AIB cuts earnings forecasts as bad debts rise

AIB has almost halved its earnings per share forecasts for this year and has taken a €500 million charge in relation to its rising bad loans for property development.

Earnings per share (EPS) this year will be 66 cent, down from an estimate of €1.20 given in November, the bank said.

The worsening condition of many of the bank’s loans forced it to revise up its bad debt charge to 137 basis points, or 1.37 per cent of total loans, from earlier estimates of 0.75 per cent.

The bank said in a trading statement this afternoon “asset quality has further deteriorated" and “key trends have changed” since its market update in November.

“Consequently the bad-debt provision requirement has materially increased.”

As a result the bank has raised its bad debt provision to 1 per cent.

It has taken a bad debt charge of €500 million, or 0.37 per cent of total lending, on loans that are showing signs of stress, but are still performing. It said 75 per cent of these relate to its Irish property development loan book.

“Although not currently impaired, this portfolio is showing significant and growing signs of stress as a result of the adverse conditions at the end of 2008”, the bank said, adding it believed some of these loans would become impaired.

Following the charge, the bank's core Tier 1 ratio at the end of 2008 is estimated at 5.7 per cent. The €3.5 billion to be invested by the Government under the recapitalisation plan will see that ratio rise to 8.2 per cent, the bank said.

Shares in AIB Allied Irish were trading at 63.5 cent at 3.45pm, a gain of 0.8 per cent.

The bank is scheduled to publish its results for the year to December 31st on March 2nd.