* Bank makes 327 mln euro profit vs 395 mln loss year ago
* Sees net interest margin growing further than 2.05 pct
* Core Tier 1 capital up to 13.2 pct ahead of stress tests
(Adds details, analyst quote)
By Padraic Halpin
DUBLIN, Aug 1 Bank of Ireland turned a
profit for the first time in five years, tracking a sectoral
rebound, and flagged stronger future profitability as the Irish
The country's only lender to escape nationalisation reaped
the benefits from higher income and a big fall in provisions, as
Allied Irish Banks (AIB) showed when it also reported a
better-than-expected first half profit this week.
Ireland's economy grew by 2.7 percent in the first quarter
this year after being stuck in neutral for most of a three-year
international bailout, triggered by the banking crash that saw
some lenders fail and most others pushed into state hands.
The bank's net interest margin - an important measure of
profits from lending, that grew sharply last year - rose a touch
to 2.05 percent and was expected to keep rising, chief executive
Richie Boucher said.
"Even in the darkest times, I always believed that Ireland
would recover, the bank would recover. We've a new set of
challenges and opportunities but I'm seeing momentum in the
businesses," Boucher told reporters.
"It's a classic recovery driven by exports, consumption and
coming through in domestic confidence and employment levels. We
have seen a pick in credit demand, defaulting has reduced, all
pointing to a slow but broadly-based recovery in the economy."
Boucher said all businesses were now contributing to group
profit and that credit demand in Ireland had improved notably in
the second quarter as sectors hit hardest by the crisis, such as
hospitality and construction, showed signs of life.
The sharp rise in car sales in the first half of the year -
half of which Bank of Ireland provides finance for - represented
a multi-year statement of confidence by consumers, chief
financial officer Andrew Keating said.
The economic outlook in Britain, where Bank of Ireland has
operations through a partnership with the country's post office
network, also continued to improve.
The bank, which said in March it had been profitable at the
start of the year, the first Irish lender to signal to do so,
made an underlying pretax profit of 327 million euros ($437.8
million) versus a 395 million euro loss a year ago.
That was ahead of the 241 million forecast by six analysts
surveyed by Reuters. The bank's shares were 1.5 percent higher
at 0.27 euros by 0705 GMT.
Boucher will take a break this month to receive treatment
for colon cancer and said on Friday that he felt invigorated
about coming back to work in September.
STRONGER CAPITAL ADEQUACY
Ahead of stress tests by the European Central Bank later
this year, the bank's core Tier 1 capital ratio, a measure of
financial strength, rose to 13.2 percent and it said it expected
to continue to generate capital.
"While the return to profitability was well flagged, the
organic capital generation is stronger than we anticipated. The
substantial increase in new lending flows in Ireland and UK are
also very positive," Davy Stockbrokers analyst Diarmaid Sheridan
"The results across the sector are stronger than we would
But like other national lenders, Bank of Ireland's net loan
book contracted further, to 83 billion euros in the six months
to June, as repayments still outweigh drawdowns. The bank said
it was confident the pace of reduction would continue to slow.
AIB, still 99.8 percent state-owned and whose rescue cost
taxpayers more than 20 billion euros - more than four times Bank
of Ireland's, said on Wednesday that growing its loan book was
the major challenge to keep momentum building.
Bank of Ireland, which has to cut its reliance on the state
to leave Dublin with only a 14-percent stake, said bad loan
charges would also keep trending down after falling by over 40
percent to 444 million euros in the first half.
Its proportion of homeowners in arrears for more than 90
days fell again to 7.0 percent, from 7.4 percent in June, the
lowest in the industry, while buy-to-let mortgage arrears rose
to 18.5 percent but neared stabilisation, the bank said.
(Editing by Louise Ireland)