AIB takes stake in Bulgarian bank for €216m

AIB has agreed to buy a 49.99 per cent stake in Bulgaria-American Credit Bank (BACB), a commercial lender, for €216 million in cash as part of its continued expansion into eastern Europe. Simon Carswell, Finance Correspondent, reports.

BACB provides loans to small and medium-sized enterprises in Bulgaria.

AIB is buying the stake from BACB's majority shareholder, the Bulgarian-American Enterprise Fund, a private company set up in 1991 as part of an initiative by the US Congress to encourage investment in the Bulgarian economy.

The bank has increased its lending substantially since it joined the European Union at the start of last year. It had a net income of €27 million in 2007, up 52 per cent on the previous year, as lending rose 56 per cent to €302 million.

The bank had total assets of €358 million at the end of the year.

Its return on equity was 39.7 per cent and the cost-to-income ratio was 15.5 per cent.

BACB was established in 1996 and listed on the Bulgarian Stock Exchange in 2006. Based in the Bulgarian capital Sofia, the bank has four offices in regional cities and its staff cover a further 15 cities.

AIB chief executive Eugene Sheehy said: "This investment is part of AIB's strategy for central and eastern Europe, which involves acquiring and investing in businesses at reasonable valuations in targeted high growth markets, and which operate in areas where AIB has core expertise."

The deal follows AIB's acquisition of AmCredit, a mortgage business in Latvia, Lithuania and Estonian for €40 million last year.

Stoyan Dinchiiski, executive director of BACB, said: "This is very good news for the bank. Allied Irish will help develop and expand our bank with new markets and products."

AIB said the BACB deal would have a "marginal" increase on its organic growth and would have "a minimal capital impact".

Analysts said the acquisition would complement AIB's existing operations in Poland and the Baltic countries.

Stuart Draper, head of research at Dolmen Securities, said: "It is a nice bolt-on to the Polish business and in a high growth area, but it will not have particularly large earnings potential."

Goodbody analyst Eamonn Hughes said the acquisition implied a return on capital of 6.25 per cent, which is below the broker's cost of capital assumption for the group of 9.5 per cent. "But AIB is obviously looking to strong future long-term growth."

Bulgaria will be the eighth country in which AIB has subsidiaries.

It already has divisions in seven markets - Ireland, Britain, Poland, the US and the three Baltic states - and has offices in financial centres in France, Switzerland, Germany and Australia.

AIB made 43 per cent of its pretax profits in the Republic of Ireland in 2007, 30 per cent in Britain, 16 per cent in Poland through its 70.5 stake in Bank Zachodni WBK and 8 per cent through its 25 per cent stake in US bank M&T.

The remaining 3 per cent of the group's pretax profit came from the rest of the world.

AIB shares fell 0.6 per cent to €13.72, valuing the bank at €12.1 billion, while BACB dropped 0.2 per cent to 65.88 Bulgarian lev (€33.40) in Sofia.