AIB returns to profitability as impairment charges fall

AIB returned to profit in the first half of the year after its bad debts on loans fell sharply, marking a major milestone as it moves towards repaying a State bailout next year.

The State-owned bank made a pre-tax profit of €437 million compared with an €838 million loss a year ago.

AIB posted a first-half profit in 2011 but only after it imposed losses on junior debtors and sold foreign units. It was last in the black prior to that in 2008 before a banking crisis pushed Ireland into an EU-IMF bailout it completed last year.

The bank flagged its return to profitability in a trading update in May, saying it was driven by a significant reduction in impairment charges.

Provisions for soured loans fell to €92 million from €738 million in the first half of 2013.

AIB said the total number of arrears fell by 6 per cent in the period.

The bank’s proportion of owner-occupiers in arrears for more than 90 days stood at 10.5 per cent at the end of June, while 25.7 per cent of all buy-to-let mortgage holders were behind on payments.

AIB said operating income jumped by 36 per cent to €1.24 billion for the six month period, while operating costs dropped 9 per cent to €686 million.

This was, in part, achieved by a 10 per cent reduction in staffing levels.

Minister for Finance Michael Noonan hailed the return to profitability by AIB as good news for the Irish taxpayer.

“A profitable bank is a more valuable bank, which will, over time allow the State to maximise the return on its investment in the bank.”

The State, via the National Pensions Reserve Fund Commission, holds a 99.8 per cent stake in the lender.

“The Government will continue to examine all opportunities to ensure a favourable outcome for the taxpayer. But we will be prudent to ensure the taxpayer yields the full benefit of this return to profitability,” Mr Noonan said.

AIB’s core tier one capital ratio, a measure of financial strength, was 16.1 per cent at the end of June, and 10.5 per cent complying with Basel III rules. Its net interest margin - gauging the profitability of its lending - rose to 1.60 per cent.

AIB, which announced a review of its capital structure earlier this year to prepare the bank for sale in 2015, said it expected to remain profitable for 2014 but challenges remained including a still shrinking net loan book.

Reuters