Losses double to €1.25bn but the bank is 'on track' for 2013 profits
BANK of Ireland's losses almost doubled to €1.25bn in the first half of the year, but the bank yesterday stressed that it now had "much greater control" of its own destiny and was on track to return to profit by 2013.
The bank is predicting a return on equity in the 'low to mid teens' by 2013 against the negative returns of recent years.
Yesterday's bruising losses were taken as the bank continued to suffer massive hits on its loan portfolio, with another €1.8bn written off in the six months to June.
The results also showed a 32pc fall in Bank of Ireland's operating profits to €553m, as lower interest margins and the €150m cost of the government guarantee scheme put pressure on the earnings line.
"Although in line with our expectations, the financial results we are reporting today are disappointing," BOI group chief executive Richie Boucher said yesterday, pointing to the "very difficult" trading environment.
That trading environment saw BOI's crucial net interest margin contract from 1.70pc in the first half of 2009 to 1.41pc in the first six months of this year, putting the bank even further away from its 2013 target of 1.75pc.
The bank blamed the deteriorating margins on "intense" competition for deposits, which was keeping interest rates high, and "muted" demand for new lending in Ireland, which was making it harder for BOI to reap rewards from raising borrowing rates.
"Improving our net interest margin continues to be a major priority," said Mr Boucher, describing the bank's plans to carry out further "re-pricing" across its existing loan book following recent increases to mortgage rates.
"The net interest margin of 1.75pc (targeted for 2013) is a challenge but not an unrealistic goal," he added.
On the loan losses front, Mr Boucher re-affirmed BOI's view that its impairment charges had peaked in 2009, adding that the most recent period's hit was in line with expectations.
About half the €1.8bn of loan losses in the first half of the year related to debts being transferred to the National Assets Management Agency (NAMA) -- BOI expects to take another €3.9bn in NAMA hits when its transfers are complete.
The other €893m of loan losses in the six months to June came from BOI's non-Nama portfolio, including smaller business loans, mortgages and personal loans.
BOI expects to book €4.7bn worth of impairments on its non-Nama loan book in the three years to March 2011, a position unchanged since the bank laid out its stall before investors five months ago.
"It's encouraging that loans losses predictions remain unchanged," said NCB financials analyst Ciaran Callaghan, pointing to recent results from smaller Irish banks showing continued increases in impairments.
Yesterday's results also included a 3pc fall in operating costs, a one-off €676m gain from pension changes and a one-off €699m from a complex liability management exercise.
"The results are a positive sign that management is on top of the factors that are within the group's control," Davy said in a note to clients, citing the pension moves and cost cuts.
Yesterday's results were also closely monitored by the international investors, including Credit Suisse, Nomura, Morgan Stanley and Barclay.
In a note, Nomura said while "near-term operating trends are likely to remain challenging" the bank is "well-positioned to focus on returning profitability back to normalised levels".