Bank of Ireland taps soaring interest rates to post profits haul of €1.9bn for 2023

Net interest income soared 48% in the year, reflecting the interest rate hikes and increased deposits.

Bank of Ireland has posted a record profits haul of €1.9bn before tax for 2023, as the lender cashed in on soaring European Central Bank interest rates, while paying out relatively low rates on its deposits, and tapping the full benefits of the departure of powerful rivals Ulster Bank and KBC Bank from the market.

Its underlying pre-tax profit was more than the €1.8bn the lender posted in 2008, the last of the boom years before the onset of the disastrous banking and property market collapse.

Net interest income soared 48% in the year, reflecting the interest rate hikes, increased deposits, but also “acquisitions, and higher wholesale and deposit funding costs”, the bank said in the earnings statement.

Bank of Ireland is the first of the three Irish banks to reveal what is set to be a bumper profits haul for all the lenders in a year when all the conditions aligned for record results.

The Irish banks significantly increased the rates they charge their home and business loan customers, and were under little competitive pressure, for one reason or the other, to pay out large amounts to customers for their fixed term deposits.

Chief executive Myles O’Grady said the lender had delivered “strong financial results”, made progress on a three-year plan, and “improved customer and employee outcomes”.

He signalled out the so-called distribution of over €1.1bn to shareholders which was a significant increase from the €350m paid out in the previous year. Some €634m of that amount will be paid to shareholders in cash, and the balance by way of a sizeable programme of buying back its own shares.

Like other European banks, Irish banks in the past year have tapped significant gains after the ECB started out on its long campaign in the summer of 2022 to hike official rates in its battle to rein in price inflation across the eurozone.

Bank of Ireland also appears to have kept a lid on its total impairment charges from souring home mortgage and commercial loans amid the cost-of-living and inflation squeeze for its customers. The impairment charge rose nonetheless to €403m from €187m in 2022, partly reflecting the risks around its commercial property loan book, amid the closely-watched slide in prices in the offices market.

On the outlook, Mr O’Grady said that despite the international risks that “the overall outlook for our core markets, and Ireland in particular, remains positive”.

The jury is out whether Bank of Ireland and its two rivals can continue to generate record amounts of net interest income through this year should the ECB go into reverse and start cutting rates aggressively in the summer.

The bank said on Monday it expects net interest income levels to be as much as 6% lower this year.

Stock market investors appear to be signalling their growing confidence, however. Bank of Ireland shares have soared since early 2021 when it first emerged that Ulster Bank and KBC Bank were pulling out of general banking in the Republic.

But after a tepid performance in 2023, the shares have nonetheless climbed 11% since the start of this year.

Some international analysts believe that Bank of Ireland and its two rival lenders will prove their resilience in terms of generating income.

Part of the reason is that local regulators, which include the Central Bank and the Competition and Consumer Protection Commission, have showed a remarkable forbearance in intervening in the shrunken competitive landscape of Irish banks. The Government and watchdogs still appear to be hoping that new entrants will provide much needed competition to the three banks.

Mortgage brokers point out that following the full departure of rivals Ulster and KBC, that AIB, Bank of Ireland, and PTSB took a commanding 90% share of the €12.5n in new mortgage lending advanced last year, while AIB and Bank of Ireland control a huge share of all current accounts in the Republic.

AIB unveils its earnings later this week and PTSB reports next week.