By Simon Miller
The Bank of Ireland (BoI) breached its liquidity requirements in January and April this year according to its 2010 annual report.
The bank blamed the temporary regulatory liquidity breaches on the "the contraction in unsecured wholesale funding, changes in the eligibility criteria of the ECB and increased usage of Monetory Authority funding".
It has agreed with the Central Bank that actions to de-lever the balance sheet post the Prudential Liquidity Assessment Review exercise are expected to reduce the group’s funding and liqudity risk.
At 31 December 2010, the group’s Equity tier 1, Core tier 1, Tier 1 and Total Capital Ratios were 7.3%, 9.7%, 9.7% and 11.0% respectively. The Equity tier 1 and Core tier 1 ratios both improved compared to 31 December 2009 (5.3% and 8.9% respectively) while the Total tier 1 and Total capital ratios reduced compared to 31 December 2009 (9.8% and 13.4% respectively) with the differing trends reflecting reduced subordinated debt capital after the liability management initiatives.
Since the announcement of the EU/IMF Programme on 28 November 2010 which required the group to generate additional Core tier 1 capital of €2.2bn (£1.95bn), the bank has generated €806m of Core tier 1 Capital towards this target through liability management exercises and business disposals which generated €726m and €80m of Core tier 1 capital respectively.
The above capital generating initiatives totalling €0.8bn since 28 November 2010, towards the €2.2bn target, are partly offset by increased losses on the sale of assets to NAMA and subordinated debt impairment of €0.2bn.
The 2011 Prudential Capital Assessment Review adverse stress scenario outcome requires an incremental €2.1bn capital requirement resulting in an overall capital requirement of €3.7bn before the €0.5bn regulatory buffer for additional conservatism.
The Irish Central Bank has said that the BoI needs €5.2bn in extra capital to insulate against future economic shocks and the bank said it would update the market in the coming weeks on its capital raising plans.
The delayed report showed losses were less than expected with the net loss of €609m falling short of the predicted €1.9bn - its main rival Allied Irish Bank reported losses of €10.4bn earlier in the week. The bank benefitted to the tune of €1.4bn though swapping debt at a discount during the year and a slide in impairment charges by over a third to €1.887bn.
Pre-provision operating profits were €1.017 after net interest income fell 23% on the back of higher funding costs.
BoI chief executive Richie Boucher wrote: "Trading conditions in the first months of 2011 remain challenging due to higher funding costs, in particular the cost of customer deposits, and the continuing difficult liquidity environment. Operating costs remain under strict control and we maintain our expectation that the impairment charge on our non-NAMA designated loans and advances to customers peaked in 2009, reduced in 2010 with anticipated further reductions in subsequent years."