Statement on mortgage rates by permanent tsb bank.

(permanent tsb is a trading name of Irish Life & Permanent plc which is a fully owned subsidiary of Irish Life & Permanent Group Holdings plc)

Friday 29th January 2010.  permanent tsb bank is engaged in a number of steps to address the challenging business environment in which it operates.

permanent tsb facing losses 

As has been previously advised to the market, permanent tsb is facing significant financial challenges. In the six months to June 2009 the banking business reported an operating loss of €132 million and is expected to report full year losses ahead of this.  

ptsb pursuing comprehensive cost reduction programme

In response the bank is implementing a broad programme to reduce its operating expenses. This has included the closure of 11 of its 103 branches and the introduction of a voluntary severance scheme for approximately 120 staff. In total employee numbers at the bank will have been reduced by 500 [20%] in the two and a half years from the start of 2008 to the middle of 2010.  

High cost of funds continues to pose challenges

A key challenge continues to be the high cost of funds required to finance the bank's mortgage loan book.  

While the bank sources funds from a variety of sources, the overall cost of funds continues to be substantially higher than the official ECB interest rate. For example, permanent tsb is currently paying up to 3.35% for retail deposit funds.  This is higher than the bank's Standard Variable Rate [SVR] mortgage of 3.19%.

Clearly its not sustainable for the bank  to be paying more for the raw material [money] than it can charge for the finished product [mortgage].

Plan to increase SVR mortgage rate

In this context the bank today confirms that it will raise the interest rate on its Standard Variable Mortgage [SVR] and a number of related products by a further 0.5% with effect from 1st February next.   The new SVR rate for permanent tsb customers therefore will be 3.69% [was 3.19%]. 

Impact on customers:

We have carefully analysed the impact of this move on our customer base.

• This move will affect just under 80,000 residential mortgage customers; the vast majority [70,000] who have SVR mortgages with the bank [equivalent to 45% of the bank's residential mortgage customers]. It will have no impact on the remaining 100,000 residential mortgage customers [55%].

• Affected customers [with SVR mortgages] have an average mortgage outstanding of €62,500. 

• Therefore the decision to increase rates by 0.5% will add an average of €15 per month on a customer's repayments.

SVR still cheaper than many competitors

Following this increase, the permanent tsb bank Standard Variable Rate mortgage will still be cheaper than many competitors in the market.

Comment from Chief Executive

Speaking today, David Guinane, Chief Executive of permanent tsb bank, said that the decision to increase rates had been forced on the bank as a result of the continuing high cost of funds; "We will of course work closely and sympathetically with any customer who has financial difficulties but we must face up to our own financial challenges also. To persist with uneconomic margins on this product at a time when the bank is losing money would be irresponsible and would result in larger problems down the line."

Further Information:

Ray Gordon

Gordon MRM

Ph: 01 6650452

Ph: 087 2417373

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