a strong performance in the first half of the
year with significant growth across all three of our core lending
product lines of mortgages, SME and term lending. Mortgage market
share remains strong at c.16% with a very strong pipeline of
activity following the introduction of our Green mortgage product
and 20bps rate reduction on our four year fixed rate. Our continued
expansion in the business banking market and partnership with the
SBCI resulted in EUR70m SME lending in the first half of the year;
a 67% increase on this time last year.
This progress is underpinned by investment in our brand and
community partnerships, and earlier this year we announced our
title sponsorship of both the Irish Olympic and Paralympic teams
for the Paris 2024 Games and in doing so, becoming the first ever
title sponsor to partner with both organisations in an Olympic
cycle. We see our community ethos as a key differentiator for
Permanent TSB and like us the Olympic and Paralympics are grounded
in communities across the country, so this is a perfect
partnership.
Eamonn Crowley, Chief Executive
Key Highlights HY 2022
Ø The Bank maintains a strong Capital position; regulatory CET1
ratio 16.1%, fully loaded CET1 capital ratio of 14.7%
Ø Underlying Loss Before Tax ([1]) of EUR2 million (HY21:
Underlying Loss Before Tax of EUR4 million)
Ø Loss Before Tax of EUR36 million (HY21: Loss Before Tax of
EUR9 million)
Ø Strong new lending of EUR1 billion; 22% higher compared to
prior year
Ø New mortgage market share of 16.3% ([2]) , as compared to
17.5% at June 2021
Ø Total Income 7% higher year on year (YoY); Underlying Net
Interest Margin ([3]) (NIM) of 1.74%, 2bps higher than prior year
(see further comment)
Ø Underlying Operating Costs ([4]) of EUR189 million, EUR21m or
12% higher YoY as we accelerate our investment in customer services
and product offerings
Ø Exceptional Costs of EUR34 million are EUR29 million higher
than prior year, primarily relating to costs associated with the
transaction to acquire a portion of Ulster Bank's Retail, SME and
Asset Finance businesses from NatWest Group Plc and Ulster Bank
DAC
Business Performance
The Bank has continued its strong business performance in the
first half of the year with year on year growth in key product
lines and a significant increase in new current account
customers.
Total new lending of EUR1bn is 22% higher YoY. New mortgage
lending of EUR0.9bn grew by 21% YoY while the market share of
mortgage drawdowns remains strong at 16.3%. The Bank made two
notable adjustments to its mortgage product offering in the first
half of the year, the full benefits of which will materialise in
the second half of the year and into 2023. Firstly, the Bank
launched its inaugural Green mortgage product which offers
discounts of 0.2% on five year fixed rates for both new and
existing mortgages on homes with a Building Energy Rating of A1 to
B3. Secondly, the Bank reduced the interest rate for new customers
on its four year fixed rate products by 20bps to as low as 2.05%
([5]) . These changes highlight that the Bank is focussed on
ensuring a competitive and attractive mortgage product offering to
customers.
SME Lending of EUR70 million in the first half of 2022 reflects
an increase of 67% on the prior period. Through partnerships with
the SBCI and other support service providers, the Bank is
significantly expanding its presence in Business Banking and is
delivering on its strategic objective to provide real support to
small businesses in communities throughout Ireland.
New consumer term lending of EUR50 million increased by 6% YoY
as customers welcomed the removal of all Covid-19 restrictions in
January of this year. Digital adoption continues to grow with 77%
of new term lending drawdowns through our direct channels ([6])
.
The Bank is a founding participant of the First Home Scheme, a
joint venture between the Irish State and the Irish retail banking
sector, which will see the Bank invest up to c. EUR55m into the
scheme. The scheme is designed to help qualifying first time
buyers' purchase their own home by bridging the affordability gap
between their deposit and mortgage, and the price of their first
home.
Ulster Bank Transaction & Customer Switching Activity and
Supports
The Bank continues to work with NatWest and Ulster Bank DAC
towards the acquisition of certain elements of the Ulster Bank
Retail, SME and Asset Finance businesses in the Republic of
Ireland. The Transaction remains subject to obtaining the required
regulatory approvals, but has now received the approval of the
Competition & Consumer Protection Commission (CCPC) and the
Bank's shareholders at an Extraordinary General Meeting (EGM) held
on 24(th) June with 99.9% voting in favour of the resolution.
The imminent exit of two competitors from the Irish market is
resulting in a significant increase in new customers moving their
banking relationship to the Bank. New current and deposit account
openings in the first half of the year were c.70k, an increase of
c.130% compared to the prior period.
This growth has been supported by the launch last year of our
Digital Current Account which enables new and existing customers to
open a new current account through the App in less than ten
minutes. 69% of new current accounts in June were opened digitally
and an enhanced version of the App will go live later this year
offering customers the option of opening a Joint Current
Account.
Permanent TSB has also launched a dedicated online hub to
support customers who need to switch from another financial
institution; www.permanenttsb.ie/movingbankhub . The hub allows
customers to identify what product combinations are relevant to
their individual needs and circumstances. Once identified,
customers are then provided with step by step guidance to support
them in their switching journey.
Staff from Permanent TSB are now present in over forty Ulster
Bank branches and Permanent TSB has also launched a number of
mobile and pop-up branches in various parts of the country. These
various initiatives are set up to support customers in opening an
account with Permanent TSB and to begin their switching
journey.
Permanent TSB is also currently undergoing a significant
recruitment drive to ensure the Bank has adequate capacity and
capability to manage the increase in demand from new current and
deposit account customers, as well as to safely integrate c. EUR7.6
billion of mortgage home loans, business loans and credit
facilities into our business over the coming months, while
continuing to serve and support our existing customers. Permanent
TSB now has over 700 branch customer advisors and 230 colleagues in
our customer contact centre. We have also recently recruited a
mixture of permanent and temporary staff totalling c.550 new
colleagues across our branch, contact centre, operations, fraud,
AML and digital teams to support the increase in customer
demand.
Financial Performance
The Irish economy and operating environment for banks has
remained positive in the first half of the year, notwithstanding
the near-term headwinds which are beginning to manifest in the form
of high levels of inflation driven primarily by rising energy and
fuel costs.
The Bank delivered an Operating Loss of EUR11 million (HY2021:
Operating Loss EUR1 million) and a Loss before Tax of EUR36 million
(HY2021: Loss before Tax of EUR9 million).
Net Interest Income increased by 2% during the year as
additional interest income from net loan book growth offset higher
costs of holding excess liquidity and the reduced Non Performing
Loan income following the EUR0.4bn deleveraging transaction
completed in Q4'21. The H1'22 exit NIM of 1.41% has reduced by 9
basis points from 1.50% in the prior year, primarily as a result of
the higher costs from holding excess liquidity. The underlying NIM,
excluding the cost of excess liquidity is 1.74%. The Bank expects
the NIM to be in the low 140bps throughout 2022, as we continue to
hold excess liquidity which will be required to fund the
acquisition of the agreed loan portfolios from Ulster Bank DAC,
expected later this year.
Fees and Commission Income of EUR19 million was 27% higher than
the prior year as transactional activity continued to recover
following the removal of all Covid-19 restrictions at the start of
the year.
Underlying Operating Costs of EUR189 million are 12% higher than
the prior year, as the acceleration of investment drives higher
costs including a higher depreciation charge of EUR24 million, +4%
YoY as we pay for the investment in the business.
A EUR9m Impairment release reflects the continued growth in
house prices YTD whilst maintaining a prudent level of provisions
in light of high levels of inflation.
The Bank reports an Exceptional Costs of EUR34 million at 30
June 2022. The exceptional cost is primarily driven by costs
associated with the transaction to acquire a portion of Ulster
Bank's Retail and SME businesses from NatWest of EUR35m, together
with some additional restructuring costs and non-Core items of
EUR6m. This is offset by EUR7 million of gains from the release of
provisions held in relation to legacy deleveraging
transactions.
Balance Sheet remains robust with strong capital, funding and
liquidity levels
The Bank's funding position remains strong with all funding and
liquidity metrics well above regulatory requirements. Total
Customer Deposits of EUR20 billion at 30 June 2022 are EUR0.9
billion higher than at 31 December 2021 reflecting a 13% increase
in current account balances to EUR8.0 billion. The loan to deposit
ratio of 72% at 30 June 2022 provides the Bank with a strong
liquidity position and significant potential to lend.
The Total Performing Loan Book of EUR14.1 billion at 30 June
2022, is EUR0.2bn higher than the Total Performing Loan Book at 31
December 2021 with new lending offsetting repayments and
redemptions. The Residential Home Loan book has grown by 5%
YoY.
Non-Performing Loans of EUR771 million at 30 June 2022 are
EUR46m or 6% lower when compared to the balance at 31 December 2021
with organic cures and reductions offsetting new default flow.
In May 2022, the Bank issued EUR300m of Senior Preferred notes
at a fixed coupon of 5.3%. The Bank remains above management and
regulatory MREL requirements.
Capital
The Bank's Common Equity Tier 1 (CET1) ratio on a fully loaded
basis remains strong at 14.7% at 30 June 2022, a reduction of 40bps
when compared with the CET1 Pro forma ratio on a fully loaded basis
at 31 December 2021, primarily reflecting the YTD Income Statement
loss.
The CET1 ratio on a transitional basis of 16.1% at 30 June 2022
reduced by 1.3% compared to the CET1 Pro forma ratio on a
transitional basis of 17.4% at 31 December 2021 due to the YTD
Income Statement loss and continued phase-in of transitional
filters; regulatory requirement for CET1 on a transitional basis is
currently 8.94% ([7]) .
The Total Capital ratio on a transitional basis was 21.2% at 30
June 2022; regulatory requirement for Total Capital on a
transitional basis is currently 13.95%(7) .
The table below details the Bank's capital ratios at 30 June
2022 and compares them to the capital ratios at 31 December
2021.
Capital Ratios (%) (Reported) (Reported) (Pro Forma)
June December December
2022 2021 2021
CET1 (Fully Loaded) 14.7% 14.7% 15.1%
----------- ----------- ------------
CET1 (Transitional) 16.1% 16.9% 17.4%
----------- ----------- ------------
Total Capital (Transitional) 21.2% 21.8% 22.4%
----------- ----------- ------------
Total Capital (Fully
Loaded) 19.7% 19.5% 20.1%
----------- ----------- ------------
2022 Outlook
The beginning of 2022 saw the welcomed removal of all Covid-19
restrictions which helped allow transactional activity and loan
demand return to pre-pandemic levels. Notwithstanding the impact to
consumers from the geo-political events in Ukraine, primarily in
the form of higher than expected levels of inflation, the Bank is
well positioned to continue its strong new lending performance as
we move into the second half of the year. There is a strong
pipeline of activity across each of our core product lines and
demand remains strong.
The mortgage market is expected to grow from EUR10.5bn in 2021
to c. EUR13bn in 2022, supported by a significant increase year on
year in the Switcher market as customers seek to lock-in lower
rates ahead of expected interest rate increases. The growth in the
mortgage market and our ability to meet our ambition in the SME
market will see new lending volumes this year coming in ahead of
the prior year.
Net Interest Income will be higher than the prior year as we
integrate the Ulster Bank mortgage assets in Q4'22, however NIM
will remain in the low 140 basis points due to the high levels of
excess liquidity required to fund the Transaction.
Total Operating Costs in 2022 are expected to be c. 14% higher
than 2021, slightly higher than previous guidance (12%), as we
continue with the accelerated investment to enhance our digital
offering while also accommodating inflationary pressures. The Bank
remains committed to delivering underlying cost savings in the
medium term in order to help offset higher depreciation arising
from the increased investment.
Demand continues to outweigh supply in the housing market which
will see house prices continue to grow over the remainder of the
year, but at a slower rate than the prior year. The main headwinds,
from a macro-economic environment point of view, is rising
inflation and the impact it is having on the cost of living for
customers. As such, the Bank will keep the Expected Credit Loss
under constant review throughout the remainder of the year. It is
expected that the full year impairment charge release will be
broadly in line with the EUR9m recognised in these Interim
Results.
On the expectation that the acquisition of Ulster Bank DAC
retail business completes in quarter four 2022, the Bank will have
exceptional accounting gains which will increase the overall
profitability of the Bank and positively contribute to the Bank's
capital position. Capital remains strong and having assessed a
range of scenarios, the CET1 ratio will remain well above the
Bank's minimum regulatory requirements.
The Bank remains positively geared towards interest rate
increases. The interest rate on the Residential Tracker portfolio,
totalling c. EUR5.7bn at 30 June 2022, will increase by 50 basis
points in August following the ECB decision on 21(st) July. On an
annualised basis and assuming no repayment or redemptions, this
equates to an additional c. EUR28m in interest income.
- Ends -
For Further Information Please Contact:
Denis McGoldrick Leontia Fannin
Investor Relations Manager Head of Corporate Affairs and
Communications
Email: Denis.McGoldrick@Permanenttsb.ie Email: Leontia.Fannin@Permanenttsb.ie
Phone: +353 87 928 5645 Phone: +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.
([1]) Underlying Profit or Loss before Tax is the Profit or Loss
before Exceptional Items and Tax
([2]) Based on BPFI data as at 30 June 2022
([3]) Underlying Net Interest Margin (NIM) is the reported Exit
NIM less the high cost of holding excess liquidity (c.33bps)
([4]) Underlying Operating Costs are Total Operating Costs per
the financial statements less a provision for legal, compliance and
other costs shown in Exceptional Items for ease of comparison (see
further details in the Financial Performance)
([5]) For customers with a LTV <80%
([6]) Direct channels include Desktop, App and Voice through
Open24
([7]) Regulatory requirements for both CET1 and Total Capital on
a transitional basis excludes P2G and Combined Buffers
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END
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