PTSB admits losing 'eye-watering amounts' on tracker mortgages
Cost of interest on loans is less than bank pays to raise money on the markets
PERMANENT TSB is losing an "eye watering" amount on its tracker mortgages and there is little prospect of that changing, its chief executive has said.
Pre-tax losses almost doubled to €922m during 2012, up from €505m in 2011, the state-owned bank said.
Despite the problems in Cyprus, the bank said it had not seen any unusual withdrawal patterns in the last week and there were no concerns about suggestions from the EU that customer deposits could be used in a future bank rescue, chief executive Jeremy Masding said.
He refused to put a figure on how much trackers were costing the bank but conceded it was now a huge figure. The bank is reportedly losing close to €400m on the "cheap" home loans.
Tracker mortgages, where interest rates are linked to the official euro rate, make up around €15bn of the bank's mortgage book. The bank loses money on the mortgages even as they are being fully serviced because customers pay less to borrow from Permanent TSB than it pays to borrow on the markets.
Excluding exceptional items, the bank posted a loss of €980m.
In better news, impairment charges, or write-offs associated with bad assets, did fall sharply during the year to €891m from nearly €1.5bn, but the rate at which customers are falling behind on their mortgages continues to rise.
Some 16pc of the bank's mortgages are more than three months behind on their repayments. It is well above the national rate of 12pc.
Another 5pc of mortgages are less than three months behind.
That is not the biggest problem for the bank, however. Permanent TSB was the biggest mortgage lender during the boom. It is now stuck with some €15bn of "tracker" mortgages that are losing money even if the borrowers are up to date on their payments.
Net interest margin, the difference between what the bank makes in interest and the rate it can borrow at, fell to 0.72pc from 0.92pc in 2011.
The bank is splitting itself into a "good" bank made up of consumer lending and deposits, and a "bad" bank of non-performing loans and a UK business in an effort to return the business to a sustainable path.
It is hoped that the plan, which is subject to approval from the troika, will see the "good" business return to profitability by 2016. It will be several years after that before the rest of the business can get back into the black, Mr Masding said.
"We have fundamentally changed the way this group is run and improved the way it operates," he said.
Mr Masding rejected suggestions that the bank was now a bit-part player in Ireland.
"The Government now refers to 'core domestic banks' and we see ourselves as very much part of that," he added.
Permanent TSB has been criticised for launching a new current account that is advertised as "free" but the executive said the account would be profitable for the bank.
"Our deposits increased €2.2bn last year and we are looking for more 'sticky' deposits. There are certain conditions, such as paperless billing, that allow us to keep the cost of the account down and it also gives us opportunities for cross-selling as well," he said.
Shares in the lender fell 1.5pc to 4c in Dublin.