AIB warns about Brexit trade talk risks in bond document

UK’s withdrawal from the EU may also have an impact on labour market conditions in Ireland

About 10 per cent of AIB’s balance sheet is exposed to the UK. Photograph: Cathal McNaughton/Reuters

About 10 per cent of AIB’s balance sheet is exposed to the UK. Photograph: Cathal McNaughton/Reuters

 

AIB has warned in a bond document on how differing starting positions of the UK and EU, ahead of Brexit trade talks next year, place a risk over a deal being reached, with knock-on consequences for the Irish economy and labour market.

“The trade talks will determine the long-term economic impact of Brexit. There have been indications that the Conservative Party intends on establishing its own regulatory and customs regime. However, the EU has emphasised that guaranteeing and enforcing ‘common rules’ will be a crucial part of any deal in order to protect the EU’s single market,” AIB said in the document.

“These differences are likely to create difficulties in the trade talks. As a result, there is a risk that the UK and the EU will not be able to conclude a trade deal prior to the end of the transition period.”

The UK is on course to leave the EU at the end of January, with a transition period set to run until the end of 2020, when a trade deal is slated to be agreed. About 10 per cent of AIB’s balance sheet is exposed to the UK, leaving it exposed to a hard Brexit.

The document, covering its AIB Mortgage Bank unit’s €20 billion bond programme, said that the prospect of the UK falling back to trade with the EU on World Trade Organisation rules and tariffs from the start of 2021, after the Brexit transition phase expires, may have a disproportionate effect on Irish industries, such as agriculture and tourism, that have strong links to the UK.

Persistent uncertainty on Brexit, could cause companies to delay investment, hitting the economy, and potentially leading to an increase in mortgage defaults. Volatile exchange rates could also affect AIB’s operations, it said.

“The UK’s withdrawal from the EU may also have an impact on labour market conditions in Ireland, ” AIB said in the prospectus. “Depending on the nature of the agreement reached between the UK and the EU on migration and immigration (if any), the UK’s exit from the EU could also result in restrictions on the mobility, and availability, of skilled personnel which could create difficulties for the group in the recruitment and retention of suitably qualified employees, both in the UK and Ireland.”