Retail activities drive profits up at AIB

SHAREHOLDERS in AIB can look forward to solid results when the bank releases figures for the first six months of the year next Tuesday, according to Davy stockbrokers.

Davy said yesterday that AIB would record first half pre-tax profits of €655 million before exceptional items, a 3% increase on the same period last year.

Davy analysts Emer Lang and Scott Rankin said the bank’s Irish retail operations would deliver almost 50% of group profits, with the capital markets and British divisions delivering a further 40%.

Davy said the bank’s Irish lending book was set to show 20% growth year-on-year, in line with booming consumer borrowing. Loan volumes in Britain were forecast to be ahead by 15% on the same period last year: deposits would be up by 20%.

But the bank’s net interest margin, which measures the difference between the price at which the bank borrows money and the rate it lends to customers, would remain under pressure. Davy predicted margins would fall by 0.33% to 2.37% over the full year.

The continued margin pressure was attributed to the bank’s loan portfolio growing more quickly than its deposit base and greater competition among lenders, causing them to aggressively cut rates to attract business.

Davy expected the bank’s international operations to be strong contributors to the group’s first half. American regional bank M&T, in which AIB has a 22% stake, reported second quarter results that were ahead of market expectations earlier this month.

But AIB’s future strategy in respect of M&T, which took over troubled AIB subsidiary Allfirst in the wake of the Rusnak rogue trading episode that cost the bank $750m, remains unclear. AIB’s stake in the bank is valued at approximately €2m, or one-sixth of AIB’s total market capitalisation, and is expected to be sold in the medium term.

Polish subsidiary BZWBK was predicted to grow profits “significantly”, in line with a general economic recovery in Poland that would boost demand for new loans. AIB’s profits would be boosted by €13m by the sale of BZWBK’s stake in card payments business Cardpoint during the year.

Davy said profits would be dented by up to 4% by a €50m charge relating to the foreign exchange overcharging scandal currently under investigation by financial regulator IFSRA.

Davy also predicted that costs would grow by up to 5% but that bad debts would fall from 0.29% of loans to just 0.26%.