PTSB’s shares rose on Friday as Moody’s upgraded the bank’s credit rating on the back of a decline in its non-performing loans ratio.
The leading ratings agency raised its grade on PTSB by one level to A1, which is four rungs below its top-notch Aaa rating.
Shares in PTSB rose 1.2 per cent to €1.72, giving the lender a market value of €943.9 million, to defy weakness across the wider banking sector. AIB and Bank of Ireland fell 3.5 per cent and 2.7 per cent, respectively.
PTSB’s non-performing loans (NPLs) ratio had fallen to a record low of 1.7 per cent as of June, compared to a peak of 28 per cent seven years ago. This has been driven by the bank restructuring problem loans, selling off portfolios of NPLs, and acquiring €6.8 billion of performing mortgages and business loans from Ulster Bank as it exits the market.
Moody’s also noted that the average loan-to-value of PTSB’s mortgage-dominated loan book now stands at 50 per cent.
“We expect the bank’s asset risk to benefit from its secured loan book which will help to maintain an NPL ratio in the low single digits,” Moody’s said. “However, we also note the bank’s strategic plans to expand into higher risk lending areas such SME lending and asset finance, as well as increasing its share of other financial products to retail customers.”
PTSB, led by chief executive Eamonn Crowley, is currently advancing a major project to reduce the perceived riskiness – or risk-weighting – of its mortgages and the amount of expensive capital that must be held against them.
Analysts estimate PTSB could also free up €270 million of expensive capital on its balance sheet as a result of the work, subject to regulatory approval.
Every €100 of mortgages the bank issues has a so-called risk weighting of about 40 per cent, against which it must hold capital, compared to an average of 25 per cent for its two larger rivals. The high risk-weighted assets density is a result of the bank’s experience of the arrears crisis following the financial crash, when as much as 28 per cent of its mortgages were non-performing.
PTSB’s pretax profit for the first six months of the year almost tripled to €75 million, driven by rising interest rates and as the bank released €20 million of bad loan loss provisions, compared with a €9 million charge it took for the same period last year.
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