Ulster Bank profits slump to €26m as it ramps up bid to cut problem loans
Operating profits at Ulster Bank plunged in the first half of this year, coming in at just over a quarter of the level recorded in the same period of 2018, as the bank continued with its disposal of problem loans.
Ulster, one of the 'big four' banks in Ireland, still has more to do on boom-era mortgages that have soured.
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It is in the process of selling off a €900m tranche made up of 3,200 primary home mortgages and 400 buy-to-let mortgages, with more disposals to come as it targets a reduction in its non-performing loans from 10pc of its book to 5pc by the end of 2020.
First-half operating profits dropped to just €26m in the first six months of this year, from €100m a year ago.
Total income fell by €31m from a year ago to €324m, while the bank's operating expenses were equal to 100pc of income, something the lender wants to cut to the mid-50s level.
Chief executive of the bank Jane Howard told the Irish Independent that the loan book clean-up, which saw a €1.4bn portfolio of distressed home loans sold last year to US investment giant Cerberus, and other disposals, were putting Ulster on track to deliver a "consistent, annuity-type profit line".
The bank has also made provisions of €312m for its role in the tracker mortgage scandal, when it overcharged 10,000 mortgage customers.
"We will go back to where we were 40 years ago," Ms Howard said, when banks were profitable but with "lower profits" than in the boom years.
The boom period saw Ulster Bank reap considerably larger profits than today.
In 2007, for example, it made €419m in operating profits at the group level, and €375m at the bank level.
In the first half of this year, customer deposits increased by €1.8bn, or 9pc, from a year ago. This, combined with disposals from the loan book, drove Ulster's loan-to-deposit ratio down by 11 percentage points to 100pc.
Commercial new lending rose to €830m, the bank said.
Net interest margins in the first half of the year were a meagre 1.63pc against 1.85pc a year ago, and the bank's return on equity was 2.1pc, versus 7pc a year ago.
Ulster's results came after market leader AIB reported pre-tax profits of €436m in the first half.
Banks in the eurozone will come under further pressure on margins come September, if the European Central Bank starts cutting interest rates on a path that could lead to negative rates, as this would hit their balance sheets.
While the Irish economy has staged a dramatic recovery since the financial crisis and record numbers are in work and getting pay rises, consumers are still saving more than they borrow.
Tough Central Bank of Ireland mortgage rules have also choked the supply of credit, so as to try and prevent the reoccurrence of the risky lending of the boom years.
Loan-to-value and loan-to-income rules have pushed many first-time buyers out of the housing market.
Last week, Taoiseach Leo Varadkar called on the Central Bank of Ireland to loosen the lending rules to help young couples caught in the so-called 'rent trap'.
Ms Howard said she believed that the current regulations should stay.
But she added that the situation could perhaps be improved with private equity, banks and the Government working together within the current framework to unstick financing for people who are currently paying rents that are, in many cases, more than they would spend on a monthly mortgage repayment.