AIB posts record profits haul of €2bn for 2023 on back of soaring interest rates

AIB said it expects to generate net interest income levels of more than €3.6bn this year, as the ECB and Bank of England cut interest rates through the year. Pic: REUTERS/Clodagh Kilcoyne/File Photo

AIB has posted a record annual profit haul of €2bn after the lender tapped the surge in European Central Bank interest rates that has driven income, and faces little significant competition to pay out to attract deposits.

The profit compares with the €765m in after-tax profits the lender made in 2022 as net interest income soared to over €3.8bn from a restated €2bn in 2022, reflecting the interest rate hikes, or “the changed interest rate environment and higher average customer loan volumes”, AIB said in its earnings statement.

The lender, which is now almost 40%-owned by the Government, also pledged to distribute a total of €1.7bn to shareholders, which includes €700m in cash by way of dividends. The Government plans to continue to sell more of its shareholding.

AIB is the second of the two large general lenders that dominate Irish banking to report 2023 earnings. Bank of Ireland last month posted a record annual pre-tax profit of €1.9bn, also reflecting sharply higher interest rates.

The performance of the shares of AIB and Bank of Ireland in recent years reflect for the most part the benefits of higher levels of net interest income flowing to lenders since the ECB started out on its campaign to tame inflation by hiking official rates in the summer of 2022.

The Irish banks have also benefitted hugely from the exit form banking in the Republic by their once fierce rivals, Ulster Bank and KBC Bank.

AIB chief executive Colin Hunt said that 2023 was “an exceptional year” despite the global uncertainty. The current year “marks the beginning of a new three-year strategic cycle for the group”, he said.

AIB reported a total impairment charges from souring loans of €327m in 2022, mostly reflecting its commercial property loan book, but wrote back €155m in previous provisions it had made for corporate and small business loans.

“Overall credit quality remains robust against the backdrop of inflation and higher interest rates,” the bank said.

Investors are looking carefully at whether AIB and its rivals can continue to generate large amounts of net interest income should the ECB start to cut interest rates aggressively from this summer.

AIB said it expects to generate net interest income levels of more than €3.6bn this year, as the ECB and Bank of England cut interest rates through the year.

Ahead of Wednesday’s earnings, AIB shares had risen 12% since the start of the year. And the shares have more than doubled since mid-February in 2021 when it became clear that AIB was set to benefit from reduced competition with the departure of Ulster Bank.

Some international analysts believe that Bank of Ireland and its two rival lenders will prove their resilience in terms of generating income.

AIB, Bank of Ireland, and PTSB accounted for a huge share of the €12.5bn in new mortgage lending advanced last year.

AIB said it had a share of 33% of new mortgage lending last year.

PTSB unveils its earnings tomorrow.