UPDATE 1-Bank of Ireland profit drops again, prompting further cost cuts


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* ROTE target cut due to low interest environment

* FY underlying profit down 19% on impairment charge

* Pre-impairment profit up on higher lending, lower costs (Adds chief executive quotes, mortgage rates, share price)

By Padraic Halpin

DUBLIN, Feb 24 (Reuters) – Bank of Ireland targeted further cost cuts after underlying pretax profit fell for the fourth successive year on Monday, adding it would take longer than forecast to hit a return on tangible equity (ROTE) above 10%.

The bank, which is also the largest Irish operator in the British market, increased its cost reduction target by 50 million euros to €1.65 billion by 2021, having made far faster progress towards that original goal.

Shares in Ireland’s largest bank by assets, which have fallen by more than 20% over the last year, were down 3.3% at 0820 GMT in a generally weaker Irish market.

Bank of Ireland promised to outline further steps to improve returns after last year saying that slow credit formation as a result of Brexit uncertainty and a low interest rate environment presented challenges to hitting a ROTE above 10% by 2021.

The bank revised its ROTE target for 2021, which it set 18 months ago, to around 8% while continuing to target in excess of 10% over the longer term, saying it expected interest rates to remain at historically low levels for “a number of years”.


Its underlying profit before tax fell 19% to 758 million euros, despite a 3% rise in new lending volumes and a 4% year-on-year cut in operating profit. Bank of Ireland’s profits hit a post-Irish banking crisis high of 1.2 billion euros in 2015.

An impairment charge of 215 million euros versus a write-back of 42 million euros in 2018 more than accounted for the difference as operating profit before impairments rose 10%.

The operating performance represented “good progress over hard ground,” Bank of Ireland Chief Executive Francesca McDonagh told Reuters in a telephone interview.

McDonagh said the bank, which had a 24% share in the Irish mortgage market last year, was comfortable with its current level of pricing after main rival, Allied Irish Banks’, became the latest lender to cut fixed mortgage rates on Monday.

Bank of Ireland also bumped up its rolling core Tier 1 capital ratio target – a measure of financial strength – to 13.5% from 13% after British regulators last year demanded lenders hold more capital. The bank’s fully loaded CET1 capital ratio rose to 13.8% last year.

Net interest margin (NIM) – a measure of how profitable a bank’s lending is which hit 2.32% two-and-a-half years ago – stood at 2.14% last year and is forecast to fall further to 2.05% this year, the bank said.

“2019 was equally a year of progress (costs down; lending up) and frustration (interest rate environment; macro-backdrop) for Bank of Ireland,” Davy Stockbrokers wrote in a note, saying the lower near-term ROTE guidance would not come as a surprise. (Reporting by Padraic Halpin; Editing by Edmund Blair and Alexander Smith)


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