Bank of Ireland has upgraded its full-year earnings forecasts after reining in expectations on the pace at which the European Central Bank (ECB) will cut interest rates this year and as the lender’s own deposit customers continue to be slow at moving cash into higher-rate products.
The bank now sees its net interest income declining 2.7 per cent to €3.55 billion this year, “reflecting interest rates, business momentum and funding costs”, it said on Wednesday, as it reported results for the first half of the year. It had previously seen net interest income falling by as much as 6 per cent.
Bank of Ireland’s prior forecast had been on expectations that the ECB would cut its deposit rate from 4 per cent to 2.75 per cent over the course of 2024. Financial markets currently estimate it will end the year at about 3.25 per cent.
Meanwhile, customers only moved €1.3 billion of deposits to high-rate accounts, where savers can receive as much as 3 per cent interest a year, during the first half. The bulk of customers’ money remains in on-demand or current accounts, which are earning little to nothing.
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The bank now also expects to book a lower-than-previously-guided bad loans charge this year on the back of a robust domestic economy, and sees its regulatory charges coming in at €125 million to €130 million, below the €160 million-€165 million range predicted in March.
It sees its return on tangible equity (RoTE) – a key gauge of profitability based on equity that shareholders have in a business – amounting to 17.3 per cent this year, up from its previous forecast of a result in excess of 15 per cent.
“The group had an excellent performance in the first half of 2024, reporting a [pretax] profit of €1.1 billion, up 5 per cent,” said chief executive Myles O’Grady. “This performance – underpinned by growth in our loan book and wealth assets, higher income and robust capital generation – supports upgraded earnings guidance for the year.”
The profit figure beat the €968 million consensus estimate among analysts. The result and upbeat outlook has allowed Bank of Ireland to commence interim dividends – having only made payments on an annual basis since it restarted dividends in 2018 following the financial crisis. It is starting off with an interim dividend of 35 cent per share, or a total of €352 million.
Shares in the bank edged 0.6 per cent higher, bringing their advance so far this year to more than 27 per cent.
Net interest income for the first half rose to €1.83 billion from €1.80 billion for the same period in 2023, when the ECB was still increasing official rates.
The bank booked a €49 million impairment charge – less than a third of the amount it had set aside a year earlier for problem loans. The consensus view in the market had been that Bank of Ireland would set aside €124 million of provisions for problem loans in the first half, according to Goodbody analyst Dudley Shanley.
Assets under management across the group’s Davy and New Ireland units rose by a combined 21 per cent to €51 billion in the 12 months to the end of June, fuelled by rising equity markets, inflows of new funds and bank customers switching money from deposit accounts into money market funds managed by Davy.
The bank appointed senior group executive Gavin Kelly as the next chief executive of Davy, effective later this year. It is also establishing a new division, Wealth and Insurance, over Davy and New Ireland, which Mr Kelly will also lead.
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