Bank of Ireland : Interim Results 2022 – announcement and Q&A transcript - 287 KB

Bank of Ireland

Interim Results for 2022 Presentation

Wednesday, 3rd August 2022

Bank of Ireland Interim Results for 2022 Presentation

Wednesday, 3rd August 2022

Operator: Good morning, ladies and gentlemen. We will now listen to Bank of Ireland's Interim Results announcement for 2022, presented by CEO Francesca McDonagh, and CFO Mark Spain, followed by the Q&A. Please go ahead.

Business Performance

Francesca McDonagh

CEO, Bank of Ireland

Strong business performance and strategic progress in H1 22

Good morning everyone and welcome to Bank of Ireland's Interim Results for 2022. Today, we are announcing a strong business performance, continued progress in the delivery of our strategy, and a step change in our business model, supported by organic and inorganic growth opportunities.

H1 22 Performance

The key highlights from our H1 results as set out on Slide Five. We delivered underlying profit before tax, of €419 million. Total income was modestly higher. We maintained our cost discipline, our H1 return on tangible equity was 8.1% and we remain on track to deliver sustainable ROTE, in excess of 10% in the near term.

The Irish state has continued to reduce its shareholding in the Group. This holding is now below 3%. And we expect this to fall to zero this year, making us the first Irish bank to return to full private ownership.

Strategic Progress

With Ulster Bank and KBC leaving Ireland, we are seeing unprecedented structural change in the banking landscape. We have moved swiftly in response, opening 145,000 new current and deposit accounts during H1, with more expected over the coming months.

Another key highlight was the completion of the Davy acquisition in June. This is one of two transformative acquisitions underway this year. Acquiring Davy significantly increases our exposure to Ireland's attractive wealth sector. We also received clearance from the Irish competition authority to purchase KBC's loan and deposit portfolios, and are well on our way to satisfying the remaining completion conditions.

We are of course mindful of the heightened risks to the global economy since we reported our full year results in February. Despite macroeconomic uncertainty, our asset quality remains reassuringly strong.

Asset Quality

Our NPE ratio has improved since the start of the year, and coverage levels are elevated at 2.5%, remaining above pre COVID levels.

Capital & Distributions

Turning to capital, during H1, the Group generated 60 basis points of organic capital. At the end of June, our fully loaded CET1 ratio stood at 15.5%. This is 50 basis points lower than

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our year end position, and reflects the guided investment of 80 basis points of capital to acquire Davy.

Our refreshed CET1 capital target of in excess of 13.5%, accommodates announced increases in counter cyclical buffers. We paid a distribution of €104 million, in respect of full year 2021 performance, including our first buyback in almost two decades. Today, we reaffirm our guidance that distributions will grow, from that starting position, on a prudent and progressive basis, underpinned by the profitability of our improved business model. We will continue to support economic growth across our markets and to invest in our business.

Irish economy resilient despite external pressures

Slide Six sets out our perspectives on the Irish economy. Ireland has several characteristics that should help mitigate the impacts of any potential global slowdown. These include household and business debts remaining at multi year lows, a continued build up in deposits since the pandemic, a buoyant labour market which is essentially at full employment, and a business-friendly environment that acts as a magnet for foreign direct investment.

Ireland is forecast to be the EU's fastest growing economy for a third successive year in 2022. And as Mark will speak to later, the Group is also positively geared to the rising interest rate environment.

Transformation investment achieving higher customer satisfaction, digital adoption and low-cost acquisition

Slide Seven provides an update on our digital transformation. We have seen a 15% increase in our online banking customer base, and 88% of our digital traffic is now originated via our mobile app, compared to just 62% in 2020. And further enhancements to our app, including the launch of card controls early this year, have contributed to improvements in our net promoter score, with overall NPS the highest on record.

Responsible and Sustainable Business (RSB) strategy supports our purpose to enable our Customers, Colleagues and Communities to thrive

Turning to the next slide, we are making good progress on the execution of our Responsible and Sustainable Business or RSB strategy. The publication of our inaugural standalone RSB report in June significantly enhanced our ESG disclosures. Investors will see from the report the progress we are making across our three core pillars. These are enabling all colleagues to thrive, enhancing financial well-being and supporting the green transition.

Our RSB strategy is also delivering commercial outcomes. In Ireland, we are the leading provider of green mortgages, a product we introduced to this market. Green accounted for 48% of our Irish mortgage lending in H1. We have agreed €1.6 billion of sustainability-linked pricing in our corporate lending commitments, a 14% increase year-to-date, and we are the leading provider of wholesale funding for electric vehicles in the Irish market.

Continued strategic progress in the UK

Slide Nine covers our improved UK performance. Our UK strategy focuses on value over volume, driving a smaller, more profitable balance sheet. At 2.29%, net interest margin was up 34 basis points year-on-year as result of this strategic pivot. The UK's pre impairment operating contribution increased by around 25% in H1, compared to the same period last

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year, and our Bespoke proposition represented 53% of new mortgage lending, more than double the share it accounted for this time last year.

While we still expect further deleveraging of our UK balance sheet in H2, the pace will reflect ongoing pricing discipline.

Irish market leader in Wealth

The next slide looks at the significant opportunity we see in wealth and insurance. With a young, affluent and growing population, Ireland is a very attractive market. Through our Bank of Ireland wealth offering, our unique new Ireland's bancassurance business, and now Davy, we offer solutions across the full spectrum of retail, mass affluent, and high net worth segments.

The Davy acquisition has essentially doubled the Group's assets under management, to nearly €40 billion, making us the number one provider of wealth management services in Ireland. We see scope for further growth in earnings from this business in the coming years, diversifying our income, and supporting our ROTE ambitions.

Retail Ireland franchise will be enhanced by KBC acquisition

In Slide 11, we profile our Retail Ireland franchise, and the benefits of the KBC transaction. We have seen strong lending trends in H1. New mortgage lending grew by a third, and we recorded our first period of organic net growth in SME lending, since 2015. The acquisition of the KBC portfolios, will further enhance our franchise. Pro forma KBC will increase our total Irish mortgage book, by more than one-third. The low marginal cost of managing these loans and the use of some of our excess liquidity, makes the acquisition materially accretive to earnings. We look forward to welcoming these new customers to Bank of Ireland in early 2023.

Unique growth opportunity from structural change in Irish retail banking market

Finally, Slide 12, sets out the exceptional change occurring in Irish banking, and the opportunities we see emerging for Bank of Ireland. More than half a million accounts will need a new banking provider as Ulster Bank and KBC exits the market. This provides us with a once-in-a-generation customer acquisition opportunity.

In response, we are adding over 650 people to help customers open accounts in a safe and efficient way. We have put in place a wide range of first-to-market supports to attract new customers to Bank of Ireland. This includes leading the market with a national campaign, The Big Move, to help customers switch current accounts.

As mentioned earlier, this effort is delivering results with 145,000 new current and deposit accounts opened in H1, an increase of around 80% year-on-year. Including all products, we have opened up 235,000 accounts in the year-to-date.On-boarding these customers has been greatly enabled by the investments we made in our digital capabilities in recent years.

70% of new current account applications have been made digitally, completing the application in less than six minutes. We expect to see ongoing high demand for new account openings in the months ahead.

Since our Investor Day in 2018, we have maintained a laser-like focus on delivering our strategy. Our strategic execution has helped the Group to navigate challenges such as

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COVID-19 and Brexit, and maximise opportunities, including two transformative acquisitions and those arising from structural change in Irish banking. Our cost base is leaner, the performance of the UK business has been transformed, our overall returns outlook is positive, supported by our acquisitions and the higher interest rates outlook, and we have made significant improvements to the sustainability and profitability of our overall business model, to deliver ROTE above 10% in the near term

This is my final results announcements as Group CEO of Bank of Ireland. Bank of Ireland has been in business since 1783. It has been a professional honour, and a personal privilege, to lead it for the last five years. I would like to thank my colleagues, our customers and investors, for their trust and support, and I wish everyone in the Bank of Ireland family the very best for the future.

I will now hand over to Mark to take you through our financial performance in more detail.

H1 2022 Financial Summary

Mark Spain

CFO, Bank of Ireland

Thank you, Francesca, and good morning everyone. As Francesca set out, the Group has delivered a strong set of results for H1. This includes underlying profit of €419 million, modest growth in total income, excluding valuation items, additional gains and acquisitions.

Net lending in Corporate and Retail Ireland of €1 billion, with further UK deleveraging as planned; a reduction in our like-for-like costs; a lower NPE ratio 5.4%; and a net credit impairment charge of €47 million, incorporating our consideration of the macro uncertainties; a strong capital position; and an adjusted ROTE of 8.1%.

Strong business performance in H1 2022

Slide 16 sets out our P&L and key performance metrics. The key takeaway from this slide is the Group's strong business performance in H1. Net interest income was modestly higher, excluding TLTRO impacts.

Businesses income increased by 16%, reflecting increased customer activity and recovery from COVID-19 impacts in 2021. This includes an increased contribution from the associates and JV line, helped by the easing of UK travel restrictions. And we continue to maintain cost discipline with like-for-like costs 1% lower versus last year.

Additional gains from bond sales and valuation items were broadly neutral, but were a drag on performance versus last year.

Net interest income modestly higher excluding TLTRO impacts

Slide 17 covers net interest income. As you can see from the walk, our NII in H1 was supported by lower deposit funding costs and FX, with TLTRO and higher wholesale funding costs a drag. The bond sales I mentioned, will reduce 2022 net interest income by circa €20 million, with the impact skewed to the second half of the year.

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