Competition among its substantial mortgage operations in the UK weighed on Bank of Ireland, as the lender faced an early stage hurdle to a multi-year strategy to boost loan growth and reduce costs amid Brexit uncertainty.
Its shares fell as much as 5% at one stage after the bank reported its net interest margin — a key measure of profitability — would fall further this year. Underlying profit fell to €935m in 2018 from almost €1.07bn in the previous year.
The shares ended the trading session 2.3% lower.
Brexit uncertainty and fears of a no-deal had led to some customers, in particular in the most exposed SMEs, as well as farmers and food firms, to postpone investment plans.
But the bank said the investment plans will go ahead once the Brexit uncertainty lifts.
Chief executive Francesca McDonagh told reporters the bank’s central forecast was that the UK will avoid crashing out of the EU and will in time strike some sort of deal.
And there was some good news for borrowers on tracker mortgages as group chief financial officer Andrew Keating said markets were signalling that the ECB will delay interest rate rises to 2022.
Nonetheless, the cost of new mortgages would likely increase as the lender starts to price in rate hikes that will follow in the next 10 years.
The bank is the most exposed of all Irish lenders to the UK and its shares have shed almost 35% of their value in the past year, despite it lending into the fastest growing economy in the eurozone.
AIB and Permanent TSB, despite much lower or negligible exposure to the UK, have fared only a little better. Their shares have fallen around 25% and 22%, respectively.
Ms McDonagh said the lender had added €1.3bn in new lending and had cut costs a few months into a strategy unveiled to investors last summer. The lender “was delivering on that strategy”, she said.
The bank had no news on a long signalled sale of its credit card operations in the UK but would invest in other parts of its UK operations, focusing on higher-margin mortgage lending as outlined in its strategy last year.
There were “no shortcuts” in improving profitability in the UK, the chief executive said. Reducing non-performing loans — the legacy of the banking and property crash — would focus on buy-to-let mortgages, the bank said, adding cutting bad loan exposures means that capital is released to support other loans.
Ms McDonagh said the banks was confident of reducing its share of bad loans to 5% of gross loans by the end of the year, down from 6.3% at the end of December.
It plans to double the number of brokers selling its mortgages to 40, as it maintains its market share of the new home loans market. It had not identified any new groups of customers affected by the tracker mortgage scandal.
Owen Callan, senior analyst at Investec Ireland, said that the bank missed “by a distance” its margin in the UK amid competition and an accounting charge. But its cost-cutting strategy was still on course,” he said.