Some SMEs still struggling, says AIB chief
Some SMEs are struggling and lending volumes to exposed firms haven’t picked up as quickly as anticipated, according to Bernard Byrne, the chief executive of AIB.
Mr Byrne said the overall picture is of some pressure bearing down on SMEs as they continue to restructure, particularly in parts of fast-changing retail, while other firms are “doing quite well”.
He was talking to reporters after AIB posted pre-tax profits for the first six months to the end of June of €762m, little changed from a year earlier. The earnings were dominated by a writeback of €130m in provisions and a net gain of €140m from the sale of troubled loans.
The shares, which fell 1% to €4.85, have risen only slightly from a year ago.
Analysts said AIB is making progress towards its goal of returning a significant chunk of its underlying earnings to shareholders. The process could, however, be drawn out, and depends on the approval of regulators who are monitoring the levels of crisis-era soured loans on the books of banks.
Helped by a healthier-than-anticipated economy, AIB said it is on course to meeting the targets for costs and building capital it set ahead of the sale of the initial sale of shares last summer.
The Government still owns about 71% in the bank.
SME lending has become a matter of concern this year. Industry group Isme last month said its regular survey on lending showed a “significant” increase in refusal rates by banks for loans to small firms, even as demand for credit was unchanged.
Mr Byrne said while some SME sectors are “doing quite well”, others, including the retail sector outside the “prime retail” business, was facing longer-term structural issues. “None of which suggests there is any change in terms of economic activity, but certainly some of the sectors” are experiencing some difficulty.
On economic growth, he said: “It is much more broadly based as a general principle but sectoral themes will still play out regardless of that economic buoyancy.”
Mr Byrne suggested AIB would be in no hurry to cut its standard variable and fixed home loan rates following recent mortgage cuts by Ulster Bank and KBC. He said rivals are competing with “teaser” offers, or short-term fixed-rate home loans, to attract new business volumes.
“There is some competitive pressure there. We are not chasing market share at this stage. We are comfortable with our position and comfortable that we are getting the growth that we would expect to see given the strong underlying characteristics,” said Mr Byrne.
On the industry-wide tracker-mortgage scandal, AIB reiterated it will have compensated all affected customers in the next six weeks, but that customers retain their right to appeal.
Owen Callan, an analyst at Investec Ireland, said the earnings came “without surprises”.
Investec is keeping its share price target unchanged at €5.40 despite “the two negatives” in the results, in SME loan growth and the mortgage market, “which is a little more competitive than a year ago”, he said.
The bank is aiming to increase payouts to 50%-60% of annual underlying earnings from the 25% paid out last year, he said.
Headwinds to securing a standard level of dividend payouts include regulators’ scrutiny and wage costs rising to 3% a year, said Mr Callan said.
