ECB programme raises Bank of Ireland’s pension deficit €700m

The European Central Bank’s quantitative easing programme (QE), aimed at stimulating the eurozone economy, has adversely affected Bank of Ireland, by driving up the deficit in its defined benefit pension schemes by €700m.

In a trading update, covering the year to date and published yesterday to coincide with its AGM, Bank of Ireland noted that the value of the assets in its defined benefit schemes increased over 10%, year-on-year in the first quarter of this year.

However, the combined deficit of the schemes has risen from €1bn to €1.7bn since the end of December, as a direct result of quantitative easing, which pushed interest rates lower and weakened the euro.

“In general, the low- interest rate environment presents the group with challenges, including lower yields on new liquid asset investments and the impact of a significantly lower AA corporate bond yield,” the bank said.

However, it added that the strengthening of sterling against the euro is having a positive impact on group profitability.

Bank of Ireland returned to profit, for the first time in six years, last year. At yesterday’s AGM, chairman/ governor Archie Kane said the bank has traded in line with expectations since the turn of the year, with momentum continuing in Ireland and overseas.

“The macroeconomic environment and outlook in Ireland and the UK, which are our key markets, continue to be favourable,” Mr Kane told shareholders.

In yesterday’s update, Bank of Ireland said its net interest income rose in the first quarter of this year as expected. Fees and other income are broadly in line with the second half of 2014.

“The group remains focused on tight cost control, while we continue to invest in our people, business and infrastructure,” the statement said. Asset quality trends have continued to improve, with defaulted loan volumes lowering in the first quarter, against the last three months of 2014.

“The group’s customer loan volumes, in April 2015, were €85bn, compared to €82bn at December 31, 2014. New lending has continued to grow in line with our expectations,” the bank added.

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