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 a 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.
Thank you, Tahani, good morning, everyone, welcome to Bank of Ireland's quarter one analyst call. I'm joined by our CFO, Mark Spain. Quarter one marks the opening of the group's new three-year strategic cycle, we've made a strong start. Our performance reflects disciplined execution of our new strategy, the breadth of our franchise, and the continued resilience of the Irish economy. The group entered 2026 with momentum. Loans grew 5% annualized in quarter one. Our Irish franchise grew 8%. Deposits were strong at EUR 107 billion, our wealth and insurance franchise delivered EUR 1.1 billion of net inflows. Asset quality remains robust, the business continues to be highly capital generative. The Irish economy continues to demonstrate growth and resilience against an uncertain external backdrop.
While the group's updated economic forecast points to some changes in headline GDP, our expectations regarding domestic growth rates, employment, and house prices are broadly unchanged versus the start of the year. We remain vigilant should the current geopolitical backdrop persist, mindful of the potential long-term impacts for our customers. Looking ahead, our strategic priorities, driving growth in Ireland, optimizing capital allocation, and investing for the future are designed to deliver disciplined top-line growth, a step change in operating leverage, and accelerating returns. Strong balance sheets across households, corporates, and the state underpin our confidence in asset quality and volume growth. On net interest income, while there is potential upside from higher rate expectations, we retain our guidance at this early stage of the year.
As we conclude quarter one, the Group reaffirms all of its 2026 guidance and financial targets as 2028, including statutory return on tangible equity building to above 16% and mid-to-high teens annual EPS growth. I'm gonna hand back now to Tahani and open the floor to questions. Thank you very much.
Thank you. If you wish to ask a question, please click on the Raise Hand button, which can be found on the bottom of your screen. You'll receive a prompt to be promoted as a panelist. Please accept, and once introduced, you may turn your video on, unmute, and ask your question. As a reminder, we are allowing analysts one question and one related follow-up today. We will wait one moment to allow the queue to form. Thank you. Our first question comes from Diarmaid Sheridan. You may now unmute your audio, turn your video on, and ask your question.
Good morning. Thank you. Good morning, Myles. Good morning, Mark. I've two questions, if I may. Firstly, maybe Mark, just on NII. I wonder if you could just maybe give us a little bit more detail around the areas you talked in the statement around the pluses and minuses and how we should think about maybe those going through the next couple of quarters and into year-end and beyond. Then maybe secondly, Myles, maybe just on wealth and insurance. Obviously we have a little bit more detail now around the savings product at this stage is likely to launch.
I just wonder, in terms of against the backdrop of the wealth strategy that was, that was unveiled, recently, how you think about how that plays into the broader strategy that you're looking to? Thank you.
Good morning, Diarmaid, and thanks for the question. Let me take the wealth section first of all, and then I'll ask Mark to cover the moving parts on NII. We are very supportive of the government's initiative to sort of introduce an ISA type product. Of course, this is against the backdrop across Europe of savings and investment union. Our wealth strategy that we expect our wealth assets under management to grow to EUR 75 billion as of 2028. They've grown in the first quarter. Net inflows very strong against a volatile market backdrop of EUR 1.1 billion. Of course, part of that strategy of growing to EUR 75 billion and indeed EUR 100 billion by 2030 is developing further our affluent business model.
Therefore it is in that space that, a potential ISA product that the government are working on, that sits very firmly within our strategy of developing our affluent business. We're very supportive of it.
Morning, Diarmaid. On NII, Q1 performance, very much in line with our expectations. We are reiterating our guidance of around EUR 3.4 billion for 2026 today. Very confident in that. If we look forward to 2027 and 2028, we've provided an outlook at our full year results on those. NII growing to greater than EUR 3.6 billion by 2027 and to greater than EUR 3.85 billion by 2028. Very much on track. Over the early years, but also playing out in Q1, loan and deposit growth, obviously a very strong performance, particularly in our Irish loan books in Q1. We're really pleased with that. Also the benefits of the structural hedge.
In Q1, Jimmy would have also had the offset of lower interest rates and FX impacts and also the impact of deleveraging portfolios. They've paid out. That has left us flat versus Q1 last year. I'd say overall, you know, the performance in Q1 gives us that very strong confidence in our guidance for the year around EUR 3.4 billion. Thanks very much.
Great. Thanks very much.
Thank you. Our next question is from Sanjena Dadawala with UBS. Please turn on your video, unmute your line, and ask your question.
Good morning. Thank you for taking the questions. I wanted to ask about competitive trends. You've raised term deposit rates a couple of weeks ago. What's prompted that? Were you losing some business to competition at prior rates? What has been the customer response to that increase? Also on the mortgage side, where the rate comparison suggests you're priced above peers but still maintaining a high market share, how do you think Bank of Ireland entry changes that? Thank you.
Good morning, Sanjena, thank you for the question on competition. At the, I guess at the broadest level, when we communicated our strategy on the 2nd of March out to 2028, I spoke about a couple of things. One, firstly, that in setting out our targets out to 2028 in terms of loan book growth, in terms of deposit book growth, we had factored in that in a growing market, that some of that growth could go to an elevated level of competition. In that context, we remain very comfortable with all of the targets that we've set out.
In terms of competitive activity on the ground, obviously, we note the significant transactions. Actually, very little new activity relative to 2025 we've seen in the quarter. The move on our deposit was scheduled and planned. Again, we see a very stable overall deposit base for everyday banking and in fact very small and marginal flow into term market for quarter one. On the mortgage space, again, I spoke earlier about the overall lending book for Bank of Ireland grew by 5%. The Irish book grew by 8%. Within that, of course, is a strong mortgage performance. Market share is at 41%. That's a very good performance.
Actually, looking at some of the expected completions of houses for quarter one, that points to a growing mortgage market that we expected over the course of this year. Again, very confident around our ability to grow our balance sheets and having captured, we think, the likely impact of increased competition.
Thank you, Sanjena.
Thank you. Our next question comes from Mike Evison with Autonomous. Please unmute your line, turn on your video and ask your question.
Morning, both. I hope this doesn't cross over the previous person's question because I got cut off when I switched as a participant. Just one question on the deposits. Obviously, deposits were slightly down over the quarter. They were flat for retail, and there was a slight contraction in corporate deposits. I just wondered if you could talk a little bit more to the reasons there, given the system growth. On NII, it looks like NII on an annualized basis is pretty much bang in line with guidance, but you've got lending growth coming through, expecting deposit growth and the hedge to turn through.
I just wondered if you could talk to whether there were any headwinds which are the reason you haven't sort of stayed ahead of the guidance, or are you seeing anything coming through which might act against that, please?
Thanks very much, Mike. Mark, do you want to take that?
Yeah, Mike, yeah, good morning. Deposits in Q1 are very much in line with our expectations. Actually, typical seasonal trends there. If you look actually over the last couple of years, you'll see deposits flat in Q1, growth over Q2 to Q4 is very standard. I mean, even if we look at April, Mike, I would say trends playing out in April very much as we expect. We're feeling good about the year on deposits. On NII, yeah, as I said in answer to Diarmaid's question earlier, we're really, really pleased with Q1, very strong volume trends. As Myles mentioned, our Irish book growing by 8% on an annualized basis in Q1.
And strong performance both in mortgages, and in our business, and corporate lines as well. And that really gives us that really strong confidence in the EUR 3.4 billion for the year. As Myles mentioned in his opening remarks, the upside potential from higher rates, we're not reflecting that at this stage. It's just too early. We'll come back to that at the interims. At the interims also, Mike, I think we'll just reflect overall on business performance in H1 on the outlook, and bring it all back together. You know, feeling confident about that sort of EUR 3.4 billion for this year.
Thanks, Mike.
Thank you. The next question comes from Denis McGoldrick with Goodbody. Please turn on your video, unmute your line, and ask your question.
Good morning, Myles and Mark, thank you for doing the call and for taking my questions. Just two Cs, if I may. One, you recorded good growth in your core corporate and commercial book in the quarter. Just wondering if you can give us a sense of the type of new lending that you're seeing there and how sustainable you think that might be. Secondly, just more generally, are you seeing any impact yet to your customers in relation to the higher energy and fuel costs?
Any comments around asset quality more generally, please. Thank you.
Good morning, Denis. Thank you for those questions. The corporate and commercial business, particularly in the Irish franchise, had a very strong quarter one. I referenced the Irish lending book growing by 8%, and corporate and commercial were a very strong contributor to that performance. We're pleased. You'll see it in the numbers that I've set out in the IMS. Again, it's the sectors that we have seen very good progress on last year continues to play out. Agri has been good, manufacturing and retail as well, also professional services area as well has been another source of good business for Bank of Ireland.
On the energy piece, certainly we haven't seen any real material impact in quarter one. Of course, this has a longer tail to play out, and that's why I pointed out remaining very vigilant to this. We enter this, I guess, elevated period of uncertainty with a very strong position. Our overall NPE ratio at 2%, asset quality across the book, particularly strong, and no areas of vulnerability that I'm seeing over the quarter. Also mindful, of course, Mark, on the impairment charge. We took a PMA at the end of last year of EUR 40 million to get ahead of the geopolitical risk.
The other interesting data point, which is that if you look at energy intensity or energy consumption of Ireland relative to European peers, as a measure against either GDP or modified GDP, we're relatively low, and that's a function of the energy makeup in Ireland. Certainly it is an area for careful attention, and we're working closely with our customers as they navigate this period of uncertainty as well. So far, very strong quarter, and feel comfortable about the overall guidance for the full year.
Thank you.
Thanks, Denis.
Thank you. Our next question comes from Seamus Murphy with Carraighill. Please turn on your video, unmute your line and ask your question.
Hi. Hi, guys. Thank you. Sorry, two questions, please, again. Sorry, as part of the strategic plan, can you just remind us of what the reinvestment ratio you had assumed in your hedge just for the rolling maturities? Because obviously we've had a reasonable movement in rates in the most recent period, so obviously I presume that's quite a significant upside as we look forward. And secondly, I know it's only a quarter with RWA in the quarter we're up EUR 600 million. I think core loans are up EUR 1.1 billion. Kind of an incremental RWA intensity of around 55%. Just I know you had guidance around 25% at the time of your strategic plan.
Was that something going on with the quarter or is it just how should we think about that as we look forward? Thank you.
Yeah. Thanks, Mark.
Hi, Seamus. Yeah. On the RWA, firstly, FX would be in that as well. Just to think about the sterling and the dollar were both slightly stronger, versus the end of the year. If you look at the breakdown of our lending, then, you've got about half of in corporate where you have higher risk weights, half of it in mortgages. The just the metric I think we're thinking about is the 25% organic capital generation invested in RWA. Okay? That's the metric. That is actually That's we see that playing out actually in this quarter, and we see that playing out over the year as well. On the structural hedge, Seamus, you're right.
We need to talk about the upside potential from higher rates. Obviously, that would feed through in the context of the hedge as the hedge rolls over. Reinvestment yield Q1 right across sort of sterling and EUR in the sort of 270 range. Building to that level is what we assume going forward. You know, there's potential upside on that as we go forward if rates markets remain where they are.
Thanks.
Thank you. Our next question is from Jordan Bartlam with Mediobanca. Please unmute your line to ask your question.
Good morning, guys, and thanks for the questions. I have two on net interest income, if I may. The first one, I saw you added a further EUR 3 billion-EUR 4 billion volume into the bond portfolio. Just interested, how much more capacity is there to go further on that? Are you still anticipating a further 50 basis point margin uplift on those investments? The second question, I just wanted to know if we could have a bit of an update on the portfolio wind downs. Where are we on the books being de-levered? What sort of timeframe could we expect for full exits? How much net interest income headwinds remain from those exits? Those would be my two questions. Thank you.
Thanks, Jordan. Mark, do you want to go?
Hi. Yeah. Bond portfolio, we've added EUR 3.5 in Q1. I'd say that's the bulk of our activity for the year in that, Jordan. We'll obviously continue to keep that under review. The spreads on that are about 40 basis points. In terms of the wind down portfolios, again, we've given the disclosure the IMS on that. I would say the three portfolios there are Corporate GB, US LAF and US COE books. Again, all have reduced in Q1, pleased with some NPE exits there as well, supporting the NPE ratio dropping to 2%. In total, over the three years, about EUR 110 million or so of NII headwinds between 2026 and 2028. A lot of that this year, about EUR 60 million, EUR 70 million of that this year.
Thank you.
Thank you. Our next question comes from Aman Rakkar with Barclays. Please unmute your line to ask your question.
Hi, gents. Thanks very much for the presentation opportunity to ask questions. Yeah, on the mortgage market share, please, the 41% share of gross lending in Q1. It's pretty consistent with the kind of 42% level that you delivered in prior periods. You kind of pointed us to some kind of, you know, market share below that going forward. I was interested in. Is there any chance you can give us kind of spot market share by quarter to date, how you've been developing and, you know, your expectations on how that might develop through the course of the year? That'd be very helpful.
Then secondly, just on the on the ECLs, obviously credits grew overnight in the quarter, but you're deferring the update to macroeconomic assumptions to, you know, H1, which I understand. I'd be interested, Mark, how you're approaching that exercise more broadly, to be honest with you, given the Middle East. I mean, the sense is that actually Ireland is quite a resilient backdrop, right? You've kind of alluded to that. You know, you might actually expect a relatively modest impact on ECLs from any exercise that's coming in H1. Be keen to kind of, you know, get your sense of how you're thinking about that, please.
Morning, Aman. Let me take the mortgage market share question and the outlook for that, and Mark on second question. I mean, firstly, you know, you've heard me say before, we don't have a mortgage market share target. It's not the right thing for us to do. Certainly we've had a very strong quarter one performance and again, an average draw down share of 41%. It's been broadly consistent over the three months that they've been just bobbing above the 40% level. I think my point in this one is that firstly, our outlook for the year remains very, very strong for this business. This is a book that grew 9% last year, and I reckon certainly in quarter one, our overall Irish book grew by 8%.
The mortgage book was a very important clearly component of that. I guess the headline point really is that that market share is elevated, but it doesn't need to be that high for us to ensure that we continue to grow our mortgage book over the course of the year. Indeed, out to 2028 and in support of those targets to grow our book by an average of about 4% for the total group out to 2028. My point here, Aman, is simply that the biggest source of value for our mortgage business is the fact that the mortgage market, the system mortgages are growing year on year, heavily supported by the supply of new homes.
In fact, recent, well, most recent data that's come out points to a significant increase in housing outputs this year, possibly above 40,000, and that's very significant. Yes, the market share of front book is relevant. Of course, it is. In terms of the total book, that system growth is really important, and we're very, we've got a very positive view on that and indeed that book growing strongly over the course of 2026 and beyond.
Morning, Aman. Yeah, just on the ECLs and maybe just a couple of data points that we will go through that exercise as we approach the half year. As Myles mentioned, firstly, I think we've got ahead of this a little bit in the sense of taking the geopolitical PMA of EUR 40 million at the end of last year. That certainly provides some protection as part of an overall PMA stock of over EUR 100 million. I think the second thing is, we published our own updated economic forecast a couple of days ago. If I just look at our forecast for domestic growth in the Irish economy, they're basically the same as our central case back in December.
Obviously we need to see where we are in June, but I think that's the sort of the data point that's relevant. The third point is if you look at the weightings in our ECL modeling, you'll see we've got 30% indebted to the downside. Again, I'd say some protection there. Obviously we need to go through the exercise, but certainly there are some, I'd say hopefully helpful data points, as I think you mentioned.
Thank you so much, guys.
Thanks, Aman.
Thank you. As a reminder, if you'd like to ask a question, please use the raise hand icon, which can be found at the bottom of your screen. Our next question will come from Borja Ramirez with Citi. Please unmute to ask your question.
Hello, good morning. Thank you for taking my questions. I have two, please, and I apologize if this has been answered beforehand. I suppose I got disconnected. My first question would be, if I look at the NII outlook, I do see some positive upside to both to consensus but also to your prior guidance of NII. I see an around 2%- 3% higher than current consensus for the next three years. I would like to ask if you could kindly provide some color. My second question would be, some competitors have been increasing the hedge of the structural hedge notional.
I would like to ask if this could be a possibility for Bank of Ireland to further benefit from the current higher rate environment. Thank you.
Morning, Borja. In my opening remarks, I made the point that on net interest income, there is potential upside from higher rate expectations. I guess at this early part in the year, at the end of quarter one, we are retaining our guidance, but there certainly is upside. Mark, you'll take Borja through some of the moving parts.
Yeah. Absolutely, Borja. I mean, I think just going back to the second of March, that, that NII trajectory building to greater than EUR 3.6 billion in 2027, greater than EUR 3.85 billion by 2028. That was based on an ECB rate assumption of 2% this year, and getting to 2.25% in 2028. Okay? In, in terms of BOE, similarly rate expectations have increased there are higher now than they were. We are early in the year, Borja.
In answer to an earlier question, we're also very pleased with Q1 performance in terms of let's say what's going on on the ground and the business from a volume perspective. We will sort of bring all that back together at the interim results. We've had a couple of rate setter meetings at that point as well. Hopefully, a little bit more visibility and provide an update on where we're at. As I said, really high conviction in our sort of EUR 3.4 billion guidance for 2026 set. On the structural hedge, actually, sorry, just to answer on the second question. Yeah.
The structural hedge we see growing modestly over the next three years, Borja, basically in line with our deposits and our equity. Those are the key drivers of that. We'll always, around the edges of that, look and examine, particularly our deposit base and see if there are opportunities for taking further action. Nothing to report on that today. I think we gave quite a bit of disclosure on the structural hedge outlook back on the 2nd of March. I think that remains intact today.
Thanks, Borja.
Thank you.
Thank you. Our next question comes from Fatima Ghaznavi with KBW. Please turn on your video and unmute your line and ask your question.
Hi, guys. Thanks for taking my question. Just to follow up on the housing market. I know you said that you see increasing completions to the end of the year, and that might expect to drive an acceleration in the Irish retail lending. Just a quick question. Do you normally sort of see some seasonality in this and expect the first quarter to be a bit slower usually? Also it looks like your interest rate sensitivity has decreased slightly versus the full year. Could you maybe talk through what the moving parts might be on that?
Good morning, Fatima. Thanks for the questions. On the housing supply, firstly, the overall message is that we expect that the housing outputs for 2026 to be higher than 2025. That's super important in the context of supporting a growing mortgage book. I think it's less about seasonality factors and more about the lead time when developers commence projects. For example, a housing development can take in the region of 12 months from start to finish.
If you think about an apartment build, which is a huge part of the solution of solving the housing challenge in Ireland, and again, supporting our mortgage business, that can take up to two years. The data that we watch, as well as the completions in a particular point in time, and again, quarter one completions year-on-year are very strong. Indicating that housing outputs could break through 40,000 for the full year. The data we look at typically is around when developers start their work on the ground. That data is also very supportive of a higher level of housing outputs and therefore supporting growth in the mortgage book this year.
Yeah. Might just one add on that as well, Fatima, is going to the seasonality in the mortgage business as well. Fatima, from a mortgage business perspective, Q4 will typically be the strongest quarter.
Yeah.
On the NII sensitivity, Fatima, no, there's no change. I think we've just given in the statement, the sensitivity 25 basis points on euro. Obviously the NII disclosure we've given overall is across all currencies. I think if you just look at the euro column back in the slides at the end of the year, you'll see that the numbers are the same.
Thank you. Our next question comes from Sheel Shah with JPM.
Hi. Thanks, guys. A question on the retail U.K. lending business, please. Your trends were flat. We've seen a lot of U.K. peers and the mortgage market in the U.K., grow a fair amount in the first q uarter. I'm wondering what's going on underneath the hood there? Because clearly U.K. is in a more challenging situation compared to Ireland. Is there a case of maybe capital allocation being favored in Ireland as opposed to the U.K.? Are the margins and the returns of these mortgages that you're lending out, are they maybe not as attractive at this moment in time? Keen to get your thoughts there. Thanks.
Yeah. Once again, I mean the performance of our U.K. business in the Q1 was a strong performance and supportive of the overall group performance. If I can take it back for a moment just to the strategy we communicated on the 2nd of March. I spoke about as the most important pillars, of that strategy, was driving growth in the Irish franchise and second of all, optimizing capital allocation. Those two objectives play very much into your question. So, I'm very comfortable with the capital that we've allocated into our U.K. business. Certainly there is an opportunity for that book to grow modestly out over the next number of years.
I mean, we've seen some of that in quarter one when the U.K. book grew, it was supportive of the overall group growth of 5%. It's not a part of our business certainly from an organic perspective that we're putting significantly more capital into relative to what we would be doing on the Island of Ireland franchise. Again, nothing of note. The book has performed well, credit quality is in good shape, and performance aligns with expectations and indeed with our strategy.
Thank you. Our next question comes from Sanjena Dadawala with UBS. Please go ahead.
Thanks for letting me ask questions again. I thought this time let me try to squeeze two more in. 1 Q cost growth in line with full year guidance, but wondering if you could provide some color on OpEx and restructuring within that. Are restructuring costs in the year progressing as expected? Are they expected to be fairly linear or front-ended? Then maybe on the U.K. motor provision of around EUR 430 million. Unchanged, but is it now incorporating only onen scenario that is the FCA final redress scheme, or are there certain other considerations in that? Thank you.
Hi, Sanjena. Mark, do you want to grab that?
Yeah. In reverse order, Sanjena, obviously to review the final FCA redress scheme, there's no change in our provision of GBP 374 relative to where we were in March. We have aligned with the FCA expectations, for example, and locked-in rates, et cetera, on that. Confidence actually there that actually should put that matter behind us. In terms of cost growth, again, Sanjena, very much in line with expectations. Obviously, there's hard work on the ground to deliver that. I mean, we have obviously, inflation. We're making significantly better if you call that out as part of the strategy. Including, for example, in our wealth business, where we're making really good progress in Q1.
Also at that we're delivering savings as well. They're playing out as expected in Q1. Our restructuring costs, yeah, I'd say broadly linear over the year. Won't be exactly linear. Again, nothing to call out today in that regard so that we're happy with the progress that we're making.
Thank you.
Thanks, Sanjena.
This concludes the Q&A session. I'll now hand back to management for closing remarks.
Thank you very much. It's a busy day in the market today. Thank you for your time and, I hope you all have a very good Friday and look forward to talking to you all in due course. Thank you very much.