AIB expects to cut bad debts charge despite challenges

ALLIED IRISH Banks, which is in effective State ownership, still expects to reduce its charge for bad debts next year despite rising impaired loans and mortgages arrears and continued challenging conditions in the economy.

The bank said it had deleveraged the bank of €10.7 billion of excess loans and other assets – more than 50 per cent of the target for the end of 2013 – and had in excess of €1 billion more planned before the end of the year.

Further disposals this year focused on overseas assets and would be “subject to market conditions”, AIB said in a trading statement.

The environment remains challenging in the domestic economy and demand for loans was affected by “strict and continuing austerity measures”, the bank said.

“The future economic performance in Ireland will be strongly influenced by events in Europe, where conditions are currently volatile and uncertain,” AIB said.

AIB is helping more than 12,000 mortgage borrowers in difficulty while more than 800 staff – an increase of 200 in six months – were helping 29,000 troubled small and medium-sized firms.

The bank said its net interest margin had stabilised in the third quarter but that “income pressures persist and may intensify in a lower interest rate environment.”

The bank plans to cut 2,000 jobs from the organisation and said negotiations to find a severance deal “acceptable to all stakeholders” were continuing.

The State owns almost 99.8 per cent of AIB after the Government injected €20.7 billion into the bank and and its subsidiary, EBS.

AIB’s net income will continue to be affected by higher costs of deposits and funding and the cost of the Government guarantee.

The reliance on European Central Bank borrowing should reduce but this will “further emphasise the higher cost of customer deposits”, the bank said.

AIB plans to book higher bad debts provisions for 2011 in line with Central Bank guidance that banks adopt “a more conservative and prudent approach to provisioning” to the extent possible within accounting rules.

Deposits have remained stable in recent months and there were “early signs” of deposits increasing. However, competition was intense and prices were very high.

Lower staff costs were offset by higher costs on restructuring and the resources required to help customers in difficulty.

Loan transfers to the National Asset Management Agency were completed in October as a total of €20.4 billion in loans were moved at a discount of about 55 per cent.