Bank of Ireland raises earnings forecast after ECB rate hikes

The Bank of Ireland has significantly raised its forecast for net interest income (NII) in 2022 as the benefits of the European Central Bank’s (ECB) dramatic rate hikes spill over to the Irish banking sector.

The group now expects the NII to be 10 percent higher than in 2021, versus its previous forecast of a 6 to 7 percent increase.

That would bring the bank’s NII to more than €2.44 billion for the year, compared to €2.22 billion for 2021. Most of the increase is likely to be reflected on the bottom line.

Goodbody estimated that this would result in an 8 percent upgrade to pre-tax profit in 2022.

The Bank of Ireland has not provided a forecast for the NII for 2023 but the market consensus has set it at €2.9bn.

The upgrade and optimistic consensus reflect the rapidly improving asset situation of Irish banks since the ECB began its fastest cycle of rate hikes in history in July.

Since then, the ECB has hiked rates four times, including 0.5 percent on Thursday, for a total of 2.5 percentage points hike after a decade of interest rates at or near zero – much more than the Bank of Ireland had expected.

“The Bank of Ireland (BOI) upgrade to Net Interest Income (NII) is perhaps not surprising given interest rates have been steadily rising relative to corporate assumptions,” said Diarmaid Sheridan, banking analyst at Davy, in a statement.

Bank of Ireland shares rose 3.28 percent in Dublin on Friday morning as investors welcomed the positive news.

The bank has been a standout stock market performer in 2022, gaining more than 60 percent year-to-date against a generally gloomy global backdrop.

Sentiment towards Irish banks has turned sharply positive in recent months as the interest rate environment has changed, with both Bank of Ireland and AIB significantly outperforming not only other Irish stocks but also their European banking peers.

AIB significantly raised its profitability target earlier in the month, increasing the chances of further share buybacks and government stake sales in the new year.

The bank said it will achieve a return on tangible equity (RoTE) – a measure of sustained profits – of more than 13 percent in 2024, up from its earlier forecast of over 9 percent for next year.

Both big banks’ improved performance curves should allow them to increase cash returns to shareholders via dividends and buybacks in the years to come.

Bank of Ireland will publish its full year results for FY22 on March 7th along with an update on its mid-term objectives and strategy from new Chief Executive Myles O’Grady.

“The background to return on equity should be reasonably understood at this point,” said Mr. Sheridan of Davy. “As such, capital allocation and distributions will be the primary objective that we will be looking at.”

Separately, Bank of Ireland stockbroker Davy has appointed Vincent Crowley as chairman following the retirement of John Corrigan, the former chief executive of the National Treasury Management Agency.

Mr. Crowley is currently a director of C&C, Grafton Group and Altas Investments. He is a former Managing Director of Independent News & Media (now Mediahuis Ireland) and APN News & Media

Davy’s Board of Directors now consists of Mr. Crowley, CEO Bernard Byrne, Eileen Fitzpatrick, Richard Goulding, Michele Greene, Ian McLaughlin and Rónán Murphy. Bank of Ireland raises earnings forecast after ECB rate hikes

Fry Electronics Team

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