14 May 2020

Permanent TSB Group Holdings plc ('the Bank')

Trading Update For The First Quarter Ended 31 March 2020 (Unaudited)

'Business and financial performance remained stable in Q1, albeit with a decline in new lending towards the end of the quarter as the Covid-19 situation unfolded. The pandemic is having an unprecedented social impact on people and businesses in Ireland, and across the world. The resultant economic impact and outlook is challenging with the long term consequences of Covid-19 largely dependent on its severity and, the ensuing timeline over which business activity and employment levels begin to recover.

Throughout this period of uncertainty, we will continue to work closely with the Government, Regulators and other authorities to continue to provide support to our customers whilst protecting the long-term business franchise. In this regard, we will use the strength built up in the Bank's balance sheet and business model to ensure we continue to play our part in supporting our customers and the Irish economy. 

The Bank's business model, with its focus on secured lending, gives some protection against an impairment shock.  That said, we will continue to monitor closely both the macro-economic environment and quality of the loan book, to ensure we maintain prudent levels of coverage.

In summary, following significant progress made over the last number of years through increasing new lending; reducing Non Performing Loans (NPLs); maintaining profitability; and, strengthening capital, the Bank is currently in a strong position to deal with a significant economic downturn.'

Jeremy Masding, Chief Executive

Covid-19 Response

·     Payment breaks for both Mortgage and Term Loan customers; approving c. 10k payment breaks, equating to c. €1.5bn or c. 9% of total gross loans.

·     Priority banking in branch and over the phone for our elderly and vulnerable customers.

·     An increase in contactless payment limits up to €50.

·     Unlimited 10c cashback payments on debit card transactions for Explore Current Account customers, throughout April and May.

·     €5 reward for customers using the GoRewards programme when €30 is spent in any supermarket during April.

·     Social distancing and increased hygiene measures in our branches nationwide.

·     Redeployment of over one hundred staff to our contact centres to support in answering customer queries.

·     Operationally resilient with over 1200 colleagues working remotely.

·     All 76 branches remain open to meet our customer needs.

Key Points

·     Business and financial performance in Q1 2020 was stable prior to the challenges presented by Covid-19.

·     Net interest margin of 1.80% remained in line with full year 2019.

·     The Bank maintains strong capital and liquidity positions: Fully Loaded CET1 ratio of 15.2%¹, an increase of 20 basis points on December 2019 pro-forma CET1 ratio of 15.0%; Liquidity Coverage Ratio of 188%. 

·     Total new lending volumes of €0.35 billion increased by 1% year-on-year (YoY) compared to Q1 2019. Market share of new mortgage lending of 14.7%², down from 15.1% in Q1 2019.

·     Non-performing loans at 31 March 2020 remained broadly in line with the balances at December 2019.

·     In Q1 2020, the Bank did not experience loan loss outcomes related to Covid-19 and, as such, asset quality remained stable with no material movement in the staging of assets.

·     In light of the current economic outlook, the Bank expects the net impairment charge on its loan book to increase in the 2nd quarter; guidance of a net impairment charge of c. €50m (equivalent to c. 60 basis points annualised cost of risk) is deemed more appropriate for H1 2020, a position which we will keep under constant review and where we will update the market further at the Half Year results.

Balance Sheet

Capital

·     The Bank's Common Equity Tier 1 (CET 1) ratio on a fully loaded basis is 15.2%¹ at 31 March 2020; the CET1 ratio on a transitional basis is 17.7%¹; and, the Total Capital ratio on a transitional basis is 19.2%¹ with all ratios remaining relatively in line with those reported at 31 December 2019 (pro-forma CET1 fully loaded 15.0%; CET1 transitional basis 18.1%; Total Capital transitional basis 19.6%).

·     Based on the most recent regulatory guidance, allowing for the easing of the Counter Cyclical Buffer of 1.0% and a change in the composition of the Bank's P2R, the Bank's CET1 regulatory requirement is 8.94% and the Total Capital regulatory requirement is 13.95%, both on a transitional basis.

Regulatory Capital Requirements

¹ Includes profits earned in Q1 2020, which are subject to regulatory approval

2  Source: Mortgage drawdowns YTD to end March 2020, BPFI

Funding

·     The Bank's funding position remains strong. All funding and liquidity metrics are above regulatory requirements with the Liquidity Coverage Ratio (LCR) at 188%.

·     On 28 April 2020, S&P revised downward their outlook of Industry risk for all banks in Ireland due to the expected impact of Covid-19. As a result, the outlook for PTSB PLC and PTSB Group Holdings PLC has been moved to negative from stable, with our ratings being affirmed.

Customer Balances

·     Customer deposits of €17.3 billion at 31 March 2020 are €0.1 billion higher than 31 December 2019, with current account balances up 5% from December 2019. The loan to deposit ratio was 90% at the end of March 2020.

·     The total performing loan book is €15.2bn at 31 March 2020, slightly lower than the total performing loan book at 31 December 2019 as the pace of repayments exceeded that of new business.

·     Total new lending of €0.35bn grew by 1% YoY; new mortgage lending of €0.3bn grew by 4% YoY while market growth was 6%². As a result, Q1 2020 market share of mortgage drawdowns was 14.7%² down from 15.1% at Q1 2019. The Bank continues to manage its offering carefully by maintaining price discipline and credit underwriting standards.

·     Non-performing loans at 31 March 2020 remain broadly in line with the balances at December 2019, where organic cures were offset by new defaults.

·     As a result of the economic outlook and the impact of Covid-19, the Bank's expected credit loss will increase in the 2^nd quarter. The impact of Covid-19 is uncertain and thereby challenging to forecast; however, the Bank is guiding that a net impairment charge of c. €50m (equivalent to c. 60 basis points annualised cost of risk) is more appropriate for H1 2020, a position which we will keep under constant review and where we will update the market further at the Half Year results.

Financial Performance - Q1 2020

·     Net interest income from our performing loan book was stable in Q1 2020 supported by the active management of the Bank's cost of funds, partly offset by reduced income from non-performing loans (NPLs) due to loan sales in H2 2019. YTD Net Interest Margin (NIM) of 1.80% is in line with full year 2019.

·     Fees and commissions remain in line with the prior year while net other income has reduced due to lower gains from the sale of properties in possession in Q1 2020 compared to Q1 2019. The stock of properties in possession has reduced by c. 60% YoY to 360 properties at the end of March 2020.

·     Operating costs remain in line with management expectations as we continue to deliver on cost saving initiatives to allow for the continuation of planned investments.

·     The full year bank levy and regulatory charges are expected to be in line with the prior year.

¹ Includes profits earned in Q1 2020, which are subject to regulatory approval

2  Source: Mortgage drawdowns YTD to end March 2020, BPFI

Outlook

Given the significant change in the operating environment and economic expectations, some of the Bank's previous guidance for 2020 is no longer appropriate.

·     Business activity will be lower, impacting gross new lending volumes and the Bank's ability to grow Non Interest Income. 2020 new lending could reduce by c. 40 - 50% of 2019 volumes (€1.7bn).

·     As previously indicated, NIM is expected to decline from current 180 basis points to mid-170 basis points, reflecting the low interest rate environment and growth in liquid assets.

·     Achieving cost reductions in the current economic environment will prove challenging; however, the Bank retains its outlook that operating costs will remain stable and it will continue to deliver cost savings in the medium term.

·     97% of total performing assets are secured residential mortgages; as such, the full year loan loss experience will be directly linked to a mix of: the payment breaks issued in H1 2020; the resultant timeline over which business activity and employment levels begin to recover from the Covid-19 pandemic; and, the macro-economic impact on the House Price Index (HPI).

·     Capital remains strong, the outlook on profitability is challenging; however, having assessed a range of scenarios, the CET1 ratio will remain above the Bank's minimum regulatory requirements.

¹ Includes profits earned in Q1 2020, which are subject to regulatory approval

2  Source: Mortgage drawdowns YTD to end March 2020, BPFI

Ends

For Further Information Please Contact:

Eamonn Crowley | Chief Financial Officer | Eamonn.Crowley@Permanenttsb.ie | +353 1 669 5354

Nicola O'Brien | Head of External Reporting and Investor Relations | Nicola.O'Brien@permanenttsb.ie | +353 1 6695283

Leontia Fannin | Head of Corporate Affairs and Communications | Leontia.Fannin@permanenttsb.ie | +353 87 973 3143

Note on forward-looking information: 

This announcement contains forward-looking statements, which are subject to risks and uncertainties because they relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Bank or the industry in which it operates, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements referred to in this paragraph speak only as at the date of this announcement. The Bank undertakes no obligation to release publicly any revision or updates to these forward-looking statements to reflect future events, circumstances, unanticipated events, new information or otherwise except as required by law or by any appropriate regulatory authority.