AIB chief Colin Hunt says bank 'on clear path to private ownership' as profits hit €2.35bn

Performance was largely underpinned by a 7% rise in net interest income totalling €4.13bn in 2024

AIB chief executive Colin Hunt said the bank will continue to keep its interest rate offerings 'under review'. Picture: Miki Barlok

AIB has posted a record annual profit haul of €2.35bn after tapping into the surge in European Central Bank interest rates that has underpinned income, while facing little competition domestically to offer attractive deposits. 

It compares to the €2bn in after-tax profits it posted in 2023, with AIB's net interest income rising further to €4.13bn from €3.8bn the previous year, reflecting "higher average interest rates and higher average customer loan volumes," AIB said in its earnings statement.

"This has been an exceptional performance for us," AIB chief executive Colin Hunt told the Irish Examiner.

Speaking on the bank's predicted fall in net interest income this year, Mr Hunt said: "Our return on tangible equity (ROTE) grew to 26.7%, well above our medium target of 15%."

"Our profitability will be lower in the next couple of years, but it will still be one of the best-performing banks as we will be able to deliver an ROTE of at least 15%. What we are saying for 2025 is, with good visibility in the pipeline, that it will be meaningfully above 15%."

The bank, which received an almost €21bn rescue investment from the State between 2009 and 2011, said it also intends to pay an €861m dividend on last year's earnings.

The lender, which is now just over 12%-owned by the State, also pledged to distribute a total of €2.6bn to shareholders as it forecasts another €1.2bn directed share buyback from the Government, paving a "clear path to return to full private ownership this year."

Speaking on the prospect of fully private ownership, Mr Hunt said it reflected an "important symbol of normalisation."

"It will not lead to a change in strategy or commercial decisions, but it is a validation of the strategy we have embarked on."

Pillar banks

AIB is the second of the two large general lenders that dominate Irish banking to report 2024 earnings. Last month, Bank of Ireland posted a 4% fall in pre-tax profits, falling from record highs of €1.94bn to €1.86bn.

PTSB posted an 8% increase in underlying profit to €180m on Tuesday, despite falls in overall lending and net interest income last year.

The upward trend in AIB and Bank of Ireland shares in recent years reflects the lucrative benefits of rising interest rates resulting in higher levels of net interest income - the difference between the rate a bank borrows money for and the rate it loans money for - flowing to lenders since the start of the ECB's aggressive monetary policy campaign to tame rising inflation by hiking rates since the summer of 2022. 

Following an easing in inflation last year, the ECB has cut rates five times since June 2024, with markets expecting two or three more this year, driven by arguments that the biggest inflation surge in generations is nearly defeated.

Looking forward, Mr Hunt told the Irish Examinerthe bank would "continue to keep its interest rate offerings under review, and will focus predominately on official ECB rates."

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

Mr Hunt said that against a "solid economic backdrop, new lending grew by 17% to €14.5bn with 6% loan book growth to €71.2bn. 

"We have continued to expand the Group’s products and services as well as our customer base, which at 3.35m has never been higher."

Investors will now look carefully at whether AIB and its rivals can continue to generate large amounts of net interest income now that the ECB has once again started to reduce interest rates.

Mortgage market

AIB said it had a share of 36% of new mortgage lending last year, up from a share of 33% last year. Speaking on the entrance of new rivals to the Irish banking market such as Bank Inter and Revolut, who has announced its intention to offer mortgages by the end of this year, Mr Hunt said: "The vast majority of transactions are done online, but, the vast majority also want to sit down face-to-face with someone when it comes to the biggest financial decision of their life.

"People want that reassurance in having access to someone face-to-face, and we do that in every corner of the country through our 170 branches."

Looking forward, AIB said its outlook for net interest income "remains resilient in a lower rate environment," due to growth in its loan book, its "stable and granular deposit base" and "proactive management of its structural 3 hedge programme." 

For 2025, the lender expects a net interest income of around €3.6bn, based on assumptions of an ECB deposit rate of 2% from June 2025 and a Bank of England rate of 4% at December 2025.

Looking forward, Mr Hunt noted the extensive degree of economic uncertainty, adding: "It will have a significant impact. We do believe growth will be dampened, however, we still foresee growth of 2-3% in the next number of years."