Bank of Ireland posts underlying loss of €669m for H1 2020

Maria Nikolova

The Group took a net credit impairment charge of €937 million in the first six months of 2020 compared to €79 million in the same period of 2019.

Bank of Ireland Group plc (LON:BIRG) today published its interim results for the six months to June 30, 2020.

The Group posted an underlying loss of €669 million for the first half of 2020, reflecting an IFRS 9 impairment charge of €937 million. This charge, largely taken on Stage 1 and Stage 2 performing loans, includes €432 million from the impact on IFRS 9 models from the Group’s latest macro-economic outlook, a €184 million management adjustment related to payment breaks, and €321 million from actual loan loss experience in the period. The Group’s impairment coverage increased to 2.7% from 1.6% at December 2019 resulting in an impairment loss allowance of €2.1 billion on balance sheet at June 2020.

Net interest income (NII) of €1.1 billion was broadly in line with the first half of 2019. Net interest margin was 2.02%, in line with our expectations. The Group’s NII reflects the benefit from loan book growth since 2017 and reduced liability costs offsetting lower structural hedge income and UK competitive pressures.

Fees and other income arise from diversified business activities including wealth, bancassurance, Forex and transactional banking fees. This includes business income of €266 million which is 14% lower than the same period in 2019 due to the disruption caused by COVID-19. Wealth and Insurance income decreased 16% versus the same period in 2019 from lower new business sales and reduced income on existing business. Retail Ireland income decreased 20% from reduced current account and FX income and lower levels of card transactions as a result of the economic lockdown.

A loss of €109 million on valuations and other items was reported in the first six months. This reflected falling equity markets and widening credit spreads related to unit linked assets and bond portfolio valuations in Wealth and Insurance of €90 million, and financial instrument valuation adjustments and other items of €19 million.

The Group’s loan book decreased by €2.8 billion during the first six months of 2020 (€0.5 billion on a constant currency basis). Net lending growth of €0.2 billion includes €1.3 billion of revolving credit facility (RCF) drawdowns, with mortgage market share in Ireland increasing to 25%. Foreign exchange and other movements of €2.1 billion and impairment charges more than offset net lending. Total new lending volumes, excluding RCF activity, of €5.8 billion were 19% lower than the first half of 2019, reflecting reduced activity in our core markets as a consequence of COVID-19.

The Group’s non-performing exposures (NPE) increased by €1.1 billion to €4.6 billion, equating to an NPE ratio of 5.8% of gross customer loans. This increase primarily reflects credit migration in the Group’s corporate and property and construction portfolios, and the implementation of the new Definition of Default regulatory framework.

Bank of Ireland’s CET1 capital ratio was 13.6% at June 2020, with a 10 basis point improvement since the first quarter of 2020. Pre-impairment organic capital generation and the reversal of the dividend declared in respect of 2019 was offset by the impact of credit deterioration, loan book growth, transformation investment and regulatory capital demand. Minimum regulatory capital requirements have been reduced by 218 basis points to 9.27% in 2020 and the Group’s regulatory CET1 capital ratio of 14.9% at June provides headroom of c.560 basis points.

No dividend deduction has been assumed for 2020.

While the Group expects economic recovery commencing in H2 2020, COVID-19 and Brexit are ongoing uncertainties, subject to no further deterioration in the economic environment or outlook, 2020 impairment charge is expected to be in a range of c.€1.1 billion to €1.3 billion.

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