Bank of Ireland customer loan volumes down by €1.3bn

Bank of Ireland said today that the fall in the value of sterling had impacted its customer loan volumes by €1.3 billion in the third quarter and helped to widen the deficit in its defined benefit pension scheme by €250 million.

Bank of Ireland also said it expects its contribution to the State’s bank levy to fall to €30 million a year in 2017 and 2018 from the current level of €38 million. This follows changes announced recently by the Government to the way the levy is calculated.

In a third-quarter trading update, the bank said sterling translation impacts during the period accounted for a €1.3 billion reduction in customer loan volumes to €78 billion at the end of September 2016.

Its core loan books continued to grow during the quarter. Customer deposits were €75 billion while wholesale funding was €13 billion at the end of the period.

The bank’s fully loaded Core Equity Tier 1 ratio was 10.5 per cent and it generated organic capital of 30 basis points during the third quarter.

This was offset by an increase of €250 billion in the IAS 19 accounting standard defined benefit pension deficit from €1.2 billion at June 2016.

“The group continues to trade in line with expectations,” the bank said, adding that economic activity in Ireland has continued to expand while its UK business has thus far “remained resilient” post Brexit.

In line with expectations

Bank of Ireland said sterling weakness versus the euro impacts the group’s reported balance sheet assets and liabilities as well as the euro equivalent of its sterling profits.

“Our regulatory capital ratios continue to be substantially hedged from currency translation impacts,” it said. “The actual and anticipated monetary authority response to the result of the UK’s EU referendum has reduced swap rates and bond yields, impacting the IAS 19 accounting standard reporting of our defined benefit pension costs and deficit and certain elements of our earnings.”

The bank, which is 14 per cent State owned, said its net interest income has performed in line with expectations.

Its net interest margin for the nine months to September was 2.15 per cent compared to 2.11 per cent for the first half of 2016, reflecting the impact of a Convertible Contingent Capital Note maturity in early August as well as the management of funding costs and its asset mix.

Non-performing loan volumes reduced by €800 million to €9.1 billion at the end of September 2016.

With reductions continuing across all asset classes, defaulted loans reduced by €600 million during the same period to €8.1 billion.

“These reductions reflect our ongoing progress with resolution strategies that include appropriate and sustainable support to customers who are in financial difficulty, the economic environment and the ongoing recovery in collateral values,” the bank said. “We expect the level of non-performing loans to continue to reduce.”

Lending

New lending volumes for the nine months to the end of September were €10 billion compared to €9 billion for the same period in 2015 on a constant currency basis.

“We are maintaining appropriate caution on risk appetite and commercial discipline on pricing,” the bank said.

Bank of Ireland expects to receive a dividend from its New Ireland life and pensions subsidiary in the fourth quarter of 2016, which will increase the group’s fully loaded CET1 ratio by 20 basis points.

There was no mention by Bank of Ireland in its trading statement of it paying a dividend to shareholders in the near future. It has not paid a dividend since the crash in 2008.