Bank of Ireland’s net profit fell by 18 per cent in the first half of the year as it stood out among the three continuing banks in the market in taking a precautionary loan impairment charge amid growing concerns about the economic outlook.
The bank set aside €47 million to deal with potential loan losses at a time of “economic uncertainty, primarily driven by Russia’s invasion of Ukraine, inflationary pressure and interest rate expectations”, it said on Wednesday. Still, its level of problem loans fell marginally during the first half.
The impairment charge was the main contributor to a fall in net profit to €279 million from €341 million for the same period last year.
The decline was also fuelled by an additional €33 million charge taken to cover the estimated cost of drawing a line under the bank’s role in the tracker mortgage scandal. Outgoing chief executive Francesca McDonagh declined to comment, on a call with reporters, on how much of the €120 million of tracker-related provisions the bank is now sitting on relates to an expected Central Bank of Ireland fine.
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“I would be very keen that, if it isn’t resolved before I leave, [then] soon after,” she said of the ongoing tracker enforcement investigation into the bank and the last outstanding case among the five retail banking groups in the market.
Meanwhile, Bank of Ireland said that its search for a new chief executive was “well advanced” as Ms McDonagh prepares to step down from the role in September, after five years, to join Credit Suisse as chief executive of its Europe, Middle-East and Africa (EMEA) operations.
Bank of Ireland confirmed that it expects to appoint an interim chief executive to bridge the gap between Ms McDonagh’s departure and a permanent chief executive taking on the role. The Irish Times reported in June that Gavin Kelly, head of the group’s Irish retail banking unit, is expected to be given the interim position.
Customer loan volumes fell by €1.7 billion to €74.6 billion during the course of the first six months of the year. However, stripping out currency fluctuations and a planned reduction in the size of the UK loan book to retrench from low-value volume mortgage lending, loans grew by €1 billion over the period.
Group new lending of €7.7 billion, driven by a 25 per cent increase in Irish retail credit across its mortgage, business banking and consumer portfolios as well as a 12 per cent rise in corporate and markets lending, was more than offset by €8.7 billion of loan redemptions. UK retail lending fell by 19 per cent. Customer deposits rose by €1.3 billion to €94.1 billion.
Turning to the outlook, the bank said it was on track “in the near term” to deliver a sustainable return on shareholders’ tangible equity of 10 per cent, which is in line with what analysts see as a sign of a healthy bank.
This is being fuelled by rising interest rates, the recent acquisition of stockbroking and wealth management firm Davy as well as the bank’s planned purchase of €9 billion of performing loans from KBC Bank Ireland, which is exiting the Irish market.
With the European Central Bank (ECB) having moved last month to increase its key rates by 0.5 of a percentage point — moving its deposits rate to zero and main lending rate to 0.5 per cent — Bank of Ireland estimates that a further 1 percentage point of increases across the euro zone, UK and United States would increase its net interest income by €435 million.
While Bank of Ireland’s net interest income fell by 1 per cent on the year to €1.07 billion in the first half, against market expectations for a small increase, the group now sees such income rising modestly for the full year.
Some 110,000 new current accounts were opened at Bank of Ireland in first six months of 2022, up more than 100 per cent on the year, as customers of departing lenders Ulster Bank and KBC, are forced to find alternative homes for their savings and banking activities.
Ms McDonagh estimates that holders of about 40 per cent of the almost 500,000 active Ulster Bank and KBC current accounts that needed to move as of the end of last year have already found an alternative provider. The remaining banks in the State are bracing themselves for a peak in account transfers between September and November.
