Wednesday 21 February 2018

BoI mortgage arrears rise but provisions have peaked

BANKS

Laura Noonan

BANK of Ireland (BoI) yesterday admitted it had suffered a "deterioration" in mortgage arrears in recent months, but insisted loan loss provisions have already "peaked" and will continue to fall from their highs.

The comments came as the plc released an upbeat trading statement that also revealed an 8pc rise in like-for-like deposits between June and October and a "significant reduction" in Central Bank funding.

BoI's statement follows grim third quarter results from Ulster Bank, Bank of Scotland Ireland, National Irish Bank and KBC, which all suffered dramatically worse impairments in the three months to the end of September.

BoI acknowledged the "challenging" trading conditions and said future loan loss provisions would depend on the "future performance of our Irish residential mortgage book and commercial real estate markets".

BoI said it had already suffered "some deterioration" in mortgage arrears in August and September, which "may have been partly attributable" to new rules on dealing with arrears and "the fact that there was considerable public speculation about potential policy measures regarding customers in arrears".

KBC made similar comments about the "unhelpful" speculation on debt forgiveness a day earlier, as the bank's loan loss provisions doubled in the third quarter.

BoI, in contrast, said the quality of its overall loan book remained "in line with expectations" thanks to "relatively improved performance" in its unsecured customer lending, UK mortgage and commercial books.

"It continues to be our expectation that our total impairment charges have peaked and will reduce," the bank added.

On the deposit front, BoI's €65bn book at the end of June had risen to €67bn by the end of October. The June tally included €3bn of funds temporarily placed in the bank by the State, so the like-for-like increase is €5bn or just over 8pc.

Term funding

BoI has also raised some €4bn of term funding in recent months, secured against UK assets, while the sale of some €5bn of 'non core' assets means it has fewer assets to fund.

The result is a "significant reduction" in the bank's drawings from monetary authorities, which stood at €29bn at the end of June.

Central Bank money tends to be cheaper than cash raised in the markets.

BoI yesterday said its "net interest margin", a crucial measure of bank profitability, had "stabilised" in the second half of the year.

"Further margin recovery will face some headwinds in a more prolonged period of low interest rates," the bank added.

The Government has been trying to convince the banks to pass on last week's ECB cut to mortgage borrowers. BoI has so far resisted, only saying its interest rates "remain under review".

The BoI statement was well received by the markets, with analysts Davy's describing it as "solid", particularly coming against a "background of uncertainty". Shares were up as much as 5pc by lunchtime yesterday, though that didn't push them beyond the 10c watermark set by the banks' recent fundraising.

Irish Independent

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