Profits fall 23% at AIB's Bulgarian arm

Bulgarian commercial lender Bulgarian American Credit Bank (BACB), in which AIB has a 49.99 per cent stake, has reported net profit of €12.1 million for the six months to the end of June.

This is a fall of 23.4 per cent compared with the equivalent period in 2008 when consolidated net profits were €15.8 million, reflecting higher impairment provisions and lower fee and commission income.

A deterioration in loan quality has seen the bank increase its impairment provisions to €5.3 million and said during the first half of the year loans in arrears over 90 days had increased from 5.8 per cent to 9.4 per cent.

Total assets at the end of June were €404 million, down from €398 million in June 2008 and its
loan book grew 1.1 per cent to €349.7 million during the first half.

The bank said it was operating efficiently despite a one percentage point increase in its cost to income ratio to 14.9 per cent.

BACB reported an annualised return on average equity of 23.8 per cent, down from 38.3 per cent in June last year.

AIB purchased its stake for €216 million in cash in February last year as part of its expansion into Europe.

It was set up in 1991 as part of an initiative by the US Congress to encourage investment in Bulgaria and listed in 2006.

BACB said negative the global economic developments had continued to affect the Bulgarian economy during the second quarter "resulting in a visible impact on the bank's clients".

Earlier this month Standard and Poor's lowered BACB's long term credit rating to BB- from BB+, reflecting the increased economic risks to the Bulgarian economy.

BACB said if loan quality continues to deteriorate it will be forced to increase its provisions for impairments.

The bank said was reliant on wholesale funding and has experienced rising costs in this area due to a lack of liquidity. In this context the bank said it is looking to broaden its sources of funding.