Irish banks are among the most profitable in Europe, according to a report, but pay comparatively smaller dividends.
Increased competition will continue to eat into their profit margins but Irish banks still have the potential to deliver handsome returns for shareholders, according to the report by Goodbody Stockbrokers. Irish banking stocks have put in the worst performance of all European banks this year. Nevertheless, banks such as AIB and, in particular, Bank of Ireland, should be able to achieve strong growth in earnings over the next 12 months.
A Goodbody analyst, Mr Oliver O'Shea, says that at current levels the Irish banks represent good value for investors. Mr O'Shea suggests AIB's share price has the potential to increase by 23 per cent to trade up at €16.30 over the next 12 months.
The brokers are forecasting even stronger growth at Bank of Ireland. By the end of 2000, Goodbody is predicting a 55 per cent rise in the bank's share price to €12.90.
It also signals a favourable outlook for Anglo Irish Bank and First Active, upgrading its profit forecasts for both banks next year. Goodbody expects AIB and Bank of Ireland to improve the returns to group profits from its recent acquisitions. In AIB's case, Goodbody is suggesting the bank will achieve higher revenue growth in the US, while cost cutting at Bank of Ireland's UK Bristol & West subsidiary should also boost earnings.
The report states that Anglo Irish Bank is rapidly growing its balance sheet while managing to maintain a conservative provision. At the same time, it is increasing its revenues from fee-based activities such as private banking.
While cost cutting measures at First Active have improved its prospects going forward. Mr O'Shea says Goodbody has adjusted its profits forecasts for the converted building society by 27 per cent to €43 million in 2000 and by a further 56 per cent in 2001 to €54 million.
It believes profits will improve as the bank works off a lower cost structure while increasing its business volumes. Its UK operations are currently performing well and are expected to deliver higher growth in the next couple of years.
