Mr. Gerry Mallon:

I thank the committee for inviting us to meet with it to discuss matters relating to the banking sector in Ireland.

First, I will introduce myself and my colleagues. I am Gerry Mallon, chief executive officer of Ulster Bank Ireland, designated activity company, DAC. With me today from Ulster Bank DAC are Paul Stanley, chief finance officer, Eddie Cullen, managing director, commercial banking division and Andrew Blair, head of customer debt solutions.

In my opening statement I would like to update members on the progress we have made since we last met with the committee. I will describe some developments we have implemented across a range of services and products to improve what we do for our customers. I will provide an update on the tracker mortgage examination and the progress we are making towards resolving that issue and I will also provide an update on Brexit preparations.

Ulster Bank is a strong bank with a long history in the Irish market and a loyal customer base. We have provided banking services in Ireland for 180 years so far. We are the third largest player in the Irish market and we want to grow our market share. We are the only systemic bank operating in the Republic that has an overseas parent. Together with our parent Royal Bank of Scotland, RBS, we are developing and investing in a long term strategy for the future of Ulster Bank in Ireland.

Our half year results published recently show that we are making some good in progress in building a more sustainable, safer and stronger future. Comparing the first half of 2016 to the first half of 2017 we have increased our operating profit and reduced our operating expenses. New lending has increased by 11%, risk weighted assets have reduced by 17.7% and customer deposit balances have risen by 10.3% compared to the first half of 2016, supporting a reduction in the loan to deposit ratio.

Our conduct and litigation charges were €39 million in the first half of 2017. This charge reflects a provision for remediation and project costs associated with legacy business issues where we believe errors may have occurred.

In the year to June of this year we saw an 11% increase in lending to personal and business customers. We continue to see year on year growth in new mortgage lending and are targeting to lend approximately €1 billion to mortgage customers in 2017. I will provide members with more details on our mortgage services shortly.

For business customers we saw strong performance in new lending, which reflects a positive response to initiatives such as our export finance roadshow with the Irish Exporters Association, the expansion of our partnership with the Strategic Banking Corporation of Ireland, SBCI on agri-business, and the revamp of our Business Achievers portal and networking hub. Business Achievers is a new free digital business hub powered by Ulster Bank that displays our continued support for business customers in the Irish market.

The ways in which our customers bank with us are changing radically and in the first half of 2017 we introduced a number of changes to reflect this. In light of the rapid migration from branch transactions towards digital methods, we introduced two new customer payment systems, Apple pay and android pay, in the first half of this year. These services, as committee members probably know, allow customers to pay for goods and services simply by waving their mobile phone over a contactless payment terminal, with security provided by a fingerprint or a code. We want to provide banking services where and how our customers want them. It is not simply the case that a new generation of young urban customers want to bank exclusively online while older rural based customers want to be able to call into a local branch every day of the week. Customers want and need a combination of both. They want fast, convenient, secure services for their day-to-day banking but they need a very different service for those significant milestones in their lives that they reach with the assistance of their bank.

Our branch network remains an important channel for customer engagement. We announced in March that we would close 22 of our 110 branches in 2017. Closing any branch is a difficult decision which we do not take lightly, but it does not end our local presence in these areas. We are improving our retail network by spending €6 million on upgrading and refurbishing branches, extending the services available through An Post for our personal and business customers and introducing other improvements such as fast business cash lodgments, bulk coin deposits and cash and cheque deposit machines. We are adding two extra banks on wheels to serve rural locations in addition to our three existing mobile banks and appointing six new community bankers to support vulnerable customers and help customers to move towards online and mobile banking channels.

In the past two years, Ulster Bank has strengthened its links with the financial technology startup community through its association with Dogpatch Labs in the Custom House Quay centre, for example involving mentorship programmes for technology startups and hackathon events. In the past month, Ulster Bank has announced Ireland’s first open application programme interface in the banking sector. This move will help to take open banking in Ireland from concept to reality. To describe this concept simply, it allows one's bank to be linked with other services. It is similar to the sharing of information that has allowed services like Hailo and MyTaxi to transform how we use taxis. It is revolutionary, it is happening globally and it will be happening here. The application programme interface has been developed using market-leading technology from Ulster Bank's parent company, RBS, and will give approved third parties limited access to a customer's account balance and transaction history if the customer requests it.

RBS and Ulster Bank invest heavily in fraud prevention and detection systems to keep our customers' accounts and information safe and secure. Training on fraud prevention and detection is mandatory for all our employees, including those who serve our customers. We recently appointed a new community protection adviser to support our customers and front-line teams on a range of issues, including frauds and scams. We continue to benefit from RBS's investment in fraud surveillance and its various partnerships; for example, with the UK National Trading Standards as part of the "friends against scams" initiative. This offers up-to-the-minute training for customer-facing teams and helps us to spread the scam protection message to more of our customers and their families and friends.

I would like to make some brief points about mortgage services. Helping our customers to buy their own homes is one of the most important services we provide. We have put a considerable amount of work into improving our mortgage services for customers by simplifying processes and reducing the average time spent on an application. We have introduced a new mobile mortgage manager service, which offers customers the choice of meeting mortgage advisers in their own homes at a time that suits them. We offer free valuations on new mortgages. We provide a €1,500 legal fee contribution to provide real help with the cost of moving home. We have steered away from large cashback offers. Instead, we focus on consistently offering competitive headline rates. We offer some of the most competitive rates in the market. We have a fixed rate that is as low as 2.6% and we have 13 different variable rates that start as low as 3%. We also offer a 3.7% discounted rate against our standard variable rate of 4.3% for customers with an income-mandated current account.

We do not offer any deal to a new customer that we are not prepared to offer an existing customer. We have a good proposition that helps existing customers on tracker rates or in negative equity to move home. We are always working to improve our customer proposition. We leverage the wider capabilities from RBS to do this. We recently amended the overpayment allowance on fixed rate products to 10% per annum. This allows customers to avail of the certainty of a fixed rate while having more flexibility to pay down the mortgage quicker. As one of Ireland’s leading commercial banks, we continue to play an important role in supporting the recovery of the housing market in Ireland. This includes the provision of financing for new housing developments and accommodation sectors such as purpose-built student accommodation market to help meet current and future housing demands. Over the last two years, we have committed financing on schemes that will deliver in excess of 1,200 new houses, as well as financing student accommodation to deliver over 1,000 new student living units.

I would like to report briefly on the progress that has been made in the tracker mortgage examination. The Central Bank is carrying out an industry-wide review of tracker mortgage-related issues across all Irish banks. As part of this review, lenders including Ulster Bank were required to review their entire tracker loan books to identify customers whose contractual entitlements we failed to honour, or in whose cases we did not live up to the standards of full disclosure and transparency that we and the regulator would like to have seen. We are required to work through four phases under this examination. The first phase, which involved the development and submission of detailed plans, is complete. The second phase, which involved gathering information, reviewing and submitting a report, was submitted in line with the agreed Central Bank deadline of March 2017. The third and fourth phases are running concurrently. The third phase, which involves calculating the level of redress and compensation, is ongoing. The fourth phase, which involves the implementation of the redress programme, is also ongoing.

Our second-phase report, which was submitted to the Central Bank in line with the agreed deadline of March 2017, is being reviewed by the Central Bank. Until the review has been concluded, the second phase will be considered to be ongoing. Therefore, the number of affected customers may be subject to change. When the second-phase process was under way last December, we told the committee we had identified 2,000 affected customers. The completed second-phase report has identified a total of just under 3,500 affected customers. In line with the process defined by the Central Bank to stop further harm, Ulster Bank has contacted and returned existing customers to their tracker mortgages. This has not been done in the cases of 57 customers because the original tracker rate would result in a net increase in monthly payments in this small number of cases.

Ulster Bank has begun the third phase, which involves redress and compensation, and the fourth phase. which involves the implementation of the redress programme. The number of customers remediated so far is small. It is just under 40 today. We are starting the process very slowly to test all the calculations for each customer. We are building up a process to have a much more intensive model for calculation, contact and remediation. The process will take a number of months. It will be well into 2018 before all cases are addressed. Customers will then have a further 12 months to appeal if they are unhappy with any aspect of our redress and compensation payment. We have not concluded the process of establishing the number of customers for whom the actions of the bank caused the loss of their homes. We have identified a small number of customers for whom this is the case. We have made contact with them to begin the process of redress and compensation. The numbers are currently low but that could change as we work through the process. I will not be able to confirm the final numbers until we have completed the third phase.

In line with the Central Bank guidelines, we have put in place an independent process to support customers who wish to appeal. Two independent appeals panels have been established, each of which has a qualified barrister or solicitor as chair, an accountant or actuary and a customer voice representative. The role of the panels is to assess customer appeals in a timely way and determine whether additional redress is required. For reasons of efficiency, one panel is dedicated to complex appeals. An independent secretariat to support administration and customer communication has also been established.

I will turn now to Brexit. Ulster Bank continues to support its customers during the period of negotiations between the UK and the EU. As part of RBS, which is a business that focuses on the UK and Ireland while maintaining a good presence in Europe, we are working through the various exit scenarios. We have contingencies in place to ensure we continue to provide our customers with the full range of services they require, as would be expected of any prudent business. The fundamentals of our strategic plan remain constant. Ulster Bank, as a bank regulated in Ireland and the EU, continues to be a core part of RBS. We have seen a limited impact on retail customers, mainly because none of the changes associated with the UK leaving the EU have crystallised yet. There has been a mixed response from our small and medium-sized enterprise and business customers, with some sectors affected more than others. Ulster Bank is helping businesses to prepare for the transition through the Brexit process following the triggering of Article 50 of the Treaty on European Union by the UK earlier this year. Some of our customers are looking at expansion opportunities in the UK as a result of Brexit. We will be seeking to help to finance and support such expansion plans. We supported a series of nationwide seminars in association with the Irish Exporters Association which offered businesses the opportunity to meet and network, while hearing from industry and business leaders at a number of regional locations on a range of topics from Brexit to innovation to how to grow one's business.

Ulster Bank engages regularly with the IDA and our colleagues in RBS to help identify businesses from the UK which are considering setting up operations in Ireland with a view to providing banking products and services to them in the Republic of Ireland.

There are many other topics I could address, but I will conclude as I am sure we will have the opportunity cover them during the discussion.