Permanent TSB sees mortgage loans in 'robust' health despite rate hikes

generic stock news business banks A Permanent TSB branch in Dublin as the the Central Bank of Ireland has fined the institution 21 million euros.

Permanent TSB has said the quality of its mortgage and small business loans remain in “robust” financial health, despite the hefty rises in interest rates since last summer and the cost-of-living pressures bearing down on borrowers.

It comes as the smallest of the three remaining lenders in the market posted an underlying profit of €86m in the first six months of the year as net interest income surged to €298m, reflecting the rewards from higher interest rates and the closure of former formidable rivals Ulster Bank and KBC.

In the earnings statement, chief executive Eamonn Crowley said the lender had returned to long-term profitability and was on course to deliver significantly higher levels of income through the rest of the year, helped by higher-than-expected rate increases from the European Central Bank.

Permanent TSB’s share of the new mortgage market has risen to over 23% at the end of June from a share of only 16.3% a year earlier, reflecting the exits of Ulster Bank and KBC Bank, which formerly competed fiercely on mortgage interest costs.

However, the overall mortgage market is likely to contract to €12.5bn this year, as interest rate hikes weigh on the number of customers switching rates or providers, it said.

The bank is the last of the three remaining lenders to report half-year earnings in the past week: AIB posted net interest income of €1.77bn, and Bank of Ireland reported income of €1.8bn for the same period.

The earnings have turned a spotlight on the level of interest rates the banks charge their borrowers and what they pay savers for their deposits.

The fortunes of all the three banks have been transformed by ECB rate increases and by the further collapse of banking competition in the Republic entailed by the departures of KBC Bank and NatWest-owned Ulster Bank.

Permanent TSB scooped up mortgage and business loans worth €6.7bn and 88,000 new customers from Ulster Bank, and acquired 25 of its branches, in a deal that involved NatWest taking a shareholding in the Government-owned Irish lender.

The lender also boosted its deposits to €22.6bn.

In June, NatWest further reduced its shareholding, and the Government cut its stake in the lender to below 60%.

On the outlook, Permanent TSB said that “credit quality remains robust despite the backdrop of inflation and higher interest rates”.

The shares of the Irish banks have soared over the past 18 months.

Ahead of the six-months earnings, Permanent TSB shares had risen 27% since the start of the year and by 65% from last summer, to value the lender at €1.26bn.

The shares of AIB and Bank of Ireland have gained 93% and by 72%, respectively, from a year ago.