Bank of Ireland’s profits shrink

As the only domestic lender to avoid nationalisation after an unprecedented property bubble burst, Bank of Ireland’s success in attracting private capital has helped fuel a rally in Irish sovereign debt prices.

But the company, which along with Allied Irish Banks (AIB) will form the core of a radically pared-down domestic banking industry, faces a challenge in growing its top line as funding conditions remain tough and Irish consumer demand continues to spiral down.

The cost of the government guarantee of Bank of Ireland’s liabilities rose 58 per cent from a year ago to 239 million euros in the half.

Excluding that, a higher cost of wholesale funding and increased cost of deposits cut net interest income 14 per cent.

“The capital question has been dealt with but how do they increase profitability with the funding conditions the way they are, and lack of demand in the Irish economy?” said Oliver Gilvarry of Dolmen Securities in Dublin.

The group expects its net interest margin, the gap between what a bank charges for loans and what it pays to borrow, to bottom out this year as asset sales and wind-downs reduce its dependence on expensive wholesale funding.

Bank of Ireland’s funding difficulties have been shrugged off by North American investors who paid 1.1 billion euros for a 35 per cent stake in it last month.