Bank of Ireland makes a bold call on problem loans as Covid supports ease

Lender predicts that non performing loan numbers will decline

Bank of Ireland chief executive Francesca McDonagh and Myles O’ Grady, chief financial officer, at the announcement of the bank’s 2021 annual results.

Bank of Ireland chief executive Francesca McDonagh is cautious about making absolute predictions at the best of times. But she appeared even more so on Monday when hosting a gaggle of reporters in the bank's nerve centre on Baggot Street for the first time since the onset of Covid-19 – on the day of the second anniversary of the first official case in the Republic.

“The last two years have taught us that things can twist and turn, so it’s difficult to be overly prescriptive and definitive,” she said.

However, even as global markets have succumbed in the past five days to heightened volatility after Russian president Vladimir Putin unleashed a wave of attacks on Ukraine – sparking the biggest geopolitical crisis in Europe since the second World War – McDonagh's outlook for the bank is rosier than at any stage since she took over the helm four and a half years ago.


Having delivered a much-better-than-expected full-year net profit of over €1 billion for 2021 (helped by the release of some of the bad loan provisions it had set aside a year earlier), McDonagh unveiled plans to return over €100 million to shareholders.


Half of the money will be handed back by way of the group’s first share buyback programme since 2004, before the financial crisis. Even allowing for that cash return, the bank’s common equity Tier 1 capital ratio – a key measure of financial strength and ability to withstand a shock loss – came in at 16 per cent.

That’s one percentage point above market consensus expectations, more than six points above its minimum regulatory requirement, and three points ahead of the bank’s own internal target.

It’s an impressive result for a bank that has, let’s face it, been making do since the financial crisis with tighter levels of surplus capital than peers in the market.

But the big surprise is that while investors and credit ratings agencies have long feared that non-performing loans (NPLs) will spike across the board this year as extraordinary Covid-19 central bank and government economic supports are eased back, Bank of Ireland is sticking its neck out early saying its NPL ratio should actually fall this year from 5.5 per cent in December.


Chief financial officer Myles O’Grady said that, while the bank expects non-performing loan “inflows” during 2022, the fast pace at which the bank’s restructuring team is working on finding solutions for troubled borrowers should result in an overall drop in non-performing loans.

The decline is predicted to be accelerated as the bank plans to continue a recent trend of selling off portfolios of loans in long-standing arrears.

O'Grady, of course, won't be around to see whether the prediction works out, as he's leaving the bank at the end of next month to join food wholesaler and retailer Musgraves. But his current boss will.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times