In a challenging effort to rebuild its share in the home loans market, PTSB has had to vie with competitors on mortgage rates and deposits to appeal to and retain clients. This has led to a slimming of the bank’s net interest margin (the gap between its funding rates and the rates it lends at) by 0.08 percentage points from the previous year, bringing it to 2.23%, as reported in a recent trading update from PTSB.
In the third quarter, the bank experienced a rise in its share of new Irish mortgage lending, climbing from the 13.5% in the first half of the year to 16.3%. This represents an improvement from the previous year’s third-quarter low of 13.4%. PTSB, recognised for having the smallest rate of surplus deposits compared to loans among the remaining three banks, has had to extend European Central Bank (ECB) official rate increases more than its competitors, according to analysis from RBC Capital Markets and other brokers.
This year, PTSB has made its mark in the mortgage market, including competing on fixed rates for existing customers ending their fixed periods, after losing market share in 2023. Due to a large ‘risk weighting’ linked to its mortgage portfolio, the bank is at a competitive disadvantage compared to bigger competitors as it needs to allocate more capital for its loans. At present, it is working on a strategy to decrease this risk weighting.
Currently, PTSB’s loan-to-deposit ratio is 90%, in contrast with Bank of Ireland’s 80% and AIB’s 60%. A lower ratio indicates that a bank holds more surplus deposits, which it must place with the Central Bank of Ireland at the official deposit rate, currently 3.25%.
The bank anticipates its total income for the year to stay largely unchanged, with the net interest margin predicted to narrow even more to 2.2%. Concurrently, there’s an expectation for total operating costs to increase by middle single-digit percentages.
With the upcoming change in the trajectory of interest rates beyond 2024 in sight, PTSB is examining measures during the yearly budgeting process to secure and enhance shareholder returns.