Banks www.fitchratings.com 24 July 2017 Ireland Bank of Ireland Group Public Limited Company Full Rating Report Key Rating Drivers Ratings Reflect Improving Fundamentals: The ratings for Bank of Ireland Group Public Limited Company (BOIG) and Bank of Ireland (BOI) reflect the group’s strong domestic franchise, strengthened capitalisation, normalised funding, sound liquidity, diversified revenue streams and improving, albeit still weak, asset quality. Improving but Weak Asset Quality: Asset quality has a high influence on the ratings. It remains weak and is a key constraint on the VR despite strong improvements in recent years. We expect asset quality to continue to improve as a result of a supportive Irish economy, continued demand for properties in Ireland and the proactive stance being taken by the bank’s management to reduce legacy assets. Large UK Exposure: Asset quality benefits from a large portfolio of well-performing residential mortgages in the UK. A downturn in UK real-estate prices, which could result from the UK’s vote to leave the EU, is a risk for the group as the UK accounts for about 40% of its loan portfolio. Strengthened Capitalisation: Capitalisation has improved considerably over the past few years, driven by deleveraging, a simplification of the bank’s capital structure and solid internal capital generation. BOI reported a 13.8% transitional common equity Tier 1 (CET1) at end- 1Q17, comfortably above its Supervisory Review and Evaluation (SREP) requirements. The proportion of unreserved impaired loans to Fitch Core Capital (FCC) has been falling (end- 2016: 43%) although it continues to show BOI’s vulnerability to falling collateral prices. Improved but Challenged Profitability: Profitability continues to be affected by low interest rates, resulting in a big drag from the bank’s large stock of low-yielding tracker mortgages. We expect profitability to be challenged by margin pressure, increasing competition, muted net loan growth and increased investment in technology and digitalisation. Some of these pressures should be offset by an improving loan mix, low funding costs, lower loan impairment charges and increasing efficiency. Normalised Funding: BOI’s funding profile has returned to normalised levels with most funding sourced from stable customer deposits, little use of central banking funding and re- established wholesale markets access. We do not expect that the need to fulfil minimum requirements for own funds and eligible liabilities (MREL) will materially alter the funding strategy given BOI’s improving solvency and proven access to long-term wholesale funding markets. Rating Sensitivities Asset-Quality Improvements: The Positive Outlook reflects Fitch Ratings’ view that the ratings will be upgraded if the bank continues to improve its asset quality and strengthen its capitalisation in line with our expectations, while continuing to generate satisfactory profits, and maintaining sound funding and liquidity. Weakening Operating Environment: The ratings could come under pressure if any of our expectations are not met. This could occur if the economic effect of Brexit is particularly severe as it could slow improvements in asset quality and capitalisation. Negative pressure on the VR would also arise if BOI increases its risk appetite, for example, by materially increasing its exposure to commercial real estate (CRE). Ratings Bank of Ireland Group Public Limited Company, Bank of Ireland Foreign Currency Long-Term IDR BBB- Short-Term IDR F3 Viability Rating bbb- Support Rating 5 Support Rating Floor NF Sovereign Risk Long-Term Foreign-Currency IDR A Long-Term Local-Currency IDR A Outlooks Long-Term Foreign-Currency Rating Positive Sovereign Long-Term Foreign-Currency IDR Stable Sovereign Long-Term Local-Currency IDR Stable Financial Data Bank of Ireland 31 Dec 16 31 Dec 15 Total assets (USDm) 129,787 142,580 Total assets (EURm) 123,129 130,960 Total equity (EURm) 8,662 8,373 Operating profit (EURm) 974 1,218 Published net income (EURm) 793 947 Operating ROAA (%) 0.8 0.9 Operating ROAE (%) 11.7 15.2 Fitch Core Capital/ weighted risks (%) 12.0 10.9 Common equity Tier 1 ratio (%) a 14.2 13.3 Impaired loans ratio (%) 7.9 11.0 Loans/customer deposits (%) 109.7 113.0 a Transitional Related Research Bank of Ireland - Ratings Navigator (January 2017) Analysts Joanna Drobnik, CFA + 44 20 3530 1318 [email protected]Marc Ellsmore +44 20 3530 1438 [email protected]
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Bank of Ireland Group Public Limited Company€¦ · 24/7/2017 · Company Profile Leading Domestic Franchise BOI, along with Allied Irish Banks, plc (AIB; BB+/Positive/bb), is one
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Banks
www.fitchratings.com 24 July 2017
Ireland
Bank of Ireland Group Public Limited Company Full Rating Report
Key Rating Drivers
Ratings Reflect Improving Fundamentals: The ratings for Bank of Ireland Group Public
Limited Company (BOIG) and Bank of Ireland (BOI) reflect the group’s strong domestic
streams and improving, albeit still weak, asset quality.
Improving but Weak Asset Quality: Asset quality has a high influence on the ratings. It
remains weak and is a key constraint on the VR despite strong improvements in recent years.
We expect asset quality to continue to improve as a result of a supportive Irish economy,
continued demand for properties in Ireland and the proactive stance being taken by the bank’s
management to reduce legacy assets.
Large UK Exposure: Asset quality benefits from a large portfolio of well-performing residential
mortgages in the UK. A downturn in UK real-estate prices, which could result from the UK’s
vote to leave the EU, is a risk for the group as the UK accounts for about 40% of its loan
portfolio.
Strengthened Capitalisation: Capitalisation has improved considerably over the past few
years, driven by deleveraging, a simplification of the bank’s capital structure and solid internal
capital generation. BOI reported a 13.8% transitional common equity Tier 1 (CET1) at end-
1Q17, comfortably above its Supervisory Review and Evaluation (SREP) requirements. The
proportion of unreserved impaired loans to Fitch Core Capital (FCC) has been falling (end-
2016: 43%) although it continues to show BOI’s vulnerability to falling collateral prices.
Improved but Challenged Profitability: Profitability continues to be affected by low interest
rates, resulting in a big drag from the bank’s large stock of low-yielding tracker mortgages. We
expect profitability to be challenged by margin pressure, increasing competition, muted net loan
growth and increased investment in technology and digitalisation. Some of these pressures
should be offset by an improving loan mix, low funding costs, lower loan impairment charges
and increasing efficiency.
Normalised Funding: BOI’s funding profile has returned to normalised levels with most
funding sourced from stable customer deposits, little use of central banking funding and re-
established wholesale markets access. We do not expect that the need to fulfil minimum
requirements for own funds and eligible liabilities (MREL) will materially alter the funding
strategy given BOI’s improving solvency and proven access to long-term wholesale funding
markets.
Rating Sensitivities
Asset-Quality Improvements: The Positive Outlook reflects Fitch Ratings’ view that the
ratings will be upgraded if the bank continues to improve its asset quality and strengthen its
capitalisation in line with our expectations, while continuing to generate satisfactory profits, and
maintaining sound funding and liquidity.
Weakening Operating Environment: The ratings could come under pressure if any of our
expectations are not met. This could occur if the economic effect of Brexit is particularly severe
as it could slow improvements in asset quality and capitalisation. Negative pressure on the VR
would also arise if BOI increases its risk appetite, for example, by materially increasing its
exposure to commercial real estate (CRE).
Ratings
Bank of Ireland Group Public Limited Company, Bank of Ireland Foreign Currency
Long-Term IDR BBB- Short-Term IDR F3 Viability Rating bbb- Support Rating 5 Support Rating Floor NF
Sovereign Risk Long-Term Foreign-Currency IDR A Long-Term Local-Currency IDR A
Outlooks
Long-Term Foreign-Currency Rating
Positive
Sovereign Long-Term Foreign-Currency IDR
Stable
Sovereign Long-Term Local-Currency IDR
Stable
Financial Data
Bank of Ireland
31 Dec
16 31 Dec
15
Total assets (USDm) 129,787 142,580 Total assets (EURm) 123,129 130,960 Total equity (EURm) 8,662 8,373 Operating profit (EURm) 974 1,218 Published net income (EURm)
Liquidity coverage ratio 108.0 113.0 116.0 128.0 n.a. n.a. Net stable funding ratio 120.0 122.0 111.0 119.0 n.a. n.a.
Source: Fitch, Banks
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Bank of Ireland Group Public Limited Company
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Bank of Ireland Group Public Limited Company
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Bank of Ireland Group Public Limited Company
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The ratings above were solicited by, or on behalf of, the issuer, and therefore,
Fitch has been compensated for the provision of the ratings.
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