Upgraded net interest income guidance

According to the group’s update, the third-quarter results were slightly above expectations, boosted by interest rate tailwinds, whereas asset quality trends remained benign. In that context, the management reiterated its confidence for the remainder of 2023 and beyond.

Delayed net interest income peak

The strong first-half performance will be repeated in the second half. Further out, if the management continues to see the current net interest margins as unsustainable, the net interest income could peak later than previously expected.

Skyrocketing net interest margin

As competitors continued to withdraw, the net interest margin jumped to unprecedented levels and is expected to expand further in 2023. This is not justified by asset quality deterioration or cost inflation, but only by the willingness to provide shareholders with a comfortable 15% RoTE as soon as this year.

Upgraded net interest income guidance

Like its peers, BOI enjoyed stronger-than-expected tailwinds from interest rate hikes leading the management to significantly upgrade its full-year revenue guidance and reiterating its near-term profitability objective.

Slightly upgraded revenue guidance

Profitability remained depressed by excess capital and ongoing non-core charges. The underlying operating trends were unchanged. The TLTRO boost in 2023 is not guaranteed and will be short-lived.

Confirmed guidance but unwelcomed management change

According to the group’s interim management statement, the first quarter results came in line with expectations, thus enabling management to confirm its full-year guidance. The CEO’s departure is not good news but the governance risk is reduced by the group’s limited strategical challenges in our view.

Cost savings, TLTRO relief and provision recoveries

The first half performance showed ongoing efficiency gains and was boosted by the TLTRO relief and provision recoveries. The group has already found opportunities to invest the accumulated excess capital and strengthen its dominant domestic position.

Better net interest income resilience

The quarter enjoyed better-than-expected top-line resilience. Loan provision recoveries are likely to have to wait until the release of the first-half results.

Acquisition of KBC’s mortgage book

The acquisition of KBC’s Irish mortgage book could prove a profitable, albeit temporary, opportunity to invest excess capital. However, we do not see the further strengthening of BOI’s duopolistic position as good news from a fundamental standpoint.

Cautiously optimistic

The group posted full-year results in line with expectations and confirmed its guidance. However, management’s tone remains cautious as confirmed by its reluctance to commit to precise guidance or its intention to a resume capital distribution on a progressive basis.

Massive provisioning effort, upgraded top-line guidance

The second quarter was marked by a massive provision frontloading effort. On the positive side, management now expects a better-than-previously guided top-line resilience. It remains that the group will post a loss this year with limited visibility on the recovery potential next year.

Stronger top-line sensitivity

The top line will shrink more than what was suggested by the stress tests. On the other hand, the first quarter cost of risk stands at around 25% below the two-year run rate returned by the same stress tests. However, the retained macro-economic scenario could prove a bit complacent.

FX moves to the rescue

The second half of the year enjoyed a decent tangible book value increase supported by FX moves. On the negative side, the top-line trends showed ongoing net interest margin pressure. The annual cost of risk came in at the upper end of the guidance range.

Accelerated balance-sheet clean-up, abandoned mid-term objectives

The third-quarter results were in line with the group’s expectations, at least at a pre-provision level. However, management has acknowledged that operating conditions have become less supportive, forcing it to abandon its mid-term financial objectives.

Resilient underlying performance masked by customer remediation

The first half’s underlying performance was in line with expectations, while the reported performance was impacted by customer redress charges related to tracker mortgages.

Morning Note – 22 April 2024

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Witan

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