The Bank of Ireland has raised its earnings projections for the full year, following a moderation of its predictions regarding the speed at which the European Central Bank (ECB) will reduce interest rates this year, coupled with the continued sluggishness of its own depositors in transferring funds to products with higher rates.
Its anticipated net interest income for the year is now set at a drop of 2.7 per cent, or €3.55 billion. This prediction considers factors such as interest rates, the momentum of their business operations, and funding expenses. This was revealed in the bank’s mid-year financial report on Wednesday. Its earlier forecast was a downturn of as much as 6 per cent.
Previously, the Bank of Ireland’s prediction relied upon the ECB’s deposit rate being reduced from 4 per cent to 2.75 per cent throughout 2024. However, current financial market projections suggest the year will end with a rate around 3.25 per cent.
In the first half of the year, the bank’s customers only transferred €1.3 billion of their deposits to accounts with higher interest rates, which could offer as much as 3 per cent interest annually. Most customer resources stay in on-demand or current accounts, which yield minimal or no income.
Held in the Central Bank, the Bank of Ireland has a surplus of €28 billion in cash, the majority of which accumulates the official ECB rate, currently at 3.75 per cent.
Moreover, due to a strong domestic economy, the bank adjusted its expectations for bad debt charges down this year. Simultaneously, it forecasts regulatory charges to be between €125 million and €130 million, which is lower than the range of €160 million – €165 million projected in March.
The bank has revised upward its return on tangible equity (RoTE) – a primary measure of a business’s profitability in relation to the equity held by shareholders – to 17.3 per cent for this year, compared to its earlier projected outcome of over 15 per cent.
The first half of the year 2024 witnessed an impressive financial performance from the group, accruing a pre-tax profit of €1.1 billion, marking an elevation of 5 per cent, according to Myles O’Grady, the chief executive. This commendable performance was sustained by expansion in our wealth assets and loan book, increased income, and a strong capital generation, thus supporting an upward revision of the annual earnings estimation.
With this promising financial projection, Bank of Ireland has initiated interim dividends. Previously, since the reinstatement of dividends post the financial crisis in 2018, payments were made strictly on an annual basis. The payment of interim dividends starts at 35 cents per share, which is equivalent to a sum of €352 million.
Net interest income in the first half impressively climbed to €1.83 billion, an upward shift from €1.8 billion, recorded during the corresponding period of 2023 while the ECB continued to hike the official rates.
Meanwhile, a significantly less impairment charge of €49 million was recorded by the bank, which is under one-third of the sum initially projected for the troubled loans in the previous year. Initial market expectation, as per Dudley Shanley, a Goodbody Stockbrokers analyst, was that Bank of Ireland would make a provision of €124 million for problem loans for the first half of the year.
The group’s peers, AIB and PSTB, are expected to release their financial results in the ensuing days.