IL&P bullish as interest rates face into upswing

Irish Life and Permanent said it expects to meet earnings forecasts for the year tanks to a strengthening economy and the prospect…

Irish Life and Permanent said it expects to meet earnings forecasts for the year tanks to a strengthening economy and the prospect of higher interest rates which will ease pressure on margins.

In its last trading statement before publishing results the bank said the economic outlook continues to be positive and the first six months of 2004 is expected to show a combination of strong volume growth, tighter margins and effective cost management which taken together should deliver earnings growth in line with market expectations.

Indicating that renewed confidence gas returned to the economy IL&P said new lending for the first six months is expected to be up over 40 per cent on the first half of 2003.

New residential mortgage lending in Ireland continues to be particularly buoyant with expected gross new lending of around euro2.2bn.

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Life sales in Ireland for the first six months are expected to increase by between 18 to 20 per cent with a strong pipeline going into the second half.

The pick-up in pension and single premium investment sales seen in the second half of 2003 has continued into 2004. Corporate Life division sales are expected to increase by circa 8 per cent in the period.

Net interest income - a key indicator of profitability in banking - is expected to grow by 5 per cent in the first six months with tighter net interest margins partially offsetting the strong growth in lending.

The margin for the first half is expected to be circa 1.42 percentage points, down from 1.63 for the full year in 2003 - reflecting the impact of the last ECB rate reduction, the rapid growth in residential mortgages and the increased wholesale funding requirement.

However the bank said that the worst of the margin compression in the banking business would appear to be over as euro interest rates are now more likely to rise than fall. On the life side, we are confident that, going forward, scale and strong cost management will offset any margin pressures.