Bank of Ireland set aside a provision of £143 million (€172 million) for a potential compensation scheme stemming from a regulatory examination of the UK motor finance industry.
The charge drove a 4.2 per cent decline in the group’s pretax profit, to €1.86 billion, as its net interest income also dipped, by 3 per cent to €3.57 billion, as official interest rates declined, it said in a statement on Monday.
The net interest income was in line with company forecasts and was underpinned by 6 per cent growth in Irish loans and 6 per cent expansion in deposits.
Group chief executive Myles O’Grady also said that he expects to cut job numbers, from 11,188 full-time equivalents (FTEs), over the next three years as he seeks to reduce bank running costs to costs to below €2 billion. Total operating expenses edged 3 per cent higher last year to last year to €2.09 billion.
“I do expect FTEs to be lower out over three years,” Mr O’Grady told analysts on a call, adding that the group also aims to lower cost by reducing its number of third-party service providers and moving more technology engineering work in-house.
Looking ahead, Bank of Ireland expects net interest income to come in at greater than €3.25 billion this year, as interest rates continue to fall. However, it sees business income, which advanced 4 per cent to €764 million in 2024, rising by 5 per cent this year.
The UK motor finance market, in which Bank of Ireland has a 2 per cent share, was thrown into disarray last October when the court of appeals in London ruled that motor finance brokers must fully inform customers about the existence and size of commissions when taking out car loans, amid a wider review by the UK Financial Conduct Authority (FCA) into historical practices in the industry.
An attempt by UK chancellor Rachel Reeves to intervene in a landmark Supreme Court appeal was quashed by the court last week. Still, some lawyers have said the government could still lean on the FCA to limit the scope of any compensation scheme, as it seeks to ease the burden on businesses.
Bank of Ireland chief financial officer Mark Spain said the €172 million UK motor finance charge represents the group’s “best view” of the total related costs it will take to resolve the issue.
This is well below the €370 million consensus estimate of analysts, according to RBC Capital Markets analyst Benjamin Toms. His own base-case estimate is considerably higher, at €700 million.
Lloyds Banking Group, the largest player in the UK car finance market, disclosed last week that it had aside a further £700 million (€843 million) of provisions, on top of the £450 million already earmarked.
Bank of Ireland moved to increase annual cash distributions to shareholders by 6 per cent to €1.22 billion, its biggest ever, comprised of €630 million of dividends and €590 million being allocated for a share buyback. The total package equates to 80 per cent of its net profit for 2024 and 14 per cent of its market value as of the end of the year.
“In 2024, the group delivered a very strong performance,” said chief executive Myles O’Grady. “The Group enters 2025 with momentum across all business lines. Notwithstanding potential impacts to global trade, our business model continues to be highly capital generative for the coming year and beyond, supporting customer growth, business model investment and attractive shareholder returns.”
Bank of Ireland expects its deposits, loans, and assets under management, to grow by 3 per cent, 4 per cent and 7-8 per cent, respectively, per annum in the three years through 2027.
It also expects its return on tangible equity, a key measure of profit returns, to come in at more than 17 per cent by 2027.
Mr O’Grady signalled that the group plans to continued to make large cash distributions in the coming years as strong earnings deliver 2.5-2.7 percentage points of capital growth per annum.
The group sees its net interest income growing in 2026 and 2027 to reach €3.5 billion, buoyed by loan growth and the benefits of a rates-hedging financial contracts that ease the impact of falling official and market rates.
“Bank of Ireland’s model is highly capital generative, a feature which is set to persist in the coming years, enabling attractive returns,” said Diarmaid Sheridan, an analyst with the bank’s Davy unit.
Assets under management across Davy and New Ireland, which comprise the group’s wealth and insurance division, grew by 19 per cent to €54.8 billion. Net inflows from customers rose by €4 billion, or 9 per cent.
Mr O’Grady’s remuneration package rose by 28 per cent to €1.37 million, driven by €238,000 of company stock awarded under a fixed-share allowance at a time when performance-related bonuses above €20,000 are effectively banned.
