Bank of Ireland Annual Results for Year Ended December 31st 2016

2016 Key Highlights:

Underlying profit of €1,071m, all trading divisions profitable
Increased fully loaded CET1 ratio by 100bps to 12.3%; Transitional CET1 ratio of 14.2%
Aim to have a sustainable dividend is unchanged. First payment expected in 2018 in respect of financial year 2017
Growth in core loan books of €1.7bn
Continued to be the largest lender to the Irish economy
NIM of 2.19% for the period; NIM of 2.27% in H2 2016
Reduced non-performing loans by a further €4.1bn in 2016; defaulted loans reduced by €3.7bn; net impairment charge reduced to 21 bps
Maintaining strong commercial pricing discipline on loans and deposits
Continuing to invest in our infrastructure, people and our customer propositions; commenced a multi-year investment programme to replace our core banking platforms
Expect investment in our core banking platforms with a CET1 ratio impact of c.35-45bps p.a. over the next 4 years
Group new lending of €13.0bn; acquisitions of €0.2bn
Remaining liabilities under the ELG scheme have matured or were replaced

CEO Comment: Richie Boucher, Bank of Ireland Group CEO, commented:

‘Our business is performing in line with the strategic objectives we have set ourselves. All trading divisions are profitable and have contributed to our strong financial performance during the period. The Group generated an underlying profit before tax of c.€1.1 billion in 2016. We are maintaining strong organic generation of capital and our fully loaded CET 1 ratio increased by 100 basis points during the year to 12.3%. Our core loan books continue to grow and we remain the largest lender to the Irish economy, providing €6.7 billion of new credit to personal and business customers in Ireland. In addition, we generated further borrowing customers in Ireland through loan book acquisitions of €0.2 billion. Our net interest margin grew by 16 basis points in the second half of 2016 to 2.27%. We continue to reduce our non-performing loans, by €4.1 billion or c.34% since December 2015, and our impairment charges have continued to fall.

This year has seen significant developments for the Group. We have commenced a programme to replace our Core Banking Platforms, an investment which will underpin our franchises for the next generation. In addition, political events, in particular the UK’s decision to leave the European Union, may impact on our customers and our business growth in the coming years. Nevertheless, we remain confident that the substantial progress the Group has made in recent years along with the strength of our franchises and the benefits of our diversified business model position us well to take advantage of the opportunities and to mitigate risks ensuing from these and other geopolitical developments. We remain focused on serving our customers and developing our profitable, long term franchises in a way that delivers attractive sustainable returns to our shareholders.’

Ireland – Leading bank in a growing economy:

Largest lender to the Irish economy with new lending of €6.7bn during 2016
#1 or #2 market positions in all principal product lines
Ireland’s #1 business bank; >50% share of new SME/agri lending; new lending volumes were up 13% on 2015
Irish mortgage business focussed on fixed rate product offering providing value, certainty and stability for our customers and the Group (c.75% of our new lending in 2016); new lending
volumes of c.€1.4bn in 2016; 25% share of new business 2016
Ireland’s only bancassurer – second largest life assurance company in Ireland
Ireland’s #1 corporate bank; lead/agent bank in over of 50% all domestic syndicated/club transactions
Continue to win >60% share of banking relationships with new FDI entrants to Ireland

International – providing further attractive opportunities for growth:

Long-standing partnership with Post Office, a leading UK consumer bank with >2m customers
Continue to develop our shared strategy of enhancing our broadly based customer financial services offering providing a wide range of retail products including savings, mortgages, loans, credit cards and ATM facilities
Continue to be #1 player in UK consumer foreign exchange
New partnership with AA on track after first 12 months; complementary to Post Office partnership
AA / Post Office top 2 most trusted brands in the UK
Northern Ireland meeting business objectives; Northridge Finance continuing to perform well
Strong performance from international acquisition finance business

Developing our customer channels, processes and propositions:

We have made significant progress in transforming our customer franchises
Our branches are evolving into business development community hubs driving local commerce
We are developing our infrastructure and processes to respond to an increasing customer preference for dealing through direct channels, which were c.50% of all sales units in 2016 (2015: c.30%)
We are simplifying our propositions and have digitised over 100 customer journeys
We are improving the customer experience with a significant re-configuration of our products and processes during 2016
Replacing our core banking platforms is the next step in building a customer-centric and efficient organisation
Critical enabler to achieving <50% cost income ratio target in medium term Structural reduction in costs from 2019 onwards Personalised, interactive propositions supported by customer insights driving increased cross selling opportunities Risk reduction from robust, flexible and industry leading platforms Enhanced business agility and efficiencies – easy to change, extend and upgrade Open architecture and API capability will enable new business and partnership models Provides strategic optionality Expect investment in our core banking platforms with a CET1 ratio impact of c.35-45bps p.a. over the next 4 years with c.50% charged to income statement and c.50% capitalised Key Financial Highlights: Group Income Statement Underlying profit of
€1,071m NIM of 2.19% for the period; NIM of 2.27% in H2 2016 Maintaining strong commercial pricing discipline on loans and deposits Other income of €842m includes business income of
€621m which is broadly in line with 2015 Operating expenses of €1,747m in line with 2015; focussed on tight cost control while continuing to invest in our businesses, infrastructure and people
Operating expenses have remained flat for the last 3 half-year reporting periods on a constant currency basis Customer loan impairment charge of 21bps, 40% reduction compared to 2015
Result includes €171m additional gains, primarily relating to sale of investments in Visa Europe (€95 million) and the gains arising on the completion of the rebalancing of our liquid asset portfolio (€63 million) Balance Sheet and Capital €1.7bn increase in core loan books Customer loans €78.5bn; reduction vs. 2015 primarily due to FX translation impact of €5.4bn. Customer deposits – account for >95% of Group funding, predominantly retail sourced
Strong organic capital generation in 2016; Robust capital ratios
Increased fully loaded CET1 ratio by 100bps to 12.3%
Transitional CET1 ratio of 14.2%
Total capital ratio of 18.5%
Strong liquidity ratios
Net Stable Funding Ratio – 122%
Liquidity Coverage Ratio – 113%
Loan to Deposit Ratio – 104%
S&P upgrade to BBB in Jan 2017. Positive outlook from Moody’s, Fitch and DBRS
Aim to have a sustainable dividend is unchanged. First payment expected in 2018 in respect of financial year 2017.
As additional clarity emerges on the impact of the UK’s decision to leave the European Union, and as the more recent improvement in the IAS 19 accounting pension deficit is sustained, the Group expects to re-commence dividend payments in respect of financial year 2017, with the initial payment being made in the first half of 2018
Expect dividend payments to re-commence at a modest level, prudently and progressively building, over time, towards a payout ratio of around 50% of sustainable earnings
The dividend level and the rate of progression will reflect a range of factors

http://www.rns-pdf.londonstockexchange.com/rns/7697X_1-2017-2-24.pdf