Annual Results Commentary

RNS Number : 4743R

Permanent TSB Group Holdings PLC

09 March 2016

 

EMBARGO 07:00                                                                                                                                    09 March 2016

PERMANENT TSB GROUP HOLDINGS P.L.C.

2015 Annual Results Announcement

Permanent TSB Group Holdings p.l.c. (the "Group") today reports its Annual Financial Results for 2015.

Key Points Include:

·      Underlying Profit[1] of €26 million, an improvement of €65 million over 2014 - the Group's first such result since 2007

·      €519 million of new lending in 2015, an increase of 6%

·      Net Interest Margin[2] (NIM) increased by 22bps to 112bps (Core Bank: 143bps); Q4 Group NIM was 130bps

·      Cost Income Ratio reduced to 84% from 126% in 2014

·      Impairment Charge of €35m

·      Non-Core Loan Book (Gross) reduced by 59%[3]

·      Non-Performing Loans are down by 27% to €6.1bn

·      Fully Loaded CET1 Ratio increased by 2.6% to 15.0%

CEO Comment:

Jeremy Masding, Permanent TSB Group CEO, commented:

"In our first full year results since the IPO last Spring, we are delighted to be reporting our first return to pre-exceptional profit since 2007.  We made strong progress on growing our Net Interest Margin, reducing our Cost Income Ratio, putting sustainable solutions in place for customers in arrears and further strengthening our balance sheet.  There's much still to be done and further challenges to be met but we have made a good start and are in a good position."

Core Bank

In 2015, we opened approximately 43,000 new Current Accounts. Current Account balances increased by 13.9% while Irish Retail Deposits reduced by 5.5% in 2015 to €11 billion in line with our pricing strategy and the continued market-wide reduction in deposit rates in Ireland.

Gross Mortgage Lending for 2015 was €459 million representing an increase of 2% on 2014. Term Lending drawdowns are up 40% year-on-year albeit from a low base.

Whilst the year-on-year increase in Mortgage Lending is positive, we are not satisfied with the level of growth we achieved.  In response, we have launched an attractive new mortgage proposition which we believe offers the best value in the variable rate market segment.

Core Bank NIM improved by 21bps to 143bps.

Group Financial Performance

Group NIM improved by 22 bps to 112bps. The increase in margin reflects reduced Cost of Funds from the repurchase of Contingent Convertible Capital Notes, maturities of certain Medium Term Notes and, reductions in Retail and Corporate Deposit rates in line with the trend across the Irish market. Group NIM is expected to grow at an improved rate in 2016, realising the full year benefit of the actions taken last year. The Group's blended Retail Rate was 20bps higher than the blended market rate which represents further opportunity to drive down the Cost of Funds.

Total Operating Expenses (excluding Exceptional Items) including the Bank Levy and, contributions to the Bank Recovery and Resolution Directive (BRRD) Fund, reduced by 18.5% primarily due to a reduction in Legacy Legal and Compliance Related Costs and, Project and Professional Fees. This, along with a 22.7% improvement in Total Operating Income, contributed a 42 percentage points decrease in the Cost to Income ratio to 84% for 2015 from 126% in 2014. The Group paid €27 million in respect of the Bank Levy and approximately €3 million in contributions to the BRRD Fund last year. In 2016, the Group expects to pay approximately €20-€35 million in Regulatory Costs consisting of the contribution to the BRRD Fund, the Deposit Guarantee Scheme and Other Regulatory Fees; this is in addition to the existing Bank Levy of €27 million. However, the exact amounts of these amounts remain uncertain at this point in time.

Total Impairment Charge for 2015 was €35 million, an increase of €77 million from 2014. Both years included updates made to provisioning model parameters and assumptions. When these adjustments are excluded, the underlying charge would have been a Credit of €99 million in 2015 compared to a Charge of €88 million in 2014. This improvement primarily reflects reduced new default flows and sustained loan cures supported by the improved economic backdrop in Ireland.

According to the Central Statistics Office (CSO), national house prices improved by 6.6% in 2015. However, prices in Dublin only increased by 2.6% (whilst recording a decline in December 2015 and January 2016 of 0.5% and 1.2% respectively) and prices in the rest of Ireland increased by 10.2%. Although this is positive for the Group, we have continued to maintain a cautious approach in relation to the House Price Inflation assumptions in our provisioning models. Accordingly, in 2015 we did not make any significant changes to House Price Inflation estimates and have maintained a significant buffer with respect to collateral valuations against the CSO Residential Property Price Index. We reiterate that HPI linked impairment write-backs remains a significant potential upside to our business plan. We will continue to review this position over the coming reporting periods.

Arrears Performance and Asset Quality

ROI Residential Mortgage (including Home Loans and Buy-to-Lets) over 90 days in arrears decreased by 21% to 13,718 cases (representing 9% of total cases) in 2015. Arrears cases over 720 days also decreased by 9% to 8,612 cases (representing 5% of total cases). These improvements primarily reflect the positive trends in the Irish economy.

Non-Performing Loans have reduced by €2.2 billion / 27% in 2015. These reductions are driven mainly by deleveraging of the Non-Core Commercial Real Estate Portfolio, lower new defaults and a higher level of loan cures. ROI Residential Mortgage NPLs reduced by €800m to €5.7 billion. Of these, over 50% are in sustainable arrears treatments, which is an increase of 6 percentage points over 2014.

Overall, the Provision Coverage Ratio[4] decreased marginally to 44% in 2015 from 45% in 2014.

Non-Core Business

The Group successfully completed the sale of the vast majority of its Irish Non-Core loans in 2015. The remaining CRE NPL sale (approximately €0.2 billion) is expected to close in the coming weeks. We have also transferred the Performing CRE Loans (approximately €0.3 billion) to the Core Bank from 1 January 2016.

The sale of £2.5 billion of loans held by the UK business ("Capital Home Loans") was also completed in 2015, along with the associated entity and operating platform. The residual UK mortgage book of £2.4 billion of loans remains Non-Core to the Group and the Board continues to explore options to deleverage these loans, though market dynamics have changed considerably in the UK mortgage market. It should be noted that the Group has an obligation to sell these loans under the EU Restructuring Plan by 30 June 2016, if minimum pricing hurdles are met.

Mortgage Redress Programme

1,372 cases were identified in the Mortgage Redress Programme announced on 28 July 2015 and, as at the end of February 2016, approximately 90% of those cases have now been fully redressed. 

Funding and Liquidity

The Loan to Deposit ratio improved to 125%, primarily due to deleveraging of the Non-Core loan book. Customer Deposits now account for 70% of the Group's funding mix, with Irish Retail Deposits (including
Current Account balances) contributing 53%. System Funding accounted for 18% of the funding mix. The Net Stable Funding Ratio was 94%. The Liquidity Coverage Ratio was 153%.

Capital

At 31 December 2015, the Group's Common Equity Tier 1 capital ratio increased to 15.0% and 17.1% on a Fully Loaded Basis and Transitional Basis, respectively. The increased capital ratios are primarily due to the capital raise and a reduction in the level of risk weighted assets from the impact of deleveraging transactions. During the year, the Group received further clarity on its minimum regulatory capital requirements. The Single Supervisory Mechanism (SSM) has advised that the Group's SREP (Supervisory Review and Evaluation Process) requirement for 2016 is to maintain the CET 1 ratio at a minimum level of 11.45%, calculated on a Transitional Basis. The SREP requirement, which takes into account both quantitative and qualitative factors of the assessed institution, is subject to annual review by the SSM.

Outlook

The Group has made significant progress and delivered a much improved financial performance in 2015. The growth in the Irish economy provides a strong backdrop for the Group's targeted return to sustainable profitability. Nevertheless, challenges remain in the form of the increasing cost of regulation both in terms of cost and capital requirements, resolving legacy issues, limited housing (supply resulting in constrained growth of the mortgage market) and deteriorating market dynamics in the UK mortgage market.

Ends

For further information, please contact:
Patricia Carroll Interim Group Chief Financial Officer [e-mail] [phone]	Rajesh Manirajan Head of Investor Relations [e-mail] [phone]	Ray Gordon Gordon MRM [e-mail] [phone]

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 Group 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 Group 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]Excluding Exceptional Items and Tax Charge/Credit

[2]Excludes ELG Fees 

[3]Including Commercial Real Estate loans of €0.3 billion that are transferred to Core Bank

[4]Provision Coverage Ratio is calculated as Impairment Provisions as a % of NPLs.

 

END

 

 

STRUWRURNVAORUR