Bank of Ireland loans remain resilient despite longer lockdown

Level of distress on mortgage books has so far turned out to be much lower than feared

Bank of Ireland has said that its level of problem loans remained unchanged during the first three months of the year, even as Covid-19 restrictions stayed in place for longer than expected.

The bank’s non-performing loans ratio stood at 5.7 per cent at the end of March, unchanged from the close of 2020, it said in a trading update on Friday.

“The group experienced no notable change in loan losses since December 2020,” the bank said, adding that it will take a fresh look at the macroeconomic assumptions that feed into its loan-loss provisioning by the time it reports first-half figures.

Of the about 100,000 borrowers that availed of payment holidays from the bank at the height of the coronavirus crisis last year, only 4 per cent remained outstanding at the end of March. Some 96 per cent of concluded payment breaks have returned to pre-Covid-19 terms, while the remaining 4 per cent have needed further forbearance measures.


The level of distress on Irish mortgage books has so far turned out to be much lower than feared at the outset of the pandemic, with home-loan portfolios helped by the fact that many of the lower paid workers most affected by closures in sections of the economy – including leisure and non-essential retail – are less likely to have mortgages. Government supports for salaries and Covid-19 unemployment benefits have also helped.

Ulster Bank, which is planning to exit the Irish market in the coming years, said on Thursday it had released some of its pandemic-related loan-loss provisions for a second straight quarter in the three months through March.

Still, non-performing loans are expected to spike across the banks later this year, particularly in the small-business portfolios.

Loan book

The size of Bank of Ireland's loan book remained unchanged at €76.7 billion on a constant currency basis in the first quarter, with a dip in net lending in its Retail Ireland and Retail UK units offset by growth in corporate lending.

“New mortgage lending in Ireland of €500 million in the three months to end-March remained robust notwithstanding ongoing Covid-19 restrictions on normal housing market activities and continued competitive dynamics in the mortgage market,” it said.

The group’s regulatory common equity Tier 1 capital ratio, a keenly-followed measure of a lender’s ability to absorb shock losses, was 14.7 per cent at the end of March, 4.9 per cent above its minimum regulatory requirements.

The bank said the “strong capital position” provides it with “sufficient capital headroom” to complete the recently announced plan to acquire KBC Bank Ireland’s almost €9 billion of performing mortgages as the Belgian-owned lender joins Ulster Bank in retreating from the Republic.

Bank of Ireland highlighted that it also has “a proven track record of executing balance sheet optimisation initiatives which could generate further capital if required in the future”. The bank is known to be planning to sell a portfolio of non-performing mortgages, most likely by way of a bond market refinancing, which may release capital tied against the loans.

The bank said its net interest income was “stronger than expectations with performance stable” in the three months to end-March compared with the same period in 2020.

“This reflects higher corporate lending volumes, higher UK mortgage margins and the increased application of negative interest rates on certain deposits,” it said.

Its net interest margin, the difference between the average rates at which it funds itself and lends on to customers, was also unchanged, at 2 per cent, for the whole of last year.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times