2003 a ‘transitional year’ for AIB

AIB said it expects profits this year to grow by no more than 5% after a number of charges, including the Government’s banking levy, hitting its bottom line.

In a trading update for the year to the end of December 2003, the bank said profits would grow by “low single digit” and that a number of one-off factors will affect earnings growth.

The bank said the adoption of a new accounting standard, known as FRS 17, means that AIB will have to account for its pension fund deficit. It also said profits will be hit by the banking levy and from redundancy costs related to the sale of its investment managers arm Govetts.

AIB said 2003 will be a “transitional year” for the bank, which saw the completion of the sale of its troubled US arm Allfirst.

“We expect to achieve strong constant currency profit growth in our Republic, Britain and Northern Ireland and Capital Markets divisions. Profitability in Poland will be significantly below 2002, although we are experiencing the early signs of improvement in the trading environment,” the bank said in a statement.

But currency movement will knock 4%, or 30 million, off earnings from its British and Polish arms. The bank expects its Irish loan book to be well over 20% this year, compared with projected market growth of about 16% with non-mortgage lending up by 20%.

“Both mortgage and non-mortgage lending is buoyant and there is a strong business pipeline. Home mortgage balances are expected to grow by over 30% in 2003 and this growth is being achieved without relaxing our lending policy and practices,” it said.

Its insurance and Ark Life’s performance has improved in the second half and its full-year profits are likely to be at about the same level as in 2002.

In Britain and Northern Ireland, it has enjoyed rapid and high-quality growth in its business banking franchise and expects the division to show loan growth in excess of 20% and mid-teen deposit growth in 2003. But Bank Zochodni WBK, the Polish division, will report significantly lower profits than 2002.

It expects only mid single digit loan growth in Poland, though this will be higher than the 2002 outturn.

“The further reduction to our operating cost base announced at the interim results is on track and on schedule. We are confident we will sustain positive trends and our franchise has substantial organic growth potential in an improving economy,” the bank added.

The bank said its asset quality is extremely good and the bad debt charge for the year is expected to be around 35 basis points of average loans.