Broker lowers share price targets for AIB and BOI on slowing mortgage and SME loan growth

Irish banks face “numerous headwinds” in growing lending to households and SMEs, said Investec Ireland, as it cut its share price targets for AIB and Bank of Ireland (BoI) and raised its target for Permanent TSB.

Analyst Owen Callan said a “step down” in growth in new mortgage lending means it now forecasts new mortgage lending to reach €8.7bn this year, down from its earlier forecast for €9.1bn.

For 2019, it forecasts mortgage lending of €10bn, compared with €10.9bn previously.

“Additionally, as a result of the continuing uncertainty being provided by Brexit, we downgrade cumulative Irish non-property business lending forecasts by circa 5%” through 2021," said Investec.

Amid lower lending volumes, it cut its earnings per share targets for AIB, Bank of Ireland, and Permanent TSB, and reduced “slightly” its share price targets for AIB and Bank of Ireland to €5.20 and €9.00, respectively.

For Permanent TSB, it ups its share price target to €2.00, after the bank cut back its burden of non-performing loans through sales.

“Given the recent European bank sell-offs, we believe current valuations offers attractive opportunities for all three of the Irish banks given the strong macroeconomic backdrop and the positive structural position — high margins, low competition — of the sector,” said Mr Callan.

Brexit has put pressure on Irish bank shares but the pressure has intensified this year, as investors looked askance at the problems of lenders across Europe and Italian banks, in particular.

Some of those pressures intensified this week.

Despite gains in the latest session, AIB shares have lost around 30% of their value this year, Bank of Ireland shares have shed 20%, while Permanent TSB shares are down 25% this year.

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