Bank of Ireland makes profit of more than €1bn in first half of the year

Net interest income surges to €1.8bn as bank gets 3.75% rate on surplus deposits lodged with central bank

Bank of Ireland’s underlying pretax profits soared 138 per cent to €1.04 billion, beating market expectations, as the company earned large amounts on surplus cash stored with the Central Bank of Ireland and said customers had been slow to move savings to its gradually improving interest-earning deposit products.

The pretax profit was 13 per cent ahead of consensus expectations among analysts, according to Goodbody analyst John Cronin. Net interest income soared 68 per cent in the first six months of the year to €1.8 billion, with the figure helped by the completion of the purchase of KBC Bank Ireland loans in February.

Bank of Ireland and other Irish banks have lagged many European peers in raising mortgage rates since the European Central Bank (ECB) started hiking rates last July, as they are more reliant on cheap household deposits to fund loans.

The bank’s interest income is being driven by money earned on excess deposits stored with the Central Bank. Bank of Ireland had €29 billion on deposit with the Central Bank as of the end of June, which is now earning 3.75 per cent interest, following the ECB’s latest rates move last week. The ECB’s deposit rate was in negative territory, at minus 0.5 per cent, before it started a cycle of aggressive rate moves last July to tackle high inflation.


Irish lenders have slowly improved deposit offerings so far this year to customers willing to put savings in accounts for an agreed period of time – with Bank of Ireland last week launching a two-year term account earning 2 per cent a year.

“As we have come through a protracted period of low and negative rates, customers have been slow to move their savings from essentially non-interest-bearing to interest-bearing rates. I expect that to change,” Bank of Ireland chief executive Myles O’Grady told reporters at a press briefing. “We expect that customers will begin to transfer their savings and I would encourage that.”

The ECB has moved its main lending rate from zero to 4.25 per cent in the past year. Since then, Bank of Ireland has increased its fixed rates by 1.25-1.75 per cent, passed on all the official increases to tracker mortgage accounts and kept its already-high standard variable rate unchanged.

Mr O’Grady reiterated that the bank needs to strike a “balance” when raising mortgage and savings rates, as moving too aggressively on loans could trigger affordability issues for borrowers.

Bank of Ireland set aside €158 million of provisions to deal with potential loan losses. Non-performing loans edged up to 3.6 per cent at the end of June from 3.4 per cent three months earlier, with executives attributing the uptick to a slight weakening of the group’s UK mortgage book, even if there has not yet been an increase in arrears cases.

The Irish home loans book “is proving to be quite resilient”, the chief executive said, noting that 60 per cent of the mortgages have been written since the Central Bank introduced strict lending rules in 2015 and that 73 per cent of the loans are on fixed rates until at least 2025.

Bank of Ireland acquired €8 billion of loans from KBC Bank Ireland in February as the Belgian-owned lender retreated from the Irish market.

However, the underlying growth of the group’s loan book was negligible as expansion of the Irish portfolio was offset by a reduction in new UK retail and international corporate and property lending.

The bank said that its net interest income for the second half of the year “is expected to be modestly higher” than the first six months. Other business income, including fees and commissions, is forecast to be broadly in-line with the first half’s out-turn of €350 million, which represented 28 per cent growth year-on-year and was largely driven by the acquisition of stockbroking and wealth management firm Davy last summer.

“These results are underpinned by the strategic decisions and investments we’ve made in recent years, supported by a resilient economy and a favourable rate environment,” said Mr O’Grady. “We are mindful of the challenges posed by the inflationary environment and are supporting our customers as they navigate them.”

Goodbody’s Mr Cronin said he expects the consensus full-year underlying pretax profit forecast for Bank of Ireland to rise by about 10 per cent to €2.16 billion on the back of the bank’s interim update.

Shares in Bank of Ireland were up about 3 per cent in late afternoon trading, with the results coming three days after rival AIB published better-than-expected interim figures.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times