Analysis: AIB's impressive results show that Ireland's biggest bank isn't coming under much pressure from the growing number of financial institutions now competing in this market.
Giving a nod to some greater competition going forward chief executive Eugene Sheehy has been telling investors the bank will have to operate on even tighter profit margins, but remains very confident AIB can continue to profitably grow its business.
The bank says its business has continued to grow in line with the market in Ireland in areas such as business and personal lending and deposits. The only sector where it has lost market share is in mortgage lending where its book grew by 24 per cent compared with a 27 per cent rise in the overall market.
Mr Sheehy suggests that much of this fall is due to the bank's aversion to issuing 100 per cent mortgages to prospective home owners, the product which lenders such as First Active and Permanent TSB have been offering to aggressively win new customers.
He says the bank does occasionally issue a 100 per cent mortgage to certain customers but that its mortgages are more typically for a maximum of 92 per cent of the purchase price. "We believe prudence is the right approach. Some 90 per cent of our mortgages are issued through our branches to customers we know very well. We feel this is the best thing for us to do," he says.
The bank is also showing no signs of abolishing current account fees and charges and claims these initiatives by its competitors have not resulted in any net loss to its customer base. Mr Sheehy claimed that for every one current account AIB loses to another financial institution, it opens 10 more.
The bank will continue to review its charges, he says, but remains to be convinced that this is what its customers want. "I don't believe that customers view their relationship with the bank in terms of a single issue. I believe fees is one component, but is not the only issue and may not be the most important issue for them."
For the past year the bank has been more focused on doing more business with its existing customer base and says this is paying off.
The AIB chief executive suggests that the healthy profits being earned by AIB and other Irish banks is more of a reflection of the favourable economic conditions here rather than a market dominated by one or two players.
AIB has sold its life assurance company, Ark Life, to Hibernian and entered a joint venture with its parent, Aviva. The bank will receive a cash payment of €205.4 million and take a 24.9 per cent stake in that business. Mr Sheehy said this will allow AIB to contribute and benefit from the strong growth expected in the life assurance sector in the future.
Commenting on the bank's international operations, Mr Sheehy made it clear that AIB has no intention of selling its shareholding in one of Poland's biggest banks, Bank Zachodni WBK.
He remains very optimistic about loan growth, saying AIB operates the "best run" bank in that market.
It does not offer mortgages there, which are currently issued by Polish banks in Swiss francs with repayments made in Polish zlotys. Mr Sheehy offered this as the reason why its asset growth was flat there last year.
