Bank of Ireland is reporting a strong recovery in its business performance with a €465 million underlying profit before tax, according to the bank's interim results for the first half of the year.
The bank reports a net credit impairment charge of €1 million at the end of June compared to €937 million in H1 2020, reflecting the improved economic outlook and muted loan loss experience in the period.
The Group continues to maintain a €229m stock of management adjustments at June 2021 for latent risk associated with Covid-19. The requirement to hold this will be assessed.
Francesca McDonagh, Bank of Ireland Group CEO said today's results and its outlook for the future are radically different to 12 months ago.
"In the first half of 2021 we have had a strong recovery in our business performance. We've continued to deliver our strategy, including investing in digital and transforming our business. We’ve maintained a laser-like focus on costs. And, we’ve announced two significant transactions in the form of Davy and KBC.
Speaking on Morning Ireland, Ms McDonagh said she believes the deal represents good value.
"When we look at any acquisition we always ask ourselves two questions - does it offer value to our shareholders and is it a good fit for our business and Davy emphatically ticks both boxes.
"We are acquiring Davy for €440 million - 75% of that is paid upon completion but 25% is withheld and paid two years after completion and is subject to a number of agreed criteria, so we have structured it in a way that we think provides best value for our shareholder," she said.
Davy was put up for sale earlier this year after a record Central Bank fine for regulatory breaches.
When asked if she has any issues joining up with a brand that has suffered significant reputational damage, Ms McDonagh said that Bank of Ireland carried out "robust due diligence" as part of the process.
"We are satisfied with our assessment of the business and we have a good understanding of both the risk, but also the positive opportunities," she said.
Back in April, Bank of Ireland announced plans to acquire KBC's performing loans as the Belgian bank prepares to exit the Irish market.
This morning, Ms McDonagh said they signed a memorandum of understanding in April and look forward to that being finalised soon and completed in 2022.
"It is a back book acquisition of about €9 billion of performing mortgage loans and we look forward to welcoming 300,000 KBC customers to the Bank of Ireland group," she said.
The results published today show that customer loan volumes were €77.2 billion at the end of June 2021, €0.6 billion higher compared to December 2020. On a constant currency basis and excluding planned UK deleveraging of €1 billion and the successful NPE transaction of €0.3 billion, the loan book grew by €0.3 billion by the end of June.
New lending, excluding revolving credit facilities and on a constant currency basis, increased 12% in the first half, with all divisions demonstrating solid recovery.
The Group's liquid assets of €45.5 billion increased by €14.8 billion since December 2020 primarily reflecting the Group’s €10.8 billion participation in the ECB’s TLTRO1 III in March and an increase in customer deposits.
Customer deposits were €90.6 billion; €2 billion higher than December 2020. Wholesale funding was €20.4 billion at the end of June 2021, €11.6 billion higher than December 2020 primarily due to TLTRO participation.
Net interest income at the end of June is 2% higher compared to the first half of 2020. The bank said this reflects reduced funding costs and the increased application of negative interest rates on certain deposits.
It said that negative interest rates are helping to offset the low interest rate environment that continues to negatively impact on liquid assets and structural hedges.
The Group continues to maintain strong commercial pricing discipline with loan asset spreads 16 basis points higher in H1 2021 compared to H1 2020.
Business income, including share of associates and JVs, has increased 8% supported by growth in Corporate and Markets’ fee income and our Wealth and Insurance business.
The Group continues to maintain tight control over its cost base while investing in transformation and absorbing cost inflation. Operating expenses (excluding levies and regulatory charges) are 4% lower in H1 2021 vs H1 2020. The net reduction of 4% is supported by 6% lower staff costs, supported by a 11% reduction in FTEs since June 2020, and a 14% reduction in depreciation charges.
The bank reported non-performing exposures decreased by €0.1 billion to €4.4 billion, equating to an NPE ratio reduction of 20 basis points to 5.5% of gross customer loans.
"This progress is reflected in our financial results," Ms McDonagh said. "Group operating profit of €465 million is up 72% compared with the same period last year. If we leave aside the turbulent year of 2020, and compare our results to the same period in 2019, our underlying operating profit, pre impairment, is up 7%.
"While COVID-19 is still with us, there is a path to recovery. Comprehensive vaccination programmes are unlocking the vice-like grip that COVID-19 has held over our economies and society. Our economic outlook is increasingly positive with sentiment back to pre-pandemic levels."