PTSB, the State’s third largest retail bank, moved on Wednesday to cut mortgage rates as it attempts to win back market share even as it continues to write new business on a more costly basis than its larger rivals.
The lender announced hours before its annual general meeting (agm) in Dublin that it is cutting its three-year fixed home loan rates by as much as 1.05 percentage points. This will, for example, leave the rate on a loan which is lower than 60 per cent of the value of a property at a market-leading 3.7 per cent.
The move follows two sets of rate reductions to its four-year fixed products that took effect earlier this year. The bank has also decided cut rates on its two-, four-, five- and seven-year fixed offerings by between 0.15 and 0.6 of a point in its latest move.
PTSB’s share of new mortgages slid to 13.4 per cent in the first quarter of this year from 15.4 per cent for the three previous months and 25 per cent for the same period in 2023, as switching activity in the market declined and the bank refused to compete as aggressively as AIB and Bank of Ireland on pricing.
The smallest of the remaining domestic banks in the market is at a competitive disadvantage when it comes to writing new loans.
Every €100 of mortgages the bank issues has a risk weighting of more than 40 per cent, against which it must hold expensive capital. The high risk-weighted assets (RWA) density results from the bank’s experience of the last cycle, when 28 per cent of its mortgages were non-performing. The risk weighing on new Bank of Ireland and AIB mortgages is in the 20s.
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PTSB chief executive Eamonn Crowley told reporters after the agm that the bank has to compete in the market, even as it is currently working with advisers on a plan to overhaul its internal loan risk model in the hope it will get some relief from regulators on its RWAs.
“That’s something we expect to resolve over the next year to 18 months,” he said. Bank of America analysts estimate PTSB will be able to free up as much as €270 million of capital as a result of this work.
“Mortgages are a 20-, even 30-year product now, and we have to think of our position in the market as part of that. I wouldn’t say we are being dragged anywhere [by competitors],” he said. “It’s about ensuring we can compete in the market and be relevant to customers.”
AIB and Bank of Ireland accounted for more than 75 per cent of new mortgage activity in the first quarter of the year as PTSB and non-bank lenders found themselves at a competitive disadvantage for various reasons.
PTSB’s share price has fallen by 34 per cent over the past 12 months, while AIB’s has jumped 28 per cent and Bank of Ireland has advanced almost 13 per cent.
Mr Crowley sees PTSB’s natural share of the mortgage market at between 18 and 20 per cent, alongside the fledgling business lending and asset finance books it aims to grow.
PTSB investors voted in favour of a resolution at the agm that would allow the bank to remove as many as 128,000 shareholders from its register with a potential offer to buy out holders of 100 or fewer shares. These account for 99.5 per cent of its investors but represent, in aggregate, less than 0.12 per cent of all its shares.
[ ‘Strong’ start for PTSB but mortgage market share dipsOpens in new window ]
If PTSB proceeds with such a scheme, holders of 100 shares who decide to participate would receive almost €160 at current prices (including a 5 per cent premium). However, 100 shares today would have equated to 10,000 shares before the bank swapped every 100 shares for one new share in a restructuring almost a decade ago.
Shares in PTSB, then known as Irish Life & Permanent, peaked at €22.45 in February 2007. The equivalent of 100 shares today would have been worth €224,500 17 years ago.
PTSB operating profit soared to €164 million last year from €14 million a year earlier, helped by rising interest rates and the acquisition of €6.25 billion of mortgage and small business loans from Ulster Bank as the latter retreated from the Irish market.
The bank hit an important milestone in December when it secured approval from financial regulators to return to paying dividends, helped by the effects of the transformational Ulster Bank deal. The bank said it will announce a shareholder payments policy in the second half of this year.
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