THE NEW chief executive of State-controlled Allied Irish Banks, David Duffy, has ruled out debt forgiveness as an option for the vast majority of the bank’s struggling mortgage customers in arrears.
Speaking as AIB revealed that impairments and arrears on mortgages rose sharply in 2011, Mr Duffy said the bank was working on “creative individually tailored solutions” to keep borrowers in the homes and businesses afloat.
“Debt forgiveness and other extreme solutions all carry significant long-term consequences and most people don’t want to be in that position,” said Mr Duffy.
The bank, which is 99.8 per cent State-owned following a €20.8 billion bailout, posted a loss of €2.3 billion for 2011, down from a loss of €10.2 billion the previous year.
AIB set aside €8.2 billion for bad debts, including €7.9 billion on loans, up from €6.1 billion the previous year but Mr Duffy said this marked a peak for bad debts.
This included €1.5 billion set aside for losses on €42 billion of Irish mortgages, including €15 billion issued by former building society EBS that AIB acquired in July.
Arrears of 90 days or more on €32 billion of owner-occupier mortgages rose to 7.9 per cent at the end of 2011 from 2.2 per cent a year earlier. Arrears on €10 billion of buy-to-let mortgages rose to 20.6 per cent from 6.5 per cent.
Despite rising arrears Mr Duffy said AIB would not require further capital, as it had stress-tested losses on house prices falling well over 60 per cent, above the bank’s expected 55 per cent decline.
Mr Duffy confirmed the bank was in discussions about moving tracker mortgages out of the bank.
“There are lots of ideas and discussions and lots of independent parties but they are not at a conclusion point where we could offer anything specific,” he said.
AIB plans to bring in new investors next year to buy some of the State’s shareholding, said Mr Duffy. The bank has had conversations with potential investors and would present to investors later this year to try to encourage them to buy into the bank.
“The country is now viewed very positively and the bank is moving down that direction. I would expect that 2013 would be the year that we would see people coming into the bank,” he said.
He could not yet say how much the State could recover from selling down its stake or how big a stake could be sold, but said that the bank would be “comfortable” with the State’s stake falling to a non-controlling interest, he said.
This would depend on a return to sustainable profitability, which he said would be achieved by 2014.
The bank will keep cutting costs to become profitable again after higher expenses, including a €488 million charge for the Government guarantee (up from €357 million in 2010) squeezed interest margins by about a quarter.
AIB, which is reducing its headcount by 2,500 or one in six staff, has not ruled out closures across its 270-strong branch network.
The bank met lending targets to small and medium-sized businesses and on mortgages last year.
The refinancing of existing loans to SMEs was “not to be dismissed in a cavalier fashion” as it has been in the media, he said, as refinancing was the “lifeblood” of SMEs and helping to protect jobs.
