First Citizen Finance, the nonbank lender led by former PTSB banker Chris Hanlon, slumped to a €11.7 million loss last year, partly as it struggled to pass on rising funding costs to customers.
The company, which specialises in car finance, agri-finance and commercial retail lending, also booked a loss on financial derivative instruments, it said in its latest annual financial statement filed this week with the Companies Registration Office.
First Citizen, set up 2012 when Mr Hanlon led a management buyout of PTSB’s car finance business, made €6.44 million profit in 2022.
While First Citizen’s interest income on lease, hire purchase and other loans rose 22 per cent last year to €43.1 million, its interest expenses soared 69 per cent to €35.4 million.
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The group “experienced slower growth, with flatter lending volumes across each of its portfolios”, it said.
“Throughout the year, the Irish pillar banks have not fully passed on interest rate increases to their deposit holders, which has enabled them to maintain lower costs of funding and, in turn, suppresses yield growth in markets in which it operates,” it said.
“In order to remain competitive, the group has been required to limit the extent to which we pass on funding costs to our customers, resulting in [lending] margin erosion during the year.”
While the mainstream banks fund most of their loans with ultra-cheap deposits, non-banks must finance themselves in the financial wholesale and capital markets, where interest rates have spiked in tandem with official European Central Bank rates.
Deutsche Bank provides senior financing for First Citizen’s motor book, while BNP Paribas funds its equipment portfolio and NatWest its property loans.
However, First Citizen scaled back its reliance on Deutsche Bank in the second half of last year when it raised more than €235 million on the bond markets by refinancing a portfolio of car loans through a process known as securitisation.
Loans and lease receivables in First Citizen retains credit risk rose to €611.4 million at the end of 2023 from €593.6 million a yea earlier.
The group recognised a financial gain of €1.59 million last year by revaluing a loan portfolio bought in 2019, but where collections from borrowers had proved better than expected. However, most of this was offset as it booked a €1.37 million charge for expected bad loans elsewhere, driven by its commercial real-estate portfolio.
“The outlook for 2024 will remain challenging as the Russian invasion of Ukraine, energy cost inflation and continued higher interest rate on consumer and investment sentiment,” said Mr Hanlon. “I believe however we have sufficient market presence and resources to continue to support our target audience for the foreseeable future.”
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