Bank of Ireland has today reported a better than expected 5% rise in first half pre-tax profit and lifted its net interest income guidance for 2024 for the second time this year.
The bank said its first half profit rose 5% to €1.1 billion, ahead of the €968m forecast in a company poll of analysts, mainly due to lower regulatory fees and levies and a “materially” lower than expected impairment charge.
The country’s biggest lender said it expects net interest income of €3.55 billion for 2024, at the higher end of its previously upgraded guidance from May and that it also expects to generate more capital that previously flagged.
Ireland’s highly concentrated sector of mainly retail-focussed lenders make more of their profit through interest revenue than European peers.
Bank of Ireland said it now expects its return on tangible equity for the year to be ahead of the 2023 level of 17.3%, compared to previous guidance that it would be above 15%.
It also said it will start an interim dividend for the first time since the Irish banking crash of 2008, and will return €352m to shareholders, the equivalent of 40% of first half profit after tax.
Bank of Ireland said its net interest income saw growth of 2% in the six month period on a like-for-like basis, on the back of higher interest rates, growth in lending income – particularly in Ireland -higher funding costs and continued strong commercial pricing discipline.
It said its net interest income is now expected to be about €3.55 billion, at the higher end of the bank’s earlier guidance.
Bank of Ireland said its loan book increased by €1.8 billion during the first half of the year, while group deposits increased by €0.6 billion to €100.8 billion.
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The lender said its operating expenses have progressed in-line with guidance, adding that it continues to maintain tight control over its cost base while absorbing inflation and continuing to invest in strategic growth and simplification opportunities.
It also said it expect levies and regulatory charges to be €125m to €130 million in 2024, lower than its previous guidance of €160m to €165m.
Bank of Ireland reported a net credit impairment charge of €50m, which it said was materially better than expectations.
Myles O’Grady, the Bank of Ireland Group CEO, said that the bank is now half-way through its three-year strategy, adding that it is meeting or beating its targets and investing for the future.
“This year we’ve announced a range of improvements to our branches, ATMs, contact centre services and fraud support for our customers. The launch of innovative green mortgages and the expansion of agri-business green lending, and an increased funding commitment for housing development were important developments in H1,” the CEO said.
“Our differentiated business model operates in structurally attractive and growing markets and is highly capital generative. These factors, complemented by our single-minded focus on delivery, make us very well positioned to continue to deliver attractive returns for our shareholders through the current strategic cycle and beyond,” the added.
Flow of money into fixed rate deposit accounts by retail customers ‘slow’
At a briefing at the bank’s headquarters this morning, CEO Myles O’Grady said the flow of money into fixed rate deposit accounts by retail customers had been slow.
The bank has just under €80 billion of what it terms “everyday deposits” on its books, but just €6.5 billion of that had been placed in term accounts by the end of June.
These accounts offer higher rates than easy access deposit accounts and current accounts where the bulk of customer deposits are sitting, generating little or no return.
The main banks came under increasing public and political pressure this time last year to improve the rates of return on deposits against the backdrop of the higher interest rate environment.
Mr O’Grady admitted that the bank was outperforming its targets on returns partly because of the slow rate of movement of deposits into higher yielding accounts.
“We’re very keen to see a significant cohort of customers who are sitting on cash availing of deposit products but also consider some of the products in the wealth and Davy divisions,” he said.
He added the bank had not seen any material outflow of deposits on the retail side as a result of the competitive rates being offered by European online banks.
“We have seen some larger corporate customers being more selective. The more sophisticated Treasury functions and corporates that are managing their funds – some of those have moved out of Bank of Ireland, but we’re ok with that because some other non-Irish competitors are competing for euros. That is not a challenge for us,” he explained.
On the mortgage front, Mr O’Grady said he believed the period of “competitive retrenchment” in the market had ended and that he expected other players to become more active as the rates environment turns a corner.
He said that while the bank expected to continue to grow its mortgage book, its share of the overall mortgage market would likely fall from the 41% share recorded at the end of June.
“I would regard that as elevated. We don’t have a mortgage market target but I would imagine that a more normalised market share in the medium term is probably in the 30s,” he said.
Mr O’Grady said for the past five years or more, in excess of 95% of its new business mortgage customers were on fixed rate products.
He said more than half of its fixed rate customers would not be repricing, or rolling off their current fixed rate period, until 2025 at the earliest.
Bank of Ireland’s chief financial office Mark Spain said customer mortgages had been stressed at rates of 5% or greater.
“Any customer maturing today, having already paid down, has the ability to refinance. We’re really happy with the quality of the book,” he said.
Shares in the bank reversed its earlier gains to stand lower in Dublin trade this afternoon.