* H1 net interest margin 1.65 pct vs 1.34 pct in H2 2012
* Margin target of 2 percent a little less challenging-CEO
* H1 underlying loss 383 mln euros vs 933 mln eur year ago
* Shares jump more than 5 percent
By Padraic Halpin
DUBLIN, Aug 2 Bank of Ireland's net
interest margin grew sharply in the first half of the year as
the only Irish lender to escape nationalisation declared itself
a normal bank once again after four difficult years.
The bank said on Friday its net interest margin - a key
metric that shows how profitable its lending is - jumped 31
basis points to 1.65 percent in the six months to the end of
June, helping it trim its underlying loss by almost two thirds.
The greater than expected increase compared to an 8 basis
point rise reported by main rival Allied Irish Banks on
Thursday. State-owned lender AIB is targeting a more modest
margin of 1.32 or 1.33 percent for the second half of the year.
Irish banks faced huge losses after property prices began to
tumble in 2008, pushing some lenders into state hands, closing
others and eventually seeing the government seek an EU/IMF
With provisions for impaired loans falling, mortgage arrears
growth slowing and the bank comfortable with the resilience of
its deposit base, Bank of Ireland Chief Executive Richie Boucher
said the 15 percent state-owned lender was firmly on the mend.
Shares in the bank opened 5.4 percent higher at 0.19 euro.
"It's been a hard four years," Boucher told reporters.
"But we now have a normalised bank which has strong momentum
towards profitability... We are in the more pleasant place of
having the challenges of ordinary businessmen and women."
The momentum pointed to earlier this year saw its underlying
loss before tax fall to 383 million euros ($507 million) from
933 million euros a year ago. Excluding a provision of 780
million euros, it made an operating profit of 380 million euros.
Ahead of sector-wide stress tests due next year, Boucher
said Bank of Ireland, which earlier this month won a battle with
European regulators to keep its life insurance arm, had also
completed its own internal capital review during the past six
months and that it was comfortable with its level of capital.
"My eyes are glued to the net interest margin," said Stephen
Lyons, credit analyst at Davy Stockbrokers, which expects to
upgrade its estimates for the bank, believing it looks well on
track to return to profitability next year.
"Most metrics are similarly trending positively but I keep
getting drawn back to that margin and its substantial jump."
The margin was well ahead of the 1.50 forecast by six
analysts surveyed by Reuters thanks to a repricing of products
and the removal of a costly state guarantee on deposits.
Bank of Ireland said that, by the end of June, the margin
was higher than the reported six-month average of 1.65 percent.
Boucher said its goal of increasing it to 2 percent was now a
little less challenging compared to six months ago.
It moved the bank closer to its third main rival, Royal Bank
of Scotland's Irish unit Ulster Bank, which reported on
Friday that its net interest margin was unchanged on the year at
1.85 percent as its losses almost halved.
GRADUAL ECONOMIC RECOVERY
The problem for Bank of Ireland and other Irish lenders is
that they are applying a better margin to a shrinking asset
base. Bank of Ireland's loan book decreased a further 6 percent
to 87 billion euros as loan repayments continued to outpace new
lending despite a pick-up in demand in the last couple of
Another major issue for the recuperating sector is the high
level of mortgage arrears resulting from a devastating housing
crash and unemployment which, although falling, remains among
the highest in Europe at 13.5 percent.
The bank's proportion of owner-occupiers in arrears for more
than 90 days rose to 7.9 percent, the lowest in the industry
where the average is 12.3 percent. Buy-to-let mortgage holders
in trouble amounted to 17.6 percent, closer to the 19.7 percent
average reported by the central bank.
While AIB's chief executive said more than one in five of
its mortgage holders in arrears were strategically defaulting,
Boucher said half of the "meaningful portfolio" of homeowners in
trouble that had initially refused to engage with the bank had
now had their mortgages restructured.
Despite Ireland slumping back into its first recession in
four years late last year and economists predicting a second
successive year of scant growth, Boucher said the economy was
recovering as expected.
"We're seeing signs of a gradual, gradual, slow recovery
which is what we anticipated. There will be ups and downs, and
it's never going to go in exactly a smooth path," he said.