Bank of Ireland profits swell further but growth may be slowing

Myles O’Grady, chief executive of Bank of Ireland. Pic: Naoise Culhane.

Bank of Ireland posted €1.1bn in profits before tax in the first six months, underpinned by a high interest rate environment and a more swollen loan book following the acquisitions of mortgages from KBC.

However, growth momentum may be waning as profits surged from €351m in the first six months of 2022 to €1bn at the half point of last year, fuelled by income coming from interest rate hikes.

Net interest income increased by 2% so far this year and is expected to reach around €3.6bn for the full year.

Bank of Ireland chief executive Myles O’Grady said the lender is “meeting or beating” its targets and said it is “very well positioned to continue to deliver attractive returns for our shareholders.” 

The bank said its “strong capital position” has enabled it to pay out €353m to shareholders, an equivalent of 40% of its profit after tax for the first half of the year, in interim dividends.

The Government no longer has a shareholding in Bank of Ireland.

Meanwhile, the bank also reported a net credit impairment charge of €50m, down significantly from €158m in 2023, which the bank said “reflected an improved macroeconomic outlook”.

The bank’s deposits increased by €600m to €100.8bn, reflecting growth in its retail business following the purchases of mortgages from KBC. At the same time, its loan book grew by €1.8bn.

On the outlook, the bank said it expects operating expenses to be 5% to 6% higher than 2023 reflecting inflation and business growth. The lender also forecasted levies and regulatory charges to be between €125m and €130m for the full year.

Bank of Ireland is the first of the Big Two lenders left in the market to report half-year earnings. AIB is expected to report its half year earnings on Friday while smaller lender PTSB is scheduled to give an interim report tomorrow.

Bank of Ireland acquired €8bn in mortgage loans from KBC, while AIB and PTSB carved out the Ulster Bank mortgage and commercial loan books between them. Bank of Ireland also acquired scandal-hit broker Davy around two years ago.

In June, the European Central Bank (ECB) finally embarked on an interest rate reduction roadmap, albeit at a gradual pace.

The European regulator announced a 0.25% interest rate reduction and markets have priced in at least one more reduction this year.

However, it’s unclear if reductions will put a dent in profits hauled in by Irish banks this year. Lenders in the Republic were overall slow to implement interest rate increases and industry brokers predicted they will be just as slow to pass on cuts to customers.