Good morning, everyone. I'm Eamonn Hughes, Investor Relations Officer, and you're all very welcome to Bank of Ireland's H1 2026 results presentation. You'll shortly hear from our CEO, Myles O'Grady, and CFO, Mark Spain, about our performance since the start of the year. Then we'll open the floor to questions. Over to you, Myles.
Thanks, Eamonn. Good morning, everyone. I'm pleased to report a profit before tax of EUR 960 million, driving EPS growth of 36% and returns of 14.4%. We are meeting or beating all strategic targets, growing loans and deposits and wealth assets under management. All of this supports upgraded guidance for this year and reaffirms a positive outlook to 2028. On slide five, I've summarized our updated three-year strategy.
As a quick reminder, we are driving growth in Ireland, optimizing capital allocation, investing for the future, all of which drive growth, create operating leverage, substantially improve returns. Turning to the macro environment, Ireland is a highly attractive market. We have an unrivaled position as Ireland's national champion bank. Ireland benefits from being an open economy, there are also some risks.
While the team and I remain alert to the uncertain geopolitical backdrop, the Irish economy is resilient. We expect the domestic economy to grow on average of 2%-3% out to 2028. The U.K. economy is also forecast to grow. Favorable demographics are also very supportive, whether that's growth in population or household wealth. Bank of Ireland's business model is uniquely positioned to both drive and benefit from this backdrop, supporting much needed home building, vital infrastructure investment, and financial security and wealth creation for our customers.
The strength of the Bank of Ireland franchise is translating into growth in total customer volumes. Put simply, more customers are choosing Bank of Ireland. Deposits, loans, and assets under management had a combined growth of 6%. I expect that momentum to continue driving sustainable balance sheet growth and value creation.
We see examples of this excellent momentum in H1. In an evolving competitive environment, the Irish loan book grew by 7%, while everyday banking deposits grew by 3%. Wealth AUM, an important source of growing fee income, increased by 18%. This strong franchise performance is driving a reported return on tangible equity of 14.4% and supports the EUR 0.39 dividend per share we announced today, up 56% year-on-year. Turning now to slide nine and the first of our divisional performances.
Supported by Ireland's resilient economy, Retail Ireland continues to perform very strongly. Everyday banking delivered 4% growth in new product opening. Customer experience continues to improve, supported by digital investment. This includes our new mobile app, the busiest, most important touch point for our customers, bringing greater functionality and improved user experience. Turning to the mortgage business, where we continue to hold a market-leading position.
The Irish mortgage book grew 6% during H1. This growth was underpinned by strong pricing and risk discipline. This book growth also offers valuable cross-sell opportunities for life and general insurance. We continue to innovate. As an example, we rolled out a new trade down mortgage proposition, which will help to improve the supply of secondhand homes in the market.
Supported by the annual demand for housing units and the increasing supply of homes, I expect this book to grow by 5% on average over the coming years, a key source of value creation for the group. We are seeing great momentum in our wealth business. AUM grew to a new all-time high of EUR 65.5 billion. That's up 18%, supported by net inflows of EUR 1.6 billion. Ireland's strong demographics offer a structural growth opportunity for our two leading brands, Davy Wealth and New Ireland Assurance.
Meeting the financial needs of our mass affluent, high net worth, and life pRoTEction customers is a strategic priority for Bank of Ireland. It's the engine of capital life fee income growth for the group. I am pleased that we are so well-positioned to meet this important customer need. Turning to slide 12, our Retail U.K. division continues to perform well.
Total income increased by 8%, while the lending book reduced by 2%. Margins improved eight basis points, both of which reflect our disciplined strategy, which is focused on optimizing returns over volume. Our Corporate & Commercial business enjoyed a good H1 as Ireland's number one commercial lender. A notable highlight was the 14% increase in Irish lending, a key strategic outcome driving growth in Ireland.
Against an uncertain geopolitical backdrop and accelerated international deleveraging, I'm pleased to report strengthening asset quality with the NPE ratio falling to 3.8%. This overall outcome is a great example of optimizing capital while growing our Irish franchise. During H1, we delivered a number of important product and service enhancements. There are many examples set out on slide 14, all of which point to a relentless focus on investing for the future.
I referenced our new mobile app earlier, while Zippay, the industry-led peer-to-peer payments platform, launched in March. We've also introduced payment enhancements in the U.K. and a new brand platform, Right with you. This represents our focus on supporting our customers through every step and stage of their financial lives. There is more to come.
As we set out in March, we are investing around EUR 1.5 billion to strengthen the relationship with our customers and strongly position the group in an evolving competitive market. Focus areas include product and service enhancements for consumers and businesses in Ireland, a new U.K. savings platform, Irish savings and investment account propositions in Wealth & Insurance, and improving digital capabilities in Corporate & Commercial .
In March, I set out our plan to 2028 to create significant operating leverage of circa 600 basis points. We've laid the groundwork for this. The H1 scorecard is positive. Growing income faster than cost has improved the cost-income ratio by 0.8%, supported by securing EUR 41 million of cost efficiencies and a reduction in FTE of 2%. There's more to come. We will continue to transform our operating model, streamline customer processes, and secure more value from our supplier partnerships.
I look forward to sharing more progress on this important work over the course of the strategic cycle. Creating that operating leverage is supported by a range of AI-enabled initiatives, some of which are set out on slide 16. We've laid strong enterprise AI foundations and established a scalable AI platform. We are seeing early value being achieved in areas such as easier customer onboarding and KYC, faster software development, and reduced contact center handoffs, as some examples.
We have more to do here. We are working hard on a number of priority AI initiatives that will deliver further value. Alongside this value creation, we continue to invest in new cybersecurity to address emerging AI frontier model risk. We are two quarters into our 12-quarter strategy. Ireland is a highly attractive market, driving quality growth. We have an unrivaled position as Ireland's national champion bank.
We've upgraded guidance, I reaffirm our targets to 2028 and continued momentum to 2030. Let me pause here for a moment. Bank of Ireland continues to be a highly capital generative business. This makes it possible for us to grow our balance sheet, invest in our operating model, and reward our shareholders. While the environment continues to evolve, at Bank of Ireland, we have a winning strategy, and we are executing strongly against it. Thank you. I'll now hand over to Mark.
Thanks, Myles, good morning, everyone. As Myles said, we've made a strong start to our new strategic cycle. We especially see this in the momentum in our Irish businesses, a growing NII with added resilience, and materially higher returns with a statutory RoTE of 14.4%. Today, we are upgrading our full-year guidance for net interest income, asset quality, RoTE, and capital generation.
Our performance and our positive outlook underline our conviction on delivering a RoTE of greater than 16% in 2028. Slide 21 sets out our key financial metrics. Total income was up 7%. We retained cost discipline, we had a strong asset quality outturn. Our interim dividend per share is up 56%. This is in line with our new distribution policy and is a clear indication of confidence in our prospects. Slide 22 focuses on our NII, which shows continuing momentum.
In the first half, NII grew 2%, with balance sheet growth and structural hedge rollovers more than offsetting the impact of lower rates and planned deleveraging. Interest rate expectations are now higher than when we announced our strategy, our structural hedge is larger. Reflecting these changes, we now expect NII of around EUR 3.5 billion for 2026, up from EUR 3.4 billion previously. The same factors support an upgraded outlook for 2027 and 2028.
We now expect net interest income of around EUR 3.75 billion and greater than EUR 3.95 billion, respectively. This revised guidance assumes an ECB rate of 2.5% from the end of this year to end 2028, noting that current rate expectations are higher but volatile. If I stand back, I've spoken at previous results presentations about the drivers of our NII trajectory being Irish balance sheet growth and the structural hedging decisions we have taken.
We are seeing these factors play out now, both in terms of our H1 performance and our positive and upgraded outlook. Our loan book grew by EUR 1.5 billion, up 4%. Ireland grew 7%, with strong performances in mortgages and commercial lending. In the U.K., we continued our focus on value over volume, responding agilely to dynamic market conditions. Planned de-leveraging in selected international corporate portfolios has progressed well in the first half. For FY 2026, we continue to expect around 4% growth in our loan book.
Customer deposits continue to grow, with group volumes up 2%. Our Irish everyday banking franchise is the key driver of this growth. This has continued to perform well in an evolving competitive landscape. For the full year, we continue to expect deposit growth of around 3%. Turning to the structural hedge. Average volumes were modestly higher in the first half.
Rollovers and additions to swaps were done at an average yield of 2.79%, more than double the rate on maturing yields. This rollover dynamic will continue to be a key driver of NII over this strategic cycle. The average yield for H1 was 2.01%, up 17 basis points year-on-year, while the exit yield was 2.09%. In July, we increased the size of the hedge by EUR 8 billion.
This decision enhances our NII resilience. As a result, the sensitivity of our NII to interest rates has reduced by approximately a third. We grew fee income by 6%. This was driven by our market-leading Wealth & Insurance franchises and supported by investment gains in Corporate & Commercial . I also note the positive impact from valuation items, which we don't budget for. For the full year, we continue to expect total fee income growth of around 4%.
Total costs were up 2%, in line with our expectations. The moving parts here are inflation and investment, partly offset by efficiencies and lower restructuring costs. Our efficiency initiatives are delivering, with savings equivalent to around 4% of H1 costs achieved. For the full year, we continue to expect total costs, which includes restructuring of around EUR 2.2 billion, up around 2% from last year's outturn.
Notwithstanding the uncertain geopolitical backdrop, our asset quality is strong, with the NPE ratio improving to 2% at end June, from 2.2% in December. The impairment charge was EUR 32 million, reflecting an excellent performance across our portfolios. Our updated full-year cost-to-risk guidance is mid to high teens basis points, reflecting a balanced view for H2 in the context of the evolving external environment. This is an improvement on our previous guidance of low to mid-20s basis points.
Our business model is highly capital generative, with 135 basis points of organic capital generated in the first half. After taking RWA investment and dividends into account, our CET1 ratio was 15.5%. We have declared a dividend of EUR 0.39, equivalent to half of our H1 earnings. We are progressing the EUR 530 million buyback announced in March, with more than 40% now executed.
For the full year, we see capital generation of around 270 basis points, up from circa 250 basis points previously, and we expect RWA investments to consume around 25% of this. Our objective remains to operate at around a CET1 guidance of around 14.5%. Slide 30 recaps on our guidance for FY 2026. At the heart of this is our expectation for statutory ROAE of greater than 14%. This is a meaningful upgrade on our previous guidance of 12.5%.
We also expect EPS growth of greater than 35% this year. Looking further ahead, our 2026 performance and our positive outlook both enhance our conviction on delivering a ROAE of greater than 16% in 2028. Thank you for your time this morning, and we'll now turn to questions.
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 comes from Sanjena in UBS. Sanjena, will you unmute your audio, turn on your video, and ask your question, please?
Thank you. Good morning. Two questions from me, please. The first, so basically if you could provide more color on the credit performance in the period and the eight basis points, what it would look like excluding the insurance credit and recoveries. How are you thinking about developments into the second half and next year?
Second, if you could talk about some of the customer initiatives in more detail. The launch of Zippay, how the take-up has been. The new mobile banking app, what are the changes and what functionalities were missing and have been added? Any other examples that basically how you're competing with the neobanks. Thank you.
Good morning, Sanjena, thank you for those questions. I'll ask Mark to take the credit quality question, I'll cover the significant improvements that we're making to our retail franchise in terms of product services and related technology investments. Firstly, Sanjena, we've committed in the region of EUR 1.5 billion to invest in our business model over the next three years. We're on a relentless path now of delivering great improvements.
We saw last year SEPA instant payment, peer-to-peer payments in quarter one, the communication now of the rollout of our mobile app, which we announced yesterday. Our app, at its heart, will be faster and easier to use. It's a native app, which means its response time will be better. New functionality includes a greater visibility of content and balances, easier to scroll, less clicks.
Also importantly, being able to stay within app to progress or to apply for other products, particularly in the deposit space. I'm thinking about our Smart Start, our SuperSaver, our MortgageSaver products. You'll be able to do that from within app. Importantly, it also allows us to deploy greater upgrades more easily. I'm thinking about as we develop our wealth affluent product over the course of this year, being able to access that from our app is important as well.
We've more to come as well, where we'll be investing in the Corporate & Commercial space in the context of making it easier for our customers to manage their operational finances. I mentioned the wealth investment. Also in the U.K., a new savings platform out over the strategic cycle. Investments across the breadth of our franchise, it's a key pillar of our overall strategy, and it supports our outlook out to 2028. Mark, on asset quality, over to you.
Thanks, Myles. Morning, Sanjena. We've had a really strong outturn in asset quality in the first half, Sanjena. Our NPE ratio at 2%, that's at multi-year lows. If you look at our Stage II volumes, also down versus December as well. If I look across our portfolios overall, our customers are in good shape and are weathering the uncertain geopolitical environment very well. That's contributed to the H1 charge of 8 basis points. Maybe if I just go to our full year guidance first, I'll come back on the credit insurance. If you recall back in March, our guidance for the full year was in the low to mid-20s.
In the context of the environment that we're in, we've simply for our full year guidance, we've taken that full year guidance and applied that to the second half and added that to our first half outturn. That's what leads to the mid to high teens. We think that's a balanced approach in the context of the environment that we're in. I'd say what we're seeing on the ground is our customers are in really good shape. Just specifically on the credit insurance.
The credit insurance, EUR 30 million benefit in the first half in the impairment charge, Sanjena. That's really the mechanics of credit insurance mechanism working out. By that, I mean that the bank takes a reduced first loss over time, but the actually underlying credit quality in relation to the insured portfolios is stable relative to where it was in December.
Thank you. Would you be able to quantify the recoveries? Because there's a mention of some recoveries.
Yes.
Just trying to get the sense of the underlying-
That's-
In the first half.
Yeah, exactly. This is separate to the credit insurance. Yeah, we've had the benefit of recoveries in the first half, primarily in our corporate portfolios. About EUR 30 million, Sanjena, and that really reflects, I would say, really good work on the ground by our teams in relation to optimizing positions on NPEs.
Thank you very much.
Thanks, Sanjena.
Our next question comes from Diarmaid in Davy. Diarmaid, if you turn your video on, unmute, and ask your question.
Good morning. Thanks, Eamonn. Good morning, Myles. Good morning, Mark. Two questions, if I may. Firstly, just a very strong activity level in the first half, particularly in Q2. I just wonder, within that context, it's not showing much by way of signs of competition impacting at this point. If you have any observations of what you're seeing on the ground, that would be very helpful. Thank you. Secondly, just around risk-weighted assets.
I guess as we look at outside of kind of normal lending dynamics, what are you seeing or what are you thinking about in terms of risk-weighted asset initiatives on SRTs, CRTs, and any other model kind of refreshes that you're expecting to come through going forward? That'd be helpful. Thank you.
Good morning, Diarmaid. I'll ask Mark to take the RWA related question, and I'll take the start to the year, Diarmaid. We've had a very good start to our new strategy. We've hit the ground running. I would characterize as we've created an engine that's firing on all cylinders and generating a very strong performance.
For sure, in an evolving competitive backdrop in H1, we have retained our number one position for mortgages, our number one position for wealth. We've seen deposits grow by 3%, and of course, we remain the largest commercial lender in the marketplace as well. We're performing very strongly. I should say to you as well that when we think about our performance out over the next three years, the biggest source of growth for Bank of Ireland is going to be the overall market growing.
We're very well positioned, whether that's a mortgage market, whether that's the wealth business. We're particularly well positioned for that. When we set our targets, we assume that our growth is a little less than the overall market growth. That's a pragmatic view on how competition may evolve. No real change in H1 in the context of significant changes in competition. We had a very strong performance indeed.
Morning, Diarmaid. On RWA, playing out really exactly as we planned. If you recall back in March, we guided for RWA to account for around 25% of our capital generation. You'll see that in H1. That's our expectation for the full year.
If I think out over the three years, that's how it'll play out as well. Specifically then on CRTs, Diarmaid, we're very experienced users of CRTs. They're an important part of our risk and capital management toolkit. Typically, we'll have about four or five transactions live at any one point in time. We'll typically do a new one every 12 - 18 months. I expect our next CRT transaction to be in the first half of next year.
Thanks, Mark. Anything on any model refreshes that we should be thinking about going through?
No. Diarmaid, there's nothing to call there. Again, the 25% investment in RWA, that's how I think about it. There's always moving parts under the hood, but actually there's nothing material to call out.
Great. Thank you.
Thanks, Diarmaid. We'll go next to Mike in Autonomous. Mike, if you want to turn your video on and unmute, ask your question.
Morning. Two questions from me. Firstly, deposit growth obviously recovered in the quarter. It looks like it's about 3% annualized now. I just wanted to ask, you call out the savings and investment account as an opportunity in the presentation. I just wanted to know what you're seeing sort of in terms of competition on the ground now, as we've seen some international players coming to market, and how you see that progressing, and particularly around that sort of savings and investment account and the potential opportunity and risks there, please.
Particularly given, obviously, a 77% loan to deposit ratio. That's a key focus. Then just slightly taking point, on the hedging that's been put on, I think it was about EUR 8 billion in July. Has that been done sort of in line with the original hedge? Has anything been done to the duration there? Just want to understand a bit more about what you've got on there, please. Thanks.
Good morning, Mike. Mark, grab the hedging question, let me take the deposit and the savings and investment account. Firstly, we're very pleased with the performance of our deposit book. Everyday banking balance is up by 3%, so that structural dynamic, that household wealth piece around deposit balance is growing in the Irish market, and our franchise well positioned to benefit from that, hence the growth. I'm very supportive of the savings and investment account.
Just to put that into context, we have a unique wealth business in the Irish franchise. It's underpinned by two very strong brands, New Ireland Assurance for Life and protection, and Davy Wealth as Ireland's leading wealth provider. We've seen our AUM grow to all-time highs of EUR 65.5 billion.
Our strategy, of course, is to build on that very strong performance, and in particular, to grow our affluent and our mass affluent wealth business. In many ways, we're entirely aligned with this government initiative. It also offers an opportunity to really deepen and expand our franchise out over time. I'm very comfortable. We have more than 4 million customers.
We've 2.5 million retail customers. I want them to have a current account, a deposit account, an investment account, and indeed, a mortgage over time as well. I'm comfortable with the economics that will play out as we build this affluent business on the back of that savings and investment account. Again, I point to the fact that as part of our guidance out to 2028, and we've seen it in H1, that expectation that each year both deposits and wealth through AUM will grow. Mark, on the hedge.
Great. Yeah. Hi, morning, Mike. Mike, maybe to link it to an overall theme, One of the themes this morning is our enhanced conviction on achieving returns of greater than 16% in 2028 and the sustainability of those returns as well beyond that. The hedge very much plays into that. The work we've done in the first half of the year was looking at the performance and the behaviors of our Irish deposit base over the last cycle. When we did that work, that supported an increase in the hedge by EUR 8 billion.
We put that on at 2.96%, same duration as the hedge, existing hedge of three and a half years. I suppose, one way of thinking about that is a reflection of our confidence in our deposit base and Myles' obviously spoken to the growth that we've seen, that we expect there as well. Just as an output from that as well, obviously our sensitivity to rates reduced by about a third.
Thanks, Mike.
Our next question comes from Sheel in JPMorgan. Sheel, if you want to turn your video on, unmute, and ask your question.
Great. Thanks. Hopefully you can hear me. Good morning. Two questions from my side, please. One to follow up on the hedge, please. You can see the EUR 8 billion or so hedge balance increase gives you a sort of notional hedge balance sitting at around EUR 75 or so. Is there more scope to improve or increase this hedge further when you're thinking about maybe some of the savings accounts that you're holding? Or do you think you're fully hedged out at this point?
Secondly, can I just ask, with regards to investments, is there anything in the external environment, whether it's the pace of AI change, the pace of fiber developments or anything, that may make you reconsider some investments that you're making, either change the quantum of investments through the plan or change either the pace of investments through the plan? I'd be interested to hear your thoughts there. Thanks.
Good morning, Sheel. Let me take the investments question first, then, Mark, go with you on Sheel's hedge question. Sheel, we've communicated an investment of EUR 1.5 billion over the next three years, and of course, that spend is captured within our cost target guidance and also within our strategic objective to take our cost income ratio to the mid-40s.
When I look at that overall spend, it's nicely balanced between making sure that we are going after a very strong operational resilience backdrop. That's hugely important in the context of cyber threats, in the context of protecting our customers from fraud.
The other part of that spend, I would have called out some of these when talking to Sanjena earlier in her question, it's a broad area of digital investments that are really designed to make sure that we are supporting our customers and their needs for the future while also protecting our franchise. Those two work very well together, and of course, they support our target to improve RoTE by 16%.
One of the things that I am encouraged by is that this level of strong performance, the fact that we have upgraded our guidance on net interest income and on capital generation, is that there is capacity if we need to, for the right investments, to alter that investment profile. No, there's no plans to do that, but we have the capacity to do it.
Always very clear, though, that our objective to secure returns above 16% and to keep our cost income ratio, to get to the mid-40s, that they're an absolute imperative. We do remain agile. Things can change. We can reprioritize. That is often the case, but we're making very good progress against that investment spend.
Great. Morning, Sheel. On the hedge, you should regard the EUR 8 billion increase. It takes us actually to about EUR 77 billion points in time now. That's the material increase. From here, the hedge really will grow in line with deposits. That's the material intervention.
Maybe Sheel, just to add on, just because I think probably the dynamic of the hedge, and I think you understand this, is that that hedge today, at exiting at 2.09%, or just over 2.09% in H1, it's that stock flow dynamic, that hedge repricing to market. That's a key driver of our NII expectations and growing to greater than EUR 3.95 billion by 2028, which is obviously within a stone's throw of EUR 4 billion.
Great. If I can have one quick follow-up. You've also increased the Eurobond portfolio in the half.
Yes.
Is there more appetite there as spreads continue to be attractive? Is there more scope there as well?
Yeah. We're thereabouts in line with, I'd say, the sector at this stage in terms of the split of bonds and cash. Maybe to step back, if I go back 18 months ago, that Euro bond portfolio was sub EUR 10 billion. We've stepped up by almost EUR 15 billion over the last 18 months.
That's actually been, I'd say, a well-timed decision in terms of the spreads we've achieved and that which weren't available before that point. That, again, is supporting our NII development and that positive trajectory out to 2028 and beyond.
Great. Thank you.
Super. Thanks, Sheel.
Our next question comes from Denis in Goodbody. Denis, if you want to come on.
Morning, Myles and Mark, Thank you for taking my questions. I just have one, please. If you could maybe give us an update on how you're progressing with the deleveraging portfolios, I guess maybe if you can give us an indication of when you expect that to be largely completed. Thanks.
Thanks, Denis. Good morning. Mark, do you want to-
I will
take that, please. Thank you.
Morning, Denis. Yeah, we had EUR 1.8 billion at the end of December last year, EUR 1.2 billion now. That's in U.S. LAF, our Corporate GB, and U.S. CRE. Denis, we're making good progress. That's played out very much, maybe even slightly ahead, in terms of the pace in the first half. We've allowed for that in the NII guidance we're giving this morning for this year, and also out to 2028. Broadly, by the end of 2028, that portfolio or those portfolios are sort of fully run.
Maybe just one quick follow-up, please, Mark. As that rolls off, obviously a little bit quicker than expected, I guess maybe your confidence in that revised cost to risk guidance, obviously, you're implying quite a step up in H2 of this year versus the eight basis points in H1. Maybe your own thoughts on that, please.
Yeah. Thanks. Denis, as I said in answer to Sanjena's question earlier, our approach to the balance of this year is very mechanical. We're supplying our original guidance for H2 and adding it to H1. We think that's a balanced approach where we're still early enough in the year. There's a lot going on externally. It's not a reflection from our own portfolios. Our own portfolios, I think you'll see from the results, in really, really good shape, and that's what we're seeing on the ground.
We've got a very positive outlook into the second half of the year. We think that's a sensible approach. More broadly, looking out into 2027 and 2028, we think a low to mid-20s, we think that's about right, as we think about the shape for our portfolios in the type of interest rate cycle that we're in. Obviously, we'll keep that under review, we think that's a reasonable assessment as we stand today.
That's great. Thank you.
Thanks, Denis. Just a reminder, if you'd like to ask a question, just click on the Raise Hand function. We'll go to Seamus now from Carraighill for the next question.
Hi. Thank you, guys. Two questions please, as well. Sorry. I think your staff numbers are down 2% since December, which is running kind of ahead of where you would've suggested before. I think it was about 3% per annum. That's the first question. Can we kind of expect that to kind of accelerate from here? Secondly is, I suppose like the other Irish banks actually, the average cost or the average salary per employee seems to have been up, another, again, 6% or 7% on an annualized basis in the first half.
How should we think about that, given it's up to now like kind of close to 90,000, given the fact that one would've assumed perhaps that it was the older or more mature employees who would've been retiring. That's the first question. Second question, just coming back to your NII.
You've kind of called it out yourself, Mark, the NII upgrade is great and was kind of expected, I suppose. If we think about it really only comes from the hedge in terms of that component that we've kind of operated today. As if we take out the hedge component of the NII, the balance of the NII, the floating rate book really, we haven't any growth coming through and that part of the book.
I suppose the question is, would you consider this to be an ultra-conservative position on your 2027/ 2028 NII guide because there's two particular reasons. Obviously, we obviously have volume growth coming through. Secondly, the fact you've raised your ECB deposit rate guidance by 50 basis points, I think, in terms of relative to where we were at the end of when we did the plan.
Obviously, there's a pass-through rate, but it's not going to be 100 on that raised guidance. The NII still looks exceptionally conservative in 2027 and 2028 if we think about the balance of the book ex-hedge component, and I suppose is that a fair comment? Thank you.
Good morning, Seamus. Thanks for that. Let me take the first question. I'll pass to Mark on NII and the hedge-related queries. I mean, Seamus, if I just maybe position the answer in the context of what's our strategic intent in the context of efficiency. I'm going to play it back into the objective, by 2028, to secure a cost-to-income ratio in the mid-40s, which means an improvement in that cost-to-income ratio of 600 basis points.
The headline drivers for that, of course, is average income growth of 4% per year out to 2028 and average cost growth of around 1%. Within that is a gross cost reduction of EUR 250 million, and we've secured EUR 41 million of that in H1. Part of that objective is a lower FTE number. I've spoken before about an average reduction of about 3% per year.
That's going to be achieved through natural attrition, in the main. In the context of average salaries, one of the reasons why our cost is higher is because we are in an inflationary environment. Also, of course, because we're investing for the future, hence the reason to go after those save has been really important, that EUR 41 million save, that gross save that we secured in H1 as part of that EUR 250 million out over the next three years as an example of doing that.
On average salaries, I wouldn't read too much into that. I mean, one of the important things that we are doing is a conscious choice to insource many of the capabilities that we would previously have outsourced. I'm thinking about technology change as an example.
Also bringing in highly skilled, augmenting our workforce in the space of cyber protection as one example. Overall, pleased with our performance in terms of keeping costs at 2%. The machine is working hard to create that efficiency, again, in support of that overall objective to secure a cost-income ratio in the mid-40s. Mark.
Great. Yeah. Seamus, on the NII and the hedge piece then. Maybe a couple of things. One of the key things that's part of this results is our Irish loan book and deposit book driving NII, and you can see that in the first half. Our Irish loan book growing by 7% annualized basis with strong performances in both mortgages and in commercial, and our Irish deposit book growing by 3%.
If I step back and I look at our overall loan and deposit assumptions. We set, and Myles mentioned this earlier, when we set our targets as part of the cycle, we expected our loan book overall to grow around 4% each year and our deposit book to grow around 3% each year. That's actually what's happened in the first half.
The business performing very much in line with the plans that we set out back in March. If I just look at our NII trajectory against that context. We're upgrading the NII guidance today, and if I just take 2028 as a reference point on that. Previously, our guidance for NII in 2028 was greater than EUR 3.85 billion. We're increasing that today to greater than EUR 3.95 billion.
Our prior guidance is based on an ECB rate of 2.25%. We're now assuming 2.5%. The delta between EUR 3.85 billion and EUR 3.95 billion, about 60% of it is rates. The balance is hedge related, including the EUR 8 billion that we've put on. Those are the two key moving parts. At greater than EUR 3.95 billion, we're in the next field to EUR 4 billion. With a bounce of a ball, we think we could get there as well.
Maybe just the last piece I'd add, Seamus, then, is if I look on our NII trajectory over the sort of three years, from 2025 to 2028. We're at EUR 3.4 billion last year, greater than EUR 3.95 billion in 2028. About 40% of that is coming from balance sheet growth driven out of Ireland. We've seen that again in the first half. About 60% from the repricing of the hedge.
Thank you.
Superb. Thanks, Seamus.
We'll go next to Jordan at Mediobanca. Jordan, if you want to unmute, come on and ask your question.
Thank you. A few issues with the webcam. Yes, I had two questions. Firstly, on net interest income. Mortgage volumes have been very good. Still number one player in the Irish mortgage market, it does look at the sector level, like mortgage margins are under a bit more pressure, particularly when you look at them relative to swap rates.
There is quite a bit of tightening there. I just wonder maybe for some of the non-bank players in the market, whether we're going to start seeing a bit more pressure here, whether there's going to need to be increasing mortgage rate hikes, or whether this is sort of a sustainable level. That'd be my first question. Secondly, on the savings and investment account. We've had a little bit of color already.
Just be good to know how ready the two platforms across New Ireland and Davy are. We don't know exactly what shape it'll take, when it does go live, are we in a good place or is it going to need quite a long lead time before it's ready? Those are my two questions.
Lovely. Thanks a lot, Jordan. In relation to our mortgage business, in a really, really strong performance. Of course, we know that the mortgage market offers a structural opportunity to continue to grow our balance sheet. This is a mortgage book that grew 9% last year. It's grown 6% so far this year on an annualized basis. We've managed to achieve that whilst maintaining very strong pricing and risk discipline.
That's hugely important to Bank of Ireland. It's part of our DNA, and that will continue. In the context then to your question as to is there pressure on margins, I don't think so. It's not what we're seeing. As an example, when we think about our pricing strategy for mortgages, we always relate that to our pricing strategy for our deposit book as well. We think about both together.
In essence, it is the Irish franchise that is funding our mortgage book in Ireland. We'll always play that off well. We want to ensure we reward deposit holders, also ensure that we're getting the right strong economic returns from our mortgage business. I think we can see that come through in the numbers overall as a component of net interest income, where the asset yield has expanded in H1 versus H1 of last year. That's an example of that discipline coming to life.
We are working very hard to be ready for the savings and investment account. Absent this government initiative, we were working hard anyway to leverage two very strong brands. Again, response to an earlier question, we've grown our AUM by 18% to EUR 65.5 billion, an all-time high. We most certainly want to step into the affluent and mass affluent space.
Obviously, the timing of this new account is within the government's mandate to do, we will be ready when that product comes to the market, we're actively working today on what that affluent platform is going to be. We look forward to updating the market on that in due course. Thanks, Jordan.
Thank you.
We'll go next to Guy in BNP. Guy, if you want to come on, ask your question.
Hi, morning. Thanks for taking the questions. It's really just a follow-up on the longer term net interest income guidance, some of the assumptions around that. You've called out the benefit from short-term rates. You've called out the benefit from what you've done on the hedge already this year. I'm not sure you've called out any sort of change in the reinvestment yield on the hedge in future periods. If you could just clarify if your assumptions there have changed or not.
I think you were using 2.5% previously. Building on the last question, any changes to how you're thinking about competitive dynamics within the plan? It doesn't sound like you're shifting your views, but it is a regular discussion point with investors around whether we should be mindful of increased competition. Any updated thoughts would be very helpful. Thank you.
Good morning, Guy. Let me take the competition question and Mark on the NII longer term factors. Guy, again, just to in some ways cover off what I said previously, but important to reemphasize. We've had an excellent start to the year. Our strategy, I would describe, as being one of momentum on the back of a very strong 2025. That momentum is continuing.
We are expanding and deepening our franchise. We're growing in lending deposits, wealth assets under management, deposit accounts. It's all working very well. We're number one for mortgages, number one for commercial lending, number one for wealth, and with very strong growth in deposits. We're not complacent, and hence the reason why, in the context of delivering returns of more than 16%, we are investing for the future as well. That investment is really important.
That's around ensuring that we can offer the best possible products and services to our customers. I think our track record on that over the last 18 months has been good, very good. I gave some examples earlier in relation to SEPA instant payments, in relation to peer-to-peer payments, and our communication of our new app as well, and we've more to do. We feel very good about our overall competitive position.
As an example, on the everyday banking space, our new-to-product, our new-to-bank customers grew by 4%. That's a very strong metric for the half year. Within that I am particularly encouraged by, is a 20% increase in our youth segment of that part of our everyday banking. That's very important as we look to where longer term value will come from for Bank of Ireland. Yes, for sure, competition is evolving. We compete every day with domestic banks, international banks, and fintech. Our objective is to hold a very strong position that we have today.
Morning. Just on the reinvestment yield, that is a factor probably a little bit in 2026 in terms of upgraded guidance for 2026. If I look at the reinvestment yields or the projected seven-year swap rates for 2027 and 2028 today versus where they were back in late February, there's actually no material change. That's not a huge factor in terms of our NII or upgraded NII outlook. Thank you.
Thanks, Guy.
Looks like our last question comes from Borja in Citi. Borja, if you want to come on and ask your question.
Yes. Good morning. Thank you very much for taking my questions. I'm sorry, my camera is not working. Sorry for that. I have two questions, please. One is on NII. I would like to ask, the updated guidance assumes 2.5% ECB rate up to 2028. Could you kindly provide a bit more color on the assumptions on deposit pass-through and volume growth as well, please? That would be my first question. My second question would be, and I'm sorry if you mentioned this already and had another results call, if you could kindly provide your thoughts on the potential Cash ISAs that could be, please.
Good morning, Borja, let me take the savings and investment account. We've had a couple of questions on this over the course of the morning. I'm very happy to cover it again. Then Mark on NII. We are very pleased, we're very supportive of this government initiative to introduce a savings and investment account. Bank of Ireland, we are particularly well-positioned with our two very strong brands, New Ireland Assurance and Davy. We're number one for wealth in Ireland.
That product is entirely aligned with our ambition to grow our affluent business. Absent that product coming to the market, we would have been bringing a product anyway in this space to support mass affluent and affluent customers to protect their long-term future and to invest. We're working hard on that.
We're waiting to hear the particular terms of that product that is due out from the Irish government later this year. We'll be ready to bring that product to the market as part of an overall suite of products as Ireland's national champion bank. Mark, on NII?
On NII, Borja, just on the ECB rate, the assumption there is the ECB hikes to 250 in September, then remains at that level over the next two and a bit years out to the end of 2028. From a deposit perspective, our assumption is unchanged on that. The deposit growth is around 3% each year over 2026-2028. You see our H1 performance very much in line with that. On the float to term, you'll see again from the materials today that our term on related balances are around 12% of our Irish deposit volumes. We see that level being broadly stable over the next two and a bit years.
Thanks, Borja.
This concludes today's results presentation. Thank you for your participation this morning. We look forward to engaging 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 investors' relations team. That brings the presentation to a conclusion. Thank you.
Thanks a lot, guys.
Thank you.
Have a good day. Take care.