Bank of Ireland reports plunge in profits
Bank of Ireland said it was attracting deposits, cutting costs and expected home loan arrears to peak this year, raising hopes Ireland’s biggest lender had turned a corner after a 60 percent drop in underlying profit in 2011.
The only Irish bank to avoid nationalisation after an unprecedented property crash, Bank of Ireland said on Monday low interest rates would make it harder to achieve its goal for a net interest margin – the gap between what it charges for loans and what it pays to borrow – of 2 percent in 2014.
But Chief Executive Richie Boucher was optimistic of progress after the cost of drawing in deposits and an expensive government guarantee of its liabilities trimmed the margin by 13 percentage points to 1.33 per cent last year.
After successfully attracting private capital to meet strict new central bank targets last year, Bank of Ireland is focused on restructuring its cost base, improving funding dynamics and weaning itself off the expensive state guarantee.
By end-December, it had fully exited the costly emergency liquidity assistance (ELA) offered by Ireland’s central bank, reduced its dependency on European Central Bank funding to 23bn euros from 33bn a year earlier and cut its staff by seven percent year-on-year.
“These results suggest the bank reached a trough in its pre-provision earnings in 2011 and (earnings) are likely to experience improving trends as the bank has exited the more costly ELA borrowing, can look to terminate its own issued bonds programme and maintains a tight focus on costs,” Stephen Lyons, credit analyst at Davy Stockbrokers said.
Operating profit before provisions for 2011 dropped to 411m euros on high funding costs, a limited appetite for new credit and following the sale of higher-earning assets.
However, the underlying pretax loss more than halved to 1.5bn euros after the big hit taken in 2010 by transferring loans to Ireland’s state-run “bad bank.”
While the bank said it expected impairments to reduce over time, it saw them tick up a touch to 1.94 billion euros last year after it made provisions for 1.86bn in 2010.
“It’s within the range as expected by the market and the comment from management is very realistic so a lot of guys are assuming Bank of Ireland is slowly but surely working its way through its issues,” one Dublin-based trader said.
“Steady as she goes is probably the word I would use.”