| 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 said today that it will not be
required to generate additional capital following the Central Bank of Ireland’s
balance sheet assessment while AIB said it remains "well capitalised."
The Central Bank (CBI) had been required by the
bailout troika to do an balance sheet assessment (BSA) of the banks as of June
30th 2013. This assessment included: (i) an asset quality review (AQR) of risk
classifications and provisions against the CBI's impairment guidelines and (ii)
a review of risk weighted assets (RWA) to arrive at pro-forma point in time
The CBI expects that the outputs of its exercise
will be used in next year’s EU-wide comprehensive assessment. Under the
assessment, Bank of Ireland requires no further capital and expects to maintain
a buffer above a Tier 1 common equity ratio (CET1) of 10% on a Basel 3
The Central Bank estimated that Bank of Ireland
would need to set aside an extra €360m cover potential loan losses on Irish
mortgages, an additional €486m to cover potential losses on business loans and
€547m on defaulted loans.
The Bank also raised Bank of Ireland’s
risk-weighted assets, usually loans adjusted for the likelihood of non-payment,
Permanent tsb, Ireland’s third domestic bank said that its capital position
remained above the minimum regulatory requirements based on the outcome of the
The Central Bank itself should
have released the results rather than leave each individual bank to try and
slant the assessments.
Bank of Ireland: Adequate capital but Central Bank review highlights upside risk
to provisions: Eamonn Hughes of Goodbody comments -- "Bank of Ireland has
released a statement this morning with the findings from the balance sheet assessment of the Central Bank. The bank is not required to generate any
additional capital following the assessment (it expects to maintain a buffer of capital
above the CET 10% level on a Basel III transition basis), but there is upside risk to the
level of provisions that the bank requires and also to risk weighted assets. There is also no update
on the position in relation to the preference shares.
Working through the pro-forma balance sheet assessment, the Central Bank’s
opinion for the purposes of the review is that the potential adjustment to ROI’s mortgage
impairments is c.€360m. The potential observation re specific impairment provisions for CRE,
SME and Corporate loans is €486m. Also, the potential updated treatment re Expected Loss
on defaulted assets is €547m, although the bank notes it has already substantially
incorporated this update in methodology to its Basel III projections including its pro-forma
fully implemented CET1 ratio of 8.6% at June 2013. Elsewhere, the potential
observations on RWAs on defaulted assets are €3.1bn, with a further €3.7bn on performing RWAs.
To put this in context, RWAs were €51bn in June 2013.
The Central Bank has not instructed BOI to make any adjustments to its
provisions and RWAs, but there is obviously now an upside risk to both. Whilst provisions
in H2 will close the gap a bit, the provisioning figures could negatively impact
our equity forecasts (every €300m is c.1c from TNAV, which we estimate at 25.5c in 2016, our valuation date). We will revert with details on our revised numbers in due course, but expect the stock to be weak this morning.
Banks: AIB indicates it is well capitalised after initial findings from CBI
balance sheet assessment; Eamonn Hughes and Colm Foley add - - "Press reports
over the weekend (and leading up to it) had indicated that the banks were likely
to be digesting the findings from the Central Bank’s Balance Sheet Assessment
over the weekend. AIB has this morning indicated that it has been advised of the
findings of the review which it will consider in the preparation of its year end
provisions and financial statements. The Balance Sheet Assessment includes an
evaluation of asset quality, risk weighted assets (RWAs) and capital as of June
Based on the initial assessment of the findings, AIB believes it continues to
be well capitalised and in excess of minimum regulatory requirements. Beyond
that, there is very little detail so it is difficult to gauge the order of
magnitude of any impact on provisions or RWAs."
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