Ciarán Hancock, Finance Correspondent
Bank of Ireland produced a strong set of full year results this morning, beating analysts estimates by 6 per cent. Its pre-tax profit topped € 1.2 billion with all of its trading divisions operating in the black.
This was driven by strong loan growth, particularly in the second half of 2015, tight cost management and some additional gains.
Gross new lending rose by 40 per cent to € 14.2 billion, with half of this figure in Ireland. Overall, net loans and advances to customers were € 84.7 billion at December 31st, an increase of € 2.6 billion on a year earlier.
The strengthening of sterling during the period contributed € 2.5 billion to this increase.
Its net interest margin, a key measure of profitability, rose by eight points to 2.19 per cent.
This reflected lower funding costs and the positive impact of new lending, partially offset by the impact of lower yields on liquid assets purchased to replace bonds maturing or sold as part of its liquid asset rebalancing strategy.
The focus now is on returning surplus capital to shareholders with the bank flagging that it will pay a dividend based on the 2016 financial year.
The cheques won’t be issued until the first half of 2017 but it’s a symbolic statement and means Bank of Ireland will become the first of the domestic Irish banks to resume its dividend since the 2008 crash.
It also signals that the bank has moved from a restructuring and crisis management phase to normalised conditions based around a growth story.
There are headwinds. With almost half of its balance sheet in the UK, concerns over a potential Brexit and any weakness in sterling would impact its results.
The bank has also signalled potential spike in regulatory charges this year. These costs, including the Irish bank levy, amounted to € 75 million in 2015 but the bank said they could rise by € 40 to € 45 million.
In addition, the Irish home loan market continues to be held back by a lack of supply and the Central Bank’s tighter macro-prudential rules.
And the current stock market volatility has potential implications for its pension deficit. Its own share price is down about 26 per cent year to date with banks out of favour with markets at present.
The bank also noted that while the outlook for the Irish and UK economies looks favourable, it is “conscious of international economic and geopolitical risks to sentiment and growth”.
The result of our general election and the UK’s Brexit referendum add to those risks.
