Ulster Bank will start repaying £15bn bailout later this year

Ulster Bank will begin repaying its £15 billion (€19bn) bailout to parent company Royal Bank of Scotland this year, subject to approval from regulators in Frankfurt.

Speaking to The Irish Times, Ulster Bank's interim chief executive Paul Stanley said the company was generating capital again and "heavily capitalised" to the point where it could start returning funds to RBS.

“We obviously want to start paying back to the parent,” he said.

“That’s a dialogue with the regulator [SSM]and we would anticipate in

2016 to start that process.

“The cash is there to be paid back, there’s just a process to be gone through [with regulators] on this. I’d like to pay back some in 2016 and some in 2017 and then get into normal dividend payments based on profits.”

He declined to quantify how much would be returned to RBS this year but said it would be a “reasonably sizeable amount”.

‘Very large figure’

“£15 billion is a very large figure to say you’re paying back in a two-year period but over time with dividend payments from the business, we’ll certainly be looking to pay back as much as we can to the UK taxpayer of the money that they put into Ulster Bank.”

The £15 billion capital injection by RBS after the global financial crash in 2008, related to Ulster Bank’s operations north and south of the border. The bank has never broken out the split but the Republic is thought to account for at least two-thirds of the figure.

RBS last year broke Ulster Bank into separate entities. The Northern Ireland business now reports into the British arm of RBS with the Republic now a standalone entity.

Ulster Bank made an operating profit of €362 million in the Republic last year, according to accounts just published. This compared to a surplus of €606 million in 2014.

Its total income amounted to €758 million, marginally ahead of the previous year. It has operating expenses of €590 million, up from €523 million in 2014, while its impairment releases halved to €194 million.

New mortgage lending rose by 53 per cent and Mr Stanley said this “pick-up” has continued into January.

“Our expectation would be that we’d see net [LOAN]growth in 2016 even with the run off of [MORTGAGE]trackers based on our own plans and what [DEMAND]we’re seeing rolling into the year.”

Central Bank rules

Mr Stanley doesn’t “anticipate huge changes” emerging fnom the Central Bank of Ireland’s review of its macro-prudential rules, which tightened the criteria for home loans last year.

“We’re just going to have to live with them,” he said.

New business lending at the bank rose by 65 per cent to €1.5 billion

Mr Stanley said costs “continue to be a challenge” for Ulster Bank, which closed 2015 with a cost-income ratio of 78 per cent.

“We need to grow the income side and increase the balance sheet as well,” he said. “Credit demand is obviously a key factor.”

Mr Stanley said reducing the bank’s low yielding €12.5 billion tracker mortgage book was another factor along with a focus on costs.

He declined to comment on whether the bank might shut more branches, having closed 15 in the Republic last year. “We will keep that under review,” he said.

Mr Stanley said RBS’s RCR capital resolution vehicle had completed its work in terms of Ulster Bank’s problem commercial real estate loans.

RCR has transferred the remaining £300 million in loans back to Ulster Bank for management, he added.

“That’s a good story and part of the positive capital impact [for Ulster Bank],” Mr Stanley said.

“The guys have done a really good job.”

Workout vehicle

RCR was set up in January 2014 as a workout vehicle for non-core loans within RBS with Ulster Bank transferring £4.4 billion of gross assets to the unit.

RCR was expected to take about three years to work through these loans but the process has ended early, reflecting the turnaround in the Irish economy and improved investor sentiment towards the market here.

Mr Stanley confirmed that Ulster Bank was participating in contingency planning by RBS in relation to possible implications of Brexit for the company.

“We’re very much part of the RBS contingency planning. What’s the impact on our customers..on our systems…on overall strategic direction? It’s standard stuff.”

At group level, RBS reported a loss attributable to ordinary shareholders of £1.9 billion, compared with a loss of £3.5 million in 2014.

This included higher restructuring costs of £2.9 billion, as the bank’s repositioning accelerated, particularly in the Corporate and Institutional Banking business.

Litigation and conduct costs of £3.5 billion increased as further steps were taken to clear legacy obstacles from RBS’s path to normalisation.