2nd UPDATE: Bank Of Ireland Sees Pressure On Margins
July 03 2009 - 6:11AM
Dow Jones News
Bank of Ireland PLC (IRE) Friday warned that low interest rates
and higher deposit pricing is having a significant negative impact
on its net interest margin, but it maintained its impairment charge
forecasts.
Chairman Richard Burrows told a packed Annual General Meeting
that trading conditions are "difficult" and "challenging" and said
the stability of the bank remains the primary management
objective.
The bank still sees an impairment charge on loans and advances
to customers of around EUR6 billion in the three years to March
2011, which includes a EUR1.4 billion loan impairment charge in the
year to March 31, 2009.
It said: "Downside risk to the loan impairment charge estimate
arises in the event of a further deterioration in economic
conditions or further prolonged low levels of activity in
residential and commercial property markets."
NCB Stockbrokers analyst Ciaran Callaghan expects the bank's net
interest margin to decline by 8 basis points to 1.66% by March
2010. That forecast assumes pre-provision profits declining by 22%
year-on-year to EUR1.36 billion.
Burrows vowed to "rebuild the trust of all stakeholders in the
name and reputation of Bank of Ireland" by strengthening the
capital position, funding its balance sheet effectively, actively
managing its credit risks and "rigorously managing" costs.
The bank expects legislation for the National Asset Management
Agency, or NAMA, in the autumn. NAMA will take potential exposure
of EUR80 billion to EUR90 billion of commercial property and land
loans off the banks' books.
The government nationalized Anglo Irish Bank after a series of
scandals at the corporate lender, and has injected EUR3.5 billion
each into Bank of Ireland and Allied Irish Banks PLC (AIB) in
return for 25% stakes.
Burrows said the government recognizes "the systemic importance
of Bank of Ireland."
Last month, the Bank of Ireland announced the successful
completion of a debt buy-back program of euro, sterling and U.S.
dollar Tier 1 securities. The equity accretion of this initiative
is around EUR1 billion.
Burrows said that, following this buy-back, the group's
estimated capital ratios on a pro forma basis at March 31, 2009
showed an improvement in Equity Tier 1 to 7.1% from 6.2% and Core
Tier 1 to 10.5% from 9.5%.
At 1030 GMT, the bank's shares had fallen 2.2% to EUR1.49 on the
Irish Stock Exchange, after falling 8% Thursday ahead of the AGM.
Analysts remain concerned over loan losses. The share price has
plummeted from EUR5.33 this time last year.
Company Web site: http://www.bankofireland.com
-By Quentin Fottrell, Dow Jones Newswires; 353-1-676-2189;
quentin.fottrell@dowjones.com