Bank results signal progress on road to recovery

Analysis: common theme is more customers emerging from mortgage arrears

Bank of Ireland chief executive Richie Boucher and chief financial officer Andrew Keating at the announcement of the bank’s  interim results. Photograph: Brian Lawless/PA Wire

Bank of Ireland chief executive Richie Boucher and chief financial officer Andrew Keating at the announcement of the bank’s interim results. Photograph: Brian Lawless/PA Wire


Back to black was the theme to this week’s flow of interim results from AIB, Bank of Ireland and Ulster Bank.

All are back in profit and eyeing better days ahead as the economy recovers, employment levels rise and pressures on mortgage arrears and SME debt continues to ease.

A common theme is that more and more people are coming out of arrears and the stock of mortgages in negative equity is reducing as prices rise.

New homes Whether this is a short-term phenomenon that will be checked whenever the supply of new homes amounts to something more than a trickle remains to be seen.

Bank of Ireland reported solid results yesterday, with underlying profit of €327 million for the first six months of the year. The turnaround in its bottom-line performance was more than €700 million.

Yet it wasn’t the knockout profit performance that AIB delivered on Wednesday, catching everybody by surprise. It didn’t pack as much punch.

Bank of Ireland’s net loan book continues to shrink – reducing by €1.1 billion in the first six months. This indicates that repayments and redemptions are running at a faster pace than new lending and is a concern in the context of the group articulating a growth story to the markets.

But this trend is slowing and the picture is likely to change as demand for mortgages, SME and corporate lending picks up. Bank of Ireland was also able to report significant improvements in its impairment charge and provisions. And it bolstered its capital ratios.

In spite of this positive trading performance, the share price was unchanged in Dublin at the close. The bank needs to find a catalyst for the share price to kick on.

Ulster Bank’s £55 million (€67 million) surplus was more modest by comparison, but compared well with a loss of €381 million for the same period last year. Its new mortgage lending rose by 44 per cent in the first half. But there’s a bigger issue at play with Ulster Bank, namely future ownership of the business in the Republic. This has been well aired in public and must be unhelpful to the bank in terms of planning and securing new business.

Another notable feature of the results this week has been the lack of detail on future trading. We’ve just been left with bland statements on outlook.

Recovery doubts It suggests that the banks

aren’t convinced about the sustainability of the Irish recovery or at least don’t have the confidence to state it publicly.

It is understandable, given the difficulties of the past six years. They don’t want to give any hostages to fortune.

However, it’s instructive too. The return to normalised lending might be well under way, but it is by no means a given.

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