Bank of Ireland cuts pretax losses in HI 2013 to €504m
By Finfacts Team
Aug 2, 2013 - 8:46 AM

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Bank of Ireland was founded in 1783 and the premises at College Green, Dublin, of the Irish Parliament, which became defunct on the Act of Union coming in to effect in 1801, were purchased for £40,000 in 1803.

Bank of Ireland reported today that it cut its pretax losses in HI (six months to June 30) 2013 to €504m compared with €1.2bn in the same period in 2012.

Underlying losses were at €383m for the six months, compared with €933m a year earlier. Operating profit before charges for bad debts rose to €380m, from €37m a year earlier.

Bad debt charges declined from €941m in June 2012 to €780m at the end of June 2013, down 17% while total income rose by 36% to €1.19bn, mainly due to an increase in its net interest margin and lower Eligible Liabilities Guarantee (State bank guarantee) fees. The net interest margin rose 31 basis points to 1.65%.

BoI said the level of owner occupier mortgages in arrears over 90 days grew in the six months grew to 10.52% from 9.88% at the end of last year while b

Buy-to-let mortgages in arrears for more than 90 days rose to 26.01% from 23.36% at the end of last year due to the impact of borrowers on rising repayments as interest only periods come to an end. During the bubble the bank's interest-only period was typically 10 years.

Richie Boucher, chief executive, said: "During the first half of 2013, we repaid a further €6 billion of ECB funding and of the €9 billion of ECB funding that remains, c.€4 billion relates to the NAMA senior bonds such that our core ECB usage is quickly approaching normalised levels. Since the start of the Troika programme, we have repaid over 70% or €24 billion of the funding provided by the ECB."

Bank of Ireland reported an underlying operating profit, before bad debt charges, of €159m for its Retail Ireland division, while its Bank of Ireland Life unit reported operating profits of €40m. Retail UK division's underlying profit jumped to €77m from €2m the same time last year, while profits at its Corporate and Treasury's division rose to €305m from €243m.

Results detail [pdf]

Emer Lang of Davy commented - - "Overall impaired loans (including small land & development loans) stood at €18.3bn (19.3% of loans) at the end of June compared with €17.7bn (17.7%) at the end of December. BKIR also provides details of non-mortgage loans in forbearance – these stood at €8.2bn (19% of non-mortgage loans) at the end of June compared with €8.5bn (18.9%) at the end of 2012.

The impairment charge of €780m is higher than our €750m forecast but includes a ‘one-off’ charge of €100m to reflect the estimated impact of the Central Bank’s ‘Impairment Provisioning and Disclosure Guidelines’ (May 2013) on the stock of impairment provisions at end June. It compares with €941m and €783m in H1 and H2 2012 respectively and continues the gradual half-yearly reduction evident since H2 2011. In the context of the 2011 PCAR, BKIR’s cumulative impairment provisions up to mid-2013 are €7.1bn (excluding smaller L&D loans which were part of deleveraging). This compares with modelled base and adverse scenario losses of €7.4bn and €10.1bn respectively out to end 2013.

Looking specifically at Irish mortgages, owner-occupier (OO) and buy-to-let (BTL) impaired loans stood at 11% and 26% respectively at the mid-year stage. This compares with impaired OO/BTL loans of 10%/24% at end 2012 and 7.4%/16.8% at end 2011. The coverage ratio has risen from 40% at end 2012 to 44% at the mid-year stage. Overall, the bank had 15,740 mortgage accounts (8% of its total 197,033 accounts) in forbearance at end June compared with 15,632 at end 2012; 4,885 of these were put in place in the period with 4,777 exiting forbearance.

Funding mix continues to improve
The group’s wholesale funding had reduced to €31bn by the mid-year stage, close to its medium target of €25-30bn. This included monetary authority drawings of €9bn, down from €15bn at end 2012, of which half relates to NAMA bonds. Customer deposits of €72bn (loan-to-deposit ratio of 121%) are below the end 2012 level of €75bn, but the bank cites its strategy to reduce the level of UK deposits to the amount required to reflect the UK balance sheet requirements as a factor. UK Post Office deposits stood at £16bn at end June compared with £19bn at end 2012. This avoids the ‘trapped liquidity’ issue, which has previously been alluded to as a drag on margins.

Capital ratios remain robust; no news on pension negotiations
Risk Weighted Assets of €51.1bn are €5.4bn below the end 2012 level with capital ratios remaining robust; the core tier 1 ratio of 14.2% compares with 14.4% at end 2012. The statement makes no reference to on-going pension negotiations. In contrast to Allied Irish Banks, which reduced the discount rate for its Irish schemes from 4% to 3.6%, pushing up its deficit, BKIR has nudged up its discount rate from 3.9% to 4% – reducing the deficit to €1.05bn."

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