Irish banks set to remain profitable despite declining rates

S&P Global says credit growth, cross-selling activities, tight cost controls, and benign economic environment worked in banks' favour

Bank of Ireland posted a record annual pre-tax profit of €1.9bn for 2023. Picture: Colin Keegan

Ratings agency S&P Global has maintained its positive outlook for AIB and Bank of Ireland, saying their profitability will remain solid despite declining interest rates.

In its latest report, the agency said continued credit growth, cross-selling activities, tight cost controls, and a still benign economic environment worked in the two banks' favour.

"We expect Irish banks to maintain domestic market dominance, with mortgages outweighing banks’ loan portfolio," S&P said, noting that structural improvements remain critical for the banks in order to sustain robust profitability.

They will have to keep investing in their digital agendas and to retain talent to preserve their competitive advantage.

"Sound risk management practices should help banks mitigate emerging risks," said S&P Global Ratings credit analyst Anastasia Turdyeva.

"Some asset quality problems will emerge, but deterioration should be contained. We expect non-performing assets to remain below 3% and the cost of risk through the cycle to remain at 20-30 basis points (bps)."

AIB and Bank of Ireland posted record profits for 2023 on the back of surging interest rates as the European Central Bank imposed a series of rate hikes to combat soaring inflation. 

AIB saw profits jump from €765m in 2002 to €2bn the following year. Bank of Ireland posted a record annual pre-tax profit of €1.9bn for 2023.

The Irish banks have also benefitted hugely from the exit from banking in the Republic of Ireland by their once-fierce rivals, Ulster Bank and KBC Bank.