Bank of Ireland profit rises 13.6% to £364m on firm lending growth

STRONG growth in lending and deposit business lifted pre tax profits at Bank of Ireland by 13.6 per cent to £363.7 million in the year to the end of March.

However, the results were at "the lower end of market expectations. The shares slipped 7p to 450p as profits from the domestic operations were below expectations, according to dealers.

When an exceptional charge of £48.1 million for restructuring its US operations is taken into account, pre tax profits of £315.6 million were 2 per cent down on the previous year.

Earnings per share rose 17.8 per cent to 51.6p, before the exceptional charge. A lower tax charge (at 27.8 per cent) meant that earnings per share were in line with market expectations. After the exceptional charge earnings dropped 6 per cent to 41.5p per share.

Shareholders will receive a final dividend of 10.25p per share, up from 8.25p. The full dividend for the year was 22 per cent higher at 15.25p per share.

Describing the results as "very satisfactory" in challenging market conditions, group chief executive Mr Pat Molloy said the dividend increase was warranted by the performance. Dividend cover slipped from 3.5 to 3.4 times earnings in line with the bank's plan to progressively increase the payout to shareholders.

A breakdown of the results shows that half of group profit, at £12.9 million, was generated by the retail division branch operations in Ireland and in Northern "Ireland and in Britain.

Profits at this division rose by 7.5 per cent assisted by lower bad debt provisions and strong loan demand and deposit growth in Ireland and in Northern Ireland.

Bad debt provisions were down to £13.4 million from £18.8 million.

Lending rose by 10 per cent in the domestic market and 16 per cent in Northern Ireland. Bank of Ireland and its subsidiary ICS advanced over 20 per cent of all new residential mortgages in the Republic last year. Deposits rose by 11 per cent.

Total income in the retail division rose by 5 per cent to £602.6 million. But costs increased by 5.5 per cent to £406.3 million, despite a lower depreciation charge. The rise in costs reflects a £7 million special provision for pensions as well as spending on "re engineering products and processes" to improve service to customers.

Net interest income rose by 4.6 per cent in the retail division, with volume growth offsetting the impact of tighter margins in competitive lending and savings market. Net interest margins fell by 0.3 per cent. The overall group margin narrowed to 4 per cent from 4.1 percent, helped by a 0.9 per cent improvement in the margin on treasury operations.

Pre tax profits at the corporate and treasury division rose by 6.5 per cent to £75 million. Income growth of 13.5 per cent to £120.3 million was somewhat offset by a bad debt charge of £2.6 million which compared with recoveries of £5.2 million in the previous year. Costs rose 4.7 per cent to £42.7 million.

At the US division, First New Hampshire, pre tax profits soared 80 per cent to $78.5 million (£48.8 million). The result included a write back of loan losses of $200,000 and a 4.6 per cent fall in costs.

Elsewhere, other group activities generated pre tax profits of £66.2 million - an increase of 6.8 per cent mainly attributed to strong growth at the Bank of Ireland Asset Management.

Total group income rose by 6.8 per cent to £994.8 million while costs increased by 2.6 per cent to £609.8 million. As a result the bank's cost/income ratio fell to 61 per cent from 64 per cent.

Group net interest income rose by 7.4 per cent to £676.7 million with higher lending and deposit volumes offsetting the fall in the net interest margin. Other income rose by 5.4 per cent to £318.2 million boosted by fee and commission income.

Reflecting income growth and a lower increase in costs, operating profit before loan loss provisions rose by 14.2 per cent to £385 million. Loan loss provisions increased to £21.3 million from £17.1 million. The provision was 0.19 per cent of average loans.

It included a £16 million special "economic cycle provision". This provision reflected an exceptionally low level of loan losses at £5.3 million. The additional £16 million provided is "a prudent move to put aside something for the tougher years", according to Mr Molloy.

He rejected any suggestion that it was artificially depressing profits. On the market outlook he said: "It is as good today as I remember it for a heck of a long time. We do not see any clouds gathering anywhere."

Group assets rose by 12.2 per cent to £20.9 billion and the bank recorded a return on average as sets of 1.3 per cent, up from 1.2 per cent. The return on shareholders funds slipped to 24.9 per cent from 25.6 per cent.

At year end, the bank's total capital adequacy ratio was 14 per cent, up from 13.4 per cent, while its Tier One ratio had improved to 9.5 per cent from 8.2 per cent.