PTSB interest margin narrows as it competes to grow mortgage share

PTSB’s net interest margin narrowed over the first nine months of the year as the lender was forced to compete on mortgage rates and deposits to attract and hold onto customers in a bid to rebuild its home loans market share.
The bank’s net interest margin – the difference between the average rates at which it funds itself and lends on to customers – narrowed by 0.08 percentage points year-on-year to 2.23 per cent, PTSB said in a trading update.
Its share of new Irish mortgage lending rose to 16.3 per cent in the third quarter from 13.5 per cent for the first six months of the year – and a recent low of 13.4 per cent in the third quarter of last year.
The bank, which has the lowest rate of excess deposits relative to loans among the three remaining banks, has had to pass European Central Bank (ECB) official rate increases more widely than peers in recent times, according to analysts at brokerages including RBC Capital Markets.
It has competed more aggressively on the mortgage pricing front this year, including on fixed rates as some existing customers come off fixed periods, after ceding market share in 2023. The bank has a competitive disadvantage to its larger rivals, as it must set aside more capital for its loans due to the high so-called risk weighting of its mortgage book. It is currently working on a plan to reduce that risk weighting.
Its loan-to-deposit ratio is currently 90 per cent, compared to 80 per cent at Bank of Ireland and 60 per cent at AIB. The lower the ratio is, the higher level of excess deposits a bank has to place with the Central Bank of Ireland at the official deposit rate. That currently stands at 3.25 per cent.
PTSB sees its total income broadly unchanged for the full year, with its net interest margin narrowing further to 2.2 per cent, while total operating costs are expected to rise by a mid-single-digit percentage.
“Looking out beyond 2024, in view of the change in the likely path of interest rates, as part of the annual budgeting process the bank is reviewing what measures it can take to continue to protect and grow shareholder returns,” the bank said.