- Additional reporting by Bloomberg and Reuters
AIB is shedding about 300 jobs, across its group, moving to cut costs as it struggles with a “challenging” interest rate environment.
The bank plans to end 2019 with fewer than 9,500 staff, it said in a trading statement. At the end of June, about 9,830 people worked at the bank. AIB chief executive Colin Hunt’s plans include removing layers on management, it said.
AIB’s shares fell by over 2% after the trading update was announced.
The bank was planning a new round of job cuts, it was reported in September.
Domestic banks have been hit by a range of forces, from the ECB’s “lower for longer” interest rate policy to the tracker mortgage overcharging scandal and concerns around Brexit.
Earlier this year, AIB said it was not expecting to be hit with a fine, by the Central Bank, for its part in the tracker scandal until sometime next year, but has €35m set aside for the eventuality.
AIB said it expects its net interest margin, a key metric showing the profitability of its lending, to fall marginally below 2.4% for 2019 as a result of the enduring negative interest rate environment for European banks.
AIB reported a net interest margin (NIM) of 2.42% for the nine months to the end of September, down from 2.46% three months earlier and a rate of 2.51% a year ago.
European Central Bank policy of charging banks for hoarding cash, introduced five years ago to encourage them to lend more to bolster a flagging economy, has exacerbated problems for lenders and manifested in an 11 basis point hit on AIB’s NIM in the third quarter to 2.32%.
The bank’s medium term strategy, which will be refreshed early next year, had targeted maintaining an NIM above 2.4%.
“As we have moved through 2019, the operating environment for European banks has become more challenging, but despite this the group continues to perform well to deliver a solid underlying operational performance,” AIB said in its trading update.
AIB also expects its fully loaded tier one capital ratio, a measure of financial strength, to fall to around 16% at the end of 2019 from the 16.5% reported in the latest trading update and the 17.3% mark at the end of June.
That was still well above its medium-term target of 13% as the bank seeks regulatory approval to begin returning excess capital to shareholders next year, a key selling point of its €3.4bn 2017 IPO.
New lending so far this year at the 71% State-owned bank was in line with the same period in 2018 as its share of the Irish mortgage market inched up to 32%. Non-performing loan exposures as a percentage of its loan book fell below 6%.
Chief executive Colin Hunt said last month that AIB planned to cut its number of staff to below 9,000 by the end of 2022 from 10,000 now to keep a lid on rising costs, and the bank said it expected to finish the year with fewer than 9,500 employees.
Meanwhile, the Central Bank’s deputy governor Ed Sibley has said more work is necessary in order to improve how the Irish financial system serves consumers and the wider economy.
Addressing a conference organised by the State-backed Money Advice and Budgeting Service - or MABS - Mr Sibley said that the mortgage arrears problem remains “one of the most important issues in Ireland”.