Bank of Ireland raises net interest income forecast amid ECB hikes

Bank of Ireland raised its net interest income forecast for the second half of the year and now expects it to be 5 per cent higher than the €1.8 billion posted for first half, after the European Central Bank (ECB) continued to hike rates since it published its interim results.

The bank had previously forecast that its net interest income for the final six months of the year would be “modestly higher” than the first half.

The ECB has hiked its main lending rate by a total of 0.5 percentage points across two meetings since early August. However, it kept the rate unchanged at 4.5 per cent after a meeting of its governing council concluded on Thursday.

Bank of Ireland, led by chief executive Myles O’Grady, said in a trading statement on Thursday that second-half guidance for other business income – including fees and commissions and share of associates and joint ventures – remains unchanged, with it expected to be broadly in line with the €361 million out-turn for the first six months of the year.

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Growth in other business income was up 11 per cent on the year, primarily as a result of increased income from higher customer activity and as the bank benefited from the June 2022 acquisition of Davy.

The group also confirmed that it expects to pay a bank levy of about €90 million next year, up from €25 million in 2023, after the Government moved to more than double the industry charge to €200 million by changing the basis of calculation.

Net organic loan growth amounted to just €100 million over the first nine months of the year. Still, its acquisition of €8 billion of loans from KBC Bank Ireland, as the latter exits the market, and a net €600 million boost from foreign exchange and other movements saw its total loan book increase by €8.7 billion to €80.7 billion.

The bank said its non-performing loans ratio was unchanged at 3.6 per cent compared with the end of December.

“While asset quality remains robust, we are mindful of the challenges facing our customers from the higher interest rate environment and continue to support them through a balanced approach to pricing,” said Mr O’Grady. “Our commercial actions and strategic execution are delivering continued strong organic capital generation and give us confidence in the outlook for the group for the remainder of 2023 and beyond.”

Goodbody Stockbrokers analyst John Cronin said the updated net interest income guidance points to a full-year outcome of €3.7 billion, which is bang in line with market expectations.

While Mr Cronin said that “some market participants may be disappointed that the full-year net interest income upgrade isn’t stronger”, he suggested that the bank forecast “has been cautiously struck”.