![]() While the ECB has increased its main lending rate from zero to 4.25 per cent since last July in its war against inflation, Irish banks have lagged most European peers in raising mortgage rates – beyond automatic increases on tracker loans – as they are more reliant on cheap household deposits to fund loans.īut the rocket fuel for Irish earnings has been what the Central Bank of Ireland – on behalf of the ECB – is now paying banks for excess deposits stored with it. AIB expects its ratio to rise from less than 10 per cent in the first half of the year to almost 30 per cent by the end of the year. The buzz phrase these days among banking analysts is “deposit beta”, the percentage of central bank rate hikes that are passed on to deposit customers. “We led the market in terms of moving deposit rates higher last November and we do expect to see customers moving.” We’ve a 2 per cent regular saver product out there,” says Hunt. Still, both banks are counting on most of the savers’ money staying put in transactional accounts, even if they have been seeking headlines in recent months with improvements to their deposit offerings, with offers of up to 2 per cent on some accounts. “We believe 2023 will be the high point ,” says Maria Parra, an analyst with debt ratings agency DBRS Morningstar. Almost 95 per cent of Irish household deposits are sitting in on-demand accounts. Hunt and O’Grady have emphasised in the past week that they see net interest income peaking soon, as customers are only beginning to move money out of current and on-demand accounts, which are earning little or no interest, to interest-bearing products. ![]() “While the 2023 performance of AIB will be regarded as truly exceptional with a RoTE of above 20 per cent, we are very confident in the ability of our franchise and our business to generate very strong returns over the years ahead,” Hunt said to analysts last week. Analysts see a ratio of 8-10 per cent as a sign of a healthy bank. ![]() Return on tangible equity (RoTE) is the key measure of the profitability of the bank, and the expected result this year will be well above the 13 per cent ratio that Hunt has set as his financial north star over the medium term. Chief executive Colin Hunt forecast that the group’s full-year earnings would equate to more than 20 per cent of equity that shareholders hold in the bank. With less than two months to the 15th anniversary of Brian Cowen’s government being forced to guarantee the Irish banking system to prevent its collapse, the two largest surviving players in the market are making the types of profits last seen during the property boom.ĪIB said last week that its net profit jumped 79 per cent to €854 million, turbocharged by the European Central Bank (ECB) hiking official interest rates.
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