AIB sees ‘potential’ to pay special dividends from surplus capital

AIB chief executive Bernard Byrne sees a "potential" for the bank to pay special dividends from surplus capital in the coming years as its balance sheet normalises.

Speaking to analysts in London on Thursday as part of its capital markets day, Mr Byrne indicated that AIB wants to move to a normalised dividend payment ratio, bringing it in line with payouts made by other European banks.

The bank said the excess capital could also be returned to shareholders through share buybacks. Chief financial officer Mark Bourke indicated that talks with regulators on this could take a couple of months to conclude.

AIB announced last week that it would pay a €250 million dividend to ordinary shareholders this year, its first dividend payment since late 2008.

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The dividend proposed for 2016 equated to about 15 per cent of its pre-tax profit. Mr Bourke said the bank would look to increase this ratio to between 50 and 60 per cent over time, to bring it in line with other lenders in Europe.

He also said AIB’s ambition over the next three years is to reach a normalised level of non-performing loan exposures. This will involve a reduction from €14 billion to between €3 billion and €4 billion.

He said case by case loan restructurings would get it halfway to that point, with the remainder via disposals or portfolio sales and a “rump” through an “SPV [special purpose vehicle] equitised vehicle”.

“This would get us to a normalised balance sheet,” he said.

Credit unions’ share

To grow AIB's new lending, Mr Byrne said it plans to target the large market share in personal loans held by credit unions, which he said hold about a 50 per cent share of personal loans in Ireland. AIB's share is 15 per cent, he said, even though its share of current accounts is 37 per cent.

He said the bank now wants to take “some of that market share” by using its mobile and digital capabilities to attract new business.

Some 72 per cent of AIB’s personal loans are now applied for online, with approval provided within three hours.

Mr Byrne predicted that new mortgage lending in Ireland will normalise at about €10 billion in the coming years, for a market of 25,000-30,000 newly built houses a year.

New mortgage lending totalled about €5.6 billion last year and is predicted to rise to between €6.5 billion and €7 billion in 2017.

AIB also indicated that it plans to target a net interest margin of 2.4 per cent over the next three-five years, as well as a cost-income ratio of less than 50 per cent by the end of 2019.