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Bank of Ireland cashes in on negative rates on customer deposits


Bank of Ireland has seen profits rise as it cashes in on negative rates on customer deposits and a rise in lending, a trading update shows. 

The lender, which may soon return to fully private ownership after the Irish government cut its stake further this week, told investors that the ‘increased’ application of negative interest rates on some deposits helped lift income. 

Only customers with €2.5million or more on deposit must pay for the bank to hold their deposits, but the bank said in May that it would start dropping this threshold to €1million later this year. 

Negative rates: Bank of Ireland charges his high-net-worth customers on cash deposits

According to the bank’s annual results for 2020, income from negative rates was €33million in 2020, up by 73 per cent from €19million in 2019. 

The country’s largest bank by assets, Bank of Ireland has continued to benefit from a rise in savings, holding customer deposits worth €91.3billion at the end of September.

New lending also increased 7 per cent in the nine months compared to last year, with ‘green’ mortgages up 30 per cent. 

The bank reported a 17 per cent increase in operating profit before impairments in the nine months to the end of September compared to the same period in 2019 as business activity continued to recover after Covid.

Bank of Ireland also said that its deal to acquire most assets from KBC will help it grow profits in the coming year.

The lender is taking over a portfolio of €9.2billion of customer loans and €4.4billion of deposits from KBC after entering a binding agreement with the bank last week, with the deal set to be completed in 2022. 

It said it expected the move to add around 1.1 per cent to the group’s return on tangible equity – a measure of a company’s profitability – in the first full financial year of ownership. 

Bank of Ireland shares were up 2.5 per cent at €5.21 in morning trading on Friday.

It comes as the Irish government cut its stake in the bank this week to below 10 per cent for the first time since a state bailout a decade ago. 

Ireland pumped €64billion into its banks a decade ago after a property crash, with Bank of Ireland the only lender to avoid majority state ownership.

If the government was to maintain its current pace of share sales it could exit Bank of Ireland entirely next year, a move that would make it the first of Ireland’s bailed out banks to fully return to private ownership.

Bank of Ireland chief executive, Francesca McDonagh, said that was an important step towards ‘normalising the relationship between the Irish State and Bank of Ireland,’.

‘This is a positive development – for Irish taxpayers, the Irish economy, and Bank of Ireland,’ she added.

The sale of KBC assets to the BOI marks the exit of KBC from the Republic of Ireland after over 40 years and will see the number of retail banks in the country reduce to just three.

The lender, which first entered the Irish market in 1978 and is owned by Belgian financial group KBC, had started talks to sell most of its assets to Bank of Ireland in April this year.

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