AIB has raised its full-year operating income forecast, in part on the back of expected interest rate increases over the next five months as central banks grapple with inflation stoked by the conflict in the Middle East.
The bank said on Thursday it expected net interest income to exceed €3.8 billion this year, having previously estimated it would come in around that level, up from last year’s €3.75 billion.
It sees both the European Central Bank (ECB), which increased its key rates by a quarter of a percentage point in June, and the Bank of England raising rates once before the end of the year.
Other income is now projected to reach €800 million, up from a previous forecast of €750 million.
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Income under this heading increased 15 per cent in the first half of the year, driven by gains on the sale of loans and investment securities disposals and equity investments, even as net fee and commission income decreased.
Net profit edged up to €939 million in the first half from €927 million a year earlier, driven by other income as net interest income dipped almost 4 per cent.
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New lending rose 10 per cent to €7.5 billion, while gross loans increased by 3 per cent to €74.5 billion.
AIB set aside €91 million to cover potential bad loan losses, up slightly from an €85 million charge taken in the same period last year.
Chief executive Colin Hunt said the group’s strong first-half performance “reflected the resilience of the Irish economy” and the bank’s diversified business model, even as economists have lowered global growth forecasts this year amid heightened geopolitical uncertainty and resurging inflation.
“While elements of the external environment remain uncertain, our strong balance sheet and disciplined strategic execution position us well to support our customers, communities and the Irish economy for the second half of the year and beyond,” he said.
AIB said it was increasing its interim dividend by almost 60 per cent to 19.53 cents per share, or €406 million in total.
Customer deposits rose 1.3 per cent to €118.8 billion in the first half, and are forecast by the bank to increase about 3 per cent for the year as a whole, even though Hunt acknowledged on a call with analysts that the domestic banks are facing more competition in the market.
“While [first-half] net interest income is marginally behind expectations, this is more than offset by gains in other income as earnings beat forecasts,” said Davy analyst, Diarmaid Sheridan. “Importantly, business activity and volumes on both lending and deposits increased – indicating little, if any, impact from competition.”
Citigroup analysts said in a note that they see consensus expectations moving higher for AIB’s net interest income for the next few years.
AIB’s chief financial officer, Donal Galvin, announced in May that he is leaving the bank to pursue other career opportunities. It comes at a time when the group is drawing up a fresh medium-term strategy, out to 2030, which will be unveiled early next year.
“Rest assured, this is a management that has been consistently ambitious in our strategy and conservative in our execution,” said Hunt.
AIB’s workforce fell by 2 per cent to 10,144 in the 12 months through June, driven by employees retiring or moving to other companies.
Hunt said the bank has moved beyond exploring and testing the possibilities of artificial intelligence (AI) to now be “very much into the implementation phase”, including in areas such as cyber defence and fraud prevention.
He said that 70 per cent of customers going through AIB’s call centre are now triaged by Abi, the bank’s AI conversational assistant, with 60 per cent fully handled by the digital system.
