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Bank of Ireland Q1 Pre-Tax Loss Triggered by COVID-19 Provisions

The Governor and Company of the Bank of Ireland (BOI or the Bank) reported EUR 241 million of pre-tax losses in Q1 2020 compared to EUR 123 million of pre-tax income in Q1 2019. The Q1 loss reflected higher loan loss provisions due to the Coronavirus disease (COVID-19) as well as the negative impact of mark to market losses on certain financial assets. We expect the COVID-19 environment to continue to add pressure on results through higher loan loss provisions and lower revenues as well as asset quality deterioration feeding through over coming quarters.

The Bank reported higher loan loss provisions of EUR 266 million, of which EUR 250 million were related to the update of credit models under IFRS 9 driven by the expectation of economic deterioration. The cost of risk was 133 bps in Q1. Management expects loan loss provisions from Q2 to reflect asset quality deterioration, including the movement of loans from stage 1 loans to stage 2 as well as potentially stage 3-related provisioning. Nevertheless, BOI's Non-Performing Loans (NPLs) remained broadly stable at EUR 3.4 billion. The NPL ratio (as defined by the European Banking Authority) was 4.2% at end-March 2020.

Operating revenues were down 82% Year-on-Year (YoY) in Q1 largely driven by a EUR 155 million negative impact from the widening of credit spreads and equity markets volatility in unit linked products and some losses in the insurance and wealth management bond portfolio. Excluding this impact, revenues were resilient, marginally up YoY on the back of growth in both Net interest income and fees. The net interest margin was 2.07%, broadly in line with Q4 2019. The Bank expects fee income to reduce significantly reflecting lower economic activity whilst the Bank reported loan growth in Q1 2020 of EUR 1.5 billion. However, for 2020 lending volumes could be around 70%-50% lower than in 2019, which we expect to translate into lower revenues.

Despite the pre-tax loss, BoI's capital position remained robust in Q1. The Common Equity Tier 1 (CET1) ratio on a fully loaded basis was 13.5% in Q1, 30 bps down from 13.8% at end-2019. The negative impact of COVID-19 provisions (-50 bps) and growth of RWAs due to loan growth in the quarter was partly offset by the cancellation of the 2019 dividend (+40 bps).