A strong performance from its capital markets and retail banking divisions offset a drop in profits in Poland and the US to allow AIB report a 7 per cent increase in first-half pre-tax profits to €542 million (£427 million).
The figures were affected by a once-off securities gain of €32 million in its US operations in the first half of 1998. If this is excluded, pre-tax profits were 13 per cent ahead of the corresponding period last year. The bank also said it had entered "uncharted" territory in the first half, with membership of the euro forcing it to confront falling margins because of lower interest rates and the loss of a large portion of its foreign exchange income, worth an estimated €25 million in a full year.
"Our pre-tax growth was most encouraging in the new order," said chief executive, Mr Tom Mulcahy.
Contrary to market expectations, the capital markets division proved the strongest performer, delivering profit growth of 26 per cent. The bank reported good loan growth in its corporate banking business, boosting fee income, while its treasury division also delivered a strong performance.
AIB Bank, the retail banking division which includes the branch operations in the Republic, Northern Ireland and Britain as well as Ark Life and AIB Finance & Leasing, posted a 16 per cent increase in profits to €269 million.
Although the bank suffered further margin erosion - the group's net interest margin was down 25 basis points (0.25 of a percentage point) to 3.27 per cent - this was more than offset by volume growth with overall lending up 10 per cent and deposits rising by 2 per cent.
The Republic remained buoyant with lending up 15 per cent and profits up 16 per cent. First Trust Bank in the North reported a 7 per cent rise in profits, while profits in Britain were up by 25 per cent, boosted by the small and medium-sized business sector in particular.
The bank also said sales of investment products were buoyant and profits at Ark Life, its life assurance subsidiary, were up by 34 per cent.
However, the company's overseas divisions did not perform as strongly. Profits from the US division were down 24 per cent, partly reflecting the impact of last year's securities gain and partly due to difficulties with a maritime portfolio which the bank says is stabilising.
Poland, where the group acquired an 80 per cent stake in Bank Zachodni in the first half, also reported a 13 per cent drop in profits as margin pressure and a 28 per cent increase in costs due to investment offset loan growth of 18 per cent and a strong rise in non-interest income.
Overall, the bank's total income rose by 2.2 per cent to €1.33 billion. Net interest income was up by 4.7 per cent to €843 million while other income, from fees and commissions, slipped by 2.2 per cent to €488 million although this was distorted by last year's US securities gains.
Group finance director Mr Gary Kennedy said the bank's objective was to increase its ratio of other income to total income to 40 per cent. At the end of the half year it stood at 36.7 per cent and it was making steady progress in the right direction.
AIB also said its asset quality remained strong, with non-performing loans down to just 1.2 per cent of total loans from 1.5 per cent. It also pointed out that the average loan-to-value ratio on its new mortgage business was just 52 per cent. "If that isn't conservative, I don't know what is," Mr Mulcahy said.
The group's provision for bad and doubtful debts was also down, to €35 million from €57 million, while AIB said it had been successful in containing costs.
Operating expenses rose by 4 per cent to €759 million while the group's cost/income ratio was 57 per cent, down from 57.5 per cent on a like-for-like basis.
Earnings per share were up by 10 per cent and the bank announced a 15 per cent increase in its interim dividend to 11.85 cents per share.
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