Friday, June 26, 2015

The State of the PCAR Banks

The three banks in which the State continues to hold a stake are AIB, BOI and PTSB (collectively the PCAR banks).  Here is a summary of their aggregate balance sheet position for the past five years.

PCAR Balance Sheet

The main changes are pretty clear.  Their aggregate balance sheets have declined by just over €100 billion since the end of 2010.  On the asset side this has mainly been achieved by a reduction is loans due (repayments, write-offs, NAMA transfers and other sales).  The big move on the liability side has been a reduction of €80 billion in the amount owed to the Eurosystem.  Customer deposits are up around €15 billion while debt liabilities are down around €30 billion.

Net equity in the banks is currently around €23 billion with a combined CT1 ratio of 14.5%.  The loan-to-deposit ratio has fallen from 192 per cent to 123 per cent.

Here is their aggregate income statement for the past five years.

PCAR Income Statement

As has been widely reported the banks “returned to profitability” in 2014 (well AIB and BOI did at any rate).  The €1.6 billion positive net income was mainly driven by provisioning behaviour which declined from €4.5 billion in 2013 to just €0.3 billion in 2014 with the banks writing back provisions in relation to some elements of their loan books.

Selling banks with €22.6 billion of net equity and €1.6 billion of net income in their most recent year should generate substantial funds but the amounts will be unclear as long as the problem of dealing with non-performing loans (€45.7 billion or 23.3 per cent of gross loans) remains.


  1. Typo in second para. Asset should read liabilities.

  2. Hi Séamus

    A fantastic piece of analysis.

    But we can't sell banks with €22 billion of net equity, because we only own 85% of Bank of Ireland. It really is a different category from the other two.

    Come to think of it, AIB and ptsb are quite separate as well. ptsb has plenty of net equity but they have made no provisions for their tracker book.

    While there might be €45 billion of non performing loans, surely the €23 billion provision for them is excessive? The banks have hugely overprovided for losses on home loans and have begun writing them back.

    On the other hand, the profitability of all the banks is not sustainable because most of it derives from the very high mortgage rates they are charging which are not sustainable either. They will be brought down either by competition or political pressure.