Permanent on a long journey to repair balance sheet and rebuild business

Permanent TSB chief executive Jeremy Masding is a glass half-full type of chap. Just as well, really, given the scale of Permo's mortgage arrears problem.

At the end of June, Permanent had €24.2 billion of residential mortgages in the Republic on its books. Just under €5.3 billion of this was in arrears of 90 days or more. In volume terms, almost 29,000 mortgages out of 166,128 were non-performing in the first half of the year.

While its buy-to-let arrears levelled off, another 2,618 home loans slipped into arrears compared with a year ago.

The bank booked an impairment charge of €429 million in the first six months on its non-performing loans – roughly the same level as a year earlier. That is about three and a half times its total operating income for the half-year.

It’s no wonder Masding believes that its recovery will be a “long journey”.

These problems were not of Masding’s making. He took over about 18 months ago with a mandate to clean up the mess.

Masding has taken a methodical approach to solving the problems. He set up a dedicated unit to deal with its arrears, starting with buy-to-lets. Figures published yesterday suggest it is beginning to crack the nut. The percentage of early arrears cases (up to 90 days) has eased from 6.4 per cent to 4.6 per cent, while those three months or more behind with their payments have gone from 19.3 per cent to 18.8 per cent. While still high percentages, the figures are at least heading in the right direction.

Permo's strategy with buy-to-let arrears has been to put them on interest-only for three years and then review them. Masding said most of the properties will have to be sold at the end of the mortgage term to pay off the loans.

Different strategy
A different strategy is being pursued for home loans. Of the 4,000 treatments offered to borrowers in the year to date, 2,800 have involved split mortgages, where a large part of the loan is warehoused on an interest-free basis while the customers make payments on the balance.

The split mortgages involve a six-month trial to ensure that the customer is able to meet the terms of the new arrangement.

Permo’s figures show that the level of early arrears in home loans is reducing but the number of cases over 90 days in arrears continues to rise.

It also has a lot of work to do to rebuild the bank’s brand. Permo did precious little lending over the past two years while its future was in doubt.

Masding has launched a campaign to remind people that Permo is open for business. It has had some early success – 30,000 new current account customers and €120 million in loan approvals in the six months to the end of June.

Repairing Permo’s balance sheet and rebuilding its banking business will be a painstaking, inch-by-inch process. There will be no quick fix and the end result is far from certain.