Bank of Ireland Says Net Interest Margin Faces ‘Headwinds’
By Joe Brennan - Nov 11, 2011 7:51 AM ET Bloomberg
Bank of Ireland Plc, the country’s biggest lender by assets, said that while it expects its net interest margin to stabilize in the second half of the year, it faces “some headwinds” in a period of low rates.
There was a “significant reduction” in its reliance on central bank funding since June as deposits rose by 2 billion euros ($2.7 billion) to 67 billion euros in the four months through October, the Dublin-based company said in a statement today. The bank’s loan-to-deposit ratio fell to 153 percent from 164 percent in June, helped by loan sales.
Bank of Ireland stands out among the country’s six largest lenders in escaping state control after the government last month sold a 34.9 percent stake to five investors, including Toronto-based Fairfax Financial Holdings Ltd. and WL Ross & Co., a New York-based investment firm. The bank was ordered to raise 5.2 billion euros of capital after stress tests in March.
Bank of Ireland Chief Financial Officer John O’Donovan said on Aug. 10 that the lender’s net interest margin, the difference between its funding costs and its lending rate, to “trough” this year, after narrowing to 1.33 percentage points in the first half from 1.41 percent in the year-earlier period.
While the lender said June 8 it plans to rebuild its net interest margin to “in excess of 200 basis points” by the end of 2014, it said today “further margin recovery will face some headwinds in a more prolonged period of low interest rates.”
ECB Reliance Falls
Irish banks are under government pressure to pass on a 25 basis point cut in the European Central Bank’s benchmark rate last week.
Bank of Ireland’s decreased monetary authority funding reliance reflected a trend from the Dublin-based central bank figures published today. While Irish-based lenders’ ECB borrowings rose to 100.9 billion euros on Oct. 28 from 100.4 billion at the end of the previous month, their drawings on Irish central bank emergency funding may have fallen as much as 5.6 billion euros to 47.7 billion.
Asset quality remains “broadly in line with our expectations” as “some deterioration” in Irish home loan arrears in August and September were offset by improvement the bank’s unsecured consumer, U.K. mortgage and corporate banking books, the company said.
“It continues to be our expectation that our total impairment charges have peaked and will reduce, however, the pace of reduction will be particularly dependent on the future performance of our Irish residential mortgage book and commercial real-estate markets,” it said.
Bank of Ireland rose 4.7 percent to 9 euro cents at 12:50 p.m. in Dublin trading.
To contact the reporter on this story: Joe Brennan in Dublin at jbrennan29@bloomberg.net
To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net
