DBRS Confirms PTSB’s Senior Ratings at BB; Trend Remains Positive

DBRS Ratings Limited (DBRS) has confirmed the ratings of permanent tsb p.l.c. (PTSB or the Bank) at BB, including its Long-Term Issuer Rating, and its Long-Term Senior Debt and Long-Term Deposits ratings, and the Short-Term Debt and Short-Term Deposits ratings at R-4. The Issuer Rating of Permanent TSB Group Holdings p.l.c. (the Group) was confirmed at BB (low). The Bank’s Intrinsic Assessment (IA) remains at BB and the Support Assessment remains unchanged at SA3. The trend on the Short-Term Issuer Rating of Permanent TSB Group Holdings p.l.c. (the Group) remains unchanged at Stable. The trend on all other ratings remains Positive. For a complete list of ratings, please see the table at the end of this press release.

KEY RATING CONSIDERATIONS
The confirmation of the ratings reflects the stabilisation of the Bank’s core profitability, including the reporting of a positive net income result in 2017, and continuous, albeit modest improvements in reducing impaired loans.

The Positive trend reflects ongoing upward pressure on the ratings resulting from expectation that the Bank’s profitability will continue to improve, in line with the improved lending volumes and higher margins. The positive economic conditions in Ireland should also support asset quality improvements, although DBRS will monitor closely the Bank’s NPL strategy execution in 2018.

RATING DRIVERS
Further track record i) in improving core profitability and continued bottom line profitability and ii) evidence that asset quality metrics will continue to improve, without significantly impacting capital, could have positive rating implications.

Given the positive trend, downward pressure is unlikely in the medium term. However, i) a reversal of recent improvements in core profitability and/or ii) a reversal of asset quality improvements, could have negative rating implications.

RATING RATIONALE
PTSB’s ratings are underpinned by the Bank’s meaningful market positions in the Republic of Ireland (RoI). Its franchise is focused on domestic personal retail and retail SME banking with total assets of EUR 22.8 billion at end-2017. The Group serves its circa 1.1 million customers through a network of 77 branches across the Republic of Ireland and various digital channels.

The Group was able to return to bottom line profitability in 2017, due to the reduction in exceptional items. On a pre-provision basis, however, PTSB’s results were relatively stable compared to 2016. The Group reported operating profit before impairments and exceptional items of EUR 114 million in 2017, marginally down from EUR 120 million in 2016.

PTSB’s retail credit risk remains very weak. The Bank reported non-performing loans of EUR 5.3 billion at end-2017, down from EUR 5.9 billion at end-2016, comprising predominately of domestic residential mortgage loans. This reduction was a result of cures due to successful restructuring and the targeted voluntary surrender for buy-to-let loans (BTL). However, the NPL ratio remained very high at 25.6% of gross loans with a coverage ratio 42%, flat year-on-year (YoY).

Additionally, PTSB launched in February 2018 project Glas, which is a sale process of EUR 3.7 billion NPLs. This project accounts of almost 70% of the Group’s total NPL stack and DBRS notes that if successfully completed this would be a significant credit positive.

PTSB’s funding profile remained strong in 2017, following the deleveraging the year before. At end-2017, customer accounts totaled EUR 17.0 billion, unchanged since 2016. The Group continues to increase its customer deposits which accounted for 83% of total funding at end-2017, up from 80% at end-2016. The loan to deposit ratio was also positively impacted by the deleveraging and continued to improve in 2017 to 108%, down from the 111% ratio at end-2016 and 125% in 2015.

PTSB’s capital ratios remain solid as both the RWAs and the capital remained relatively flat. At end-2017 the Group’s fully loaded Basel III Common Equity Tier 1 (CET1) ratio was 15%, up 10 basis points (bps) YoY. The Group’s transitional CET1 ratio was 17.1% (2016: 17.2%) and this compares to a minimum requirement of 9.8% as per the Single Supervisory Mechanism following the Group’s Supervisory Review and Evaluation Process (SREP). On a leverage ratio basis, the Group demonstrated further improvement and at end-2017 the fully loaded leverage ratio was 7.1%, up 30 bps YoY, and the transitional leverage ratio was 8.0%, up 20 bps YoY.

Notes:
All figures are in Euros unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (May 2017). This can be found can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include SNL Financial and company disclosures. DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance

For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: George Yiannakis, Vice President, Global Financial Institutions Group
Rating Committee Chair: Elisabeth Rudman, Managing Director, Head of EU FIG, Global Financial Institutions Group
Initial Rating Date: October 27, 2009
Most Recent Rating Update: July 17, 2017

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