Ulster Bank is to continue to take action against households that are in a position to service their mortgages but who are not currently doing so.

The bank said yesterday it had witnessed a substantial rise in the number of mortgage borrowers strategically defaulting.

It attributed the increase to a number of factors including the introduction of the mortgage code of conduct and the halting of repossessions following the discovery of a loophole by Justice Elizabeth Dunne in the 2009 Land and Conveyancing Reform Act.

Speaking during a call with investors during which the bank outlined plans to reduce its number of branches, Ulster Bank's chief risk officer Stephen Bell said about 35 per cent of mortgage borrowers in arrears are not currently paying anything.

Solution

He said the bank had already taken steps to work with customers to find a solution to the issue and the number of borrowers defaulting had declined sharply as a result of this.

Mr Bell warned the bank would consider further steps against those not currently servicing their mortgages, including legal action if necessary. He added that the bank’s aim was to work constructively with customers but noted that the average mortgage repayment per month is usually considerably less than the householder would pay in rent.

During the investors' call, chief executive Jim Brown outlined plans to shut as many as 40 branches as part of a new plan to become a "smaller, lower-cost and profitable bank".

Smarter banking

Mr Brown said the bank is “well on the way to delivering a good, profitable bank but clearly it will be smaller than it was at the peak of the boom”.

He added that while the bank would shut branches across the island of Ireland it would also increase the methods by which customers could engage with it.

“We need to continue to invest in digital to give our customers smarter banking when and where they need it,” Mr Brown said.

“Online is a key distribution channel,” he added, pointing to an 11 per cent increase in the number of active online banking customers.

Ulster Bank said it was aiming for the core bank to reach break-even by 2014, with its legacy and non-core portfolios and stranded costs separated from the future bank.

The bank, which is a subsidiary of Royal Bank of Scotland (RBS), is targeting a return to profitability in 2016, and a return on equity of 5-10 per cent in the medium-term.

By 2016, the bank expects to return to profitability and be on a “moderate growth path”, with the majority of transactions performed via direct channels and next generation ‘lite’ branches and kiosks.

It will also have a product range that is “largely identical” with RBS’ product set in the UK and which is “optimised” for direct distribution.

Mr Brown also said that Ulster Bank will "leverage" the RBS Group to build a "market-leading proposition".

Good progress

He said the bank had made good progress over the past two years, with an improved loan-to-deposit ratio of 127 per cent, down from 152 per cent; widened margins; and the implementation of £65 million (€78.8 million) in cost reductions.

When it comes to core performance, the bank has moved on from a loan-to-deposit ratio of 191 per cent at its worst, to 127 per cent in the first quarter of this year.

Its target is about 100 per cent. The bank said its cost-to-income ratio has also improved, down from 84 per cent at its worst, to 63 per cent in the first quarter, which is closer to its target of about 50 per cent.

The bank said it was targeting growth in sectors that would leverage its competitive advantage and improve margins and fees.