AIB looking to slash its bad loan exposure by up to €3bn

Bank’s main focus is getting non-performing loan to ‘sustainable and appropriate level’

In terms of Brexit context lending, AIB chief executive Colin Hunt  says the bank is “responding to customer demand”.

In terms of Brexit context lending, AIB chief executive Colin Hunt says the bank is “responding to customer demand”.

 

AIB expects to reduce its non-performing loan exposure by between €2 billion and €3 billion by the end of this year, the company told an Oireachtas committee on Thursday.

The bank’s recently installed chief executive, Colin Hunt, told the committee the bank’s “overriding ambition” is to get its non-performing loan exposures down to a “sustainable and appropriate level”. By the end of 2019, he expects that to drop to about 5 per cent.

Such a drop, from the bank’s current rate in excess of 8 per cent, would correspond to a fall of “in the order of” up to €3 billion, according to Mr Hunt.

While it’s unclear whether the bank intends to sell loans corresponding to private dwelling houses, chief customer and strategic affairs officer Jim O’Keeffe said: “Our key message is that we want engagement because we have solutions. We’re working through the wider portfolio of assets we have so we could allow mortgage-to-rent or charity loan sales to take place”.

The Irish Times reported last week that AIB was considering the sale of a final batch of problem loans later this year, after it announced a deal to sell €1 billion of non-performing loan against 5,000 assets, mainly made up of investment properties, to a group led by US distressed debt giant Cerberus. . The original value of the loans is believed to be almost €3 billion.

Buy-to-lets

With the exception of one loan sale, AIB has primarily sold buy-to-let mortgages.

The appearance before the Oireachtas Joint Committee on Finance, Public Expenditure and Reform was Mr Hunt’s first since he took over the chief executive role towards the beginning of March.

Extensive questioning was focused on the bank’s response to the ongoing tracker mortgage investigation conducted by the Central Bank of Ireland. Mr Hunt said the tracker issue is a “stain on the reputation of AIB and other Irish banks”.

“As chief executive, I want us to draw a line under this affair once we have concluded the examination and the enforcement to the satisfaction of the Central Bank,” he added in response to questions from Fianna Fáil finance spokesman Michael McGrath.

Mr Hunt noted it was “likely” the institution would be levied with a fine from the Central Bank.

Earlier this week, the bank reduced some mortgage rates and introduced new products including a fixed-rate product.

Fixed-rate offering

“It is clear that a number of customers, both current and potential, are interested in having more fixed-rate offerings. The action we took was simply a move to enhance the quality and range of our products in order to ensure we continue to be an attractive well-placed provider of mortgages to our customers,” Mr Hunt said.

Asked whether mortgage rates would reduce, Mr Hunt said the bank doesn’t comment on future moves in mortgage rates, but said that a resolution to the non-performing exposure issue could “open the possibility of the mortgage margins across all lending being lower than they currently are”.

On the topic of the bank’s business lending in light of Brexit, Mr Hunt said the bank was “responding to customer demand”.

“If they’re [businesses] not demanding funds from us then we’re not going to be supplying into the market.

“We’re looking to become ever more customer-focused but it is a simple truth that Brexit has had an extraordinary impact on business confidence,” he said.