Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Bank of Ireland Group PLC (BKRIF, Financial) reported a half-year profitability of EUR1.1 billion, up 5% year on year.
- Return on tangible equity (ROTE) is strong at 18.9%.
- The company announced an interim dividend of EUR352 million, supporting its progressive dividend policy.
- Net inflows for New Ireland grew by 84%, reaching EUR2.1 billion, reflecting strong performance in wealth and insurance.
- The company upgraded its full-year capital generation guidance to 310-320 basis points from the previous 260-280 basis points range.
Negative Points
- International corporate and property books saw a reduction at a 3% annualized rate, reflecting a cautious approach given the global macro backdrop.
- Operating expenses are expected to grow by 5% to 6% for the full year, driven by inflation and additional investments.
- The company expects net lending volumes to be broadly flat in H2, with growth in Ireland offset by the exit of UK personal loans and rundown of UK corporates.
- The NPE ratio, although reduced to 2.9%, still indicates some level of non-performing exposures.
- The structural hedge's gross yield is materially below current swap rates, which could impact future income.
Q & A Highlights
Q: Can you provide more details on the net interest income (NII) guidance for 2024 and the outlook for 2025?
A: For 2024, we expect NII to be around EUR3.55 billion, at the top end of our guidance. For 2025, we anticipate NII to be broadly stable. Key factors include lending growth, benefits from the structural hedge, and deposit growth in line with economic growth. We expect ECB rates to be around 275 basis points by the end of 2025.
Q: What are the drivers behind the strong return on tangible equity (ROTE) in H1, and what should we expect for the rest of the year and into 2025?
A: The strong ROTE of 18.9% in H1 is driven by higher profit, loan book growth, and lower impairment charges. For the full year, we expect ROTE to be around 17.3%. For 2025, we anticipate ROTE to outperform our target of 15%, supported by stable NII, ongoing fee income growth, and controlled operating expenses.
Q: Can you clarify the interim dividend of $0.35 and its implications for the full-year dividend?
A: The interim dividend of EUR352 million represents 40% of H1 profit after tax. For the full year, our objective is to distribute down to a CET1 ratio of greater than 14%, through a combination of progressive DPS and the return of surplus capital.
Q: What is the outlook for loan growth in the second half of the year and into 2025?
A: We expect broadly flat net lending volumes in H2, with growth in the Irish loan book offset by the exit of UK personal loans and the rundown of UK corporates. For 2025, we anticipate continued growth in the Irish loan book, supported by strong demand in the mortgage and SME sectors.
Q: How do you see the competitive landscape in the Irish market, especially with new entrants like Revolut?
A: Competition is healthy for consumers and keeps us on our toes. Bank of Ireland has a strong customer base and offers a range of products to meet diverse needs. We are investing EUR2 billion over the next four years to enhance our digital capabilities and maintain our competitive edge.
Q: Can you provide more details on the structural hedge and its impact on NII?
A: The structural hedge is a key component of our NII resilience. The average receive rate on the fixed leg of the hedge is about 170 basis points this year, with seven-year swaps currently north of 250 basis points. This provides a positive factor for NII over the coming years.
Q: What are your ambitions for the wealth business and the mix of NII versus non-NII income?
A: We aim to grow AUM by 5-10% per annum, outperforming economic growth. Wealth and insurance income now represents about half of our business income, and we expect this trend to continue. We are pleased with the performance of our wealth and insurance businesses, which are key drivers of our overall revenue.
Q: How do you see your ESG and green lending ambitions evolving?
A: We aim to achieve EUR15 billion in sustainability finance by next year and EUR30 billion by 2030. This includes green mortgages and corporate lending. We are the largest provider of green mortgages in Ireland and are committed to supporting sectors like agri and retail with practical ESG interventions.
Q: Can you provide more details on the impact of Basel 4 and your capital distribution strategy?
A: We expect Basel 4 to result in an RWA reduction of up to 5%, equivalent to about 80 basis points in CET1 ratio. This supports our strategy to distribute down to a CET1 ratio of greater than 14%, through progressive DPS and share buybacks.
Q: What are your key assumptions for deposit migration in the second half of the year?
A: We expect stable deposits in Ireland, with a migration to term deposits of about EUR1.3 billion in H1, and similar volumes expected in H2. Our NII guidance assumes an ECB rate of 325 basis points by the end of the year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
