Shares of Bank of Ireland decline due to U.S.-linked provision for loan losses
Bank of Ireland Increases Provisions for U.S. Acquisition Finance Business
Bank of Ireland has set aside more funds than anticipated to cover potential losses in its U.S. acquisition finance business during the first half of 2021. This move was described as a preemptive measure by the bank's CEO, Myles O'Grady.
The increased provisions were primarily due to loan loss experience within the U.S. acquisition finance book, reflecting a cautious approach to potential credit losses in that market. The exact reasons and amounts related to the first half 2021 provisions were not disclosed in the retrieved documents, but the information from Bank of Ireland’s interim reports explicitly links the loss provisions with their U.S. acquisition finance loan book.
The bank's first half pre-tax profits fell to 721 million euros ($832 million), a decrease from 1.1 billion euros ($1.3 billion) in 2020. Most of the charge was related to the bank's 1.5 billion euro ($1.7 billion) U.S. finance business, which represents just under 2% of the bank's total loan book.
Despite the uncertainty associated with U.S. tariffs, Bank of Ireland's estimates for deposit and loan book growth in 2026 and 2027, previously set at 3% and 4% respectively, remain unchanged. Finance chief Mark Spain told Reuters that the bank's loan book shows no perceptible challenges emerging from the tariffs.
The bank's Irish loans and deposits grew by 5% year-on-year in the first half. This growth, coupled with the bank's prudent risk management practices, has led analysts at Davy Stockbrokers to write that the upgrades point to upside to 2026 and 2027 management and consensus expectations.
However, Bank of Ireland shares fell 3% on Tuesday, reflecting investor concerns about the bank's U.S. expansion and the associated risks. It's worth noting that the cost of risk for the first half was 33 basis points.
Spain also stated that the caution larger business customers had shown at the height of trade tensions in April was beginning to dissipate, indicating a potential improvement in the economic outlook.
In conclusion, Bank of Ireland's decision to increase provisions in its U.S. acquisition finance business is a prudent risk management strategy aimed at protecting the bank’s financial health. Despite the short-term impact on profits, the bank's long-term growth prospects remain strong, with expectations for loan and deposit growth being upgraded for the next three years.
- Bank of Ireland's decision in increasing provisions for its U.S. acquisition finance business is a strategic move in the banking-and-insurance industry, demonstrating a cautious approach towards potential credit losses in the business sector.
- The bank's U.S. finance business, which is a significant part of its total loan book, witnessed a decrease in pre-tax profits, mainly due to the increased provisions.
- Analysts at Davy Stockbrokers have upgraded their expectations for Bank of Ireland's loan and deposit growth for the next three years, given the bank's prudent risk management practices and strong growth in its Irish loans and deposits.
