REG - Permanent TSB Group - Commentary on 2024 Half-Year Report

Permanent TSB groupAnnouncement

01/08/2024 07:00

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RNS Number : 6880Y  Permanent TSB Group Holdings PLC  01 August 2024

1 August
2024
 

Permanent TSB Group Holdings plc ('the Bank')

Interim Management Statement - H1 2024 Update

 

Comment by Eamonn Crowley, Chief Executive:

"We have delivered a strong performance in the first half of 2024 as we
continue to further grow and diversify our business.

We are offering customers much-needed choice with our market-leading six-month
and one-year fixed term deposit rates which have supported a €1 billion
increase in deposits since this time last year. Our Business Banking presence
is growing with new lending tripling in the past twelve months.

We are focused on ensuring that we remain a strong and resilient competitor in
the Irish retail banking market and as a result of our recent non-performing
loan sale, we will be able to free up capital that will be used to support up
to €2 billion of lending into the Irish economy. Despite a reduced switcher
market, we are seeing positive trends in our mortgage market share in Q2, with
recent mortgage rate reductions driving a strong pipeline for the remainder of
the year.

Our title sponsorship of Team Ireland for both the Olympic and Paralympic
Games taking place in Paris, has given us a unique platform to demonstrate our
commitment to communities across the country and show our support for the role
they play in supporting our incredible Olympic and Paralympic athletes - we
wish our inspiring sporting heroes every success for the Games.

We remain confident that the acquisitions and investments we have made, and
continue to make, are putting us in a strong position to continue to further
grow and diversify our business and deliver sustainable returns for our
shareholders over time."

 

Key Financial Figures:

·     Profit before Tax €75 million, €49 million higher year-on-year
('YoY').

·     Net Interest Income increased by 4% YoY; Net Interest Margin (NIM)
of 2.27%, 2bps lower YoY.

·     Total Operating Income has increased by 4% YoY to €336 million.

·     Operating expenses are 20% higher YoY, in-line with guidance and
management expectations; Cost Income Ratio(( 1  (#_ftn1) )) of 73%. 2024
guidance remains for a mid-single digit percentage increase in costs.

·     The Bank maintains a strong capital position; pro forma Common
Equity Tier 1 (CET1) capital ratio of 14.9%(( 2  (#_ftn2) )), an increase of
90bps compared to 31 December 2023.

·     Asset quality further strengthened; impairment release of €20
million and NPL ratio of 1.7%.

 

Other Highlights:

·    Strong performance in acquiring and retaining Customer Deposits with
balances of €23.6 billion at 30 June 2024, an increase of c. 4% (c. €1.0
billion) since June 2023 and c. 3% (c. €0.6 billion) since December 2023.

·   Net Loans and Advances to Customers are 2% higher YoY, and broadly in
line with December 2023 3  (#_ftn3) , following a slower pace of new lending,
partially offset by higher retention.

·    The Bank has announced a Non-Performing Loan (NPL) sale "Glas III",
with a value of €348 million and an overall risk weight intensity of c. 68%.
On completion by the end of this year, the transaction increases the Bank's
Common Equity Tier 1 (CET1) Ratio by c. 35 bps and the Total Capital Ratio by
c. 45 bps.

·     H1'24 new business mortgage market share(( 4  (#_ftn4) )) of 13.5%.
New mortgage pricing in Q2'24 is building a strong pipeline of activity
heading for H2'24 outlook.

·     Asset Finance and Business new lending of €180 million is treble
that of the prior year. This strong business performance is due to the Asset
Finance business, acquired in July 2023, together with solid SME lending in
the first half of 2024.

·    Permanent TSB Group Holdings plc was upgraded to Investment Grade
status by Fitch Ratings agency in Q1'24, which has reduced the margin the Bank
will pay for funding.

·     The Bank successfully issued its inaugural Green HoldCo Senior MREL
eligible notes of €500 million in April 2024, with an order book larger than
any previous issuance at c. 4 times over-subscribed and leading to a 190bps
reduction in margin from the previous issuance.

·   The ongoing review of the IRB mortgage models is progressing in line
with previously communicated timelines; outcome expected by end-2025.

Business Performance

Deposits:

The Bank has continued its strong focus on acquiring and retaining customer
deposits in the first half of the year, with growth of €0.6 billion since
December 2023, primarily due to a c. 4% increase in retail deposit balances to
€12.9 billion. Current account balances of €9.3 billion are broadly in
line with 31 December 2023. Interest-bearing deposits 5  (#_ftn5) grew by
€1.1 billion or 21% since 31 December 2023 while non-interest-bearing
deposits reduced by €0.5 billion or 3%.

The Bank is offering both business and personal customers much needed choice
in the Irish deposit market. In recognition of demand for shorter-term
products, the Bank launched a new 32-day notice deposit product to business
customers, along with announcing rate increases for personal customers which
includes market-leading six-month and one-year fixed term deposit products.

Building on this, the Bank launched its Interest First Fixed Term deposit
product in June 2024, with a one-year Term for balances in excess of €5k,
offering a 2.75% return. This product is unique in the Irish market as
customers can receive their interest upfront as a lump sum, within the first
month of opening the account, instead of waiting until the end of the one-year
fixed term.

Business Banking:

The Bank is pleased with its Business Banking performance in the first half of
the year, with new SME lending of €63 million increasing by 5% versus H1'23
with a strong pipeline for the remainder of the year. Since its acquisition in
July 2023, Asset Finance has performed strongly with new lending of €117
million in H1'24, an increase of 24% (€23 million) versus H2'23.

We were also delighted to extend our Business Banking offering by joining the
Strategic Banking Corporation of Ireland's (SBCI) €500 million Growth &
Sustainability Loan Scheme, with a significant pipeline of c. €70 million
built since launched in April 2024. Our participation in this scheme enables
us to support SMEs (including farmers, fishers, foresters, and food
businesses) that are investing in their growth, resiliency, or investing in
climate action and environmental sustainability measures that will enhance
their performance.

Mortgages:

The Bank is committed to providing competitive offerings across our mortgage
products, while meeting the needs of our customers and the wider economy and
as such has announced a number of mortgage rate reductions in May 2024 for
both new and existing customers. This move has been well received in the
market and has led to a significant increase in the mortgage pipeline in the
first half of this year which will support the overall market share for
residential mortgage lending through the coming months.

Our mortgage pricing remains competitive with pricing in three-year and
four-year fixed term mortgages from 3.7% for new and existing customers, with
further value available for those customers with a Building Energy Rating of
B3 or above through our Green mortgage product.

The Q2'24 mortgage business reports an increase of 10bps in our mortgage
market share to 13.5% as compared to Q1'24, with good momentum as we head into
the second half of the year. The market continues to be impacted by the low
level of switching activity, however we anticipate this segment will increase
activity in the future as the ECB reduces rates.

74% of new mortgage drawdowns in H1'24 were to fixed rate products, a
reduction of 24 ppts YoY, with some customers choosing a variable rate,
retaining the flexibility to fix at a time of their choosing. Meanwhile the
Bank's Green product offering accounted for 38% of total new mortgage
drawdowns, an increase of 10 ppts YoY.

The mortgage market 6  (#_ftn6) in Ireland is estimated to remain in line with
2023 at €12.1 billion.

Consumer Finance:

New Consumer Term Lending pay-outs of €65 million increased by 9% YoY,
supported by consumer confidence and the strength in the Irish economy.
Digital adoption continues to grow with 83% of new term lending drawdowns
through our direct channels.

To further support customers in meeting their sustainability goals, we are
delighted to have been the first financial institution to participate in the
SBCI's €500 million Home Energy Upgrade Loan Scheme, offering customers
low-cost loans to upgrade the energy efficiency of their home.

Financial Performance

Net Interest Income has increased by 4% YoY; with gross interest income
growing by 29% due to higher interest rates and the growth in average interest
earning assets, partly offset by an increase in cost of funds due to the
growth in deposit volumes which was primarily in higher interest-bearing
retail deposits. NIM of 2.27% remains strong, albeit shows a reduction of 2bps
YoY.

Fees and Commission Income of €23 million is in line YoY, however the Bank
has seen a 20% increase in Fees & Commissions quarter-on-quarter in 2024,
as changes to the current account fee structure announced in H1'24 begin to
materialise. This increasing trajectory is expected to continue through H2'24
supporting the Fees and Commission income growth in 2024. These were the first
increases in current account fees applied by the Bank since 2019 and in that
time, the Bank has and will continue to invest significantly in its current
account offering, including its recently launched new banking app and the
launch of 'PTSB Protect', a unique in-app fraud protection service.

Total Operating Expenses excluding Regulatory Charges of €245 million
increased by €41 million (20%) YoY and are in line with management
expectations. Underlying operating expenses increased as a result of higher
resourcing requirements, cost inflation and investment. The Bank remains
committed to making efficiencies and underlying savings in 2024 and over the
medium term to offset the increased costs associated with investment and is
reaffirming its guidance for a mid-single digit percentage increase in
operating expenses in 2024.

Total Regulatory Charges increased by €5 million (21%) to €29 million in
H1'24. Due to a change in legislation the Bank Levy (€24 million) is now
recognised in the first half of the year compared to the last quarter in the
prior year. Other regulatory charges, primarily the Deposit Guarantee Scheme
and the Single Resolution Fund have reduced by c. €19 million YoY.

Credit Quality remains strong and is benefitting from the strict underwriting
criteria the Bank has in place. A net impairment release of €20
million reflects strengthened asset quality and a positive macro-economic
environment with strong employment and increases in the House Price Index
observed during the first half of the year.

The Bank reports an Exceptional Item charge of €7 million at 30 June
2024 which primarily relates to the transaction costs on the 'Glas III' NPL
sale.

Balance Sheet

The Total Performing Loan book of €20.7 billion at 30 June 2024 is broadly
in line with 31 December 2023, following a slower pace of new lending,
partially offset by higher retention.

Non-Performing Loans of €0.4 billion at 30 June 2024, reporting a reduction
of €0.3 billion compared to 31 December 2023 following de-recognition of
loans within the 'Glas III' NPL loan sale perimeter. The transaction reduces
the Bank's H1'24 NPL ratio to c. 1.7% 20bps lower than the European average of
1.9%(( 7  (#_ftn7) )).

Liquidity and Funding

The Bank's Loan to Deposit Ratio of 90% and Liquidity Coverage Ratio of 232%
at 30 June 2024 provides the Bank with a strong liquidity position and a
secure funding source for future growth in lending volumes.

Capital

 Capital Ratios (%)  June 2024        June 2024    December 2023

                     (Pro forma)(1)   (Reported)   (Reported)
 CET1                14.9%            14.5%        14.0%
 Total Capital       20.8%            20.3%        19.7%

From 1 January 2024, the Bank's transitional and fully loaded capital ratios
have fully converged. The 31 December 2023 capital ratios in the table above
refer to the fully loaded position at that point in time.

Once the "Glas III" non-performing loan sale has been factored into the Bank's
capital ratios, the Bank reports pro forma CET1 Capital Ratio at 30 June 2024
of 14.9% and a pro forma Total Capital Ratio of 20.8%, further strengthening
the Bank's capital base.

The Bank's reported CET1 Ratio at 30 June 2024 remains strong at 14.5%, an
increase of 50bps compared to 31 December 2023.

The reported Total Capital Ratio is 20.3% at 30 June 2024, an increase of
60bps compared to 31 December 2023.

From 30 June 2024, the CET1 Regulatory requirement is 10.33%(( 8  (#_ftn8) ))
while the Total Capital Regulatory requirement is currently 15.25%. Both
requirements have increased by 50bps when compared to 31 December 2023 due to
the final phase-in of the Countercyclical Buffer ('CCyB') in June 2024.

Distribution Policy

The Bank's ambition is to recommence shareholder distributions over the medium
term subject to available surplus capital, regulatory and shareholder
approval. It is anticipated the Bank will recommence with a modest
distribution, building towards a target pay-out ratio of up to c. 40% of
Profit Attributable to Shareholders through the medium term. The Bank will
retain flexibility as to the distribution mix and will update the market in
this regard in due course. Proposed distributions will be considered in line
with the Bank's Capital Management Framework considering availability of
surplus capital at least annually. Distribution levels will reflect, amongst
other things, the strength of the Banks capital and capital generation, the
Board's assessment of the growth and investment opportunities available, any
capital the Bank retains to cover uncertainties (e.g., related to the economic
outlook) and any impact from the evolving regulatory and accounting
environments.

2024 Outlook

Performance in H1'24 has been strong, supported by the positive macroeconomic
environment and strong asset quality. Subject to no material change in
economic conditions or outlook, the Bank is updating its expected cost of risk
for FY'24 to c. -10bps from +10bps previously. All other guidance for FY'24
remains in line with prior market communications. Capital remains strong and
having assessed a range of scenarios, the CET1 ratio will remain well above
the Bank's minimum regulatory requirement.

 

- Ends -

 

For Further Information Please Contact:

Denis McGoldrick
       Tríona Carroll

Investor Relations
         Corporate Affairs & Communications

Email: denis.mcgoldrick@ptsb.ie (mailto:denis.mcgoldrick@ptsb.ie)
               Email: triona.carroll@ptsb.ie
(mailto:triona.carroll@ptsb.ie)

Phone: +353 87 928 5645
Phone: +353 87 069 6348

 

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 Bank 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 Bank
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  Cost Income Ratio is calculated as Operating Expenses (excl. Regulatory
Charges/Fees and Exceptional Items) divided by Total Operating Income

 2  Pro forma CET1 ratio includes c. 35bps impact from the 'Glas III'
Non-Performing Loans transaction

 3  Excludes the impact of Glas III transaction

 4  Based on BPFI data in June 2024

 5  Interest bearing deposits refer to Notice, Term and Corporate Deposits
with the remainder classified as non-interest bearing

 6  Source: Goodbody

 7  Based on Q1'24 EBA Risk Dashboard

 8  Regulatory requirements for both CET1 and Total Capital excludes P2G

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