Mr. Gerry Mallon:

As this is my first time appearing before an Oireachtas committee, it is an opportune time to introduce myself. As indicated, I am chief executive officer of Ulster Bank Ireland, a role I commenced on 1 June this year. Before joining Ulster Bank I was CEO of Danske Bank in Northern Ireland, having previously held other senior positions in Danske Bank as well as Bank of Ireland and McKinsey & Company Management Consultants. I am accompanied this morning by Mr. Paul Stanley, chief finance officer, and Mr. Andrew Blair, head of problem debt management, at Ulster Bank Ireland, DAC. We thank the committee for the invitation to attend this meeting.

As the committee will be aware, Ulster Bank is a subsidiary of Royal Bank of Scotland, RBS, and accordingly it is subject to the normal disclosure constraints of a publicly quoted company, although I do not believe this will unduly constrain our responses to the committee this morning. With the agreement of the committee, I will read my opening statement relatively quickly, following which I will respond to any specific issues the committee wants to address.

The following are themes I would like to convey to the committee. First, Ulster Bank is a strong franchise with an established market position and a loyal customer base. We provide important and much-needed services to Irish customers on a business and personal basis. We also provide competition in the Irish banking market. Second, while the post-crisis recovery continues there are market head winds to consider, including a low interest rate environment, the impact of Brexit and a challenging regulatory cost environment. Third, we continue to work hard to address our legacy issues. While we have made significant progress, we fully appreciate that there is more to do. Fourth, we are looking with determination and confidence to the future, running the business as efficiently as possible, leveraging the strength of RBS and key market opportunities that exist.

I would like now to expand on each of these four points, starting with our strong franchise with an established market position and a loyal customer base. Ulster Bank has been providing banking services in Ireland for the past 180 years. It is unique as the only systemic bank that operates in the Republic of Ireland that is owned by a parent with international reach. RBS has confirmed that Ulster Bank remains an integral part of its plan to build a leading retail and commercial bank, substantially focused in the UK and Ireland. Ulster Bank employs over 3,000 people, it has a network of 110 branches and it serves almost 1.1 million personal and business customers. It has net lending of in excess of €22.6 billion in the Irish economy and it holds circa €17.5 billion in customer deposits. Despite operating in a low interest rate environment, it continues to make good progress in the strengthening of its business.

The year 2016 to date has been a strong customer focused period for Ulster Bank. We reported an adjusted operating profit of €236 million to end September 2016 and we are demonstrating steady progress through increasing income and reducing our operating costs. Following the announcement by Ulster Bank to pay a €1.5 billion dividend to its parent company, it maintains a strong capital position. Our results reinforce our progress in building a strong and sustainable business as RBS in Ireland. We have a shared ambition across RBS to become the number one bank for customer service, trust and advocacy. By advocacy I mean word of mouth recommendations that generate new business and relationships based not on what we say but on what we do and how we treat our customers. We believe that we are making progress on this ambition. We are growing market share in terms of flow of new business, particularly in the mortgage market, and our customer net promoter scores continue to rise, reflecting the level of service we provide to our customers. We continue to invest in our customers and people and in reinforcing our brand presence.

While the post-crisis recovery continues there are market head winds that need to be considered in our outlook. There is no doubt, as indicated as recently at last week by the CSO data, that the post-crisis recovery continues. However, while the macroeconomic outlook remains favourable it is not as favourable or as certain as it was prior to the UK referendum or US election results. We are also operating in a low interest rate environment which is impacting all banks' deposit margins and our returns on deposit funds remain at historically negative lows. The recent UK vote to leave the EU is also likely to have a negative impact on the Irish economy, in our view, predominantly affecting exports and investment. In addition, we continue to pay increasing Government and regulatory levies which already represent circa 9% of our total cost base and which adversely impacts our cost income ratio by approximately 7%.

On a more positive note however, the decision of the UK to exit the European Union has strengthened and reinforced the strategic importance of Ulster Bank to RBS. As a bank regulated in Ireland, in a post-Brexit scenario Ulster Bank has a unique position within RBS.

The third area concerns addressing our legacy issues. As part of our progress to build a sustainable business, there are a number of legacy issues which we continue to manage and which impact on our customers and our recovery. This includes our work, under the direction of the Central Bank of Ireland, to address issues identified in our tracker mortgage portfolio of customers. We are focused on completing this very complex piece of work and ensuring that we do the right thing for our customers, sorting these legacy issues out so that our focus can be on building a strong business and rebuilding the trust of customers, the pride of our people and the support of our stakeholders.

In the course of our discussion today, we can touch on any of these issues members want to discuss. However, one area they have already indicated they want to talk to us about is mortgage arrears. From the outset it is important to restate that our objective has been, and remains, to keep customers in their homes. As we have previously indicated to the committee, there is a cost to living in a home. Where customers engage meaningfully with us we can provide, and have in the vast majority of cases provided, a solution to keep them in their home. We have made significant progress addressing and resolving outstanding arrears issues and to date we have supported over 22,000 customers who are experiencing difficulties to stay in their home.

In terms of loan sales, I remind the committee that Ulster Bank was not part of NAMA and therefore never benefitted from having impaired assets removed from our balance sheet, unlike the other domestic banks in this market. As a result, we have undertaken a number of loan sales as part of our recovery, with the full knowledge of our regulators, both the Central Bank and the ECB, which have encouraged these processes to address what is a key issue for Irish banks in bringing the volume of non-performing loans in line with acceptable market norms. These types of sales are an essential part of our recovery and enable not just Ulster Bank but all other financial institutions to strengthen our balance sheets, reduce our risk profile and enable us to facilitate lending and growth back into the economy for both personal and commercial customers.

We are firmly of the view that the future of Ulster Bank must be built on customer trust and integrity to ensure we are a powerful and competitive presence in this market. Having been in recovery mode, we are now moving into a new phase of our business where we are focused on our customers and transforming our business, unlocking the potential that we know exists, investing in the future and running the bank efficiently. Our clear purpose and ambition is to be the number one bank for customer service, trust and advocacy. Running our business in a responsible, sustainable and efficient way is at the core of that ambition.

To the end of September 2016, our lending activity increased by 26% year on year, with €970 million of new lending facilities to business customers and a further €810 million in personal lending. Our new mortgage lending is up 49% compared with the third quarter of 2015, with our market share of new mortgage lending increasing by 4% on last year, which is very positive in a competitive market. Our new service-led improvements to customer experience, such as mobile mortgage managers and secure video chat, have increased Ulster Bank's market share to 19% in the third quarter of 2016. Our broad range of fixed and variable rates, which are available to both new and existing customers, are both comprehensive and competitive.

We are also gaining market share in agribusiness with a range of propositions and services to support and grow our customer base in this important sector. A total of 34 of our agrispecialists will graduate this week from our unique tailored agriculture programme, designed to provide the best support to our agricustomers. We have been out on the road all of this year talking and listening to business customers and providing support on everything from exporting to new markets, expanding organic SME businesses, the impact of Brexit and innovation in farming. We have also started to offer finance under the Strategic Banking Corporation of Ireland.

We are working in an operating environment that is changing fast. International and global events, such as Brexit or various EU or international trade issues, lower-for-longer interest rates, affect the economic environment and, in turn, our customers regardless of the outcomes. We are focused on transforming our organisation to ensure it is fully prepared to meet these challenges in the short and long term. As part of this transformation, we need to factor in the issues of strong competition and innovation from both banks and other non-traditional competitors. Technical innovation, shifting consumer trends, changing demographics and increased regulatory requirements highlight the need to continuously adapt our way of working to ensure a customer-focused sustainable response and strong financial performance. It is clear from the ongoing developments in technology and the customer response that products, services and distribution channels need to be reviewed and updated on an ongoing basis to ensure that we meet and are responsive to customer needs.

The next era in banking is defined not just by the financial products or services delivered, but by who delivers them, how they reach customers and how they meet their needs. Central to this is the application of rapidly developing technology at both the retail and wholesale levels. These latest developments, led in the main by FinTech startups, pose challenges for market participants and regulators alike, particularly in balancing the potential benefits of innovation with the possible risks of new approaches. It is clear, however, that the evolving banking and payments landscape requires collaboration among financial service providers, regulators, policy makers and FinTech companies to help foster the evolution of this area. Ulster Bank, supported by our international parent RBS, is central to this collaboration.

In conclusion, I reiterate that our ambition in Ulster Bank is to become the number one bank for customer service in Ireland. We have a strong franchise with an established market position and loyal customer base. While the post-crisis recovery continues, there are market headwinds which need to be considered in our outlook. We continue to work hard to address our legacy issues and while we have made significant progress, we fully appreciate there is more to do. We are looking with both determination and confidence to the future, running the business as efficiently as possible and leveraging the strength of RBS for the key market opportunities that exist.

We look forward to continuing our progress in 2017 and beyond. Mr. Andrew Blair, Mr. Paul Stanley and I are happy to take any questions.