Bank of Ireland plans to return up to half of future profits to shareholders after paying its first dividend in a decade this year.
The lender reported a full-year profit of €1 billion for 2017 on Monday and announced that it would return €124 million to investors in a dividend of 11.5 cent a share, in its first such payment since 2008.
The dividend comes to 18 per cent of earnings, but the bank pledged to increase these payments to around 50 per cent.
Andrew Keating, group chief financial officer, said that the board would not "move at 100 miles an hour" towards approving a dividend of that scale.
“That dividend is going to increase progressively and steadily to that 50 per cent level,” he explained.
Chief executive Francesca McDonagh ruled out selling non-performing loans, that is, mortgages where the borrowers are behind on their repayments.
Controversy recently blew up around plans by its rivals Permanent TSB and Ulster Bank to sell such loans to so-called vulture funds.
Mr Keating pointed out that 8 per cent of Bank of Ireland’s loans are non-performing, a total of €6.5 billion in debt, and said that the lender was moving towards reducing this to 5 per cent over the next 18 months to two years.
“What’s happening in the economy is supporting that,” he said. “Unemployment is down, there is some wage inflation and there are more likely to be tax reductions rather than further austerity measures. All of those factors are helping our customers.”
The bank has set aside €170 million to cover the cost of repaying customers who were wrongly moved from tracker mortgages and ended up paying higher interest rates as a result.
“Based on our experience to date, we feel that €170 million is appropriate,” Ms McDonagh said.
She reiterated her commitment that the bank repay all affected customers, subject to their agreement, by the end of March.
Ms McDonagh said that the bank was still trying to locate around 150 borrowers hit by the tracker scandal.
Bank of Ireland’s shares closed 3.33 per cent down at €7.54 as news that its net interest margin, a key component of its profits, would remain in line with the 2.29 per cent earned last year.
In the year to December 31st, 2017, the bank reported an underlying profit of €1,078 million, down 2 per cent on 2016.
Pre-tax profits stood at €852 million, down from €1 billion in 2017, or €692 million on an after-tax basis, down from €799 million in 2016.
The bank reported a 11 per cent growth in new lending to €14.1 billion, on the back of a growing market share in residential mortgages and business banking. This took customer loans to €76.1 billion.
Ms McDonagh said that it provided 9,000 home loans in 2017 and had a 27 per cent share of the residential mortgage market.
The bank took an impairment charge of €15 million compared with €176 million in 2016.
In her first set of results as group chief executive, Ms McDonagh pointed to a “strong performance” in 2017.
"All trading divisions are profitable and have contributed to an underlying profit of €1,078 million for the year. In Ireland, we have grown our market share in residential mortgages [to 27 per cent] and we have the largest market share in the business banking sector," she said.
Looking to 2018, the bank said that it expected its net interest margin to be “broadly in line” with this year, while “operating expenses will reduce this year”.