Mr. Jeremy Masding:

I am happy to do that.

I am joined by Eamonn Crowley, chief financial officer; Shane O'Sullivan, group director of operations; Stephen Groarke, chief risk officer; and Greg O'Leary from the asset management unit. I thank the committee for inviting us this morning to talk about the proposed sale of non-performing loans. We believe this is an important matter in particular in respect of the ongoing relationship with institutional investors and the minimum standards required for a fully functioning secure lending market. We believe this really gets to the heart of the issue of whether Ireland sees its banks as institutions managed for sustainable value creation and for providing the lifeblood of commerce and economic activity.

We should be clear at the outset that the fiduciary responsibility of this team is to the owners of the business. We are here to maximise the return for all Irish taxpayers. I intend to share my time with Shane O'Sullivan, who will briefly outline the progress we have achieved in the area of mortgage arrears management.

I will outline some key points. At the beginning of 2012, the troika and the Government mandated that long-term forbearance was the primary tool in managing mortgage arrears. This was sensible for two reasons. First, it avoided widespread repossessions. Second, the capital cost to the banks of capital forbearance was considered the least-worst alternative for all Irish taxpayers. There was recognition of course that even long-term forbearance is subsidised by all taxpayers, as long-term treatments do not necessarily pay the full level of interest or capital on the loan. It is important to remind everyone here that Irish banks were capitalised by the taxpayer on the basis of that approach. They were not capitalised to support debt forgiveness.

I will let Mr. O'Sullivan tell the story of arrears management. However, as of today the Single Supervisory Mechanism is clear that all European banks should now manage down their non-performing loan stocks in a credible and ambitious manner. In parallel, it is important to note that the European Banking Authority has narrowed the definition of a non-performing loan. In simple terms, the only way an asset can be deemed as performing is if it is cured by returning to the terms of the original contract or if it is removed from the balance sheet of the bank. The rationale is that NPLs reduce the drag on balance sheets. Managing NPLs reduces the risk of negative consequences at the time of the next economic downturn. Managing NPLs increases the ability of banks to contribute to the growth of the real economy. The policy makes banks, including Permanent TSB, safer and more stable.

At the end of 2017 our NPL ratio was 26%. Given that the State owns 75%, it is very much in the State's interest that the bank manages down its NPLs. It is important to give the regulatory context quickly. The regulator does not dictate specifically how individual banks should reduce NPLs. We have never claimed that it did. The regulator sets out the following: the target; the definitions; the tools that might be used; and, most important, the timescale. As we sit before the committee today, the regulatory guidance makes a loan sale an inevitable choice by the bank even if it does not arise from a specific direction by the regulator. It is simply not possible to meet the regulators target and timescale within the capital envelope without a loan sale. Of course, a loan sale will not achieve everything on its own. We have used new ideas and pioneered some important innovations. The only approach we will not allow is blanket debt forgiveness.

In addition we should be under no illusion that the use of extra provisions, for example, to de-recognise a loan from non-performing loan status is not always in the best interests of all Irish taxpayers and other shareholders. Provisions are essentially trapped capital that would be better used in supporting the growth of the business and the economy. The role of management is to use those provisions in line with the bank's asset quality. The bank will only use or increase its provision stack if that is the best use of capital when compared against alternative approaches. Our governing objective is to repay the money invested by Irish taxpayers and other shareholders.

Of course, we must not forget that mortgages are secured loans. The assets have a lower risk profile and a lower price. The basis of a secured loan is that if it is not repaid, then the lender has recourse to the asset or can reduce underlying risk in another manner, such as through loan sales. If that does not happen, then the risks to new business pricing, financial stability and access to the capital markets are exacerbated.

Having said that, we have used many different approaches. We have pioneered debt write-off for buy-to-let investors with non-performing loans. Circa 1,300 properties were surrendered to the bank. We facilitated substantial debt write-off in cases of voluntary surrender, including for home loans. We are strong supporters of mortgage-to-rent. We believe that up to 1,000 mortgage accounts might be able to avail of this scheme and we are working with two parties, including David Hall's iCare Housing group in respect of such accounts.

The result is that last year we reduced our NPL stock by some €600 million, or over 10%. Since 2013, we have reduced the value of NPLs by approximately €4 billion or 42% of the total value of NPLs that were on the balance sheet four years ago. However, the ratio of non-performing loans to total loans, as defined by the European Banking Authority, has remained stubbornly high.

Several important factors are relevant that I am keen to put before the committee. First, a reduction in the size of our overall loan book in the same period has made a large impact. This was accelerated by the sale of approximately €6 billion of performing loans, a move required under the restructuring plan. Second, the characteristics of the untreated portion of the book – a matter Mr. Shane O'Sullivan will comment on in a moment - are relevant. Third, the binding constraint of European NPL definition and its impact on treated loans is relevant.

We believe that in order to make progress in reducing this ratio one of the initiatives is to pursue a loan sale. It is important to say that we are not the first bank to do such a sale and we certainly will not be the last. While our plans have provoked commentary, the fact is that the sale of NPLs to third parties in what is known as the secondary market is a characteristic of a functioning mortgage market and can facilitate greater flexibility in dealing with customers in arrears. Since our announcement much of the commentary has focused on customer protection when the loans are sold. As the Governor of the Central Bank of Ireland has confirmed in recent weeks, when a loan is sold the protections travel with the loan and borrowers are protected in accordance with the consumer protection framework. Of course thousands of such loans have already been sold by a variety of banks in Ireland. As the Governor pointed out, the evidence to date does not support the narrative that these buyers are managing these loans any more aggressively than the originally banks were.

In summary, if Permanent TSB is to prosper and grow to support the ongoing economic development of the country, then the NPL ratio of PTSB must now be reduced dramatically and quickly. If that is not agreed, then all Irish taxpayers should recognise the consequences therein.

I will hand over to Shane O'Sullivan to give the committee some facts on how we have managed arrears since 2012.