BANK OF Ireland has signalled that it plans to raise variable interest rates on its loans in an effort to improve the underlying profitability of the bank.
Chief executive Richie Boucher said the bank had absorbed the two recent interest rate increases from the European Central Bank but signalled the higher cost of deposits meant the interest rate on loans had to be increased.
“Deposit costs have remained very, very elevated. I don’t think that we continue to bear that,” said Mr Boucher, reporting half-year results for the bank. Parts of the loan book are “very difficult” to increase rates on, he said. Some 62 per cent of the €28 billion Irish residential mortgage book is locked in on ECB tracker rates.
Losses before one-off items at the bank narrowed to €723 million for the first half of the year – 45 per cent better than the same period in 2010 – as the charge for bad loans fell 22 per cent to €842 million.
Net interest income fell 14 per cent to just over €1 billion, excluding the cost of the Government guarantees which rose 58 per cent to €239 million during the year. Including guarantee costs, the net interest margin fell to about 1 per cent on an annualised basis at the end of June from 1.4 per cent a year earlier.
Mr Boucher said that loan impairments peaked in 2009 but that he still expected mortgages losses to “continue to climb into next year”.
Arrears of 90 days or more on the bank’s €21 billion Irish home loans rose to 4.5 per cent at the end of June from 3.7 per cent at the end of December. On the €7.2 billion of Irish buy-to-let loans, arrears rose to 7.8 per cent from 5.9 per cent.
Some 70 properties were repossessed during the first half of the year, compared with 75 for the whole of last year. Mr Boucher said that 39 were owner-occupied properties and 34 were handed over voluntarily or abandoned.
Mr Boucher said that 3,900 customers out of a total of 145,000 mortgages had their loans “modified” to help them meet repayments and that more than 95 per cent were paying interest in full.
Demand for new loans was “very muted”, he said. Asked about the Central Bank’s upcoming fitness and probity tests on pre-crisis bankers and the Government’s call for a change of management at the banks, Mr Boucher said that he had been focused on meeting commitments agreed by the bank over recent years.
“What I must do – which is what I asked every one of my colleagues – is to focus on your job to the best of your ability and see how that plays out,” he said.
Mr Boucher said he doesn’t expect the global market turmoil to derail plans to sell a further €17 billion in non-core assets.
“We are quite well-advanced on the sale process of a number of portfolios which we had identified for sale. We have €10 billion to sell before December 2013. We would like to front-end as much of that as possible,” he said.
Deposits stood at €65 billion at the end of June – the same level as six months earlier – but the June figure included €3 billion deposited by the National Treasury Management Agency which has since been repaid.
Emergency loans from the Central Bank fell to €7 billion at the end of the half year, down from €8 billion six months earlier, while ECB borrowings fell to €22 billion from €23 billion at the end of December.
Shares in the bank closed unchanged at 9.3 cent.
