Bank of Ireland warns full-year loan fees to hit € 1.3 billion

The Bank of Ireland on Wednesday warned it would report a full-year loan loss impairment charge of € 1.1 billion to € 1.3 billion as it grapples with the fallout from the Covid-19 crisis .

The bank decided to recognize most of the provisions during the first half, with 937 million euros provisioned over the period, well above analysts’ expectations, bringing it down to a pre-tax loss of 669 million euros .

The company also said it expected a 30% drop in new loan volumes this year, with business revenues down 20 to 30%. The forecast marks an improvement over what the Bank of Ireland anticipated in May, when it predicted that new lending volumes could drop by as much as 50% this year and business volumes could drop to as low as 40%. %.

“Our outlook is cautiously more optimistic than our first quarter business update, resulting in a revised outlook for the remainder of 2020 in terms of new loans and business income,” said Managing Director Francesca McDonagh. “We remain committed to continuing to support our customers and help restart the economy in the times to come. “

The bank’s shares rose 7.8% to € 1.98 in Dublin.

The Bank of Ireland said in February, ahead of the Covid-19 crisis, that it planned to find an additional € 50m in cost reductions by 2021 – on top of the € 200m in planned savings. over three years until the end of next year. – reduce its operating costs to 1.65 billion euros while it was grappling with ultra-low interest rates and moderate loan growth.

The bank revealed on Wednesday that it plans to reduce the size of its workforce from more than 1,400 people to less than 9,000 in the coming years.

Negative rates

Ms McDonagh also said the lender plans to apply negative rates to small and medium-sized businesses on deposits over 2.5 million euros.

The move comes nearly a week after it emerged that the bank wrote to 14 major pension companies telling them it would charge 0.65% interest on their cash deposits, which amount to average at 100 million euros.

Banks cannot indefinitely absorb the cost of negative rates applied since 2014 by the European Central Bank on excess deposits it accepts from them as part of efforts to encourage lending to the economy, McDonagh said. . The group has been invoicing deposits to large institutional and corporate clients since 2016. Deposits placed with the ECB carry a negative interest rate of up to -0.5%.

Meanwhile, the bank expects its Common Equity Tier 1, a measure of reserves to cope with a shock loss that stood at 13.6% at the end of June, remain above its target of 13.5% this year as dividends are not expected. .

Bank of Ireland has granted more than 100,000 payment interruptions to customers in the Republic and the UK amid the coronavirus crisis. Some 54 percent of Irish mortgage borrowers and 62 percent of commercial borrowers have chosen to extend payment breaks from three to six months.

Elizabeth J. Harris