Good morning, ladies and gentlemen. We will now listen to the Bank of Ireland's interim results announcement, presented today by the CEO, Myles O'Grady, and CFO, Mark Spain, followed by Q&A.
Good morning, and thank you for joining us. Today, we are reporting our half-year performance. The theme is strategic delivery and sustainable returns. We are midway through our three-year strategic cycle and making excellent progress. This is demonstrated by continued growth in Irish loans, in new customers, and assets under management. Our performance is also well supported by the interest rate environment. This translates into profitability of EUR 1.1 billion. That's up 5% year-on-year, and notably, a return on tangible equity of 18.9%. This performance supports upgraded earnings guidance for the year. Our business model continues to be highly capital generative, 170 basis points in H1, and today, we are announcing an interim dividend, EUR 352 million. This is an important component of our full year objectives, which are progressive dividends and the return of surplus capital.
Slide six gives a flavor of economic conditions in Ireland, which account for three-quarters of our profits. The Irish market continues to be highly attractive and a source of growth. Full employment supports asset quality, and the pickup in credit formation is underpinned by strong fundamentals in terms of demographics, robust household and business balance sheets, and increased housing supply. Turning to slide seven, our Retail Ireland franchise delivered another very strong performance. Our high-quality mortgage book continued to grow, supported by increased supply of new homes and market dynamics. This is enabling us to capture value in a growing market, and our deposit base remained robust, supporting balance sheet growth and higher income, including increased fee income of 3%. We recently announced the creation of a new wealth and insurance division.
This is made up of our wholly owned subsidiaries, Davy, specializing in wealth and capital markets, and New Ireland, focused on life and protection. These businesses performed very well in H1. Net inflows to Davy and New Ireland grew by 84%, EUR 2.1 billion in total. This reflects the strength of our unique position. Today, total AUM exceeds EUR 50 billion, the highest level ever. In turn, this has increased business income by 6%, outperforming economic growth. Our leading New Ireland and Davy brands are a valuable source of future growth and a more resilient revenue model. On slide 9, we're reporting annualized net lending growth of 5% in our Irish business and corporate lending books. Given the global macro backdrop, we have maintained a measured approach to our international, corporate, and property books, with these reducing at a 3% annualized rate.
During H1, we completed a strategic refresh of our retail U.K. business. We see long-term value in this market. We continue to focus on higher return mortgages, asset finance lending, and a full-service retail bank in Northern Ireland. The U.K. market is an important part of our group, making a strong contribution to overall profitability with an underlying PBT of EUR 167 million, a 43% increase year-on-year. Slide 10 sets out the heart of our strategy, which is to build stronger relationships, a simpler business, and a more sustainable company. As we grow our new customer base, we continue to improve and deepen those relationships. We are achieving better outcomes for customers with materially lower complaints, and we continue to focus on practical, meaningful ESG interventions. We've grown sustainable lending by 24% and remain the leading provider of green mortgages.
We've also retained our position as number one for financial well-being in Ireland. This is especially positive to see as we reach the halfway point in our strategic cycle, with further progress expected. Turning to slide 11, Bank of Ireland's equity story is one of enduring and strong organic capital generation. This continued in the first half of 2024, with 170 basis points generated and the full-year outturn likely to be in the region of 310-320 basis points, an upgrade from our previous guidance. This capital supports loan book growth, allows us to invest in our business, and reward shareholders. Mark will provide more details on this later. Last year's results supported total distributions of EUR 1.15 billion, 3 x more than 2022, and 11 x higher than 2021.
This year, as previously signaled, we are announcing interim distributions of EUR 352 million. Subject to all necessary approvals, our objective for the full year is to distribute down to CET1 guidance of greater than 14%. We will do this through a combination of progressive DPS on earnings and the return of surplus capital via a share buyback. Slide 12 demonstrates consistent delivery of our medium-term financial targets: return on tangible equity, cost income ratio, and distributions. This underlines the theme for today's presentation that I called out earlier, excellent strategic delivery, generating sustainable returns. Slide 13 provides a summary of the Bank of Ireland investment case. Our strategy is clear, and we are consistently executing well against it. We are meeting or beating all of our targets. We have a differentiated business model, operating in highly attractive markets.
Notwithstanding global uncertainties, Ireland continues to be a successful, dynamic economy with very supportive demographics, and our international businesses are highly complementary. Bringing all this together results in continued strong value creation and sustainable returns. Before concluding, I'd like to thank our customers for their business and their trust, my colleagues for their commitment, and our shareholders for their support. I'll now hand over to Mark to take us through the strong financial performance.
Thank you, Myles. As set out in slide 17, today we're announcing a strong performance for H1. Key highlights include higher profits, further growth in our loan book, and the reduction in our NPE ratio to 2.9%, now below the milestone 3% level. A particular call-out is the ongoing strength of our capital generation at 170 basis points. Supported by this performance, we are upgrading our outlook for the full year. The key drivers of this upgrade are lower expected levies and impairment charges. Slide 18 details the building blocks of our performance. Net interest income is 2% higher on a like-for-like basis. Total business income is up 6%, with wealth a key driver. OpEx has performed in line with our guidance, and our impairment charge is materially lower, reflecting both the improved macro and better loan loss experience.
All of these factors are contributing to the 5% growth in PBT. Our ROTE remains very strong at 18.9%. Slide 19 shows the components of NII in the first half. Performance in the period is driven by growth in liquid asset income and lending income, more than offsetting higher funding costs. In our Q1 IMS in April, we refreshed our NII guidance range to capture updated interest rate expectations. We now see the full year coming in at circa EUR 3.55 billion, at the top end of that guidance. In February, I noted that we expected NII to be broadly stable in 2025. That view remains unchanged. The structural hedge is a key component in our expectations for NII. Slide 20 shows volumes and yields have evolved as expected, driven by depositor behavior and reinvestment yields, respectively.
We expect the hedge size in H2 to be in line with H1. The gross yield, which is materially below current swap rates, will continue to build over the coming years. On Slide 21, we can see our customer deposit base with total balances stable in the period. There was a EUR 1.3 billion flow to term in the first half, which was within our expectations, with similar volumes expected for H2. We expect our total customer balances will continue to be stable in the second half of the year. This reflects the positive macro dynamics that Myles spoke to earlier, our ongoing commercial pricing discipline, and customer behavior. Our net lending saw good growth in H1, in line with our strategy. Our lending in Ireland grew 4% annualized or EUR 1 billion.
Our U.K. loan book also grew in the first half after a number of years of strategic deleveraging. We expect broadly flat net lending volumes in H2, with net loan growth in Ireland offset by the exit of U.K. personal loans and rundown of U.K. corporate. Slide 23 shows business income growing by 6%. Wealth and insurance income is a key highlight, supported by higher AUM, particularly in Davy. We continue, for the full year, we continue to expect mid-single-digit growth in business income. The EUR 54 million increase in operating expenses you see on Slide 24 comprises net growth and additional investment. This investment is designed to drive future efficiencies. For the full year, we see 5%-6% growth in OpEx, in line with the mid-single-digit guidance we provided back in February.
We continue to see non-core items similar to the prior year, and we now see levies coming in at EUR 125 million-EUR 130 million, below previous guidance of EUR 160 million-EUR 165 million. We had an excellent H1 from an asset quality perspective, reflecting our high-quality, diversified loan book. Our NPE ratio reduced to 2.9%, and Stage 2 loans reduced by 13% or EUR 1.6 billion. We have continued to maintain coverage levels at 1.5% of loans. Slide 26 shows we've had a strong H1 asset quality outturn. The impairment charge is EUR 50 million or 12 basis points. The improved macro drove releases. The underlying portfolio activity charge was an annualized 25 basis points.
We expect a similar portfolio charge in the second half, leading to an expected full year outturn of the order of 20 basis points. This is a significant upgrade to our previous guidance of a charge in the low 30s.
Moving now to Slide 27 on our capital position. Organic capital generation was an excellent 170 basis points. This was augmented by a 10 basis points net RWA benefit as our CRT transaction offset investment in lending. The interim dividend of EUR 0.35 per share we are announcing today equates to 70 basis points of capital and a 40% payout ratio. And after deducting this interim dividend, our capital ratios still remain very healthy. Our CET1 ratio is 15.4%. On the outlook, we are upgrading our guidance for the full year capital generation to 310-320 basis points from the previous 260-280 basis points range. On Basel IV, we expect its implementation next year to result in an RWA reduction of up to 5%.
As Myles has said, our objective remains to distribute down to our CET1 guidance of greater than 14%. Slide 28 recaps on all of our 2024 financial guidance. This has clearly been a very good half, and we're expecting a further strong performance in H2, resulting in a ROTE ahead of last year. Bank of Ireland is firmly on track to meet or beat all of its financial targets over our strategic horizon, and is well positioned to continue to deliver attractive returns beyond this. Thank you for all of your support, and we'll now open the call to questions.
Thank you. We'll now move to the question and answer session. To ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Thank you. We are now going to proceed with our first question. The questions come from the line of Diarmaid Sheridan from Davy. Please ask your question. Your line is open.
Good morning, Myles. Good morning, Mark. Thanks for taking my questions. Mark, maybe firstly, around that interest income. Thank you for the kind of fairly specific guidance for 2024, EUR 3.55 billion. When you talk to 2025 being broadly stable, how should we kind of interpret that? And, and maybe if you could talk through some of the moving parts in terms of some of the pluses and some of the minuses as we look into maybe the second half of this year, but also into 2025 there, please. And then secondly, maybe a very strong H1 ROTE outturn, as both of you have kind of pointed out.
If I take your full year guidance, that's kind of implying the second half of the year is kind of low to mid-16 percentage points. So maybe again, if you could talk through some of the moving parts there, but also looking into 2025, relative to your current circa 15% target. You know, maybe if you have any perspective even beyond 2025 on that 15% it'd be very appreciated. Thank you.
Good morning, Diarmaid, and thank you for those questions. Indeed, good morning to everyone on the call. I'll offer some comments on the ROTE performance and then hand over to Mark. I mean, what we are seeing and what we've signaled previously is that the business model continues to be highly capital generative, and we see that in upgraded guidance on capital generation this year of between 310 and 320 basis points. Of course, that translates into upgraded guidance on ROTE of 17.3%. I know Mark will offer more details on the drivers for that, but also we expect that next year our ROTE to outperform against our target to be in the region of 15%.
So it's a very strong, business performance generating capital, which of course also supports our distributions as well. Mark, over to you.
Yeah, thanks, Miles. Good morning, Diarmaid, and maybe Diarmaid, I'll just maybe expand a little bit on the ROTE piece and then come back to the NII question. So if I look at maybe the H2 versus H1, which is part of your question, the key tailwind there is lower levies in H2 versus H1. Against that, based on our guidance, NII is slightly lower. Impairment will normalize to circa 25 basis points, OpEx non-core and modest RWA growth for all factors as well. But all in all, our upgraded guidance of greater than last year's outturn of 17.3 is a material upgrade from our prior expectations for this year.
And then if we look into 2025, really the moving parts there, that broadly stable NII, which I'll come back to, ongoing fee income growth, offset by OpEx growth, and investment, where we're investing at an elevated level. Those are the key factors beyond behind our confidence for exceeding our target next year, and there are supportive factors beyond next year as well. Then maybe just turning to the NII in 2025, and really the key message here, Diarmaid, is one of NII resilience as rates go lower. And if I look behind that, really there are three positive factors which support that resilience. So firstly, we've got that lending growth coming through, driven from Ireland, and we've called out in the presentation, Irish Mortgage is continuing to perform really, really strongly. Business lending also contributing.
That's very much in line with the strategy that we set out 18 months ago. So it's great to see that strategy being delivered upon and coming through in the numbers. So that'll be one supportive factor. The second supportive factor is the benefit from the structural hedge. And you'll see in the presentation today that the average receive rate on the fixed leg of the structural hedge is about 170 this year. Seven-year swaps are currently north of 250. So that's a real positive factor for us over the next number of years. And thirdly, deposit growth in line with economic growth, which is what we've typically seen in Ireland over many years. So these factors are obviously going to be positive in 2025.
They'll also be positive factors beyond 2025 as well. Against that, obviously rate lower is the key headwind, as it is for all banks. And rates, we expect to be on average about 80 basis points lower in 2025. So we assume an ECB deposit rate of 2.75 at the end of 2025. The locked-in value of the structural hedge, of course, provides protection against that factor. We've also made the decision in the first half to run down our GB corporate book. That's a ROTE positive decision, but we estimate it impacts 2025 NII by about EUR 30 million-EUR 40 million. If I bring all that together, and if I look at consensus for 2025, I believe that consensus has actually all those moving parts already captured.
Clearly, this NII stability is a key component in our confidence that our ROTE will exceed our surplus 15% target next year.
Thank you very much .
Great. Thank you.
Thank you. We are now going to proceed with our next question. The question's come from the line of Sanjena Dadawala from UBS. Please ask your question.
Good morning. Thank you for taking my questions. Two, please. So the first on the interim dividend, 35 cents above expectations. Just want to clarify, when it compares to consensus for the full year 65 cents, it implies a lower final dividend than the interim. So just wanted to know your thoughts, in the context of a progressive dividend policy. Do you see that as an issue? And then, the second question, on slide 11, you say that about 20% of organic capital for RWA investment, which suggests higher loan growth than I gathered from your comments. And then, does that mean effectively guiding to 80% total payout, if unless you move closer to the CET1 target? Thank you.
Great. Thank you very much, and good morning, Sanjena. I'll take the question on dividends and pass to Mark on RWA. So I guess to kind of frame the answer overall for full year distribution, Sanjena, our objective is to distribute to CET1 guidance of above 14%, and there are two components to that. Firstly, a progressive DPS on earnings. We had a good start on that with an interim distribution of EUR 352 million. Relate that back, that's 40% of H1 profit after tax. I think that's how generally you should think about interim distributions going forward. And of course, more broadly than the return of surplus capital. And again, to that point of our objective to distribute to CET1 guidance of greater than 14%. Mark, on RWA?
Yeah, thanks, Sanjena. Yeah, and just to equate your question, what we typically expect is that we'll invest about 20% of our organic capital in RWA. That's through a combination of loan growth, obviously things like op risk, RWA, et cetera, as well, will feature in that. If I just look at the first half of this year, you'll see our RWAs were actually down in the first half of this year. But we had sort of 20 bips investment in RWA, offset more than by a CRT transaction, which we completed in June. If I think about the second half of this year, that CRT benefit will begin to amortize in line with the loan books.
We also have OpEx for RWA coming through in the second half, and we've got underlying loan growth, as well. So, that will flip in the second half, so I'd expect investment in RWA this year to be somewhere around 60-70 basis points. So, hopefully that helps in terms of squaring the circle.
Thank you, Sanjena.
Thank you. We are now going to proceed with our next question. The question's come from the line of Grace Dargan from Barclays. Please ask your question.
Hi, morning. Thank you very much for taking my questions. The first one, maybe could you give a little bit more color on the difference in margin between, say, a typical term savings product and the savings wealth products? So I guess I'm particularly thinking about that growth in AUM, which seems to kind of be bypassing some of the term migration, and understanding the difference potentially, in income there. And then secondly, just thinking about, there was a, a Dear CEO letter, on motor finance in Ireland. Be really interested to hear your thoughts. Do you think that kind of situation could develop in a similar way to the U.K.? And what risks do you see, for yourselves? Thank you.
Great. Great, thank you, and good morning. And so to your first question, from a deposit offering, we have a range of products, available to our customers, up to and including, 3%. And at the same time, we know that, some of our customers, money market fund, we're very pleased to offer that product as part of our daily offering. And I, there was the, the offer on that product, I would say, is generally consistent with, with that rate of up to 3% on our deposit, deposit base. In relation to your question, on, I think it alluded to the mo- the motor car finance, review by the FCA in, in the U.K.. From our perspective, we are a small player in that market, small market shares.
And while it's an important part of our business model for the U.K., it's generally, I would describe it as not being material in the overall context of our overall business model. We're currently, as are all market participants, sharing information, and there's certainly no read across to the Irish market.
Apologies, maybe I have misunderstood your answer, but I guess it was in relation specifically to the Dear CEO letter from the Central Bank of Ireland that I was referring to.
Yeah. I'm sorry, I'm sorry, Grace. I should have been clear on that. So that Dear CEO letter was a simple request for sharing of information, and there is no read across from what's happening in the U.K. to the Irish market.
Sorry, understood. Thank you very much.
Thank you very much, Grace.
Thank you. We're now going to proceed with our next question. The question's come from the line of Chris Hallam from Goldman Sachs. Please ask your question.
Yeah. Morning, everybody. Just two quick questions from me. So first, Mark, I think you said earlier, you're assuming 2.75 year-end ECB policy rate for 2025, and I guess the most recent market expectations are probably around 50 basis points below that. So, I mean, obviously these things can move around quite quickly, but I just wanted to check that all we'd need to do is take the sensitivity you give on slide 20, so about a EUR 60 million or EUR 65 million haircut to that sort of EUR 3.55 billion in 2025, or whether there's anything else that we need to consider. I know there's quite a long footnote, right, on that sensitivity, but anything you want to emphasize?
And then the second question on OpEx, just if I look at slide 24, the split between investment-related spending growth and sort of underlying net growth in OpEx. How would you expect that to look next year or in the medium term, particularly when we think about consensus expectations for OpEx growth to be slowing to around 3% per annum? Is that something you're still comfortable with, given the investments you've been doing and the progress you've been making? Thank you.
Thank you, Chris, and good morning. I’ll offer a comment on the operating costs more broadly and then hand over to Mark. I mean, the Bank of Ireland over recent years has built up a strong capability in terms of cost discipline. It’s really important that we, that we maintain that, and that’s certainly our absolute focus. We are pivoting from a period of cost reduction now to efficiency. And what we’re seeing in the numbers and in the guidance of the market is offering, first of all, our ability, I would say, successfully, to deal with inflationary pressures.
But also in the context of the value that the model is creating, and of course, always in the context of our, our guidance and our targets on ROTE and cost income ratio to be below 50%, is to invest for the future as well, to ensure we maintain that long-term efficiency. Mark, over to you.
Yeah, and maybe, Chris, just to pick up on the cost piece. So, and we called out in the slide, as you say, the split there between what I call, BAU inflation, investment, efficiencies, and also the additional investment we're making to future-proof the business model when we're generating attractive returns. And we do see those factors continuing into next year. Obviously, the inflationary environment based on the rate environment, expected to be less of a headwind, but we will continue to invest next year to drive those future benefits as well. And just on your question on the NII and the rates piece, as you say, the rate environment has been volatile. If I go back 10 days ago, I think we're probably spot on.
So it is moving around a little bit. But I'd also note that the endpoints are important, but the averages year-over-year are actually what's more important, and the delta probably isn't, I think what you suggest. But ultimately, the NII sensitivity that we've provided, that's a good guide to think about that.
Great. Thank you, Mark. Thanks, Mark.
Thank you, Chris.
Thank you. As a reminder, to ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Thank you. We are now going to proceed with our next question. The question's come from the line of Andrew Stimpson from KBW. Please ask your question.
Morning, guys. So first question on loan growth, please. You've had a very good start to the year there, but then I was surprised to see that the outlook for the second half is flat. I appreciate that you've got the U.K. book coming off there, so I was just wondering if you could remind us on the timing and the quantum there. And then just checking, you'd presumably be more optimistic heading into 2025 and presumably beyond, with the Irish growth remaining or whether you were thinking that the Irish growth was going to slow into the second half and beyond. And then on the net interest income sensitivity, that number's unchanged again. I think that's the, that's unchanged since the first half of 2023.
I'm just, I'm just wondering how come that's so stable? I mean, it's good in a way. It means we have to update our spreadsheets a bit less, I suppose. But, I'm just, I suppose those numbers tended to move around quite a lot, and as you said, the rates environment has been volatile. So just wondering how come that's so, so stable, and whether there was lots of moving parts with it?
Andrew, thank you for that. I'll take the loan growth question, and Mark can come back on the NII sensitivity. Mindful, of course, of Mark's guidance on NII as a strong performer overall. On loan book growth, Andrew, when we brought our refreshed strategies in the market, I guess almost 18 months ago now, we were very clear on where the sources of value creation were going to come for Bank of Ireland. One component of that was very much loan book growth in the Irish market, and we've seen that. So the loan book, you know, last year, just to remember, grew by 23%, very strong. This year, the loan book has grown by 4%, and we're seeing that across different portfolios in Ireland.
So for example, the mortgage book grew by 4% and net lending, on our estimate in corporate business in Ireland, that grew by 5%. So very strong performance and therefore, halfway through our strategic cycle, thinking about the remainder out to the end of 2025. I mean, there are other positive factors as well, but certainly Irish loan book growth will continue to be a feature of driving value. And plays into, actually, to your question in some ways on NII, where one of the positive factors that's supporting, a relatively stable outlook for NII is a growing loan book. Mark, over to you.
Yeah, just, Andrew, on the NII sensitivity. So on that, really the key point there is that the starting point in terms of interest rates hasn't changed. The structural hedge size is broadly the same if I look over the last couple of reporting periods as well. So the key, key moving parts in terms of the inputs to that NII sensitivity are unchanged. Clearly, as rates go lower or higher, that does affect the delta, but there hasn't been any material changes to the key inputs.
Great. Thank you.
Thank you, Andrew.
Thank you. We are now going to proceed with our next question. The question comes from the line of Sheel Shah from JP Morgan. Please ask your question.
Hi. Two questions from me, please. Firstly, on NII. With regards to the structural hedge, could you give a sense of the yields of the maturing swaps for this year and next? And if you think there's any potential to reduce these maturing yields. And secondly, back on the wealth business, the inflows have been strong at EUR 2.1 billion. What, what do you think, yo u know, what are your AUM ambitions for the wealth business across the longer term? And then more broadly, do you think an 80-20 split for NII versus non-NII is the right mix for your business across the longer term?
Great. Thank you, Sheel, and I'll take the wealth question. We are very pleased to see our growth in AUM, and we're seeing the real benefit now of those two very strong brands in the marketplace. Of course, Davy, as Ireland's leading wealth provider, and our established New Ireland business as a life and life insurance and protection business. So that's performed. Both have performed very well, with business income up 6%. So certainly a strong part of our overall performance. I mean, earlier when I answered the question on where this growth come from in Bank of Ireland strategy, I referenced Irish loans. The other very strong component of growth will be our wealth business as well. And we are certainly outperforming our AUM growth.
When we took our strategy to the market, 18 months ago, I spoke about AUM growing between 5%-10% per annum. The important metric that we would grow at a faster rate than the economy would grow, and that represents the opportunity in the marketplace. So it's another important component of our value creation. In terms of the overall split, I mean, what we're pleased to see is that business income is now comprising a greater component of overall revenue, up 6%. And actually, wealth and insurance, as a component of that, now represents about half of our overall business income, and we expect that trend to continue. So very pleased with our wealth and insurance business and how that translates into business income. Mark?
Yeah. So on the structural hedge, the structural hedge is actually doing exactly what we want it to do. And it is, as I mentioned earlier, it's a key component in our NII outlook and in the resilience of NII. And as we think about the moving parts there, about 1/7 of the hedge rolls off every year. On the specific question, somewhere around 120, 130 are the yields on the hedges which are, let's say, maturing. But again, those are being replaced at yields north of 2.5%. So again, that's a key positive factor as we think about that NII trajectory, and that broad stability as we go forward.
Thank you very much. Thanks, Mark.
Thank you. We are now going to proceed with our next question. The question's come from the line of Antonio Duarte from Goodbody. Please ask your question.
Good morning, and thank you for taking my questions. Another one on the loan book and asset quality family. We see that there's an increase in quality in your settlement loans from 81%-84%. Follow up with your decrease in exposure in certain areas, namely, CRE. So what I just wanted to know, if you could give us some color on how you see this distribution going forward, namely, in terms of your risk appetite and your diversification in segments and geography and then, touching a bit on ESG and green lending. How do you see yourselves growing in terms of your ambitions for in the green space? And not just on green mortgage, but also on the types of green lending, that was your midterm targets. Thank you.
Antonio, thank you very much for those questions. I'll take the green sustainability finance piece first of all, and also comment a little bit on asset quality, and then hand it over to Mark. So, Antonio, we set out for ourselves a target to have a loan book of EUR 15 billion that was sustainability financed. And of course, that's a combination of green mortgages. We are the largest provider of green mortgages. It accounts for about 60% of the overall mortgage book, so very strong. And of course, we enhanced our capability in that regard earlier this year with the introduction of the EcoSaver mortgage offering. But of course, as well as mortgages, it's also SME and corporate lending as well, and that's an important component of the overall sustainability finance.
And we're working with business customers both from a lending perspective, but also from an advisory perspective. The Davy model also has the Horizons advisory service, which is very helpful indeed to our corporate customers. So it's a combination of both green mortgages, but also helping sectors in the Irish economy, whether that's agri, whether that's retail, making very practical interventions, and we're very comfortable with our targets to achieve EUR 15 billion by next year, and indeed EUR 30 billion by 2030. On asset quality overall, I mean, I know Mark will have views on some of the detail behind this, but certainly back to my point, in an Irish context, we expect the Irish book to grow.
We're also supportive of property development in the context of home building in the Irish market. We're currently supporting the development of 21,000 homes in Ireland, and you should think about that in the context of there being demand for 35,000 homes. So we remain strongly committed to that market. But against a global backdrop of some uncertainty and rates remaining high, yeah, we're being careful and thoughtful around our international exposures, hence the reduction of 3% in net lending, with the CRE book mark just at about 9% of total book, so trending in the direction that we would like. Mark?
Yeah, great. Thanks, and morning, Antonio. So just I'd say asset quality overall is a real key highlight of these results, Antonio. After several years getting the NPE ratio below 3%, that's important, and we'll continue to drive that further down. Stage 2 loans are also down. Stage 1 loans, securities are up. And I'd say overriding piece from an asset quality perspective is resilience from our customers right across our portfolios. And we've maintained the coverage level at 1.5%, so still maintaining a prudent approach there. And if I look at our impairment charge in the period, so 12 basis points in H1, that's obviously materially outperforming our guidance at the beginning of the year. Key driver there is better macro.
So we have updated those macroeconomic assumptions as these better results, and we've got a better outlook, at the half year. But also if I go to underlying loan loss experience, that is also better, and that's coming through again right across our portfolio. So the underlying portfolio, our loan loss charge is somewhere around 25 basis points. And that's a good way to think about the second half of the year, and maybe even thinking a little bit further beyond that. As rates go lower, we think that's not a bad way to think about things going into 2025 as well.
Thank you very much.
Thanks for that.
We are now going to proceed with our next question. The question has come from the line of Borja Ramirez from Citi. Please ask your question.
Hello, good morning. Thank you very much for taking my questions. I have two. Firstly, on the NII guidance for this year. If you could kindly clarify the assumption for deposit migration in the second half, assumption. And then my other question is, in 2025, if you could provide more details, because I think that thanks to the structural hedge and thanks to your bank insurance business, I think that you, if I compare you with your Eurozone peers in 2025, I think total revenues should, in my humble opinion, they should have a much better performance than your peers in 2025, especially the Eurozone peers.
So, if you could clarify any details on NII 2025 and also on other income. Thank you.
Okay. Thank you very much, Borja, for those questions. I think your observation in relation to kind of Bank of Ireland relative to European peers is interesting because there is a very strong investment case regarding the sustainability of revenues in Bank of Ireland, and hence the reason why we are outperforming on our targets and particularly our return on tangible equity and the sustainability of that in line with Mark's question.
So, at the heart of that question, as ECB rates begin to come down and normalize, you know, kind of bank like Bank of Ireland continue to generate sustainable returns. And the answer to that question is, of course, it can. We remain a highly capital generative business. Again, we're seeing that in our guidance of cap gen increase into 310 to 320 basis points. I think it points to a number of factors. One is the Irish market itself, the Irish economy, which is proving itself to be resilient and growing, and indeed outperforming Eurozone countries. But also, our own particular business model, and I'm pointing to our bancassurance model, which is supporting our wealth and insurance income. And that's going to be a very important resilient factor to our sustainability, our earnings, as rates come down.
So I would, I would support your, your thesis, Borja. Mark?
Yeah, Borja, maybe just to add on that, like just into 2025 and picking up on the earlier question in relation to ROTE in 2025. So I've given it quite a bit of detail earlier in the call on that, broad stability in NII into 2025 and where we see that and the key assumptions underpinning that. But also then that fee income growth of mid-single digits, we see this year, wealth and insurance a key driver, and we see that continuing to next year, and wealth and insurance continuing to be probably the principal driver of that forward. On the NII guidance for this year, so the key inputs there are stable deposits in Ireland.
We've seen migration to term about EUR 1.3 billion in the first half. That's in line with our expectations. We see a similar flow in the second half of the year, and we expect the ECB to reach 3.25 by the end of the year. So those are the three key moving parts in terms of NII guidance.
Thanks.
Thank you, Borja.
Thank you. We are now going to proceed with our next question. It comes from the line of Christopher Cant from Autonomous. Please ask your question.
Good morning. Thank you for taking my questions. I just wanted to ask you about the competitive landscape, if I could. So there is obviously some noise around Bankinter, talking about the Irish market, and Revolut, which I think has a decent presence domestically, has obviously just won a U.K. banking license and might start to push more products as a consequence of that. So just interested in how you're seeing that competitive landscape that's been moving in your favor for the last couple of years. Are you concerned about any of those recent developments? And any anecdotal evidence you can point to will be appreciated. Thank you.
Good morning, Chris, and thank you for that, that question. I mean, Ireland is an attractive market, and of course, that's one of the reasons why we're, we're performing so well. And I think it's also, I mean, to your point, it's fair to say that the period of competitive retrenchment in Ireland is now over, and of course, referencing the previous departure of KBC and Ulster Bank from the marketplace. Now, from our perspective, you know, competition, whether it's fintech or otherwise, is healthy for consumers, and it's certainly good for banks like Bank of Ireland, because it keeps us firmly on our toes.
And it's important also to think about Bank of Ireland in the context that we have 4 million customers, and their needs range from basic current accounts, to mortgages, to SME loans, to more complex needs of large corporates, and indeed, wealth and insurance products for, you know, more than 650,000 customers. So our objective, notwithstanding the reality of competition coming back in, is to be there for our customers at all stages of their financial lives, and that's where we see our ability to maintain value. And of course, we're also generating sufficient value to invest for the future. We'll invest in the region of EUR 2 billion over the next 4 years. That's going to be in our 182 branches on the island of Ireland.
It's investing in fraud and cyber resilience, and of course, it's accelerating our digital capability. You know, for Bank of Ireland customers, it's not just a choice between digital and traditional banking. Our customers want both, and our objective is to compete on that basis. So certainly competition is increasing, and we're very happy to compete.
Got it. Thank you.
Thank you, Chris.
Thank you. As a final reminder to ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, please press star one and one to ask a question. Thank you. We are now going to take our last question. The question's come from the line of Diarmaid Sheridan from Davy. Please ask your question.
Yeah, hi there. Thanks again. Maybe just a follow-up on, on capital, if I may. Mark, just your, your comments around the 60-70 basis points going full year, capital investment from, loan or RWA growth. Just does that include, any exit, full exit in during 2024 from the U.K. personal lending business, or, or would that be separately treated? And, and then secondly, in those comments, you've obviously put maybe a little bit more guidance around the impact of Basel IV, in 2025. Just how we should think about it- if you have a 5% reduction in risk-weighted assets at that point, how that plays into the distributing down to greater than 14%?
Would that be something that you think you could do, kind of in one go, or is that something that may take, you know, 12, 18 months, you know, a little bit longer to kind of get back down to the 14% once that is implemented? Thank you.
Great. Thank you very much, Diarmaid, for that. I mean, on the Basel IV component, I mean, our first objective, of course, is to land that benefit, and we look forward to that at the start of next year. As I think about it, it doesn't change our capital target to be above 14% over the current strategic cycle. It's simply another input, and it also doesn't change our distribution strategy, which is to distribute to our CET1 target ratio of greater than 14%. That's the most important item that I can share with you now.
And to reinforce that commitment, of a progressive distribution policy that's designed to pay out DPS on earnings, on a progressive basis, and to return surplus capital wherever it comes from, by way of share buyback or indeed, other mechanisms as well. So it's a factor that we'll have to think carefully about at the start of next year when it lands. But again, it's very much will be thought about in the context of our capital target and our current distribution policy. And Mark, if you wanted to add anything to that?
Yeah, just on the Basel IV, just say, Diarmaid, as you'll see, we've upgraded, I suppose our expectation in relation to that. Our previous expectation was for low single digits, so now it's up to 5%. That's equivalent to circa 80 basis points in terms of a CET1 ratio. So I think, again, helpful and very supportive of that capital returns strategy that we have and a key part of our investment story. Just on the RWA piece for the second half, that is all in the U.K. personal loans. We do expect to exit that in the second half of the year. Obviously, we'll go through the appropriate processes, et cetera, on that.
But that book is already redeeming over the first half, so about GBP 800 million left in that. But that's captured in that expectation for the second half, along with OpEx core RWA and loan growth, and the amortization of CRTs.
Great, Mark, thank you very much. Diarmaid, thank you.
Thank you.
I don't think we have any more questions at this point. Or do we? Just double check.
We have no further questions registered, sir. So I hand back to you, Mr. Myles O'Grady, for closing remarks. Thank you.
Lovely. Thank you very much for that. And just to conclude again, guys, we're halfway through our three-year strategy. We're performing very strongly. The business model is generating capital, very much supporting our distribution policy as well. And thank you very much again for your participation this morning and indeed for your interest. Have a good day. Take care.
Thank you. This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.