A commitment to resume paying a delayed dividend, and a reassurance over how its key operations in Britain will weather Brexit, helped boost the shares of Bank of Ireland.
Analysts hailed the lender’s progress and its plan to set aside €70m — equivalent to a fifth of its first-half net profits — as it bolsters its pledge to resume a dividend payout early next year based on full-year profits for 2017.
The bank — which is 14% owned by the Government —had in the past cited the uncertainty of Brexit for it putting the brakes on making its first post-crisis payment to shareholders at a time when rival AIB had resumed paying a dividend as part of the Government’s preparations to sell a significant stake in AIB.
Net profit of €371m in the six months to the end of June fell from €439m posted a year earlier only because of one-off disposal gains, and analysts were satisfied progress was being made. Net interest income nonetheless rose only slightly, by 1.4%, to €1.15bn from a year earlier.
Its net interest margin — a key measure of profitability — rose to 2.32% from 2.11% over the same period. And its capital ratio of 12.5%, calculated after accounting for the dividend payment, was up from 12.3% at the end of last year. At €490m, the deficit on its defined benefit pension, which has hovered over the bank in recent years, was little changed.
Even though the lender emerged from the financial crisis as the much stronger of the three major bailed-out Irish lenders, and is the largest lender across Ireland, its shares have been eclipsed by AIB’s shares sale and by Brexit. Bank of Ireland’s tie-up with the British Post Office has weighed since the Brexit vote over a year ago.
Its shares rose at one stage by 1%, have, however, slid by over 21% since the Brexit vote. It is valued at €7.52bn, which compares with AIB’s €13.4bn.
Bank of Ireland is the most exposed Irish lender to any adverse Brexit effects, including the slump in sterling and any slowdown of the UK economy. Its €23bn in UK mortgages accounts for 29% of its total €76.9bn book in Ireland and Britain, and is only slightly smaller than the value of outstanding mortgages in Ireland.
But despite the uncertainty of Brexit, the bank’s business model was “robust” and “flexible”, it said.
In Ireland, the bank said that non-performing loans on owner occupied mortgages at the end of June amounted €1.48bn, or 7% of that loan book.
That’s down slightly from the €1.6bn tally, or 8%, that was deemed non-performing at the end of last year. Mortgage restructures for distressed home owners were done on “a sustainable basis”, it said.
In Ireland, the level of non-performing loans in buy-to-let, or investment mortgages, also fell to €1.4bn but remains at an elevated level of 33% of the Irish buy-to-let loan book.
The results are the last before former HSBC banker Francesca McDonagh succeeds CEO Bank of Ireland veteran Richie Boucher. who steps down on October 1.
Merrion Capital senior analyst Darren McKinley said the broker looked “favourably” on the results “as the group has continued to improve the quality of their loan book, demonstrated a disciplined approach to new lending while continuing to grow market share in key growth areas within Ireland and have reaffirmed their commitment to paying a dividend in 2018”.