IAS19 Defined Benefit Pension + Mortgage Portfolio Analysis
Structural hedge and net interest income sensitivity
Structural hedge¹
Bank of Ireland
Period-end
volume
€39bn
Interest
income
€60bn
€66bn
€374m
€118m
€12m
€29m
€41m
€59m
H122
H222
H123
GBP
EUR
Illustrative NII sensitivity² to parallel shift in interest rates
(annualised)
•
Higher structural hedge volumes in H123 due to growth in customer
current account balances
Increased income in H123 reflects higher swap rates and volumes:
Average gross yield on fixed leg of structural hedge portfolio
increased from 64bps in H222 to 134bps in H123; exit rate of
154bps end June 2023
Average duration of hedge portfolio unchanged at c.3.5 years at Jun
2023; one seventh of the portfolio rolling annually
NII sensitivity of €170m at HY23; reduction vs FY22 level of €270m
reflects
- higher assumed levels of pass through on liabilities, reflecting
higher starting position on interest rates (3.5% ECB deposit rate
Jun 2023 vs 2.0% Dec 2022)
increased structural hedge volumes
- partially offset by balance sheet growth in the period
EUR
GBP
USD
Total
+100bps
-100bps
€130m
€25m
€15m
€170m
•
Structural hedge enhances NII resilience while reducing NII sensitivity
(€255m) (€40m)
(€20m)
(€315m)
1 Gross interest income from fixed leg of hedging swap; the Group's fixed rate assets (e.g. fixed rate lending) are fully hedged for interest rate risk; these hedges partially offset the Group's structural hedge
2 The sensitivity assumes (i) an instantaneous and parallel movement in all interest rates, with a starting point of an ECB deposit rate of 3.5%; (ii) a static balance sheet; (iii) assets and liabilities whose pricing is mechanically linked to
market or central bank policy rates reprice immediately; (iv) certain other assumptions including pass throughs to assets and liabilities. The sensitivities should not be considered a forecast of future performance in rate scenarios
as they do not capture potential management action in response to unexpected changes in the interest rate environment. Net interest income sensitivities will change depending on interest rate starting point
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