Bank of Ireland reported a 92% jump in pre-tax profit of €1.9bn for 2023, with the increase almost exclusively driven by a surge in net interest income.

This is the difference between what the bank charges for loans and what it pays for deposits and its own borrowing.

The bank announced a dividend payment totalling €1.15bn to shareholders, with ordinary shareholders getting 60c per share.

Despite the huge jump in profits and dividend payout, the bank’s shares dropped more than 10% in the wake of the announcement as Bank of Ireland said in its earnings release that it expected interest income to be lower this year and operating costs to rise.

There was also an increase in the bank’s impairment charge on loans from €187m in 2022 to €403m in 2023, primarily driven by exposure to the commercial real estate sector.

The bank’s lending to the agriculture, forestry and fishing sector in Ireland was little changed at just over €1.5bn, a figure that has been fairly stable for the past decade.

Separately, the bank published its agricultural insights 2023 and outlook for 2024 study in which it outlines what it sees as the key challenges and opportunities for the sector in the coming year.

It is notable on debt levels that for the Irish agriculture sector, total debt has been trending lower for more than a decade and at the end of September last year stood at the lowest level since 2004 (Figure 1).

Farmers continue to pay down existing debt at a faster rate than they take out new loans.

On the deposit side, farmers have 75% more cash in their Bank of Ireland accounts than they had in 2020, reflecting “strong average profits and cashflows across farms”.

Looking ahead, the bank identified seven key factors to watch:

  • Lack of political clarity hitting farmer confidence and reducing appetite in the sector for making investments in the future.
  • EU funding could become challenged as top-level priorities in Brussels shift towards defence, migration and enlargement. The current CAP budget may have to cover more of the costs of environmental measures, leaving less money to protect farm incomes.
  • Policy-driven environmental investments in improvements such as increased slurry capacity and additional calf spaces are costs for farms that will have little benefit for profitability.
  • Land costs are set to remain high, with demand from the dairy sector set to reduce availability to other farming operations.
  • Interest costs to remain high as the drivers for the initial round of increases (energy and labour costs) still remain a significant factor. The bank provides no prediction for interest rates in 2024, other than to say the era of low interest rates is over.
  • There are signs starting to emerge of cashflow pressures on some farms, particularly those that have made significant investments in recent years.
  • On the positive side, assuming better weather in 2024, Bank of Ireland forecasts an increase in farm profitability this year, and return to levels seen in 2021.

    • Uncertainties

    The bank also highlighted uncertainties over supply-chain disruption over the year as the Russian invasion of Ukraine continues and tensions rise in the Middle East.

    Looking through short-term volatility, the bank says the longer-term outlook for farming remains positive.