Ulster Bank records first profit since 2008

Ulster Bank chief executive Jim Brown is comfortable with the €453m impairment release in the 2014 accounts, despite recent Central Bank warnings about the level of bad loan writebacks among the banks.

The impairment release helped Ulster Bank post a €752m operating profit, representing the first annual profit since 2008. This compares with a €1,995m loss in 2013.

Speaking to the Irish Examiner, Mr Brown said that the writeback of loan loss provisions was modest compared with the level of losses incurred since the property market collapsed in 2008.

Moreover, the impairment release has been driven by the number of Ulster Bank customers who had been in arrears but who are now meeting their repayment obligations as well as the improvement in the economy and the increase in house prices, he added.

Ulster Bank’s parent company, Royal Bank of Scotland, had to pump over £15bn into its Irish subsidiary over the past six years to cover property-related losses.

However, last October RBS confirmed that Ulster would remain part of its core operations following a review of its overall business.

This paper reported last July that it was a considering selling Ulster Bank to a private equity firm.

It is believed that the appointment of Ewen Stevenson as RBS chief financial officer last year was key in Ulster Bank staying within the group.

The new CFO persuaded the board that the scale of writebacks available to Ulster Bank, as well as the recovering economy, would make it a lucrative part of the overall business.

RBS posted a £3.5bn loss for 2014 following a £4bn restructuring charge for the year.

According to the latest figures, Ulster Bank’s net interest margin (NIM) increased by 39 basis points to 2.27% over 2014.

Mr Brown said the improved NIM had been achieved through repricing the existing loanbook to better reflect the current risk environment as well a lower cost of deposits.

The NIM is a key indicator of profitability as it is the difference between how much a bank charges for its products and how much it pays for its funding.

Mr Brown said the target NIM over the medium term is 2.5%.

There was a transfer of €5.45bn of troubled assets to RBS’s bad bank on January 1, 2014.

Overall new lending increased by 38% to €2.3bn last year, which comprised €1.4bn in new business lending. Ulster Bank plans a further €1.9bn in new business lending over the course of this year. There was a 41% increase in mortgage lending last year. The bank’s loan to deposit ratio is 107%.

The priority now is to grow the balance sheet, said the CEO.

Mr Brown came in for considerable criticism when he appeared before the Oireachtas Finance Committee last November. TDs accused the bank of profiteering on its variable rate mortgage products in view of the prevailing record low interest rate set by the ECB.

The bank cut its variable rate mortgage by 0.2% to 4.3% for existing and new customers in early February, noted Mr Brown.

However, the cost of mortgages also has to reflect the level of risk over the lifetime of the product as well as existing default rates among other factors, he added.