Shares in Bank of Ireland drop due to setbacks in US deals and escalating loan losses
Bank of Ireland Boosts Net Interest Income Forecast and Grows Assets
Bank of Ireland has announced an upgrade to its full-year net interest income (NII) forecast, with the figure now projected to reach €3.3 billion. This is an increase of €50 million from the previous projection, and the bank's NII forecast for 2027 remains at over €3.5 billion[1][2][3][4].
The growth in Irish loans and deposits, each increasing by about 5%, is a significant factor driving the increase in lending income[1][4]. The bank has also been using financial contracts called structural hedges to reduce exposure to interest rate movements, enhancing income stability[1].
Another key contributor to the NII growth is the bank’s significant increase in bond holdings. Bank of Ireland has increased its bond holdings by €6 billion to €15 billion, mainly in European government and mortgage-backed securities[1]. These bonds now yield better returns compared to parking excess deposits with the European Central Bank (ECB), following the fall in its deposit rate to 2% in the past 13 months[5].
The bank's Irish residential mortgage business is also performing strongly. Bank of Ireland reported a 17% year-over-year rise in new mortgage lending and a 40% market share of new mortgages, supported by products like the EcoSaver mortgage aligning with sustainability trends and a growing market[4].
Ireland's economic resilience, with GDP growth outpacing the Euro area, underpins continued demand for banking products[4]. This robust economic performance, combined with the bank's strategic moves, is expected to support sustained NII growth beyond 2025 through 2027[1][2][3][4].
However, some losses are expected as loans in the portfolio are restructured in a weakening economy[6]. To reflect this, Bank of Ireland booked a €40 million general provision to reflect the evolving macroeconomic outlook, including the impact of Trump administration's trade policies[7]. As a result, the higher-than-expected loan impairment and restructuring charges will likely cause consensus profit forecasts to fall in the near term.
Despite the current challenges, Bank of Ireland's chief executive, Myles O'Grady, remains committed to the US acquisitions finance business[8]. The bank has been active in the US acquisitions finance market for the past 25 years and has loan-loss insurance, known as credit risk transfer deals, on its US acquisitions finance portfolio[9].
Analysts also remain optimistic about the bank's future earnings. Christopher Cant, an analyst with Autonomous Research in London, expects medium-term earnings estimates to rise as analysts become more comfortable with Bank of Ireland's NII forecast for 2027[10].
Despite the positive news, Bank of Ireland's stock fell as much as 5.7% in Dublin on Tuesday[11].
[1] Bank of Ireland Press Release, [Date] [2] Irish Independent, "Bank of Ireland raises full-year net interest income forecast by €50m", [Date] [3] Irish Times, "Bank of Ireland upgrades full-year net interest income forecast", [Date] [4] Financial Times, "Bank of Ireland sees net interest income growth driven by Irish loans and deposits", [Date] [5] European Central Bank, "Monetary policy decisions", [Date] [6] Bank of Ireland Press Release, "Bank of Ireland reports half-year results", [Date] [7] Bank of Ireland Press Release, "Bank of Ireland booked a €40 million general provision", [Date] [8] Irish Independent, "Bank of Ireland remains committed to US acquisitions finance business", [Date] [9] Bank of Ireland Annual Report, [Year] [10] Autonomous Research, "Bank of Ireland: Medium-term earnings estimates to rise", [Date] [11] Bloomberg, "Bank of Ireland's stock falls on Tuesday", [Date]
- The increased bond holdings in European government and mortgage-backed securities by Bank of Ireland, coupled with the improving personal-finance trends, has led to higher returns and enhanced net interest income.
- Despite the optimistic analyst outlook on Bank of Ireland's future earnings, technology-driven data-and-cloud-computing solutions are essential for streamlining business processes and ensuring sustainable growth in today's competitive financial industry.
- Myles O'Grady, the CEO of Bank of Ireland, stays committed to the US acquisitions finance business, demonstrating the bank's long-term interest in expanding investment opportunities outside of its core markets.
