Permanent TSB (PTSB) said on Tuesday its net interest income soared 86 per cent in the first three months of the year as it acquired much of Ulster Bank’s loans and benefited from rising interest rates.
The bank is likely to upgrade its full-year forecasts when it announces its interim results during the summer, according to analysts.
Since late November, PTSB has taken over €5.2 billion of performing mortgages, 25 branches and €165 million of microbusiness loans from Ulster Bank, as the latter retreats from the Irish market. The bank has also agreed to buy Ulster Bank’s Lombard Asset Finance business and a further €900 million of mortgages from Ulster Bank, which are expected to transfer by the end of June.
PTSB, led by chief executive Eamonn Crowley, said its net interest margin – the difference between the average rates at which it funds itself and lends on the customer – rose by 0.82 percentage points on the year to 2.26 per cent in the first quarter.
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This was driven as the bank’s surplus deposits automatically became more profitable as the European Central Bank (ECB) hiked its deposits rate from minus 0.5 per cent to 3 per cent since last July and as PTSB passed on some of the ECB’s rate increases to mortgage customers.
PTSB’s €22.3 billion of customer deposits, which had been boosted in the past year by customer transfers from Ulster Bank, compared to its €20.2 billion gross loan book at the end of March.
“Asset quality remains strong with non-performing loans of €700 million at March 31st, 2023, in line with balances at December 31st, 2022,” the bank said. “While the global macroeconomic environment remains volatile, the Irish economy continues to record strong growth levels with no notable deterioration in the asset quality of the bank’s loan book evident to date.”
The weighted average loan-to-value ratio on its mortgage book was 51 per cent at the end of the quarter.
PTSB said its share of new mortgage business was 25 per cent in the first quarter, up from 17 per cent a year earlier, boosted by the bank’s purchase of much of Ulster Bank’s loan book as well as a weakening of competition from nonbank lenders as they struggled more in a rising rates environment.
The bank expects the overall mortgage market to grow by 3 per cent this year to €14.5 billion, though mortgage switching, which was a big feature of the market in 2022, is slowing.
PTSB reiterated, for now, its forecast that total income for 2023 will be around €650 million, which would mark an almost 60 per cent improvement on last year, and that its cost-to-income ratio would fall below 70 per cent, compared to 84 per cent.
However, Davy analyst Diarmaid Sheridan and Goodbody Stockbrokers’ John Cronin said they expect the bank to raise its guidance when it reports half-year results this summer as the ECB continues to raise official interest rates. Economists expect the ECB to raise its deposit rate by 0.25 of a percentage point on Thursday, bringing it to 3.25 per cent. The key rate stood at minus 0.5 per cent before the central bank started to raise rates for the first time in more than a decade last July to tackle inflation.
