Tuesday 25 June 2019

Mortgage opportunity comes knocking for An Post - again

Debbie Byrne, An Post Retail’s managing director
Debbie Byrne, An Post Retail’s managing director
Samantha McCaughren

Samantha McCaughren

An Post's retail business is in decline. At present, the big part of its business is welfare transactions - and footfall in that area is falling as the economy returns to nearly full employment. In addition, much of the system has been automated with the likes of children's allowance going into people's bank accounts. Stamp sales are also in decline, for obvious reasons, while its bill-paying service is also on the wane.

When the An Post business was split into two divisions last year - retail, and mails and parcels - a new focus was put on where the growth opportunities for the retail division might lie. Under managing director Debbie Byrne, the semi-state business identified three core areas: becoming a 'one-stop shop' for government services; co-location opportunities; and financial services.

There are few shocks in this three-pillar approach, given An Post is already operating in all three areas. But what did cause surprise last week was an ambitious plan in its new financial services strategy to seek a joint venture partner for new cheaper mortgages. As revealed in these pages last weekend, An Post sees an opportunity in the market at a time when existing banks are busy trying to reduce the levels of non-performing loans (NPLs) on their books. For the banks, tackling NPLs is not a straightforward task, sandwiched as they are between pressure from Europe to tackle the issue and political and public opposition at home over the sale of home loans to so-called vulture funds.

It's easy to see why the plan works from An Post's side - in theory at least.

The post office already offers several services in this space, mainly through partnerships. These include Post Insurance, which it offers in partnership with One Direct. An Post also offers current accounts, foreign exchange and operates the state savings for the NTMA with €20bn on deposit, representing about 17pc of household savings.

An Post also does agency banking for AIB, Ulster and Danske, handling €1.5bn of transactions. Through these banking partnerships, customers of those banks can make cash withdrawals, lodge cheques and carry out some other basic banking at the post office.

As we reported last week, a relationship with Avantcard has already been agreed and An Post will use them to begin offering credit cards and personal loans from next spring.

And although there has been a healthy dose of scepticism about An Post's mortgage proposals, it has held ambitions in the mortgage market for some time.

In its ill-fated joint venture with Belgian bank Fortis, the chief executive of Postbank, Margaret Sweeney, indicated that mortgages would be offered in the first half of 2009. Postbank, as it was known, had at that stage about 130,000 customers. But as we remember the 10-year anniversary of the bank guarantee, we can see how misplaced Postbank's ambitions were. An Post believes timing was the problem, rather than the concept.

The markets are acutely aware An Post's proposals of mortgages aiming to be 1pc cheaper than competitors has potential to be bad news for the banks, with AIB, Bank of Ireland and Permanent TSB shares all taking a hit a day after the Sunday Independent report. Davy pointed to Bankinter, the Spanish bank, as a possible partner for An Post's ambitions.

It has entered the Irish consumer finance market through its acquisition of Evo Banco, including its Irish subsidiary Avantcard.

Are there any other potential partners at this very early stage? Could KBC be interested in a link-up? It has reaffirmed its commitment to Ireland, but has remained digitally focused. Figures from earlier this year showed KBC was neck-and-neck with PTSB in the residential mortgage market with a 12pc share, not far off a 15pc target. Could a partnership with An Post be just the ticket to give a national bricks and mortar presence, as well as a link-up with a trusted and ever so Irish brand?

The biggest question however, is just how An Post and any potential partner will make a rate which undercuts rivals by 1pc work.

On the plus side, as Byrne pointed out, the new venture will not have the legacy of bad mortgages that the pillar banks and smaller players continue to carry here.

From a banking point of view, the Irish system is a nightmare when it comes to customers who do not or cannot repay their mortgages. Leaving aside the many heartbreaking personal stories of those in mortgage arrears, there is little lenders can do about mortgage holders who consistently do not keep up repayments. Repossession levels continue to be low here and, while protecting the family home is a compassionate and admirable policy, it is not a profitable one. The high levels of distressed mortgages which remain on the books of Irish banks undoubtedly add to the cost of mortgages for those who are repaying each month.

An Post would not have this drag on its books, which it identifies as its big opportunity, but other costs will be a challenge.

A new joint venture would source its own funding at a rate similar to competitors. There would in theory be an operating cost reduction for a new player because it would use the existing An Post network rather than branches. But that cost would be spread across a smaller number of mortgages for some time. And An Post may also come up against bad loans, despite the lessons learnt over the past 10 years and the current economic buoyancy.

Details are scant as yet - all eyes will be on An Post's calls for proposals from joint venture partners when they are published in December.

Sunday Indo Business

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