BoI boosted by 3% deposit rise

BANK of Ireland said yesterday its deposits rose 3% in the four months to the end of October, improving its funding position, although the country’s largest lender said trading was still tough.

Ireland’s only bank not to be nationalised said its profit margins should stabilise in the second half against the first, but further margin recovery would face headwinds in a prolonged period of low interest rates.

“Continued intense competition for deposits in the Irish market, the elevated cost of wholesale funding pending further deleveraging of the balance sheet, along with the high cost of the Government guarantee have maintained ongoing pressure on the group’s cost of funding,” the bank said.

Shares in the bank, which traded at almost €10 at the height of the Celtic Tiger economy four years ago, were 5.8% higher at €0.09 yesterday.

Bank of Ireland partly blamed a politicised issue — the speculation over potential wide-ranging measures to tackle home loan arrears — for further deterioration in the arrears of its Irish mortgage book in August and September.

Ireland has pledged to shrink radically its domestic banking sector after a disastrous binge on property loans, and Bank of Ireland has to sell €10 billion in loans and accept repayment of another €20bn worth by the end of 2013. After announcing last month that it had sold or accepted repayment of €5bn of loans, the bank said yesterday it was in advanced talks on further sales.

Its loan to deposit ratio has improved by 9 percentage points to 153% since the end of June as a result of the deleveraging and a rise in its Irish and British deposit book to €67bn from €65bn at end-June.

The June figure included €3bn of deposits temporarily placed by the country’s debt agency, NAMA, and withdrawn in July in line with the €3.85bn capital the bank has raised this year.

The deleveraging was also reflected in a reduction of around 10% in wholesale funding from €61bn at the end of June that the bank said included a significant reduction in drawings from monetary authorities.

Deposits at banks servicing the domestic economy are down nearly €150bn from October 2010, the month before Ireland entered an EU-IMF bailout.