Business Irish

Wednesday 21 March 2018

Funding costs are taking toll on AIB interest margins

Joe Brennan

Allied Irish Banks said yesterday high funding costs were hitting its operating profits, though bad debt losses on its non-NAMA loans are showing signs of stabilising -- as the group handed over an 18.3pc stake to the State.

The bank was forced to pay in shares for a €280m dividend that fell due on the Government's preference shares in the bank, as the EU has temporarily banned it from making discretionary dividend payments.

The 198m new shares increase the National Pension Reserve Fund's (NPRF) AIB holding to 18.6pc.

In a trading update, AIB said its net interest margins were being hit by highly competitive and "uneconomic" deposit rates, elevated wholesale funding casts and Government guarantee fees.

"We are developing a cost reduction programme that will reset the base to a lower level, reflecting a more streamlined structure more aligned with the bank's reduced size following the completion of business disposals under way," it said.

AIB managing director Colm Doherty has signalled that job cuts are coming down the tracks, after Brussels delivers its verdict on its restructuring plan.

The Financial Regulator demanded in March the group raise €7.4bn of equity by the end of the year, as it assumed a 45pc discount on AIB's €23m of NAMA-bound loans. It stomached a 42pc haircut on its first tranche.

Turning to the group's non-NAMA portfolio, AIB said first-quarter bad debt charges in the Irish division "were at a rate similar to that incurred in the full year of 2009".

While its €27bn mortgage book continued to perform better than the sector average and bad debt provisions for the first three months "remains modest", arrears continue to rise and future losses will be driven by unemployment rates.

"There are clear signs of stability in the credit profiles of our Capital Markets and Polish businesses. In the UK, there are also signs of stability in our Great Britain portfolios, though conditions remain challenging in Northern Ireland," it said.

The UK, Polish and AIB's 22.5pc stake in US regional lender M&T have all been put up for sale as the group rushes to meet its capital target. "We will advise the market of progress in relation to our capital actions as it occurs over the coming months," it said.

The group said it has placed over €6bn of term funding of more than a year in duration -- covering 60pc of the funding that falls due for repayment this year.

Irish Independent

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