Bank of Ireland warns full-year loan charge will be as much as €1.3bn

New lending volumes now expected to fall 30% this year

Bank of Ireland chief executive Francesca McDonagh. Photograph: Laura Hutton

Bank of Ireland chief executive Francesca McDonagh. Photograph: Laura Hutton

 

Bank of Ireland warned on Wednesday that it would report a full-year loan loss impairment charge of €1.1 billion-€1.3 billion as it dealt with the fallout from the Covid-19 crisis.

The bank decided to book most of the provisions in the first half of the year, with €937 million set aside for the period – coming in well above analysts’ expectations – pushing it into a pretax loss of €669 million.

The company also said it expected new lending volumes to fall 30 per cent this year, with business income sliding 20-30 per cent. These forecasts mark an improvement on what Bank of Ireland was anticipating in May, when it predicted that new lending volumes could fall as much as 50 per cent this year and that business volumes could slide by up to 40 per cent.

“Our outlook is cautiously more optimistic than our quarter one trading update, resulting in revised guidance for the rest of 2020 in terms of new lending and business income,” said chief executive Francesca McDonagh. “We remain committed to continuing to support our customers, and helping reboot the economy, in the time ahead.”

Shares in the bank rose 7.8 per cent to €1.98 in Dublin.

Bank of Ireland said in February, ahead of the Covid-19 crisis, that it planned to find an additional €50 million in cost cuts by 2021 – on top of the €200 million of savings planned over three years to the end of next year – to lower its running costs to €1.65 billion as it grappled with ultra-low interest rates and muted loan growth.

The bank revealed on Wednesday that it was planning to reduce the size of its workforce by more than 1,400 to below 9,000 in the coming years.

Negative rates

Ms McDonagh also said the lender planned to charge small- to medium-sized businesses negative rates on deposits of more than €2.5 million.

The move comes almost a week after it emerged that the bank had written to 14 large pension firms saying it would charge interest of 0.65 per cent on their cash deposits, which average €100 million.

Banks cannot absorb indefinitely the cost of negative rates being charged since 2014 by the European Central Bank on excess deposits it accepts from them amid efforts to encourage lending into the economy, Ms McDonagh said. The group has been charging large institutional and corporate customers for deposits since 2016. Deposits placed with the ECB carry a negative interest rate of as much as -0.5 per cent.

Meanwhile, the bank expected its common equity Tier 1 capital, a measure of reserves to deal with a shock loss that stood at 13.6 per cent at the end of June, to remain above its 13.5 per cent target this year as dividends remained off the cards.

Bank of Ireland has granted more than 100,000 payment breaks to customers in the Republic and the UK amid the coronavirus crisis. Some 54 per cent of Irish mortgage borrowers, and 62 per cent of business borrowers, have opted to extend payment pauses from three to six months.