Good morning to you all, and welcome to our 2018 interim results presentation. Perhaps I could ask you to turn to slide two, please. I will start the presentation with some key highlights, then outline our growth and NPL strategies. After which Eamonn will provide a more detailed review of our financial performance. After the formal presentation, Eamonn and I will be happy to take your questions. Turning to slide three for the key highlights. We have made steady commercial and financial progress in the first half. Our new lending volumes are up 50% to EUR 0.6 billion. Our mortgage market share continued to grow. We are offering competitive rates, 2% cash back up front, 2% current account related monthly cash reward, most importantly, a superior customer service and experience.
Indeed, our mortgage market share of nearly 14% is up from 12.6% last year, 9% in 2016, and low single digits in 2012. The mortgage market has increasingly become very competitive. In that context, whilst it is important to remain competitive, it is also equally important that we maintain a disciplined approach to pricing and underwriting. We have done so. We have reported a 33% increase in our profit before tax. We announced recently the sale of the Project Glas portfolio. This is a landmark transaction that reduces our NPL ratio to 16% and brings us a long way towards meeting the regulatory requirement to reduce our NPLs from nearly 30% to the European average. Indeed, the regulatory pressure remains very high, it is clear that any bank with a high NPL ratio is under strict direction from the ECB to deliver and execute an ambitious but realistic NPL reduction strategy.
Finally, our capital ratios remain comfortably above the regulatory minimum. These results show that the hard work of the management team and staff throughout the bank is paying off. Turning to slide four on financial performance. We are continuing to rebuild the bank's profitability, strengthen the balance sheet, build the intrinsic value of the business. We have recorded a profit before tax of EUR 57 million. Whilst our NIM saw a slight reduction to 177 basis points from 181 basis points as some higher yielding treasury assets reached maturity, we received lower income from NPLs. We also reduced our underlying operating expenses. We had a nil impairment charge, which represented a EUR six million improvement on the same period in 2017.
In terms of the balance sheets, retail deposits, including current accounts, increased by EUR 0.3 billion, the performing loan book, which stood at EUR 15.2 billion, reduced by EUR 0.1 billion, less than 1%. We expect to return to net lending growth in 2019. As I've said, NPLs are down significantly. In fact, we've almost halved the level of NPLs from December 2017. In addition to Project Glas, we have taken other actions, including a targeted voluntary surrender campaign, which has resulted in us taking possession of almost 2,000 properties that we are in the process of selling. Of course, we have benefited from natural cures. Eamonn will speak about the NPL portfolio in detail later. Finally, our fully loaded CET1 ratio stood at 13.4%, which is comfortably above our regulatory minimum. There are two known matters that will impact capital in H2.
They are the impact of both the formal completion of Project Glas and the bilateral stage of the targeted review of internal models or TRIM. Eamonn will speak about this in detail later again. Overall, this is a decent set of numbers reflecting strong progress made in the first half. Turning to slide five. We are a really important part of the Irish retail and SME banking landscape, and we have proven this by developing award-winning products and campaigns that have supported our strong business results. Our total new lending grew by 50% in the first half. Mortgage lending, which represented almost 90% of total new lending, increased by 51%, more than double the market growth of 22%.
This is an impressive performance and shows the strength of PTSB's brand, the quality of the bank's propositions, the value of the multi-channel approach, and the passion and commitment of my colleagues to deliver the right customer outcomes. Today, our mortgage application levels continue to grow, leaving us with a strong pipeline in a market where the outlook itself remains positive. We are well-positioned to build on the momentum created in H1. However, our business is not confined to mortgages. By way of example, our personal term lending grew by 42%. Indeed, our performance in personal term lending shows that we have increased volumes by 125% in just two years. There is still a lot of scope for us in this area to maximize the opportunities that our large and growing current account base presents.
Turning to slide six, I'll move away for a moment from financial metrics to give you a sense of how we're approaching our relationships with customers, both existing and new. You can see from this slide that we're seeing positive trends in terms of both customer base and loyalty metrics. Our Net Promoter Score, the degree to which our existing customers recommend us to potential customers, shows that we're now number 2 in the market using that metric. Indeed, 29% of our new business is coming from people who have never had a relationship with us before. This demonstrates we are succeeding in people getting the message, either through our marketing or word of mouth, that there are very good reasons to do business with PTSB. This slide also shows that we're moving in the right direction in terms of online transactions, active mobile users, and use of payment cards.
These are all signs of a bank that is vibrant and growing. That said, of course, we can't take any of this for granted, and we're continuing to invest heavily in our branches, in technology, in our digital channels. By way of example, we recently introduced the ability to apply for and draw down personal loans through our mobile app. Indeed, it's noteworthy that 54% of our personal loan payouts are now happening through voice or digital channels. Turning to slide seven. This slide gives you a snapshot of how we have successfully reshaped the bank following the deleveraging of our non-core mortgage business in the U.K. and our commercial property lending portfolio in Ireland. We are now domestically focused on our core strengths, retail and SME banking, and our balance sheet is shaped to support profitable growth. We are well-placed for a bright future. Turning to slide eight.
We remain committed to our vision, which is to be the bank of choice. This vision translates into our strategic objectives about delivering for the company, our customers, our colleagues, and the community we operate in. As a bank, we are all aligned in achieving this vision, and we are collectively working really hard to deliver on our promises. Let me return to the key highlights. We've grown our new lending by 50%. Our profit before tax has grown by 33%. We've been successful in achieving a material reduction on our NPLs through Project Glas and other measures. Our capital base is comfortably above minimum requirements.
Looking ahead, our priorities are to invest in our franchise, enhance the relationships with our customers, continue to grow our profits on a sustainable basis, de-risk the bank, and thereby protect the taxpayer and shareholder capital, and develop a high-performing team that knows what customers want and how to deliver for our shareholders. We're in a really good place with solid foundations for profitable growth. On Slide 10, and before I hand over to Eamonn, I want to stress that continued progress over this reporting period must be seen in the context of the journey the bank has been on since 2012. We can see three distinct phases in that journey.
In 2012, our initial focus was on managing the state capitalization, facilitating the disposal of Irish Life, repaying the huge amount of system funding that we'd borrowed, introducing the new management team, and developing the detailed restructuring plan that would underpin the bank's recovery. From 2015, our attention shifted to implementing that restructuring plan, undertaking an ambitious and complex deleveraging program, successfully concluding the capital raise, and taking our first steps back to profitability. Now in 2018, we are both managing our return to being a profitable, competitive force in the Irish retail and banking markets and taking the decisive action necessary to tackle the NPL issue. In summary, we are very close to completing the rebuilding of the bank such that we can focus solely on competing in the retail and SME markets. That is good for our customers, my colleagues, the taxpayer, our shareholders, and for Ireland.
With that, I will hand over to Eamonn for a more detailed presentation on the financial results and on our NPL reduction program. Eamonn.
Thank you, Jeremy. Good morning, everyone. I will discuss the financial performance in detail, before that, we will turn to Slide 12. The Irish economy continues to grow at a strong pace and is expected to remain well above the Euro area average. The economic fundamentals underpinning growth are very strong. Consumer spending and employment are continuing to grow, credit flow is now increasing after many years of deleveraging. You look at the housing market, the picture is also very positive. The mortgage market is expected to increase by 26% to EUR 9.2 billion this year.
Housing completions continue to improve, while the number of houses being built may not be meeting current demand, the progress and trajectory of rebuilding Ireland's housing market are positive and are trending in the right direction. With strong demand and an increase in both primary and secondary supply, it presents a very positive outlook for the bank over the medium term. Let's turn to the income statement on Slide 13. The key message I want to convey is that we continue to rebuild the bank's profitability. I would like you to focus on our profit before tax of EUR 57 million, which has increased 33% year-on-year. This is driven by higher operating income and marginally lower cost base, partially offset by certain exceptional costs in the first half of 2018.
Net interest income reduced by 5%, mainly due to lower income from NPLs and treasury assets, offset by lower funding costs. While the underlying income from fees and commissions were broadly flat year-on-year, we recorded other income of EUR 22 million, which is primarily driven by treasury activity and the sale of some treasury assets during the first half. Operating expenses were broadly flat, I'll provide more detail in the following slide. There's no impairment charge reported in the first half of 2018, reflecting more stable economic conditions. It should be noted that the impairment charge includes the Glas transactions, these have been fully reflected in the P&L and the balance sheet at fair value, with limited impact on the impairment line.
Exceptional items totaling EUR 16 million consist of an additional provision of EUR 15 million in relation to an increase in the accrual for legacy mortgage-related expenses, together with restriction costs of EUR 1 million. Turning to net interest income and NIM on Slide 14. Net interest income reduced by EUR 11 million year-on-year, this was due to three factors. Lower income on the non-performing loan portfolio, as we are now approximately EUR 700 million lower in NPL balances year-on-year. Lower treasury income due to the maturity of higher-yielding bonds. This was offset by higher income from performing loans and lower funding costs. Income from the performing loan book increased by EUR 3 million year-on-year. While this amount is small, it does show that we've hit an inflection point for the growth in good quality income.
The reduction in net interest income due to lower NPL and treasury income is something that we had anticipated for, and net interest income will continue to reduce as we look forward to reduce our NPL numbers. However, I would state here that the quality and composition of our net interest income will improve as we reduce those NPLs and focus on the performing book. The net interest margin for the first half was 1.77%. This is 3 basis points lower than the reported full year of 2017, but it is 1 basis point higher than the first quarter. There has been some increase quarter-on-quarter. We continue to actively manage our funding costs, and with the first half cost at 37 basis points, which is 9 basis points lower than 2017, and 12 basis points lower than the first half of 2017.
This was achieved through a range of funding actions, including retail, corporate, and institutional deposit rate management. Overall, we expect the net interest margin to remain at a stable level for the remainder of 2018. A key point to note is that we remain highly sensitive to interest rate movements, given our exposure to tracker mortgages, and we estimate that a 50 basis point upward movement in interest rates would equate to EUR 40 million in additional interest income. Or net interest income, I should state. If we turn now to Slide 15 and cover the loan book. Our performing loan book was EUR 15.2 million at the end of June, which was broadly flat when compared to the book at the end of 2017.
As you will see from the graph on the top left of the slide, we are progressing towards performing loan book growth as the current volume of new mortgage lending and the forecast growth in the mortgage market remain positive. This outlook is balanced against the current runoff rate of around 3% on the back book, attributed to scheduled repayments and increased early redemptions as the housing market recovers. Excuse me. We've lent approximately EUR 600 million in the first half of 2018, and this is a 50% increase year-on-year. As mentioned by Jeremy, through this, we increased our mortgage market share to 13.8%, and this was based on a positive trend throughout the first half of 2018.
Taking a closer look at the performing mortgage book, which totals EUR 14.9 billion, 62% of the loan book continues to be on ECB tracker rates, 29% of the book is on variable rate, and 9% of the book is now on fixed rate. Over 80% of new mortgage business written in 2018 was on a fixed rate. The yield on the performing mortgage book of 2.33% has remained relatively stable over the past 18 months, while the yield on new mortgage assets, on new mortgage loans, I should state, was 3.21% for the first half. This is a reduction of 21 basis points year-on-year. This reduction is in line with our aim to remain competitive while also maintaining price discipline with regard to how we price our mortgages. If we turn now to operating expenses, and that's on Slide 16.
We've marginally reduced our cost base year-on-year. Within this, staff costs have remained flat, while other costs have reduced by 3%, with efficiencies gained from ongoing cost reduction initiatives invested into the business. Examples of this are the implementation of the GDPR directive, the implementation of PSD2, digital and customer enhancements which are ongoing within the business, and Jeremy has indicated those earlier in the presentation, and obviously the finalization of the IFRS 9 implementation. Regulatory costs for the first half remained flat year-on-year. On a like-for-like basis, the underlying cost income ratio, and this is when you exclude regulatory costs, which are obviously outside of control, was 61% or 4 percentage points lower than the first half of 2017. Obviously, our cost income ratio remains elevated and we have been taking a number of initiatives to address this.
We've recently announced a management structure review together with a voluntary redundancy scheme, we expect this to result in some savings going forward. We're also reducing our NPLs, we expect to achieve associated cost savings from this reduction over time. With that, now let's look at the non-performing loan position, that's on slide 17. We stated at the March presentations that we were looking to reduce our NPLs to a single-digit percentage level over the medium term. I'm pleased to say that significant progress has been made during the first half with the announcement of the sale of EUR 2.1 billion of NPLs through Project Glas. Excluding this, in the first half, we reduced NPLs by 4% or EUR 200 million, this was mainly due to improved cure performance and the continuation of the successful voluntary surrender program for some of our buy-to-let customers.
I'll come back with some detail on that in the following slide. The sale of the EUR 2.1 billion of NPLs will reduce the overall NPL ratio to around 16%, this represents a 43% reduction in NPLs when compared to December 2017, a 70% reduction in NPLs when you compare it to 2013. If we move to slide 18 and just talk about Glas for a second, the Project Glas, I should say. You will see from this slide that the Glas portfolio consisted of 10,700 properties, this is a mixture of buy-to-let and private dwelling houses. The portfolio itself was categorized into separate subsections. The buy-to-let element of it totaled 3,300 properties. The properties related to customers who had been offered long-term treatments that had failed, this is on numerous occasions in some cases, or refused to take offered treatments. That totaled 3,850 properties.
Properties related to customers who had not cooperated or engaged with the bank, that totaled 2,500 properties. Lastly, customers who were either in long-term arrears or lacked affordability to either support or sustain a treatment, in the future made up the remaining 1,050 properties. The average arrears in the Glas portfolio was EUR 29,000 with the days past due at 3.5 years. That was an average of 3.5 years. The portfolio was sold at a net book value of EUR 1.3 billion, on completion, and the associated release of Risk-Weighted Assets will have a positive capital impact of around 2%, it should be noted that that's on a transitional basis. I'll come back to that aspect when I talk about TRIM in a second.
The sale is on track to complete in quarter four of 2018. It is a very positive development for PTSB, as indicated by Jeremy, because it lowers our overall NPL ratio by 16%. It demonstrates material progress and meets the direction set by the regulator that all banks in Europe reduce their NPLs. It lowers the risk profile of the bank. Most importantly, it provides capital headroom for capital growth, credit growth, I should say, and further NPL reduction as we move forward. If we move to slide 19, we look at the remaining NPLs post the Glas transaction. They total EUR 3 billion. They consist of EUR 1.5 billion of treated NPLs. Under these long-term contracts, which include the split mortgages, the customer makes principal interest repayments based on agreed terms.
However, it should be stressed that these loans continue to be classified as NPLs under the regulatory definitions and will do so for an extended period of time. We continue to assess all options available to us with respect to this cohort of NPLs. In the next category, we have around EUR 200 million of NPLs that we expect to cure and move to performing over the next 12 months. In the next category, we have around EUR 150 million-EUR 200 million of NPLs where we believe they qualify for the government-backed Mortgage to Rent scheme or solution. We are continuing to engage with these customers in an active manner, and with the relevant authorities to conclude solutions in this regard. In the last category, we have about EUR 1 billion of NPLs, and this is a variety of loans.
For example, they include insolvency cases, they include cases associated with the CBI Tracker Mortgage Examination and other cases where there is specific legal issues that have to be worked through. We expect that this cohort will be worked out over the medium term. As always, case by case restructuring continues to be part of our strategy, and our overarching objective remains that we protect the capital of the bank as we look at those restructures. If we turn to slide 20, we can look at the properties we have in possession. This is an area where we have been very active in the first half. We have made significant progress in managing this portfolio, in 2018. We do plan to exit the majority of these properties within the next 12 months. At the end of July, we have 1,900 properties in possession on our balance sheet.
That is because we continued the voluntary surrender campaign into 2018. Through that campaign, we have taken possession on a voluntary basis, it must be stressed, of a total of 1,500 buy-to-let properties over the last 12 months. Most importantly, we have sold 500 properties in the last 18 months, of which 350 of those properties were sold up to the end of July. We have another 250 properties that are sale agreed, and a further 800 are either on the market or are being prepared for sale. Extremely, very active by way of the movement in these properties. Obviously, the market is quite strong, and we continue to take advantage of that market with regard to these properties that we have taken into our possession.
As well as this, we are also engaging with The Housing Agency with regard to properties that are suitable for social needs, and that equates to between 150 and 200 properties within that cohort, and we continue to have active discussion with agencies in that regard. In summary, on this slide, we believe that we have marginal conservatism built into the valuation of these properties, and therefore, our objective here is to sell these at or above book value. We believe that over the next six to 18 months, that this will also support our P&L performance as we work these properties back into the market. If we turn to slide 21, this covers our funding and liquidity position. Our funding and liquidity position remains very strong.
Our strategy is to continue to fund our balance sheet with customer deposits, while keeping other funding lines open and accessible, which is exactly where we are today. We are over 80% funded by customer deposits, and retail balances have increased by EUR 700 million or 5% year-on-year. A very strong performance way of customer engagement and activity on this side of our balance sheet. All funding and liquidity metrics remain strong, and they're well above regulatory requirements. Our indicative MREL target has been set at 25.8%, but we're waiting for the formal communication in that regard. We believe, based on this, that our total issues will be in the region of about EUR 1 billion over the next three years, which is manageable and is also manageable from a net interest margin perspective. We expect to start issuing MREL paper in 2019.
If we turn now to our capital position, our capital ratios remain comfortably above the regulatory minimum requirement, with transitional Common Equity Tier 1 at 16.2%. This is versus a regulatory minimum of 9.825%, so plenty of headroom in that regard. The fully loaded Common Equity Tier 1 is 13.4% at the end of June, and this is 1.6% lower versus the end of 2017. The reduction is due to two aspects, the impact of the IFRS 9 transition, and you can see in the bottom left of this slide that that was an impact of 1% on the fully loaded ratio, and also the partial embedding of TRIM in the first half, and that had an impact of 80 basis points on the ratio, which is, they're the two component main moving parts.
On TRIM, we've now received communication from the ECB, which provides clarity with respect to the impact of this phase of the TRIM exercise. This is a welcome result in that it removes the movement that we've been seeing with regard to the TRIM exercise. We believe now we are at the end of this phase with regard to our interaction with the regulator. It should be noted that the increase in RWAs arising from TRIM will be offset by the release in RWAs from the Project Glas sale. This will lead to a manageable decrease of approximately 50 basis points in the fully loaded Common Equity Tier 1, and obviously in the transition as well.
The fully loaded one is the one that we look at, and that's the net impact of the movement, both upwards in RWAs and a reduction based on Project Glas. As mentioned, the combination of TRIM and Project Glas significantly reduced the level of capital uncertainty that has existed in our capital stack recently, and it places the bank in a position where we believe we're adequately capitalized to deliver profitable growth and target further NPL reduction. If I turn to slide 23, just to sum up my part of the presentation. In the first six months of 2018, we've made significant progress on a number of fronts. We've increased our lending volumes by 50%. We've improved our profitability with profit before tax up 33%. We continue to manage our cost base while creating capacity to invest in and transform the business.
We've announced the sale of Project Glas, which reduced our NPLs by more than 40%, and we will proceed further to deliver on our single-digit target NPL level. We continue to maintain strong funding and liquidity positions. Lastly, our capital ratios remain well above the regulatory minimum requirements to support growth and execute further NPL reduction. To sum up, I'd like to thank you for your attention, and Jeremy and I will now be happy to take your questions, and we'll take some questions from the floor first before we move on to the phones. Thank you very much.
Morning. Thanks very much. Stephen Lyons from Davy. If I can start with a question on TRIM, first of all, and then onto a somewhat related question on mortgage market competition and discipline. If you could just help us explain the moving parts and the various variables at play with the overall TRIM impact. Is it primarily down to the defaulted loan balances, performing loan balances? And then as we work through, it looks like you've got a credit RWA density now of close to 60%, and we've seen others in the market also be impacted negatively in terms of higher RWA densities. Against that, we're seeing increased rate competition. Do you think that puts a natural cap or will impose a floor in terms of where rate competition could ultimately go when we look at sort of RAROC assessments? Thanks.
I suppose the couple of aspects there, within the TRIM exercise, the regulators built in extra conservatism into their measures. Naturally it isn't necessarily negotiation that you have with the regulator. You undertake the review based on their rules. They come in and review that in detail, and they come back with their assessment. The negotiation level, it happens, but at a lower level. If you take that concentration, you just have to be careful that that includes defaulted loans. There is a difference by way of the level of capital concentration between a performing loan, a defaulted loan, and then between a home loan and a buy-to-let. And if you look at a performing home loan, it's something in the region of just below 40% for a performing home loan.
Buy-to-lets, by their nature, have a higher weighting, and that also reflects the experience in Ireland in that particular segment over the last while. Just to sum up on TRIM, the outcome here is really a reflection of what's happened during the crisis. Indeed, it is a fact that we will have to carry that excess capital requirement as we work our portfolio out and as Ireland itself and the market returns to more normalized performance.
Just how related is impact on mortgage competition and pricing?
Will do.
Morning, Stephen. I can only come, obviously, from our perspective. We price in a scientific way. We take in all the inputs, cost of funds, OpEx, cost of risk, and obviously cost of capital. At the moment, we are competing well. You can see that from our results, and genuinely, I don't see any reason why that is going to fall away.
Thanks.
Hi, good morning. Owen Callan from Investec. Just two questions, if I may. The first one on, almost related to that previous answer you gave on NIM and market share. I know previously, probably a couple of years ago at this stage, you had suggested an aspiration for mid-teens market share, and it looks like you're there about at the moment. Does that suggest that the focus will now be a bit more on NIM going forward, or margin rather, going forward? You can balance that a bit easier now that you've made that move up on market share, and how you're thinking about that balance, or is it simply just a bit more balance now?
On the cost outlook, obviously, as you've indicated, there will be cost savings to arrive as the NPLs reduce and as the administration and management of those reduces. Can you give us some color for how much is being spent managing the NPLs at the moment, and therefore maybe what we can hope to forecast in that regard?
Take the first question. You take the second?
Yeah.
That's okay. I think I've been consistent, Owen, since really the day I started that I've always seen market share as an output, not as something that we chase. We've never chased market share. Where we've got to was always an aspiration, and I think it's as a result of good products, good proposition, really good people. Going forward, we'll just continue to do what we've always done, which is we'll put the right products in front of customers. We will underwrite against the person, not the asset per se, and the outcome will be what the outcome will be. In terms of the pricing of those mortgages, as I said to Stephen, I think we are relatively scientific in the way that we price our assets, and they need to wash their face, and at the moment, I see no reason why that won't continue. Cost saving.
Sure. The costs, obviously, it is our intention to reduce our overall loan book by something in the region of 20% when you take those NPLs out. Today, we're actually doing more work at this moment because we're actually working them out by way of the sales process and everything else. That is actually adding to our cost rather than removing it today. However, once we tidy that up, we would expect to see some savings. It's hard to measure this totally or completely, but you're talking about EUR 15 million-EUR 20 million of direct costs associated with managing that book. They occur in a number of different places. As we work the book out, we'll have to manage that. What I would say about our cost base is that while it looks to be flat, within that, we have actually been making significant underlying cost savings.
Indeed, this year, we expect to generate something in the region of EUR 20 million of cost savings, but we have been investing that into different items than I've mentioned. Some of those, GDPR, everyone had to spend money on. We are a smaller organization versus our competitors, but still we have to comply with the full rigors of GDPR across our customer base. PSD2, we have to comply with the requirements as any other bank does. These are areas where we are investing, but we would expect that over a period of time, that demand will reduce and we'll start to see some savings. I would not envisage that until into the second half of next year, that we would start to see some more movement in that regard. Believe me, we are making cost savings, because if we weren't, our cost base would be going up.
Because we have to take on these additional responsibilities.
Sorry, just one follow-up question to that, because I know the other two domestic banks have made comments on it, about a tight labor market and wage cost inflation becoming more of an issue now than perhaps in the last few years. Have you seen something similar?
Well, we undertook a pay and modernization program within the bank a number of years ago. Within our cost base, we have some wage inflation because wages are increasing. Again, we have to take that into account by way of how we manage our cost base. You will see that our average headcount actually year-to-year is slightly lower. It's about 2% lower. Indeed, with NPL reduction, we'd expect further reduction in headcount going forward. There's no doubt that the labor market is getting tighter. Brexit will bring additional challenges with regard to particular experienced people within all banking organizations in Ireland at this moment. That is something we have to be conscious of. Saying that, we also have to manage our cost base and ensure that we're making the right return.
They're the challenges we have to deal with, and we will face them accordingly.
Shall we move to the phones then?
Question coming from the line of Alastair Ryan from Bank of America. Please, Alastair, ask your question.
Thank you. Good morning. Very helpful disclosures today. Could I just push a little further on what you mentioned on the loss of income from NPL? Certainly, it's not a good return on capital. Just for me to have in mind. In the first half, for example, what would the income have been on the loss? Then, as you work down the remaining 16% NPLs, how rapidly are you progressing that? There was some talk in the media of securitizations and what have you for part of that portfolio.
You seem to have a very broad approach to bringing down the rest of the NPLs. Just a sense of how fast are you going with those and how much income is associated with that bucket of NPLs that's also going to go as you get down to single digits, so we can think of the starting point for the net interest income of the group once you've finished with those things, please.
There's a couple of questions there, Alastair. Thank you for those. On Glas, the associated income is in the region of EUR 10 million to EUR 20 million on the Glas portfolio. Naturally, you don't get a free lunch here because while you record it on your interest income line, you generally have to impair it then when it isn't paid. It's a little bit of a false situation. You rightly indicated that it isn't necessarily the proper way to apply your capital. We would expect and foresee that that interest income line will reduce over time. You should see a stabilization and possibly an improvement by way of the return on the capital allocated to that portfolio. TRIM comes into play there now. That's something we'll be able to provide more clarity on in future results. There will be further reduction.
Glas isn't sold yet. We are still reflecting interest income on Glas. Again, the finalization transaction again will bring the final numbers. With regard to the rest of the NPLs, particularly I'll highlight the EUR 1.5 billion of treated NPLs, which I highlighted on page 19. These, as we are fully aware of, are different because they are customers who are on long-term restructuring agreements. They're, in the main, adhering to those agreements. Indeed, anybody who had failed adherence to those restructurings were actually in Glas. We're looking at all different options with regard to that transaction or that cohort of exposure. Nothing is set in stone at this moment. We've nothing to discuss at this moment. There is an interest income element associated with that cohort.
In the event that it leaves our NPL stack, we will also suffer the NPL reduction on that. I would like to say that over a period of time, we'd expect, given a lower risk profile, given the fact that we've actually executed Glas on a net book value basis, i.e., no additional provision, and this included the cost of that particular transaction, or accrued cost on that transaction. Our provision stack looks like it's okay, and on a lower risk profile balance sheet with lower NPLs. The way we manage impairments and the way we think about that impairment line should normalize over time as well. I'd expect some movement in that perspective as well.
Thank you. Very helpful.
Your next question is coming now from the line of Eamonn Hughes from Goodbody. Please go ahead.
Hi, guys. Maybe just two or three, if you don't mind. Actually, just firstly, Eamonn, just when you were answering there, just in relation to maybe you heard this was just my phone kind of got scrambled. I just didn't pick up the commentary. Maybe just something in relation to, I think Alastair asked there on possible securitizations that were mentioned in the media, just maybe timing. Secondly, just in relation to NIM. You seem to be guiding on page 14, kind of NIM kind of flat from here. When you look at front and back book, it seems to be kind of a 90 basis points differential. And in terms of the income return there, even on the Glas portfolio, the return on that is, I think it's pretty low. Just surprised that maybe guidance on NIM wouldn't be for a little bit stronger moving forward.
Third point, just on capital. You reiterate the point around 12% CET1 point of comfort. I suppose since we've last met you guys 6 months ago or so, we've had, obviously, the CCYB. The TRIM number is coming in a little bit higher. I suppose just comfort around that 12% number. It would require probably, and I'm conscious, I'm kind of focusing here maybe on fully loaded, if you look at your P2R and previous guidance on your P2G, they need to probably reduce around 260-270 basis points to be comfortable around 12%. That seems pretty tall order over the next year or two. Maybe just your comments on CET1 targets.
First of all, you can't believe everything you read in the papers. There's speculation about a securitization, we have made no public announcement on anything with regard to this cohort, only to say that we do recognize that it is different. We removed an element of it from the Glas portfolio, recognizing that differential. We believe that the outcome with regard to that particular cohort will be fine for us once we decide which way to go, i.e., fine by way of our ability to exit and to manage that NPL position. The securitization aspect at this moment is just pure speculation, I don't want to comment any further. We did mention that it is our intention to move the book to single-digit levels over the medium term, that is still the case.
We will continue to pursue that strategy. With regard to NIM, your point is well made, i.e., that maybe you're saying to me, Eamonn, that I'm being a bit conservative on the NIM. My trajectory at this moment is for this year. We've a lot of moving parts within NIM by way of both the NPL reduction, the treasury asset yields, and also how we're building up our performing book. The interesting thing about Glas is that it was a mixture of not only tracker mortgages, it was also variable higher rate buy-to-let portfolio. You can see that it made up a significant part of that portfolio. Also home loans that were on variable rates. These are on higher rates. The rate mix on that portfolio was reasonably consistent with the average yield on the portfolio.
The quality obviously is the key aspect here. Naturally, there's another side to this. I think on NIM, it's difficult to give you better guidance post the end of the year at this moment. I would definitely suggest that it will stabilize, we'll start showing some increase on the back of that as we move forward. With regard to the perspective on the 12%, with the finalization of TRIM, with the finalization of Glas, with the further reduction in NPLs, we will have a capital position that will be actually relatively stable. We'll have a risk profile in the bank, which will be actually very straightforward by way of what we have. We expect to be generating profits, which in itself will build that capital base.
We still believe with a cleaned-up balance sheet, primarily in the Irish residential mortgage market, with a very simple business model, that a 12% level is reasonable over the medium term. That's really what we're targeting. Jeremy, do you want to comment or add extra on that?
No, I totally agree.
Yeah.
Thank you.
There are no further questions. Please continue.
Any further questions from the floor, please? Yeah.
Good morning. It's Diarmaid Sheridan from Davy Research. Sorry to come back to TRIM again. I think maybe 12 months ago, we asked a similar question around the profile of TRIM in the longer term. If the extra level of conservatism, is that something that we should think about baked in, kind of in a permanent until we go through a number of cycles and you can demonstrate a longer period of data to put into your models? Is that something that we need to think about, or should we as, over the next couple of years as performance, you can demonstrate that it should then begin to alleviate somewhat? Excuse me. Then the second question around your IT infrastructure, and I suppose it really replays into your operating cost base.
To what extent do you see opportunities to bring down your cost by digitizing further or making further investments, and over what timeframe maybe that might play through?
I'll pick up on TRIM. We have been speaking about TRIM for a number of reporting sessions. Why? Because of the impact it had on our particular type of balance sheet versus, say, our competitors. That's why we've been keeping the market very well up to date with regard to the developments in that regard and how it's reflected in our capital stack. It's taken a number of years to get to this stage. We appear to be one of the first out of the blocks by way of finalizing it. I would suggest you should think of your models over a number of years post this year, that these levels will continue until we have the ability to demonstrate that the experience of the new book that has been generated really from 2012.
By the way, the resilient book that's been there that has gone through the crisis as well, how we demonstrate that that is actually performing at levels of LGDs, which are 0, specifically the book since 2012. I think for the purpose of models, this is a slow bicycle race for how you think about it. Once we get through the reduction in our risk profile over the next 6, 12, 18 months, we will be able to actively engage with the regulator by way of what our experience is being. I think that should be an answer to your question at this moment. It's taken some time to get here. It'll probably hang around for a little bit longer because of that. Jeremy, do you want to pick on the second question?
Yeah. Maybe one perspective on TRIM from me as the chief exec. I suppose this is the end for us of the bilateral stage. My understanding of TRIM is that there is also a horizontal piece that the European Central Bank will undertake, and I assume that's by country, by bank in country, by portfolio in bank in country. I will be intrigued as to where both Permanent TSB and Ireland ends up on the waterfall chart. I have to say, I do remain mildly bemused at the level of artillery intensity which is being applied to PTSB, particularly in terms of how long since the crisis and then the performance of the bank since the crisis. The horizontal piece is something that I think will be an interesting dialogue.
Maybe I'll just leave it at that before I say something that gets me into even more trouble than I normally get. In terms of IT investment, I was very clear or tried to be clear in my own presentation. I think I've always said that the rebuilding of Permanent TSB is through a series of stages. Eamonn and I really do need to get to the end of this year to what we consider to be a baseline. Once we get to that baseline, I think we'll just be much clearer on where to compete, how to participate, and where to invest. Will that investment involve technology and digitizing the bank? Yes, it will. Do I think we have the capacity to do that? Yes, I think we do. Technology has moved on significantly, or banking technology has moved on significantly over the last few years.
I think if you'd asked me a few years ago, really the only option was to unplug and replug, whereas actually I think there's more flexible solutions that you can get to probably a proxy replatform. We're certainly considering that. I'm confident in my people. I'm confident in their ability to think. I think we'll come up with the right strategy and through Eamonn's good offices, I'm sure we can find both the cash and the capital capacity to invest. Again, just to conclude, I think both of our remarks we're pleased with today. We're pleased with where we're going. We're pleased that we're getting to a baseline, and then we're pleased that both of us will be able to concentrate solely on running a retail and SME bank.