AIB won’t return to ‘old days’ of 100% developer loans

Irish bank preparing social housing loan scheme to fund the purchase of 150 homes

AIB chief executive Bernard Byrne. Photograph: Dara Mac Dónaill

AIB chief executive Bernard Byrne. Photograph: Dara Mac Dónaill

 

AIB’s chief executive Bernard Byrne will tell the Oireachtas finance committee on Tuesday that there will be “no return” to the “old days” of 100 per cent speculative funding for Irish property developers.

“However, prudence does not mean inaction,” he will tell the committee in what will be the latest of its series of meetings with Irish lenders.

Mr Byrne will also tell the Oireachtas members that AIB is finalising a social housing loan to an approved housing body that would facilitate the purchase of more than 150 homes. “This is a model that we believe can be extended,” his opening statement sent to the committee says.

In terms of funding options for developers, Mr Byrne has said developers do not have difficulties accessing senior debt, which is generally available at a 60 to 65 per cent loan-to-cost ratio from a number of lenders in the Irish market, including AIB.

The problem, he will add, is bridging the funding gap and the consequent cost and availability of equity. “Another clear constraint is the availability of funding for the acquisition and refinancing of zoned land that doesn’t carry planning permission.”

The committee will hear that AIB has doubled the size of its land and development, and homes teams over the course of the year. It is also widening its lending approach to include small and medium-sized developers and is “continuing to develop funding options with various third-party equity partners”.

Affordable housing

On affordable housing, Mr Byrne will say that AIB has funded phase one of a scheme in Ballymun and is now seeking to finance the second phase.

It has also provided some 280 vacant properties to the Housing Agency.

In total AIB is targeting 30-40 per cent of the “addressable” developer debt market in Ireland.

Mr Byrne will also remind the committee that AIB achieved residential mortgage drawdowns of more than €1 billion in the first half of the year, an increase of 41 per cent on the same period in 2016. “We will continue to grow the business notwithstanding the current issue of housing supply.”

On the tracker mortgage redress programme, AIB has paid redress and compensation to about 2,900 customers accounts to date. Mr Byrne said this work would continue into 2018.

The business of Brexit

In terms of Brexit, AIB has appointed 21 advisers to support its business customers in dealing with the “challenges and opportunities” that will arise from the UK’s exit from the European Union.

He expects AIB to increase its support of “under-hedged SMEs trading with the UK and assist them in finding new markets outside” Britain.

Mr Byrne also expects increased merger and acquisitions activity by Irish SMEs seeking to purchase businesses and/or set up in the UK.

And he sees opportunities for AIB to assist UK companies relocating operations here to retain a presence in the EU, and multinational investors seeking to use Ireland as its bridge to Europe.

The AIB chief has also confirmed that a new holding company will be established by the bank later this year as required by regulators as part of the resolution framework for euro zone lenders.

The new entity will hold equity held by shareholders and will issue bonds that can be bailed in should a future resolution of AIB be required. This new framework is designed to protect taxpayers and depositors in the event of another major shock to the financial system.