Mr. Jeremy Masding:

I thank the joint committee for the invitation to meet it. As the Chairman said, I am joined by my colleagues, Mr. Glen Lucken, the group's chief financial officer; Mr. Shane O'Sullivan, managing director of the group's asset management unit; and Mr. Ger Mitchell, the group's head of lending. We have responded to the questionnaire the committee submitted to us last week and look forward to taking questions. However, I thought it might be helpful to make a few general comments before the questions began.
This is proving to be a very significant year for the Permanent TSB group. As we have stated to the committee previously, our primary objective is to restore Permanent TSB as a viable, competitive bank focused on the Irish retail banking sector. In doing so, we wish to bring competition and innovation to customers across the country and maximise our ability to return as much as possible of the investment the taxpayer made in the group through the Minister for Finance. This year we have made very significant progress on a number of key fronts.
Financially, we have made huge progress in reducing our losses and moving much closer to a position where the group as a whole will be profitable again. The numbers reflect the enormous strides we have made in delivering the group's key strategic goals of creating a smaller and safer bank, rebuilding the strength of the balance sheet, providing innovative competition in the retail banking marketplace and providing sustainable and affordable arrears treatments. In summary, our goal is to do banking better and operate to the highest standards of professionalism and integrity.
In terms of the focus of the bank, we have targeted the key retail segments that underpin our core competence - current accounts, deposits, mortgages and consumer finance. We have sold those businesses that do not fit with that business model and will continue to do so at prices that optimise the use of taxpayers’ capital. We believe that after the sovereigns crisis, customers will continue to be attracted by a back to basics business model that does not carry the risks of geographical diversification or complexity. That will be the source of our success in the medium term.
In financial terms, we are targeting a return on equity of above 10% for the core bank by 2018. Of course, a smaller, safer bank starts with its balance sheet, where we have reduced significantly the group's dependency on ECB funding and grown the deposit base. In the coming months we will restructure and strengthen the capital base.
On the competition front, we have been very successful in attracting new customers, be they mortgage customers, current account customers or deposit customers. We have grown our market positions in key sectors and are providing real banking competition. In the case of mortgages, for example, we are looking at a market share of over 13% where two years ago it was under 2%. Perhaps most importantly, on the key challenge of dealing with customers in mortgage difficulties, we are making significant progress. At the end of August the number of customers in arrears for more than 90 days was down by over 21% since the start of the year. We are in constructive engagement and have made long-term, realistic and sustainable agreements with thousands of customers which will help to ensure they remain in their homes.
The progress we are making in recovering a business which, after the financial crash, was effectively on life-support is testament to the strength of character of the group's staff, the encouragement of the broader system, the improving Irish macro-economic environment and, most importantly, the financial support of the people. We do not take this support lightly; we endeavour each and every day to serve with a focus that does not hide from our troubled past but is focused on rebuilding an asset of value for the people. Of course, in this context, it would not be appropriate if I did not comment on the recent single supervisory mechanism, SSM, comprehensive assessment. The exercise was conducted through three lenses. The first is the asset quality review, AQR, and this part of the exercise was designed to review the provisions made by the participating banks by testing the models which underpinned these provisions. Of course, weak provisioning was a key factor in the banking crisis; therefore, it is critical that everyone can be confident that the provisioning models are robust and objective. In the case of Permanent TSB, that exercise effectively validated our provisioning policy. The group did not require any capital as a result of the AQR review.
The second part of the exercise reviewed how the group’s capital levels would be affected in what was called a baseline stress test scenario, that is, how the capital levels would be affected by events which might reasonably be expected to occur in the coming three years. In our case, it was found that our capital levels would hold up well and would be in excess of the levels required at all stages through the planning period. Again, this was very encouraging.
The final element of the exercise, the adverse stress test scenario, examined how the group’s capital levels would perform in what the ECB itself referred to as an “extreme” scenario. The ECB called this the adverse stress scenario and described it as “unlikely to occur”. In this scenario, it was found that the balance sheet of the group as at 31 December lastwould see a shortfall of required capital of some €855 million if these events did, in fact, unfold. However, as I said, this adverse scenario was applied to the balance sheet as it stood almost one year ago. Much has changed since and we were able to state on the day of the results that we had already accounted for over 80% of the identified shortfall. The full level of the amount for which we have accounted, which is over the 80% figure, will be confirmed through the capital plan exercise in which we are engaged.
We have also stated we will now engage with the international capital markets. In this regard, we have met in the past week or so the investment communities in London, New York and Boston and I can confirm that there is real interest in the PTSB story and its profitable growth potential. Of course, while good progress has been made, we certainly acknowledge that much remains to be done. We are particularly conscious that the taxpayer has invested a net €2.7 billion in the group. That investment brings significant responsibilities to me and my colleagues, both to protect and, I hope, return as much of that investment as possible and, importantly, to ensure we act fairly and equitably in dealing with customers. Everyone in the bank is fully aware of these responsibilities, which is reflected in how we deal with customers in mortgage difficulties, how we try to create innovative products for our customers in areas like mortgages, current accounts and deposits, and how we try to ensure we will, over time, be as competitive as possible in our lending rates.

Inevitably, we cannot please all of the people all of the time. However, we are working hard to strike the right balance and advance towards the goal of restoring the bank as a profitable, competitive, customer-focused business with which customers are happy to do business and staff are proud to be associated.