Post-crisis Bank of Ireland back in growth mode

Bank of Ireland chief executive Richie Boucher would never say as much but the bank is now very much in post-crisis mode. There are still legacy issues to be worked through in the years ahead, none more so than its mortgage arrears, but the "heavy lifting" has been done on addressing its capital structure and tackling the various fires that broke out in all of its business units post the financial crash in 2008.

Its recent financial services partnership with the AA in Britain and the purchase of a €200 million portfolio of performing commercial loans from Lloyds Banking Group are signals that it is back in growth mode. In a modest way.

Its interim results yesterday were a continuation of recent trends. Profit increased, its net interest margin nudged ahead, some provisions were released form its Irish home loans and its stock of mortgage arrears was reduced.

Lending is rising and costs are under control. All of its business units are in profit, a pay deal with staff has been agreed and the bank is on target to “derecognise” €1.3 billion in preference shares that were a legacy of its State bailout in 2009.

These shares are now owned by private investors and the expectation is that they will be removed from the picture by mid-2016, at which time the bank will be in a position to resume paying a dividend to shareholders.

Davy noted that the bank’s current strong capital levels assuage any market concerns about the redemption of the preference shares.

Paying a dividend would represent a significant psychological milestone for the bank.

The economic backdrop is also positive, with the bank forecasting GDP growth of 5.3 per cent in Ireland and 2.5 per cent in the UK. Unemployment is falling in both jurisdictions while house prices are rising.

There are still headwinds. Mortgage arrears levels might be half the industry average but they still weigh on its performance and will be around for years to come. As will its loss-making tracker mortgages.

Competition for new mortgages in Ireland has stiffened of late while the Central Bank’s recently introduced limits on the size of home loans that can be given out has stunted lending growth, at least for the time being.

Given its sizeable exposure to the UK, a British exit from the European Union would be unhelpful but Boucher was keen to stress yesterday that this business is essentially ringfenced financially from the rest of the group.

Overall, for Bank of Ireland, the signals are positive.