B of I could return to profit by end of next year
Government bonus ban for bank executives runs out at end of 2012
Bank of Ireland, which is still refusing to pass on the latest European Central Bank (ECB) interest rate cut to struggling homeowners, looks set to become the first Irish bank to recover from the country's banking crisis.
The bank could make a modest profit as early as next year if it front-loads its losses this year, according to Emer Lang, an analyst with Davy.
The timing of this return to profitability -- if it happens -- could coincide with the return of bumper bonuses at the bank. Bank of Ireland is still covered by the Government's pay cap for bankers and the ban on bank bonuses -- but both of these fall under the Government's bank guarantee scheme, which is only due to run for another year, according to a spokesman for the Department of Finance.
It is looking increasingly likely that Bank of Ireland and the other Irish banks will have to take a hit on future impairment losses -- essentially, losses which arise from bad debts -- in their accounts for the second half of this year. Last summer, the Central Bank examined whether it could force the Irish banks to front-load such losses. It will publish its proposals on such front-loading -- and other measures to improve investor confidence -- before Christmas.
"If the banks start moving impairment losses around, they could report deeper losses than expected this year," said Ms Lang. "We expect Bank of Ireland will have losses of €565m in 2012. However, if the bank moves most of those losses into 2011, it may break even next year -- or even make a profit."
Last July, the Government's stake in Bank of Ireland was diluted from 36 per cent to 15 per cent after a group of private investors put €1.1bn into the lender. Bank of Ireland is therefore the only Irish bank to have avoided State control. In 2009, €3.5bn of taxpayers' money was poured into the bank to prop it up.
"Bank of Ireland has been supported significantly by the taxpayer and it therefore has a moral obligation to help its customers and to pass on the latest ECB rate cut to customers on standard variable mortgages -- yet, it is not doing so," said Michael Dowling, spokesman for the mortgage brokers, the Independent Mortgage Advisers Federation. "I can't see the bank passing on future ECB rate cuts either. Refusing to do so is one of the ways the bank will be profitable again soon."
A spokeswoman for Bank of Ireland said the lender's interest rates "are constantly under review".
Sunday Indo Business