AIB on track to return €2.1bn to shareholders over three years, BofA says

AIB is on track to return about €2.1 billion to shareholders over the next three years by way of dividends and share buybacks, as its earnings soar on the back of rising interest rates and customer loans, according to Bank of America (BofA).

The payout level is 16 per cent above what BofA securities analyst Alastair Ryan had estimated and comes after he raised his earnings estimates for the lender over the coming years as he factors in higher-for-longer central bank rates and ongoing increases to mortgage rates.

The analyst has also raised his earnings projections for Bank of Ireland, as Irish banks have lagged European peers in raising home loan rates as they continue to keep interest on most of their household deposits at close to zero.

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The European Central Bank (ECB) has hiked its main deposit rate from minus zero to 3.5 per cent in the past 12 months, automatically turning about €60 billion of excess funds that Irish banks deposit with the central bank highly profitable, yielding an annualised €2.1 billion at the current rate.

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While banks have increased rates on certain savings products in recent times, 94 per cent of the €152 billion of Irish household deposits are sitting in on-demand accounts, including current accounts, paying an average rate of 0.03 per cent as of April, according to Central Bank data.

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BofA Securities estimates that AIB’s net profit will jump from €767 million last year to €1.63 billion in 2025, paving the way for more than €800 million of dividends and buybacks based on the company’s performance for that year.

Bank of Ireland’s net profit should jump from €889 million to €1.61 billion for the same period, according to Mr Ryan.

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While the analyst sees the two banks’ margins peaking by the end of next year, net interest income will continue to grow beyond that as their loan and deposit books continue to expand, he said.

The Government has reduced its stake in AIB from 71 per cent early last year to 46.9 per cent as of last week, through a programme of drip-feeding shares on the market, selling off large blocks of stock and participating in share buybacks by the bank. All told, the State has recovered about €13 billion of the bank’s €20.8 billion crisis-era rescue bill. Its remaining stake is currently worth €4.72 billion.

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The Government sold its remaining shares in Bank of Ireland last year, bringing the amount recovered from the bank following its €4.7 billion bailout to €6.7 billion.