Ireland bank looks to have turned corner

The only Irish bank to avoid nationalisation after an unprecedented property crash, Bank of Ireland said yesterday low interest rates would make it harder to achieve its goal for a net interest margin – the gap between what it charges for loans and what it pays to borrow – of 2 per cent in 2014.

But chief executive Richie Boucher was optimistic of progress after the cost of drawing in deposits and an expensive government guarantee of its liabilities trimmed the margin by 13 percentage points to 1.33 per cent in 2011.

After successfully attracting private capital to meet strict new central bank targets last year, Bank of Ireland is focused on shrinking its cost base, lowering its funding costs and weaning itself off the expensive state guarantee.

By end-December, it had fully exited the costly emergency liquidity assistance (ELA) offered by Ireland’s central bank, reduced its dependency on European Central Bank funding to 23 billion euros from 33 billion a year earlier and cut its staff by 7 per cent year-on-year.

“These results suggest the bank reached a trough in its pre-provision earnings in 2011 and (earnings) are likely to experience improving trends as the bank has exited the more costly ELA borrowing, can look to terminate its own issued bonds programme and maintains a tight focus on costs,” Stephen Lyons, credit analyst at Davy Stockbrokers said.

Operating profit before provisions dropped to 411 million euros in 2011 on high funding costs, a limited appetite for new credit and following the sale of higher-earning assets.

However, the underlying pre-tax loss more than halved to 1.5 billion euros after the big hit taken in 2010 by transferring loans to Ireland’s state-run ‘bad bank’.

While the bank said it expected impairments to reduce over time, it saw them tick up a touch to 1.94 billion euros last year.