Ulster Bank returns to profit as exit plans advance

Ulster Bank swung into an operating profit of €13 million in the Republic in the first quarter of the year as it freed up money that was previously set aside to cover bad loans, while its UK parent said that plans to wind down the unit over the coming years remain "on track".

The Dublin-based lender’s loan book dipped by €200 million to €19.8 billion during the first three months of the year, as loan repayment outpaced new lending, while deposits dipped by €100 million to €21.7 billion, driven by a reduction in commercial balances.

The figures were contained in the first-quarter earnings report of NatWest Group, Ulster Bank's parent.

The operating profit compared to a €25 million loss for the first quarter of last year, when Ulster Bank took an initial €32 million charge to cover an expected surge in bad loan losses as a result of the Covid-19 crisis. All told, loan-loss provisions amounted to €281 million last year, net of €3 million of such reserves having been released in the final quarter of 2020.

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The bank wrote back a further €14 million of such provisions in the first three months of this year, citing “improvements in the mortgage portfolio”.

The releases “clearly show stabilisation” in the macro-economic backdrop, said Eamonn Hughes, an analyst with Goodbody Stockbrokers.

The level of distress on Irish mortgage books has so far turned out to be much lower than feared at the outset of the pandemic, with home loan portfolios helped by the fact that many of lower paid workers most affected by closures in sections of the economy – including leisure and non-essential retail – are less likely to have mortgages. Government supports for salaries and Covid-19 unemployment benefits have also helped.

NatWest confirmed in February that it will be carrying out a "phased withdrawal from the Republic of Ireland over the coming years that will be managed in an orderly and considered manner", as the unit was unlikely to be ab le to produce sufficient profit returns for the foreseeable future. Ulster Bank Limited's banking business in Northern Ireland is unaffected.

NatWest plans to sell about €4 billion of performing commercial loans to AIB and is in talks with Permanent TSB (PTSB) and other strategic banking companies about their potential interest in buying "certain retail and SME assets, liabilities and operations". Analysts expect PTSB to end up acquiring about €9 billion of mortgages and small business Ulster Bank loans and some of the exiting bank's branches.

‘Phased withdrawal’

“Plans remain on track to proceed with a phased withdrawal from the Republic of Ireland over the coming years,” NatWest said on Thursday. “Ulster Bank RoI remains open for business and continues to support its customers through this transition and challenges of Covid-19.”

Last month, Ulster Bank was fined a record €37.8 million by the Central Bank for its role in the State’s tracker mortgage scandal, which saw the lender devise “deliberate” strategies to shift borrowers off cheap mortgages during the financial crisis and only rectify matters for those that complained.

Borrowers lost 43 properties as a result of overcharging as they were denied their entitlement to a low-cost mortgage linked to the European Central Bank’s main rate, according to the Central Bank.

“The fine was substantially covered by existing provisions,” NatWest said on Thursday. Ulster Bank set aside about €300 million of provisions in recent years to cover costs relating to the tracker fiasco, including refunds, compensation, administrative expenses and fines.

The NatWest Group posted a pretax profit of £946 million (€1.09 billion) for the first quarter of the year after releasing cash it had set aside to cover bad loans due to the pandemic. The result beat an average analyst forecast of £536 million and the £519 million surplus reported for the corresponding period last year.