Bank of Ireland's Q1 Slump in Net Interest Income: A Speed Bump or a Detour?

The Bank of Ireland’s Q1 2025 results delivered a mixed bag: net interest income (NII) fell 8% year-on-year to €600 million, driven by the ECB’s rate cuts and strategic portfolio exits. Yet, the bank confidently maintained its full-year 2025 guidance, projecting NII to exceed €3.25 billion and adjusted RoTE of ~15%. Is this a sign of resilience or a risky bet on an uncertain macro backdrop? Let’s dive into the numbers.

The NII Decline: Causes and Context

The 8% drop in NII isn’t a surprise. The ECB’s deposit rate fell to 2.8% in Q1 2025 from 4.0% in Q1 2024, squeezing margins. Additionally, the bank intentionally deleveraged in certain portfolios—likely non-core or higher-risk lending—as part of its strategic exits. Management highlighted that €600 million in Q1 NII still aligns with internal forecasts, given these headwinds.

Meanwhile, total business income (including wealth and insurance divisions) rose 8% year-on-year to €650 million, offsetting some of the NII pain. Wealth management saw €0.5 billion in net inflows, boosting assets under management to €54.5 billion, while insurance performance remained stable despite a 2% dip in market valuations.

Why the Guidance Holds: Underlying Strengths

The bank’s Q1 results are a testament to its fortress balance sheet and disciplined execution. Key positives:
- Deposit Powerhouse: Total customer deposits hit €103.2 billion, up 2% annualized. Retail mortgages surged with a 37% market share, driven by Ireland’s red-hot housing market (prices up 8% yoy in February).
- Asset Quality: NPE ratio at 2.5%—near historic lows—reflects prudent lending.
- Capital Fortitude: CET1 ratio soared to 15.9%, thanks to organic capital generation (50bps) and Basel IV benefits (115bps). A €600 million AT1 issuance in March locked in record-low spreads, signaling investor confidence.
- Cost Control: Operating expenses rose just 3% yoy to €200 million, with regulatory fees now largely front-loaded for 2025.

The Bigger Picture: Ireland’s Economy and Risks

The bank’s outlook hinges on Ireland’s economic resilience. Unemployment is 4.1%, household savings and disposable income are strong, and CPI inflation is tame at 2.0%. Housing completions are projected to hit 35–40k by 2026, fueling mortgage demand.

However, risks linger. Global trade dislocations and Brexit-related supply chain issues could dent corporate lending—a segment that already shrank due to strategic exits. Regulatory levies (€105 million in Q1) also weigh on margins.

Conclusion: Hold the Course—or Double Down?

Bank of Ireland’s maintained guidance isn’t just bravado. With a CET1 ratio at 15.9%, liquidity ratios comfortably above thresholds (LCR of 203%, NSFR of 154%), and a mortgage book growing at 3.5% annually, the bank has ample buffers. The FY25 NII target of €3.25 billion is achievable if:
1. Deposit growth offsets rate pressures (€103 billion in deposits provide scale).
2. Wealth and insurance divisions continue to outperform market volatility.
3. Strategic exits are replaced by higher-margin lending in core segments.

The buyback program—45% completed with €268 million deployed—is a clear vote of confidence. While NII is down, the bank’s capital generation (targeted at 250–270bps organically) suggests management can navigate a slower rate environment.

Investors should note: the stock trades at a 0.9x P/B ratio, well below its 3-year average of 1.2x. For those betting on Ireland’s economic staying power—and a bank with defensive balance sheet metrics—this dip might just be a buying opportunity.

In short: the speed bump is real, but the road ahead remains paved with solid fundamentals. Hold tight—or better yet, consider stepping in before the rally resumes.