Permanent TSB not ‘healthy enough to lower variable rates’

Permanent TSB is not in a healthy enough financial position at present to be able to lower its interest rates for standard variable mortgage holders, the bank’s management said yesterday.

Addressing an occasionally fractious two-hour agm in Dublin, PTSB chairman, Alan Cook told shareholders that even though the group managed to lower its pre-tax losses last year from €668m to €48m, it is still a loss-making entity overall and needs to accomplish more in lowering costs before it can tackle mortgage rates.

He said this was the case, even though its core banking unit made a return to profit by posting a pre-exceptional surplus [before considering once-off or irregular events] of €5m.

“We feel we’re making progress, but we’re not a profitable bank yet; we’re nearly a profitable bank,” Mr Cook said.

Standard variable mortgage rates have become a thorny issue, with opposition parties claiming that the main banks have used high rates of interest (the average European standard variable rate is closer to 2%) to take advantage of customers and return to profitability. Mr Cook noted, yesterday, that PTSB lowered its variable rate from “well over” 5% to the current 4.5% in the past few years and is now in line with its competition.

He said the rate question is “a big issue” and one “we’re working on right now”.

Mr Cook said that the cost of capital, funding and risk are main drivers of mortgage interest rates and that it must be remembered that the business still lost €48m last year.

“The current reality is that our costs are high and we need to drive down those three costs and we are doing that,” he said.

“We are endeavouring to put this business back into business, and we feel we’re doing a pretty good job,” he added, while dismissing accusations that majority shareholder, Finance Minister Michael Noonan influences the bank’s rates decisions.

Management was also asked about likely compensation arising from the enforcement investigation being carried out by the Central Bank into mortgage switching practices at PTSB. The matter relates to at least 2,000 customers who switched from fixed-rate products to tracker mortgages before the fixed-term of the product was up. They were unaware how this affected their rights.

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Mr Cook said yesterday, he couldn’t comment as the Central Bank probe was ongoing, but said the lack of an available timeline for reaching a conclusion “doesn’t reduce the sense of urgency on either side”.

CEO Jeremy Masding told shareholders that management expects PTSB to be sustainably profitable by 2016/17, with its longer-term ambition to have sufficient reserves to resume dividend payments to shareholders.