New dip in Bank of Ireland loan default cases

Bank of Ireland has said it has seen a further decline in loan default cases in the second half of this year, with customer deposits also increasing.

The total volume of defaulted loans stood at €16.4bn as of the end of September, the bank said in its latest trading update yesterday. That was down by €1.9bn from the end of June last year, when defaults were at their peak among BoI customers.

In yesterday’s statement, the bank said it only anticipates further improvement on its bad loan levels.

“Irish mortgage early and default arrears continued to reduce in the third quarter, with reductions achieved in both owner-occupied and buy-to-let mortgage books. The group continues to keep under review its provisioning assumptions on its Irish residential mortgage books.”

“Supported by the actions we have been and are taking, we expect asset quality trends to continue to improve and we anticipate further reductions in impairment charges towards more normalised levels,” the bank said.

The value of the bank’s loan book dipped slightly, from €83.4bn to €83.3bn, during the third quarter, largely reflecting a 3% rise in the value of sterling since the end of June. While gross new lending has continued to increase, repayments have continued to exceed new lending, another reason for the marginal dip in loan book value.

The group’s net interest margin — basically the difference between the income it generates from interest on lending and the amount of interest it pays to its own lenders — increased, as anticipated, in the last quarter; with lower funding costs and the positive impact of new lending volumes at higher margins contributing to the improvement.

Regarding customer deposit levels, BoI said they amounted to approximately €75bn as of the end of September — a marginal increase on the volume as of the end of June — resulting in a loan-to-deposit ratio of 111%.

Bank of Ireland said it has continued to trade in line with its expectations in the period since the end of June, with recovery in both the Irish and British economies helping new business flow.

“The group remains focused on tight cost control, while continuing to invest in our people, businesses, and infrastructure,” it said.

Meanwhile, in the aftermath of it passing the latest ECB stress tests last week, the bank said it continues to generate capital “at a significant pace”, with a further increase of 90 basis points in its common equity tier one ratio during the three months to the end of September to 14.1%. Bank of Ireland’s total capital ratio was 17.5% at the end of September, compared to 16.4% at the end of June.

“The increase in our capital ratios during the period reflects our trading performance, a more efficient capital structure in our life assurance subsidiary and a modest reduction in risk-weighted assets,” the bank said.

Wholesale funding reduced from €23bn to €21bn from the end of June to the end of September, of which €5bn was monetary authority funding, including €2.7bn related to Nama senior bonds, the bank also said yesterday.

“Bank of Ireland continues to demonstrate strong capital generation and reassure investors on its capability to redeem its preference shares in line with its stated objective,” noted Diarmaid Sheridan of Davy Stockbrokers.


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