AIB raises forecast on bad loans to €5.3bn
NAMA discount may top 30pc average
AIB: debt forecast raised. Photo: Bloomberg News
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Allied Irish Banks hinted yesterday that the discount it faces on loans bound for the State's 'bad bank' may be above the industry-wide average of 30pc, as the group hiked its bad-loan forecast for this year to €5.3bn.
The group said, in a trading update, that most of the €1bn increase on its full-year impairment charge forecast is related to the €24bn risky property portfolio heading to the National Asset Management Agency (NAMA).
AIB also confirmed yesterday that Colm Doherty, former head of its capital markets division, had taken over as group managing director with immediate effect. This follows a concession that he shave €133,000 off his salary expectations to be paid €500,000 -- in line with the pay cap on State-guaranteed lenders.
Analysts took huge comfort from the fact that AIB signalled that the quality of remaining loans in its loss-making Republic of Ireland division was stabilising.
Finance Minister Brian Lenihan told the Dail in mid-September that the country's lenders were expected to take an average 30pc writedown on around €77bn of loans being taken over by NAMA. Within hours of the statement, AIB said it expected its discount to be less than the average.
But the group said the "actual outcome can only be known following an extensive exercise in which those loans are individually valued on a case-by-case basis by NAMA". It added, however, that it believed its writedowns would not "fall significantly outside the minister's guidance of 30pc".
Analysts, on the whole, were not too phased by the increase in the full-year forecast for loan losses, with most concluding that AIB was looking to recognise as much of its NAMA-related 'haircut' as early as possible.
The new €5.3bn figure is in line with what Goodbody Stockbrokers had pencilled into its estimates, while NCB analyst Ciaran Callaghan said he would only have to increase his forecast slightly from €5bn.
"There is no material change other than timing to our assessment of the combined effect of NAMA writedowns and bad debt charges on our profit and capital," AIB said.
Shares in the bank rose 1.5pc yesterday to €1.77.
The group added that the pace of deterioration in the quality of the overall portfolio "is slowing". The group said the increase in 'criticised' loans -- which covers cases that are impaired, vulnerable or on watch -- would be "significantly less" in the second half of the year, compared with the first six months.
"Encouragingly, AIB's statement notes signs of stabilisation across all divisions and that the second-half charge will be lower for the capital markets division and central and eastern Europe, and broadly in line for the UK," said Davy analyst Stephen Lyons.
AIB said it expected to post operating profits in the region of €2bn for the full year. Bad loan charges are absorbed by a bank's trading profits before they eat into its capital reserves.
The group said that "weak demand for credit" was likely to result in year-end loans to customers being in line with last year, when it had €129m on loan.
It expects to provide about €2bn of new lending to small businesses, while it said it is providing one-in-three new mortgages in the country. First-time buyer drawdowns are up 28pc this year.
But tough competition for deposits means that AIB now sees its net interest margin falling 0.25 percentage points from 2.21pc in 2008. But by paying up for deposits, the group's loans-to-deposit ratio fell from 156pc in June to 152pc by the end of September.
This ratio will fall dramatically after NAMA takes over €24bn of the bank's loans.
- Joe Brennan
Irish Independent
