Permnt Tsb 30 Regulatory News (73HR)

EMBARGO 07:00 11 May 2016

PERMANENT TSB GROUP HOLDINGS PLC

TRADING UPDATE FOR THE FIRST QUARTER ENDED 31 MARCH 2016

Permanent TSB Group Holdings plc (the "Group") today reports its trading update.

The Group continues to trade in line with expectations and has been profitable for Q1. However, there are challenges ahead; in particular, increasing external regulatory costs, the continued low interest rate environment and the requirement to hold the residual UK mortgage book for longer than originally anticipated. We are satisfied with performance to date and will continue to manage effectively the controllable costs and grow the business.

Key Points:

· The Group was profitable (on a pre- and post-tax basis) in Q1 and traded in line with Management expectations

· The Group NIM (excluding ELG fees) increased to 1.47% (Core Bank: 1.75%). The Group remains on track to reach its medium term target NIM of 1.70%

· The Group Cost of Funds reduced to 0.77%; however, the outlook is for this to increase over 2016 due to the requirement to hold the residual UK mortgage book for longer and a continued reduction in ECB funding which reflects the Group's return to a more normalised market funding structure.

· The Group Cost Income Ratio continues to trend downwards; however, the outlook is challenging with particular regard to the (yet unknown) quantum of Regulatory Costs

· The Group Underlying Cost of Risk continues to be in line with expectations and is on-track to stabilise at 40bps or less

· ROI Home Loan and Buy-To-Let NPLs reduced further by €0.2bn

· The Group Fully Loaded CET1 ratio increased to 15.4%

· The Group's new mortgage lending grew by 4% to end April on a year-on-year (yoy) basis, although this is still constrained by limited growth in the mortgage market

Core Bank: Summary

The Core Bank's NIM (excluding ELG fees) improved to 1.75% for Q1 2016 driven primarily by the continued reduction in Cost of Funds.

The Core Bank introduced a new mortgage proposition, supported by a new brand campaign, in the first quarter. Although these initiatives are at an early stage, the response from customers is positive, resulting in a 10% increase in mortgage applications and a 4% increase in mortgage drawdowns to end April on a yoy basis. However, growth in the mortgage market in Ireland continues to be subdued primarily as a result of the constrained supply of housing. This is evidenced by the fall in total market mortgage approvals by c.14% in Q1 on a yoy basis.

Group: Operating Performance

NIM (excluding ELG fees) increased to 1.47% for Q1 2016 (Q4 2015 NIM - 1.30%) primarily due to the ongoing reduction in the Cost of Funds.

As highlighted at the issuance of the 2015 Annual Results in March, the Group continues to explore all options with regard to the deleveraging of its residual UK mortgage book.

The Group is in the process of evaluating the impact of funding the UK portfolio for a longer period than previously planned. In addition, the Group intends to strengthen further its balance sheet through increased wholesale market funding, thereby reducing its reliance on ECB funding to a lower level than previously guided, representing a return to a more normalised funding structure.

As a result of the above factors, the Group expects the full year NIM to be lower than that of the first quarter. However, the Group remains on track to reach its medium term target NIM of 1.70%.

The Group recognises the need for continuous investment across areas of the business including: improving customer experience; strengthening risk management, governance and controls functions; and, emerging mandatory requirements including various new projects such as the implementation of IFRS 9. At the same time, the Group remains focused on tight cost control and reiterates its previous guidance of an underlying operating cost base of approximately €270 million by 2018 (excluding emerging regulatory-related costs).

The Group continues to face a significant regulatory cost challenge arising from required contributions to the Single Resolution Fund and the Deposit Guarantee Scheme. Although the exact quantum of all of these costs remains unknown at this point in time, we expect that these costs will add between €20-€35 million to our cost base in 2016, as highlighted at the 2015 Annual Results in March.

Group: Funding

Total customer deposits continue to represent the major source of funding for the Group. In particular, Retail Deposits amounted to 55% of Total Funding. The Group continues to optimise its funding mix and is currently examining the potential for Senior Unsecured and Secured issuances later this year.

The Loan to Deposits Ratio (LDR) remained elevated at 132% at the end of Q1, mainly due to the delay in the sale of the Non-Core UK assets. The Group expects the LDR to normalise once the sale of these assets is concluded.

Group: Asset Quality

Asset quality trends continue to be satisfactory and are in line with our expectations. ROI Home Loan and Buy-To-Let NPLs reduced further by €0.2bn in Q1. The underlying impairment performance reflects this.

The Group continues to monitor closely the value of underlying collateral, as measured by the CSO Residential Property Price Index, and notes that National Residential Property Prices are up 7.4% in the year to March 2016.

The Group will continue to review its impairment provision modelling assumptions and parameters as part of the statutory reporting processes later this year.

Group: Capital & Risk Weighted Assets (RWAs)

At the end of Q1, the Group's Transitional and Fully Loaded CET1 ratios were 17.3% and 15.4% respectively compared to 17.1% and 15.0% at December 2015. The increase is primarily attributable to improved performance in the period. However, RWAs remain elevated mainly due to the continued retention of the Non-Core UK assets.

The Group remains cautious of the impact of both harmonised risk weights on its internal models and the ongoing review of risk weights of sovereign exposures.

Non-Core

The residual UK mortgage book of £2.4 billion remains non-core to the Group and we continue to explore options to deleverage these assets. As highlighted previously, market dynamics have changed considerably in the UK mortgage market; in particular, the risk of Britain exiting the EU, which is to be decided at the referendum on 23 June, coupled with a competitive market for similar portfolios.

Group: Outlook

The Group set out its Medium Term Targets as part of the Capital Raise in early 2015 and has made good progress in working towards its strategic objectives by growing the NIM, managing operating costs that are within the Group's control, continuing to manage NPLs, and maintaining a robust capital base.

However, the Group's financial performance will be impacted by external factors such as increasing regulatory costs, a more modest growth outlook in the mortgage market given the ongoing constrained supply of housing in Ireland, and a sustained low interest rate environment, which has impacted bank earnings across Europe.

These factors, coupled with uncertainty around the timing of the sale of residual UK assets, mean that the Group may not generate a Return On Equity of c.10% by 2018 as previously guided. However, the Group continues to make progress towards returning to sustainable profitability and maximising relative returns for shareholders over the medium term.

Ends

Note on forward-looking information:

This Announcement contains forward-looking statements, which are subject to risks and uncertainties because they relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Group or the industry in which it operates, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements referred to in this paragraph speak only as at the date of this Announcement. The Group undertakes no obligation to release publicly any revision or updates to these forward-looking statements to reflect future events, circumstances, unanticipated events, new information or otherwise except as required by law or by any appropriate regulatory authority.