Welcome to the Bank of Ireland Q3 IMS Analyst Call. Please note that the call will be recorded. During today's call, webcast participants will be in a listen-only mode while we conduct the question -and -answer session. If you wish to ask a question, we ask that you please use the raise hand function at the bottom of your Zoom screen. Instructions will also follow at the time of Q&A. I would now like to turn the call over to Chief Executive Officer, Myles O'Grady. Please go ahead.
Thank you, Kahalani, and good morning, and welcome to Bank of Ireland's Q3 analyst call. I am joined by our CFO, Mark Spain. Three quarters into the first year of our new strategic cycle, and we are delivering our targets with strong momentum across the group. This performance reflects the disciplined execution of our strategy, the breadth and strength of our franchise, and the continued resilience of the Irish economy. We remain vigilant to geopolitical dynamics, mindful of potential impacts to customers who we continue to work with closely. That said, Bank of Ireland recently raised its modified domestic demand growth forecast for 2026 and 2027, reinforcing our confidence in the Irish economy's underlying momentum and resilience. Our franchises continue to perform strongly. Total customer volumes are up by more than EUR 13 billion year-to-date.
Breaking that down, loans have grown by 5%, and I am particularly pleased with the increased pace of growth in our Irish commercial lending. Deposits are up 3%, with consumer balances + 5%. Wealth and Insurance AUM increased 16% to EUR 67 billion, supported by net inflows of EUR 2.8 billion. Our asset quality remains resilient across all portfolios, with our NPE ratio at 2.0%. We are strengthening our leading position in the Irish market. We helped 11,000 people move home, grew new youth accounts by 11%, and increased funding for electric vehicle purchases by 76%. We continue to invest in our customer platforms, rolling out our new mobile app to all customers, migrating EUR 28 billion in corporate lending to cloud, and developing our financial planning platform, an important enabler of our Wealth and Insurance strategy, which is delivering capital-light recurring income.
I welcome the Irish government's recent announcement on the new personal investment accounts. Our wealth business is well-positioned to bring innovative propositions to customers in 2027. On AI, which I regard as a profoundly positive disruptor, we are accelerating its use to help us serve customers better and offer them more value. This is speeding up services and driving efficiency in a range of ways. With stronger fraud protections, better software development tooling, AI agents managing HR queries, and reduced call center activity. We have captured these and other benefits in our EUR 250 million cost efficiency target out to 2028. That efficiency supports operating leverage of 600 basis points, taking our cost income ratio to mid-40s by 2028.
The appointment of our new Chief AI Officer, Prag Sharma, joined at the start of this month, is an example of our excitement and commitment to build AI capability at scale across the group, impacting all parts of our business. I look forward to updating you on our progress at full year results. Our franchise performance is translating into a strong financial performance, with net interest income up 4% and fee income up 6%. We continue to be strongly capital generative with 210 basis points of cap gen year-to-date, and that supports growth, investment, and shareholder distributions. At our interim results announcement in July, we upgraded our 2026 financial guidance across interest income, impairments, ROTE, and capital generation.
Following another strong quarter, the group is further upgrading its NII to greater than EUR 3.5 billion, loan book growth to 5%, and capital generation guidance to greater than 270 basis points for this year, with all other 2026 guidance reaffirmed. I also note that wealth AUM growth of 16% is above our average AUM target growth of 10%. The combination of strong balance sheet growth and our hedging strategy reinforces confidence in the income trajectory out to 2028 and beyond. We have a growing and diversified franchise with an unrivaled position in a highly attractive home market. Combined with AI-enabled operating leverage and resilient asset quality, this translates into continued strong capital generation and distribution capacity. These foundations reinforce our conviction on the durability of earnings growth over the medium term, including return on tangible equity building to greater than 16% by 2028.
We will now open the floor to questions. Kahalani, back to you. Thank you.
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 will receive a prompt to be promoted as a panelist. Please accept, and once introduced, you may turn your video on 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. Our first question comes from Diarmaid Sheridan. Please unmute your video and unmute your line. Diarmaid, please go ahead with your question.
Hey, good morning. Thank you very much for taking my question. Maybe just on capital. Myles, you alluded there in your opening remarks, you are running ahead of plan, and just maybe just in terms of how you think about that into year-end at distributions and maybe on the other side, on the requirements, any kind of comments at this point around SREP or RWA usage that you feel might be useful for us at this point? Thank you.
Yeah. Good morning, Diarmaid, and thank you for that question. As you say, we are very pleased with cap gen having twice increased guidance for this year and now flagging greater than 270 basis points. That is going to leave us in a very strong position at year-end. That supports our progressive dividend strategy. We had a strong interim dividend at the half year, and that progression will continue into our considerations for the full year. Of course, when you do the maths, we will be very comfortably above our target to be around 14.5%, and of course, subject to approvals, but that therefore supports a share buyback consideration. On capital requirements overall, no change. In our strategy communication launch back in March, I talked about the need to have a capital target at around 14.5%. Nothing to change on that today.
We work hard to ensure that we are strengthening our balance sheet that is designed over time to ensure we have the best possible capital position, but nothing to share with you today. I am just going to ask Mark quickly, anything on risk weights, Mark?
Yeah. Diarmaid, morning. On RWAs, what we expect is over the cycle that RWA investment accounts for about 25% of our capital generation. Individual years that will be up and down depending on the timing of CRT. It will be a little bit higher than that this year, but then a little bit lower next year. If you bring that back together, Diarmaid, based on our Q3 performance, a strong lending performance, obviously year-to-date and also FX, RWA this year ending somewhere around EUR 59 billion.
Great. Thank you very much.
Lovely. Thanks a lot, Diarmaid.
Thank you. Our next question comes from Sanjena Dadawala with UBS. Please turn on your video, unmute your audio, and go ahead.
Morning. Thank you for taking my question. Could you take us through your thought process behind the recent deposit rate increases of 25-50 basis points when mortgage rates are unchanged? Was it partly prompted by the marginal decline in term deposits that we saw in Q3? Or more broadly, how is deposit competition evolving in recent months? Thank you.
Yeah. Very good. Thanks, Sanjena, and good morning. Let me take the broader competition question first of all, and then I will come back in relation to our pricing strategy and the discipline that we apply to that. We entered this year with very strong franchise momentum. You will have seen that in some of the numbers that I quoted in my script. But the Irish loan book, that is grown by 8% with the mortgage book and commercial lending performing very strongly. And that supports our loan book guidance of 5%. And on the deposit side, again, very strong overall everyday banking growing 3%, and within that, the personal base growing by 5%. So that growth over the course of the year, that is supported by our competitive propositions, but also as an example, our new mobile app that we brought to market.
I call this out because it demonstrates our franchise strength, and I would say no discernible material change in the competitive landscape this year. And you may recall back in March when we communicated our strategy, we communicated that we expected that Bank of Ireland would grow a little slower than market growth for mortgages and deposits as competition may pick up from prior levels. As I say, we have not experienced that happening so far in any material way this year. And the communication, most recently of our revised deposit rates, and I will not talk specifically about pricing, but just to say, as we have always done, these are pre-planned interventions as part of our execution of our strategy. They are not a responsive move in any way. And we will always think about our pricing for our mortgages and our pricing for our deposits together.
It is that balanced approach, and that is the discipline that we will continue to implement. Nothing material to call out, Sanjena. This is a scheduled, pre-planned move on deposits in line with our strategy.
Thank you. Can I just follow up on the competition around the mortgage side, this dip in the market share. I know that we started with elevated numbers. Any particular color in 3Q there?
Well, again, a very strong performance overall. We continue to be the number one provider of mortgages in the Irish market, and this is a significant source of growth. Sanjena, when I think about our mortgage business and our mortgage portfolio, it is our biggest asset class within our Irish franchise. It is our biggest asset class, full stop. Our pricing discipline on mortgages is always about maintaining discipline on the entire book and not just on flow. Certainly the factor of a growing mortgage market, very much supported by increase in supply of homes, that is the biggest factor in our mortgage business. The size of the market is getting bigger. Again, nothing particular to call out in terms of pricing behavior in quarter three.
Thank you so much.
Thanks, Sanjena.
Our next question comes from Sheel Shah with JPMorgan. Please go ahead with your question.
I've got two questions and a follow-up, sorry. First on the loan growth, particularly strong on the corporate side. Any specific sectors to call out? Is this something structural you're seeing? Because there are a couple of quarters of strong loan growth on the corporate side. Are there market share gains or is this a system-wide growth that you're seeing? Secondly, just to triangulate on the cost to income guidance that you've given this quarter, because you've given NII guidance, you've given fee guidance, you've given cost growth guidance as well, but there is a little bit of a delta. Should we be thinking about valuation items maybe being a bit weaker into the fourth quarter? Because that seems to be the only delta to be thinking about.
Finally, just to follow up on the capital question, have you heard anything on SREP yet or is it something you're waiting for? Thanks.
Yeah, Sheel, thank you for those questions. On the corporate lending, we are at the number one in terms of share for Irish commercial lending, and we continue to hold that position. I say to you that in the context of business sentiment, and despite geopolitical uncertainty, business customers are continuing to invest. It's really important because this is the third year now where we've seen our business customers having the confidence to invest in their business model. Activity is broad-based, and I will call out some of the sectors, but what our business are investing in is funding that supports acquisitions, refinancing, automation, sustainability, capacity expansion and productivity as well. The Irish commercial book that grew 14% this year, and that's one of the reasons why our overall Irish lending book is up 8%.
The combination of a strong mortgage business with commercial lending growing is driving that overall 8% growth in the Irish loan book. Notable sectors would include hospitality and leisure. That's more hotels coming online, as an example. Manufacturing and engineering, very strong. Data centers has been part of that. As you'd expect in Ireland, food and agri continues to be a strong supporter of growth as well. So it's a broad-based area of growth that we're very pleased to see. I should say as well, that credit quality remains resilient with no evidence of material deterioration or systemic portfolio concerns. So we're growing this business safely. On capital, back to my earlier answer to Diarmaid, we haven't received an updated SREP.
There are scheduled dates with our regulators that will happen over the course of quarter four and into next year, but I don't think there'll be any significant change in our capital requirements and of course, that guidance to get around 14.5% as a target. Mark, on just the precise question on valuation items.
Valuation items. Yeah. Sheel, morning. Yeah, valuation items, Sheel, actually, we don't forecast them, so we actually just give you the year-to-date position, so around EUR 40 million. Also we don't include them in the cost income ratio.
Thank you. Our next question comes from Borja Ramirez with Citi. Please unmute to ask your question.
Hello, good morning. This is Borja Ramirez from Citi. I have one question, please. It's regarding the deposit growth. I can see that the ECB data for Ireland at system level showed deposits in September actually accelerating the growth year-over-year compared to August. I think this was broadly across the system. So maybe if you could kindly provide some color on this and maybe if you could view that growth positively for the rest of the year. Thank you.
Good morning. Just to say the line was a little bit bad there, but I think I have got the question in relation to deposits. Overall performance very much in line with our expectations. The total deposit book up 3%. I think when you unpick that and look at some of the detail behind it, in particular our personal, our consumer balance is up 5%. Again, pointing to that point that Irish system deposits are growing, and we have seen that reflected both in total deposits growing by 3%, but consumer balance is growing by 5%. Very much in line with our expectations. Mark, anything more on behavior on the ground?
Borja, good morning. The franchise playing very much as we anticipated year-to-date. I think if we look forward, Borja, and linking to our net interest income, we have got strong net interest income growth this year. We have upgraded our guidance this morning. We have got a very positive trajectory out to 2028 and even beyond that when we think about the durability of that with the structural hedge, but that is supported by continuing deposit growth.
Thanks, Mark.
Thanks, Borja.
Thank you. Your next question comes from Denis McGoldrick with Goodbody. Please go ahead.
Good morning, Myles and Mark, and thank you for taking my question. Just one please, really on NII and the structural hedge. You have increased guidance for this year. Can you help us understand maybe the mix of that upgrade between the balance sheet growth piece and the structural hedge? Then maybe Mark, any guidance you could give us on the exit run rate now into 2027 on the hedge, please. Thank you.
Great. Thanks, Denis. Mark, do you want to take that?
Yeah. Hi, Denis. Yeah. Maybe just as a sort of mentioning to Borja there, Denis, I suppose if you look at our nine months performance, and you think about the drivers of NII, our balance sheet growth, our lending growth, which upgraded our deposit growth and also structural hedge, all those factors playing very well, performing very well year-to-date. That is obviously behind our upgrade, our second upgrade this year, but also our confidence in our NII growing to circa EUR 3.75 billion next year and to greater than EUR 3.95 billion into 2028. That, of course, is a key contributor to our ROTE building to greater than 16%, and we are very positive on that. Now all that guidance, Denis, is based on a 2.5% ECB rate.
Rates today certainly offer further upside for that, and that obviously that will translate into ROTE as well. Just specifically on 2026, Denis, we have upgraded the guidance there to greater than EUR 3.5 billion. We would expect it to be about EUR 20 million-EUR 30 million above the EUR 3.5 billion. So just to give you a sense of that. Really three factors there. So one is business momentum, so balance sheets both from the lending side and deposit side, just a little bit better than we had allowed for back at the half year. Secondly, lower rates on the structural hedge a little bit higher, reflecting expanded positions. Thirdly, a little bit of FX as well with sterling strengthening during the period.
Thank you.
The structural hedge, sorry, Denis, as well. We are at EUR 77 billion in Q3. Obviously, we made a material move on that in July. That EUR 8 billion we added, that reflected the work we had done in the first half of the year around the stickiness of our deposits over the last cycle. You could see that decision really as representing our confidence in our deposit base and our growth. But from here, the hedge will grow in line with the overall growth in our deposits. I suppose one of the key purposes of the hedge is obviously to enhance our resilience of our NII, and really that gets to the heart of the durability of a return. So we have obviously given an outlook out to 2028, but certainly beyond that as well.
Okay. Thank you.
Thanks, Denis.
Thank you. Thank you. Your next question comes from Seamus Murphy with Carraighill. Please unmute your video and go ahead with your question.
Hi. Can I just ask you, it's the first time I've really heard you in a big way. Sorry, I know you've talked about it before, but the AI opportunity that you're speaking about, could you give us more updates in March? Could you just maybe just give us some kind of an inkling of your thought process as we move into March, just in terms of the opportunity as we look out over the cycle. Thank you.
Yeah, very happy to, Seamus. I mean, like many organizations, and I talk to many of my cohorts across the eurozone, we're all making, I would say, tangible progress on finding very particular use cases that offer value, whether that's a better customer experience, whether that's creating efficiency and reducing costs. I've given some of those examples, both at the half year and now where that call handling time as an example, just less calls being handed off from an automated agent to a human in the context of those queries being dealt with quickly. That's significant. Helping fraud, customers with less fraud attacks. That's another example. Tooling in our change area. They're examples. But I'm also very mindful, and I'm certainly watching this space very carefully.
But I'm watching for organizations to communicate to the market that, yes, we're doing all of these very good interventions. But what does it mean on a bottom-line basis? What's the value creation that we feel we can, for example, put into a chart? That's the space that I want to get to. For that to happen, we've got to transition from very compelling individual use cases across the organization to developing those at scale. I think scale is the point, and hence the reason for our commitment here. So the appointment of a Chief AI Officer, it's a very important intervention, but Prag's role is to bring all of those pieces together to put out, I guess, an AI platform that we will use internally, that is going to ensure that we are translating very good work into impacts at scale.
That's what I want to share with the market when we communicate our FY 2026 results. That's the work that we are focused on now. Just as an example, it's only an anecdote, but it's important. A few weeks ago, we took the senior executive team to San Francisco for three days just to spend time with some of the very big players, but also some of what we call the trailblazers, the smaller firms that are leading the vanguard here in terms of how AI is being adopted. That's designed to get the team very focused on what the opportunity is. Our job now is to convert that opportunity into tangible outcomes. Again, we've made progress in that. So much of the EUR 250 million cost saving that we've spoken about, much of that is AI enabled, but there's more to go after.
I think as well, the final point here is that we want to move beyond the productivity discussion.
This has an opportunity to profoundly impact how customers bank with us. It's an opportunity to secure our personal current account business. It's an opportunity to offer, in the context of our wealth business, we want to step into the mass affluent. AI is particularly well-positioned to help with that. Again, they're the areas that I look forward to sharing with the market at full year results.
Very cool. Thank you.
Thanks, Seamus.
If you'd like to ask a question, please use the raise hand icon to put yourself into the queue. Our next question comes from Jordan Bartlam with Mediobanca. Please go ahead with your question.
Good morning, and thanks for the questions. I had one quick one on deposits and one on mortgages as well, if possible. On the mortgage, sorry, on the deposits side. It looks like U.K. deposits have started growing materially for the first time in a while. Just checking, is that any kind of change in appetite there, or is that mainly an FX thing? And then secondly, on mortgages. It looks like one of the closest competitors in the market, just a few weeks ago, actually cut their mortgage rates. Just trying to understand, is that a sign of increased competition in the mortgage space? Or is that a peer trying to catch up on lost market share gains, or just trying to correct their pricing propositions? It's just quite a strange move. Does seem a little irrational. Just a bit of color there.
Super helpful, please.
Yeah. Thank you, Jordan. I will take the mortgage question, and Mark, if you could take the U.K. deposit one, please. Jordan, firstly, I will not comment specifically on another player in the market or indeed specifically on a pricing intervention. What I will say is our posture generally, with pricing for both mortgages and for deposits is to be very disciplined and also to consider both portfolios together, all in the context of securing the appropriate NIM in securing a strong asset yield. We are seeing that come through. We saw that in the numbers at the half year, and they are translating into quarter three as well. As an example, I know most recently, given the inflationary backdrop, rates have begun to pick up again. Of course, there is lots of positivity in that in the context of the net interest income guidance Mark has offered.
But as rates came down, if you look at our behavior, we did not deploy any price reductions when those rates were coming down, right? That is around protecting value and also creating capacity for when we need to move, we can. So I am not very much, we are not in any sense in a reactionary posture here. We have our strategy. We know our approach to pricing. We were pleased to bring a deposit pricing change to the market recently, but it is all in the context of protecting value. I referenced it earlier, but it is really important, protecting any pricing decision should be designed to protect the total book, and not just around flow. But certainly, I am very pleased with where our mortgage business is at.
It is a growing business, supported by very strong market dynamics, but also very much supported by pricing discipline from Bank of Ireland.
Mark, on the deposit side for U.K.
Yeah. So, on the U.K. side, there is a little bit of FX, Jordan, but actually there is growth in sterling terms as well with maybe the backstory in that is at the half year you will recall that we managed our mortgage book for value over volume and declined in the first half of the year as we stepped back from the market. That has actually grown in Q3. We talked about a good pipeline that has converted. We are very happy with the quality of that, and the deposit growth is funding that. Some of that will be our Northern Ireland franchise supporting that as well, which we are really pleased with.
Fantastic. Thanks so much.
Thank you, Jordan.
This concludes the Q&A session. I will now hand back to management for closing remarks.
Thank you, Kahalani . Sorry if I did not get your name right. Just say thank you very much for everyone on the call for your time this morning. And of course, we look forward to updating you later in the year as part of our full year 2026 results in quarter one. Thank you very much indeed.