Bank of Ireland Interim Management Statement – Q1 2016 update

The Group continues to trade in line with expectations.

The macroeconomic environments in Ireland and the UK, which are our key markets, have remained favourable. In Ireland, the export sector continued to expand and domestic activity increased as improving labour market conditions and other factors positively impact consumer spending. In the UK, where our businesses are primarily focused on the domestic sector, the economy expanded in Q1, notwithstanding some uncertainty relating to the upcoming EU referendum. Our regulatory capital ratios are substantially hedged from currency translation impacts. However, given that sterling weakened by 7% during the first quarter vis-a-vis our Euro reporting currency, this has impacted reported balance sheet assets and liabilities as well as items in the profit and loss account.
On a constant currency basis, our net interest income has performed in line with our expectations during the first quarter. Customer loan asset spreads remain in line with H2 2015 levels and we are continuing to take actions to reduce the cost of our funding. Liquid asset volumes are higher than anticipated, due to underlying deposit and current account volume growth. Liquid asset spreads reflected the ongoing very low interest rate environment and bond sales that were completed in the early part of the year, with related additional gains benefitting non-interest income. As a consequence of these factors, our net interest margin averaged 2.11% during the period.

Other non-interest income and fees are largely in line with the second half of 2015, notwithstanding the backdrop of a more volatile market environment. The Group has continued to maintain tight control over our cost base, while making appropriate investments in our businesses, infrastructure and people. As anticipated, regulatory charges and levies of c.€50 million were accounted for during the period.

Asset Quality 

Asset quality trends have continued to improve in line with our expectations. Our non-performing loan volumes have fallen by €0.9 billion since December 2015 to €11.1 billion at the end of March 2016, with reductions across all asset classes. Our defaulted loans have reduced by €0.8 billion during the same period to €9.8 billion. These reductions reflect our ongoing progress with resolution strategies that include appropriate and sustainable support to customers who are in financial difficulty, the positive economic environment and the ongoing recovery in collateral values. We expect the level of non-performing loans to continue to reduce.

Balance Sheet 

Loan book dynamics continue to be broadly in line with our expectations.

The balance sheet was impacted by the translation impact of sterling assets and liabilities with customer loan volumes reducing to €81 billion in Euro reported terms at the end of March 2016 and customer deposits to €79 billion, resulting in a loan to deposit ratio of 104%. The decrease in the value of sterling accounted for c.€3 billion of the movement in customer loan volumes. New lending volumes were higher than in the same period last year and, notwithstanding some large individual transaction specific redemptions in our Corporate business and a broadly similar pattern to the same period last year of redemptions across our other businesses, our core loan books (i.e. excluding non-performing loans, Irish tracker mortgages and legacy run-down books) continue to grow. Wholesale funding was €14 billion at the end of March 2016.


At the end of March 2016, the Group’s fully loaded CET 1 ratio was 11.2%, in line with the December 2015 position. The Group’s continuing organic capital generation was offset by an increase in the IAS 19 accounting standard defined benefit pension deficit to €0.9 billion. At March 2016, the Group’s transitional CET1 and Total Capital ratios were 13.1% and 17.7% respectively and reflect, inter alia, the further phase in of CRD IV items since 1 January 2016.


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