Business Irish

Tuesday 30 May 2017

Value of land offered as security is down by 50pc, AIB admits

Bank questioned about its credit practices by SEC watchdog

AIB: questioned about its credit practices by SEC watchdog Photo: Getty Images
AIB: questioned about its credit practices by SEC watchdog Photo: Getty Images

Emmet Oliver Deputy Business Editor

AIB, the country's second largest bank by value, has admitted that rural land offered up by its borrowers as collateral has "typically'' come down in value by at least 50pc.

In response to questions from the US watchdog, the SEC, the bank says development land is between 20pc and 50pc off original valuations.

The bank has been answering questions from the US regulator over the last few months about its credit practices.

Land in urban areas is between 20pc and 50pc off its original value, according to the bank, with investment properties down by the same amount.

The bank has told the watchdog, in letters released this week, that the discount to original value depends on the type of land involved.

Unserviced

"Unserviced land in rural areas will most likely suffer a greater reduction in value if purchased at the height of a property boom than a fully let investment property with strong lessees,'' the bank says in a letter to the SEC (Securities and Exchange Commission).

AIB has told the watchdog that discounts can be significantly more than 50pc below the original value when the land is in a poor location or has delayed planning status.

The bank makes it clear that write-downs in collateral are not the same as write-downs in loans, which involve equity put in originally by the developer or land owner.

It says discounts are arrived at after applying several different methods, including local market knowledge.

Regulator

The US regulator, the world's most powerful, also asked AIB about how long it takes to get value when collateral is taken by the bank. The institution has replied that this can take up to five years. "Depending on the type of security and stage of development, it has been estimated that it may take in excess of two years and up to five years before AIB receives funds from the sale of assets.''

lMeanwhile, AIB has hugely increased its holdings of Irish government bonds according to a 20-F annual report submitted yesterday to the SEC.

This report shows that the bank has increased its Irish bonds with maturities of between one and five years from just €500m in 2008 to €1.8bn last year.

The amount of bonds with maturities over five years also increased, from €363m to €1.7bn. The bonds are held, along with US Treasuries and euro government bonds, in the bank's available for sale assets portfolio.

Irish Independent

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