Bank of Ireland’s continues to struggle to hit its financial targets

As Bank of Ireland's crisis-time chief executive Richie Boucher rushed to shrink the group's loan book to €90 billion, he overshot his target in 2013, a year ahead of schedule. That was during the Republic's bailout years – under the iron thumb of the EU, International Monetary Fund and European Central Bank

Sitting on a €85 billion loan book at the time, almost 40 per cent off an unsustainable €136 billion peak in 2008, Boucher set a goal of rebuilding the portfolio back to €90 billion, which he considered a “steady state” for the size of the economy. The problem was, after years of repaying borrowings at a faster rate than taking on new debt, customers of Irish banks weren’t finished.

Boucher had long dropped his goal by the time he retired in October 2017, when the loan book was less than €77 billion and households and businesses were continuing to deleverage.

However, the €90 billion figure reappeared in June last year as Boucher’s successor, Francesca McDonagh, unveiled a series of financial targets to be hit by the end of 2021. It’s looking as elusive as ever.

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Growth

Bank of Ireland may have returned to loan book growth last year for the first time in a decade but on Monday it warned that the "external environment has changed since we set our strategic plan a year ago".

Extended Brexit uncertainty is hampering loan-book expansion in Ireland, while in the UK, competition in an already ruthless mortgage market has intensified. In addition, lower-for-longer European Central Bank (ECB) rates are further depressing income growth.

Among the 2021 goals, one appears to be sacrosanct for McDonagh: building returns on shareholders’ equity in the bank, a key measure of profitability, to more than 10 per cent. It stood at less than 7 per cent when McDonagh took over.

To get there, however, it’s looking increasingly likely that Bank of Ireland will have to extend its planned €200 million cost-cutting programme between 2018 and 2021, which analysts had already expected to result in more than 2,000 job cuts.

There are other levers that the bank can pull, such as selling further non-performing loans, which tie up a lot of capital, and boosting returns in its wealth and life insurance business.

Cost-cutting will undoubtedly be a key focus. It's a theme that is re-emerging elsewhere. Permanent TSB chief executive Jeremy Masding said last week that the "key battleground" now for banks in the current interest-rate environment is to "focus relentlessly on efficiency and effectiveness".

“It’s very easy to take cost out badly,” McDonagh told analysts on a call, adding that she will only come back with more guidance after coming up with a “well thought-through” plan.

With Bank of Ireland’s stock down almost 43 per cent over the past year, making it the worst performer among Irish banks in a depressed sector, the pressure is on.