DBRS: Bank of Ireland Delivers Improved Full Year 2014 Results

Summary:
• Underlying profit before tax of EUR 921 million in 2014 compared to a loss of EUR 564 million in 2013
• Total defaulted loans reduced by EUR 2.8 billion during 2014 to EUR 14.3 billion
• Capital ratios improved significantly with the fully loaded CET1 ratio (excl. 2009 Prefs) reaching 9.3%, up from 6.3% at end-2013
• DBRS rates Bank of Ireland at BBB (high), with a Negative trend, for Non-Guaranteed Long-Term Debt & Deposits.

DBRS Ratings Limited (DBRS) views the Bank of Ireland’s (BoI or the Bank) full year 2014 results as further demonstrating the Bank’s progress, supported by the improving economic environment in its core markets of Ireland and the United Kingdom. Underlying profit before tax (PBT) for the year totalled EUR 921 million, a significant improvement of circa EUR 1.5 billion to the restated loss before tax of EUR 564 million recorded in 2013, driven by higher net interest income and lower Eligible Liabilities Guarantee (ELG) fees along with reduced impairment charges. Notably, the net interest margin before ELG fees (NIM), driven by lower funding costs and the impact of new lending volumes, improved to 2.11% in 2014 from 1.84% in 2013 and DBRS notes the potential for further improvement given that the 4Q14 NIM was 2.22%. In 2014 the statutory profit before tax was EUR 920 million.

The Bank’s defaulted loans (defined as impaired loans plus residential mortgages greater than 90 days in arrears) reduced further to EUR 14.3 billion at end-2014, a 16% decrease year-on-year, with the improvement seen across all portfolios. Reflecting the improved asset quality and outlook impairment charges for 2014 were significantly lower than the year before, boosted by a provision reversal of EUR 280 million on the Irish mortgage portfolio and the reversal of a EUR 70 million charge previously taken on NAMA subordinated debt. At end-2014 the coverage ratio reached 52%, increasing by 4 percentage points. Although overall asset quality remains relatively weak, with the defaulted loans accounting for 16.0% of total loans, DBRS views the potential for further improvement, given the positive momentum in the ROI and UK economies.

The Bank’s capital ratios continued to strengthen with, at end-2014, the Common Equity Tier 1 (CET1) ratio reaching 14.8% on a transitional basis and 11.9% on a fully-loaded basis. These ratios include the EUR 1.3 billion of remaining 2009 Preference Shares (the 2009 Prefs), which the Bank intends to de-recognise between January and July 2016. Excluding the 2009 Prefs, the pro-forma fully loaded CET1 ratio stood at 9.3%, a 300 basis points improvement from end-2013. DBRS views positively the improvement in capital levels achieved through earnings retention and anticipates a further strengthening of the capital ratios, given the Bank’s return to profitability.

DBRS rates Bank of Ireland at BBB (high) with a Negative trend for Non-Guaranteed Long-Term Debt & Deposits.

Notes:
All figures are in Euros (EUR) unless otherwise noted.