Bank of Ireland to Triple Shareholder Returns

Bank of Ireland, the country’s largest lender, has announced plans to significantly increase returns to shareholders for the second consecutive year, buoyed by nearly doubling its full-year profit fuelled by higher interest rates. However, despite the positive financial performance, the bank’s share price experienced a sharp decline of about 10% amid concerns about expected rate adjustments by the European Central Bank (ECB).

The highly concentrated Irish banking sector, which heavily relies on interest revenue, has witnessed a surge in net interest income following the ECB’s rate hikes over the past 18 months. Bank of Ireland reported a remarkable 92% increase in pretax profit, reaching €1.9 billion compared to just over €1 billion in the previous year. In response to its robust performance, the bank has outlined plans to return €1.15 billion to shareholders, more than tripling the returns from the previous year.

Of this amount, €634 million will be distributed through dividends, reflecting a 40% ordinary payout ratio, with the remainder allocated to share buybacks. Additionally, the bank disclosed a significant increase in underlying net credit impairment charges, totalling €403 million, largely attributed to potential risks, particularly in the commercial real estate sector.

Despite the positive financial indicators, Bank of Ireland anticipates a decline in net interest income in 2024 due to expected rate reductions by the ECB. The bank reported a 48% increase in net interest income to €3.7 billion in 2023, driven by higher interest rates and acquisitions.

The bank’s loan book expanded by €7.7 billion in 2023, notably including a 23% increase in the Irish loan book following the acquisition of €8 billion in loans from KBC Bank Ireland. However, reductions were observed in non-performing loans and UK retail operations, consistent with the bank’s strategic realignment.

Addressing asset quality concerns, Bank of Ireland highlighted improvements in its non-performing exposure ratio, which decreased by 50 basis points year-on-year to 3.1%. Furthermore, the bank emphasised its commitment to digitalisation, reporting an 18% increase in active digital users and improved customer metrics.

Group CEO Myles O’Grady hailed 2023 as a “successful and strongly performing year” for Bank of Ireland, attributing the positive outcomes to the bank’s differentiated business model and favourable market conditions, particularly in Ireland. Despite acknowledging external risks, O’Grady expressed confidence in the bank’s prospects and reaffirmed its commitment to achieving strategic targets.

However, analysts at Davy Stockbrokers cautioned that the bank’s guidance implied lower-than-expected profits for 2024, potentially prompting a downward revision of market expectations. Despite the challenges ahead, Bank of Ireland remains optimistic about its future trajectory, leveraging its robust financial position and strategic clarity to navigate evolving market dynamics.