AIB to cut rates after boost in profits

AIB is the latest bank to report an improving financial position, turning a quarterly profit as it benefited from an improving climate both at home and in Britain.

After weeks of scrutiny on the standard variable rates charged by banks — which was followed by an indication from outgoing chief executive David Duffy late last month that the bank may look to cut its rates — AIB yesterday announced a 0.25% reduction for owner-occupier and buy-to-let mortgages.

Its interim management statement, released yesterday morning, showed that an increase in lending, a cut in impaired loans, and a provision writeback of €300m all helped the bank to profitability in the first quarter of 2015.

Mr Duffy said: “Positive momentum has continued into 2015 with the group delivering its strategic objectives. On a pre-provision operating basis, underlying performance has continued to improve.

“Whilst there is inherent volatility in the ongoing restructure of impaired loans, the provision writeback in the first quarter is reflective of the improving economic environment and the progress being made in the case by case restructuring of customers in financial difficulty.”

Lending drawdowns increased by over 70% compared to the same period in 2014. The total number of residential mortgage accounts in arrears are down 6% since December 2014 and by almost a quarter since the December 2013.

Total impaired loans fell €1.7bn in the first quarter to €20.5bn with reductions evident across all main categories, particularly in the mortgage and commercial investment property sectors.

The strengthening economic environment helped provision writebacks exceed management expectations.

The bank’s net loanbook increased marginally to €64bn with positive foreign exchange movements contributing to the increase.

Discussions are continuing between AIB and the Department of Finance regarding the appropriate capital structure of the group, including in relation to the €3.5bn of preference shares from 2009 with a potential conversion into ordinary shares remaining an option.

Options pertaining to the €1.6bn contingent capital notes which mature in July 2016 are also under discussion.

AIB said growth in the domestic economy is likely to continue for the year.

“These factors are supportive of the group’s improved operating performance and are also having a positive impact on collateral values, particularly in terms of asset quality and the outcome of restructuring the loans of customers in financial difficulty.”