Bank of Ireland hikes interest income forecast amid rising rates

Lender expected to increase mortgage rates soon

Bank of Ireland has upgraded its full-year net interest income growth forecast from 6 to 7 per cent as the European Central Bank (ECB) continues to increase rates more aggressively than previously expected.

The largest Irish bank had previously forecast that its net interest income would only be “modestly higher” this year than in 2021.

Interest income growth is being driven, so far, by the bank no longer being charged negative rates by the ECB for excess deposits stored with the organisation, as well as the bank availing of ultra-cheap loans from the Frankfurt-based institution.

However, analysts expect that Bank of Ireland will soon start to increase its mortgage rates, after the ECB moved its main lending rate from zero to 2 per cent in less than four months.


Goodbody Stockbrokers analyst John Cronin said in a note to clients that he expects consensus expectations for Bank of Ireland’s full-year underlying pretax profit to rise by about 4 per cent. That points to a figure of about €1.08 billion.

AIB, which is the only surviving Irish bank to increase non-tracker rates since the ECB began to raise its rates, also recently raised its full-year interest income guidance.

“Overall business momentum is positive,” said Bank of Ireland’s interim chief executive Gavin Kelly. “The strength of our business model means we are firmly on track to deliver sustainable [return on tangible equity] of greater than 10 per cent in the near term.”

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New current and deposit account openings at Bank of Ireland rose 90 per cent in the first nine months of the year to 245,000, as Ulster Bank and KBC Bank Ireland prepare to leave the market. Bank of Ireland is taking over KBC’s €9 billion of Irish performing loans and its deposits.

KBC said in a separate statement on Wednesday that its deposits at the Irish unit dropped 43 per cent on the year to €3 billion at the end of September as customers moved business elsewhere.

Bank of Ireland’s customer deposits grew by €3.9 billion over the nine months to €96.7 billion, with a €7.8 billion jump in deposits in the Retail Ireland division partly offset by a €4.2 billion reduction in the UK.

“The Irish economy continued to perform well, notwithstanding an increasingly uncertain environment and increasing inflationary pressures. We’re keenly aware of the impact of higher inflation on our customers, who we will continue to support over a challenging winter. Despite this, our asset quality remains strong and we have taken steps to materially reduce our [non-performing loan] ratio.”

The bank revealed this week that it has agreed deals to sell €1.4 billion of problem Irish and UK loans, mainly made up of mortgages. This would see its non-performing loans ratio fall to 3.7 per cent, from about 5.4 per cent.

Customer loan volumes fell by €2.8 billion over the nine months to €73.5 billion, driven by a €3 billion reduction in UK loans amid a strategy shift into “value over volume” mortgage lending in that market. Net lending in Retail Ireland expanded by €1.9 billion.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times