Earnings Call: H2 2018

Feb 27, 2019

Good morning to you all, and welcome to our 2018 annual results presentation. Perhaps I could ask you to turn to Slide 2. I'm going to give a short presentation on the significant progress we made during 2018, after which our CFO, Eamon Crowley, will provide a more detailed review of our financial performance. Eamon and I will be happy to take your questions after that. Turning to Slide 3 for highlights of the year. I am pleased to say that business performance in 2018 was really strong, in particular in mortgage lending. We outperformed the market once again for the 2nd year in a row, growing new lending by over 40% to £1,500,000,000 versus a market that grew by 20%, thereby bringing our market share to over 15% from 12.6% in 2017. The bank's underlying profit grew to €94,000,000 which is an increase of 45% year on year. We made significant progress in transforming our balance sheet by reducing NPLs to $1,700,000,000 in 2018 from $5,300,000,000 in 2017. This is a reduction of approximately 70%. The bank now has an NPL ratio of 10%, down from 26% 12 months ago. We are pleased to have made significant progress towards our strategic objective of reducing NPLs towards a mid single digit ratio. This was primarily enabled by 2 major deleveraging transactions, namely projects Gloss and Glen Bay, which combined delivered a reduction of €3,300,000,000 More significantly, these transactions together generated an additional 1.7% in CET1 capital. Gloss and Glen Bay were significant not only because the transactions removed a material risk to the bank's capital base, but also because they supported ongoing profitable growth. We reported a pro form a CET1 capital ratio 14% on a fully loaded basis, which remains well above regulatory requirements and management target. And then at the end of 2018, the group exited the restructuring plan required under state aid rules submitted by the Irish state and approved by the European Commission back in 2015. This is an enormously significant milestone for us as an organization. Turning to Slide 4 on financial performance. We have recorded an underlying profit of €94,000,000 up 45% from 2017. We saw the NIM reduce slightly to 1.78% from 1.8% as some higher yielding treasury assets reached maturity and lower income was generated from NPLs. This was offset by a reduction in cost of funds, which we continue to manage carefully. Operating expenses remained flat year on year at 284,000,000 dollars However, this performance marks significant progress in reducing underlying operational costs, which we did so to the tune of approximately €25,000,000 where we use these savings to invest in the future of the business, namely better digital channels, new and redesigned branches and better technology. We had an impairment charge of €17,000,000 This is the 1st year of reporting impairment under IFRS 9 and we are pleased that it was in line with our expectations. In terms of the balance sheet, retail deposits, including current accounts, increased by €500,000,000 and the performing loan book, which stood at €15,300,000,000 remained in line with 2017. However, we did record a modest growth in our performing loan book in the second half of twenty eighteen. Turning to Slide 5, we are an important part of the Irish Retail and SME Banking landscape and have proven this by developing award winning products and campaigns that have supported our strong business results. Our total new lending grew by over 40% in 2018. Mortgage lending, which represented almost 90% of total new lending, increased by 42%, more than double the market growth of 20%. This is a really impressive performance by the PTSB team and shows the strength of PTSB's brand, the quality of the bank's propositions, the value of the multichannel approach and the passion and commitment of my colleagues to deliver right customer outcomes. Since 2012, we have focused much more on affordability as the key credit risk test as against asset value. And for the vintages written since then, we have had de minimis defaults and more than acceptable LTV. We have not changed our underwriting criteria, and we keep a watchful eye on book performance. Whilst one cannot always legislate for a macroeconomic impact such as the global financial crisis, we remain diligent and true to old fashioned banking principles. The data would suggest we have gained competitive advantage through proposition and service. Today, our mortgage application levels continue to grow despite a slight plateau in the second half of twenty eighteen, which was seen across the markets. The mortgage market is expected to grow by over 50% in the medium term, which provides a really positive backdrop for our business. Whilst the market does remain competitive, of course, efficient distribution and disciplined pricing, coupled with a strong intermediary proposition, positions us well for the future. Our personal term lending grew by 36% year on year. Indeed, our performance in personal term lending shows that we have increased volumes by 100% in just 2 years. The majority of our personal loan applications now originate through digital and voice channels. We have fully automated the personal term loan lending journey such that there need not be any manual intervention. Our objective is to roll out this automated customer journey to all products over time. Turning to Slide 6. You can see from this slide that we're seeing positive trends in terms of both customer base and loyalty metrics. Our engaged customer base is up 13%. Our net promoter score, the degree to which our existing customers recommend us to potential customers has consistently remained within the top 2 in the market. In 2018, we continued to invest in our branch network to give a better experience for our customers. We want our branches to be attractive, state of the art locations for customers to come and discuss their most important banking needs with us. Indeed, we find many customer journeys start and maybe finish online, but that the face to face element remains an integral part of the banking relationship. What is changing is the role of the branch, not the need for the branch. The same continuous improvement mindset has been applied to the bank's direct banking offering, where we've improved the efficiency and effectiveness for customers who are required to complete the personal loan journey by phone. We've improved our offering to intermediaries, which remains a very important part of our business model. Our operating model has been proven to work well and it delivers a service that's distinctive and attractive. We remain grateful for the trust shown in us by the intermediary market. And digital activity has increased 38% year on year as we continue to invest in better digital channels. We've continued to improve our offer to allow customers who want to do more business with us to do so and to make it easier and faster. Turning to Slide 7, this gives, I hope, a pretty good snapshot of the broad range of work we have completed on the digital front last year. We've 500,000 users of our web portal, a quarter of a 1000000 using our mobile app and customers have applied, been approved and drawn down over 10,000 personal loans through our app without any need for a branch visit or a phone call. We are a full service retail and SME bank that uses a range of channels. Digital is as embedded in our DNA as the branch network. Our digital offering is one of the best in the current market. Over the next 3 years, we'll be doing a lot more in the digital space and accelerating our transformation into a bank that offers a connected service across all channels, thereby allowing our customers to do business in whatever way that best suits their needs. Turning to Slide 8. This slide provides a bit more detail on our commitment to digital transformation. Indeed, significant further investment is planned over the next 3 to 4 years. We have recently launched a multi year program that goes right across the organization in terms of ways of working, technological infrastructure and customer experience. We believe and indeed know that this program is necessary and that the investments required are manageable within our current cost base. The program will transform the way we run our business and the way we serve our customers, namely delivering a better service at a lower cost, giving us more useful information such as having a single view of each customer across all our systems for identifying better what they need and having a safer, more secure infrastructure as the need for cybersecurity continues to increase. From a customer's point of view, they will benefit from improvements in the way they deal with us, including seamless omni channel journeys across all channels, better and easier to use self-service options, enhanced product offerings, and basically delivering the things that customers want in a way they want them. Because ultimately, this will deliver right customer outcomes and economically profitable PTSB and then deliver the right level of return for our owners by providing opportunities for growth and by operating a simpler and more efficient retail and SME bank. This slide encapsulates the journey since 2012. By way of example, the loan to deposit ratio is just one metric that shows the massive extent to which the bank has transformed in recent years. You'll see from Slide 9 that our loan to deposit ratio is now below 100% at 93%, a long way from the unsustainable 2 27% from when we started the transformation program. The slide also shows a range of other metrics that really emphasize the progress we've made across the board from new lending to bottom line profit, from NIM improvements to NPL reductions. We've come an enormously long way, and it is testament to the dedication and commitment of the really good people of permanent CSB that we have made such significant progress to date. And for that, I thank them publicly. However, I'm acutely conscious that we still have a long way to go before we regain the trust of the public and deliver the level of sustainable shareholder return that is required for a fully functioning public limited company. That's the next challenge. So to sum up this part of the presentation, I'll return to the highlights for 2018 and outline our performance priorities for 2019. So for 2018, we've grown our new lending by over 40%. We've grown our mortgage market share to more than 15%. We've been successful in achieving a material reduction in our NPLs through projects Gloss, Glen Bay and other measures. We have a capital base that is comfortably above minimum requirements. And most importantly for us as an organization, we successfully exited our restructuring plan. Looking ahead, our 19 priorities are to drive our digital transformation, to grow economic profits on a sustainable basis, to deliver right customer outcomes, to continue to manage the risk profile of the bank and to continue to build a high performance culture. The performance priorities are dynamic and will continue to evolve as the Irish Retail and SME Banking environment changes. But the really great news is that we're moving further away from the work of repairing the bank and spending more and more of our time and effort on growing the organization. To do that, we're embedding the right culture that can deliver high performance, right customer outcomes and an economically profitable business that protects capital whilst maximizing the intrinsic value of the business. We are confident that market value will follow over time. So in summary, 2018 has been a really transformational year. As a group, we're in a good place. The future looks exciting, but we do always recognize the challenges that dynamic change always brings. So with that, I will hand you over to Eamon. Thank you. Thank you, Jeremy, and good morning, everyone. I want to go through the financial performance in detail, but firstly, I want to turn to Slide 12. So we'll see here that the Irish economy is forecast to grow at 3.5%, and it continues to be one of the fastest growing European economies and that has been over the last 4 years. Economic fundamentals underpinning growth are very strong. Consumer spending and employment continue to grow at around 3%, and this provides a very positive backdrop for the economy. When you look at the housing market, the picture is also very positive. The mortgage market having grown to €8,700,000,000 in 2018 is expected to increase by over 15% to around £10,200,000,000 in 20 19. Housing completions continue to improve and while the number of houses being built may not meet current demand, the progress and trajectory of rebuilding Ireland's housing market are positive and trending in the right direction. So with strong demand and an increase in both primary and secondary supply, it prevents a very positive outlook for the bank over the medium term. And I should also note at this stage that the PTSB has no direct exposure to Brexit. If we turn to Slide 13. The key message I want to convey here today is that we continue to rebuild the bank's underlying profitability. I would like you to focus on the profit before exceptional items and tax of GBP 94,000,000 which has increased by 45% year on year. Net interest income reduced by 6%, but this was due to lower income from NPLs and treasury assets, but it was offset by lower funding costs. While underlying income from fees and commissions were broadly flat year on year, recorded other income of £24,000,000 which is primarily driven by treasury activity during the first half of twenty eighteen. Operating expenses were broadly flat, and we will look at the makeup of these later in a later slide. As mentioned by Jeremy, the impairment charge was £17,000,000 and that is now reported under IFRS 9 and is showing a 65% reduction year on year. While this number is not directly comparable to 2017, as a prior as the 2017 number has not been restated under IFRS 9 requirements, the charge is in line with our expectations. Exceptional items totaling €91,000,000 consists of €66,000,000 of costs relating to NPL deleveraging, a £20,000,000 provision in relation to an increase in the accrual for legacy mortgage related expenses together with £5,000,000 for restructuring costs. So we turn now to Slide 14, we can look at the net interest margin in more detail. Net lending income, which is the performing loan growth income less deposit costs, grew by 11% in 2018. Income from the performing loan book increased by 2% year on year. And while this amount is small, it shows we have hit an inflection point for growth in good quality interest income. The net interest margin was 1.78 percent and this is 2 basis points lower than reported in 2017, but it is in line with the expectations of management and indeed increased slightly in the second half of twenty eighteen. We continue to actively manage the cost of funds with the full year cost at 37 basis points, and this is 9 basis points lower versus 2017. And this was achieved through a range of funding actions, including retail, corporate and institutional rate management. Overall, we expect the net interest margin to remain stable through 2019. A key point to note here is that we remain highly sensitive to the interest rate movement interest rate movements given our exposure to tracker mortgages, and we estimate that a 50 basis points upward movement in interest rates would equate to around £40,000,000,000 of additional net interest income. So let us now turn to Slide 15. And we look at the performing loan book. Our performing loan book was €15,300,000,000 at the end of December, which is broadly flat when compared to the book at the end of 2017. The performing book itself is broken into £11,300,000,000 of home loans and this represents 74 percent of the book £3,400,000,000 of buy to let loans, which is 22% of the book and around £600,000,000 of other consumer portfolios, and this is around 4% of our book. The performing mortgage book totals €14,700,000,000 and with an average yield of 2.34 percent, this has remained relatively stable over the last 2 years. You can see at the top right hand side of the slide that the 2018 average yield of new mortgages was 3.14 percent and this is a reduction of 25 basis points versus the previous year. And this reduction is in line with market trends and with our core aim to remain competitive while maintaining price discipline. We lent approximately €1,500,000,000 in 2018 and this is an increase of 40% year on year. And as mentioned by Jeremy, we've increased our mortgage market share to 15.1% and this included positive trends through each month of 2018. On the bottom left, if you take a closer look at the total loan book, and this is £16,900,000,000 it is made up of £10,000,000,000 of tracker mortgages and they're yielding 1.1 percent, $4,400,000,000 of variable rate loans and they're yielding 3.6 percent $2,000,000,000 of fixed rate loans yielding 3% and $500,000,000 of other loans. And I should also note that 82% of the mortgage book is paying capital and interest. Over 80% of new mortgage business written in 2018 was on a fixed rate. If we turn to operating expenses now on Slide 16, you'll see that operating expenses remained broadly flat year on year. Staff costs increased by 1% and this was due to increase in payroll, which we offset by lower average staff numbers. The bank launched 2 voluntary severance schemes during 2018, which when they complete will involve the reduction of around 2 50 FT feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet Es and annualized savings in the region of 15,000,000 Other costs reduced by 5% year on year, and this reduction was driven by efficiency gains underlying efficiency gains of GBP 25,000,000 from ongoing internal improvements being partially offset by investments in digital transformation, PSD2 and ongoing enhancements with regard to how we manage data and how indeed we look at customer data with regard to promoting sales activity. Depreciation and amortization increased by 3,000,000 to 24,000,000 and this was as we see expenditure from capital investments in technology over recent years coming through to the P and L. As Jeremy mentioned earlier, we have now launched a multiyear digital transformation program, which will run over the next 3 years. This program is expected to cost up to £100,000,000 of which we estimate 80% will be capitalized. We will continue our focus on cost management and we expect operating expenses to remain flat over the medium term as we further invest as further investment is funding through efficiency gains. So the key message here is we're looking to make this investment, make this transformation and keep our costs flat at the same time as we make that change in investment. On a like for like basis, the underlying cost income ratio when you exclude regulatory costs, and indeed, this is the manageable cost base, was 64%, and this is in line with prior year. Let's take a look at the nonperforming loan position now on Slide 17. This time last year, we stated that one of our strategic priorities was to reduce our NPLs to a single digit percent level over the medium term, And I'm very pleased to say that significant progress has been made during 2018 as we've reduced our non performing loans from 5,300,000,000 dollars at the end of 2017 to 1,700,000,000 at the end of 2018. And this represents a reduction of 68% year on year and brings our NPL ratio from 26% to 10%. We achieved this balance sheet transformation by executing 2 portfolio sales, running a voluntary surrender campaign for buy to let customers and continue to work with customers to deliver organic recoveries. If we look at Project Glass, it was launched in July 'eighteen and then closed in early February of this year and led to a reduction of £2,100,000,000 of NPLs with associated exceptional costs of £30,000,000 Project Glen Bay, which was a portfolio securitization, was launched in December 'eighteen and deleveraged $1,300,000,000 of NPLs with associated exceptional costs of 36,000,000 euros We are pleased to say that the combination of these two deals resulted in an additional benefit of 1.7% to the fully loaded core equity Tier 1 ratio. So quite a phenomenal result if you were to look back at last year as we faced into these two transactions. We continue to work towards an NPL ratio of mid single digit over the medium term. You'll see from the table on the bottom left of the slide that our asset quality and level of provision coverage remains at an appropriate level. With an expected credit loss of 1,100,000,000 dollars on $16,700,000,000 or $16,900,000,000 of assets, we've overall coverage of 6.4%, which we believe is appropriate. We have also received guidance from the regulator under the SREP process on the coverage on coverage levels for secured NPLs going forward. If we now move to Slide 18. This was an area last year where through our voluntary surrender campaign for buy to let customers, we actually took possession of a significant number of properties. And in this area, we've made material progress on selling these properties. And let me go through the numbers, I should say. At the end of December 2017, we had 1793 properties in our possession, I. E, on our balance sheet. We continued the voluntary surrender campaign in the first half of twenty eighteen, and we took possession of an additional 5 22 properties. We've sold 11 22 properties in the last 12 months, and this leaves a balance of 1193 properties in possession at the end of 2018, and indeed we sold another 126 in January alone. We plan to exit the majority of these properties within the next 12 months, and we believe there is marginal conservatism built into the valuation of these properties on our balance sheet. And therefore, our objective is to sell the majority of these properties at or above their book value. If we now turn to Slide 19. Our funding positions position remains very strong. Our strategy is to continue to fund our balance sheet by customer deposits while keeping other funding lines open and accessible, which is exactly where we are today. All funding and liquidity metrics remain strong and well above regulatory requirements. We reduced system funding to 0 in 2018. And as mentioned by Jeremy earlier, this was at a level of €19,500,000,000 in 2011. We are now over 85% funded by customer deposits with retail balances remaining stable through 2018. And indeed, within that, you'll see that our current account balances increased by 6%. So it shows quite strong connectivity to our customer base and aspect of loyalty with regard to the brand. Our indicative MREL target has been set at 25.8%. We believe the total issuance will be in the region of €1,000,000,000 over the next 3 years, which we believe is manageable and is reflected in the NIM guidance for 2019. And depending on market conditions, through 2019, we intend to start issuing in the second half of this year. If you look at the right hand side of the slide, you'll see that our regulatory capital ratios remain comfortably above the minimum requirements. And I'd like you to focus on the pro form a ratios, which include the closure of the Glass transaction and the final capital treatment of the Glen Bay transaction. And you will see from the pro form a fully loaded correctly Tier 1, it's at 14% with the transitional level at 17%. I just want to bring you on Slide 20 through the deep more detail with regard to how that moved during the year, and you'll see that the fully loaded core equity Tier 1 ratio reduced by 1% during 2018 and this was on a level of 15% to 14%. And this reduction in the ratio the reduction in the ratio can be explained by the impact of IFRS 9, which contributed 1% to the decline. The increase in RWA is a result of fully embedding the impact of TRIM during 2018, and this contributed a 2.1% decrease in the ratio and other movements which contributed about 50 basis points of a reduction. But these were offset by the underlying profitability that we reported and also executing the successful balance sheet transformation in the form of NPL deleveraging, which delivered a benefit of 1.7%. Within these numbers, we don't have headwinds per se. Everything is the TRIM situation is complete. The NPL deleveraging is complete. So with regard to headwinds, it's the normal headwinds around how we operate our profitability and how we further decrease NPLs in that regard. If we look at the core equity Tier 1 minuteimum regulatory transitional requirement for the bank is now 10.45%, which has increased by 62.5 basis points to the fully phasing in of the capital conservation buffer. And that requirement of 10.45 percent should be compared to the 17% number that I showed in the previous slide. The countercyclical capital buffer will add an additional 1% to the minimum requirement from July 2019 onwards. So in summary, and as is also summarized by Jeremy, this was a transformational year for the bank where we made an awful lot of progress on many fronts. We increased our lending volumes by over 40% to €1,500,000,000 leading to a 15.1 percent market share. We materially reduced our NPL ratio through significant NPL deleveraging programs, resulting in an NPL ratio of 10% at the end of December 2018. And as mentioned by Jeremy, this will allow the organization to direct more management time and focus on building profitability. We are implementing bank wide initiatives to reduce complexity and improve efficiency. We've launched what we believe is an affordable multiyear digital transformation program, which will be funded through a controlled cost discipline approach. We continue to maintain strong funding and liquidity positions. We've adequate capital levels reflecting the impact of TRIM, which I mentioned is fully embedded now, IFRS 9 and further NPL reduction. With €10,000,000,000 of tracker mortgages, we remain highly geared to ECB rate increases if and when they arrive. And the strength of the Irish economy and forecast for the housing market mean that we are well positioned for future opportunity to use these in the market and also facing any challenges as they may arise. So thank you for your attention. And Jeremy and I will be happy to take questions, and we'll start on the floor first and then move to the phones. So thank you. It's Stephen Lyons from Davy. Just a couple of questions for me. Firstly, just on mortgage market share. I mean, very strong momentum into H2 circa 16% if we look across the second half. Could you just reiterate the particular drivers that caused that success during H2? And then maybe some commentary on momentum into the start of the current year? And then secondly, just on the supervisory coverage requirements. Given your confidence there being no significant added headwinds that you see, Eamon, on that CET1 outlook, How comfortable are you with respect to kind of the NPE reduction outlook that you have and your current coverage relative to that coverage that's going to be imposed on you? Thank you. Well, I'll answer the second one first and come back to the mortgage market. With regard to the ECB have requested banks to enter the backstop with regard to older NPLs. For us, that breaks down into 2 areas. So if you look at the stock at the end of March of 'eighteen, so what they're looking for is a 40% coverage by 2020 and an increase of 10% in coverage up to 2026. If you look at our coverage levels on our book, they're actually quite strong. Naturally, as the coverage levels start to increase, we would not be 100% covered on that book. But indeed, it's our ambition and approach. And you can see from our delivery in the past year to reduce those NPLs and to manage them accordingly. The second part of the ECB approach is that any new defaults from the 1st April should have a 40% coverage within 3 years and then increase by 15% after that per annum. So they're the two levels. So when I talk about headwinds and talk about over the medium term out to 2020, 2021, we don't have any issues. And indeed, we'll be able to manage our NPLs over that period of time. Do you want to cut the first one? No. Okay. With regards to the mortgage market share, the reason why we've been quite successful is that our proposition in the market has been quite good. The bank itself is a traditional mortgage market player. We have a very strong brand in the market. And that brand through different names has been around over 200 years. So we're very close to our local communities. We're very close to the market. And we've been able to attract that business directly through our branch footprint. You can also see through the digital approach we have. We're the only bank now to allow customers to make appointments, direct appointments online with agents, which is which we've had 2,700 appointments through that channel alone since we lost it or launched it, I should say. On the other side of our business, we have a very strong intermediary channel. We're very close to the broker network. We provide an excellent service by way of a quick decision process and a very integrated approach to what they do. So both of those things have allowed us to ensure that we have a competitive proposition. With regard to pricing, we're not the market leader in pricing. We tend to follow and we maintain a competitive position, but it's on service delivery that we're making the difference here. Momentum is quite good. January numbers would be showing significant increases year on year. It's always you always have to be very careful because January, February, March naturally are slower months. But the momentum in January looks strong versus last year. So we're happy with that. Eamonn Housum, goodbody. Maybe just firstly on the cost side. You mentioned in Eamonn around the voluntary and then kind of potential cost saves. So just maybe if that's flowing through this year, you were kind of guiding flat costs overall. So kind of what are the offsetting points in terms of investment? I mean, you did mention that you were capitalizing about 80% of the investment transformation plan or the digital plan. So just kind of work through the numbers on that? Yes. And then secondly, maybe just in terms of NIM guidance flat year on year, kind of the moving parts, maybe pluses and minuses, maybe if you can go through those with us as well. Okay. So the with regards to the voluntary severance schemes, one of those is still ongoing. So we won't see the full year benefit this year. So when I talk about the €15,000,000 on completion, it's more of a 2020 number. We will see some savings this year, but the annualized saving will be more in 2020. But we have other initiatives going on with regard to how we manage our cost base. We also have an investment requirement. So under PSD II, all banks are required to upgrade their infrastructure with regard to how we manage the whole payment side of our business. Indeed, that is dovetailed and very connected into what we're trying to do by way of our digital transformation. So, Eamon, the point here is that we are taking on this investment, we're taking on this transformation and our promises will do it within our current envelope. What we should see at the end of that period is that the level of direct interaction with our customers will increase through those direct channels and that should allow us to make savings elsewhere throughout the bank. It's too early to communicate that to the market, but I believe we're going in the right direction with regard to what we're trying to do there. And from my perspective, our ability to execute €25,000,000 of savings in this in 2018 alone demonstrates to me that the organization has the ability to make itself less complex, more straightforward and provide a better proposition to customers. Sorry, NIM by way of NIM. The guidance is that we are we expect it to remain at around the same level for this year. One of the key drivers of NIM reduction is actually relates to treasury assets and the fact that the yield on treasury assets has been reducing naturally as they've matured off. Our level of maturities this year are much lower. And therefore, the impact on our NIM number is minimal. If you look at our NPL deleveraging, the average yield on NPLs is around the same level as the average yield on the book. So it isn't having a meaningful impact by way of its impact. And we continue to make some savings on the cost of funds. So these are there are 3 areas that when you put them in the mix, leave our name at a reasonable level. It's too early to say about next year at this moment. We intend to continue to maintain the market share we have. We expect the mortgage market to grow. While we have some redemptions on our book, those redemptions are actually some of them are at track rates and therefore at lower rates by way of the reduction. So all in all, we believe that, as I said, that NIM will stay flat. Thank you. Owen Callan from Investec. Just a few quick questions, if I may. On, obviously, the mortgage market progress you're making, obviously, very strong market share growth and then taking advantage of the general expansion of the market. But there has been some talk about the cashback offers, which obviously some banks are using. The regulator is unhappy with those and maybe those being curtailed somehow towards the end of this year has been media speculation. I was just wondering if you think the cashback offer will be around for the market to use into next year? Then just on the tracker provision, euros 20,000,000 has been booked there for an increase in provision. Does that relate to actual redress and restatement costs? Or is that a potential conduct or other conclusion type costs which are unrelated to the actual underlying? Because I don't think you've had any significant increase in numbers of customers being impacted that you've announced. And then just I know you've brought the system funding down to 0 from obviously, as Jeremy said, a very high number 6 years ago. But given that there's talk of a new TLTRO or similar being brought in potentially this year, is that something which you would look at taking advantage of given the cheap funding source that it would potentially offer? Shall I take the cash back? Yes. Eamon, is that okay? Yes. Good morning. In terms of cash back, we'll be extending the offer through the end of 2019 because it works really well for us as you can see. It's an important competitive differentiator we think. We offer 2% cash back and great new business rates. And so we don't think that one is giving, one up for the other really. So our strategy will continue to evolve. In terms of the future, I mean, we our job really as a focus recently on SME Bank is to continue to build compelling propositions. And that is what we will continue to do. And if we can't compete on cash back for a reason that we can't control, then we'll find another way of being competitive. So I'd like to think that what today shows is that we're vibrant, we're alive with customers are both on their feet, And it's our job to, I think, continue to do that. So that's how I think about cash flow. So with regard to the tracker provision, it's primarily an issue of time more than anything else. We actually started the tracker story quite early. And indeed at that stage, the bank made a significant provision. As time has moved on, the cost of the advisory legal costs associated with the program have continued to be incurred. And that has required us to provision to make a provision of €20,000,000 this year. You may recall, we provisioned €15,000,000 to the half year and we added an additional €5,000,000 in the second half of the year. We've no line of sight with regard to the position with regard to the Central Bank or we are under an enforcement action, so we can't comment on that. But it's by way of fine or anything that we have no position on that at this moment. And we've just await further engagement with the Central Bank in that regard. With regard to TLTRO, we will obviously look at it. We'll see what the conditions attaching to it are. And if it suits the bank come up with our underlying operating activity, etcetera, we will look at it, yes. So we look at all sources of funding. And indeed, as it's a new program, obviously, we look at it. The key point in the presentation by way of reducing our exposure to 0 is actually to highlight to the market that we are able to attract funds and retain them in a way that makes sense for not only us, but our customers as well. And we have no issue in actually accessing funding in the market. And we continue to provide that benefit to customers. And the deal, as I mentioned, current account volumes alone are up 6% this year, which highlights that we're doing something right, I think. The only thing I'd add, Owen, would be just to confirm that there are no new customer numbers for Tracker. It's still 1983, which was the number that we announced a couple of years ago now I think, which is about 5% of the industry total, which is now about 40,000. So we're as Eamon says, we're subject to Central Bank oversight, but there's no new cohorts that have been brought into scope. Any questions from through the phones, please? Okay, sir. And we have a question that came through. Your first question comes from the line of David Locke. Your line is now open. Please go ahead. Good morning. Good morning, David. A few on income, please. Firstly, I just wondered if you could confirm that the amount of income that's coming out in 2019 from the NPL sales that you've already done is around CHF 40,000,000. I'm just getting that from the CHF 12,000,000 of pre provision profit that I think you have released in an R and S, but also with a 75% cost income ratio applied? Secondly, are you able to give us any sense of the interest income that you currently receive on the outstanding NPLs that you have today? It would obviously be very useful and also important in terms of us trying to think about how that book can evolve over time. I appreciate none of it will go away if they are cured, but it will be useful for us to understand what that income number is. And then thirdly, in terms of NREL issuance, just wondering what your plans and expectations were here and how to square that with the NIM guidance. Okay. So with regard to the number you mentioned for the NPLs, that is a reasonable number to use with regard to the reduction in from the income statement from the net interest income plan. Obviously, you have to remember that there's also an impairment side to this. So we don't have that risk profile. We don't have those risky assets anymore. So indeed, how we would think about the recognition of that interest income and then how we provision for it are 2 different sides. So while it might impact the top line, there's also, as I mentioned, an impairment offset there as well. By way of the remaining NPLs, the yield on those NPLs would actually be quite similar to the book itself. So you can see within the slides that we show the average yield on the book of 2.3 percent and that our cost of funds are 39 basis points. And if you take those two numbers and apply it to the level of NPLs, you'll also get the impact there by way of those NPLs. And again, I would highlight to you that it's not just a one way street. There's also the fact that there's impairment, continued impairment in that book as well by way of how you provision for it. And then thirdly, with regard to our MREL, we have about $1,000,000,000 to issue. We haven't decided how we will issue it, what size, whether it will be over 3 issuances or 2. That will be something we have to decide by way of interaction with the market and the interest in that regard. It is our intention to start in the second half of twenty nineteen. We are and that really depends on market conditions. Spreads have increased, but the swap rate swap interest or the swap rates have actually reduced. So there is some offset there. So we will watch that carefully. Our issuance and our NIM guidance includes for 2019 includes an issuance of MREL in the second half of the year. So it's already taken into account. As we move over the wider period of time, we believe that market share well, 2 aspects here. 1 is our treasury yields on our treasury assets will reduce in 2020 as more maturities come through. We believe some of that impact will be offset by our growth in not only the mortgage market, but also in unsecured lending. And by way of MREL, we believe over a number of years that the current yield stays really flat, I. E, we'll be able to take in the cost of MREL into our NIM, our net interest margin. The key driver for us with regard to net interest margin is actually ECB rates. And as I mentioned, we retained that high leverage exposure to those rates, which really if rates went up by 1%, it would not only transform our P and L, it would also transform our NIM position because we do live with 60% of our book at a 1.1% yield at this moment. So that is the key. If you wanted to look at the key driver, the key story for this organization, it's maintaining discipline on costs. It's transforming our proposition to the customers. It's maintaining looking at our fee and income side by way of how we manage and grow that and then keeping ourselves sorry, reducing NPLs at a level where it won't impact our capital base to any great degree. So they're really the key measures I would think about when I look at the P and L. Just as a follow-up. I wondered if you could shed any light on if the regulator focuses at all on the kind of profitability outlook for you? Because obviously, if you keep selling NPLs, it will make the balance sheet much safer. But of course, we're going to have an income impact from things you've sold, and it sounds like there's more income impact to follow, and you're guiding to flat costs in the medium term. So is the regulator showing any kind of concern or focus around profitability measures for the bank going forward? Because the phasing of how you reduce NPLs is quite clearly going to impact the profitability in the near term. I mean, it's David. It sounds like a question you might have asked 3 or 4 years ago by way of where the bank was coming from. If you look at the position of the bank, we have taken in all the changes with regard to the TRIM impact. We've also reduced our NPL significantly. We will remain profitable. Just remember that we will remain profitable. We're not talking about making losses over the coming period. So we will be adding to our profitability. And we remain highly leveraged to interest rate increases. We could have a debate when they will arise, will it be 2020, 2021, but it's I don't think they're going to get any lower. So I would suggest that our position with the regulator is actually reasonably good because we made significant progress in the last 2 years. And indeed, we have the possibility and probability that returns will increase as interest rates move. So I wouldn't be as maybe pessimistic as your question is leading me towards. From my perspective, David, the tone of the conversations has improved through the course of 2018. As with many commentators, there was a level of skepticism at the start of the year about our ability to make the balance sheet safer without having potentially to go back to the market for capital. And so I think they were delighted with that. Secondly, they, I think, are beginning to reward us, certainly in terms of the conversations for the work that we have done. Eamon and May's job is to keep delivering because obviously we want to try and get maybe a positive notch on our capital ratios if we can. And obviously, that's one of our aspirations. We still have a dividend blocker and we need to work hard to prove to the regulator that actually we're a safe business that can now start providing return to its shareholders. But net net, I would say that certainly the quality of the conversations has improved through 2019. It is always based on transparency and it's always based on trust. I mean, Eamon and I are always very clear that this is a multiyear transformation. It was always decade long as far as I was concerned in 2012. So there's still work to do. But the bottom line is, I would say that we are in a much better place in terms of the regulatory dialogue. And we have another question over the phone, and this comes from the line of Alastair Ryan. So really just a question. Bank of Ireland were awfully clear early this week that their response to further inflation that they've experienced in regulatory capital requirements via the provisioning, the countercyclical buffer, etcetera, is that they're going to try and price up the mortgage market. So just in terms of your reaction function, you've got your market share back to where it should be. So that's quite an interesting point that you'll have an opportunity either to take more margin. Should they do that and should others follow, you've got an opportunity to take more margin or take market share. Could I just ask what your thinking is just to push a little on that? Because it's quite an interesting point to find ourselves in the market for reasons that you've suffered from through that massive restructuring you just achieved. Maybe talk at a high level and then Eamon can fill in some of the gaps. I just want to reinforce something that Eamon said earlier on insofar as one of the long term benefits, I suppose, of always being first out of the traps with the various transformational impacts is that it becomes clearer earlier what your playing field is. So from our perspective, if you take, I don't know, trackers, if you take TRIP, if you take NPLs, our starting point today in terms of both our profitability and our capital ratios are post what you might call significant headwinds. So I think we just need to keep emphasizing that. Therefore, the next question is, as you say Alastair is, okay, so where do we take it in terms of competitiveness? You will have heard me say ad nauseam that for me market share is an outcome and indeed it's quite a dangerous measure if you start chasing it. So from my perspective, I'll start with the way we think about how we use capital and that is we're very professional in the way that we price. I think we understand all the inputs. I'm not going to put an asset on the balance sheet if it's value destroying. We'll continue to buy to have compelling propositions. So to be frank with you, my default position would be not to chase market share per se, just to maintain market discipline and then rely on proposition and service to determine what the outcome is. So I'm confident in terms of the first part of your question that we have managed or the team have managed extraordinarily professionally the headwinds that we have found over the last couple of years. And in terms of growing the business, we'll be professional in the way that we price our assets. Thank you. No further questions over the phone lines. Please continue. Okay. So thank you both to those in the room and both in the phone. And therefore, we'll close the investor presentation. Thank you very much. Thanks very much. Thank you.