I thank members of the committee for the opportunity to provide an update on Ulster Bank's progress and its strategy in the areas outlined in the committee's invitation. I will make some brief introductory remarks before responding to any specific issues the committee may wish to address. Ulster Bank is and remains committed to the island of Ireland. It is the third largest financial institution in the Republic of Ireland and the largest in Northern Ireland. It is unique because it is the only systemic bank operating across both markets that is owned by an international parent with a global network. Ulster Bank is an integral part of the financial and social economies in both jurisdictions. We believe a healthy and functioning financial services sector is essential to a vibrant and competitive economy and marketplace.
Ulster Bank has a significant presence in Ireland. It currently employs 5,800 people. It has a network of 214 branches and serves almost 2 million customers. It has lending of more than €53 billion in the Irish economy. It holds more than €27 billion in customer deposits. Ulster Bank supports small and medium-sized enterprises with approximately €8.2 billion in loans, with new lending to businesses in the Republic of Ireland amounting to approximately €1.5 billion in 2012. It continues to hold strong market positions across all of its major customer segments, with stable or improving trends in most areas.
Ulster Bank, like most financial institutions, has not been immune to the difficulties experienced in the financial services sector. It is an absolute priority that we address the issues we face and return to profitability as soon as possible. Our target is for the bank's core operations to be back to profitability during 2014. We have a clear strategy to achieve this objective and are focused on building a good bank for our customers, while ensuring we deal effectively and responsibly with our legacy issues.
Our 2013 interim results which were announced in August are solid and encouraging. They demonstrate consistent progress, compare very favourably with the industry and confirm the effectiveness of our restructuring process and approach. It is worth highlighting some of the key year-on-year figures from these results. Total income increased by 7%; customer deposit balances increased by 12%; our loan-to-deposit ratio improved by 400 basis points; impairment losses decreased by 30%; and our operating loss improved by 41% to €387 million. Separately, we also deleveraged our non-core portfolio by €1.4 billion. This is clear evidence of the progress we are making, which will no doubt be assessed as part of the ongoing review of the RBS Group, including Ulster Bank, by the United Kingdom Government. That said, we are building a business for the future, while managing the issues of the past and making real and evident progress on our strategy to do so.
I will comment specifically on two important areas, as outlined in the joint committee's invitation, namely, mortgage arrears and our support for small and medium-sized businesses. Our objective in dealing with mortgage arrears is very clear. We want to keep as many as possible co-operating customers in their homes. To do this, we need some core fundamentals to be in place. First, customers must be willing to engage with us, as their lender, to ascertain what sustainable arrangement can be put in place for their mortgage arrears. Second, we must be allowed to contact and consult our customers and make arrangements to assist them. The regulatory structure for handling arrears must be sufficiently flexible to take into account each and every customer's position, rather than having a crude one-size-fits-all arrangement. The system for dealing with mortgage arrears must be fair and equitable. It must be fair to homeowners experiencing arrears, lenders and the approximately 80% of homeowners who are servicing their loans. It must always be recognised that secured debt takes priority over unsecured debt. The former is usually priced to reflect the fact that it is supported by a charge on a property. If Ireland is ever to see a recovery in the housing market and attract new lenders to the market, this fundamental building block of the mortgage market must be recognised and supported.
Addressing the mortgage arrears issue is correctly a priority for the Government, the Central Bank and the banking industry. At Ulster Bank we are committed to working with the authorities to achieve this. In doing so, it is accepted that there have been failures on all sides in how mortgage arrears have been handled. As lenders, in addition to having insufficient resources and solutions in the early stages, we have been restricted by delays in giving us the necessary tools to deal with the issue. Matters such as the code of conduct on mortgage arrears contact restrictions, the Dunne ruling and the absence of a centralised credit bureau have exacerbated and extended the problem, as has the continued debate on debt forgiveness. To stress this point, I highlight an interesting trend. In most markets levels of mortgage arrears are directly linked with unemployment. A comparison between our mortgage books in the Republic of Ireland and Northern Ireland, a neighbouring market of which we have intimate knowledge, is persuasive. The correlation between unemployment and mortgage arrears continues to hold true in Northern Ireland where there were no such interventions, impediments and discussion of potential mortgage write-offs. In the Republic the correlation between mortgage arrears and unemployment started to break down in the second quarter of 2011 and there is no longer any correlation between them. It appears, therefore, that there has been a breakdown of payment discipline among some mortgage customers.
In addition, against this backdrop, sight has been lost of two key fundamentals which are the basis of any mortgage or housing market. First, there is a cost to living in a home and, second, secured debt must be prioritised over unsecured debt. As a result, there continues to be a sizeable minority of customers who have not engaged with us and are refusing to make any payment on their mortgages. Living in a home costs money. Unless owned outright, this cost must be met through mortgage repayments, rent or the provision by the State of social housing. Some people do not appear to accept this premise and are living in a home without making any contribution towards its cost, despite someone else advancing the money to acquire the property. Put simply, this is not fair.
At Ulster Bank we are working with co-operating customers to enable them to resolve their issues. We have committed considerable resources - more than 400 people - to work with and help customers in mortgage arrears. We have a wide range of options to address the particular circumstances of individual customers. We are committed to working with those customers who work with us to find a solution. Our goal is to keep as many co-operating customers as possible in their homes and we believe that in the majority of cases mortgage arrears can be satisfactorily resolved on a case by case basis, given time, good will and co-operation.
Our approach is beginning to show results. I refer members to some of our latest statistics which are available as an attachment to the document circulated. At the end of August 2013 our levels of mortgage arrears for 90 days past due were reducing for the fifth month in a row. This is the first time such a trend has been evident since 2008 and it is contrary to the general trend on mortgage arrears, as reported by the Central Bank. According to our data, ours is the only bank experiencing this improvement. We are completing arrangements for an average of 3,000 customers each month. This is strong progress, which is in the best interests of all of those involved.
With the recent removal of the regulatory restrictions, we have also been able to make contact with 71% of our mortgage arrears customers in the past three months. It is not a coincidence that these industry leading results have followed the changes to the code of conduct introduced in December 2012 which loosened contact restrictions and the enactment of legislation to address the Dunne judgment. However, there remains a danger of another series of unintended consequences arising as a result of excessively prescriptive definitions regarding "sustainability". It is critical that regulatory imposed targets are realistic and sustainability criteria used to assess compliance with such targets are wide enough to take into account individual circumstances, the long-term nature of a mortgage arrangement and the potential for customers' financial circumstances to improve over the life of the mortgage. I welcome the Chairman's comments supporting this view which were reported in the media over the weekend.
As we have consistently advocated to all stakeholders on this matter, we need to be joined up in our thinking and recognise the long-term implications for a sustainable and affordable property and mortgage market. We must also recognise the social policy implications, namely, that people need accommodation and that, in our experience, modified mortgage payments, particularly in the current environment, will almost always be more affordable than the rental cost for the same property in the same location. I reiterate that we are working with co-operating customers and our approach is beginning to show results.
On business lending and restructuring, in terms of market presence, Ulster Bank's total core loan book to small and medium enterprises, SMEs, is approximately €8.2 billion. While we cover the market broadly, we are highly focused on agriculture, food, exports, health care and professional services. There are two main areas of focus within our SME core operations, namely, new business lending and supporting SMEs in financial difficulty. New business lending in the Republic of Ireland amounted to €1.5 billion in 2012. We are well positioned, have a strong pipeline of business and look forward to expanding in the SME market, especially as demand increases in an improving economy.
We place considerable importance on SME businesses and provide significant support and financial resources for the sector, including the provision of more than 4,000 start-up packages in 2012 and ongoing investment in information technology to support faster, decentralised decision-making.
We would also welcome the opportunity to share with members and the Government our experience from other markets in terms of our support for Government-led initiatives to stimulate and support the sector. Our approach to distressed SMEs is similar to the approach on residential mortgages. We have a wide range of forbearance options which can be brought to bear for individual circumstances. Our primary focus is to support businesses through their difficulties and return them to financial health. We are also keenly aware of the need to safeguard jobs where at all possible. We view formal recovery actions as an option of last resort. In the first half of 2013 alone, we have restructured numerous trading businesses small and large, restructuring which supported business and in turn provided over 7,300 jobs.
In conclusion, Ulster Bank has a clear strategy and is making strong progress towards becoming a simpler, more efficient and sustainable bank, while also dealing with our legacy issues. Second, our objective in addressing the mortgage arrears problem is to facilitate co-operating customers and keep them in their homes, while also ensuring a viable property and mortgage market for the future. Our approach is beginning to show results. In dealing with SMEs, we are supporting the sector through new lending and bringing those enterprises that are experiencing financial difficulties back to financial health.
Finally, we are proud of our contribution and recognise our responsibilities as a key player in the only systemic full service bank across the island of Ireland providing much-needed competition to the two pillar banks in the market. We have 177 years of history serving customers and communities across the island of Ireland and look forward to continuing to do so in the future. Mr. Stephen Bell, Mr. Tom Leahy and I will be happy to deal with any questions.