Analysts predict further uptick at the pillar banks

Bank of Ireland chief executive Myles O’Grady and shareholders at the bank were undoubtedly happy with the performance of the Irish banking sector over the last year – but spare a thought for savers.

espite the European Central Bank deposit rate having surged to 2.5pc, recent research by Credit Suisse has shown the Irish banks have been slower than most of their European counterparts to pass this on to depositors.

This has helped fuel profits at Bank of Ireland and AIB – and results from the two pillar banks last week were positive.

At a roundtable meeting with journalists following the announcement of the results, O’Grady was asked about Bank of Ireland’s low deposit rate and whether he was banking on the inertia of Irish customers.


It’s been a good year for BoI and AIB

“We are certainly not banking on the inertia of any of our customers,” said O’Grady. “We take our customers very seriously, and competition very seriously as well.

“When I think about the rate environment, I don’t just think about the deposit customer,” he said. “I think about all of our customers, and I think about that on a holistic basis. That is very important to me.

“When I think about what we are going to award deposit customers, I also think about what we are going to charge our mortgage customers. Both need to be taken in the round.”

Regardless of that sentiment, Bank of Ireland has seen its net interest income (NII) – the difference between the revenue a bank earns from loans and the rate it pays to raise deposits – grow by 12pc last year.

O’Grady and the bank upgraded its medium-term profitability targets as a result.

Last week, Bank of Ireland reported €1.198bn in underlying profit before tax for 2022. AIB reported profit after tax of €765m.

Bank of Ireland opened 240,000 new accounts during the year as KBC and Ulster Bank prepared to exit the Irish market. AIB opened almost twice as many – 450,000 new bank accounts, according to the results.

Bank of Ireland also recommended €350m of dividends and buybacks, while AIB recommends €381m.

While both banks have increased their deposit rates in recent weeks, they have both reported a surge in NII, much to the delight of analysts.

Bank of Ireland analysts at Credit Suisse flagged that underlying profit before tax for the semi-annual period was €779m, 6pc ahead of consensus.

“The beat was primarily driven by NII, which came in better than expected,” they said.

AIB analysts at Goodbody were also feeling optimistic about the results, flagging that fresh guidance for 2023 indicated a likely upgrade of around 20pc to the consensus underlying profit before tax for the year.

During the meeting with journalists, Bank of Ireland’s O’Grady and chief financial officer Mark Spain were asked about its investor base. The response was confident.

“We have a full roadshow ahead for the next two weeks,” said Spain. “We are certainly not short of interest in meeting us.”

However, banking sector jitters have emerged after Silicon Valley Bank shares in the US sank by as much as 60pc on Thursday.

Bank of Ireland and AIB saw their share prices improve off the back of their results. However, at the time of writing, they lost some of the gains with Bank of Ireland at €9.70, up from €5.55 a year ago. AIB was trading at €3.75, up from just over €2 last March.

Shareholders will be expecting more returns. Deposit holders will be hoping for the same.

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