Bank of Ireland has upgraded its full-year net interest income growth forecast to 6 to 7 per cent as the European Central Bank (ECB) continues to hike rates more aggressively than previously expected.
The largest Irish bank had previously forecast that its net interest income would only be “modestly higher” this year than in 2021.
Interest income growth is being driven, so far, by the bank no longer being charged negative rates by the ECB for excess deposits stored with the organisation, as well as the bank availing of ultra-cheap loans from the Frankfurt-based institution.
However, analysts expect that Bank of Ireland will soon start to increase its mortgage rates, after the ECB moved its main lending rate from zero to 2 per cent in less than four months.
“Overall business momentum is positive,” said interim chief executive Gavin Kelly. “We are upgrading our net interest income guidance for 2022 to reflect the interest rate outlook. The strength of our business model means we are firmly on track to deliver sustainable [return on tangible equity] of greater than 10 per cent in the near term.”
New current and deposit account openings at Bank of Ireland rose 90 per cent in the first nine months of the year to 245,000, as Ulster Bank and KBC Bank Ireland prepare to leave the market. Bank of Ireland is taking over KBC’s €9 billion of Irish performing loans and its deposits, which stood at €3 billion at the end of September.
Customer deposits grew by €3.9 billion over the nine months to €96.7 billion, with a €7.8 billion jump in deposits in the Retail Ireland division partly offset by a €4.2 billion reduction in the UK.
“The Irish economy continued to perform well, notwithstanding an increasingly uncertain environment and increasing inflationary pressures. We’re keenly aware of the impact of higher inflation on our customers, who we will continue to support over a challenging winter. Despite this, our asset quality remains strong and we have taken steps to materially reduce our [non-performing loan] ratio.”
The bank revealed on Tuesday evening that it had had reached deals to offload portfolios of problem Irish and UK loans, mainly made up of mortgages, that are valued at a discounted rate of €1.4 billion on the bank’s balance sheet. This would see its non-performing loans ratio fall to 3.7 per cent, which is close to the EU banking average, from about 5.4 per cent.
Customer loan volumes fell by €2.8 billion over the nine months to €73.5 billion, driven by a €3 billion reduction in UK loans amid a strategy shift into “value over volume” mortgage lending in that market. Net lending in Retail Ireland expanded by €1.9 billion.
Bank of Ireland estimates that it will make €30 million of net interest income from the ultra-cheap ECB loans – under the Frankfurt-based institution’s Targeted Longer-Term Financing Operations (TLTRO). However, the bank plans to repay its TLTRO drawings by the end of this month. The ECB moved last month to toughen the terms of its TLTRO loans.
