Bank of Ireland eyeing ‘good-fit’ takeover deals

Bank aiming to boost its business through acquisitions and investments as it announces a better than expected first quarter

Bank of Ireland said its performance in the first three months of the year exceeded its expectations.

Bank of Ireland chief executive Francesca McDonagh has said the lender is looking to make more acquisitions and investments in order to further boost its business.

The bank is in the midst of trying to buy KBC Bank Ireland, with the deal currently being investigated by the Competition and Consumer Protection Commission. Bank of Ireland has also been heavily linked with a move for embattled stockbroking giant Davy.

Ms McDonagh recently told an Oireachtas committee that Bank of Ireland could be interested in Davy, but the bank has said nothing further on the matter.

Changing banking environment

In a trading update showing that Bank of Ireland performed better than expected in the first quarter of the year, Ms McDonagh said: “We will consider opportunities that are a good fit for customers, complement our strategy to grow our business in Ireland, and support the investments we are making in the bank.”

With the bank set to close more than 100 branches across the island of Ireland later this year, Ms McDonagh said the operating environment for European banks — including in Ireland — is “clearly dynamic and changing”.

“Looking to the months ahead, especially in our home market of Ireland, our clear ambition is to proactively support economic recovery through accessible, responsible, and sustainable lending,” she said.

Non-performing loans

Bank of Ireland has also reiterated that it will recommence non-performing loan transactions this year, either through loan book sales or securitisation deals.

In its first-quarter trading update, the bank said it saw limited negative impact on its loan book, despite Covid restrictions remaining in place for longer than expected.

As of the end of March, 5.7% of Bank of Ireland’s loan book was comprised of non-performing loans. That figure was unchanged from the end of December. 

While the general target of the banks is to get their non-performing loans below 5% of their total loans, they — including Bank of Ireland — expect bad loan levels to increase this year, due to the effect the disruption caused by Covid has had on households.

Bad loans to rise

Earlier this year, ratings agency Fitch said the amount of non-performing loans on the books of the main Irish banks will increase this year, with loan impairment charges remaining above normal levels. 

It said bad loans will rise as support measures for borrowers — particularly payment breaks — come to an end.

Bank of Ireland said 96% of people on payment breaks due to Covid have returned to their pre-Covid repayment terms, while 4% remain reliant on some repayment support.

Credit guarantee scheme

Fitch also said that it expects takeup of the Government-backed credit guarantee scheme to remain low, removing a layer of lending protection for the banks.

In March, Bank of Ireland reported a €374m loss for 2020 and a €1.1bn provision hit for non-perfoming loans.

The bank said its net interest income, in the first quarter, was stronger than it had expected, with costs reduced by 7% in the period. Customer loan volumes increased by €1.9bn to €78.5bn and new mortgage lending amounted to €500m.