* Targets ROTE in excess of 10 pct by 2021
* Cost base to be reduced by 200 million euro in 2021
* Expects cost income ratio of around 50 pct in 2021
* Dividends to build towards a payout ratio of 50 pct (Adds detail on plans for UK business and headcount)
By Graham Fahy
DUBLIN, June 13 (Reuters) - Bank of Ireland plans to increase the size of its loan book and invest in front-end technology as part of efforts to improve profitability and efficiency, CEO Francesca McDonagh said on Wednesday.
The bank, one of a number of Irish lenders bailed out by taxpayers during the global financial crisis, expects to increase its lending by around 20 percent over three years, with 65 percent of that growth in Ireland and 35 percent internationally.
It is targeting a return on tangible equity (ROTE) of above 10 percent by 2021 compared with 6.9 percent in 2017.
“We have a clear recovery story. We have fully repaid the Irish taxpayer, executing in full our EU restructuring plan,” McDonagh said at the bank’s investor day. “We have returned to sustainable profitability, making our first dividend payment in ten years to our shareholders last month.”
She also said the bank intends to address its underperforming British business, where overall returns are below the cost of capital, generating low single digit returns on tangible equity.
“There are parts of our business we must improve as quickly as possible to reduce cost of funding, acquisition and service,” said McDonagh.
Parts of the group’s UK activity that are generating good returns such as the Northridge finance business will receive fresh investment, while segments such as the bank’s 22.6 billion euro mortgage book will be reviewed to ensure the best mix.
The group has also embarked on a strategic review of its credit card business.
McDonagh sees an opportunity to be the national champion bank in Ireland. “Unlocking growth in our Irish business will drive expansion in lending volumes and fee income, and increase our revenue,” she said.
To support the growth and drive cost cuts the bank is planning to invest 250 million euros ($295 million) in its IT systems, which is in addition to 900 million euros of investment in banking systems previously announced.
Another 250 million euros is earmarked for changes to its business model that bring down costs, including the closure of 28 service centres this year.
The bank will increase the proportion of customer-facing staff but expects its headcount to fall in the future as a result of a hiring freeze and natural turnover.
The measures are expected to reduce the banking group’s cost base by 200 million euros in 2021, and achieve a cost income ratio of around 50 percent in 2021, compared with around 65 percent in 2017. ($1 = 0.8504 euros) (Reporting by Graham Fahy; editing by Jason Neely, Louise Heavens and David Stamp)