Bank of Ireland said today that customer deposits have remained stable and on a constant currency basis are in line with the €75bn reported at 31 December 2012 - - despite end of the State bank guarantee last month and the fallout from the Cyprus bailout when it was initially planned to haircut insured depositors.
In an interim management statement [pdf] today, issued ahead of the bank’s annual general court meeting, it said: “We were prepared for the expiry of the ELG and have not experienced any adverse impacts on our deposit volumes since the expiry of the scheme.”
The State guarantee had provided an unlimited guarantee for deposits in excess of €100,000.
BoI said as expected the cost reduction impact of the departure of 1,200 staff during the second half of 2012, together with the continuation of these redundancy programmes is being reflected in staff costs while pension costs have increased due to the change in accounting rules that took effect in 2013 and the current size of the deficit in the defined benefit pension schemes.
The bank said it continues to make steady progress in the provision of ''appropriate restructuring arrangements to co-operating customers'' who have difficulties meeting their repayments. It also said that it expects impairment charges to reduce from their current elevated levels to a more normalised levels as the Irish economy recovers.
BoI said it had achieved its “steady state” loan volume target of €90bn and this, together with deposit volumes, had resulted in the targeted loan-to-deposit ratio of 120% being achieved ahead of time.
Eamonn Hughes of Goodbody comments - - "BOI indicates that positive momentum in rebuilding the net interest margin is continuing into the early months of 2013. In our view, margins are likely to be up strongly in H1 (maybe c.25-30bps) and we are at 1.54% for the full year from 1.25% in FY12. Staff costs look to be lower again in H1 (we have full year costs down €100m), but the size of the pension deficit looks to have risen in the year to date (was €1.15bn in December). Elsewhere in the P&L, the bank indicates that asset quality is trending in line with expectations and BOI continues to expect a reduction in the impairment charge from current elevated levels over time (no change to previous guidance).
BOI indicates that deposit volumes have remained stable and on a constant currency basis are in line with the €75bn in December. There has been no adverse impact on deposits from the expiry of the ELG and the bank expects the cost of the latter to reduce quickly (we have it down over two-thirds yoy). Loans are down c€3bn in the period meeting its €90bn steady state target and the loan to deposit ratio is c.120% (down from 123% in December). Wholesale funding at the bank is €6bn lower (half due to IBRC repo) which is a welcome development and the bank has also repaid €1bn of its LTRO (ECB funding) funding in the period. Finally, the core tier 1 ratio is guided at 13.8%, with the treatment of the life company since the turn of the year reducing it by 60bps. This is slightly lower than anticipated but the life company deduction should disappear once the life company is sold as per the EU state aid ruling.
The rebuilding of the net interest margin and the in-line performance on impairments (where arrears in our view look like they could peak soon) is helpful. Also, the on-going reduction in the loan to deposit ratio is welcome. Whilst the pension deficit has widened and the core tier 1 ratio is slightly lower than anticipated, we are hopeful the bank can strike some deal to reduce its pension deficit, all of which keeps us on the positive stance. However, after the 20% jump since we moved to our Buy call, valuations are starting to give us less room for manoeuvre.
Though likely to be overshadowed by the IMS this morning, BOI has lost a ruling on a swap contract between Bristol & West and another Bank of Ireland subsidiary dating to 2003. The UK tax authorities challenged the tax liability and the matter was finally settled at a public tax tribunal in favour of the UK authorities, resulting in a stg£30m (€35m) liability for BOI.
While not welcome, the liability equates to just
0.1c of the TNAV and is relatively immaterial in a group context.
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