Irish Banks: Strong Profitability Driven by Deposit Margin; Early Signs of Asset Quality Deterioration

DBRS Morningstar released a commentary on Irish Bank’s H1 2023 results. Summary highlights from the commentary include:
• Exceptional net results driven by strong levels of net interest income, the acquisition of assets and contained cost of risk.
• Early signs of asset quality deterioration as Stage 2 and Stage 3 loans increase.
• Irish Banks’ capitalization remained strong at end-Q2 2023, with all Banks reporting significant capital buffers well above their minimum requirements
“Net earnings were driven by strong NII that benefited from higher interest rates, especially for the Banks’ liquid assets and the deposits placed at the European Central Bank (ECB), and to a lesser extent, the continuous repricing of the loan book and the integration of the portfolios acquired from Ulster Bank and KBC,” said María Jesús Parra, Vice President from the DBRS Morningstar Global Financial Group team. “In contrast, interest rates on customer deposits, the largest source of funding for Irish Banks, slightly increased since end-2022 with a very low beta and a continuous large proportion of transactional accounts over term deposits.”