PTSB hikes director fees as lender returns to profit

Surge in new lending helps lender back into the black as net interest margin grows to 1.8%

Jeremy Masding, chief executive, and Eamonn Crowley, chief financial officer, of Permanent TSB at the launch of annual results for 2017. Photograph: Alan Betson / The Irish Times

Jeremy Masding, chief executive, and Eamonn Crowley, chief financial officer, of Permanent TSB at the launch of annual results for 2017. Photograph: Alan Betson / The Irish Times

 

Permanent TSB (PTSB) increased the pay of its non-executive director fees for the first time in a decade in 2017 as the company became the last Irish lender to return to profit since the financial crash.

Non-executive directors’ basic fees were increased 8 per cent to €54,675, according to the bank’s annual report, although all received additional fees, of up to €42,000, to cover other responsibilities.

The State’s one-time biggest mortgage lender reported a €40 million profit for the year. That compared with a €266 million loss for 2016, which included a significant loss from the sale of the remains of its non-core UK loan book.

The return to profit was helped by a surge in new lending and increase in margins on loans.

The bank, 75 per cent owned by the State, said in its annual figures, published on Wednesday, that it had taken a €49 million charge against its non-performing loans (NPLs). The move comes as the group seeks to sell about €3.7 billion of mortgages to reduce its ratio of NPL ratio – which stood at 26 per cent in December – to below 10 per cent by 2021. That would still be above the current European Union average of less than 5 per cent.

The planned sale, which includes loans against 14,000 private properties, has attracted intense political scrutiny and prompted Fianna Fáil to introduce a Bill before the Oireachtas that would bring overseas funds, which have been the typical buyer of such loans since the financial crisis, under the remit of the Central Bank.

The bank’s NPLs fell by €600 million, or 10 per cent, last year to €5.3 billion, mainly due to lower levels of newly soured loans in a recovering economy, an increase in restricted loans and a voluntary surrender programme undertaken on its buy-to-let portfolio.

Net lending

PTSB saw its net lending volumes surge 74 per cent to over €1 billion, giving it a 12.6 per cent share of the mortgage market. However, its total amount of loans continued to decline last year, falling by 3 per cent to €20.6 billion, as customers repaid existing borrowings at a faster pace than taking on new debt.

The bank’s net interest margin – the different between the average rate at which it finances itself and lends on to customers – increased from 1.48 per cent to 1.8 per cent, as it lowered its deposit rates. The bank had trailed rivals in cutting its rates in recent years.

“Against the backdrop of a growing Irish economy, the bank’s results show that we are making steady progress towards building a focused, low-risk business,” said Jeremy Masding, group chief executive, whose remuneration was virtually unchanged at €502,000, in line with an ongoing Government-imposed salary cap for the bailed-out bank.

“Of course, there remain challenges in transforming the bank; in particular, the high level of NPLs that must be reduced to meet both our own and our regulator’s desire for a safer bank that can continue to contribute to the growth of the Irish economy,” he said.

PTSB revealed in its annual report the cost that it faces under new accounting rules, known as IFRS 9, which requires lenders to set aside provisions for expected future losses on loans, rather than losses that have already occurred. The measure, which came into effect in January, will reduce the bank’s shareholders’ equity by about €100 million, though it has availed of transitional provisions to phase this in over five years.

While the bank said the additional €49 million provision it had taken against NPLs that were up for sale, Goodbody Stockbrokers estimates that the bank will incur €350 million of losses under the disposal plan.