Bank of Ireland said there were signs that a firmer Irish economy in the second half of 2012 continued into this year after it posted a better-than-expected 40 per cent drop in underlying profit for the year as a whole.
The only Irish lender to escape nationalisation after an unprecedented property crash, the bank saw underlying profit dip by two-thirds in the first half but ended the slump as job cuts and mortgage rate rises fed through in the second half.
Those actions will continue to aid the gradual recovery of Ireland’s largest bank this year in a stabilising Irish economy, chief executive Richie Boucher said yesterday.
“I think there are definitely signs that the economy is starting to grow again and definite signs that for the bank itself, all the work we’ve been putting in is starting to come through in the financial numbers,” Boucher told reporters.
“If we look at our deposit books, there is cash in the economy. People are still cautious about spending, however, we are certainly seeing them starting to spend on smaller ticket consumer items.”
Ireland’s bailed-out economy is forecast to grow for the third year in a row this year and Boucher said that while customers were still deferring bigger purchases like cars, the demand for mortgages was increasing on the back of “very clear signs of stabilisation” in the housing market.
However, a wider recovery is unlikely to come soon enough for the bank to meet its own target of increasing its net interest margin – the gap between what it charges for loans and pays to borrow – to two per cent by 2014 after it rose to just 1.25 per cent from 1.2 per cent six months earlier.
The half-year figure represented a trough, Boucher said, but the 2014 target would not be met unless there was a dramatic change in the cycle of central bank interest rates.
Shares in the bank, which had dropped to €0.8 six months ago, were 3.8 per cent higher at €0.14 by 1030 GMT.
“It’s baby steps, but they’re all good baby steps and they are helped by an underlying improving macro-economic situation,” one Dublin-based trader said. “It just looks like things are a little bit better than the market had been expecting.”
Irish general insurer FBD Holdings Plc also said yesterday that economic uncertainty had reduced in Ireland and that domestic demand had stabilised.
Operating profit before provisions fell to €242 million on high funding costs, a limited appetite for new credit and a fall in higher-earning assets. Five analysts polled by Reuters had expected a slightly sharper fall to €237 million.
Including provisions for bad debts of €1.72 billion, a drop from the €1.94 billion provided for a year ago, underlying pre-tax loss, fell two per cent to €1.49 billion.