Tuesday, May 28, 2024

Doubts that ECB will cut rates quickly sees Bank of Ireland raise net interest income guidance

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Bank of Ireland has raised its net interest income guidance after a “strong” start to the year, with the lender now expecting it to be 3-4% lower compared to previous forecasts of 5-6% lower. 

The updated figures come amid doubts about the path of future interest rate cuts, with many forecasters now predicting the European Central Bank will be reluctant to move too quickly this year should stubborn inflation persist in the US. 

Speaking on Tuesday morning, Bank of Ireland said it expected interest rates this year to be 25 basis points higher on average across the ECB, Bank of England and Federal Reserve compared to its previous forecasts outlined in its full-year results update for 2023. 

These revised expectations reflect recent forecasts by Deutsche Bank and Morgan Stanley, who now predict just three interest rate cuts this year.

Chief executive of Bank of Ireland, Miles O’Grady said net interest income “performed in line with both our expectations and the Q4 2023 level.” 

“This reflects positive lending momentum combined with continued strong commercial pricing discipline, partially offset by lower deposit volumes and modestly higher deposit funding costs,” Mr O’Grady continued. 

Consumer loan balances increased to €80.7bn in the three months ending in March, up from €79.7bn in the same period last year, helped by a €700m increase in net lending and a €400m rise in exchange rate conversions.

The bank’s retail lending increased by €200m which it said reflected “continued growth in mortgage lending.” The lender’s market share was 40% for the first two months of the year.

Last year saw Bank of Ireland post a record profits haul of €1.9bn before tax, with net interest income fuelled by the ECB’s aggressive interest rate campaign soaring by 48% to €3.68bn.

“We had a strong first quarter, underpinned by loan book growth, higher income and robust capital generation,” Mr O’Grady said.

“We remain on track to deliver our committed financial targets, including the commencement of interim distributions this year. As we approach the mid-way point in our strategic cycle, we continue to generate value from our differentiated business model operating in attractive markets.”

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