Bank of Ireland pension deficit grows by €250m

The deficit in Bank of Ireland's defined benefit pension scheme widened by €250 million in January as a result of volatility in the global stock markets, the bank's chief financial officer Andrew Keating said on Monday.

This was in addition to the €740 million deficit in the scheme at the end of December, and essentially wiped out the gains made in reducing the deficit last year.

Mr Keating told analysts that the increase in the deficit was “probably less than people anticipated” and expressed confidence that the bank was on top of the issue.

“We are continuing to generate capital organically and we feel that’s going to be more than sufficient to deal with short-term volatility that may arise in pension deficit,” he added.

Overall, Bank of Ireland produced a strong set of full-year results yesterday, which provided the catalyst for its share price to rebound by 5.3 per cent in Dublin yesterday.

Negative sentiment

Its shares had been off by more than 25 per cent since the start of the year amid market volatility and negative sentiment towards banks in particular.

Bank of Ireland recorded an underlying pretax profit of €1.2 billion in 2015, an increase of 30 per cent on the previous year.

New lending rose by 40 per cent to €14.2 billion while the bank also reduced its non-performing loans by €3.8 billion last year.

Bank of Ireland increased its Core Equity Tier 1 capital ratio by 200 basis points to 11.3 per cent. It has increased by 500 basis points in the past two years.

The bank also signalled that it would resume its dividend payment to shareholders, having scrapped it in 2008. It plans to pay a dividend in respect of financial year 2016 with the initial payment to be made in the first half of 2017.

The bank said shareholders should “expect dividend payments to recommence at a modest level, prudently and progressively building, over time, towards a payout ratio of around 50 per cent of sustainable earnings”.

Commenting to the media following the publication of the results, Bank of Ireland's chief executive Richie Boucher said: "What we're trying to do is be prudent. The businesses are performing, we're generating capital; we need capital to invest in the business but we'll have capital above that, which we should return to shareholders."

Higher profit level

The bank said the higher profit level was due to higher net interest income and fees, along with reduced loan impairment charges. The result also reflected gains of €237 million, primarily relating to the rebalancing of its liquid asset portfolio. It also reflects a €30 million benefit from foreign exchange translation effects.

Bank of Ireland said it was the largest lender to the Irish economy with new lending of €6.9 billion in 2015. Its Irish mortgage business achieved new volumes of €1.4 billion in 2015 and £3.3 billion in the UK.

The bank said it achieved a 31 per cent share of new mortgage business in Ireland in the second half of 2015 and had a 27 per cent share of savings market.

In terms of larger businesses, the bank said it achieved new lending volumes of €1.8 billion in 2015 and continues to win a 50 per cent-plus share of banking relationships with new foreign direct investors in Ireland.

Its net interest margin – a key indicator of profitability – increased by 8 points to 2.19 per cent. Its impairment charge for the year almost halved to €296 million.