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Bank of Ireland CEO Says Home Loan Arrears to Peak in 2012

Bank of Ireland Plc Chief Executive Officer Richie Boucher said he expects the bank’s home-loan arrears to peak this year and loan-loss impairments will “reduce over time” as the Irish economy recovers.

Shares in the largest Irish lender advanced. The proportion of Irish home mortgages more than 90 days in arrears rose to 5.6 percent at the end of December from 3.76 percent a year earlier, Boucher told reporters today as the bank posted a narrower loss.

“We don’t anticipate” that arrears have “peaked yet,” Boucher said. Still, the Dublin-based bank expects “the ratio of increase will start to ease in 2012 and will peak in 2012.”

While impairment losses rose to 1.94 billion euros ($2.56 billion) last year from 1.86 billion euros in 2010, they were below the 2.9 billion-euro level in 2009, which the bank said marked a peak. Bank of Ireland is alone among the country’s six largest lenders in escaping control by the state, which sold a 34.9 percent stake last year to five investors, including Toronto-based Fairfax Financial Holdings Ltd. and WL Ross & Co.

“Irish loan books and operating profitability will be tested most severely in the coming months, but it is our estimation that a solid enough foundation has now been put in place to weather this storm,” said Karl Goggin, an analyst with Dublin-based NCB Stockbrokers, who rates the shares “buy.”

Bank of Ireland shares rose as much as 8.6 percent in Dublin trading and were up 7.1 percent to 15 euro cents at 10 a.m. local time.

Loan Arrears

The stock has rallied more than 80 percent this year after plunging 78 percent and 55 percent in 2011 and 2010, respectively. The shares peaked at 11.88 euros five years ago.

The bank aims to “prudently” disengage from the state’s bank-guarantee plan after paying 449 million euros of fees for this protection last year, Chief Financial Officer Andrew Keating said.

Bank of Ireland’s so-called underlying pretax loss narrowed to 1.52 billion euros from 3.45 billion euros a year earlier, according to a statement today. The 2010 figure was boosted by 2.47 billion euros of losses on risky real-estate loans it sold to the National Asset Management Agency, the nation’s so-called bad bank.

Bank of Ireland said home-loan arrears increased in the second half as lenders implemented a new code of conduct amid “considerable public speculation” about potential government assistance for homeowners struggling to pay debts incurred in the nation’s property boom. Boucher said the bank set aside about 1 billion euros of provisions for bad mortgage loans.

Government Mortgage Policy

Ireland is reshaping its bankruptcy and insolvency laws after its real-estate bubble collapsed in 2008 and unemployment tripled to 14.2 percent as of December. Some 14 percent of the country’s private residential mortgages were either more than 90 days in arrears or had been restructured at the end of September, the country’s central bank said Feb. 17.

Boucher criticized a Moody’s Investors Service estimate that as much as 25 percent of the country’s mortgage debt is open to writedowns as a result of the government’s proposals.

“I don’t know where they got their figure from,” Boucher said. “The legislation doesn’t provide for mandatory writedowns of mortgages, and I think the government have been pretty clear about that.”

Irish homeowners seeking to get their mortgages at least partially written off need agreement from lenders under the proposed new laws. Any agreement will require support from at least 75 percent of creditors who have security on their loans.

‘Significant Uncertainty’

Bank of Ireland expects its impairment losses to be “higher” than the central bank’s base case set out last year, as the domestic economy is expected to be weaker this year than originally forecast, Keating told reporters. The impairment losses will still be “well within” stress-case assumptions, he said.

The bank raised 5.2 billion euros of capital last year following a stress test in March.

“Forecasts at Bank of Ireland are fraught with significant uncertainty, given the macro headwinds, domestically and internationally,” Eamonn Hughes, an analyst at Dublin-based Goodbody Stockbrokers, said in a note today.

While the bank said last year it plans to rebuild its net interest margin, the difference between its funding costs and lending rate, to more than 200 basis points by the end of 2014, the timing of the recovery has become “much more challenging” as interest rates remain low and competition for deposits remains “intense” in Ireland, Boucher said.

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