Saturday 23 June 2018

AIB shares rise as margins improve and impaired loans fall

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Gretchenn Friemann

AIB' share price rose in early morning trading following the publication of the part-nationalised bank's full-year 2017 results, which showed improved margins along with a fall in non-performing exposures.

The lender notched up an annual profit before tax in 2017 of €1.6bn compared with €1.7bn the previous year and proposed a dividend that fell slightly below market expectations.

AIB’s profit before tax figures in 2016 were flattered by the once-off Visa Europe transaction. Chiefly because of this, along with exceptional charges of €268m, profit before tax from continuing operations slipped by 23pc last year to €1.3bn.

AIB bank has announced a 30pc increase in the pay-out to €326m, marginally lower than the €350m expected by some analysts.

However AIB’s net interest margin - a key measure of a bank’s health - rose by 35 basis points to 2.58pc.

Investec's Owen Callan said the results look "strong and stable on most items with margins holding strong amid the slight dip in mortgage market share" in the second half of 2017.

A key focus of the results is likely to be the upward revision on provisions to cover the tracker mortgage debacle.

Despite reassurances from AIB last year that it would not materially increase the amount of money set aside to deal with the over-charging crisis, the bank has lifted its provisions on this front to €230m - a near 25pc increase.

The lender stated it intends to complete a compensation and redress scheme to affected borrowers by the middle of FY2018.

AIB also strengthened its capital buffers in 2017 and reduced its stock of impaired loans to €6.3bn - a fall of €2.8bn year-on-year.

The bank emphasised this reduction was achieved by “the continued implementation of sustainable solutions for customers and improving economic conditions”.

Its non-performing expectations shrunk to about 16pc of gross loans - beating market expectations. In a statement the bank said it remains “focused on reaching normalised European levels by 2019.”

AIB’s common equity tier 1 ratio - a barometer of bank’s ability to withstand a downturn - CET1 rose by 220 basis points year on year to 17.5pc.

Chief executive, Bernard Byrne described 2017 as “a pivotal year” for the lender “with the successful completion of the largest IPO in Europe.”

AIB returned to the London and Dublin stock exchanges last year following a €3.4bn initial public offering that reduced the Government’s stake to about 71pc.

Mr Byrne said that “against the backdrop of an improving Irish economy, these strong results confirm that we are generating significant amounts of capital and [are] on track to meet our medium term targets on a sustainable basis."

He said “we are a customer focused bank, growing earning loans and significantly reducing impaired loans."

The bank’s earning loan book expanded by €0.9bn, or €1.6bn, excluding foreign exchange moves, to €57.0bn.

AIB approved €14.4bn in new lending with actual customer drawdowns at €9.4bn, up from €8.4bn in 2016.

It’s share of the residential mortgage now sits at 33pc.

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