Bank of Ireland shares slump on outlook after unveiling €1.15bn investor payouts

Bank’s pretax profit for the year rose to record, but weaker-than-expected, €1.94bn from €1.01bn for 2022, with net interest income rising 48 per cent

Bank of Ireland’s shares slumped on Monday as a weaker-than-expected surge in profits for 2023 and outlook for this year took the shine off news that the lender plans to hand out €1.15 billion to shareholders through dividends and share buybacks in the coming months.

The bank’s pretax profit for the year rose to a record €1.94 billion from €1.01 billion for 2022, with net interest income rising 48 per cent to €3.68 billion.

Goodbody Stockbrokers analyst John Cronin said the capital return plan is higher than the €1.03 billion expected by the market, even if earnings were slightly weaker than anticipated, owing to a higher loan impairment charge and customers moving increasingly to higher-earnings deposit products.

Mr Cronin said that the outlook provided by the bank for this year, as it sees official interest rates falling at a faster pace than financial markets, implies an underlying pretax profit of €1.86 billion for this year, which is below the consensus estimate of €2.04 billion.


Shares in the bank were down 10.6 per cent at €8.14 at midday in Dublin, handing back some of their gains in the run-up to the results.

The main reason for the profit disappointment for last year was down to Bank of Ireland setting aside €403 million of provisions to deal with potential loan losses, reflecting “slightly higher loan loss experience” and management deciding to put an additional €138 million to cover potential loan impairments given economic uncertainties. Analysts had expected a total impairment charge of €282 million for the year.

The more cautious view comes as group expects commercial property prices to fall by 10 per cent this year. Bank of Ireland shrank its commercial property portfolio by 12 per cent last year “by design” to €7.2 billion, chief executive Myles O’Grady told reporters. About a third of his portfolio is exposed to office space, which has been affected by hybrid work practices following the pandemic and a spike in interest rates in recent years.

Still, the bank’s overall level of non-performing loans declined by 0.5 percentage points last year to 3.1 per cent and are expected to dip further in 2024.

Bank of Ireland’s earnings surge last year had been on the back of higher interest rates and the purchase of loans from KBC Bank Ireland, as the Belgian-owned lender exits the market.

Bank of Ireland and other Irish banks have lagged many European peers in raising mortgage rates since the European Central Bank (ECB) hiked official rates in the 15 months to last September, as they are more reliant on cheap household deposits to fund loans.

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The bank’s interest income is being driven by money earned on excess deposits stored with the Central Bank of Ireland. Bank of Ireland had €28 on deposit with the Central Bank as of the end of December, which is now earning 4 per cent interest, following the ECB’s latest rates move last week.

The ECB’s deposit rate was in negative territory, at minus 0.5 per cent, before it started a cycle of aggressive rate moves last July to tackle high inflation.

Irish lenders slowly improved deposit offerings last year to customers willing to put savings in accounts for an agreed period of time – with Bank of Ireland’s highest rate set at 3 per cent. However, current and on-demand deposits, which account for the vast majority of customers’ money, are earning little or nothing.

Still, Mr O’Grady said that the bank saw some momentum in the fourth quarter of customers moving into higher-earning savings products.

Bank of Ireland acquired €8 billion of loans from KBC Bank Ireland in February as the Belgian-owned lender retreated from the Irish market. However, this was partly offset by a €800 million reduction in UK lending in line with its recent strategy of moving away from mass-market mortgages, and a €1.6 billion reduction in net lending to property and international corporates.

The bank also moved €1.1m of UK personal loans into a non-core portfolio to be run down over time, after deciding to exit this segment of the market.

Bank of Ireland said that it has yet to take a provision for potential fines emerging from a UK Financial Conduct Authority investigation into the motor finance industry, amid rising tensions between thousands of consumers and finance providers about commission arrangements.

Barclays has estimated that the Bank’s UK Northridge motor finance business, which has the equivalent of €2.4 billion of loans and 167,000 customers, could face a redress bill of as much as €160 million off the back of a UK watchdog review.

Looking ahead, Bank of Ireland expects its net interest income is expected to be 5-6 per cent lower than the annualised run rate of €3.65 billion it was generating in the fourth quarter, primarily reflecting the anticipated lower interest rate environment. The bank has factored in the ECB reducing its deposit rate by 1.25 percentage points to 2.75 per cent. Financial markets currently expect the ECB to lower rate by less than 1 point this year.

Business income in 2024 is expected to be a mid-single digit per cent higher than 2023 supported by continued growth in wealth and insurance and Retail Ireland.

Operating expenses are forecast to be a mid-single digit per cent higher, reflecting inflation, business growth and additional investment to future proof our business, partially offset by efficiencies.

The bank also said that it plans to start paying out interim dividends this year, based the bank’s performance for the first half of this year.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times