AIB plans debt writedown for certain borrowers

AIB is looking at debt writedown options to alleviate the repayment burden for certain borrowers, but is working on an affordability approach rather than blanket write-offs.

Appearing before yesterday’s sitting of the Oireachtas finance committee, AIB management representatives, including chief executive David Duffy and head of products Fergus Murphy, said that an overall write-off of all negative equity overnight would be “irresponsible” and that blanket debt forgiveness would be unfair on customers managing to repay loans

Mr Duffy said the bank is capitalised for restructuring and growth and to meet its minimum funding levels, not in order to cover borrowers’ negative equity.

He added that the bank is looking at “the totality of unsustainable debt” covering the mortgage, SME, commercial property, and buy-to-let categories to see what is unsustainable before writing-off repayments.

He said that affordability, not negative equity, is the bank’s approach, with customers’ loans being restructured into something that can be afforded.

He said seven out of 10 distressed mortgage holders are now keeping up with their repayments after being switched to interest-only mortgages.

Meanwhile, management reiterated that the bank is 28% advanced on its €3.5bn SME lending target for the current year and that it plans to return to profitability by 2014 and make the bank an attractive option to foreign investors over the next two years, thus beginning the process of lowering the State’s ownership.

On that issue, Mr Murphy said AIB will probably need to double its net interest margin — the profitability of its lending — to 150 basis points, before any investors would show real interest.

Paul Stanley, AIB’s chief financial officer, told the committee that the bank’s loan losses should fall within stress test forecasts made last year, while AIB should not need to tap State-injected contingent capital to cover unexpected losses.