Sunday 11 December 2016

PTSB warns of "challenges ahead" despite profitable first quarter

Published 11/05/2016 | 07:49

PTSB chairman Alan Cook
PTSB chairman Alan Cook

Permanent TSB has warned of challenges ahead, which include increasing external regulatory costs, despite reporting a profitable first quarter to its financial year.

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Outside of regulatory costs, the bank highlighted the continued low interest rate environment and the requirement to hold the residual UK mortgage book for longer than originally anticipated.

In a trading update released to shareholders this morning, PTSB said it was profitable on both a pre and post tax basis.

Net interest margin at the bank increased to 1.47pc and it said it is on target to reach its medium term target of 1.7pc.

PTSB anticipates its cost of funds to increase due to the requirement to hold the residual UK mortgage book, however its cost of funds in the period reduced to 0.77pc.

"The Core Bank introduced a new mortgage proposition, supported by a new brand campaign, in the first quarter.

"Although these initiatives are at an early stage, the response from customers is positive, resulting in a 10pc increase in mortgage applications and a 4pc increase in mortgage drawdowns to end April on a yoy basis.

"However, growth in the mortgage market in Ireland continues to be subdued primarily as a result of the constrained supply of housing. This is evidenced by the fall in total market mortgage approvals by around 14pc in Q1 on a yoy basis," the bank said in a statement.

The group's cost income ratio continues to trend downwards but PTSB said the outlook is challenging.

Overall the bank, which is 75pc owned by the State, said it is making good progress toward targets set at its capital raise last year.

"However, the Group's financial performance will be impacted by external factors such as increasing regulatory costs, a more modest growth outlook in the mortgage market given the ongoing constrained supply of housing in Ireland, and a sustained low interest rate environment, which has impacted bank earnings across Europe. 

"These factors, coupled with uncertainty around the timing of the sale of residual UK assets, mean that the Group may not generate a Return On Equity of around 10pc by 2018 as previously guided.

"However, the Group continues to make progress towards returning to sustainable profitability and maximising relative returns for shareholders over the medium term," the bank said.

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