AIB plans to deal quickly with €8.6bn bad loans problem

AIB will tell potential investors that its €8.6 billion bad loans problem will be mostly fixed within three years, as it prepares to float on the Dublin and London stock markets within the next month.

The bank’s move to decisively tackle its trickier cases may include the sale of some loans to overseas buyers of distressed debt and companies seeking to take part in the State’s expanded “mortgage-to-rent” scheme, executives at the bank signalled on Wednesday.

It may also result in a greater level of repossessions against borrowers who refuse to engage with the bank.

The Government decided on Tuesday evening to press ahead with the long-awaited sale of an initial 25 per cent stake in AIB, which it rescued during the financial crisis at a cost of €20.8 billion to the State. The share sale, which may raise up to €3 billion, is expected to conclude in the next four weeks.

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AIB chief executive Bernard Byrne said his team's main focus would be on demonstrating to would-be investors how the bank has turned itself around in a recovering economy since 2013, slashing its level of bad loans from €29 billion to €8.6 billion, shaving costs and convincing more customers to carry out transactions online.

"Today we think we are presenting a changed bank," Mr Byrne told reporters ahead of the investor charm offensive, which will be managed by a number of investment banks and brokerages, led by Deutsche Bank, Bank of America Merrill Lynch and Davy.

AIB is planning to reduce its remaining level of bad loans by a further €6 billion to €7 billion over the next two to three years, the bank's chief financial officer, Mark Bourke, said.

AIB had 30,000 restructured home loans on its books in the Republic at the end of December. These include cases where borrowers have been on interest-only payments or had their loans split in two, with repayments on a portion of the debt postponed to a future date. The bank has also been writing off unsustainable debt in recent years.

However, executives at the bank told an Oireachtas committee in November that it had taken legal action at that stage against almost 7,000 of 13,000 borrowers who were more than 90 days behind in repayments.

They said that their main problem was with borrowers who refused to engage with them. Repossession accounted for 1 per cent of restructured cases.

Mr Byrne told The Irish Times that one-fifth of the borrowers that the bank was pursuing a legal case against a year ago have subsequently sought to do a deal with them.

“As the economy is improving, there are customers who are continuing to re-engage,” he said.

The pick-up also comes against the backdrop of AIB beginning a year ago to actively consider selling some of its most problematic loans. In April, the bank took the first step by selling a large portfolio of non-performing buy-to-let loans to Goldman Sachs. The loans to 1,200 borrowers, which were originally valued at €400 million, were sold for €200 million.

While Mr Byrne said the bank’s preferred approach continues to be to work with borrowers, the Goldman Sachs deal shows that selling troubled batches of loans is an option. The bank is also known to be in talks with firms seeking to buy problem loans under the Government’s recently-expanded mortgage-to-rent scheme, which is designed to help homeowners who are at risk of losing their property.