Bank of Ireland today reported a pre-tax loss of €979m for the six months ending September 30, 2009, compared to a profit of €647m in the same period in 2008.

The bank made an operating profit of €787m before bad debt charges.

It said impairment charges over that period were €1.8bn, reflecting "significant deterioration" in asset quality in its property and construction portfolio.

BoI, which is selling €16bn of loans to the State's "bad bank," the National Asset Management Agency (NAMA), said "significant uncertainties" remain on the discount the agency will pay for the loans.

The bank said its customer deposits had risen by 4% since March, but total loans to customers dipped 2% to €131 billion, due to the economic downturn

BoI said it had lent over €1 billion in new mortgages since April and €1.5 billion to small businesses. It said it was approving 350 mortgages a week.

A total loan loss charge of €6.9bn in the three-year period to March 2011, in line with previous estimates.

The bank's loan-to-deposit ratio fell to 152% from 159% a year ago.

BoI's retail banking business in the Republic lost €655m compared with a €286m profit a year earlier.

Bank of Ireland Life made a €57m profit, up from €3m a year earlier, due to an increase in the value of its investments, but its operating profits were 55% lower as sales fell 40%.

BoI chief executive Richie Boucher commented: "Trading conditions in the first 6 months of our financial year to 30 September 2009 have been difficult. The level of economic activity across our main markets has contracted and the credit environment deteriorated. Economic conditions in Ireland were particularly challenging with 2009 consensus forecasts for GDP growth and unemployment disimproving in the earlier part of the reporting period. There are some indications of a slow-down in the pace of economic decline in the UK and to some extent in Ireland. Funding conditions across international money markets have improved from the more stressed levels experienced earlier in the year. Notwithstanding these trends, the outlook remains challenging."

Results detail

Goodbody analyst : Eamonn Hughes commented: No surprises in H110 result - - "Overview: BOI has reported a headline pre tax loss of €930m vs our -€908m estimate. Including the guarantee cost in the pre-tax line, as the company does, gives a loss of €979, compared with our equivalent -€978m, as the cost came in at €49m compared with €70m estimated. The underlying loss per share was 96.6 cent vs our -102.7 cent forecast. BOI had guided €1.6-1.8bn on the credit charge in its IMS, and we were at €1.75m. It came in at €1.79bn or 260bps of average loans. There was no dividend, as anticipated.

Income & Costs: Net interest income was down 24% (-11% anticipated) to €1,477m, but is complicated by IFRS income classifications, which are reported in non-interest income. Loans were down 2% on March and resources up 4%, compared to our -1% and flat expectation (respectively). Average interest earning assets were up 2%. The net interest margin, which includes IFRS reclassifications, at 1.61% (-10bps yoy), compared to our 1.59% estimate and appears better due to stronger deposit growth. Non interest income looks better than expectations, but again includes the IFRS income classification. Associates were in line with estimates. Costs were down 10% yoy (-9% estimate).

Credit, Capital & Funding: The bad debt charge was €1.79bn (€1.75bn estimate) and 260bps of average advances (258bps estimate). Impaired loans of €8,571m were up 61% from the €5,322m at end March 2009 and now equate to 6.4% of the loan book from 3.9% in March. Provisions to Impaireds coverage was 41% compared to 33% last March. BOI indicated that “challenged” risk loans were €23.9bn at end September, or 17.7% of the loan book, compared to €15.7bn or 11.6% last March. Arrears look to be stabilising in the UK. RWAs were €101bn at period end, down 4% from €105bn last March (when they were down 10% yoy, though 6% on constant currency basis). On the capital front, the Tier 1 ratio was 11.0% and the core equity ratio was 6.6%, which compares to 12.0% and 6.2% respectively last March, boosted by the bond buyback. We note the €756m benefit on available for sale portfolio, which is taken through reserves. On funding, the loan to deposit ratio was 152%, compared with the 161% outturn last March. It appears a bit better on deposits in the half year (+4%). Term funding greater than one year & customer accounts were 81% of loans, up from 77% in March.

Outlook Statement & Estimates: There is very little in terms of guidance in the results statement. About the only section where there is some commentary is around the credit charge, with the bank sticking with its September IMS guidance of a €6.9bn charge for the 3 years to March 2011. We sit about 8% above this and are likely to hold at that level. On NAMA, BOI reiterates its earlier vague guidance post the announcement of the Government's NAMA haircut for the sector. It does highlight "significant uncertainties exist as to the final discount which would be applicable to BOI"."