Bank of Ireland expects net income from interest payments for the full year to increase by around a third following the European Central Bank's decision to raise interest rates four times since July.

The lender has forecast net interest income to increase by c10% year-on-year in 2022, up from prior guidance of 6-7%.

The guidance incorporates full-year net interest income from targeted longer-term refinancing operations (TLTRO) participation of €30m compared to €62m last year.

As expected, the ECB raised its main lending rate from 2% to 2.5% on Thursday, the fourth increase in interest rates authorised by the regulator this year. The main lending rate had been 0% for 11 years prior to the first hike in July.

Subsequently, Irish banks including Bank of Ireland, have increased their mortgage rates, with AIB increasing rates on fixed-rate mortgages by a percentage point and Permanent TSB raising fixed rates by up to 0.9 percentage points.

In Association with

To date, Bank of Ireland has raised interest rates on its fixed-rate mortgage products by 0.25 percentage points. The ECB signalled that further rate increases are to come in 2023 as its seeks to reduce inflation by dampening demand as well as expectations of inflation.

Bank of Ireland said on Thursday that its tracker mortgage customers would be affected by the ECB rates increase on 10 January but that no decision had been made with regard to other mortgages and lending products.

In the guidance published on Friday, Bank of Ireland said the implementation of the IFRS 17 accounting standard on 1 January would "impact the timing of the recognition of insurance contract profits" in the group’s New Ireland (NIAC) subsidiary.

The lender said it expects IFRS 17 to reduce operating profit by c. 3-5%, with both reported income and operating expenses falling as a result of its introduction. Bank of Ireland's wealth and insurance division reported operating contribution of €121m in 2021. 

It is expected that the group’s tangible net asset value and fully loaded CET1 ratio will reduce on day one by c. 4% and c. 30bps respectively. Bank of Ireland will publish its 2022 annual results on 7 March.

Bank of Ireland announced this week that it would spend €11.5m to renovate a number of branches nationwide.

(Pic: Leah Farrell/RollingNews.ie)