Business

Bank of Ireland raises interest income forecast as it expects slower pace of rate cuts from ECB

The bank’s market share of new mortgage lending was 40 per cent for the first two months of the year

Myles O’Grady, chief executive of Bank of Ireland. Photograph: Nick Bradshaw

Joe Brennan
Tue Apr 30 2024 - 07:50

Bank of Ireland said it now expects its full-year net interest income to decline by only 3-4 per cent its exit level last year, compared with its previous forecast for a 5-6 per cent drop, as it sees a slower pace of rate cuts from the European Central Bank (ECB).

Net interest income was running at an annualised rate of €3.65 billion at the end of 2023.

The lender had previously assumed the ECB would cut its key deposit rate from 4 per cent to 2.75 per cent by the end of the year. It now expects rates across the euro zone, UK and US to be a quarter of a percentage point higher than previously expected at the end of the year.

The bank, led by chief executive Myles O’Grady, said in a trading update on Tuesday that net interest income had performed in line with expectations and its level for the final quarter of last year.

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“This reflects positive lending momentum, combined with continued strong commercial pricing discipline, partially offset by lower deposit volumes and modestly higher deposit funding costs,” it said.

Still, shares in Bank of Ireland gleaned little support from the update, and were trading just 0.3 per cent higher in midafternoon trading.

“Overall, while it is not a surprise given the increase in interest rate expectations in the year to date, the increased net interest income guidance should be welcomed by the market,” said Goodbody Stockbrokers analyst Dudley Shanley. “Although we note that the stock is up almost 14 per cent since the 2023 results were issued [in late February].”

Customer loan balances rose to €80.7 billion at the end of March from €79.7 billion at end December, as new lending increased by €700 million and the book also benefited from €400 million of positive currency conversions.

The bank’s market share of new mortgage lending was 40 per cent for the first two months of the year. It grew its slice of activity to 41 per cent last year from 28 per cent in 2022 as the domestic banks won back market share from nonbank lenders such as ICS Mortgages and Finance Ireland as their funding was squeezed amid rising market interest rates.

The bank had an advantage, with most of their mortgages funded by cheap customer deposits.

There were also signs that the group’s UK loan book is beginning to grow again, after a number of years of contraction under a strategy to get out of mainstream mortgages and into more bespoke loans, such as equity release and higher-value home loans, and exit personal lending. Its retail UK new lending was £100 million (€117 million) higher in the first quarter.

There was also a slight uptick in its non-performing loans ratio, to 3.2 per cent from 3.1 per cent in December.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times

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