Business

AIB mortgage share rises leaving top two banks with more than 75% of market

Deposit customers continue to be slow at moving money from low-rate on-demand accounts to higher-yielding savings products, bank says

AIB chief executive Colin Hunt said the bank's top savings rate of 3 per cent 'seems to be an appropriate level at the moment'. Photograph: Nick Bradshaw

Joe Brennan
Thu May 2 2024 - 07:20

AIB’s share of new mortgage lending crept higher in the first few months of this year, leaving the top two banks in the country with a combined mortgage market share of more than 75 per cent.

The bank said in a trading statement on Thursday that its share of new mortgage activity was 35.4 per cent in the first three months of the year. That was up from 31 per cent from the same period last year and 33 per cent for 2023 as a whole.

The update came in advance of AIB’s annual general meeting, where investors approved the bank buying back a further €1 billion of Government shares. This would reduce taxpayers’ stake to below 33 per cent from under 38 per cent.

Earlier this week, Bank of Ireland reported that its slice of new mortgage lending was 40 per cent for the first two months of the year. While it had dipped from 41 per cent last year, it remained well ahead of the 28 per cent share it recorded for 2022, as the domestic banks won back market share from nonbank lenders such as ICS Mortgages and Finance Ireland as their funding was squeezed amid rising market interest rates.

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Banks have an advantage over nonbank lenders, with most of their mortgages funded by cheap customer deposits. PTSB’s market share was also squeezed last year as it struggled to compete with its larger rivals, as it must hold more expensive capital against every new home loan it writes, under regulatory rules.

AIB said its net interest income rose 27 per cent on the year in 2024, as it benefited from a succession of European Central Bank (ECB) rate increases in the 15 months to last September. This saw the ECB’s deposit rate rise from minus 0.5 per cent to 4 per cent. AIB had more than €33 billion of idle cash stored with the Central Bank of Ireland as of the end of last year.

The bank reiterated that it sees its full-year net interest income coming to more than €3.65 billion, down from last year’s €3.84 billion. However, this assumes that the ECB will cut its deposit rate by 1.25 percentage points, at a time when financial markets are now just pricing roughly half that level in cuts.

Analysts estimate there is room for AIB to raise its guidance when it reports interim results during the summer, especially as bank customers have been slower than expected at moving cash from on-demand accounts, where they are earning little to nothing, to higher-paying products. AIB chief financial officer Donal Galvin told analysts on a call that about €600 million of deposits are moving to higher-rate products a month, little changed from last autumn, when AIB set a top savings rate of 3 per cent.

Chief executive Colin Hunt said on the call that 3 per cent rate “seems to be an appropriate level at the moment”, even if it has not led to a major change in customer behaviour.

The consensus view among analysts is that AIB’s net interest income will amount to €3.78 billion this year.

“The group had a very strong first quarter performance and, with continued momentum across our business and the embedding of our strategic priorities, we are confident in our outlook for 2024,” Mr Hunt said. “AIB continues to be in a position of strength with a robust balance sheet, stable deposit base and growing loan book enabling us to support our customers and the wider economy.”

Gross loans increased by €1 billion from December to €68 billion at the end of March, as €2.8 billion of new lending outstripped that pace at which customers repaid loans.

Davy analyst Diarmaid Sheridan said that the 1.5 per cent increase in customer lending in the first quarter was tracking ahead of the bank’s official forecast for 2 per cent growth for the full year.

The bank said it set aside a “small net” charge for potential loan losses during the quarter, even as its non-performing loans ratio remained stable at 3 per cent of its total portfolio.

Mr Hunt declined to comment the potential effect of Spanish bank Bankinter’s decision last week to move into the Republic’s banking market but converting its Avant Money unit, which has €3.3 billion of mortgages and consumer loans, into a fully-fledged banking branch.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times

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