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PTSB dividend payouts banned

PTSB chief Jeremy Masding Expand

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PTSB chief Jeremy Masding

PTSB chief Jeremy Masding

PTSB chief Jeremy Masding

Gretchen Friemann

Permanent TSB has confirmed it will not pay a dividend in the near term after a supervisory review prohibited it.

The decision comes as the part-nationalised bank braces for a pivotal year as it prepares to decisively tackle the soured loans that burden its balance sheet and hobble its share price.

PTSB's chief executive Jeremy Masding warned as far back as July that a 2019 target to resume dividend payments for the first time since the crash was unlikely to be met due to its stubbornly high volume of non-performing exposures. At 28pc of the total loan book, it remains the highest among the Irish banks.

Market consensus has the lender on course to return to pay-outs in 2020.

The ongoing freeze on dividends follows an update from the annual Supervisory Review and Evaluation Process (SREP), which is carried out by the European Central Bank and is used to determine capital conservation buffers for the following year.

PTSB's capital requirements rose by 62.5bps, meaning it must maintain a common equity tier 1 ratio of 9.825pc and a total capital ratio of 13.325pc. However, the bank's current counter-cyclical defences remain far above those levels with its transitional CET1 ratio at 17.4pc.

The higher buffer requirements are part of a tougher supervisory regime being phased in across the single market.

AIB and Bank of Ireland also disclosed the stipulated increases in their counter-cyclical buffers this week.

In a note to clients Goodbody analyst Eamonn Hughes said "it is no surprise that PTSB is prohibited from paying dividends. In our view, capital will be retained until it works through its large NPL book so our models have no dividends until at least 2020".

Owen Callan at Investec has a slightly more bearish view, setting 2021 as the earliest date for a payout to investors.

PTSB's share price has slumped by 20pc over the past year despite strong gains made in its commercial business, alongside a jump in its share of the increasingly competitive residential mortgage market.

At the latest quarterly results in November PTSB had expanded its share of the new home loan market to 11.9pc. That figure stood at 2pc at the nadir of the crisis. But PTSB's stubbornly high burden of NPEs has raised fears in some quarters the bank may be forced to raise equity if it is forced to sell "untreated" soured loans at a steep discount.

Mr Callan has described this outcome as an unlikely, "worst-case" scenario but said the possibility needs to be factored into the investment case for the bank.

As this newspaper reported last month, PTSB is expected to pull the trigger on a €1.25bn loan portfolio sale in March or April.

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