Bank of Ireland lifts forecasts

Bank of Ireland (BIRG.I) has revised its full-year guidance, anticipating improved returns to shareholders following a substantial surge in first-half profits. The bank’s positive outlook can be attributed to rising interest rates, a flourishing Irish economy, and a contraction in the banking sector, factors that have collectively bolstered its performance.

In the first half of the year, Bank of Ireland reported an impressive underlying profit before tax of 1.2 billion euros ($1.1 billion), a remarkable leap from the 435 million euros recorded a year earlier, when it operated in a negative interest rate environment. The European Central Bank’s decision to increase borrowing costs by a combined 425 basis points has been instrumental in these notable gains.

Ireland’s largest lender is confident that its full-year return on tangible equity (ROTE) will mirror the impressive 18.5% achieved in the first half, surpassing the 15% target set in March to enhance returns between 2023 and 2025. As a result of this robust performance, Bank of Ireland expects to elevate its annual ordinary dividends to 33% of statutory profit, up from 25% in the previous year. CEO Myles O’Grady has expressed support for further share buybacks in light of the bank’s strong performance.

The bank’s upgraded guidance primarily hinges on its expectation of a slight increase in net interest income during the second half, building upon the significant 68% year-on-year jump witnessed in the first half. Bank of Ireland also maintains its outlook for a 6% full-year rise in operating expenses.

In a similar vein, main rival AIB (AIBG.I) also raised its guidance for the second time in three months on Friday. Both Irish banking giants have profited not only from higher interest rates but also from the recent exits of KBC (KBC.BR) and NatWest’s (NWG.L) Irish units, effectively reducing the number of retail banks in Ireland to just three, including the smaller Permanent TSB (PTSB.I). This consolidation has resulted in both Bank of Ireland and AIB gaining significant traction, with the former acquiring 7.8 billion euros of loans from KBC and increasing its share of the Irish mortgage market to 41%, overtaking AIB’s position from a year ago.

With an optimistic trajectory ahead, Bank of Ireland’s performance demonstrates resilience and strategic acumen in navigating a dynamic financial landscape, instilling confidence in its shareholders and solidifying its position as a key player in the Irish banking sector.