Good morning from Dublin, and welcome to our H1 Results Rresentation. In February, I highlighted the Bank of Ireland equity story. Notwithstanding the global backdrop, including ongoing trade discussions, we retain our positive outlook to 2027. This is supported by the attractive markets in which we operate, notably our home market. Ireland's resilient and growing economy underpins balance sheet growth, and we remain highly focused on efficiency. All of this underlines our confidence in maintaining strong returns with expected ROTE in excess of 17% by 2027, supporting business model investment and sustainable shareholder returns. We have a highly capital-generative business model. Turning to our H1 results, as we progress the final year of our current strategic cycle, we are executing well against all of our targets, and this is delivering tangible commercial benefits. We have grown Irish loans and deposits, and today we are upgrading our NII outlook.
We have also grown wealth assets under management. Together, these contribute to our PBT of EUR 0.7 billion. We have maintained our focus on efficiency with a 48% cost-to-income ratio. We have a strong CET1 ratio of 16%. We have declared a dividend of 25% in respect of H1 performance and reaffirm our guidance of a progressive full-year dividend per share. The EUR 590 million share buyback announced earlier this year is ongoing, with Circa 80% deployed to date. Since the start of 2023, the Group has returned EUR 2.6 billion to shareholders through a series of buybacks and dividends, equating to Circa 22% of market cap and reducing the Group's share count by 11%. Our medium-term outlook supports further capital returns. Slide 7 provides an overview of progress under each of our three strategic pillars.
We are building stronger relationships with more than 4 million customers, and this is delivering improvements in customer satisfaction. Our drive to make Bank of Ireland simpler to do business with is helping grow our active digital users, which supports a material reduction in complaints. A simpler business is, of course, also about efficiency, which supports our circa EUR 2 billion cost outlook to 2027. We continue to target efficiency, including customer journeys, targeted insourcing, organizational redesign, and artificial intelligence. Our work on AI continues as we assess the considerable opportunity this technology presents to identify the value pools where we can best put it to work. Under our third strategic pillar, we have grown our sustainable finance portfolios by 24%. Moving to slide 8, Ireland is among the best-performing advanced economies. Output and employment growth is well above the Eurozone average.
We are, of course, vigilant to the evolving external backdrop, particularly around global trade. Against this backdrop, Ireland's economic position offers reassurance. We have strong private and public sector finances, robust demographics, and a diversified economy. We also see record employment, growing retail sales, and housing output increasing, notably up 35% year-on-year in quarter 2. Multinationals account for 11% of total employment, spread across more than 1,800 companies operating in a range of sectors. Many of these companies are long-established and embedded in the Irish economy, undertaking financial and professional services, advanced manufacturing, and research and development. We expect Irish GDP growth of 8% this year, which includes domestic growth of 2.9%. These economic dynamics, in combination with the Group's strong execution, are contributing to the excellent performance of our Irish mortgage book that you see on slide 9. The book grew at an annualized rate of 6%.
The second consecutive year the book has grown at this pace. Bank of Ireland is the number one provider of new mortgages in Ireland since quarter 4, 2022, and our market share of new lending was 40%. Achieving this outcome, while maintaining strong risk and pricing discipline, has been supported by product innovation and significant investment in customer service. The mortgage business is integral to the Group's medium-term growth prospects. Our everyday banking franchise, that is current accounts and deposits, is seeing positive momentum. Customer balances increased at an annualized rate of 5%. Flow-to-term was EUR 1.1 billion, lower than last year, in line with expectations. We continue to innovate and have recently launched two new propositions: Coming to Ireland, a bespoke account opening service which supports customers relocating here, and Smart Start, which meets the banking needs of our 7 to 15-year-old customers.
Later this year, the rollout of a major upgrade to our mobile app will commence, offering increased functionality and enhanced user experience. Our differentiated wealth and insurance franchise continues to deliver, with assets under management of EUR 55.6 billion. This equates to an annualized growth rate of 3%, with strong inflows of EUR 1.2 billion. Against a backdrop of volatile markets, I am very pleased with this performance. The growth in AUM is also a key driver of the 8% increase in fee income for this business. The favorable demographics in Ireland, in combination with the significant opportunity in wealth creation, are key parts of a structural and resilient growth story for our wealth and insurance business. That opportunity is underpinned by the Group's position as Ireland's number one wealth provider via our Davy and New Ireland Assurance businesses.
Wealth and insurance offers long-term, capital-light diversified income, and we see it being the key driver of overall fee income growth into the medium term. Turning now to slide 12 on our corporate and commercial division. This was a solid first half for our Irish corporate franchise, with the loan book up 3%. Within this Irish book is EUR 1.3 billion of funding, supporting the construction of close to 25,000 homes. To further drive momentum, we recently announced an increased ambition to support the development of 30,000 homes. This ambition is grounded in strong commercial discipline, while also responsibly supporting this critical sector for Ireland. By deepening our corporate-customer relationships, we've also increased fee income by 11%. As previously guided, we are continuing to run down a number of lower-returning international portfolios. Moving to credit quality, our Ireland book continues to perform well.
We have increased coverage on our US acquisition finance book, preemptively capturing potential risk, which is reflected in our impairment charge. Our retail U.K. division is producing attractive and sustainable returns, generating ROTE of circa 15%. During H1, both lending and deposits grew. While headline PBT here was lower, this is driven by a normalization of the impairment charge in the current period compared to a net write-back last year, and the NPE ratio also improved by 20 basis points. Slide 14 sets out our targets for the current strategic horizon, spanning 2023 to 2025. We reiterate our circa 15% full-year ROTE target, and the guidance for a progressive full-year dividend per share is maintained. Mindful of our strong capital position and in line with our policy, the Group will give further consideration to distributions at our full-year results.
Our unique business model, the attractive markets in which we operate, and the focused delivery of our strategy underpin our unchanged guidance for 2025 and our positive outlook to 2027. I will now pass over to Mark to bring you through our financial performance in more detail.
Thanks, Myles, and good morning, everyone. There are three key financial takeaways from these results. Firstly, we've delivered a good performance in H1, with strong Irish loan and deposit growth while maintaining cost discipline. Secondly, we are reaffirming our key guidance for 2025, a ROTE of Circa 15% and capital generation of 250-270 basis points. Finally, our H1 performance puts us well on track to deliver on our outlook to 2027 and deliver a ROTE of greater than 17% in that year. The income statement on slide 19 demonstrates resilient income and an ongoing focus on efficiency. We've also declared an interim dividend of EUR 0.25 per share, a payout ratio of 40% in line with last year. Moving to slide 20. Our NII performance in H1 was better than we originally expected, supported by strong business momentum, especially in Ireland.
We've also meaningfully increased the size of our bond portfolio to capture higher income, with further growth expected in H2. We are upgrading our full-year NII guidance from greater than EUR 3.25 billion to around EUR 3.3 billion. The key positive factors driving our NII performance this year—Irish loan and deposit growth, the structural hedge, and a larger bond portfolio—will continue to support our NII growth into 2026 and 2027. We now see 2027 NII being higher than EUR 3.5 billion, reflecting the momentum we are seeing and the actions we are taking. We had strong lending growth in Ireland in H1, where we delivered an excellent performance in mortgages. The contraction you see in our international corporate portfolios primarily reflects the planned rundown in our GB corporate book.
Looking ahead, we continue to see growth in net lending of around 2% for the full year, with Ireland growing by around 5%. Our differentiated wealth and insurance business turned in another strong performance in H1. Against the backdrop of volatile markets, net inflows were resilient at EUR 1.2 billion, which equates to around 4% annualized of opening AUM. This helped AUM to close the half at a record EUR 55.6 billion. Looking ahead, we expect to see AUM growth of around 5% for the year, supported by inflows and market growth. The structural drivers for this division remain very much intact, supporting our medium-term annual growth expectation of 7-8%. Our deposit franchise saw further growth in H1, up 2% to EUR 105 billion. There was particularly good momentum in Irish everyday banking balances, with a strong Q2.
Flow-to-term moderated to EUR 1.1 billion in H1 from EUR 1.9 billion in H2 of last year, in line with our expectations, and we see this moderation continuing. For the full year, we now see overall deposits growing by around 3%, up from 2% previously. Slide 24 provides an update on our structural hedge. Average volumes are modestly higher in H1, and we see this trend continuing in H2. The hedge yield continues to grow, but still remains well below current market rates. This upside is a key driver of our positive NII outlook over the next number of years. Turning now to business income. H1 saw growth of 4%, in line with our expectations. This was driven by strong performance in our wealth business. Associates income was lower, with this down to the non-recurrence of gains in the prior year period.
For the full year, we expect growth in total business income, including JVs and associates, of around 5%, unchanged from our view earlier in the year. As Myles said, we have a clear focus on efficiency. Operating expenses were 3% higher in H1, with a cost-to-income ratio of 48%. This is primarily driven by higher staff costs, a function of tight labor market conditions. Our operating expense guidance for the year is unchanged at 3%. We reiterate our outlook for costs to be around EUR 2 billion out to 2027. Levies and regulatory charges are substantially booked in H1, and we expect them to be around EUR 130 million for the full year. Non-core items were EUR 83 million in H1. The majority of this is down to investment in restructuring, including redundancy costs, as we evolve our business model in line with our strategy.
We expect a broadly similar quantum of non-core items in H2. This is an acceleration of spend relative to our guidance in February, with total expected restructuring costs over the three years to 2027 materially unchanged. This investment is directly linked to our outlook for operating expenses of around EUR 2 billion in 2026 and 2027. On U.K. Motor Finance, there is no change to our provision in H1. We expect further clarity in this in the second half. Asset quality remained robust in H1, despite the uncertain global economic backdrop. Our NPE ratio was 2.6%. Up 40 basis points year to date, but close to multi-year lows. Our overall provision coverage is higher at 1.4% in June. We expect the NPE ratio to reduce modestly in H2, reflecting management actions. We've taken a EUR 137 million impairment charge for H1, equivalent to 33 basis points annualized.
This compares to our guidance of low to mid-20s back in February. The H1 charge comprises two elements. 23 basis points reflects net portfolio experience. The biggest driver of this was our U.K. acquisition finance book, with a charge in that book partly offset by credit insurance protection. The balance of 10 basis points relates to additional management adjustments to capture updated model assumptions and PMAs that reflect the changed environment since the start of the year. We now expect the full-year charge to be around 30 basis points. If I stand back from the detail, the key takeaway is that our overall asset quality is in good shape, and our customers are navigating the changing environment very well. Turning now to slide 30 in capital. We finished the half with a CET1 ratio of 16%.
The building blocks for this are the Basel IV benefit of 115 basis points, organic capital generation of 110 basis points, the dividend accrual, and investment in orderly way growth. Our full-year guidance is unchanged. We continue to expect 250-270 basis points of organic capital generation. The higher capital generation in H2 is mainly explained by timing issues around levies and movements on intangibles. Slide 31 recaps on all of our full-year guidance, with ROTE of around 15% expected. Our closing slide here sets out the building blocks that produce our positive medium-term outlook, underpinning confidence in our ROTE building to an excess of 17% in 2027. Thank you for your interest in Bank of Ireland. Our Chief Sustainability and Investor Relations Officer, Eamonn Hughes, will now take us through the Q&A.
Thank you, Mark. At this time, we invite those analysts wishing to ask a question to click on the raise hand button, which can be found at the bottom of your screen. When it's your turn, you will receive a prompt to be promoted as a panelist. Please accept, wait a moment, and once you have been introduced, you may unmute yourself, turn your video on, and ask your question. We'll just wait a moment now for the queue to form. It looks like our first question will come from Diarmaid Sheridan on Davy. Diarmaid Sheridan, you may now unmute your audio, turn your video on, and ask your question.
Good morning. Thank you, Eamonn. Good morning, Mark. Good morning, Myles. A couple of questions, if I may. Maybe just firstly on the impairment charge. Mark, how should we think about the SRTs and how they interact with either changes in the credit quality in the acquisition finance portfolio or when you put provisions on? Just trying to understand how the dynamics there work and if there's any implications for risk-weighted assets or is that protection kind of fully there to the extent that the SRTs are there. Maybe just secondly then on net interest income and the guidance that you've provided and the looking out to 2026 and 2027. To what extent should we expect those additional liquid assets that you've put on and the hedge to be kind of key drivers of what you're indicating this morning. In terms of that upside that you've talked to.
And then finally, maybe, Myles, when you talk to distributions and the target CET1 level, I guess, firstly, is that likely to be something that is a kind of a multi-year to get down towards just above 14%? And secondly, is there anything stopping you from at a total level distribution greater than 100% of earnings in any given year? Thank you.
Okay, good morning, Diarmaid. Let me take the broad capital distribution question. I'll ask Mark to take impairment and that NII profile. On capital distribution, Diarmaid, consistent with our approach since 2022, our objective clearly is a progressive full-year DPS and an assessment of surplus capital returns at year-end. As I referenced in my narrative earlier, in terms of track record, the group has returned EUR 2.6 billion in dividends in cash and buybacks. Hopefully a track record demonstrates that we understand shareholder distributions are integral to the Bank of Ireland equity story. Clearly, we're at a very strong capital position at the half-year where the CET1 is 16%. That's going to grow out over the course of the second half of the year. We will think about that in the context of a target capital ratio to be above 14%. Thanks, Mark.
Yeah, thank morning, Diarmaid . Maybe to stand back on asset quality overall, I'd say, Diarmaid , we're in very, very good shape. Our NPE ratio is 2.6% at H1. That's close to multi-year lows. As I look across our portfolios overall, our customers are really weathering, I'd say, the evolving environment very well. On this EORT question, which I think relates to US acquisition finance in the first half, I mentioned in the presentation, EUR 97 million of our charge in H1 relates to portfolio experience. That reflects, I'd say, largely the US acquisition finance offset by the benefit of the CRT protection in place. Maybe to step back from that, we've got CRT protection in place over about 70% of the US acquisition finance book. That's an integral part of our risk management framework, and it's designed to protect the group if there is adverse credit experience.
If we think about what's happening at H1, it's doing exactly what it should do. It's providing a partial offset against the loss experience in the book. I would emphasize that does not represent actual losses have hit at this stage. That's effectively a mark to market. Again, as we work through that, if the stage three ECL, which drives that, were to unwind, the recoverable asset would reduce in line with that. Maybe turning to NII, Diarmaid , I mean, I think there, really, it's a real story of, I'd say, positive momentum in the context of NII, and that NII trajectory is obviously a key building block into our overall outlook of ROTE growing to greater than 17% by 2027. If we look at maybe the key building blocks there, really some good momentum there. It's got strong Irish loan deposit growth in H1, so 5% annualized growth there.
The structural hedge is playing out, as we expected, maybe even a little bit better than that in terms of the reinvestment yields. Also, we've increased our bond portfolio in H1 as well, from EUR 9 billion to around EUR 15 billion, and there's further to go on that. Those factors are supporting our upgraded NII outlook. We've upgraded our outlook this year to around EUR 3.3 billion from EUR 3.25 billion previously. We expect NII to grow next year to greater than EUR 3.3 billion. In 2027, we now expect NII to be greater than EUR 3.5 billion compared to EUR 3.5 billion previously. If I look at where consensus is today, I don't think that consensus has probably fully captured that.
Great, thank you.
Thank you, Diarmaid .
Our next question comes from Sanjina Dadawale in UBS. Sanjina, maybe unmute your mic and turn your video on. Thank you.
Good morning. Thank you for taking my questions. Can I have two follow-ups from the previous discussion? I have a question on non-core. Maybe on the impairment charge, when we look at the CRT benefit within, is it possible to break out? Because 23 basis points driven by US acquisition finance still seems large. If part of it is covered. On the guidance implied, second half charge of 27 basis points, that's still higher than the low to mid-20s that we were expecting before. What are you seeing in terms of expectations for the second half, which has that charge still higher than a mid-20s kind of thing? The second follow-up on distributions, should we expect the consideration to the greater than 14% target at the end of each year, especially given the current excess position, or could it be more phased?
My question on non-core charges, it's about a 50% increase for this year. Wondering what's the total restructuring budget, if you could give us a sense, and what do we now expect for 2026, which was supposed to be again 100-125 before? More importantly, what benefits you're seeing from these investments in the future? Thank you.
Lovely. Thank you very much for that, Sanjena. Let me comment more broadly on the impairment charge and also capital distributions, and then hand to Mark. On some of the detail, both for H2 impairment and indeed non-core. On impairment overall, Mark would have called this out, asset quality remains very healthy. The best measure clearly overall is our group non-performing exposure. That is at 2% of total book, close to multi-year lows. When I look across the portfolios, across our group loan book, the customers are in good shape. Our impairment in the US is higher, and I regard that very much as a preemptive measure to capture potential risk. This is getting ahead of, I guess, a potential problem and getting our arms around it. Mark talked about the realized losses versus what we have taken at half year.
The work we have done here is what you would expect us to do, particularly given the US dynamics throughout quarter two. On capital distributions, again, Sanjena, our objective here is a progressive DPS. That is very important to us, and also the return of surplus capital. We will consider that in the context of where that capital is at at the end of the year relative to a target to be above 14%. It is as straightforward as that.
Yeah, and Sanjena, looking at our guidance for the year, our outlook for the year is a circa 30 basis points. If you go back to our H1 charge, two elements to it. The net portfolio loss activity on the one hand, and also the further adjustments we've made, which are really an additional TMA and also increasing our weightings to the downside. That really reflects our judgment as of June as to the change in the environment. We would review that again at the end of the year. If you look at our guidance for the year, we're effectively assuming no change in that. That continues. Portfolio loss activity similar to the first half in H2. If I maybe go out into 2026 and 2027, we'd see a normalized cost of risk somewhere in the mid-20s.
On non-core, really the biggest driver of non-core, as I mentioned in the presentation, is related to restructuring charges. In terms of that, we see some acceleration. I'd say the overall envelope materially unchanged. Those costs, they include voluntary redundancy costs and other restructuring costs, are directly linked to our outlook for having costs flat at around EUR 2 billion in 2026 and 2027.
Thank you. Is there more to come in 2026 and 2027?
Yes. That's similar to what I was saying in February. It is sort of a three-year sort of program, Sanjena. We would expect something similar next year and then materially lower in 2027.
I guess, Sanjena, that plays in very much to our cost target of EUR 2 billion by 2027. Mark, reference redundancies. I've said before that I expect that we will be a smaller and leaner organization by 2027. Headcount will reduce over the course of the second half of this year. That includes 260 voluntary redundancies expected before year-end and most likely more in 2026 as well. Thanks, Sanjena.
Thank you.
Okay, our next question comes from Grace Darragh in Barclays. You may unmute your microphone, Grace.
Good morning. Thank you for taking my questions. Maybe I could start with one on the deposit performance, which has been really strong. Maybe you could be a little bit more granular around the kind of retail, corporate, and the geographic split and the mix within the deposits as well, of how that's outperformed and what you're expecting in H2 and next year in particular. Then secondly, can I just ask a couple of clarifications? On NII, you said maybe further to go on the bond portfolio. Do you have a sense of how much you're looking to grow that book? Finally, can I just confirm, did you say you were looking for similar restructuring charges in 2026 and 2025, or did I just mishear that? Thank you.
Good morning, Grace, and thank you for adding on the broad answer to your deposit question. Firstly, very pleased that that deposit book has grown at an annualized rate of 5%. Of course, at the same time as on our wealth business, we've seen our AUM at the highest level ever, including net inflows of EUR 1.2 billion as well. Both parts of that product offering, the deposit offering, plus the more sophisticated wealth offering working well. Mark, over to you on some of the detail.
Yeah, and Grace, if you look at the individual businesses, it's really our Irish retail business, so everyday banking. Those current accounts and deposits which have grown in the first half of the year, very strong Q2 there. That's one of the reasons why we're increasing our guidance in terms of deposit growth for the full year to be around 3% now, given that Q2 performance. I'd say also just the float term playing out very much as we expected. It's reduced from EUR 1.9 billion second half of last year to EUR 1.1 billion in the first half of this year. We expect further reduction and moderation in the second half of the year. We're seeing that on the ground. Shall I go on to maybe the bond portfolio, Grace? I'd say further to go there, maybe something similar. Up about EUR 5-6 billion. We're working actively on that.
We see an economic opportunity there. That's going to support that really positive NII outlook that we've given this morning. On restructuring costs, correct, similar in the broadly similar ballpark next year and then materially lower in 2027.
Thank you.
Thank you, Grace.
Okay, our next question is from Borka Ramirez in Citibank. Do you want to unmute your phone, Borka?
Hello, good morning. Thank you very much for your time for taking my questions. I have two questions. Firstly, I think on the cost side, I think, I do not know why, but consensus does not seem to fully incorporate your cost savings. I think there seems to be some upside to consensus estimates. That would be my first question. My second question would be on the NII sensitivity, if you could kindly provide a bit more details on the developments compared to the second half. Also, if you have any actions to decrease the sensitivity to rates. Thank you.
Thank you, Borka, and good morning. I mean, on cost. The key message that's most important for me to communicate is that we remain on track with our cost target of EUR 2 billion by 2027. We are in an inflationary environment, so the team are working hard across the organization to secure efficiencies. I think we can see that in our headline numbers overall. If we go back to last year, costs increased by 6%. This year, we're guiding 3%. That work is coming through in terms of limiting the impact of inflation. Deploying a range of interventions, some examples, digitizing our customer journeys. We launched a new business loan platform linked to that. Really working hard with our third parties to secure greater value from them, working on our organizational design overall, but also insourcing cheaper and better, frankly, engineers for our technology change programs.
I referenced AI as well. That's an important component. Overall, I mean, essentially half the cost of Bank of Ireland is people costs. We do know that, of course, while we continue to invest in our people, overall headcount will reduce between now and 2027, with some of those departures occurring in the second half of this year. Mark, on NII sensitivity?
Yeah, and just to add, Borka, you're right in terms of the consensus. There is a gap, but obviously we're reiterating our outlook this morning. On the NII sensitivity, key factors there versus the year-end, Borka, the increase in the structural hedge, which reduces sensitivity. Also on the upside, we've reflected also our experience of pass-throughs as we've gone through the cycle. Those are the two key moving parts. I noted in the call this morning that we expect the structural hedge to continue to modestly increase as we go forward in line with our expectations on deposit growth.
Thank you. Very clear.
Thank you, Borka.
That's great. Our next question is from Shiel Shah in JPM . Shiel, you may unmute your microphone.
Great, thank you. Hopefully, you can hear me.
Yeah, great. Two questions from me, please. Firstly, I'm looking at your mortgage market shares. They've held at 40% consistently for the last few years, actually. I'm wondering around the competitive dynamics in the Irish market. Where do you expect these mortgage market shares to be held at 40%, or do you expect it to maybe drop over the coming quarters? Secondly, again, on the mortgage side, I'm looking at some data points you provided around the mortgage to insurance penetration. Six out of 10 take out a new life insurance policy, four out of 10 take out a general insurance policy. What's the upside to this? Where do you think mortgage to insurance penetration could go towards? Is that something that you see as a growth prospect? Thank you.
Thank you for that, Shiel, and good morning. I mean, part of the fundamental pillar clearly of the Bank of Ireland equity story is the growth in Irish loans and our home market supported by a very strong economy, but also supported by structural opportunities such as the mortgage market in particular. The biggest factor that drives value for Bank of Ireland in the mortgage market is the fact that the mortgage market itself in size is increasing. That is largely driven by the increased supply of new homes that is coming to the market and Bank of Ireland's position in relation to that. That is one of the reasons why the book has grown by 6% last year and 6% on an annualized basis so far this year.
In the context of competition, I think, I mean, I have said it before, I do feel given that Ireland is an attractive market, that competition is going to increase. I think we can see that both from traditional banks, but also from some of the neobanks. We are well positioned to compete. Strong risk and pricing discipline. We will always maintain that. The combination of a physical footprint plus our digital offering is really important. In the mortgage space, we are seeing that come through. It is not so much, Shiel, that we have a mortgage market share target. It is an outcome of everything that we do. Again, value really comes from that size of market growing. That pricing discipline is really important in the context of protecting the value of the total book and not just flows of share.
I do think out to the medium term, a more normalized share is probably in the low to mid-30%. We are comfortable with that. The book will grow at that rate. I go back a number of years where the market share was in the region of just 20-21%. On the cross-sell, I mean, one of the reasons why we talk about Bank of Ireland having a differentiated business model, it is because of that wealth and insurance division from New Ireland Assurance, but also from Davy. That rate of cross-sells, so six customers, mortgage customers taking a life product or taking home insurance, it has been pretty stable out over the last number of years. We will, of course, want to do more in that space.
One factor that we have to think about, of course, as the broker market and the mortgage market becomes more dominant, that can have an impact on that cross-sell. Again, consistent, solid performance. Actually, I know it is not the question you asked, but there are many other areas in our wealth business, particularly on the insurance side, the pension side, which does offer upside as well. Thank you for that.
Okay, just to remind people, if you want to ask a question, just put up the raise hand function on your screen. Our next question, we're going to go now to Andrew Stimpson of KBW. Andrew.
Morning, guys. Thanks for taking my questions. Two from me, please. First one on slide 25. I'm just wondering what's driving the other valuation items for the result this half, please. It's quite a big swing. I appreciate those lines fall outside the scope of the guidance that you kindly provide, but just wondering how we should think about that from here. If for whatever does cause that calms down, does that reverse into a bigger positive in the future, or does it just get back to zero over time, please? The second point on the bond portfolio increasing, thank you for the extra detail there.
Can you talk about the durations that you're investing in there and just maybe how the shape of the yield curve has pushed you out in durations or whether there's further benefit if you do see this steepening continue, whether there's even more opportunity to take more duration and get bigger benefit there, please?
Good morning, Andrew. Thanks for those. I ask Mark to take those, please.
Yeah, Andrew, the valuation items there are actually probably similar, maybe a little bit lower than we published in the IMS actually in April. We do not budget those at the beginning of the year. They relate to market movements and interest rates, FX, etc. They are largely mark to market, which work to par over time. That is what is going on there. We do not make any allowance for that in H2 either, positive or negative, as we look forward. On the bond portfolio, we are seeing an attractive opportunity there. Credit spreads are somewhere around 50 basis points higher on sovereigns and related bonds. That presents an opportunity relative, let us say, to cash at the ECB. That is what we are capitalizing on in terms of duration on those, up to around eight years.
Thank you.
Thank you, Andrew.
Okay, we'll move on to our next question from Chris Canton Autonomous. Chris, if you want to unmute your microphone.
Good morning. Can you hear me?
Yeah, all good, Chris.
Oh, I'm not sure the camera's working. Yeah, thanks for taking the questions. One on NII and one on leverage finance, please. In terms of the discussion around the bond portfolio, picking up a bit of a better spread on liquidity, you've nudged up your near-term balance sheet growth expectation. The hedge is growing. Nudged up your 2025 NII guide. Could I invite you to comment on the guidance you gave for 2027 NII? I think it was circa €3.5 billion you had in earlier in the year. If you could speak to how you're seeing the path towards that and should we expect a bit of upside to that, given that it feels like the sort of drivers are heading in the right direction? And then on leverage finance, could you just remind us how big the book is?
In terms of the CRT coverage, what's the sort of attachment points? Or I guess put another way, this is one of the things that investors probably forget that you have, and we have a quarter like this where you take a bit of a mark on it and everyone gets quite upset. What's the sort of order of magnitude of maximum risk, I guess, is the question. If that entire book blew up, when you say it's 70% covered, we kind of need to know the attachment points, right? Are you taking kind of a 15% slice of coverage against 70% of the book? What's the overall actual exposure covered through CRT if the whole thing went belly up? I'm not suggesting that it would do that, but just keen to understand how much protection you're actually getting when you say you've got 60% - 70% covered in some fashion.
Thank you.
Okay, Chris, thank you for that. Let me offer some of the data points on the US acquisition finance book, and then Mark can translate that into a CRT profile and also your question on 27% upside to NII guidance. The size of the book, the US acquisition finance book is EUR 1.5 billion. That is less than 2% of group loans. It is important, but I guess not material in the overall profile of the loan book. Given the macro backdrop, particularly since interest rates began to increase, we have been more cautious in recent years. That book has declined from about EUR 2.4 billion since 2022. I should say Bank of Ireland has been in the US acquisition finance business for about 25 years now.
The business has got a very strong track record of overall asset quality and indeed profitability. It has navigated its way through very positive economic environments, but also significant periods of economic uncertainty and generally has held up well. I know I said it earlier, but it is important to highlight, and Mark has said it too, in the impairments we are taking here, regard these very much as a preemptive measure to capture potential risk. Mark?
Yeah, and Chris, specifically then in terms of how it works, effectively there's a first loss. It's a risk sharing with the investors. The bank bears a first loss. And then there's a second loss of up to 16% on the book on the covered elements. That's where the protection comes. As I said earlier, what's happening there is that is doing exactly what it should do if we experience an adverse credit in the first half of the year. From an NII perspective, Chris, yeah, actually I mentioned the presentation. Actually, we have upgraded our outlook for 2027. We now expect NII to be greater than EUR 3.5 billion versus around EUR 3.5 billion back in February.
That's really reflecting the momentum we're seeing in terms of deposits and lending in Ireland, the benefit from the bond portfolio, and also the structural hedge playing out and maybe some of those reinvestment yields maybe a little bit higher than we had allowed for at the beginning of the year.
Thank you, Chris.
Okay, we'll now move on to our next question from Rob Noble in Deutsche Bank. Rob, do you want to unmute your microphone?
Hello, can you hear me?
Yeah, Rob.
Hi, sorry about that. Just a few questions of clarification. I think you touched on each of these already, but. Say the bond portfolio has got €5 billion - €6 billion, your LCR is at 198%. What's stopping you doubling the size of the portfolio? What's the limit to how far that can actually go theoretically? The leverage finance business. Is that a business that really fits into an Irish retail bank? It seems to cause more headaches from an analyst perspective. It seems to cause more headaches than we can see the benefits separately because I don't get the income and P&L of that business. And then the restructuring charges, just to clarify, did you say €300 million over three years, but €160 million this year, then another €160 million next year? So kind of implying nothing in 2027. And do you really expect.
Do you really expect there'll be no material restructuring necessary for this business from 2027 and beyond?
Okay, I mean, thank you, Rob. Let me take the US acquisition finance business and how it plays into Bank of Ireland. Again, I am, I guess, repeating some of the narrative from Chris's call, but it's important. This is a business that we have been in for a quarter of a century. Has a strong track record of overall performance. When I look at the P&L performance out over through the cycle period, it has done very well and again navigated through difficult periods as well. Of course, we have taken a material impairment charge. I understand the nature of the question, Rob, but I would regard again our impairment as a preemptive measure.
Of course, the team on the ground now, there's actually, given the broader US backdrop right now, there's very little acquisition finance being written, particularly in the mid-market, which is the area that we participate in. That team are working very, very hard to make sure that that risk that we've captured is mitigated and diminished insofar as we can. We look forward to updating the market on that in due course. I would regard it in that context. Mark on the bond portfolio.
On the bond portfolio, yeah. Robert, you're right. The bonds are LCO eligible, etc. They can be pledged, etc. No constraints from that perspective. Our expectation is we're going to do the same again, maybe a little bit more in the second half in terms of bonds. Obviously, we'll review the situation at that point. It is, even what we're allowing for, that's a key support of that positive NII trajectory and then that ROTE built into greater than 17% by 2027. Non-core, just to clarify what I said earlier, broadly similar next year and then materially lower in 2027. I don't think I said zero.
Just the bond player, I guess. What's the factor that stops you? Ramping? Is it stress test related rather than—why wouldn't all of your cash be in bonds?
Yeah, I think the stress test is not really a factor actually because the bonds that we're buying will be put into the held hold to collect category and therefore they're effectively protected in the stress test. I think it's, Robert, it's more of where we are, where we started from. Historically, the bond portfolio has been about EUR 17 billion-EUR 18 billion. We're going to go beyond that and we'll get to a next point and then we'll review at that point if there's further to go for.
Okay, thank you.
Thank you, Rob.
Okay, our next question comes from Dnis McGoldrick at Goodbody. Dennis, you may want to reach your mic.
Good morning, Myles and Mark, and thank you for taking my questions. Two, please, if I may. One is just around a clarification on impairments and cost of risk. So obviously, the guidance now is 30 basis points this year, but am I correct in saying that for 2026 and 2027, the guidance is back to the low to mid 20 basis points? And then secondly, just maybe a little bit more color on the term deposit growth that you saw in H1, which obviously continues to reduce. Maybe just around, is that flow coming from new flow or within existing customers? And then maybe just a comment on where the deposit beta is at now, please. Thank you.
Okay, thank you very much for that, Denis. Mark?
Yeah, impairment, Denis, I think of it as the mid 20s as we go forward. I think that's a good guide. Remember our charge this year, there's two elements. One is the underlying portfolio activity charge. Let's say what's going on on the ground, the benefit of protection, etc. Really the delta versus our guidance at the beginning of the year is because we've taken the additional adjustments. The PMA and the adjustments, the probability weightings. Mid 20s. In terms of the term deposit growth, yeah, a mix with some rollover of customers and there's certainly some new. I'd say when you look at the weekly figures, Dennis, what you see is Q2 will be, there'll be less flow to term than Q1. That plays into our expectation of a moderation in the second half of the year and into next year as well.
That's great. Thank you very much.
Thank you, Denis.
Okay, we move on to our next question from Seamus Murphy in Carrick Hill. Seamus.
Hi, Evan. Hi, thank you. It's just a question actually on capital. Obviously, you've given a very strong capital guide. You have a 16% CET1 ratio. I think you said also that the buyback is 80% complete from FY 2024. I'm just trying to understand why the board or at least Bank of Ireland is not more dynamic in terms of the decision around buybacks or special dividends at interim stage. You have given a very strong guide for 2026, 2027. It looks like it's kind of we're always kind of very, I won't say backward looking, but certainly maybe just trying to understand why a little bit more dynamism around potentially interim consideration of the level of capital isn't there. Thank you.
Hi, Seamus, thanks for that and good morning. Again, just to recap. We have discussed a number of the different components of the business model over the course of this year. When you step back from it overall, this is a business that is going to generate between EUR 250 million and EUR 270 million of capital this year. Again, supportive of that consistent target to be in the region of 15% ROTE for this year. Overall, the business is performing very well, strong levels of capital generation. Certainly, last year was the first year we reintroduced interim dividends. We are doing that again this year. That is our objective, to get capital back more quickly. We know clearly that the equity story for Bank of Ireland is not just about our ability to generate capital, but also to distribute it. We understand that.
Our approach has been broadly consistent since 2022, which is again a progressive DPS for full year and an assessment of capital returns at the end of the year. That is our approach and our objective again is to get capital back to shareholders. Thanks, Seamus.
Thank you.
Okay, it looks like we're going to our last question. We're going to go back to Guy Stebbings of BNP .
Morning. Thanks for taking the questions. Just a couple of follow-ups, really. The first one was back on impairments. I appreciate it's very difficult to predict the macro in this environment of tariff news flows, but interesting when you updated your models. Assumptions you were making on tariffs and if it's consistent with the developments in the past few days. I mean, I'd make the observation that you already started from a position of strength in terms of coverage levels and the performing loan book. The move today does feel a little bit conservative there. On restructuring, the messaging seems to be that this is more than just timing on restructuring. I guess I'm missing something, but if 2026 is similar to 2025, there's a modest charge in 2027 that looks like you're going to be higher than where expectations were. Hence some focus today.
I'm interested in what's changed there. I mean, is this you responding to others in the market or it's just what's needed to enable you to manage the cost base to EUR 2 billion, which was, I guess, always considered a stretching target? Thank you.
Good morning, Guy. Let me take the relationship between the impairment and tariffs and the economy and market on the restructuring. I mean, certainly overall. I welcome the news regarding the agreement on U.S. and E.U. tariffs. I think a lot of the detail needs to be ironed out, but the headlines I think begin to offer much-needed clarity and certainty. To your point, I mean, Ireland and therefore Bank of Ireland entered this period from a position of economic strength for Ireland and a position of balance sheet strength for Bank of Ireland. Our latest forecast, we project GDP of 8% this year. Within that, the domestic economy likely to grow by 2.9%. Beyond this year, sustained annual growth of about 3%. These forecasts broadly capture the latest news on tariffs that came out on Sunday and yesterday.
We expect both the domestic and the multinational sectors in the Irish economy to be both resilient and growing. Certainly that supports our objective of growing our balance sheet and indeed growing our capital generation as well. Mark?
Yeah, Guy, on the restructuring, I'd say a little bit higher, but not materially so. I come back to what's the purpose of that. It's ultimately directly linked to the delivery of that circa EUR 2 billion cost output that we've given in 2026 and 2027 and the range of initiatives underway, which we're making good progress on.
Okay, thank you.
Thank you, Guy.
Okay, everyone, that concludes today's conference call. Thank you for your participation this morning. We look forward to meeting with as many of you as possible over the coming weeks. If you have any questions on these results, please reach out to any of us on the investor relations team. Thank you.