AIB reports profitable third quarter

AIB said this morning that its third quarter was "profitable and cash generative", as lending soared by 39 per cent and the bank's impaired loans declined by 16 per cent.

"Today's performance update demonstrates that AIB continues to make progress on its strategic goals. The bank is profitable, generating capital and has the capacity and appetite to meet increased lending demand in the economy. Delivering professional service at competitive lending rates to our customers lies at the heart of our strategy while, at the same time, ensuring the bank is generating an appropriate return for shareholders, including the Irish State,'' AIB CEO David Duffy said.

Lending levels jumped by 39 per cent up to €9bn, and the bank said it is “ on track to exceed its approvals lending target of € 7-10bn at appropriate credit quality and yields.”

“AIB continues to actively seek lending opportunities and has the capital and funding profile to prudently grow our loan book”.

The bank’s total impaired loans “is continuing to trend towards more normalised levels”. Impaired loans fell from € 26bn at 30 June 2014 to € 24.3bn at end of September 2014, down by 16 per cent since December 2013. The bank said that this reduction is “predominantly driven by increased restructuring activity and the pace of migration to newly impaired loans declined as economic conditions improved”.

Irish residential mortgage arrears fell by 11 per cent in the year to date (Sep 2014).

Ciaran Callaghan, senior credit analyst with Merrion Capital, said that the bank “continues to defy expectations leaving it very well placed to approach capital markets in the near term” and said its strong trading performance in Q3 “bodes well for the repayment of State Aid”.

The bank’s loan to deposit ratio at the end of September 2014 was about 98 per cent, up from 96 per cent at end June 2014. Central bank funding fell to €2.4bn at the end of Q3 2014, down from €3.7bn.

With regards to AIB's capital structure, the bank said that discussions with the Department of Finance in relation to the 2009 preference shares and the 2016 contingent capital notes are expected to continue.

“These considerations will reflect evolving regulatory requirements and the improving operating performance of the bank in a strengthening macroeconomic environment”.

In a note, Investec said that it expects AIB to finish these discussions by year-end, with the first repayment of capital to the state since the crisis.