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Bank Debt Restructuring

Dáil Éireann Debate, Thursday - 3 October 2013

Thursday, 3 October 2013

Ceisteanna (8)

Charlie McConalogue

Ceist:

8. Deputy Charlie McConalogue asked the Minister for Finance when he expects Permanent TSB to have completed its restructuring phase; the prospects he sees for it contributing to greater competition in the Irish banking sector; and if he will make a statement on the matter. [41463/13]

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Freagraí ó Béal (6 píosaí cainte) (Ceist ar Finance)

A way forward for Permanent TSB was agreed with the troika in April 2012 which envisaged it playing an important role in the future of Irish retail banking, being a more focused retail bank bringing an element of competition to the marketplace which has consolidated significantly since 2008. In this regard, Permanent TSB prepared a restructuring plan which the Department of Finance submitted to the European Commission in June 2012. As requested by the Commission, an updated version of the plan was submitted on 15 August 2013 which was broadly in line with the June 2012 plan. Discussions on the plan are ongoing at a technical level involving the Commission, the Department and Permanent TSB.

As I informed Deputy Michael McGrath in response to a parliamentary question, there is no formal deadline in place for the Commission to respond to the updated version of the plan. However, the Deputy may have noted that Permanent TSB, at its interim results presentation on 29 August, stated it was aiming for approval before year end and I have no reason at this point to believe otherwise. The Deputy may also be aware that AIB is in discussions with the Department and the Commission on its restructuring plan and currently expects approval of the plan during the second half of 2013.

While discussions on Permanent TSB’s restructuring plan are ongoing with the Commission, Permanent TSB has made significant progress in delivering key elements of the plan in the past year. It continues to work to enhance the value of investments through the continued delivery of the restructuring plan which will, if delivered, provide the State with more options regarding its future structure.

As the Deputy will be aware, the banking sector is extremely concentrated with AIB and Bank of Ireland controlling the vast majority, in particular key products such as mortgages and SME lending. Nevertheless, Permanent TSB has a significant presence in the Irish market, particularly in certain segments such as mortgages and deposits. The Deputy may have observed from Permanent TSB’s interim report, published on 29 August, that its gross Irish residential mortgages at the end of June totalled €24.2 billion and that it held €11.6 billion of retail deposits also at the end of June. Permanent TSB also holds UK mortgages via its CHL subsidiary. It holds other assets such as commercial real estate and consumer finance loans and has a sizeable corporate and institutional deposit base.

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The Deputy will note that Permanent TSB has returned to the new lending market in a meaningful way this year and has approved €170 million of mortgage loans in the year to date, almost three times the figure for the same period in 2012, thereby contributing to competition in the Irish banking market. I welcome this development which should be of assistance to the wider economy.

The Deputy may also be interested to note that as of 30 June, Permanent TSB’s total balance sheet exceeded €30 billion. It would, therefore, meet one of the criteria for entry into the Single Supervisory Mechanism.

Permanent TSB is an important bank and I hope it plays a significant role on the banking landscape in Ireland for a long time to come. I would like to see the European Commission finalise its consideration of the restructuring plan as quickly as possible. The bank is potentially a very good asset for the State. It has brand recognition, a branch network, a customer base and can provide badly needed competition. When we look at its initiative on current account fees, through which it has attracted 30,000 new customers in recent months, we see an example of what can be done. One of its main problems, as with other banks, is that tracker mortgages are acting as a drag on profitability. I have raised this issue previously, but is it still a live issue that is under consideration between the Minister and the European authorities? Are they trying to see whether some funding stream can be identified to ease the pressure on the banks carrying loss-making tracker mortgages?

Some work has been done on tracker mortgages across the banking system. However, as interest rates have reduced and are now at a very low level, the margin of advantage in doing something about tracker mortgages is quite small. With a high interest rate, the kind of initiative about which the Deputy is talking would be of big benefit, but when interest rates are so low, the margin is so narrow that there would be no huge benefit in giving assistance. We will see where that goes.

The Deputy is right in everything he says about Permanent TSB. It is back in the mortgage market and has offered €170 million in mortgages already this year. That is three times what it provided last year. Its balance sheet is now approximately €30 billion, which is one of the criteria required to be met for entry into the single supervisory mechanism. We hope Permanent TSB can continue with its consolidation and provide another competitive option for Irish consumers.

In terms of where Permanent TSB fits into the overall banking strategy, is it the intention of the Minister that Permanent TSB remain within State ownership in the long term or is it intended that the bank will return to profitability and private ownership once much of the work has been done? I am not sure he has stated a preference in that regard, but we know that AIB is readying itself for the disposal of some equity down the road and private investment, which would be good for the bank. What is the Minister's view on Permanent TSB for the long term?

I agree on the importance of Permanent TSB to the Irish banking market and we await eagerly the Commission's recommendations. I am aware that the bank itself expects a favourable response on the restructuring plan, but this is in the hands of the Commission. At this point there are questions about the restructuring. There are also questions hanging over Ulster Bank and about how the potential restructuring of that bank may affect its involvement in the market in the future. Is the Minister concerned that two non-pillar banks which are major players in the market have not received approval, one way or another, in terms of restructuring? The Minister mentioned the single supervisory mechanism and three banks will automatically come under it. Does he expect Permanent TSB rather than Ulster Bank to be the third bank?

Ulster Bank is regulated by the Bank of England. In Ireland there is a regulatory function to cover it, but its primary regulator is the Bank of England and we must see what regulatory proposals come through from Mr. Carney and the Chancellor of the Exchequer.

We hope it will continue trading and providing credit North and South of the Border because it fulfils a very important function. It has serious problems, as do the banks in this jurisdiction.

The policy of the Government is that the banks will revert to private ownership in due course. The Government has no ambition to hold State banks indefinitely. The question of when portions of, or all of, the banks will be restored to private ownership depends on a pragmatic decision. Obviously, Bank of Ireland seems to be somewhat stronger than the others and only 15% of the ordinary equity in it is held by the State. It is already in private control. We will see; the intention is that if a sale takes place of all or part of the equity in the future, it will be used to reduce the level of debt.

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