As banks return to profit, what lies ahead for them in 2015?

If 2014 was the year when the main banks in Ireland returned to profit, 2015 could be the one when AIB and Permanent TSB are returned, at least in part, to private ownership. PTSB looks set to be the first out the gate. At the end of October, the bank failed the European Central Bank's stress tests, with a capital shortfall of €854.8 million identified by the Frankfurt regulator.

It had already accounted for all bar about €125 million through various means by the time the results were announced. Since then it has run so-called non-deal roadshows to reintroduce the bank to institutional investors after six years of being off their radar.

The bank's chief executive Jeremy Masding told The Irish Times in October that it would seek to raise at least €200 million from private investors and he hoped to have a deal concluded by the end of March, which he could then take for approval to Minister for Finance Michael Noonan.

Before any of that happens, the bank will also need approval for its restructuring plan for the European Commission.

There is a strong appetite among international investors at present for Irish assets and recent speculation suggests that PTSB might seek to raise up to €400 million.

In return, international investors are expected to want between 30 and 40 per cent, at least, if they are to take a punt on a bank that doesn’t expect to return to profitability until 2017 and is a minnow in international terms.

Whatever sum is generated, it remains to be seen if any of the money finds its way into State coffers. The original thinking was that all of the money raised would be put to use by the bank to add momentum to its recovery story.

PTSB’s bailout stands at €2.7 billion, with Masding indicating on a number of occasions that he does not expect that all of this will be repaid to taxpayers.

In terms of scale, AIB will be of much more interest to Irish taxpayers, having received a bailout of €20.8 billion. The bank produced a knockout half-year pre-tax profit of €437 million, well ahead of analysts’ expectations. It has since passed the ECB’s stress tests and received approval for a capital reduction to create €5 billion in distributable reserves.

Talks with the Department of Finance and the regulator on an appropriate capital structure for the bank have already taken place to pave the way for some action in 2015.

There are three legs to the AIB stool. There is the €1.6 billion in contingent capital notes (CoCos) held by the State, €3.5 billion in preference shares and the State’s equity shareholding. It currently owns 99.8 per cent of the bank’s shares, which was valued at €11.6 billion at the end of 2013.

Some movement on the CoCos and the preference shares is expected. AIB indicated to the Oireachtas finance committee recently that it could pay its first dividend to the State on the preference shares next year. This would amount to €280 million being paid next May.

The equity piece is less clear. There is a view within the bank that 2015 might be too early to return AIB to capital markets. A lot of work remains to be done. Like PTSB, AIB has been involved in non-deal roadshows to reintroduce itself to private investors. The decision ultimately lies with the Government and there is a growing sense that the State will seek to sell some of its holding in AIB next year.

Mr Noonan has already indicated that the department is close to appointing an adviser to help it frame a strategy for its holding in AIB. This adviser will be drawn from a panel of 11 groups that were selected in October to help the State with strategic issues relating to the banking sector.

Reports have suggested that the Government could sell up to 20 per cent of AIB in the second half of next year, possibly yielding more than €2.5 billion. This would also likely lead to AIB being readmitted to the official list of the Irish Stock Exchange.

Mr Noonan has said he expects the State to be repaid in full by AIB over a period of time. AIB’s Duffy told the finance committee that it could be up to 10 years before that happens.

Taoiseach Enda Kenny has set a target of recovering at least €17 billion more from the pillar banks, which is the sum his Government invested in AIB, Bank of Ireland and PTSB in 2011. A recapitalisation of our banks by the EU now seems to be off the agenda.

It will be an interesting year for the other banks. Bank of Ireland returned to profit in 2014 and will be looking to build on this momentum next year. It recently paid a premium for a performing book of mortgages that belonged to Irish Bank Resolution Corporation and has indicated its plans for growth in the UK.

Having had to battle cancer in 2014, chief executive Richie Boucher will be hoping for a clear run health wise next year.

Ulster Bank will seek to capitalise on its return to profit and the recent commitment from its parent company, Royal Bank of Scotland, to stick with the business in the Republic. RBS's decision to carry out a strategic review early in 2014 meant an air of uncertainty hung over Ulster Bank's operation in the Republic for most of the year, affecting staff morale.

KBC’s year was something of a mixed bag. It continues to lose money here due to poor property lending decisions in the bubble years, yet the Belgian group expanded its retail offering in 2014 through branch openings and new products. More of the same can be expected in 2015 with the bank working towards a return to the black in 2016.

This year was also characterised by the sale of various loan books, particularly by Ulster Bank, Lloyds (former Bank of Scotland (Ireland) and Halifax loans) and Irish Bank Resolution Corporation.

More can be expected in 2015, albeit involving smaller numbers. It will also be interesting to see if some of the buyers of these portfolios look to write new loans in this market. Dilosk, which acquired a group of ICS loans from Bank of Ireland, is one group that has indicated its intention to offer mortgages here.

It will also be the first full year of operation of the Strategic Banking Corporation of Ireland, which has been set up by the State to assist lending to SMEs. And the Government is promising a new strategy for the IFSC.

So it is shaping up to be another busy year for the financial sector here. If the Government can sell stakes in PTSB and AIB, a return to normalised banking will well and truly be under way.