Accounting change likely to put dent in bank’s profits
Bank of Ireland, which will present its first full set of accounts under International Financial Reporting Standards (IFRS) for the year to March 2006, made a pretax profit before exceptional items of €1.27bn in the 12 months to the end of March 2004.
The impact is expected to be minimal in terms of the bank’s overall profits.
The bank is expected to announce before tax profits of €1.33bn for the year to the end of March 2005.
The negative impact of the IFRS on profit before tax is expected to be about €85m in 2006.
In a conference call yesterday chief financial officer John O’Donovan said that essentially from here, Bank of Ireland is in exactly the same position as every other bank. He said the ability to smooth loan losses is seriously restricted, so these loan losses will have to be taken on the chin.
No material impact was expected on Tier 1 capital, and the guidance was in line with analyst expectations.
The EU is adopting IFRS as part of a global harmonisation of accounting standards following the 1997 Asian financial crisis and high-profile bankruptcies such as Enron.
Companies will have to put stock options on the balance sheet and value instruments such as derivatives at market rate and take regular impairment tests on goodwill. At Bank of Ireland, accounts for the half-year to September 2005 will be presented under IFRS, with September 2004 comparatives restated where appropriate, it said.
Had IFRS been applied to full-year earnings to March 2005, it would cut EPS by about 12.2 cents and pre-tax profit by about €127m, the bank said.
Davy said, the IFRS policy of recording dividends when they are declared as opposed to accruing them will result in a once-off increase in shareholders’ funds of €260m on transition.
