MR TOM Mulcahy, AIB's group chief executive, has three stated strategies - raising business volumes, controlling costs and reducing bad debts.
So far this year he has managed two out of three, and that's not bad. The bank achieved solid lending growth in almost all markets, with cars and houses particularly buoyant. Non performing loans also fell, although bad debt provision remained static. Costs, however, increased in all three divisions, although the cost to income ratio did fall slightly.
Despite intense competition for loans and deposits, AIB's profit margins only eroded slightly. Net interest margins - the profit on lending less the cost of funds - has been declining since 1993. It now looks as if it may be bottoming out.
The bank is also well placed to make an acquisition. Mr Mulcahy said it was actively looking in the US, although there was nothing to report yet. The bank can afford to pay up to $500 million, according to Mr Kevin Kelly, group general manager. With a tier one capital adequacy ratio of 8.1 per cent and a total capital adequacy ratio of 10.5 per cent it is certainly sufficiently well capitalised to make an acquisition.
It can also look to continental Europe for expansion. The bank also has the ability to increase its holding in Polish bank WBK to 60 per cent by the year 2000. And with twinning agreements with several other banks across central and eastern Europe, another partnership was possible.
It is also not out of the question, of course, that AIB could become an acquisition target in the years ahead. The ESRI warned last week that major British banks could find it attractive, particularly if sterling didn't join the single currency.
According to Mr Mulcahy, this was always a possibility and at the end of the day the decision to accept would rest with the shareholders and the Central Bank. "We have no poison pills," he said.
With economic growth continuing apace, loan growth should continue to be strong in the second half of this year. But Mr Mulcahy said he expected a slight slowdown in the housing market over the next six months. A possible pick up in interest rates was also possible, he said.
Ark Life, AIB's Irish life assurance division and the recently acquired British fund manager, John Govett, also contributed significantly to AIB's profits.
The introduction of new savings products as well as strong growth in tracker bonds meant an exceptional start for the year for Ark Life. Govett boosted its funds under managements as it two top funds, the Oriental and the Strategic investment trust, topped their peer group.
Capital markets also had a very good year, although income figures were hit by the flattening of the interest rate yield curve. The inclusion of Govett, however, boosted the overall income figure form £70.2 million to £90.7 million.
But it is on cost control that Mr Mulcahy and his team would have to focus. The cost income ratio eased to 64.3 per cent from 65.7 per cent despite higher costs in all divisions, but it is still a distance from its target of 60 per cent.
Mr Mulcahy said the bank would be focusing on credit quality where it needed to be "vigilant". "At this stage of the economic cycle all the indicators are very positive," he said. "But we must avoid the sins of the past where at the end of the cycle we had too many bad debts."
He added that he was also concerned at the impact of the BSE crisis in the long term. The bank has a strong presence in the agricultural sector, stemming from its days as the Munster & Leinster Bank. He stressed the bank would work with any of its customers which were affected by the livestock crisis, although he stressed they were "few and far between" so far. Despite the crisis, overall agricultural lending was up in the first half.
The US division had a less spectacular first half. First Maryland Bancorp and AIB's New York retail operation both had declining margins. Loan demand was only up 3 per cent, even if the credit card securitisation was stripped out. On top of that the weak dollar meant lower profits in pound terms.
