A FLIGHT of deposits from Bank of Ireland weakened the bank’s funding position in the run-up to the expiry of the original government guarantee and left it more reliant on funding from monetary authorities, it said yesterday.
Although mortgage arrears at the bank continue to increase, it said there was “evidence that these are stabilising”, particularly among borrowers who are owner-occupiers.
The bank’s loan-to-deposit ratio deteriorated from 145 per cent to 160 per cent since the end of June due to the greater than expected exodus of corporate deposits in August and September.
Bank of Ireland chief executive Richie Boucher said the bank had “anticipated there would be some deposit outflows”, but that the outflows “impacted more than we thought”.
Ireland’s largest lender used “contingent collateral to obtain replacement funding, primarily from monetary authorities”, it said in a statement to the stock exchange.
While retail and commercial deposits have been stable “despite intense competition”, there were “outflows of ratings-sensitive customer deposits in our capital markets business”, it said.
The bank attributed the deteriorating funding position to uncertainty in the run-up to the end of the original government guarantee in September and a downgrade of Irish sovereign debt by credit ratings agencies.
“The deposit base has been fairly stable since the end of September,” said Mr Boucher.
The bank was making “good progress” on diversifying its deposit base, with the result that it did not expect its loan-to-deposit ratio to be as badly affected in the event of a further ratings downgrade for Ireland, he said.
Bank of Ireland’s share price fell to 37 cent on the Iseq index, the lowest in over 19 months, in the hours after its statement, before recovering to close at 40 cent, as pressure on Irish bond yields subsided.
The bank’s interim management statement ahead of the end of its financial year on December 31st also contained a warning that its full-year profit would slump by over one-third.
Underlying operating profit before impairment charges is expected to be about 35–40 per cent lower than the €1.5 billion it posted in 2009. Net interest income will be lower as a result of the impact of intensifying competition for deposits in Ireland, the higher cost of wholesale funds to the bank and the higher cost of the systemic government guarantees.
Mr Boucher said among its Irish mortgage borrowers, the numbers in arrears by up to 30 days had fallen slightly as had the number of those who had fallen behind on payments by 30–90 days.
The number of cases where borrowers were in arrears by over 90 days had “started to stabilise”. Of these customers, about half were “in a formalised relationship” with the bank.
Mr Boucher said arrears had occurred across its loan book and were not related to customers with high loan-to-value ratios or those who borrowed at a particular time.
In cases where the bank agreed a “modification” in the repayments of customers who are struggling, over 90 per cent were paying at least the interest on their loans, he added.
Ciarán Callaghan, analyst at NCB Stockbrokers, said the deterioration in the bank’s funding position was “of most concern”. He estimated that the change in its loan-to-deposit ratio “implies outflows of more than €10 billion”.
Bank of Ireland was the first major Irish bank to replenish its capital from partly private sources, leaving the State with a 36 per cent stake and preference shares.
