The Bank of Ireland seeks to calm the nerves of investors and taxpayers



[ad_1]

Still affected by the need for a € 4.8 billion state bailout and imposing losses on junior bondholders during the financial crisis a decade ago, the Bank of Ireland has tried to reassure taxpayers and investors alike that it has enough capital to cope with an increase in loan losses from the coronavirus pandemic.

14 percent of the state lender revealed on Monday that it had taken a loan impairment charge of € 266 million for the first quarter and expects credit losses to increase significantly as the year progresses. The bank has yet to see many loans deteriorate as a result of the coronavirus. But it is only a matter of time, as it forecasts the economies of Ireland and the UK to contract by 8% and 8.5% this year, with average unemployment rates rising to 13.5% and 9%. %, respectively.

In a phone call with analysts, the group’s chief financial officer, Myles O’Grady, noted that even in an unexpected scenario of a 10-12 percent drop in gross domestic product (GDP) this year, most losses for coronavirus, also known as Covid -19, will be counted in 2020.

Crucially, he said, the bank’s capital reserves will bottom out at a level higher than that required by regulators before the pandemic, regardless of how authorities have eased the banks’ capital requirements.

While the hope, of course, is that the company is right, no one knows how the pandemic will unfold. Recent history has thought us that Irish banks do not have the best track record in downside risk assessment.

The group’s executive director, Francesca McDonagh, highlighted how the true depth of the recession and the pace of recovery were unclear and that definitive predictions are impossible.

“The economic recovery will be influenced by the effectiveness of the fiscal and monetary policies adopted to dampen and restart our economies,” he said in the call. “A second wave of infection and associated closures cannot be ruled out, and the timeline for vaccine development and implementation is uncertain.”

However, the image the Bank of Ireland has painted for business over the year looks bleak, even as he clings to hopes of an economic recovery in the closing months of 2020.

Volumes

The bank sees gross loan volumes fall 30-50% from last year’s € 16.5bn, credit spreads also declined, while companies’ revenues are expected to decline by 30% and 40%. It points to a more negative assessment than that offered by many peers in Europe in recent times, although bank executives say they are being “cautious and conservative.”

The bank, which had a 26 percent share of mortgage activity in Ireland in the first quarter, said the foreclosure application rate and drawdown rate was 50 percent lower in April than the business that was doing in the last three months. Total new loans decreased 37 percent, excluding the impact of small and medium-sized businesses turning to lines of credit to boost their cash positions amid the crisis.

Taken together, this indicates that total revenue will be up to 20% lower than our current forecast of € 2.8 billion, ”Davy analyst Diarmaid Sheridan said in a note to clients.

Shares in the Bank of Ireland, which have been among the best-selling in the sector in Europe so far this year, fell 14.9 percent in Dublin, leaving the company trading at 0.17 percent of the value that the company puts on its assets.

With rivals AIB, TSB Permanente and KBC Bank Ireland also due to the numbers in the coming days, investors remain cautious.

[ad_2]