BoI UK activity ‘may give shelter’

Bank of Ireland’s UK lending activities and mortgage business could help shelter it from the adverse effects of any potential worsening in the domestic market, according to a leading stockbroking firm.

Through its exclusive partnership with the UK Post Office, Bank of Ireland (BoI) has a significant portion of its lending business across the Irish Sea, accounting for almost 45% of its customer loans.

This, according to Davy Stockbrokers, could counter-balance the downside risk of weaker Irish lending growth — the medium-term target for which is set at €90bn.

Davy analyst Emer Lang said investors often overlook this part of the bank’s business which provides it with a significant level to grow its lending balances.

“Bank of Ireland is largely regarded as an Irish recovery play; although this continues to be the case, investors may overlook the significant exposure of BoI to the UK. BoI remains a top-ten UK lender by assets, with 42% of its customer loans located in the UK and the largest distribution network through the UK Post Office,” said Ms Lang.

Management at Bank of Ireland expect the UK market to remain a large part of its business despite recent restructuring of its balance sheet, which saw a significant wind-down in UK customer lending exposure, according to Ms Lang, who believes the bank is now well-positioned to grow in the UK with a particular focus on the retail sector.

“The Retail UK division returned to profitability in H1 2014 and has signalled its intent in the mortgage market through its addition to one of the largest mortgage panels in the UK, the Legal & General Mortgage Club,” Ms Lang added.

The bank currently has €25bn worth of mortgage loans and a further €15bn in other loans in the UK market. The overall Retail UK Division posted a profit of £46m (€57.5m) in the first half of the year compared to a loss of £129m for the whole of 2013. The partnership between the UK Post Office and BoI was established in 2014. Last year, 100 more sales representatives, solely focused on BoI mortgages, were added to the Post Office network as the bank continued to build its distribution channels, Ms Lang said.