Irish Bank Permanent TSB Sees Progress in Reducing Losses

By Eamon Quinn 

        DUBLIN-- Permanent TSB PLC, Ireland's largest specialist home-loans lender and the weakest of the Irish banks facing stress tests by the European Central Bank this year, said Wednesday it is still on course for a recovery, but didn't specify when it will return to financial health.
        The bank was among a group of stricken lenders that needed enormous sums from Irish taxpayers to keep them from collapse when Ireland's property market burst disastrously six years ago. The Irish government and its international bailout creditors decided that only three lenders-- Bank of Ireland PLC, Allied Irish Banks PLC and Permanent TSB--would emerge from the country's banking wreckage.
        All three surviving banks hold large amounts of nonperforming mortgage and business loans. Along with other euro-zone banks, the Irish lenders face a comprehensive review and stress test by the ECB this year, which could require them to increase their loan-loss provisions and, possibly, add to capital reserves.
        Bank of Ireland and Allied Irish Banks have said that after posting huge losses they have returned to sustainable profitability this year for the first time since the country's banking bust in 2008, and are now therefore no longer eroding valuable capital reserves.
        Permanent TSB Group, however, is nowhere close to returning to full financial health, but having hived off the worst of its loans and developed a profit-making so-called 'good bank,' it said in March that the outlook is now much more promising.
        In an interim trading statement on Wednesday, Permanent TSB cited an improving Irish economy and reiterated that its core lending unit has returned to profit, while it has also reduced arrears in another unit where it holds nonperforming household and buy-to-let or investment home loans.
        The bank has "a significant buffer" as it faces the ECB stress tests and said it has sufficient regulatory capital, "with capital attrition reducing as loss levels have abated."
        Ireland exited its three-year bailout with the European Union and International Monetary Fund in December, and the yields on its government bonds have fallen, in absolute terms, to record lows. However, the government is concerned that with so many lenders shut or liquidated that there won't be enough capacity to fully support economic recovery.
        Following Ireland's deep banking debt crisis, the recovery has been slow. After posting three years of contraction between 2008 and 2010, Ireland's economy grew 2.2% in 2011 but expanded only 0.2% in 2012, as the wider euro-zone debt crisis flared. It contracted again last year, by 0.3%. But the EU projected in early May that the Irish economy will grow 1.7% this year and by 3% in 2015.
        The Irish government has been investigating ways to sell down stakes in the nationalized banks.
        Permanent TSB is seeking to sell some of its worst home-loan units in Ireland, but the government is unlikely ever to get back in full the up to EUR2.7 billion it provided in 2011 to keep Permanent TSB from immediate collapse. During the crisis, the government severed Permanent TSB Bank from its former parent group, Irish Life & Permanent PLC, and sold off the profitable Irish Life Ltd, to Canada's Great-West Lifeco.
        Write to Eamon Quinn at eamon.quinn@wsj.com
        (END) Dow Jones Newswires

        May 21, 2014 03:09 ET (07:09 GMT)