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Edited Transcript of IL0A.I earnings conference call or presentation 26-Feb-20 9:00am GMT

Full Year 2019 Permanent TSB Group Holdings PLC Earnings Call

Dublin Mar 11, 2020 (Thomson StreetEvents) -- Edited Transcript of Permanent TSB Group Holdings PLC earnings conference call or presentation Wednesday, February 26, 2020 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Eamonn Crowley

Permanent TSB Group Holdings plc - Group CFO & Executive Director

* Jeremy John Masding

Permanent TSB Group Holdings plc - Group CEO & Executive Director

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Conference Call Participants

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* Alastair William Ryan

BofA Merrill Lynch, Research Division - Co-Head of European Banks Equity Research

* Diarmaid Sheridan

Davy, Research Division - Financials Analyst

* Eamonn Hughes

Goodbody Stockbrokers, Research Division - Financials Analyst

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Presentation

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Jeremy John Masding, Permanent TSB Group Holdings plc - Group CEO & Executive Director [1]

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Good morning. Welcome to our 2019 full year results presentation. Perhaps I could ask you to turn to Slide 4. I'm going to give a short presentation on the progress the bank has made in 2019, after which our CFO, Eamonn Crowley, will provide a more detailed review of our financial performance. And then Eamonn and I will be happy to take your questions after that.

The bank is reporting a profit before tax of EUR 42 million and an underlying profit of EUR 74 million. The outturn represents a better quality of earnings, the ongoing strength of the franchise and our ability to compete in the Irish retail and SME markets. Indeed, with many of the legacy issues now behind us, management has a strong balance sheet foundation for developing the franchise. We have a clear management agenda and the emerging capability to compete strongly in the Irish retail and SME market.

In spite of significant headwinds, notably lower for longer interest rates, high RWA intensity and a lack of balance sheet scale and a few tough choices in front of us, for example, around cost management and maintaining competitive mortgage pricing in front and back books, we are confident that we can align intrinsic value and market value over time for the benefit of our owners.

A few further comments. The bank's net interest margin for 2019 is 180 basis points, showing an increase of 2 basis points on 2018. The bank continues to focus relentlessly on efficiency and effectiveness as a means of funding strategic investment. At a headline level, total operating expenses reduced by 1% in 2019, but that does not do justice to the circa EUR 20 million of underlying efficiency gains in the addressable cost base, which gave us the ability to reinvest back into both the business and its culture. Eamonn will give you more color on this perspective in his CFO section.

I'm pleased to say that business performance in 2019 has been strong, in particular, in mortgage lending. We outperformed the market, grew total new mortgage lending by over 13% to EUR 1.5 billion, and thereby, grew our mortgage market share to 15.5%. In addition, we continue to grow other lending lines, including term loans and SME. On a flow basis, we are making really good progress in building out a diversified income stream, as per our commitment to investors.

NPLs are circa EUR 1 billion at the end of 2019, with an NPL ratio of 6.4%. NPLs have reduced by 38% from EUR 1.7 billion. And let's not forget, the NPL ratio was 10% at December 2018. We remain committed to a mid-single-digit target. The stock of properties in possession at the end of December 2019 is now circa 400. Indeed, progress on the sale of properties in possession has been strong, with a total of more than 2,000 properties sold since 2017.

We're happy to report that there were multiple rating upgrades received in 2019, with Standard & Poor's upgrading the bank to BBB- and Moody's to Baa2. The bank has now returned to investment grade with all its rating agencies, the first time since 2011.

We report a pro forma CET1 capital ratio of 15% on a fully loaded basis, an increase of 100 basis points in 2019. Both CET1 and total capital ratios remain above regulatory requirements. The long-term management CET1 target is 13%. In this regard, we confirm P2R remains at 3.45%, and that the dividend restriction remains in place.

Turning to Slide 5 for some detailed comments on financial performance. We saw the NIM increased by 2 basis points year-on-year from 178 basis points to 180 basis points, all driven by active balance sheet management. Operating expenses, excluding regulatory charges of EUR 283 million, reduced by 1% year-on-year. This performance includes further progress in reducing underlying operational costs and reinvestment in the future of the business, including in business efficiency programs, digital transformation, new and redesigned branches and people development. As mentioned previously, Eamonn will provide further insights into the management of the cost base.

An impairment charge of EUR 10 million in 2019 compared to a charge of EUR 18 million in 2018. The underlying loan book is performing well, reflecting the stability of the portfolio and the current macroeconomic environment. In terms of balance sheet resources, retail deposits, including current accounts, increased by circa EUR 200 million. Indeed, current account balances are the highest they have been in over a decade. The performing loan book, which stood at EUR 15.3 billion, shows an increase of EUR 100 million or 1% when compared to 31 December 2018. The strength of new lending has outpaced repayments for the first time again in a decade.

Of course, it would be remiss of me not to reference the Tracker Mortgage Examination or TME. The TME and enforcement process have concluded. We paid a fine of EUR 21 million. We apologize fully, and I'll do that again today, and have concluded the work.

Turning to Slide 6. We are an important part of the Irish retail and SME banking landscape, and have proven this by continuing to grow new business across all customer lending segments. Total new lending grew by over 14% in 2019. Mortgage lending, which represents 89% of total new lending, increased by 13% compared to '18, where the mortgage market grew by 10%. This is an impressive performance and shows the strength of PTSB's brand, the quality of the bank's propositions, the value of the multichannel approach and the passion, professionalism and commitment of my colleagues to deliver fair customer outcomes.

Profitable growth has not been achieved at the expense of credit quality. Since 2012, we have focused much more on affordability as the key credit risk test as against underlying asset value. Indeed, for the vintages written since 2012, we have had minimal defaults and more than acceptable LTV. We have not changed our underwriting criteria, and keep a watchful eye on book performance.

Whilst one cannot always legislate for a macroeconomic impact such as Brexit or a global financial crisis, we remain diligent and true to old-fashioned lending principles. The data would suggest we have gained competitive advantage through proposition, people and service. Today, our mortgage application levels continue to grow, despite a slight plateau in the second half of '18, which was seen across the market. The mortgage market is expected to exceed EUR 10 billion in the medium term, which provides a positive backdrop for our business. While the market remains competitive, efficient distribution and disciplined pricing, coupled with a strong intermediary proposition, position us well for the future.

Personal term lending grew by 15% year-on-year. The majority of our personal loan applications now originate through digital and voice channels. We have fully automated the personal term lending journey such that real time decisions, document upload and payouts can all be fulfilled digitally, thereby eliminating the need for manual intervention. We have also fully automated the credit card application journey launched in August 2019, and our objective is to roll out this automated customer journey across more of the product range through 2020. SME lending was EUR 47 million in 2019. SME lending has now grown 126% year-on-year, albeit from a low base. We are confident we can build a real market presence in the segments we choose to serve.

The bank is clear that its governing objective is to maximize sustainable shareholder value. Our core belief is that by focusing our decision-making and resource allocation on a single objective, we bring clarity to strategy development and capital and management time allocation. We only fund strategies that deliver this objective, thereby ensuring an alignment with the owners of the business. However, in doing so, we believe that we will bring value to other key stakeholder groups. We convert this so-called rational purpose into a vision, to be the bank of choice and a brand purpose to deliver what our customers, colleagues and communities need to be successful.

In summary, we believe this clarity of thinking, construct and execution is in itself a source of advantage as we are absolutely clear in how we run our business.

The delivery of the bank's purpose is achieved through a clear business model. We have a business model that offers modern, personal, easy banking through omni-channel customer journeys, which are digitally led with strategically positioned physical locations, with simple, transparent products and features at competitive prices with easy, straightforward end-to-end processes.

In terms of our brand promise, you can see from this slide that we're seeing positive trends in terms of our customer base and activity metrics. Net Promoter Score, the degree to which our existing customers recommend us to potential customers, is joined first in the market at December '19. Customer commitment, tracking the preferred choice for a customer's main banking relationship, remains within the top 2 in the market. We are making good progress in building a valuable franchise whilst respecting that we, like others, have a way to go before we build the trust and respect needed for a fully functioning banking market.

In 2019, we continued to invest in all our channels, branch network, voice and digital. First, we talk about our digital journey. We've continued to improve our digital offer to allow customers who want to do more business with us digitally to do so. We're making significant progress in this regard. In 2019, for example, the bank recorded more than 80 million successful customer log-ins through the app and desktop. More than 360,000 active customers used our app, up 44% on full year '18, with over 35,000 personal loans being applied for online. The banking app allowed circa 130,000 travel notes to be added to customer accounts and more than 200,000 knowledge-based and automated web chat service responses were provided, thereby reducing inbound and outbound call volumes in the Open24 sales and service center.

As mentioned previously, in August 2019, the bank launched the credit card application process end-to-end online. Since launch, we have received more than 10,000 credit card applications. And again, as mentioned earlier, we have further enhancements in the pipeline. For example, we are planning to launch both the current accounts and overdraft end-to-end application in 2020.

In terms of physical locations, we want our branches to be economically profitable, attractive and state of the art. We want to build locations that are second to none, to facilitate conversations about real customer needs. Indeed, we find many customer journey starts, and maybe finish online, but that the face-to-face element remains an integral part of the banking relationship.

What is changing is the role of the branch and branch staff, not the need for the branch. In simple terms, we will continue to invest in a branch network, as long as the economics of doing so remain viable. For example, in February '19, we opened the first auto cash location in Omni Shopping Centre. This tested the so-called connect format, with enhanced digital capabilities and an operating model that educates our customers on all channel options. This format has proven really successful to date. For example, 100% of cash transactions have been automated. All customer service requests have been completed by the most efficient channel, such as through online end-to-end term loans or credit cards. We opened 50 hours versus the standard 35 hours over a 6-day period, Monday to Saturday, and customer service advisers are freed up to support customers and advise them on their financial needs.

We've also improved our offering to intermediaries, which remain a very important part of the market. In the first half of 2019, phase one of the mortgage broker portal was launched, which allows intermediaries to track various mortgage applications to pay out milestones. This is a differentiating factor and one that strengthens further our relationship with intermediaries. I'd like to thank our intermediary partners publicly for continuing to support PTSB.

I won't summarize progress against all the strategic priorities at the risk of repeating myself. However, I can say with confidence that the foundations are strong. If you allow me, let me comment on those priorities, which I haven't referenced earlier.

Advanced simplification and efficiencies. Together with enhancing IT infrastructure, we are simplifying processes all the time as a means of driving out sustainable cost efficiencies. For example, with the introduction of robotic process automation, we have committed that the investment in the business, technology and equally and maybe more importantly, culture will be paid for within the bank's cost envelope.

Commit to fair customer outcomes. In 2019, we established a product assurance function as part of building an organizational culture that is focused on rebuilding trust with customers as a means of delivering profitable growth. We have improved our focus on customer complaints management, including the implementation of a new complaints management framework.

And better and inclusive high-performance culture. The bank has been on a culture evolution journey for the last number of years. This has included a dedicated organizational culture program, which is now bearing fruit. The bank is also actively involved in improving the culture across the Irish banking industry, as a member of the Irish Banking Culture Board. We are absolutely focused on rebuilding trust and improving our culture for the better of all our stakeholders.

As part of the culture improvement, there are a number of interesting data points. The bank's Every Voice Counts survey results, showed that we have increased the employee engagement score by 2% to 83%, which compares strongly against industry standards. In '19, we have developed further the bank's diversion -- diversity and inclusion strategy. We are committed to creating a professional environment in which our employees feel valued, included and empowered to succeed. The bank is a member of the 30% Club, committed to gender balance at all levels of the organization. In addition, the bank continued its participation in Triple FS, supporting gender balance at the senior level. The bank is happy and indeed proud to say that we have seen a 6% increase in senior -- in women in senior leadership positions since 2017, with more work to be done in this overall area.

To support the delivery of diversity and inclusion, the bank has set up a number of employee resource groups whose aim is to enable employees to join together, based on shared characteristics or life experiences. For example, PRISM, the LGBTQ+ Network; SEEN, an empowerment engagement network focused on achieving gender balance and LIFE, a work-home balance and support network. Indeed, we delivered today's results only by having a really talented and committed workforce to whom I offer my sincere thanks.

In this regard, and recognizing the reward constraints under which we operate, our commitment is to give every member of the PTSB team the chance to be the very best that they can be. We're very proud of the opportunities for personal and professional development that we offer. Indeed, perhaps the most rewarding part of my role is seeing how so many of the PTSB team have developed into really talented banking professionals. Long may that continue.

All in all, it's been a productive year. We're in a good place, recognizing both the industry and PTSB specific headwinds, and the challenges that dynamic change will always bring. The industry headwinds are well-known and would include, for example, the lower for longer interest rate environment, which challenges our ability to generate sustainable levels of net interest income, high RWA intensity compared to European peers, and regulatory requirements in terms of nonperforming loans and how we provision for such assets over time. The PTSB specific headwinds include, for example, relatively small value-creating asset base, a competitive pricing dynamic for both front and backward mortgages, a relatively small addressable cost base, a stock of NPLs that require active management and a need to complete the customer engagement program in respect of interest-only mortgages against the backdrop of NPL regulations.

On a more positive note, the bank has managed to increase its share of the mortgage market while increasing its NIM. Furthermore, we've managed to increase the fully loaded common equity Tier 1 ratio. Accordingly, I assert that it is not unrealistic to imagine that the challenges facing the bank will dissipate over time. The construction sector is growing, and it appears that the demand for office block and hotels has been largely met. I assert, it's likely, therefore, that builders will focus more on apartment and housing construction in the future.

The steady-state housing demand is estimated at 35,000 to 40,000 units annually. However, the sector also has to respond to cumulative undersupply over the last 6 years. Thus, I think it's likely that construction output will continue to increase for the next 5 years. And if this level of output could be sustained for 10 years or more, that will deal with the demand overhang, and it will also add to second-hand home activity, which I think could generate a much higher level of mortgage demand, for which we are ready to compete.

As the outstanding balance of tracker mortgages declines, the associated benefit to mortgagors reduces, of course. In consequence, the prepayment rate, I think, is likely to increase towards more normal levels as mortgagors move to properties more suited to their state of life. These prepaid mortgages can be replaced with a different quality of asset.

In that regard then, the excess HQLA can be liquidated and replaced with profitable mortgages. I think we should see the LDR rise and the LCR decline, all of which are positive contributors to the bank.

And I think over time, it's possible to imagine that the probability of default models will recalibrate to recognize the impact of a more conservative underwriting of recent years. If this reduction in risk is reflected in lower-risk weightings, it will reduce the level of capital necessary to support the book. Since the bank's fully loaded leverage ratio is circa 8%, we should be in a position to generate better returns. So I would argue that whilst the current price-to-book ratio of 20% is a clear demonstration that our owners currently hold out little hope of growth or dividends in the short term, we know that intrinsic value and market value are disconnected. In my opinion, therefore, whilst there are many challenges, there are reasonable grounds for total shareholder return optimism if the economy holds steady.

In addition, a few statements of fact. First, this bank have no right to survive, no clear future and severe challenges to overcome. Second, in response, this bank is innovative, resilient and full of really talented people. So third, this bank will continue to compete hard and will generate returns for its shareholders. As such, I am confident we will continue to exceed expectations within what we can control. We're well positioned for growth, supported by strong Irish economy. We continue to build our digital capabilities. We have solid funding. We have a robust liquidity position. We have a CET1 and total capital base that remains above minimum regulatory and management requirements. We reduced NPLs by 80% in 2 years. We have a high quality of assets. We have strong succession plans in place for all key roles. We have a culture that is evolving for the better of our customers. And finally, and most importantly, we have a fundamental belief that the market value of this enterprise does not represent its intrinsic value.

We believe the disconnect is material. We believe we have the organic strategy to close the gap. We believe we are creating real option value for our owners, and we believe we're an investable proposition.

So with that, I will now hand you over to Eamonn. Thank you for listening to me.

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Eamonn Crowley, Permanent TSB Group Holdings plc - Group CFO & Executive Director [2]

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So thank you, Jeremy, and good morning, everyone. I'll discuss the financial performance in detail. But before this, I'll turn to Slide 12. So the Irish economy is forecast to grow at 5.5% in 2020, and it continues to be 1 of the fastest-growing economies in Europe. The economic fundamentals underpinning growth are very strong. Consumer spending and employment continues to grow at around 3%, which is a positive. And a key highlight is the labor market, with employment levels growing by around 3%, which is bringing the unemployment rate to an estimated 4.4%, which is the lowest since February 2005.

When you look at the housing market, the picture is also quite positive. The mortgage market have grown to EUR 9.6 billion in 2019, is expected to increase by 11% to over EUR 10.7 billion in 2020. And while, as outlined by Jeremy, the market -- housing market has continued to grow at a pace, it has been subdued for both new and secondhand properties. We believe that the future is brighter in this regard. The increased political uncertainty around Brexit is welcomed across the business community. We've undertaken steps to mitigate the risks arising from Brexit, and we will continue to monitor developments in the coming months as the U.K.'s future trade relationship with the EU becomes more apparent.

Let me now turn to Slide 13, which is the income statement. The key message I want to convey today is that we continue to rebuild the bank's underlying profitability, and indeed, this is the third year in which the bank has made a profit. We have reported a profit after tax of EUR 42 billion, which has increased from EUR 3 million year-on-year. But the key number you need to look at here is the profit before exceptional items and tax, which is EUR 74 million, and this has decreased by 23% or EUR 20 million year-on-year. However, any comparison with 2018 should take into account the significant deleveraging that we've executed with regard to our NPL position and the smaller but more secure balance sheet that we now have.

Net interest income has reduced by 6%, and we will look at this in more detail on the next slide. Fees and commission income at EUR 37 million, represents around 9% of total income, and it's 5% or EUR 2 million below the prior year. But this is actually due to a change in how we charge overdraft fees with our customers, so it's actually led to a much better customer outcome in that regard.

Net other income of EUR 21 million primarily relates to the gains on the disposal of properties in possession, together with some movements in treasury instruments. The prior year amount of EUR 24 million, related to one-off gains in the sale of treasury assets and the closure of some derivative positions. Operating expenses have reduced by 1%, and I will outline the makeup of this in a later slide. The impairment charge of EUR 10 million reflects the underlying loan book which is performing well, the stability of that portfolio and the current macroeconomic environment, which is quite strong.

Exceptional items in 2019 related to the restructuring and other costs of EUR 13 million, NPLs and leveraging costs, which represented EUR 16 million and a EUR 3 million P&L impact from the Tracker Mortgage Examination fine. And as Jeremy has outlined, we paid a fine of EUR 21 million during 2019, but we have provided for this in prior years, and this led to a net EUR 3 million net charge in the P&L.

So now let me turn to Slide 14, which covers net interest income and net interest margin. Net interest income reduced by 6%, and this is actually due to lower income from NPLs, which equated to EUR 36 million in lower interest income and lower income from treasury assets, which continue to mature from higher rates and mature on to lower rates, and that total is a reduction of EUR 18 million, but we offset this by lower funding costs and also increasing the interest income from a performing loan book.

Net lending income, which we classify as performing loan book income less deposit costs, grew by 4% versus 2018. Our net interest margin was 180 basis points, which is 2 basis points higher than the end of -- than 2018 and was in line with expectations. We do expect the 2020 net interest margin to be slightly lower and -- but then we see some increase as we head into 2021. The asset yield was 2.1%, and this is a 4 basis points reduction when you compare it to 2018. And this, again, is primarily as a result of the maturity -- maturing higher-yielding legacy treasury assets, together with the provision of reduced fixed-rate mortgage products to customers, and I'll deal with that in a later slide.

We continue to actively manage our cost of funds, with the full year cost at 30 basis points, which is a 7 basis points reduction versus 2018. And this was achieved through a range of funding initiatives, including retail, corporate and institutional deposit rate management. It should be noted here that we issued our inaugural MREL compliant EUR 300 million secure -- senior unsecured bond, and we issued this at a mid- -- at a yield of mid-swaps plus 255 basis points, and this represented a 2.15% coupon to investors. We will issue additional MREL bonds in 2020, and this is on the basis of a revised total requirement, which is now reduced from what was an estimated EUR 1 billion to now EUR 800 million, and we will issue the remaining balance during 2020.

Let's now turn to our loan book on Slide 15. The total performing loan book was EUR 15.2 billion at the end of June. And as Jeremy has mentioned, it is now at EUR 15.3 billion. The primary driver of this growth is in the performing mortgage home loan book, where new business has outpaced the rate of repayments, and this is the first time in over a decade. The performing mortgage book totaled EUR 14.9 billion, with an average yield of 2.35%, and this has increased by 1 basis point versus 2018.

You can see from the top right-hand side of the slide that the full year average yield of new mortgage lending was 2.97%, and this was a reduction of 17 basis points versus the prior year. This reduction is in line with market trends and is in line with our aim to remain competitive, while maintaining price discipline with regard to our new business.

When we break down the mortgage book, we see that the performing home loan mortgage book is moving very favorably with a 3% growth year-on-year from EUR 11.3 billion to EUR 11.7 billion, and the home loan mortgage book now represents 78% of the total mortgage book, and that's an increase from 76% in 2018.

The buy-to-let loan book has reduced by 8%, and that's a reduction of around EUR 200 million to EUR 3.2 billion, and it represents 22% of our mortgage portfolio. In total, we have new mortgage lending of around EUR 1.5 billion for the year, and this increased 13% year-on-year. And as mentioned by Jeremy, we've grown our mortgage market share to 15.5% with very positive trends in the second half of the year, and we see these trends moving and remaining into 2020.

If you take a closer look at the performing mortgage book, and as I mentioned, that's EUR 14.9 billion, and it's on the bottom left-hand side of the slide. It's made up of EUR 8.1 billion of tracker mortgages, and they yield 1.3%. The tracker book is now 56% of the mortgage book -- of the performing mortgage book, and that has reduced from 60% a year ago. With EUR 3.4 billion of fixed rate mortgages, these have increased by 26% year-on-year, and they're yielding 3.2%. We have EUR 1.8 billion of managed variable rate loans, and these have reduced by around 20% year-on-year and they're yielding 3.9%, and we have EUR 1.5 billion of standard variable rate loans, which have -- again, have reduced by around 20% in the year, and they yield over 4%. So you can see movement in standard variable and the managed variable rates into fixed rates, so customers are making decisions with regard to moving to different rate propositions, which is as we expect and we want, by way of customer opportunity and movement.

And I should also mention here, and this is something we've mentioned in previous presentations, that 17% of the performing mortgage book is on interest only, and the vast majority of this relates to buy-to-let exposures.

So let me now turn to operating expenses. Our total operating expenses have reduced by 1%. If you exclude depreciation, amortization and regulatory charges, and we refer to this as our addressable cost base, we have a cost base of EUR 257 million in 2019, and this has decreased by EUR 3 million or 1% year-on-year, and it's reduced by EUR 7 million or 3% versus 2017. Staff costs were EUR 147 million and have reduced by a net 1%. But when you include wage inflation, which is around 3%, our actual underlying payroll savings is in the region of 4% in the year. And you can actually carry that through to the previous year as well, because we have been paying wage inflation for the last number of years based on performance.

So while -- how we're achieving this because we have -- had a voluntary severance schemes, and we've also been -- we have ongoing restructuring with regard to the mix and grade of staff within the bank, and that will be an ongoing feature as we move forward. Non-staff costs are EUR 110 million, and these are reduced by 2% versus '18 and 7% versus 2017, with ongoing savings initiatives across discretionary cost lines, which allows us to reinvest into the business.

If I turn to the right-hand side, particularly at the top right-hand side of the page -- of the slide, you'll see that our underlying cost base, addressable cost base has been reducing. But within this, we've been able to extract efficiency savings around EUR 20 million per annum over the last 3 years. And this represents a saving around 8% to 10% of our addressable cost base, but we've had to use these savings in order to pay wages, to increase, I should say, salaries, to invest in the business, both for business and mandatory -- sorry, mandatory and business initiatives and also some increases related to inflation, and I'll deal with some of that aspect on the next slide.

The material 3-year investment program in technology, which we refer to as Project Forte (sic) [Programme Forte], commenced in 2019 and is now 1 year into its completion. As this project delivers, we will see further efficiencies in our addressable cost base, which will be offset by an increase in depreciation over the medium term.

We will continue our rigorous focus on cost management and our approach, as evidenced over the last 3 years, is to fund investment in business through sustainable operational cost efficiencies.

On a like-for-like basis, the underlying cost-to-income ratio excluding regulatory costs was 68%, which is 4% higher versus last year. However, this is as a result of the top line reducing. I'd also just note one thing on the top right-hand side. You'll see that as a bank, we pay a bank levy, which is in the region of EUR 24 million. If you compare our actual reported profit of EUR 42 million, reflected paying EUR 24 million of that in bank levy, which actually has a significant impact on our return, given our size, but it's important that we note that as well on that slide.

If I now turn to Slide 17. This is a key slide because it actually shows and confirms what Jeremy has been saying by way of the switch in where the business has come from and where it's going. If you look over the last 3 years, our average investment spend has been in the region of EUR 25 million per annum. But half of this has been on regulatory and mandatory programs, the likes of GDPR, PSD2, IFRS 9, capital modeling, anti money laundering improvements and things of that nature. And the other half has been on commercial, technology and most importantly, developing our people where we evolve our culture and we look at diversity inclusion initiatives and items that Jeremy has also mentioned.

When we look over the next 4 years, which we classify as the medium term, the average investment spend will be at a similar level, we believe around EUR 27 million per annum, but the nature and breakdown will change significantly. Over 90% now will be on business, technology and people. And this, as I've outlined here on this slide, will be around improving customer engagement platforms; renovating their legacy systems; create new digital capabilities through the Forte platform; launching a competitive SME product and service proposition; keeping pace with cybersecurity developments and as I mentioned, most importantly, developing our human resource capability, which we believe is the secret sauce of Permanent TSB. And only 8% will be invested in regulatory and mandatory spend. So this is a reduction of 85% versus the last 3 years and shows a significant shift in the way the business is going.

Just to note here, the average standard investment, we estimate that 70% of it is CapEx and 30% is in OpEx.

We move forward to the NPL situation. So it's been another positive year in terms of reducing our nonperforming loan balance, which have reduced from EUR 1.7 billion at the end of last year to just over EUR 1 billion, representing a 38% reduction. And as we've communicated before, this was as a result of executing Glas II, which is the second NPL sale, and this transaction closed in early February. So with regard to our involvement in the transaction, it has now ceased, and organic cures of around 100 million.

Looking forward, we remain committed to meeting the mid-single-digit NPL ratio. And with an estimated EUR 250 million of our NPL stack on a path to cure over the next 12 to 18 months, we're on -- this level is in sight. As mentioned by Jeremy, we will consider all options in connection with reducing the balance. These include loan sales, securitizations, mortgage to rent solutions and other social solutions, but our aim, which we've proven already through previous deals, is to reduce the balance and to protect our capital position. And I think the proof is in what we've achieved in that regard.

Our asset quality level provision cover remains at an appropriate level. And with an expected credit loss provision of EUR 300 million on stage 3 nonperforming assets, this represents a 32% coverage ratio on our NPLs. I should also note here that we have over EUR 400 million of expected credit loss coverage on our stage 2 exposures, and this includes the interest-only exposure that we've mentioned and noted already this morning and in previous presentations.

I should note here and re-emphasize that the guidance from the regulator on the distressed assets is that secured NPLs, which are over 7 years old, must have a 40% coverage level by the end of 2020, and that coverage level must increase to 100% on a linear basis between 2020 and 2026. But at the level of coverage we have on our stage 3 assets, we believe that, that is not an issue or anything that something we have to worry about at this moment.

Let me just turn into Properties in Possession. Jeremy has dealt with this in some detail, but this slide actually shows you the progress that we've made. So at the end of 2017, we had just under 1,800 properties that on -- in our possession. And you might recall that they were primarily on a voluntary basis, where we offered buy-to-let customers the ability to hand back the keys to the bank on the basis of their particular situation.

In the last 2 years, we took on over 700 properties, some of it -- most of those in a similar fashion. We've sold just under 2,100 properties in 2018 and 2019. And I must stress here, they were individual sales. There was no bulk sale within that. These were actually individual sales in the market through many different means, and this has left us a stock of properties at the end of December of around 400. And indeed, we've sold almost 60 in January alone. So continued progress with regard to reducing those -- the property numbers and ensuring that those properties return to the market in a natural way. As stated before, we do plan to exit the majority of these properties over the next 12 months.

Let me turn to the funding and liquidity position. Our funding liquidity position remains very strong. Our strategy is to continue to fund our balance sheet by customer deposits while keeping other funding lines open and accessible. And indeed, that's exactly where we are at this moment. All funding and liquidity metrics are strong, and they're well above the regulatory requirements. And if you look at the table on the right-hand side of the slide, and this is as at the end of December, the bank's liquidity and funding positions are well above other comparable banks. And indeed, when we look at the European average in this regard, the bank ranges between 17% and 26% higher across the 4 key measures of liquidity and funding. And this clearly highlights the journey that the bank has made, and indeed, the level of safety in our funding and liquidity position. I should mention here that we're now -- we have over 95% of our funding from customer deposits with retail balances remaining stable.

One other point that I should mention is, again, as Jeremy has mentioned, and it's important by way of our MREL issuance, which we believe is actually very manageable at this moment, as Moody's, S&P and DBRS have upgraded the bank's credit rating, and for the first time in 11 years, returned the bank to investment grade. So that again is outside assurance with regard to how the bank has progressed and where we are at this moment.

So if we just turn to Slide 21, and this is capital side. Our regulatory capital ratios remain comfortably above the regulatory minimum requirements. Our pro forma CET1 ratio on a fully loaded basis is 15%, and that's increased by 100 basis points versus the pro forma position at the end of 2018, which was 14%. The reason why we pro forma is that the 2 last transactions have both crossed the year-end at the end of '18 and the end of '19, but the 15% is the actual pro forma number at the end of '19.

The CET1 ratio on a transitional basis is 18.1%, and that's increased by 110 basis points versus the end of December level. This improvement is primarily attributable to organic profit generation, the risk weighting on the Glenbeigh V-Note, and obviously, the benefits of deleveraging the NPL portfolio. The CET1 minimum regulatory transitional requirement is still set at 11.45%. It had increased during 2019, as outlined at the half year results due to the capital conservation buffer, which is now 62.5 basis points, and the countercyclical capital buffer, which is now 100 basis points, was introduced in July at 100 basis points. Our management CET1 target on a medium-term basis, and I might recall that which that's -- we view that medium term is over 4 years, is a level of 13%.

I've mentioned here on the bottom left as well, and Jeremy referred to it, the Tier 1 transitional leverage ratio has increased from 8% in 2017 to 9.1% at the end of '19, which again, highlights the progress that's been made with regard to the risk profile of the bank. And I think it's interesting for you if you were to compare that to an equivalent U.K. mortgage operator, what their leverage ratio is, it would highlight that we're twice as secure as an equivalent U.K. mortgage lender who typically operate around 4% or 5% in this area.

So let's just turn to the outlook for 2020. So we expect lending growth across our -- we expect new lending growth across our core lending portfolios. Our net interest income will be lower, and this is a result of NPL deleveraging and the continuing maturity -- maturing higher-yielding treasury assets, but they're now coming to an end in 2020. So that reduction will cease to happen after this year. As I mentioned, our NIM is expected to reduce slightly. We estimate around the high 170s. We expect to increase our noninterest income. And we do not expect to make similar gains on the disposal of properties in possession, given the numbers that I've already outlined.

On the efficiency side, operating expenses are expected to remain stable with possibly some reduction, but stable at a reasonable level to talk about now. NPLs will reduce further, and we will meet the MREL target set by the bank, which we believe will now be issued at a lower margin given the -- how that has performed in the market.

Returns, we'll continue to maintain profitability and generate organic capital. We will continue our prudent approach on capital as we continue to manage our risk profile, and some of this relates to the legacy exposures, NPLs and interest-only being an example. And our ROE will -- or is expected to reduce, I should say, just because of the top line headwinds that we have, but we see recovery in this return in 2021.

So if I move forward to the 2019 outturn and some medium-term outlook. So in summary, 2019 presents the picture where we grew our market share to 15.5%. Our net lending increased to EUR 1.7 billion. The home loan mortgage book, which is our core performing book, grew by 3%. Our consumer lending volumes grew by 15% to EUR 140 million. Our NIM increased by 2 basis points to 180 basis points. Our net interest income stabilized with a better mix of net fee income in that regard. It represents 9% of total income, but we have ambitions to increase that over the coming medium term.

Our total operating costs reduced. We've demonstrated that we've executed average annual savings in the region of around EUR 20 million from our addressable costs, and I'd stress, it's our addressable cost base is the cost base that you need to look at when you see -- talk about the efficiency of this bank. And we've reinvested this back into the business. And our NPLs have reduced to EUR 1 billion, the lowest of any of the 5 banks in the Irish market, to a level of just above 6%. We've increased our profit after exceptional items from EUR 3 million to EUR 42 million, as mentioned, the third year of profitability by the bank. The pro forma CET1 on a fully loaded basis increased by 100 basis points and the ROE was 3%.

But what's more interesting as well, how we think about the outlook. And this is to put some numbers on what Jeremy's outlined from earlier, which is the confidence we have in this business. We're looking to have a mortgage market share, and this is what we believe will be a bigger, larger mortgage market of between 16% and 18%. We have an ambition to have new SME loan volumes of in excess of EUR 250 million per annum. We have an ambition to have consumer lending volumes in excess of EUR 200 million as well. You can see the growth we've had in that area. Some might say EUR 200 million, slightly soft, but it's a reasonable target at this moment. We have an ambition of a NIM of over 190 basis points, but who knows, we could get over 2%. We have a serious ambition to have our net fee income well in excess of our 10% of total income as well.

If we look at efficiency, we're looking to execute sustainable cost savings of around 10% of our addressable cost base. This would bring us to around, we believe, a 65% cost-to-income ratio. Our NPLs will not, I suggest, be a feature of the bank when you look 3 to 4 years forward because they will naturally either cure or have different solutions. And we estimate our impairment charge would be somewhere around 20 basis points per annum.

If we look at our returns, we expect, and we forecast that our core equity tier 1 fully loaded level of 13% is a reasonable target for this bank. But naturally, this level is subject to our ability to pay dividends and realign our capital stack, which, as you know, is currently restricted based on a dividend restriction. And we believe we can achieve, based on the current lower-for-longer interest rate environment, an ROE of around 6%, and that's based on a 13% core equity tier 1 level.

So let me just say thank you for your attention, and let me just invite you to ask myself and Jeremy some questions. And we'll take them from the floor first and then move on to the phones. So thank you very much.

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Questions and Answers

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Unidentified Analyst, [1]

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Thanks very much, in particular, for the outlook slide. Very helpful. And maybe if you could just start there and then maybe follow-up with a question on those performing interest-only loans. And so firstly, just on the medium-term outlook, and you mentioned the return on equity is 6% achievable, lower for longer. So just to check that that's assuming no particular uplift in terms of ECB base rates across -- and that's first in...

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Eamonn Crowley, Permanent TSB Group Holdings plc - Group CFO & Executive Director [2]

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Correct. And just to highlight there, naturally, with our tracker book representing nearly 60% of our exposure, any interest increases will be welcome in that regard by way of the return we'll make because it would -- we're absolutely -- the top line will move at a faster pace if interest rates were moving upwards.

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Unidentified Analyst, [3]

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Okay. And just moving from there on to the cost income ratio of 65%. Just to clarify, is that excluding regulatory fees and levies?

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Eamonn Crowley, Permanent TSB Group Holdings plc - Group CFO & Executive Director [4]

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That includes regulatory fees and levies.

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Unidentified Analyst, [5]

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It includes it, okay.

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Eamonn Crowley, Permanent TSB Group Holdings plc - Group CFO & Executive Director [6]

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Yes.

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Unidentified Analyst, [7]

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And so when you talk about sustainable savings, 10%, that seems to be roughly about EUR 25 million, should we look at that as a kind of a gross saving? Or is it natural to say, staff inflation over the coming few years?

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Eamonn Crowley, Permanent TSB Group Holdings plc - Group CFO & Executive Director [8]

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Well, we've demonstrated in the last 3 years our ability to extract savings and deal with staff inflation. And our ambition is that is -- it would include inflation that would happen over time. So it's a clear number and you should think of 2023 as such in that regard. When I classify medium term, it's 4 years. It's that landing point that we're talking about.

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Unidentified Analyst, [9]

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Okay. And in terms of the cost to achieve that and exceptional charges, should we expect significant exceptional charges over the coming few years ahead of that through 2023 midterm?

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Eamonn Crowley, Permanent TSB Group Holdings plc - Group CFO & Executive Director [10]

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I would suggest as we continue to restructure, which we will, exceptional costs will be -- will continue to be a feature of our P&L. And most of our exceptional costs to date have been in the area of deleveraging whether it's CHL or other aspects, but they will move more into the area of actual restructuring of our business in due course. The answer is yes.

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Unidentified Analyst, [11]

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Okay. And just moving from there on to that interest-only query, how should we view the engagement with those customers? What should be the expected outcome? I appreciate it's an early stage, but in terms of what NII is associated with that book, capital intensity provisions, et cetera, at the moment.

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Eamonn Crowley, Permanent TSB Group Holdings plc - Group CFO & Executive Director [12]

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So that level of detail I'm not prepared to go into at this moment, just to give you a couple of points. Buy-to-let -- these are primarily buy-to-let exposures. They have a higher level of capital intensity. They are primarily assets that were originated -- or sorry, they're all assets originated before the crisis, and they would predominantly have the tracker in that regard. And I highlighted earlier that the average yield on our tracker book, both home loan and buy-to-let, is yielding 1.3%.

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Eamonn Hughes, Goodbody Stockbrokers, Research Division - Financials Analyst [13]

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It's Eamonn Hughes, Goodbody. Maybe just a few questions on my part. Maybe just kind of sticking with the targets, Eamonn. Just in relation to the kind of getting to the CET of 13% and you're currently at 15%, just kind of trying to get the trajectory around your P2R is obviously quite high. Kind of what needs to be done in terms of getting that down? You've made significant progress last year to it but it hasn't budged. So just maybe implications in relation to that.

Then secondly, just in relation to, I suppose, your annual reduction as well from EUR 1 billion to EUR 800 million. Just what was the moving parts kind of to get that number down a little bit?

And then finally, just in relation to, I suppose, the success you've had or appears you've had in terms of drawdowns being at a higher market share than your applications, just kind of what's been the key driver in relation to that over the last 12 months or so?

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Eamonn Crowley, Permanent TSB Group Holdings plc - Group CFO & Executive Director [14]

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Okay. Do you want to take the dividend one? I'll take the dividend one or you?

I'll do it? Okay, good. So 3 questions. You asked 3 questions. So on the dividend story, naturally that is an interaction with the regulator by way of our interaction, and that is a private discussion naturally. So I'm not going to go into the detail of that. There's no doubt that the bank is emerging from the past, as outlined by Jeremy quite clearly by way of where it's come from. And there's clear signs of third year of profitability, managing our cost base, growing our capital base.

And the income issues we have are primarily outside our control. They're maturing yields, they're lower-for-longer interest rates, the MREL issuance. These are things that are outside of control. But the key thing to talk about here is that as we get past those, they will be reflected in our numbers, and we will see some growth there in that regard. So with regard to that dividend interaction, as I say, our dividend restriction, it's an interaction with the regulator, and it's actually at their behest, not at our request as such.

And with regard to the second question, remind me, Eamonn, I should have written it down.

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Eamonn Hughes, Goodbody Stockbrokers, Research Division - Financials Analyst [15]

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The MREL.

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Eamonn Crowley, Permanent TSB Group Holdings plc - Group CFO & Executive Director [16]

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So the MREL -- yes. So we've estimated that the -- we have around the 25% requirement. We have been interacting with the regulator and the regulatory authorities around that. We have estimated that it would be around EUR 1 billion. Naturally, our RWAs have been coming down because we've been deleveraging, and that has led to that approach with regard to the level of MREL. And indeed, that MREL is reviewed on a regular basis. It moves around depending on where balance sheets are. So it's just purely a feature of that.

And your third question was on?

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Eamonn Hughes, Goodbody Stockbrokers, Research Division - Financials Analyst [17]

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The success you've had with drawdowns being higher.

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Eamonn Crowley, Permanent TSB Group Holdings plc - Group CFO & Executive Director [18]

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Yes. So there's no doubt that we have been outperforming with regard to how we -- once we get an application in the door, how we get us to drawdown. We believe we're best-in-class in that regard. We believe our conversion rates are very high, and it's proven by way of that particular approach. You can see it in the numbers. So it's pure -- it's operating capability. It's being close to our customer. It's making it happen for them. Time to yes, time to cash. All of those key simple things are important to customers, and we believe we're best in class once we get the application in to convert it.

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Eamonn Hughes, Goodbody Stockbrokers, Research Division - Financials Analyst [19]

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And maybe just have one follow-up just on the NIM guidance, the 190 plus kind of further out's pretty punchy, which is good, potentially in the right direction. Is -- kind of circling back to the earlier point around the buy-to-let portfolio, but interest-only, you've kind of alluded to maybe sort of tracker rate. It's in the performing book. Would that be part and parcel kind of combined with what appears to be quite strong SME annual flow rate to EUR 250 million potentially as well? Would they be kind of 2 big inputs in relation to getting to that 190-plus number or 190 number?

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Eamonn Crowley, Permanent TSB Group Holdings plc - Group CFO & Executive Director [20]

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Absolutely. So there's no doubt that the drag on our NIM is -- relates to our tracker book. And that's -- we all know what that means. But what's important to us is that we need to increase the mix of income lines that we have. We've been making progress on consumer lending. We believe there's an absolute position for us, a more relevant position in SME, primarily, we're talking about the much smaller customers in that area. But with that relevance, we're in those communities already. It's about doing business with people in those communities. And the margin we'll attract in that business, we believe, will be attractive, and it will be incremental. It doesn't exist today. That income isn't there today, and therefore, will be incremental to us. It's not that we're losing that income. We want to compete, gain and grow that income over the next 3, 4 years.

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Diarmaid Sheridan, Davy, Research Division - Financials Analyst [21]

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Diarmaid Sheridan from Davy. Two questions if I may. Maybe firstly on the mortgage market, I suppose, just in terms of your future outlook of looking to get to 16% to 18%. Maybe a comment on your kind of current pricing propositions in the context of some of the changes we've seen more recently and how comfortable you are around that at the moment. And then secondly, maybe just a follow-up on the capital point. Obviously, there's a number of moving points. We talked about Pillar 2 there a moment ago, but some of the others around the systemic risk buffer and maybe the broader change, the technical change in Pillar 2 as to how you've thought about those when you think about the 13% in the medium term?

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Eamonn Crowley, Permanent TSB Group Holdings plc - Group CFO & Executive Director [22]

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Okay. So I'll just deal with the second one first. So the 13%, does include the technical changes. Those technical changes are expected to be implemented in 2022. So when we talk about 13%, we're talking about 2023. I just want to -- our medium term is over 4 years. That's how we plan within the organization, and that's how we forecast. So it includes the benefit of the technical changes when you look at a fully loaded core equity Tier 1 level, so that you couldn't compare them like-for-like today.

But we have demonstrated an ability, as I say, as I mentioned already, to generate our fully loaded core equity Tier 1 from -- if you look back 2, 3 years ago from an area -- from a position that could have been deemed to be quite weak, we've been able to do that.

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Jeremy John Masding, Permanent TSB Group Holdings plc - Group CEO & Executive Director [23]

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With regard to the first point, mortgage pricing, we've got to be competitive, right, in both front and back book. And as you'd expect, we keep pricing on a constant review. Indeed, we've made 3 rate cuts this year -- or sorry, over the last 12 months. Nothing new to announce today. But if we can make our offering more competitive, then you can see the level of outturn that we can create through the propositions, the service, and most importantly, our people.

So we'll continue to aspire for that. But at the same time, we've got to get a balance right between the value that we give to the customers versus the value we have to get from customers in terms of making a return for the tax base. So it's a dynamic market. It's competitive, and we'll continue to evolve. We'll continue to innovate. I'm really confident in our ability to do good things here.

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Eamonn Crowley, Permanent TSB Group Holdings plc - Group CFO & Executive Director [24]

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And as you can see, we've grown market share. It's not that this market hasn't been competitive in the last 12 or 24 months. It has. And indeed, if you look at our quarter 4 market share, we were up over 16%. And so we have a strong proposition. Proposition, by the way, isn't only price. We talked about service and conversion and getting cash to customers as they want. So there's something in that with regard to not just price, but the overall proposition, but we will remain competitive, because we believe the relevance of this bank and the relevance of this brand is very clear now, but where we've grown our market share in this area consistently, as Jeremy has mentioned, for 7 years.

Should we go to the phones now?

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Operator [25]

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(Operator Instructions) The first question we have today comes from the line of Alastair Ryan from Bank of America.

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Alastair William Ryan, BofA Merrill Lynch, Research Division - Co-Head of European Banks Equity Research [26]

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So the ability to execute is very clear and your level of ambition also very clear. So I'm very frustrated myself to be asking detailed questions about changes in sort of your legacy book as it were. But just to dig through this interest-only piece. I mean it's clear you've, from a balance sheet perspective, anticipated this review. But given that fundamentally these are interest-only products, having to put them on to capital repayments almost certain to result in a high level of problem assets, and given that you've got an NPE target you've reiterated, one assumes you end up selling them. So I'm just trying to backfill the income hits and whether there's any further P&L impact from moving these things from conservatively provisioned to exited. And I'm sure it's not your favorite topic, but clearly, it's potentially meaningful for the next 12 months P&L and then the sort of run rate size of the book that we're exiting the next 12 months into.

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Eamonn Crowley, Permanent TSB Group Holdings plc - Group CFO & Executive Director [27]

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Okay. So just to -- supposed to clarify one point there, Alastair, is that we're not asking customers to pay capital interest. So it's not as if we're forcing customers on -- from an interest-only product onto a capital interest product. All we're asking customers effectively 2 questions: You realize that you have a voluntary payment at the end of this mortgage? And secondly, can you tell us what your means are to satisfy the settlement of that mortgage? So it's quite a straightforward 2 questions. The first one isn't really a question. It's more a note for customers. But the key thing here is that we're not asking people to go to C&I. So therefore, it's not such a large jump in that regard.

However, there's no doubt that -- and Jeremy has referred to this, that if a customer does not have means in which they believe they can settle a debt in an 8- to 10- or 15-year period, from a [register's] perspective, that may be classified as a nonperforming loan, even though the customer is up-to-date with all payments and is aligned with the contract.

So there's an element of -- we recognize that there has been a risk on this portfolio over a period of time. And indeed, if you wanted to refer to Page 30 of the pack, you'll see that on our stage 2 assets, we have a provision coverage of EUR 439 million on stage 2 assets. That's increased year-on-year by about EUR 28 million. But the key thing there is that, that provision is primarily assigned to or thought about in regard to our interest-only exposure. So we are, we believe, covered with regard to the potential outcome of this portfolio.

There is a risk that some of that portfolio may be classified as NPL under regulatory requirements. And if it is, we will have to deal with it in a way that we have managed other NPL exposures. I must highlight there, these are not in the 7-year bracket. These would be new NPLs existing as and when the information arises. And I believe that we are well provisioned in that regard.

With regard to the P&L income, they're primarily trackers. And as I've mentioned already, our average tractor yield is around 1.3%. So based on -- if you wanted to do the numbers, a 17% exposure at a 1.3% average margin, not all of them, indeed -- as I say, not all of them, we believe, will have an issue with regard to not being able to meet what is quite a low hurdle by way of repayment question. And therefore, the issue is not as material as one would think given that level of coverage and the exposure. However, it's important that we clearly bring this to your attention.

And if you refer back to the previous presentations, we have been noting that the level of interest-only repayments on the balance sheet are at around the 17% level. So as -- just to sum up, it's manageable. It's well provisioned. It's part of the normal regulatory engagement and engagement with customers. It makes perfect sense that we would engage with customers in this regard, and we'll see how it plays out over the next 6 to 12 months.

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Jeremy John Masding, Permanent TSB Group Holdings plc - Group CEO & Executive Director [28]

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Alastair, from my perspective, there's just a couple of principles that are at play, really. One, I always want the bank to be transparent with its owners, and so it's important that we give you this information. And secondly, what we're trying to do here, I think, is to get a better quality income and profit stream off a better quality asset pool. And that then gives us the foundation to be confident in terms of the outlook, which Eamonn has given. So we'll fix it, and we'll, therefore, have an even safer and sounder bank, and I'm absolutely confident about that. And to be honest, that's why we're always err on the side of transparency.

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Alastair William Ryan, BofA Merrill Lynch, Research Division - Co-Head of European Banks Equity Research [29]

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If I could just come back a little bit. So it's not about you, it's about them in a way that these are loans that have been paying you for 13 years. Presumably, the idea in the first place was people bought these properties to rent them out. The loans were interest-only because they weren't intended to be repaid. The value of the property is a repayment in the gap, so opened up between rents, which are up 30% and property prices, which is still down 20%. Is the difference between a loan that you're very comfortable with and one that the regulator in effect is asking you to sell?

I'm just trying to scale it, 17% of your book, less than 17% of your income because, as you say, predominantly tracker weighted. But it's just quite a big delta, if it's something that's on the income. Clear and helpful on the provisioning, but just on the income, I'm just struggling to scale what proportion of these loans? Because in essence, if you can write to these people, they write-back and say, "I'm going to repay you by selling the property," and that's fine, then it's presumably a relatively small percentage of these loans. If selling the property isn't the acceptable answer, then it's a bigger percentage. And I just -- I can't scale that myself.

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Eamonn Crowley, Permanent TSB Group Holdings plc - Group CFO & Executive Director [30]

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So just -- we're not asking customers to sell or do anything. What we're asking them to do is to confirm to us how they will repay the loan in due course. And primarily, this is in an area where either a customer is in negative equity or if a customer is -- has an LTV of around -- above 70%. So this -- it's not an enormous ask to these customers to -- for them to think about other assets that they have or other items that they can contribute or can highlight to us that they will be able to contribute in due course. But primarily, what we're saying to the customer, you recognize the debt and you've figured out how you're going to repay it. And in some cases, if you take customers who have maybe higher negative LTV, they may not have the means or the age profile in order to do that. And therefore, they will have to deal with it in such an extent. So we're not asking anyone to sell anything. Indeed, when we receive a credible capital plan, those loans remain performing, and they continue to pay-as is and then we will have, over every number of years, a regular checkup with those customers with regard to how things are moving forward, which is normal credit activity.

But there's no doubt that there will be some customers who will not be able to meet the hurdle of a credible capital plan. And in that regard, we will have to think about them by way of NPL classification. So I -- we're not asking customers to leave us or anything in that regard. We're just asking them to confirm that they can repay their debt.

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Jeremy John Masding, Permanent TSB Group Holdings plc - Group CEO & Executive Director [31]

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And I just wonder whether you just be kind enough to give us a pass, based on the [RNS]. So I quote, "The program is at an early stage of maturity. Further detail will be provided at H1 2020." So at the principal level, yes, we do have this asset pool. Yes, we have started the customer engagement program. As Eamonn has outlined, the key here is about a credible capital repayment plan. It genuinely is at an early stage of maturity.

So could -- would you mind if we just acknowledge the fact that, yes, there is an underlying pool we have to manage and yes, there is an underlying risk. But I would ask that we would just be allowed some time and space to run the program, and that we'll provide further detail at H1 2020. Would that be okay?

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Alastair William Ryan, BofA Merrill Lynch, Research Division - Co-Head of European Banks Equity Research [32]

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Yes. That's clear. Understood.

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Operator [33]

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(Operator Instructions)

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Jeremy John Masding, Permanent TSB Group Holdings plc - Group CEO & Executive Director [34]

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Okay. So I think that's no further questions. Are there any further questions from the floor? Otherwise, thank you for listening to us both, and we'll close the results presentation.

Okay. Thank you very much.

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Eamonn Crowley, Permanent TSB Group Holdings plc - Group CFO & Executive Director [35]

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Thank you.

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Operator [36]

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That does conclude the conference for today. Thank you for participating. You may all disconnect.