Three main lenders to post interim profit haul

Davy Stockbrokers said it would likely 'modestly' revise downwards its forecasts in this area, but said "this will have little impact on bank earnings" for AIB, Bank of Ireland, and PTSB.

Myles O’Grady, Bank of Ireland chief executive. Bank of Ireland will publish its interim statement on Wednesday. Picture: Naoise Culhane

The three main Irish lenders are set to once again post bumper profits as the banks tapped high interest rates and continued to benefit from low levels of competition following the exit of fierce rivals Ulster Bank and KBC.

Bank of Ireland, PTSB, and AIB will publish their half-year financial performances this week and are expected to report a combined operating profits for the period of more than €2bn, with AIB and Bank of Ireland expected to account for the lion's share of this haul.

Interest rates have fuelled net interest income for banks and subsequently driven profits upwards. Interest rate levels are set to stay high for some time, according to analysts, but the European Central Bank (ECB) has embarked on a roadmap of reductions, albeit at a gradual pace.

The European regulator cut rates for the first time in June since it started aggressively hiking them in July 2022 to drive down stubborn inflation.

Irish banks were slow to implement rate increases announced by the ECB and industry brokers recently told the Irish Examiner that they expect banks to be just as slow to pass on reductions.

“Average short-term rates for 2024 are likely to be similar to those in 2023, which may provide upside to net interest income later in 2024,” said Davy Stockbrokers senior analyst Diarmuid Sheridan in a note ahead of the banking earnings.

Markets have priced in at least one more interest rate cut this year after the ECB reconvenes from its summer break in September. 

Bank of Ireland and AIB announced earlier this year an intention to return around €3bn to shareholders following strong profits, while the smaller of the three lenders PTSB got the nod from the Central Bank to last year to resume dividend payments for the first time since the banking crash.

Meanwhile, with interest rates now declining and signs that competition is now growing somewhat in the market with new entrants, growth in remortgaging has returned, Goodbody Stockbrokers said.

Equity withdrawals are also picking up, with drawdowns up by 11% annually in the quarter ending in June, according to Dermot O'Leary, chief economist at Goodbody Stockbrokers.

Mortgage activity shows some signs of recovering following weaker signals in the first three months as affordability improves for first-time buyers amid cooling inflation and average loan sizes up slightly by 2% — but chronic supply shortages continue to weigh on the market.

Davy Stockbrokers said it will likely “modestly” revise downwards its forecasts in this area, but said that “this will have little impact on bank earnings”.

First-time buyers remain the strongest segment of the market, with a 6% increase in number of drawdowns and a 2% increase in value in the quarter ending in June compared to the same period a year earlier.

Both Goodbody and Davy forecasted a new mortgage market of €13.1bn compared to €12.1bn last year, comprising of €11.3bn of house purchases and €1.8bn of remortgaging and top-ups.