AIB has insisted that it is on target to ease its large burden of mortgage and corporate non-performing loans, as investors cheered its half-year figures which had no nasty surprises coming so soon after the Government raised €3.4bn from the shares sale last month.
After surging at one stage by almost 3%, AIB shares were 1% higher by the close, valuing the lender at €13.53bn and opening up a gap further with Bank of Ireland, which the market values at €7.42bn.
Shares in rival Permanent TSB pulled back some of its losses after the mortgage bank dropped 14% of its value when it disclosed this week it had fallen behind on targets to deal with its large haul of impaired home loans. Permanent, which is 75% owned by the Government, is now valued at €951.6m.
In its latest figures for the six months to the end of June, AIB said net interest income had risen 14% to over €1bn from a year earlier. But with the bank only accounting for €19m in write backs on previous loan provisions, and the year-earlier figures having been boosted by the sale of Visa Europe, pre-tax profit fell 25% to €761m.
Investors nonetheless focused on the increased capital reserves to a ratio of 16.6%, and an increase in its net interest margin — a key measure of profitability for banks — to 2.54%.
But the latest figures also showed that despite progress in sales transactions and in new deals with customers, AIB still has a large amount of non-performing loans.
At the end of June, €3.8bn of its residential loan book of €34.35bn was categorised as impaired. And of the €9bn in property and construction loans, some €2.35bn was impaired.
The non-property corporate loans book looks healthier—with €1.18bn in impaired loans of a book of €17.36bn. In an interview, chief executive Bernard Byrne said that the bank was reaching its targets in reducing impaired loans.
He said AIB was hitting “realistic targets” and to do otherwise raised the risk that investors would “punish the share price”.
“You can see the difficult portfolio that everyone is focusing on is restructuring quite well. We expect that to continue,” My Byrne said. The Central Bank-led probe into Irish banks and their overcharging of tracker mortgage customers was taking a long time because the process was “intensive”, he said.
AIB did not disclose its specific proportion of restructured mortgages that have failed since the lender struck new deals with distressed home owners but it was doing “at least as well” as the industry-wide averages. Debt experts this year have expressed concern over Central Bank mortgage arrears figures which showed that around 13% of restructured mortgage deals were failing.
Asked whether the 12% gain in the AIB share price since last month’s IPO was evidence the Government had sold the shares too cheaply, Mr Byrne said AIB had stressed to investors the bank’s prospects of generating capital and its plans to reduce the burden of non-performing loans, which he described as “the key to unlocking the capital back from an investor point of view”.
The IPO cost the bank €42m in fees and expenses. “You are never going to get it absolutely right. I think it is as close to it as you can get,” he said, adding that the Government’s options were still open as an owner of almost three-quarters of the bank.
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