THE head of the largest bank in Ireland believes the Irish property market is about to hit a bottom.
"We think the property market is beginning to stabilise -- in particular in urban areas," Bank of Ireland boss, Richie Boucher told the Sunday Independent last week. "This time last year many of those who had mortgage approval from us were not taking up the mortgages -- as they were still nervous about buying. Now, estate agents are saying there are more buyers than sellers in urban areas."
Zambian-born Boucher, who presented the bank's interim results last Friday, was appointed to the helm of Bank of Ireland in February 2009 -- shortly after the bank received a €3.5bn government bailout.
A few months after he was appointed group chief executive, Boucher announced that the bank had made a €7m loss for the year -- compared with a €1.9bn profit the year before. The bank's losses have climbed since, peaking at €3.46bn in 2010.
Bank of Ireland made a €1.25bn loss in the first six months of this year, according to the latest results. Most of this loss comes from the €941m the bank has set aside to cover loan losses.
The Sunday Independent understands that the bank expects to return to profitability in 2014. However, a prolonged economic downturn would scupper such hopes.
Although Ireland is technically out of recession, most of this recovery has been export-led. Ongoing weaknesses in world economies could dampen demand for Irish exports, according to the bank's interim report. "Reduced growth prospects in Ireland's trading partners increases the likelihood of prolonging the ongoing downturn in economic conditions which could further adversely impact the bank's results, financial condition and prospects," said the report.
To rebuild profits, the bank will cut costs and try to increase revenues by selling new products.
"Our balance sheet is reducing by a third, so our costs must be realigned with that," said Boucher. "As we restructure the group, regrettably the number of people that we employ will reduce."
Bank of Ireland has already shed about 3,700 staff since early 2009.
Despite branch closures at other banks, Bank of Ireland insists it has no plans to close any of its 254 branches. Boucher said the bank would move "administrative work" out of its branches to reduce costs. "The branch network is very important in the sale of mortgages and investment products," said Boucher. "It's very hard to sell these type of products over the internet."
In July, AIB announced plans to close 67 branches. To ease the fallout from these closures, it has extended its arrangement with An Post, where customers can do their banking at post offices.
About eight years ago, Bank of Ireland hooked up with the Post Office in Britain so that its savings and other products could be offered to the public there.
Boucher said it was unlikely the bank would strike a similar deal with the Post Office in Ireland. "Outside of Northern Ireland, we don't have a branch presence in Britain," said Boucher. "In Ireland our situation is different. We have a strong branch network. We think it's important to bring down the costs of the branch network -- but it is unlikely we will see our products being sold in post offices."
Boucher admitted that if the bank failed to drive up revenue, it would have to reconsider its plan not to close branches.
The bank has launched a number of products recently in a bid to increase revenue, including postgraduate student loans.
"We believe this economy will recover. Students are an important part of what the State invests in, and are good long-term customers for the bank as well," said Boucher. "We are investing more in the agricultural sector. I don't think there is any sector the bank is not interested in (doing business with).
"We are cautious of the construction sector -- but there is demand there. You can't keep on cutting your way to glory -- you have to start to create revenue," he said.
The bank's interim report, however, said there is risk that demand for its financial products could fall -- which could hamper Boucher's efforts to drive up revenue and avoid branch closures.