Bank of Ireland’s pension deficit weighs on capital reserves
In an update, the bank said: “Economic developments in our core markets of Ireland and the UK remained positive notwithstanding ongoing uncertainties following the UK’s decision to leave the EU.” New lending in the first three months included a sharp 30% increase in mortgage home loans from a year earlier.
And the quality of its €78bn loan books had improved in the first three months but was “in line with our expectations”.
Its capital reserves ratio slipped to 12% at the end of March from 12.3% at the end of December, as the bank accounted for losses in its defined benefit pension scheme. Net interest margin—a key measure of profitability—rose slightly to 2.3%, as the bank maintained its investment programme in technology.
Following the UK’s referendum last June, shares in the bank were hard hit because of its large operations with the British post office but subsequently recovered some ground. However, there are new concerns by experts the UK economy will slow after the slump in the value of sterling pushed up consumer prices and squeezed household spending.
The shares fell yesterday to 23.7 cent. The lender, which is 14% owned by the Government, also plans to start paying its first dividends since the financial crash next year. It had unexpectedly opted earlier this year to delay resuming the pay-outs.
Davy Stockbrokers said Bank of Ireland had demonstrated “good underlying progression on net interest margin and new lending activity” but “the defined benefit pension deficit remains an unfortunate source of volatility”.
Eamonn Hughes, analyst at Goodbody Stockbrokers, said it maintained its price target at 28 cent. The broker projects Bank of Ireland’s new business lending in the UK will be slightly lower this year.
Yesterday’s shareholders’ meeting was the last under chief executive Richie Boucher, who announced his decision to step down last month.
Meanwhile, Ulster Bank in the Republic said it added €200m to new mortgage lending in the last quarter, an increase of 25% from a year earlier. It had an operating profit of €32m in the first three months, down from €78m a year earlier.
The first quarter profits in 2016 had however been boosted by loan sales. Its parent, Royal Bank of Scotland reported a quarterly profit for the first time in more than a year as it stepped up the pace of cost-cutting.
Excluding conduct charges and restructuring costs, operating profit in the three months through March topped estimates as the bank indicated it’s on track to lower operating expenses by at least £750m (€887m) this year.
RBS is working to lower costs by cutting jobs and branches while trying to maintain revenue as he targets sustainable profit in 2018 and the resumption of dividends.
The bank, which has suffered more than £58bn of losses since its UK taxpayer-funded bailout in 2008 and remains more than 70%-owned by the UK government, said 2017 should be its final year of significant one-time legacy costs.
RBS shares were up 4.5%.
