Mr. Jim Brown:

I am accompanied by my colleagues, Mr. Paul Stanley, chief financial officer, and Mr. Stephen Bell, chief risk officer. I thank members of the committee for their invitation to appear before them. I will go through our opening statement relatively quickly and will then respond to any specific issues the committee wishes to address. Royal Bank of Scotland, RBS, is committed to Ulster Bank. It is unique in the market as the only internationally owned systemic bank that operates across the island of Ireland. We employ over 5,200 people, have a network of 175 branches and serve almost 2 million customers. We have lent in excess of €31 billion across the island of Ireland and hold €26 billion in customer deposits.

In 2014 lending activity increased by 38% with €1.4 billion of new lending facilities to business customers and a further €900 million in personal lending. I am pleased to say this strong performance has continued into 2015. We have submitted our responses to the committee's questionnaire and look forward to discussing this over the course of our appearance here. Before we go into further detail, I would like to make a few comments regarding mortgage arrears and our standard variable mortgage interest rates, areas which are of particular interest to the committee.

Ulster Bank has made significant progress in helping 22,000 customers resolve their mortgage difficulties. Approximately 2,000 customers, however, will neither pay their mortgage nor engage with us. We believe this group of customers can be helped if they can be persuaded to engage with us. As members have seen in our submission, we have published our commitments this week to encourage engagement and emphasise to customers in arrears that we have solutions, will help them and treat them fairly. We can all agree that there is a cost to living in a home and that it is unacceptable for a borrower to make no payment whatsoever towards the cost of his or her accommodation. Therefore, the mortgage payment must be regularised or we must enforce our security.

It is Ulster Bank's belief that its standard variable rate, SVR, is not overpriced. The current narrative that the SVR minus the European Central Bank, ECB, rate equals margin is simply incorrect. There is a range of other costs that must be factored into the SVR and these costs are substantially higher in Ireland when compared with other markets in which Ulster Bank and RBS operate.

Ulster Bank recently recorded an operating profit of €752 million for 2014, representing the first annual profit since 2008. This performance was driven by the underlying strength of the core Ulster Bank franchise, increased lending to customers, proactive management of our legacy issues, coupled with an overall improvement in the economy and the property market. Our customers' requirements are also changing with digital transactions now representing 57% of our total transaction volumes.

We are also investing in our physical distribution, including a recent announcement with our arrangement with An Post providing customers with an additional 1,100 new points of presence.

We have made significant progress in addressing and resolving our mortgage arrears issues. From the outset our objective has been and is, to keep customers in their homes. We have achieved month-on-month reductions in mortgage arrears every month for the past 25 months. To date, 10,000 customers who were in arrears are now up to date and paying and a further 12,000 customers are on alternative solutions. Of these 22,000 cases only five personal insolvency proposals were vetoed by Ulster Bank in 2014 and these were due to their specific circumstances. It is disappointing, however, and notwithstanding the progress made to date, that approximately 2,000 customers will neither talk to us nor pay their mortgage, despite our efforts and the efforts of the Government, the Central Bank, the insolvency service and the courts, to encourage engagement. In a further effort to engage with these customers, we have recently launched our commitments to customers in arrears which give specific assurance that these customers will be treated fairly. With engagement we believe that satisfactory arrangements can be found for the vast majority of these customers. There are no circumstances where we or society in general can sustain or justify a situation where a mortgage holder continues to make no contribution towards the cost of his or her accommodation. As I said earlier, there is a cost to living in a home and this must be recognised.

In the absence of engagement and where no repayment is being made, we are left with no alternative but to continue with legal proceedings. This is not a good outcome for anyone as the legal process does not generally provide any realistic alternative other than repossession. Any further initiatives in this area must ensure that secured lending remains prioritised over unsecured lending in all repayment situations. If secured mortgage debt is treated with similar or lesser status to unsecured lending, then inevitably the cost of mortgage lending will increase as it becomes quasi-secured debt. In making this argument we recognise and accept that unsecured lending by banks should be treated in the same way as all other unsecured lending.

Within the wider RBS, mortgage lending is an important part of our offering in all our main markets, including England, Wales, Scotland, Northern Ireland and Ireland. Broadly speaking the interest margins in all of these markets is similar. However, unlike the other markets, our mortgage book in Ireland has been loss-making. Notwithstanding this fact and reflecting our commitment to the market, we have been progressively reducing our variable interest rates to both our existing and new customers. Separately, the cost of providing mortgage finance reflects the cost of our capital funding, operations, compliance, management of arrears, credit losses and levies. Virtually every one of these inputs in Ireland is substantially higher when compared to other markets in which Ulster Bank and RBS operate. In this context, we do not believe that our SVR is overpriced.

I reiterate that we continue to make significant progress in helping customers in financial difficulties and we are confident that we can help any remaining customers who are in difficulty if they are prepared to engage. However, in the absence of engagement and where there is no regular payment, we are left with very little alternative but to go through the court process.

Second, our standard variable rate is not overpriced. The cost of providing mortgage finance in Ireland is substantially higher than in other jurisdictions in which Ulster Bank and RBS operate. Third, RBS is committed to Ulster Bank and it is unique in the market as an internationally owned systemic bank that operates across the island of Ireland. Ulster Bank looks forward to continuing to support personal and business customers and the broader economy, both now and into the future. I am happy to take any questions from members.