I was pleased to see that Bank of Ireland’s 2012 results were slightly ahead of investors’ expectations and indeed prompted some in the market to upgrade their forecasts of the bank’s prospects for the years ahead. In order for Bank of Ireland to return to strength, meet the needs of the Irish economy and enable the State to exit its investment, it has to develop a profitable commercial enterprise and these results show that the bank is definitely well on its way to achieving this goal. The positive takeaways would be that the profitability of the bank is improving with a net interest margin of 1.34% in H2 2012 up 0.14% from H1 2012, auguring well for this year and beyond. The removal of the ELG scheme this year and the on-going reductions in deposit rates will also help. The bank is well capitalised with its Core Tier 1 ratio of 14.4% stronger than the market expected at year end and while impairment levels are still very high, the trend here is downwards.
There are still areas of concern however. Operating costs need to come down further while the level of non-performing loans is still rising, albeit at a slower pace. Mortgage arrears at the bank look to be close to their peak, but as I’ve said many times before I am not happy at the pace at which the banks are moving to deal with this issue. Addressing mortgage arrears is a top priority for the Government and we expect to see real progress on this issue in the months ahead.