BOI to raise €10bn in financing first

BANK OF IRELAND plans to use a new form of financing to raise up to €10 billion to fund its lending programme over the next five years.

The bank will be the first in Ireland to take advantage of a 2001 change in Irish law and will issue bonds secured on its €30bn portfolio of mortgages on homes in Ireland and Britain.

Chief executive Mike Soden said it was an example of innovative legislation and the bank's technical capabilities combining to deliver a "truly mould-breaking" way of raising finance.

The bank said yesterday that it expected the bonds to obtain a AAA rating, the highest available from international credit agencies and considered as secure as Irish government risk. The bank will be able to use the bonds' lower risk profile to get cheaper funding in the market than would be the case with its ordinary debt.

The first tranche of the programme will be worth €2bn and will be launched later this year, subject to regulatory approval.

Irish banks have come under pressure to fund the explosion in mortgage lending in recent years. Falling interest rates have made it difficult to attract deposits, the cheapest way for banks to fund their lending activities, as customers with spare cash have shunned deposit rates of less than 1% and opted instead to take their chances with property or stock market investments.

In the absence of deposits, banks have been forced to look at the more expensive option of borrowing money in the market to lend to customers. This squeezes net interest margins, a key indicator of a bank's profitability that measures the difference between the price it pays for money and the price at which it lends to customers.