Permanent TSB’s new chief executive said almost half of its 10,500 mortgage borrowers who availed of three-month payment breaks at the height of the coronavirus crisis have returned to regular payments, with construction industry workers leading the way as the economy emerges from hibernation.
Still, the bank booked a higher-than-expected €75 million charge for the first half of the year to cover an expected surge in bad loans as Covid-19 payment freezes of a maximum six months come to an end, and as it cut the value of 340 repossessed residential properties on its books. These mainly relate to buy-to-let buildings.
The bank posted a €54 million net loss for the period, compared to a €21 million profit for the same period in 2019, it said in its interim report, published on Tuesday.
“The severity and duration of the Covid-19 pandemic and its impact on the economy remains unpredictable,” said Eamonn Crowley, who became group chief executive of PTSB in late June. “However, I am confident of the bank’s ability to remain resilient.”
The Covid-19 economic shock has resulted in as much as €1.6 billion, or 10 per cent, of the bank’s total mortgage book being subject to payment breaks since March.
Some 47 per cent have returned to regular payments, while 40 per cent, mainly from the retail, leisure and accommodation sectors, have opted to extend payment freezes for a further three months, according to Mr Crowley. A further 13 per cent are currently weighing their options.
Lenders are under growing pressure to provide long-term restructuring solutions for borrowers who will be unable to return to regular payments after the maximum of six months’ relief.
New business slide
Lower business activity since the coronavirus swept through the State in March resulted in PTSB’s total new lending sliding 16 per cent to €600 million in the first six months of the year.
However, July showed more positive signs of recovery, and the bank is anticipating that lending for the full year will be about 40 per cent lower than 2019’s €1.7 billion.
The outlook marks a slight improvement from the bank’s prediction in May that full-year new lending could be slump by as much as 50 per cent.
“The reopening of the economy, recent declines in unemployment data, the resilience of the housing market and a Government stimulus programme now in place, shows more encouraging indicators than previously anticipated,” PTSB said.
PTSB had €1.1 billion of non-performing loans at the end of June, equating to 6.8 per cent of its loan book and made up of borrowings that had been in trouble before Covid-19 struck. About 44 per cent of these loans are on track to return to performance status within the next 18 months.
However, Mr Crowley said that the bank is continuing to look at “all options” for these loans, even though the international market for problem loan sales has dried up in recent months.
Mr Crowley said the bank had no plans to sell soured loans stemming from the Covid-19 crisis. He said the “vast majority” never had problems previously and that any talk of potential sales was “a number of years away”.
The bank’s capital reserves, measured as common equity Tier 1 capital (CET1), fell to 13.9 per cent from 15 per cent over the course of the first six months of the year, driven by the interim loss and the bank having to set aside more capital against loans subject to payment breaks. Still, the loans continued to be classified as performing assets during the period.
Capital ratio
PTSB’s capital ratio remain well above a minimum regulatory requirement of 8.94 per cent. Regulators have relaxed capital demands in recent months to ensure that banks are not hoarding reserves and can lend to the economy during the pandemic.
The bank’s net interest margin – the difference between the average rates at which banks fund themselves and lend on to clients – dropped by 0.05 of a percentage point from 2019 to 1.75 per cent for the first half as households increased savings and lenders face negative interest rates of as low as minus 0.5 per cent on excess deposits placed with the European Central Bank.
PTSB predicts its margin will contract further, to nearly 1.7 per cent, for the full year.
Meanwhile, the bank has, as a result of the current crisis, paused a campaign of engaging with borrowers behind €2.5 billion of boom-time buy-to-let loans on interest-only terms. The bank had set out earlier this year to ask such borrowers to work out “credible” principal repayment plans in order to estimate the long-term risks associated with this portfolio.
