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Dublin: 6 °C Saturday 15 December, 2018
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Permanent TSB won't cut rates on mortgages - it wants to boost profits from them instead

The bank is about to go on a fundraising drive.

Image: James Horan/Photocall Ireland

STATE-OWNED PERMANENT TSB has signalled it has no plans to answer criticism of Irish banks’ high variable mortgage rates by reducing what it charges borrowers.

The bank instead said it planned to nearly double the amount it was making on its loans within the next three years.

The statement came as the lender fleshed out its plans to return to public ownership, which included listings on the main Dublin and London stock exchanges.

Permanent TSB (PTSB) said it plans to raise €400 million selling shares to institutional investors and another €125 million from new borrowing.

The money will be used to buy back €400 million in government-owned convertible notes. These have been returning the exchequer 10% interest a year and were due to be repaid next year regardless.

PTSB said the remaining funds were needed to provide for the losses it expected as it unwound its “non-core businesses”.

The bank plans to sell its UK buy-to-let operations and Irish commercial property loans to focus exclusively on retail banking and lending in Ireland.

Then-Irish Life and Permanent was given a €4 billion taxpayer bailout during the banking crisis, €1.3 billion of which the state got back from the sale of Irish Life.

In return, the government took a 99.2% stake in the bank – however this share is expected to be diluted to about 75% after the share sale.

The €400 million repayment will take the amount of the bailout money still owing to the taxpayer to €2.3 billion – a sum PTSB’s chief executive Jeremy Masding has conceded is unlikely to ever be repaid in full.

But he said the money-raising exercise was the first step in returning the bank to private ownership and it had been encouraged by the interest it had received from investors so far.

Permanent TSB Business Results Permanent TSB chief executive Jeremy Masding Source: Leah Farrell/Photocall Ireland

Higher margins

In its announcement today, the bank also said it wanted to lift its net interest margin – the amount of profit it makes on its loans – to 1.7% by 2018. The average figure for 2014 was 0.9%.

That comes despite it and other lenders coming under pressure to cut their variable interest rates – particularly for existing mortgage holders – as Irish borrowing costs move further out of step with those in other eurozone countries.

“There continues to be both political and regulatory focus on the pricing of variable rate mortgages with significant pressure both to align front and back pricing levels, and to bring pricing in line with selected European mortgage markets,” PTSB’s statement said.

However, while the group is fully cognisant that its mortgage pricing decision framework should take account of all stakeholders, it will continue to review its pricing and product strategies on a commercial basis with full consideration of long-term sustainable shareholder value creation.”

Permanent TSB Business AGMS Source: Sam Boal/Photocall Ireland

Finance Minister Michael Noonan recently met with Central Bank officials over the issue as figures showed the gap between interest rates charged in Ireland and elsewhere in the eurozone widening.

The average rate on new, variable loans – including renegotiations of existing deals – was 3.38% in the Republic, compared to an equivalent rate of 2.09% across the currency bloc.

Central Bank Source: Central Bank

The figure was even higher at 4.2% for new loans when renegotiations were left out of the equation.

PTSB cut its variable mortgage charges for new customers in January, with the rates ranging from 3.7% to 4.2% depending on the sizes of borrowers’ deposits. It didn’t pass on any reductions to existing borrowers on standard variable rates.

First published 10.16am

READ: Can’t pay your mortgage? Your council should do it for you… >

READ: AIB customers left out of pocket after mortgage interest relief screw-up >

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About the author:

Peter Bodkin  / Editor, Fora

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