Belfast Telegraph

Bank of Ireland set to raise its loan-loss forecast, says Davy

By Laura Noonan

Bank of Ireland is likely to "scale back" its profit targets and increase predictions for mortgage losses when management reports full-year earnings next week, stockbrokers Davy have said.

The bank's results on Monday mark the first full-year trading review from a major Irish bank, ensuring they will be closely watched by the market.

Bank of Ireland will also become the first bank in the Republic to use the Irish Central Bank's new "enhanced disclosure" rules and to report results incorporating the regulator's demand for loan losses to be recognised as early as possible.

In a preview of the results circulated to clients, Davy noted that the bank had "cautioned" about its profit margin in a November interim management statement.

At the time, the bank warned its margin targets would face challenges in a prolonged, low interest-rate environment - a scenario that ultimately developed.

"This may see the 2014 (margin target) scaled back or pushed further out," Davy noted, adding that it did not see the lender returning to "meaningful profitability" until 2014.

On 2011 results, Davy expects the bank to report profits before loan-loss provisions of about €490m (£406m)- against €1.017bn (£0.83bn) in 2010.

Bank of Ireland had been expecting loan losses of €6bn (£4.9bn) "through the cycle". Davy said it would "not be surprised to see that €6bn moved up a bit to accommodate higher anticipated Irish mortgage losses".

Several banks noted higher mortgage impairment charges towards the end of last year.

The new personal insolvency regime, which could allow mortgage holders to strike write-downs with their banks, could accelerate banks' recognition of mortgage losses and increase the amount of losses suffered.