Ladies and gentlemen, thank you for standing by. Welcome to the Bank of Ireland Q1 IMS Analyst Call. Please note that the call will be recorded. During today's call, webcast participants will be in a listen-only mode while we conduct the question-and-answer session. If you wish to ask a question, we ask that you please use the raise hand function at the bottom of your Zoom screen. Instructions will also follow at the time of Q&A. I would now like to turn the call over to Chief Executive Officer Myles O'Grady. Please go ahead.
Good morning from Dublin, and welcome to an update on Bank of Ireland's quarter one trading. We had a very good start to the year with performance and profitability in line with our expectations, and our guidance for the year remains unchanged. This morning, I'm going to cover our quarter one highlights. I'll touch on our view of the macroeconomic environment, and I'll reaffirm our outlook to 2027. After this, Mark and I are very happy to answer your questions. On quarter one, our performance is in line with expectations as we progress through the final year of our three-year strategy. The key highlights include core loan book growth, notably in Irish mortgages by 3.5% annualized, and stable deposits in the quarter. In volatile markets, our wealth and insurance assets under management were stable, supported by continued net inflows, and asset quality remains robust.
All of this translates to net capital generation of 50 basis points and a fully loaded CET1 ratio of 15.9%. In summary, I'm very happy with the Group's overall business performance and profitability in the quarter. The current economic backdrop is, of course, colored by evolving international trade negotiations. As you would expect, we will carefully assess any potential risks, particularly relating to credit formation, credit quality, and market volatility. As I said in February, when the Group published its 2024 results, we remain confident in the resilience of the Irish economy with a strong fiscal position, favorable demographics, and employment. We've updated our Irish economic forecast, also published today, and see 2025 GDP growth at 3.5% and employment growth up by 1.8%. This level of economic activity, combined with the execution of our strategy, supports our positive outlook.
The trade negotiations are likely to be protracted, but we enter this period from a position of strength, both in terms of the Irish economy and Bank of Ireland's balance sheets. For bringing it all together, we had a very good start to the year, and the domestic economy remains supportive. The Bank of Ireland equity story of a differentiated business model operating in attractive markets, generating high levels of sustainable capital, remains unchanged. Our business model is well positioned to manage the potential impact of current global trade discussions, and this underpins our outlook to 2027. Thank you for your interest, and I'm very happy now to open the line to questions.
Ladies and gentlemen, we will now begin our Q&A session. If you have a question, we ask that you please use the raise hand function at the bottom of your Zoom screen. Once your name has been announced, please unmute your line and ask your question. If you want to withdraw your question, please lower your hand using the raise hand function. Thank you, and we'll wait a moment for the first question. Our first question comes from Grace Dargan at Barclays. Please unmute your line and ask your question.
Morning. Thank you both for doing the conference call. It's very helpful. I just want to start by asking, note the comments around your kind of in-house economic forecasts. How should we be thinking about that in terms of sensitivity to your ECL? Maybe just to help give us a steer into H1, because I appreciate that's when you'll update. Secondly, again, noting for 2025, I guess you're talking about slightly lower ECB rate assumptions, as we'd expect. How are you thinking about the risks to the medium-term outlook? I guess in particular, the NII in 2026 and 2027 that you called out at full year. Thank you.
Grace, good morning, and thank you for those questions. I've asked Mark to take the relationship between the macro forecast and ECL, but let me take the second question, the broader question on outlook. In the context today of sharing our latest economic forecast, where, of course, the impact of the trade environment has seen our forecast come down a little bit, actually still very strong. GDP at 3.5% this year, unemployment at 1.8. I call that out to you because back in February, when we shared our outlook to 2027, maybe to recap on those pillars, I spoke about the economic environment, about cumulative GDP over three years to be above 10%. Based on everything we know today, that still remains valid in the context of credit formation, particularly given some of the structural opportunities in Ireland, particularly relating to the mortgage business.
I spoke about earlier, our mortgage book grew on an annualized basis by 3.5%. Last year, it grew by 6%. Those factors are very positive. Indeed, from a wealth and insurance perspective, when I look at the quarter one performance, where markets were down but inflows were up, again, that supports our overall view on the ability for that business to be supportive. There is no doubt that we are in a period of protracted negotiations on tariffs. I referenced that earlier, but the fundamentals that support the key drivers for value creation, the drivers that support capital generation, as we sit here today, remain broadly unchanged, recognizing, of course, that the downside risk is there as well. I will ask Mark to take the ECL question.
Yeah, great. Good morning, Grace. Maybe just to frame it, Grace, the context of overall asset quality, or overall asset quality, remains very robust. NP ratio remains at very low levels. If I look at portfolio performance in Q1 as well, that has been very much in line with our expectations, and that's why we're reiterating our guidance for the year, low to mid-20 basis points. As you know, we update the macro scenarios on a semi-annual basis, so we'll do that in June. What I've noted in relation to the economic forecast that we've issued this morning is, if you look at our weighted average scenario in December, those updates this morning are very, very similar to that.
Perfect. Thank you. Maybe.
Thank you.
Of course.
Next question.
Sorry, Grace, did you want to? Okay, sorry. Keep going.
Next question comes from Sanjena Dadawala from UBS. Please unmute your line and ask your question.
Good morning. Thank you for taking my questions. Two, please. Helpful statements on the outlook. If I could ask particularly on your expectations for net interest income within that and the latest thinking for 2026 and 2027. I know we had shared some numbers with full year results, so how are you thinking about those in the current context? Also, you touched upon the demand environment a bit, but just loans are flat in Q1. I know there are portfolio exits in there, but if you could talk about customer behavior, and then if there's any change in the thinking about 2025 growth and beyond.
Sanjena, good morning, and thank you for those questions. I'll ask Mark to take the question on net interest income from a customer behavior perspective. I mean, as you would expect, we do it anyway, but of course, with greater intensity given the backdrop. We remain very close to our customers. By that, I mean, I think from my perspective, I have been meeting our foreign direct investment customers. I know our corporate banking team have also been reaching out to our large corporate customers. Our sectors team, in the context of the domestic economy, we've got very strong coverage on the ground. My colleagues have also been reaching out. The overall view right now is, as you would expect, there's a little bit of caution in the system. I think that's entirely reasonable.
For example, possibly if some business were willing to make an asset investment in quarter one, very much on a short-term basis, they are just pausing a little bit and maybe waiting until quarter two or later in the year to see how things play out, particularly as news emerges. I note that even overnight, there have been positive soundings coming out in relation to China commenting on willing to negotiate. There was commentary on the EU willing to buy more U.S. goods, and also some relief for farmers as well in relation to tariffs. As time progresses, it feels like there is good news coming out generally. We're still in a period of one to be very mindful of, but it does feel like the environment is manageable.
Our customers, I would say, remain optimistic, but are being appropriately cautious right now in the very short term.
Great. Good morning, Sanjena. Maybe just in terms of net interest income overall, firstly, in the first quarter, very much performed in line with our expectations. We're reiterating our guidance for this year of NII to be guided at EUR 3.25 billion. That's notwithstanding slightly lower rates. As you'll recall, after full year results, we provided the outlook into 2027. At that stage, our expectation of NII was that in 2026, a little bit higher than EUR 3.3 billion, and 2027 of the order of EUR 3.5 billion. I'd say the key drivers underpinning that trajectory, loan growth, deposit growth, and the benefits of the structural hedge, those remain very much intact. If I look at the NII delta today versus where we were two months ago, I'd say the only delta is that rates in 2026 are slightly lower than were projected two months ago.
The impact of that, they are about 40 basis points lower, so about 160 for the ECB deposit rate versus the 2% assumption we had two months ago. I would say that the impact of that is partly offset by some treasury actions that we have taken, let us say business momentum. If I was trying to mark to market today, I would say that NII is probably closer to EUR 3.25 billion in 2026. At the end, if I think about the rates impact in 2027, that is much more modest. I think the EUR 3.5 billion for 2027, that is very much still achievable.
Thanks, Mark.
Thank you.
Thank you. Our next question comes from Chris Cant at Autonomous. Please unmute your line and ask your question.
Good morning, both. Thanks for taking my question. Just to follow up on that previous question, really, I guess this is the key thing people want to understand today. Thinking through the shape of the progression of ECB rates, how do you think your deposit pricing dynamics are likely to work as we go through 2026 and 2027? With ECB rate, I mean, the market's pricing for rates to come down and then go back up again. Do you look through that period and potentially take additional pain in 2026 by not passing on cuts as aggressively? How should we think about how that development might play through just in terms of how you think about managing the customer relationship through deposit pricing? Thank you.
Thanks a lot, Chris. I mean, our overall consistent approach, commercial approach, and our strategy to maintain pricing discipline on both sides of our balance sheet, both in the context of mortgage pricing and in the context of deposits, remains unchanged. We feel that strategy has worked very well for us. It worked well where rates were increasing steeply, and our approach to how we adopted a balanced approach to applying higher rates to mortgages, but rewarding deposit customers more, a similar approach as rates gravitate down. Certainly, in all of the guidance that Mark has provided, and indeed in the outlook that I've offered on overall returns, the fundamental drivers supporting net interest income remain unchanged. Of course, they are a growing loan book, growing deposit book underpinned by pricing discipline, and of course, also the positive benefit of our hedging strategy.
Certainly, a very well-disciplined margin management will continue to be a priority for us, Chris.
Chris, maybe I'd just add that if I look at the flow-to- term stats in Q1 this year, very much playing out in line with our expectations, trending lower. If I look at some of the weekly trends, you'll see sort of weekly flows just moderating. Very much playing out in line with expectations. Therefore, as you mentioned, that rate curve inverts, ECB's projected to go back up to 1.75 in September 2026. If I think about the cost of those term deposits, that becomes much less of a factor in our development as we go forwards.
Just in terms of thinking about how quick the term book churns, what's the sort of average tenor, I guess, of your term deposit customers? Fairly short.
Yes. Yeah. Chris, there's a mix in there, but certainly the most popular product over the last twelve months or so would have been our two-year term product, which we're paying 2.5% on.
Thank you.
Thanks, Chris.
Our next question comes from Borja Ramirez from Citi. Please unmute your line and ask your question.
Hello. Good morning. Thank you very much for taking my questions. I have two. Firstly, on the NII, I would like to ask if you could give a bit more details on the gearing to the steeper yield curve. I understand that the structural hedge is a positive benefit over EUR 100 million per annum for the next three years. I think you have also the opportunity to reinvest your excess liquidity into the bond portfolio. I would like to ask if you could please give a bit more indications on the potential upside to NII. That would be my first question. I would like to ask related to the asset, if you could comment also on the overlay provision. I think it is EUR 57 million as of 2024. I think it is related to CRE.
If you could kindly provide a bit more indications there. Thank you.
Good morning, Borja. Thanks for those questions, Mark. Do you want to go?
Yes, absolutely. Borja, absolutely. In the context of the yield curve, that presents opportunities as well. I alluded to that earlier. Just on the second part of your NII question, we've been quite conservative in terms of our approach on liquid assets. A lot of cash at the ECB. Obviously, over the last number of years, I would say spreads on bonds have been quite compressed. That has obviously changed over the last six months. That presents opportunities. We've taken advantage of some of that. Already year-to-date, we've reinvested about EUR 3 billion of cash into bonds. That is yielding a spread of somewhere around 50 basis points. There is a little bit more to go on that as well, which again, as I mentioned earlier, provides some offset to some of, let's say, the rate impacts versus two months ago in 2026.
On the hedge, hedge key driver of our NII trajectory out to 2027. As I mentioned, the full year results may have been a little bit longer pre-saved by the market. I suppose a key point there is that the gross receive fixed leg of that, it's not priced at market. So the average yield last year was about 170. That will move to 220-230-240 levels over the next number of years. That is a real positive for us in terms of our NII development. If I look at Q1, the reinvestment yields in Q1 are actually a little bit better than planned. Again, that provides a modest benefit going forwards. If I look at the projected yields in terms of reinvestment rates over the next period of time, they're now in line with plans.
I do not need any further delta there based on the rate curves right now. Finally, on the PMA, yes, we have a PMA of just under EUR 60 million. It is CRE related. Borja, put that in place at the end of 2023. We expect that to be incorporated into models this year. Again, similar to the comments earlier in terms of the macro assessments, we look at all those items on a semi-annual basis, but nothing to say right now. I should mention overall, that is probably very, very positive.
Thank you.
Thank you.
Thank you, Borja.
Our next question comes from Andrew Stimpson from KBW. Please unmute your line and ask your question.
Andrew, we can't hear you just in case you're talking.
Sorry, sorry. Can you hear me now?
No problem. Yes, loud and clear.
I'll get used to it one day. Two from me, please. One on credit and one on customers, please. I appreciate the NP ratio is definitely still at a very low absolute level, but nevertheless, it did increase in the quarter. There wasn't really a comment unless I missed it on how provisions are going so far in the first quarter. Just wondering if you could tell us what caused that increase in the NPs, please, and maybe whether that's Ireland or U.K. or elsewhere, and maybe how coverage levels have changed, please. Secondly, as you said, you changed the GDP assumption. I don't think there was too much of a change in the unemployment numbers, which I think is roughly what we've seen from lots of other economists.
I just wanted to ask, with those conversations that you've been having with the corporates, Myles, I appreciate the comments you made on the volumes already. Has there been any indication from those corporates that they're looking to make any headcount adjustments yet or anything that could inform us about the outlook for unemployment, please? Thank you.
Yeah, certainly, Andrew. Thank you. Thank you for that. The reason why, it's maybe obvious to say, but the reason why we call out those two metrics is because from a bank environment, balance sheet perspective, GDP and employment probably are the two most important factors. That's why we are encouraged that the levels of employment continue to remain strong. Again, as you say, not significantly changed from kind of pre-second of April tariff communications. The answer to your question, Andrew, is no, certainly from an Irish perspective. We do know that globally, we've seen some communications. For example, Intel have announced globally a reduction in headcount. Of course, Intel have a significant operation in Ireland. We can expect that that may have some impact. Again, nothing coming out at this point regarding any initiatives to reduce headcount.
Just to put that into context for you, if you look at the overall employment levels in Ireland, about 11% of total employment is from foreign direct investment sectors. While it is certainly big for sure, in the context of an overall employment base where 89% is from the domestic economy, I think that offers a level of confidence. Maybe also just on a related point, earlier I spoke about our mortgage book, and on an annualized basis, grew by 3.5% in the quarter. Certainly, when I speak with the mortgage team, when we look at the pipeline of applications in particular, that remains very strong. I think, again, that is a good proxy for confidence regarding employment.
Also to say, as a metric, less than 2% of our mortgage applications are from employees in pharma, which one might say is one of the sectors that is potentially impacted by the current trade negotiations. Again, at this point, Andrew, no communication to me in relation to headcount reductions for Irish operations from foreign direct investment. Mark on credit?
Yeah. Just the NP ratio, Andrew, you asked about, you did copy Q1 of some very low levels, really, so 2.2%-2.5%. That's just a number of particular specific case developments in the corporate space. That's not unusual. That's sort of, I'd say, BAU. Maybe just speaking about NP overall, we do mention in the release that we'll continue to progress reductions through our organic and inorganic means. Certainly, we're looking from the inorganic perspective at a further transaction in phase two this year.
Thank you very much.
Thanks, Andrew.
Thank you. Our next question comes from Jordan Bartlam at Mediobanca. Please unmute your line and ask your question.
Morning, both. I had a quick one on the term piece. You said it's kind of all running broadly in line with expectations. Things about EUR 0.6 billion last quarter, sorry, Q4. I think you'd also kind of guided towards maybe about EUR 1 billion over the course of 2025. The EUR 0.7 billion does sound like it might be running a little bit above that run rate. You did say it seems to be tapering towards the end of the quarter. I wonder if maybe while it's broad in line with expectations, whether it's maybe a little bit heavier than you previously anticipated. One other one, if possible. In terms of you said that 11% of employment relates to FDI industries, dominated industries.
In terms of the amount of deposits and banking services that you're providing to those types of industries, particularly on the deposit piece, is there a risk that if there is some re-domiciling primarily to the US, whether you could see deposit outflows, or is that not really a risk that you're aware of?
Good morning, Jordan. Thanks for that. Let me take this to the second question first, and then Mark can respond on term. I mean, generally, from a positive perspective, Bank of Ireland banks about 60% of foreign direct investment into Ireland. Those relationships are hugely important and actually particularly helpful now as we get a sense of their understanding of the global events. Actually, it is far more biased towards a banking operational relationship, banking services for employees in particular, and less biased towards either lending or deposits. There is some deposits, Mark, but I think it is not material. It is more about the broader banking operations relationship rather than balance sheet activity. On term, Mark?
Yeah, on the term. Just maybe to provide context on that, last year's flow -to- term was EUR 3.2 billion. EUR 1 billion was not our expectation for the year. Just to be clear on that, we did guide for the year that we expected the flow- to- term to reduce from last year's level. Let's say basically we've seen Q1 very much trending in line with that expectation.
Okay. Thank you.
Thanks, Jordan.
Our next question comes from Diarmaid Sheridan at Davy. Please unmute your line and ask your question.
Good morning. Thank you. Just one question, please. Just on capital, obviously very, very strong. I appreciate there is that little bit of uncertainty in the market, but you've talked previously about getting back down to just over 14%. Just wondering if any of your kind of thoughts have changed as to the timing or how you might affect that, just given where capital is at Q1. Thank you.
Great, Diarmaid. Thanks for that. Maybe to reaffirm, business model continues to be highly capital generative, 50 basis points in the quarter. Overall outlook for the year remains strong as well. In summary, Diarmaid, the distribution policy and the distribution approach that I would have communicated back on the 24th of February in a positive way remains unchanged. We expect our distributions this year to be a combination of a progressive DPS on earnings and, of course, the return of surplus capital, which would be a decision we expect to take on an annual basis. Very much consistent with previous guidance on that point. I'd reiterate the strong capital generation capability as we're seeing as the year progresses.
Thank you.
Thanks very much.
Our next question comes from Sheel Shah at JPMorgan. Please unmute your line and ask your question.
Great. Thanks for the conference call. Just a question around sentiment again. We've spoken a lot around the potential balance sheet impact and maybe the reduced demand for lending for either corporates or, I mean, the mortgage area seems to be holding up strong. Can I invite you to speak around the other income line and how you think that would be impacted in an environment where sentiment remains a little low? I know wealth has held up quite strong, but are there other areas within other income that are a bit more sentiment-geared rather than maybe market-geared?
Strong performance in the first quarter on business income, Sheel, that's the first point. The fundamentals here from a retail fee perspective and with a growing customer base, customer acquisitions, that continues to offer growth in business income. Most definitely wealth and insurance. Of course, we have seen, given the market volatility in the first quarter, that's had an impact from market valuations. Actually, very comfortable by the fact that that's been offset by net inflows. Therefore, confidence on wealth and insurance, fee income, I would have said before, I expect that to grow faster than the economy. We gave a guidance of increment between 7% and 8% overall. Again, sitting here today, feel very good about those two parts of our business to support business income.
Thank you. Our next question comes from Denis McGoldrick at Goodbody. Please unmute your line and ask your question.
Good morning, Myles and Mark. Thank you for taking my questions. Two, please, if I may. Firstly, just on the corporate deposits, they came down by about EUR 300 million in the quarter. Just wondering, is this linked to the exiting of the non-core corporate and commercial portfolio, or is there something else you're seeing there? Secondly, just to quickly clarify a previous point on the PMAs. EUR 57 million, all of which is related to CRE, but which you expect to be incorporated into the models, is it later this year? If you could clarify that point for me, please. Thank you.
Great. Thanks for that.
Yeah, I'll take those. I mean, the corporate deposits, actually, Denis, we spoke last year with a very strong deposit performance, particularly in Q4 last year, and corporate was up quite a bit in that. We flagged at the time in terms of our outlook for this year that the potential for that to come back is actually no surprise. It's not linked to the sort of rundown rates of the corporate GB book. I'd say just BAU customer behavior there. The PMAs, EUR 57 million, predominantly relates to CRE. Denis, my expectation right now is that they get incorporated into models by the end of the year.
Great. Thank you very much.
Thanks.
Thanks. Comes from Seamus Murphy at Carraighill . Please unmute your line and ask your question.
Hi. Yeah, sorry. Can I just ask about just a follow-on on deposits? When we look across Europe, obviously, deposit growth has been really, really strong in a lot of regions like Portugal, [Parcela] , Austria, Germany picking up basically. It is just kind of unusual that both AIB and yourselves are seeing limited deposit growth or zero deposit growth. Can you just talk about that in the context of what is actually going on just in terms of because if we are so bullish on loan growth or the pickup in loans, then the fact that deposits are lagging so much just seems a bit of a surprise. Just in terms of what is actually happening in the deposit market in Ireland, please.
Yeah. Yeah, good morning. It's Seamus. I don't think it's anything unusual. You know that quarter- to- quarter, deposits can be quite volatile, particularly in the NFC space if you look at the system level. Overall, I think if you look over the last number of years, it is difficult to absolutely triangulate because there's been a lot of moving parts in terms of COVID, in terms of players exiting the market, etc. Seasonally, Q1 typically tends to be the weakest quarter. Actually, if we look at our plans for the year and how things have actually played out in Q1, I'd say we're in line, at least in line, if not a little bit ahead in terms of how deposit was performed in Q1.
Okay. Thank you.
Thanks for that, Seamus.
Just a reminder that if you do have a question, we ask that you please use the raise hand function at the bottom of your Zoom screen. If you want to withdraw your question, please lower your hand using the raise hand function. We will wait a moment to check for any more questions. As we have no more raised hands at this time, this concludes the Q&A session, and I will hand back to management for closing remarks.
Great. Thank you very much for that. Just to say to everyone on the line, thank you very much for taking the time to be with us this morning. I know it's a particularly busy week with various banks coming out across the system. Thank you for your time. Of course, the investor relations team, and indeed, Mark and I are available if you have any follow-up questions. Thank you very much, and have a very good day. Thank you.