Operating profits at Ulster Bank jumped by 88 per cent to €100 million during the first half of 2018, as the bank benefited from a reduction in costs and an improving economy which saw it benefit from an impairment release.
The increase in profitability was in part driven by a net impairment release of €30 million, largely in its residential mortgage book, which the bank said “reflects a more positive economic outlook and improved credit metrics across all portfolios”.
Operating expenses decreased by €57 million, or 16.7 per cent, principally due to a €45 million reduction in strategic costs and €20 million lower litigation and conduct costs. This was partially offset by €12 million of one-off accrual releases during the first quarter of 2017. Staff costs for the period were €10 million, or 8.9 per cent, lower “reflecting the benefit of recent restructuring initiatives and lower pension costs”. Staff numbers fell by about 100 from June 2017 to June 2018, down to 2800, while total income increased by €14 million, or 4.1 per cent, and the bank’s net interest margin increased by 18 basis points.
Interim chief executive Paul Stanley, who was appointed to the role in May as Gerry Mallon began gardening leave ahead of his move to Tesco Bank in the UK, pointed to strong mortgage lending growth, falling operating expenses, lower funding costs and an impairment release as behind the bank’s improving fortunes.
However growth in SME lending has been a “little slower materialising” Mr Stanley said, adding that this could be down to perceived Brexit risks making SMEs a “little more reticent to make investment decisions”.
In May of this year, Ulster Bank said it would dispose of a €1.6 billion loan book, known as Project Scariff, and Mr Stanley said that the sale is progressing to plan, with a view to a sale in the third or fourth quarter of this year. With regards to potential future loan sales, Mr Stanley said that there is “always the potential”.
On tracker mortgages, the bank said that while the “bulk” of affected borrowers will be dealt with this year, a “small” number won’t be resolved until 2019.
Retail banking
Last month Ulster Bank announced the lowest fixed mortgage rate on the market of 2.3 per cent fixed for two years, and Mr Stanley said the bank expects to see “some uplift” in mortgage lending from this rate going forward.
However the bank also clarified on Friday that this rate is only applicable to those who borrow 3.5 times their income as per Central Bank guidelines; this means that anyone obtaining an exemption, which would allow them to borrow up to 5 times their income, will not be able to benefit from this low rate. Instead they will be able to borrow at other higher rates, including between 3.5 -4.3 per cent variable, depending on their loan to value, or 2.6 per cent for a four year fixed product.
On rising property prices, Mr Stanley said they’re being driven by the supply/demand dynamic rather than speculation, but said that it will “come to a point where affordability does kick in as being more of an issue”.
While strong competition has seen mortgage rates fall, Mr Stanley said he does not see the same competitive pressures when it comes to deposits, pointing to the recent departure of Rabodirect from the market; indeed first half deposits at the bank rose by € 600 million, despite Ulster Bank offering an instant access deposit rate of just 0.1 per cent.
With respect to branches, Mr Stanley reiterated that the bank won’t close any this year. Ten of Ulster Bank’s branch network now operate on a cashless basis, and Mr Stanley said there was “certainly potential for that to grow” further, given customer trends.
Mr Stanley said he expects the appointment of the new Ulster Bank chief executive to be made “within the coming weeks”, at which point he will return to his role as chief financial officer with the bank. RBS’s planned appointment of group executive Jane Howard to the top job at Ulster Bank is going through regulatory approvals.
