AIB seeks to draw line under whistleblower allegation

AIB has sought to draw a line under a whistleblower allegation last month that it has overplayed progress on resolving soured loans, as the bank prepares to repay a further € 1.6 billion of its bailout.

“When we hear things like that, we look, we check,” AIB chief executive Bernard Byrne told reporters after the bank’s annual general meeting in Dublin. “As far as we can see, there is nothing to see.”

Earlier, the bank’s chairman Richard Pym said the bank’s management “comprehensively reviewed” its reporting on non-performing loans and provisions, after it emerged last month that an anonymous whistleblower alleged to regulators that AIB had dressed up progress on distressed loans to flatter its performance.

“We are entirely satisfied that the accounts are accurate,” Mr Pym said.

In a trading update published before the AGM, the bank said its profitability remained “strong” in the first quarter as its level of bad loans fell, paving the way for it to repay a further €1.6 billion to taxpayers in July.

Impaired loans at the state-owned bank fell by €1 billion to €12 billion during the three months and marking a 59 per cent reduction from their peak in 2013, the bank said in a trading update.

The bank released €109 million of provisions previously set aside for impaired loans, it said.

The bank's net interest margin, the difference between the average rates at which it funds itself and lends on to customers, rose to 2.09 per cent from 1.97 per cent in the full year to December. The margin is expected to continue to expand this year even after its recently-announced mortgage rate cut, it said, as its funding costs fall and the National Asset Management Agency continues to redeem low-yielding senior bonds it used to pay banks for toxic commercial property assets during the crisis.

Mr Byrne said the state-owned bank isn’t being coerced by Finance Minister Michael Noonan or political forces to lower rates. Last week, the government decided not to challenge a Fianna Fail Private Members bill that would give the Central Bank the power to regulate rates.

“We can’t operate the bank at the whim of an ownership construct that is politically influenced, because that would destroy our ability to raise capital,” Mr Byrne said.

He said while there has been much media and political commentary on the difference in headline mortgage rates for new Irish and European home loans, the yield on overall domestic mortgage is 2.7 percentage points, compared to a European average of 2.64 points.

The difference is that the Irish market isn’t as heavily characterised by attractive “teaser rates” as elsewhere, Mr Byrne said. These low rates are typically offset by fees in other markets, he said.

Meanwhile, AIB’s common equity Tier 1 capital ratio, a keenly followed gauge of its ability to withstand shock losses that fully reflects incoming banking rules, rose to 13.1 per cent from 13 per cent at the end of December.

“In overall terms, this represents another positive statement from AIB with strong capital generation in the quarter,” said Investec analysts John Cronin and Cian Harty in a note.

AIB’s planned redemption in July of €1.6 billion of contingent convertible bonds the bank sold to the State at the height of the financial crisis will bring to € 6.5 billion of cash it has paid to taxpayers to date. The total payment includes capital, interest, banking guarantee fees, coupons and levies the bank has paid the government since its initial bailout in 2009.

AIB, which received a € 20.8 billion taxpayer bailout during the financial crisis, has only repaid about € 1.7 billion of capital to date, when it repurchased some of the State’s preference shares in the bank in December.

The bank said its level of mortgage arrears fell by 4 per cent in the first quarter, bringing the cumulative decline for problem owner-occupier mortgage accounts to 29 per cent since December 2014. Buy-to-let arrears have fallen by 27 per cent over the same period.

New lending drawdowns rose by 17 per cent in the reporting quarter on the same period last year, amid “strong activity” across corporate, small business and personal lending sectors, it said. However, it said that mortgage market constraints are expected to curtail growth in the overall home loans market this year.

AIB warned that regulatory costs and levies are expected to increase this year, while its trading income has been “negatively impacted by market volatility from macro events and Brexit fears, which has led to reduced client activity.”