PTSB has indicated it plans to take a fresh look at ways to cut costs to “protect and grow” profitability as it grapples with interest rates falling at a faster pace than expected.
The bank said in a trading statement on Tuesday that its net interest margin narrowed over the first nine months of the year, as it was forced to compete on mortgage rates to rebuild its market position and pay more for deposits.
The margin – the difference between the average rates at which it funds itself and lends on to customers – narrowed by 0.08 of a percentage point year-on-year to 2.23 per cent. PTSB said the margin will decline to 2.2 per cent, marking a downgrade from the 2.25 per cent rate forecast at the start of the year.
PTSB’s share of new Irish mortgage lending rose to 16.3 per cent in the third quarter from 13.5 per cent for the first six months of the year – and a recent low of 13.4 per cent in the third quarter of last year.
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“Looking out beyond 2024, in view of the change in the likely path of interest rates, as part of the annual budgeting process the bank is reviewing what measures it can take to continue to protect and grow shareholder returns,” the bank said.
A spokeswoman said that the bank has previously committed to “making efficiencies and underlying savings in 2024 and over the medium term to offset the increased costs associated with investment”.
It recently launched a voluntary redundancy package for senior managers, which is expected to see about 20 individuals leave the bank as it improves what it calls “organisational effectiveness”. The spokeswoman did not comment on what other measures may be considered. Shares in the bank closed 3.1 per cent lower at €1.54.
The European Central Bank (ECB) has cut interest rates three times so far this year, as inflation comes under control in the euro zone. A fourth quarter percentage point cut is considered a done deal in December, with more reductions on the cards for 2025.
While PTSB forecast in August that the ECB deposit rate would fall 2.75 by the end of next year, from a recent high of 4 per cent, economists now predict it could decline to as low as 2 per cent by the middle of 2025.
Davy analyst Diarmaid Sheridan said there is downside risk to 2025 and 2026 earnings estimates for the bank amid declining official rates.
PTSB, which has the lowest rate of excess deposits relative to loans among the three remaining banks, has had to pass previous ECB official rate increases more widely than rivals, according analysts at brokerages including RBC Capital Markets. The bank said in August that its interest-bearing deposits had increased by 54 per cent in the first half of the year, to 27 per cent of total customers’ deposits.
Its loan-to-deposit ratio is currently 89 per cent, compared to 80 per cent at Bank of Ireland and 60 per cent at AIB. The lower the ratio is, the higher level of excess deposits a bank has to place with the Central Bank at the official deposit rate. That currently stands at 3.25 per cent.
The bank has also competed more aggressively on the mortgage pricing front this year, after ceding market share in 2023. It has a competitive disadvantage to its larger rivals, as it must set aside more capital for its loans due to the high so-called risk weighting of its mortgage book.
It is currently working on a project to reduce that risk weighting. In the meantime, it will see its risk-weighted assets drop by 5 per cent under international bank capital reforms, known as Basle IV.
PTSB sees its total income broadly unchanged for the full year, with its net interest margin narrowing further to 2.2 per cent, while total operating costs are expected to rise by a mid-single-digit percentage. Costs were up 17 per cent for the first nine months of the year.
“The rate is slowing, from plus 20 per cent at the end of June,” said Goodbody Stockbrokers analyst Denis McGoldrick.
The bank completed the acquisition of €6.7 billion of loans from Ulster Bank, in a transformational deal as its UK-owned rival exits the market.
“We remain focused on creating efficiencies that will ensure we deliver for our colleagues, customers and shareholders in the most optimal, sustainable and cost-effective way,” said chief executive Eamonn Crowley. “The Irish market remains extremely attractive and, with strong capital and liquidity positions, we are well positioned to achieve our ambition of being Ireland’s best personal and business bank through exceptional customer experiences.”
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