Bank of Ireland chief: No talk of further loan payment breaks

Bank of Ireland is having no discussions about further extending the payment breaks for customers, its chief executive Francesca McDonagh has said, as the lender posted a loss of €235m in a quarter -- even as the Covid-19 economic crisis had only started to bite.

The bank -- which is 14%-owned by the Government -- made a €250m impairment charge for what it calls “a management overlay” to take account of a rapidly deteriorating economic outlook this year, and it expects more impairments but it is not saying what level of charges it expects for the full year.

In an interview, Ms McDonagh, who took over as CEO in late 2017, cautioned about making assumptions about full-year loan losses based on the provisions announced for the quarter on Monday.

Stressing that the lender went into the crisis in good shape with a relatively low level of non-performing loans, she said that even under the bank's worst case outcome, its capital reserves remain at a healthy level.

Bank of Ireland’s model includes assumptions for an unemployment rate of 13.5% this year, as well as taking into account an worst-case assumption that the combined value of its new business and residential mortgage lending could be half the level of 2019.

Ms McDonagh told the Irish Examiner that there would be more impairments as the bank awaits to monitor customers who restart paying their loans at the end of the three and six-month deferral periods.

Asked about whether a portion of its mortgage loans were insulated because the borrowers work in the public sector, Ms McDonagh said less than 10% of its home loan book was exposed to potentially the most vulnerable customers working in hospitality and tourism, while public sector workers may also play some sort of part in its calculations.

She said the bank was obviously aiming for as many customers as possible to resume normal payments at the end of their payment breaks “whether that is three or six months”.

The banking industry had extended the payments deferrals for customers who wanted to avail of the breaks from three to six months, she said.

“I am not having conversations right now about extending that to nine,” adding the bank’s focus was to encourage customers to restart paying and to support those who couldn’t resume payments, she said.

Asked when the bank will start making money, Ms McDonagh said it was too early “to be definitive” and the lender was not giving earnings guidance for 2020, although its cost ratio would continue to fall this year.

Bank of Ireland could be back in the black next year but would likely only start generating a “meaningful” level of earnings in 2022, according to Goodbody analyst Eamonn Hughes.

Its shares slid 15% in the latest session to value the lender at around €1.5bn.

The shares have now lost about three quarters of their value in the past year.

Asked whether SME and home loans rates would need to tumble to lend into the economy, Ms McDonagh said that interest rates will continue to reflect the cost of funds, the costs of risk, and operating expenses.

It doesn't necessarily translate into an automatic reduction in lending rates to encourage demand.

Ms McDonagh said the bank wasn't tapping the Government wage-support schemes. The bank’s IT systems had held up well during the crisis and there was no cyber attack on its infrastructure although customers had reported attempts by hackers at phishing.

Asked about the potential for the Government to offer zero-interest loans through the banks, as some business groups have called for in the reboot or recovery phase of the economy, she said she welcomed the “increased” support the Government has provided businesses.

“We give the Government feedback from what we are hearing from our corporate customers and SMEs every day and I welcome the increased steps that have been taken and it may be [that] more may need to be done as we come out of lock down,” she said.

Asked whether the Government would increase its stake in the bank above its 14% shareholding to take account of any new measures, she said ownership issues were the concern of the shareholders.

Asked whether any bank in the eurozone bank would require a state bailout during this latest crisis, Ms McDonagh said that lenders across Europe were in much better financial health than at the onset of the financial crisis in 2008.

New macroprudential rules have since been initiated for eurozone and UK banks.

"Bank of Ireland has certainly gone into the Covid crisis in a very different situation in terms of capital and liquidity and the size of lending of our loan book," she said.

She said that the bank has "seen no migration in performing to non-performing loans" in the the first three months of the year and that the impairment charge was due mostly to take account of the forward looking indicators for  the economy because GDP was going to fall and unemployment was going to rise above the levels it has in its model.

She said that notwithstanding the changes that its capital reserve level was well above the original minimum capital requirement before it was eased as some of the buffers were reduced.

For the same reason, she said she would be cautious about comparing the Covid-19 economic crisis to other crises.

She said its loans book was in good shape and its mortgage arrears were much lower than the industry average in ireland.

People will return to work as the economy reopens although “not everyone will and that is why we are being cautious and prudent in the impairment we are taking because of the economic uncertainty”, Ms McDonagh said.