Operating profit at BoI rises to €380m

Bank of Ireland made an operating profit of €380m for the first half of this year, which is a considerable increase on the €37m for the same period last year.

However, the underlying loss before tax when impairment charges have been deducted was €383m, against €933m for the same period last year. The €780m impairment charge for the six-month period — to cover mortgage and other loan losses — was down from the €941m charged for the first half of 2012.

Bank of Ireland has been heavily lossmaking since the property market crash in 2007, which pushed it into part state-ownership. The Government holds 15% of the bank’s common equity, but it has a further €1.8bn in preference shares.

If these are not redeemed by the end of next March, then there is a 25% step up, which means that the Government’s preference shares increase in value to €2.25bn.

Like the other domestic lenders, Bank of Ireland is working its way through its mortgages arrears in an effort to meet the Central Bank targets of putting in place offers to customers in arrears this year and solutions next year.

It is carrying €2.2bn of defaulted loans on its €20.6bn owner-occupied Irish mortgage book, which is 10.5% of the book. It has a coverage ratio of 38% for these defaulted loans.

Its buy-to-let book is in much worse shape, however, with €1.7bn in defaulted loans, which is 26.1% of the total book of €6.5bn. There is a coverage ratio of 50% for these defaulted loans.

Bank of Ireland chief executive Richie Boucher said it was not possible to say how many mortgage arrears customers were strategic defaulters.

SME loan arrears are running at €2.9bn of an €11bn loan book, while the rate of defaulted loans on its corporate lending is €1.1bn of an €8bn loanbook.

The net interest margin, which is the difference between the interest it receives on its loans and the amount it pays on deposits, was 1.65% at the end of June, compared with 1.20% at the end of last December.

Total income for the first six months was €1.188bn compared with €875m for the same period in 2012. The loan-to-deposit ratio is 121% and the core tier one capital position was 14.2% at the end of June.

There was a 1,450 reduction in staff numbers over the past year and the removal of the eligible liabilities guarantee scheme also lowered the cost base.