Bank of Ireland says it is on track to deliver low double-digit earnings growth for the year to the end of next March, shrugging off concerns about turmoil in the money markets.
The bank's group chief financial officer, John O'Donovan, told analysts that, if market volatility continued, he expected earnings per share (EPS) growth to be at the lower end of its guidance for double-digit growth for the year. This would bring EPS for the year to €1.59.
"Financial markets have been significantly dislocated since early August 2007," the bank said in a trading statement released yesterday. "The financial impact of this will be modest in our current half-year reporting period."
The bank said it expected underlying EPS to grow by about 10 per cent in the half-year to the end of September, from 73 cent reported last year, and profit before tax to grow by about 12 per cent. Excluding the gain made from the sale of broker Davy, first-half EPS growth would be about 13 per cent.
Davy had forecast 12 per cent EPS growth for the second half-year to March 31st next, but Emer Lang, analyst at the stockbrokers, said reaching this level would be a "tall ask". "We have nudged back our forecast to 11 per cent for the second half," said Ms Lang.
The bank provided more detail than usual in its statement on funding arrangements, given the squeeze on liquidity and the increased cost of interbank (wholesale) borrowing.
It said the group continued to fund its lending through customer deposits and wholesale funding, and had over the last two years taken out longer-term funding, lessening its exposure to the volatility. "As a result, 80 per cent of our loan book is funded by customer deposits and term funding with a maturity profile greater than one year," the bank said in its statement.
About 42 per cent of the bank's wholesale funding is purchased at a maturity of more than a year. Ms Lang said it would be a question of waiting to see the effect of higher funding costs.
"We will end up with having funding costs being higher, but it is a question of how much higher," she said.
The bank has acknowledged that costs will be passed on to customers on certain products - tracker mortgages, for example - if the cost of bank borrowing on the money markets remained high.
The bank's share price closed at €11.80 yesterday, down from €11.86 on Monday. This is down €6.85 from a high of €18.65 in February.
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