Brexit not to blame for dividend delay, says Bank of Ireland

A decision to delay paying its first dividend since the financial crisis was mainly due to accounting issues surrounding the bank’s pension scheme, and not to do with underlying issues such as Brexit, Bank of Ireland has said.

Chief executive Richie Boucher acknowledged disappointment over the dividend decision after the lender, in which the Government owns a 14% stake, had for some time signalled plans for an early payout based on its 2016 earnings.

Even though the pension deficit had fallen, the bank had to be certain about its ability to increase payouts in the future and the “finely balanced” decision was all its own and rested on the accounting effects of volatility on the bond markets, he told reporters.

The bank’s substantial operations in Britain through the British post office had exposed the lender in the past to potential fallout from Brexit. Shares in the bank fell 4% yesterday at one stage, to below 23 cent, in line with sharp losses for European bank stocks. In the weeks following the Brexit vote in June, the shares had slumped to as low as 16 cent.

But Mr Boucher said the immediate effect of Brexit had been much more benign than many had first thought.

The lender had seen no “material” effect on its Irish or UK loan books, and had flexibility over controlling costs in Britain. He cautioned, however, the economic effects of Brexit in the future have yet to play out.

Darren McKinley, analyst at Merrion Capital, said despite its “disappointing” dividend decision the lender’s financial health had improved, and with capital reserves, at 12.3%, the probability of a payment dividend before too long had increased.

The analyst said the lender was better placed to withstand any headwinds and might even consider expanding its British operations.

“The positive news” on its underlying strength was “somewhat offset by no dividend declaration for the full-year 2016,” said Investec Ireland analyst Owen Callan.

Net interest income fell 7% in the year to €2.28bn, mainly due to the effect of currency translation costs. An average net interest margin of 2.19% in 2016 was higher in the second half, at 2.27%, and the bank posted a net profit of €793m for 2016, down 16% in the year.

The bank said the percentage of non-performing residential mortgages in the Republic had fallen to 9.1%. It said it was outperforming the industry in terms of having fewer home loans in long-term arrears. Non-performing loans, however, for SMEs in the Republic stood at 17%.

Mr Boucher repeated the tracker-mortgage-redress investigation into Bank of Ireland and other Irish lenders, supervised by the Central Bank, continues.

But he said the bank would only announce at the end of the tracker investigation whether or not any Bank of Ireland customers had lost their homes because of being over-charged. Under the current investigation, almost 4,000 customers had been identified as having been placed on the wrong rate, while other customers had been restored to tracker rates. On the prospects of ECB raising interest rates in the next two years, Mr Boucher said some customers would be impacted “for sure” if interest rates were to rise rapidly from their “abnormally low” levels.


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