Bank of Ireland makes bold appeal for problem loans as Covid backs facility
Bank of Ireland chief executive Francesca McDonagh is cautious at the best of times when it comes to making absolute predictions.
But she showed it even more on Monday when she welcomed a slew of reporters to the bank’s nerve center on Baggot Street for the first time since the appearance of Covid-19 – on the second anniversary of the initial official affair in Republic.
“The last two years have taught us that things can go and go, so it’s hard to be too prescriptive and definitive,” she said.
However, even as global markets have succumbed to heightened volatility over the past five days after Russian President Vladimir Putin unleashed a wave of attacks on Ukraine – triggering Europe’s biggest geopolitical crisis since World War II. global – McDonagh’s outlook for the bank is more optimistic than at any stage since she took the reins 4½ years ago.
After delivering a much better-than-expected net profit of over €1 billion for 2021 (helped by the release of some of the bad debt provisions it had set aside a year earlier), McDonagh unveiled its intention to return €100 million to shareholders.
Half of the money will be returned under the group’s first share buyback program since 2004, before the financial crisis.
Even taking that cash return into account, the bank’s Common Equity Tier 1 capital ratio – a key measure of financial strength and the ability to withstand a shock loss – came in at 16%. .
That’s 1 percentage point above market consensus expectations, more than 6 points above its minimum regulatory requirement and 3 points above the bank’s internal target.
That’s an impressive result for a bank that, let’s face it, has been coping since the financial crisis with tighter levels of excess capital than its market peers.
But the big surprise is that while investors and credit rating agencies have long feared that non-performing loans (NPLs) will rise across the board this year amid extraordinary economic support from the central bank and government Covid -19 are eased, the Bank of Ireland sticking its neck out early saying its NPL ratio should actually fall this year from 5.5% in December.
Chief Financial Officer Myles O’Grady said while the bank expects “inflows” of non-performing loans in 2022, the rapid pace at which the bank’s restructuring team is working to find solutions for struggling borrowers should lead to an overall decline in NPLs.
The decline is expected to accelerate as the bank plans to continue a recent trend of selling portfolios of long-overdue loans.
O’Grady, of course, won’t be around to see if the prediction works out, as he will leave banking at the end of next month to join food wholesaler and retailer Musgraves. But his current boss will.