ALLIED IRISH Banks (AIB) posted a pretax loss of €872 million for the first six months of the year after writing off €2.37 billion in loans primarily on land and development, a dramatic increase from €137 million a year ago.

Excluding a €623 million gain to the profit and loss account on a €1.1 billion debt swap in June, the bank made a pretax loss of €1.5 billion for the first six months. This compared with a profit of €1.28 billion in the first half of 2008.

Spiralling losses on the property and development book primarily were to blame for the half-year deficit. Some 72 per cent of the bad debts were due to losses on property and construction loans.

“Property and Ireland is the big issue,” said AIB chief executive Eugene Sheehy, who will leave the bank when his successor is found.

Mr Sheehy said he did not know exactly how many loans would be moved to the State’s “bad bank”, Nama, which is acquiring loans with a book value of €90 billion.

He said that individual loans under €5 million in value may not be moved to Nama and that he expected €16 billion in development loans owed by 660 customers to be moved to the agency.

Nama will deal with the top 50 developers initially. AIB said that its top 50 borrowers accounted for €7.6 billion of loans. Four to five borrowers had loans in excess of €500 million, Mr Sheehy said.

He said that the bank was reviewing its interest rates for mortgage customers on standard variable rates but that it was not planning any rate increase.

Mr Sheehy said that about €5 billion, or 19 per cent of the bank’s €26 billion in mortgages, were on standard variable rates, with about 65 per cent of loans on tracker and 12 per cent on fixed.

He said the bank had repossessed five properties in the first half of the year, only one of which was the result of a court order.

Mr Sheehy said the bank was not considering the sales of any of its overseas businesses to raise the remaining €400 million of the plan to raise €1.5 billion in additional capital by the end of the year to absorb higher loan losses.

He said he bank was assessing the sale of properties and other assets to raise the capital.

Referring to the bank’s 17-fold increase on its bad debt charge on a year earlier, Mr Sheehy said AIB had “gone at it aggressively”.

The bank’s loans decreased by 2 per cent in the six months, while customer deposits fell by 12 per cent. The bank lost €11 billion in deposits, primarily from UK institutions and large companies, in the first three months of the year.

The loans-to-deposits ratio had risen to 156 per cent from 143 per cent last year due to the decline.

Mr Sheehy said that interest margins had improved but that deposit costs remained high.

The bank’s Irish operations report a pretax loss of €1.5 billion, compared with a profit of €506 million a year earlier. This was driven by a €1.9 billion bad debt charge, mostly on property loans. Mr Sheehy said the bank’s staff numbers have fallen by 1,425 to 25,078 since December 2007.

He said AIB was meeting its target on new lending to small firms and on mortgages, which, at a rate of 33 per cent, was double its traditional market share.

He said that banks had to be “more cautious” on pricing risk.