Picture on bad loans will not become clear for another 12 months

Cautious AIB starts releasing number of bad-loan provisions, freeing up €103m

Even at the height of Covid-19 uncertainty a year ago, AIB's decision to set aside an interim €1.2 billion to cover potential loan losses resulting from the coronavirus crisis looked, to analysts, to be on the cautious side. And its full-year charge of €1.45 billion would leave it among the most pessimistic banks across Europe, relative to its balance sheet size.

It’s of little surprise, therefore, that the bank revealed on Wednesday that it has started releasing some of these provisions, freeing up €103 million.

The economy is in much better shape than once feared, even if Covid-19 restrictions, while easing in recent months, have gone on way longer than expected.

Provision write-backs have been playing out across banks internationally amid the recent earnings season, as government and central bank supports for households and businesses and vaccine rollouts have done the job of stemming the fallout from the crisis.

But while Bank of Ireland’s impairment charge came to just €1 million for the first half, compared to €1.1 billion for the whole of 2020, and Permanent TSB’s declined to €3 million from €155 million, neither has followed AIB’s lead, even if they are way more optimistic than a year ago.

Fortunately, the Government’s various Covid-19 supports, especially the pandemic unemployment payments and wage subsidies, have done the trick in keeping non-performing loans in check, for now. But there will inevitably be a spike in defaults as stimulus is tapered.

AIB chief executive Colin Hunt refused to be drawn when asked by The Irish Times on Wednesday if he would be releasing more provisions in the second half of the year. "It's way, way too early to speculate. Let's wait and see how the economy and the vaccination programme go, whether we have further variants, and what the credit experience is like as the economy reopens," he said.

According to Hunt, it could be well into 2022 before we have a proper insight into how bad the non-performing loans situation will get.