AIB negative-rate deposits set to quadruple to €16bn

Customer savings jump by more than €10bn to €82bn

AIB said on Friday that it made a loss after tax of €741 million last year but expects to return to profit in 2021. Photograph: Aidan Crawley/Bloomberg via Getty Images

AIB said on Friday that it made a loss after tax of €741 million last year but expects to return to profit in 2021. Photograph: Aidan Crawley/Bloomberg via Getty Images


AIB executives signalled on Friday that the volume of deposits that will be subjected to negative interest rates will quadruple this year to €16 billion as it lowers the savings threshold at which the charge applies to €1 million.

The move comes as AIB disclosed in its annual report that its customer deposits jumped by more than €10 billion last year to €82 billion, as households and businesses set aside precautionary savings during Covid-19.

Individuals also struggled to find places to spend their money amid pandemic restrictions, chief executive Colin Hunt told analysts on a call.


The surge means that for every €69 the bank has out on loan to borrowers, it has €100 on deposit.

The European Central Bank is currently charging banks a rate of minus 0.5 per cent for excess deposits placed with the institution under a negative-rates policy, dating back to 2014, which is designed to push banks to lend more to boost economic activity and inflation across the euro zone, with limited success.

The Irish Times reported last October that AIB was preparing to lower the threshold at which negative rates apply form €3 million to €1 million, affecting businesses and high net worth individuals. Mr Hunt said that the change will take place in the next six months, though charities will be exempt.

AIB swung into a pre-tax loss of €931 million last year from a profit of €499 million in 2019, as it set as it took a €1.46 billion charge to absorb an expected spike in problem loans a result of the Covid-19 crisis.

The lender also confirmed that it is in talks with Irish Life’s Canadian parent, Great-West Lifeco, about setting up a life and pensions joint venture, fresh from having announced a deal this week to repurchase Goodbody Stockbrokers for €138 million.

The bank is also in talks to acquire €4 billion of business loans from Ulster Bank, after the UK-owned company announced last month that it is exiting the market.


“In terms of economic outlook, the return to lockdown at the start of 2021 has delayed the recovery. However, the conclusion of an EU-UK Free Trade Agreement and the approval and roll-out of Covid-19 vaccines were two positive developments in late 2020,” the company said in its annual earnings statement.

“While it will be the second half of 2021 before the vaccines become widely available, it does provide the foundation for a strong sustained recovery as the year progresses.”

The bank forecast that it will return to profit this year and resume normal dividends next year. Though chief financial officer Donal Galvin also said that the bank would also look at share buybacks. The State continues to own 71 per cent of the bank.

AIB’s retail banking unit offered 66,000 payment breaks to customers during the height of the Covid-19 crisis last year, with 88 per cent of these having returned to normal payments, it said.

The loan provisions figure of €1.46 billion was in line with the group’s forecast range of between €1.4 billion and €1.5 billion.

Total income slid by 12 per cent last year to €2.4 billion as its net loan book shrank as borrowers paid back loans at a faster rate than taking on fresh debt and business that would ordinarily generate fees also declined. Net loans dropped by 6 per cent to €57 billion.


The bank has also put its UK small- to medium-sized business (SME) loan book on the market, having issued a ‘teaser’ document to potential acquirers this week. Mr Hunt flagged in December that AIB was exiting the UK SME market as he unveiled a strategy update.

The bank is currently seeking to eliminate 1,500 net jobs over the coming years and is engaged with the Financial Services Union on the matter, which was announced last year.

The cost-cutting measures and flurry of planned acquisitions are designed to ensure Mr Hunt reaches his key financial goal of having a return on tangible equity (RoTE) - a key measure of profitability relative to shareholders’ equity - of more than 8 per cent by 2023, almost double the level of 2019, before Covid-19 struck.

Mr Hunt said that the bank is “done in terms of very large scale” mergers and acquisitions, but will continue to keep an eye out for “small opportunistic” deals.