Wednesday 21 August 2019

AIB bad debts to fall by €1.6bn before year end

Bank may be forced to sell up to €700m of bad loans to meet EU target, writes Michael Cogley

AIB chief executive Colin Hunt. Photo: Collins
AIB chief executive Colin Hunt. Photo: Collins

Michael Cogley

State-owned AIB must reduce its non-performing loans by at least €1.6bn before the end of the year in order to reach European norms.

Banks are under increased pressure to reduce the level of non-performing loans on their balance sheet to 5pc by 2020. In a trading update last week, the bank stated that its ratio stands at 7.6pc.

The update followed the controversial sale of a €1bn non-performing loan book to US vulture fund Cerberus Capital.

The bank, which is headed up by chief executive Colin Hunt, is likely to engage in more sales before the end of the year worth up to €700m.

"AIB has reduced non-performing exposures from €31bn in 2013 to €4.8bn," a spokesman for the bank said.

"The vast majority of the reduction in non-performing loans has been achieved through working with customers.

"We remain focused on reducing non-performing loans to more normalised levels. Supporting customers in difficulty remains a key priority for AIB and, where feasible, we will continue to implement sustainable solutions for customers who engage with the bank on a case-by-case basis."

According to an analysis of the bank's loan book it will reduce around €900m of its non-performing loans through agreements with its customers over the next nine months, should it carry on at the same pace from the first quarter.

At the end of the 2018, AIB had €2.89bn worth of loans that were listed under the category "unlikely to pay".

In its trading update on Wednesday, Hunt said the bank had reduced its bad debts by 21pc in the first three months of the year, predominantly through the loan sale to Cerberus.

"Asset quality continued to improve with significant reduction in non-performing exposures putting us firmly on track to reach the milestone of around 5pc by end 2019," Hunt said.

AIB rival Bank of Ireland has also set about dramatically reducing its exposure to bad debts.

The bank had consistently ruled out any loan book sales until CEO Francesca McDonagh switched her stance last July.

At the time she said that the bank's view on loan sales had to change "because the regulatory environment has changed" and stated that it was open to all options in relation to a reduction of bad debts.

The Sunday Independent reported in March that the bank had earmarked up to €800m worth of loans for sale or securitisation.

In April, the bank entered into a securitisation of a portfolio for non-performing loans attached to buy-to-let investment properties with a value of €377m.

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