First Citizen, the Dublin-based non-bank lender, saw its net profit soar 91 per cent last year to €6.45 million as it benefitted from an accounting gain on financial instruments even as lending margins were squeezed as funding costs rose amid rising interest rates globally.
The company, established by chief executive Chris Hanlon in 2012 when he led a management buyout of Permanent TSB’s (PTSB) car finance business, saw its total loans increase by 9.5 per cent to €573.2 million, driven by strong activity in motor funding as car sales increased.
Two-thirds of €300 million-plus motor book was out on second-hand cars, while 15 per cent of the portfolio is made up of electric or hybrid vehicles, according to Mr Hanlon.
The company’s equipment and machinery book for farmers and small businesses stood at more than €90 million, while its commercial real-estate portfolio, mainly out to professional landlords with multiple units, was almost €175 million.
First Citizen’s interest income rose 17 per cent to €35.2 million last year, as it increased rates against the backdrop of rising market-based financing and a growing loan book. However, its interest expenses increased by 33 per cent €20.9 million.
The company’s profits were driven by a €7.48 million net gain it made on financial derivates it held on its books to hedge against interest rate movements. Deutsche Bank provides senior financing for First Citizen’s motor book, while BNP Paribas funds its equipment portfolio and NatWest funds its property loans.
First Citizen scaled back its reliance on Deutsche Bank last week when it raised more than €235 million on the bond markets by refinancing a portfolio of car loans through a process known as securitisation.
“The outlook for 2023 will remain challenging as the Russian invasion of Ukraine, energy cost inflation and continued interest rate rises by the ECB (European Central Bank) will impact on consumer and investment sentiment,” said Mr Hanlon. “I believe, however, we have sufficient market presence and resources to continue to support our target audience for the foreseeable future.”
The ECB has raised its deposit rate from minus 0.5 per cent to 4 per cent since July last year amid the most aggressive pace of monetary tightening in its history as central banks globally fight inflation. Non-bank lenders have been among those to bear the brunt of corresponding increases in market rates, while Irish banks have seen their interest margins widen, because of their reliance on cheap deposits for funding – and additional money made on surplus deposits stored with the central bank.
First Citizen is 66 per cent owned by US hedge fund Magnetar Capital, which also had €100 million of senior funding out to the lender at the end of last year. That facility, which was due to be repaid in June, has since been rolled over for another two years, according to Mr Hanlon.
The company had been actively looking early last year at getting into the residential mortgage market for buy-to-let investors, but put that idea on hold as market interest rates ratcheted higher. While entering this market is not currently on the horizon, Mr Hanlon said it remains under review.
