Bank of Ireland shareholders have been told that its exposure to the UK mortgage market may be one of the reasons why its share price is at its current weak level.
CEO Brian Goggin told the annual court meeting the bank had an 'excellent' residential mortgage business both in Ireland and the UK. He said that Bank of Ireland's business in the UK has been prudent.
He also told shareholders that the bank's arrears are holding up exceptionally well. 'We have been prudent in our stress testing and it has proven to be robust,' he said. Mr Goggin told shareholders that last year the bank had not repossessed any homes, while it had had just one repossession so far this year.
Chairman Richard Burrows also told today's meeting the bank was not making a prediction for profit because of the uncertainty facing it this year. 'Taking into account the kind of problems that we face all we can say is that profits will be adversely affected this year,' he stated. He added that the amount the bank will provide for loan losses is going to increase.
The comments echo those in an interim management statement issued by the bank earlier this morning. In the update, Bank of Ireland said that slowing economic growth in its main markets and global market downturn continues to 'adversely impact' its earnings.
The bank said that the slowdown in the overall level of activity and volume growth is most evident in its retail business in Ireland. However, it added that its residential mortgage portfolios are proving resilient in a weakening housing market.
It also said that growth in lending in its UK and international corporate banking businesses in the second half of its previous financial year has continued into the first quarter of this year. But it expected this to moderate in the second half of the year, it cautions.
'While we expect to increase our customer lending in the current year, we are taking a prudent and selective approach to this growth in the current environment,' Bank of Ireland said. It added that its focus on containing costs is rigorous and cost growth in the first quarter has been minimal.
While the bank admits that there has been some credit grade slippage over the past quarter, this has been in line with its expectations of an increase in impairment charge.
Bank of Ireland said it continued to actively manage its funding position, adding that - as well as growth in customer deposits - it had raised over €3 billion of term funding from wholesale markets across 40 deals since the end of March. 'Our capital position continues to fully support our business in this challenging environment,' the bank stated.
The bank statement highlighted the problems it is facing worldwide, including inflation concerns, further house price declines, the strong euro and weakening business and consumer sentiment.
'Within this environment, the group's focus continues to be on managing our capital and funding positions, managing our credit risk in a supportive and prudent manner and rigorous cost control,' the bank concluded.
Bank of Ireland shares closed down 11% to end at €4.51 in Dublin. This is their lowest level since mid-1997.
Meanwhile, BoI director Terry Neill has defended the pay packages of the bank's senior executives, saying the bank was in a very competitive international environment, and had a duty to recruit and retain its top staff. He said executive pay was linked to the performance of the BoI share prices and the performance of its rivals.
