Defaulted loans reduce by €2.8bn to €14.3bn Defaulted loans have reduced to €14.3bn (16% of loans with all portfolios bar land and development showing an improvement), down by 16% over the year. Notwithstanding the ROI mortgage provision reversal, which reflects changes to the mortgage collective provisioning assumptions, overall provisions coverage is 52%, up from 48%. The bank’s total impairment charge reduced by c.€1.2b relative to 2013, reflecting lower customer loan impairment charges of c.€840m, the ROI mortgage provision reversal of €280m and the reversal of an impairment charge previously taken on NAMA subordinated debt of €70m.
Outlook statement is positive Highlights of 2014 include the bank’s strong lending performance, its return to profitability, improved asset quality and the pace of capital generation.
In a positive outlook statement, the bank states that it is well positioned for sustainable profitable growth in 2015 and beyond.
We will review our forecasts after this morning’s briefing where we should get further insight into the key trends, including loan repayment/redemption dynamics.
Davy View Further strong capital generation in Q4, resulting in a FY increase of 300bps in fully loaded CET1, is the standout feature of the FY 2014 results, providing additional reassurance regarding preference share redemption in H1 2016. Other notable features include improved new lending flows and NPL resolution within provisioning. In particular, the strong momentum in new lending has improved the prospect of net loan book stabilisation during the current year. Underlying PBT of €921m in 2014 (comparable Davy forecast €744m) represents a welcome turnaround from a loss of €564m in 2013, helped by a bigger-than-expected €280m Irish mortgage impairment reversal.
Capital generation is a key feature The bank continued to generate capital apace in Q4, adding a further 100bps. This took the increase in its transitional Basel III CET1 ratio in FY 2014 to 250bps, raising it to 14.8% with a corresponding 300bps increase in its fully loaded CET1 ratio, excluding the €1.3bn preference shares, to 9.3%. The improvement reflects attributable profits, a modest reduction in RWAs and a more efficient capital structure in the bank’s New Ireland life assurance subsidiary. The appropriate level of capital required by the bank under the SSM has not been clarified but it has reiterated that it expects to maintain a buffer above a CET1 ratio of 10%, on a transitional basis, and that it intends to de-recognise the €1.3bn preference shares between January and July 2016. It notes that this provides for a “meaningful buffer” over regulatory requirements.
New lending rises >50% to €10bn; stability in sight New loans of €10bn reflect a pick-up from €4.3bn in H1 to €5.7bn in H2. This includes €5.7bn Irish and €4.7bn other lending. Excluding Irish tracker mortgages, Irish lending is running ahead of repayments and redemptions. In the UK, new mortgage lending more than doubled to €2.3bn. However, overall repayments and redemptions leave the net book at €82bn, in line with our forecasts (for instance Irish trackers reduced by €1.5bn and the UK business banking book, which is in run-down, reduced by €1bn – although the bank expects this to slow in 2015) and we await further insight into this dynamic at this morning’s briefing.
NIM hits 222bps in Q4 and is seen as sustainable The improvement in the margin to an average of 2.11% in FY 2014 (versus 1.84% in 2013) reflects further reductions in funding costs and the positive impact of new lending volumes, partly offset by the impact of ECB rate cuts. The bank expects the margin to grow further, albeit at a more modest pace than in 2014. This implies upside to our current FY 2015 margin forecast of 2.15% (ex ELG fees) with our FY 2016 estimate of 2.24% looking achievable a year earlier.
Why put a 10-12x multiple on something you believe will last for 4-5yrs? You are overpaying by 100%! i did incorporate growth into my numbers, I put 40% on the type1, that's not gloomy. With them paying out e1.3bn in 1H 2016 cant see them paying out again big time in 2H 2016. Think it would be prudent to wait.
If we use your assumptions senator then boi will continue to report pre tax profits of a billion for the next few years. As the limited shelf life numbers decline (more like 4 year plus time frame I reckon) the growth in earned profits will continue to grow at a reasonable pace. 10 or 12x earnings is in no way expensive considering the growth potential here and in the uk. The uk figure was actually very good Today with emphasis in the commentary on its potential. Not near as gloomy as you seem to think maybe?
One other important point. With the capital ratios almost in line and the pref share issue sure to be sorted next year there will be substantial profits to be dispersed as dividends when the time comes. That's looking more like H2 2016 after today I would think.
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