BoI takes a €1.1bn loan hit and €374m loss in the first year of Covid-19 pandemic

Group CEO Francesca McDonagh told reporters there was no impediment to Bank of Ireland getting involved in Ulster Bank's €20bn loan book sell-off.

Bank of Ireland unveiled plans to close over 100 branches across Ireland as the country's largest lender unveiled the €1.1bn toll in impaired loans in its first reckoning of the Covid-19 crisis.        

The fallout means that Bank of Ireland, in which the Government has a 14% stake, posted an underlying loss of €374m for 2020, although the lender said it had returned to profitability in the second half of the year and expects loan-loss impairments this year to be significantly lower. 

Chief executive Francesca McDonagh told reporters she couldn't comment on whether the lender will participate in Ulster Bank's sell-off of €20bn loans but added there was no impediment to it getting involved. Rivals AIB and Permanent TSB are involved in the carve-up of the Ulster Bank's loan books, it emerged over a week ago, as Ulster exits banking in the Republic altogether. 

€1.1bn in bad loans 

Bank of Ireland said the €1.1bn in bad loan impairments for 2020 includes €550m related to its economic forecasts such as unemployment and house prices that could potentially affect loan losses. They also include €181m for a management assessment of potential future losses, including customers who were on a payment break and for small business customers who are particularly exposed to the level 5 lockdown. 

It also said the €1.1bn included €437m in “actual loan losses”, which includes €270m in property and construction loan losses. A large bulk of the €270m related to “legacy” loans linked mostly to lending to SME and corporate customers during the boom and before the onset of the financial crash over 10 years ago. For this year, the bank said that it expected the impairment charge to be “materially lower” although the Covid economic crisis had set back the bank’s targets by about two years.

Staff affected by closures

Ms McDonagh said that the 200 staff affected by the branch closures will be offered work at a nearby location, another job in the bank, or voluntary redundancy. And the bank said it had a new agreement with An Post for customers to bank through its over 900 outlets.                    

The Financial Services Union said it will campaign to stop the closure of a large part of the bank's branch network north and south. It has written to every council in the Republic highlighting the effects on rural communities and older people.              

Customers 'the big losers'

Customers will again be the big losers despite the An Post tie-up, said Dermott Jewell, policy adviser at the Consumers’ Association of Ireland, adding that the scale of the closures was a significant move in Irish banking. “Customers did not sign up with and pay their fees to Bank of Ireland to transact their business with premises down the road,” Mr Jewell said, referring to An Post. 

The IFA said that research in Britain showed the closure of even one branch significantly cuts lending to local communities. 

"Worryingly, the branch closure programme disproportionately targets rural Ireland, with the bulk of branch closures in rural locations," its president Tim Cullinan said. 

Banking 'being hollowed out'

Chief executive of business group Isme, Neil McDonnell, said the Irish banking industry was "being hollowed out" to the benefit of the big two lenders, AIB and Bank of Ireland. And, citing the plans of the third-largest lender Ulster Bank to close down completely in the Republic, Mr McDonnell said there was an increasing duopoly in banking "and part of that duopoly was closing branches", with the latest plans by Bank of Ireland.

The chief executive of the Restaurants Association of Ireland, Adrian Cummins said the announcement following on from the Ulster Bank's complete withdrawal was a further blow for business fighting to survive the Covid economic storm. Mr Cummins accused Bank of Ireland of taking advantage of the crisis to engage in "a smash and grab". 

The Government cannot leave it to banks to decide to close down branches at a time when its National Development Plan is designed to rebalance growth in favour of rural areas, and the move to use An Post offices showed that earlier closures of post offices should be reversed, he said.