New lending drives positive numbers at AIB

AIB followed the lead of Bank of Ireland last week by producing a strong set of full-year results for 2015.

Its pre-tax profit rose by 79 per cent to €1.9 billion, marking the second year in succession that AIB has been back in the black.

This was driven by high quality new lending, continued progress on operating expenses and net credit provision write-backs of €925 million.

Its operating profit of €2.18 billion was 10 per cent ahead of Davy’s forecasts for the bank, mostly due to write-backs. But its pre-tax profit was behind expectations due to a €293 million charge for exceptional items, which included a €105 million provision for tracker mortgage redress.

New lending draw-downs rose by 49 per cent to €8.9 billion while its book of impaired loans reduced by €9.1 billion to €13.1 billion. Total coverage of impaired loans was maintained at a “robust” 53 per cent, according to Davy.

In Ireland, new lending rose by 41 per cent to €5 billion, was up by 60 per cent in the UK, and by 59 per cent for its international division.

The bank also reported a robust capital base with transitional common equity tier 1 ratio of 15.9 per cent and a fully loaded CET1 ratio of 13 per cent, comfortably ahead of minimum regulatory requirements.

AIB’s average net interest margin for last year, a key measure of profitability, was 1.97 per cent, up from 1.69 per cent in 2014. This was due to lower funding costs and stable asset yields.

Its NIM was 2.02 per cent at the close of 2015, above the psychologically important 2 per cent level.

Its operating expenses fell by 8 per cent and the bank’s cost-income level was 49 per cent, some four points lower than Bank of Ireland’s and below the 50 per cent target that it has set itself.

There was good news for taxpayers, too, with AIB saying it was “well positioned” to repay its €20.8 billion in bailout funds in full.

The first steps on this road were taken last year with a capital reorganisation in December. The bank repaid just under €1.7 billion to the State last year for its preference shares and will hand over an additional €1.8 billion in July when its contingent capital notes mature.

This would bring total payments to the State, including guarantee fees, to about €6.5 billion since the crash.

However, the general election result of last week and weak market sentiment for the financial sector has cast a doubt on whether the bank will be able to proceed with an IPO of 25 per cent of its stock later this year.