AIB update boosts profile

The prospect of the Government selling 25% of its near total stake in AIB next year looks to have strengthened, with the bank yesterday noting continued trading momentum.

The Government is currently tendering for a sales advisor, and analysts believe the time is right to sell, with investor sentiment towards banking stocks improving and AIB’s capital strength and operational performance suggesting it is ready. Late spring or the autumn of 2017 are the anticipated potential timelines.

“The increase in bond yields over the past few months has seen investor sentiment turn more positive on the European banking sector,” said Dylan Simmonds, an equity analyst at Merrion Stockbrokers.

“Thus, we believe the probability that the Government will sell down their stake has increased and we would expect it to happen at some stage in 2017.”

The bank’s latest trading update, published yesterday and covering the first nine months of the year, backs up that thinking.

Net interest margin — a key measure of profitability — increased to 2.16% by the end of the third quarter, from 2.08% at the halfway stage.

Furthermore, new lending drawdowns increased by 15%, year-on-year, to €4.7bn and impaired loan levels reduced by €700m in the third quarter to €10.6bn.

They are now down by 63%, or €18.4bn, since peak levels three years ago.

There was also a marginal increase in performing loans on the bank’s books.

“We have strong underlying profitability, a robust capital base, and an improving risk profile,” said chief executive Bernard Byrne, adding that the bank’s repayments to the State now total €6.5bn, following the July payment of €1.8bn in capital and interest on the maturity of the State’s contingent capital notes.

Regarding capital requirements, AIB also announced that its supervisory review and evaluation process target has been set at 9%.

This suggests it has very significant capital buffers against external shocks.

“The third quarter performance follows on from a very impressive interim result earlier in the year and should alleviate any credit concerns while continuing to build confidence among equity investors before the government sell down their stake, which we believe could happen over the next 12 months,” said Mr Simmonds.