AIB still expects to cut bad debt

AIB still expects to cut its bad debt next year, despite rising arrears and a challenging outlook for the economy, as the eurozone debt crisis rapidly worsens and Government austerity measures deepen.

Provisions for soured loans are expected to peak across Ireland’s bruised financial sector this year after the central bank said it wanted all lenders to take a tougher line on bad debt charges in time for 2011 results.

But analysts said the speed at which Irish people were falling into mortgage difficulties was worrying and an accelerated pace could mean provisions keep rising into 2012.

Unemployment, the main factor behind arrears, remains stubbornly high, with data yesterday showing the number of people claiming unemployment benefit returned to its 2011 peak in November.

“If the pace of arrears continues to accelerate over the next quarter or two I think you have to start getting a little bit more nervous,” said Eamonn Hughes, analyst at Goodbody Stockbrokers.

AIB, Ireland’s second-largest bank, said yesterday impaired loans continued to increase for both business and personal clients and over 12,000 customers were having difficulties meeting mortgage repayments.

The Central Bank said this month that over 99,000 mortgages were either in arrears or had been restructured at the end of September, representing some 13% of the total residential mortgage market.

AIB has 800 staff, up from 600 last year, dealing with struggling small business customers. Over a third of the bank’s loans were classified as either impaired, vulnerable or exhibiting weakness at the end of June. Under an EU-IMF bailout, banks have recapitalised to the tune of €70bn to bulletproof their balance sheets from rising loan losses following a disastrous and ongoing property crash.

Under the terms of the bailout, Ireland’s banks have radically to shrink in size and AIB, which was nationalised a year ago, said it was already more than halfway to meeting a €19 billion deleveraging target by the end of 2013.