BOI back in profit to the tune of €399m

Bank of Ireland is once again "profitable and generating capital", after reporting pre-tax profits of some €399 million in the six months to June 30th 2014.

"Higher net interest income, lower ELG fees and significantly reduced loan impairment charges have all contributed to this result," said chief executive Richie Boucher, adding that it also reflects additional gains amounting to € 140 million, relating primarily to impairment reversals on NAMA subordinated debt (€ 70 million) and gains the bank has crystallised from the sale of certain Irish sovereign bonds.

On an underlying basis, the bank posted profits of €327 million, up from a loss of €395 million in the same period in 2013. On a pre-tax basis, profits stood at €399 million, up from a loss of €516 million in H1 2013. The bank’s Irish retail banking unit reported a loss of €28 million, substantially down on the loss of €339 million in 2013.

“In the first half of 2014 we have continued to make good progress against our strategic objectives. We have returned to profitability and are generating capital,” Mr Boucher said.

Minister for Finance Michael Noonan welcomed the results.

“As a 14 per cent shareholder in Bank of Ireland, this is good news for the Irish taxpayer. The investment in Bank of Ireland shows that the State can make a profitable return on investments in the banks. The State invested € 4.8 billion in Bank of Ireland in 2009. To date, c€ 6 billion has been returned to the State through sales of investments, interest coupons and guarantee fees. In addition, the State retains a 14 per cent shareholding in Bank of Ireland that is currently valued at c€ 1.2 billion.”

Net interest income at the bank rose to €1,161 million, up from €968 million in 2013. The bank earned an average net interest margin of 2.05 per cent in the first half of 2014, which was slightly higher than the margin for the second half of 2013. According to the bank, this reflects the impact of a further reduction in funding costs and the positive impact of new lending volumes.

“From here, further growth in our net interest margin will reflect the level of gross new lending, deposit pricing and future official interest rate increases.”

The bank’s impairment charge on loans reduced by € 336 million or more than 40 per cent in the first half of 2014, relative to the corresponding period in 2013. “Our defaulted loan volumes have continued to fall, reducing by a further c.€ 0.4 billion since December 2013. These reductions reflect our efforts to appropriately and sustainably support viable customers who are in financial difficulty, the improvement in the economic environment and the recovery in property markets.”

The bank increased its Tier 1 capital ratio to 13.2 per cent at 30 June 2014, and strengthened its total capital ratio to 16.4 per cent.

Overall, net loans and advances to customers were € 83.4 billion at 30 June 2014, a net reduction of € 1.1 billion since 31 December 2013, as redemptions outstripped our new lending of € 4.3 billion during the period.

With regards to the bank’s tracker book, tracker mortages have fallen by €1.7 billion over the past eighteen months, and by €0.7 billion in the first half of the year.

The bank’s life assurance business, New Ireland, “performed solidly” in H1, and saw new business levels rise by 10 per cent on 2013.

In the UK, a “key priority” for the bank is to grow its mortgage book.

Looking ahead, Mr Boucher said that the macroeconomic outlook is more favourable in both Ireland and the UK.

“ We have the capital, liquidity and infrastructure to support our businesses and our growthambitions for them. The strength of and the growing momentum in our businesses gives us confidence in the group’s prospects and in our ability to deliver attractive and sustainable returns to our shareholders”.

Speaking to reporters this morning, Richie Boucher says he has no plans to quit the job he has held for five years. Mr Boucher will undergo an operation within days to have part of his colon removed after an early stage cancerous growth was detected. He will be in hospital for about a week, and will then spend two to three weeks recuperating.

“I’m pretty invigorated. I really believe in the bank and that we can make progress from here,” he said. “I’m enjoying it”.

(Additional reporting Bloomberg)