Bank of Ireland profit falls on higher impairments

Ireland's biggest lender saw underlying profit fall by about 20 per cent to €758m

Bank of Ireland's profits were lower as it took a €215m impairment charge against bad loans. Reuters

Bank of Ireland's shares fell to a four-month low after profits fell, impairment charges rose more than expected and the lender’s dividend disappointed investors.

Ireland’s biggest lender posted an underlying profit for 2019 of €758 million (Dh3 billion), down nearly a fifth from a year ago, the company said in Dublin on Monday. The drop was due in part to an impairment charge of €215m. The lender will pay a dividend of 17.5 cents per share, lower than analyst expectations.

“The environment in which the group operates has changed materially and is more challenging,” Bank of Ireland said.

The company’s shares dropped as much as 6.6 per cent, and traded 3.2 per cent down to €3.85 at 11:56am in Dublin, valuing the company at €4.1bn. Rival AIB Group dropped 2 per cent, and bank shares across Europe declined, with nations struggling to keep the coronavirus epidemic from spreading further beyond China.

The bank cut its target for return on tangible equity — a key measure of profitability — from 10 per cent in 2021 to about 8 per cent. That was linked to the lower-for-longer interest rate environment and concern around Brexit hitting lending to small businesses, chief executive Francesca McDonagh said in a phone interview.

“Banking in this environment is a difficult business,” Davy analysts Diarmaid Sheridan and Stephen Lyons said in a research note. Davy said it’s likely to lower its 2020 forecast earnings for the bank by about 5 per cent.

A “more normalised lending environment” and “losses on a small number of large exposures” across a number of different sectors caused the impairment charge, Ms McDonagh said.

“There is no indication of any deterioration more broadly in our lending.”

Increasing ROTE to 10 per cent remains a “longer term” target, she said.

The bank cut its ratio of bad loans to 4.4 per cent, while operating costs fell 4 per cent to forecast €1.79bn. The lender aims to reduce costs to €1.65bn by 2021.

The bank will seek to offload a portfolio of soured mortgages at some point, chief financial officer Myles O’Grady told reporters in Dublin. The lender will either sell or securitise the loans, he added.

The bank also reported a net interest margin of 2.14 per cent and a target of 2.05 per cent for 2020, as well as net lending growth of €2bn. The bank has a 24 per cent share of the Irish mortgage market, it said.