Bank of Ireland profit drops again, prompting further cost cuts

By Padraic Halpin

DUBLIN (Reuters) - Bank of Ireland <BIRG.I> targeted further cost cuts after underlying pretax profit fell for the fourth successive year on Monday, adding it would take longer than forecast to hit a return on tangible equity (ROTE) above 10%.

The bank, which is also the largest Irish operator in the British market, increased its cost reduction target by 50 million euros to €1.65 billion (1.4 billion pounds) by 2021, having made far faster progress towards that original goal.

Shares in Ireland's largest bank by assets, which have fallen by more than 20% over the last year, were down 3.3% at 0820 GMT in a generally weaker Irish market <.ISEQ>.

Bank of Ireland promised to outline further steps to improve returns after last year saying that slow credit formation as a result of Brexit uncertainty and a low interest rate environment presented challenges to hitting a ROTE above 10% by 2021.

The bank revised its ROTE target for 2021, which it set 18 months ago, to around 8% while continuing to target in excess of 10% over the longer term, saying it expected interest rates to remain at historically low levels for "a number of years".

'HARD GROUND'

Its underlying profit before tax fell 19% to 758 million euros, despite a 3% rise in new lending volumes and a 4% year-on-year cut in operating profit. Bank of Ireland's profits hit a post-Irish banking crisis high of 1.2 billion euros in 2015.

An impairment charge of 215 million euros versus a write-back of 42 million euros in 2018 more than accounted for the difference as operating profit before impairments rose 10%.

The operating performance represented "good progress over hard ground," Bank of Ireland Chief Executive Francesca McDonagh told Reuters in a telephone interview.

McDonagh said the bank, which had a 24% share in the Irish mortgage market last year, was comfortable with its current level of pricing after main rival, Allied Irish Banks' <AIBG.I>, became the latest lender to cut fixed mortgage rates on Monday.

Bank of Ireland also bumped up its rolling core Tier 1 capital ratio target - a measure of financial strength - to 13.5% from 13% after British regulators last year demanded lenders hold more capital. The bank's fully loaded CET1 capital ratio rose to 13.8% last year.

Net interest margin (NIM) - a measure of how profitable a bank's lending is which hit 2.32% two-and-a-half years ago - stood at 2.14% last year and is forecast to fall further to 2.05% this year, the bank said.

"2019 was equally a year of progress (costs down; lending up) and frustration (interest rate environment; macro-backdrop) for Bank of Ireland," Davy Stockbrokers wrote in a note, saying the lower near-term ROTE guidance would not come as a surprise.

(Reporting by Padraic Halpin; Editing by Edmund Blair and Alexander Smith)