AIB returns to profitability as loan draw-downs jump 60%

AIB said today it returned to profitability in the first quarter of 2014 on foot continued income growth and further cost reductions.

In an interim management statement, the State-owned bank said it had seen a significant reduction in impairment charges, while its overall stock of impaired loans was also reducing.

Lending draw-downs during the period were €1.1 billion, which was 60 per cent bigger than last year.

The bank did not disclose its first-quarter operating profit, but said performance was moderately ahead of expectations both in terms of income generation and provisions. It is due to publish a profit figure for the six months ending June. The bank said profit was driven by a significant reduction in impairment charges, without elaborating.

Its net interest margin - an important measure for a bank that reflects the difference in the rates at which it lends to borrowers and pays out to depositors - was 1.57 per cent in the first quarter, excluding fees it pays the government for a deposit guarantee scheme, compared with 1.37 per cent three months earlier.

AIB still trails Bank of Ireland, which reported a net interest margin of 2.05 percent in the first quarter.

“AIB had said they hoped to be back in profitability at some stage during 2014, but most people had assumed that would be H2 or Q4 and now they are saying they achieved that in Q1,” said Ciaran Callaghan, an analyst at Merrion Stockbrokers. “I think it represents an important milestone in the bank’s recovery,” he said.

"Our operating performance is trending positively and notwithstanding the challenges that lie ahead, I believe the bank will continue to deliver against our strategic objectives," chief executive David Duffy said.

“The bank expects that discussions with the State regarding simplification of the bank’s capital structure will continue into H2 2014. We remain focused on supporting Irish economic recovery, continuing to build profitability and ultimately returning capital to the State.”

It cost taxpayers more than €20 billion to bail out AIB, the most given to any lender during the debt crisis.

The bank has shut branches and is cutting almost a fifth of its staff in an effort to return to profit during this year.

AIB said a number of once-off items would also boost its half-year profitability, including the disposal of assets and the receipt of a coupon from Nama subordinated debt. An assessment of how to simplify its capital structure should be completed in the second half of the year, it said.

The lender said economic and trading conditions had improved in Ireland and Britain, its two main markets.

The Irish economy had continued its steady recovery with a reduced budget deficit, an improving labour market and year-on-year house price increases, it said.

In addition, the UK economy has posted five consecutive quarters of GDP growth.

“AIB had said they hoped to be back in profitability at some stage during 2014, but most people had assumed that would be H2 or Q4 and now they are saying they achieved that in Q1,” said Ciaran Callaghan, an analyst at Merrion Stockbrokers. “I think it represents an important milestone in the bank’s recovery,” he said.

Additional by Reuters