Mr. Jeremy Masding:

I thank the Chairman and the committee for the invitation to attend. I am joined by my colleagues, Eamonn Crowley, group chief financial officer, and Shane O'Sullivan, group director of operations.

I wish to set out my views on Project Glas in four sections. The first is the question of why we have performed this transaction. Permanent TSB is a regulated entity. We are required to follow the rules and directions of our regulator. On the subject of non-performing loans the direction is very clear in that we must reduce the ratio of non-performing loans on our balance sheet from 25% in a relatively short timeframe. This transaction is a critical part of our strategy to do so. Even without any regulatory requirement, reducing the non-performing loans ratio is the correct strategy to pursue. Non-performing loans make the bank less secure, less able to compete, less able to grow or prosper and less able to lend to new customers.

No bank can continue indefinitely with an elevated non-performing loan ratio because to do so would run undue risk for it, its customers and the taxpayer. Permanent TSB is conscious of this and has therefore reduced the value of non-performing loans on its balance sheet by almost €4 billion, or 42%, since 2013. Loans linked to over 13,800 homes have been restored to performing status thanks to the hard work of the relevant customers and the bank.

Permanent TSB's non-performing loan ratio remains elevated, however. Ten years on from the start of the financial crisis - many commentators say that we are closer to the start of the next one than to the end of the last one – the Single Supervisory Mechanism, SSM, requires urgent action from banks across Europe to reduce non-performing loan levels, including within Permanent TSB and other Irish banks. In this context, the European Commission, the SSM and the Central Bank of Ireland have all said that loan sales constitute a legitimate tool for banks to use to reduce non-performing loan ratios. This tool is being used by Permanent TSB, by other Irish banks and by NAMA. It is worth noting that key external observers have welcomed this transaction. Earlier this month, Moody's upgraded a range of key ratings and assessments for Permanent TSB. It highlighted the Project Glas loan sale and noted "the Bank's improved asset risk profile following a decrease in its stock of problem loans."

The second question we must ask is what are the alternatives . If we accept that the answer to the first question rules out continuing as we are as a viable option, we are saying that the main alternatives to loan sales are debt forgiveness, individual deal arrangements, a provide-and-derecognise approach and scale repossessions. I will look at each of these four options in turn. It is important to distinguish between debt forgiveness and debt write-off as the two terms are often incorrectly used interchangeably. Permanent TSB agreed to write off debt owed by over 2,000 buy-to-let customers on the condition that they surrendered their investment properties for sale. The key is that the customer agreed to forfeit the property that had secured the mortgage. The proponents of debt forgiveness want a bank to forget a part of a customer's debt, or perhaps all of it, without the customer having to surrender the underlying security in return. As the Governor of the Central Bank told this committee last week, if Ireland is to have a functioning secured lending market, security must mean something when borrowers default. The intolerable situation created by debt forgiveness means that a bank must, in effect, choose who among similar customers it should favour and should penalise.

I will give an example to emphasise the point I am making. Customer A and customer B are two neighbours who have similar mortgages with the same bank. Customer A continues to meet his repayments despite great challenges and hardship. Despite customer B's best efforts, he cannot meet his repayments and, as a consequence, has built up arrears. Those who advocate the debt forgiveness approach suggest we should reduce the mortgage owed by customer B to a more affordable amount while maintaining the mortgage of customer A as it is. In effect, this is a relative punishment for customer A for keeping his repayments up to date. While it is accepted that customer B deserves help and protection in finding a sustainable solution, no bank should want to have the power or responsibility to decide who to reward and who to punish in these circumstances. The same problem - that all customers will not be treated equally - arises in respect of individual deal arrangements. It is a real moral hazard. We have not pursued a provide and derecognise approach because questions remain about whether we could derecognise the non-performing loans set against the increased provisions, and indeed the cost to the taxpayer. As the system has spent ten years avoiding the scale repossessions approach, I do not believe it warrants further consideration. This leaves loan sale as the least worst alternative.

The third question we must ask is what a loan sale transaction means for a customer. I will seek to clarify the situation of customers whose loans are included in such transactions. Such customers have been poorly served by inflammatory and inaccurate commentary around loan sale transactions. They deserve to be treated with respect and care by Permanent TSB and by commentators, consumer advocates and other influencers whose opinions command attention. The Governor of the Central Bank has stated, clearly and explicitly - including to this committee - that the protections which a mortgage customer enjoys with one institution remain when his or her loan is sold to a different institution. The only thing that changes is the owner of the loan. Unfortunately, this reassuring message is ignored by many commentators, ultimately to the detriment of customers. The views of the Governor of the Central Bank are supported by evidence. Project Glas is one of numerous loan sales which have taken place in this country in recent years. Where is the so-called tsunami of repossessions which have been forecast with such certainty by certain commentators? Where are the thousands of customers who have found that their terms were altered after their loans were sold? Where are the examples of the courts allowing new owners to renege on pre-existing contractual commitments?

The final aspect of this matter I would like to focus on is the transaction itself. Project Glas was launched to the market in February. Binding legal contracts were signed on 31 July. The transaction will close before the end of the year. For the sake of informed debate, it is worth clarifying exactly what loans were included and excluded from Project Glas, and why they were so included or excluded. Permanent TSB originally identified approximately €4.8 billion of non-performing loans for potential inclusion in the sale. A rigorous set of principles was developed to ensure a fair and consistent process was followed. This included the application of a specific set of exclusion criteria. As a result, approximately €2.6 billion of loans, or 48% of the total, were excluded from the sale. The categories of loans - as they stood at the cut-off date for the transaction on 31 March last - which were excluded in this way were: private dwelling home split mortgages which were performing to their restructured terms and were not connected to other non-performing loans; private dwelling home loans that were identified as meeting the terms of their agreed repayment arrangements, were on a path to performing status within 12 months and were not connected to other non-performing loan accounts; loans that had cured from non-performing loan status prior to the cut-off date; and operational exclusions, for example in cases of personal insolvency arrangements, bankruptcy, voluntary surrender, tracker mortgage examination loans and mortgage-to-rent loans.

I reiterate that €2.6 billion of loans, or 48% of the total, were excluded from the original perimeter of this transaction. I emphasise that these exclusions include private dwelling home loans that were identified at the time of the cut-off as being on a path to performing status. Accordingly, the final Project Glas perimeter had a notional balance of approximately €2.1 billion. The categories of loans - again by reference to their status on 31 March last - which were included this transaction were all buy-to-let or buy-to-let-linked non-performing loans; private dwelling home loans in respect of which customers had failed to operate in line with agreed treatments or had refused forbearance offers; private dwelling home loans that were deemed not to be co-operating; private dwelling home loans that were deemed to be unsustainable following an assessment of customers' circumstances and in respect of which no formal restructure offer could be made; and private dwelling home loans in long-term arrears.

I want to make two important points about these inclusions. First, while the status of the loan at the cut-off date is key, we continue to work with individual customers after that cut-off date because it is the right thing to do. However, any treatments or restructures which are agreed now will transfer with the accounts when the transaction completes. Second, a great deal of attention has been paid to the inclusion of what people have called performing split mortgages. If any such loans have been included in Project Glas, it is because of their links to other loans which are non-performing, rather than because of their status as split mortgages meeting the terms of an agreed restructure.

The committee should remember that we removed thousands of stand-alone private dwelling home split mortgages from the transactions with an approximate value of €900 million where they were meeting the terms of an agreed restructure. By the same measure, therefore, if a customer had a fully performing loan and a non-performing loan, both of them would have transferred in this transaction. In deciding and applying the criteria mentioned the bank has to balance the SSM definition of what constitutes a non-performing loan against the individual customer's circumstances, while maintaining the governing objective of a meaningful reduction in the NPL ratio. The bank is satisfied it met the required tests.

To be clear, Permanent TSB does not decide unilaterally whether a loan is performing or non-performing. It operates in a rules-based regulatory environment. We apply the rules which are strict. We assess whether an account is performing or non-performing at the end of each month. By the start of January 2021, we will be required to make the assessment each day. As to what constitutes a non-performing loan, I appreciate that this is a complex area and that it can be confusing for customers and others. It is further complicated by the fact that some people describe loans as performing if they are meeting the terms of a restructure agreement, which, of course, means that they are not performing by reference to the original loan contract. That is the critical reference point for the regulator. Ultimately, therefore, the bank's NPL strategy is about identifying individual loans which are in default in respect of the original terms of the mortgage contract; linked with other loans which are non-performing via either cross-default or cross-collateralisation; or deemed to be “unlikely to pay”, that is, loans in respect of which there is no clear evidence that the borrowers are capable of honouring the terms by the end of the contract.

We are bound by the SSM definition of what constitutes a non-performing loan and by the comprehensive guidelines set down as to the factors we other banks must take into account in assessing whether an account is non-performing or performing. To date, when we have reviewed the various cases highlighted in the media on this issue, we have seen no evidence that any of the relevant loans has been incorrectly classified as non-performing on the relevant cut-off date by reference to the rules and guidelines of the regulator, the SSM. We will continue to monitor the position up to the completion of the transaction.

I should advise the committee that while we will, as always, endeavour to be as helpful as possible in responding to questions, this is a commercial agreement and that we are bound by a confidentiality clause in discussing the transaction, which will probably restrict our ability to deal with all questions. Similarly, we are not in a position to answer questions related to specific customers. This is the third time we have met the committee this year to discuss this transaction and we have always sought to be as helpful as possible, while being mindful that this was a dynamic, evolving transaction with lots of moving parts. I assure the committee, however, that we will try to be helpful in the same manner.

That brings me to the end of my opening remarks. We are happy to take questions.