AIB expects to return a "serious lump" of excess capital to shareholders from early 2020, after the bank finally reduces its non-performing loans to average European levels, the group's chief financial officer said on Friday.
Speaking to analysts after the AIB reported a €762 million pre-tax profit for the first half of the year, Mark Bourke said the lender will likely decide in the first-quarter of 2020 whether the capital return will be in the form of a share buyback or another method.
With analysts estimating AIB could have upwards of €3 billion of excess capital following a €20.8 billion taxpayer bailout during the financial crisis, the Government will want to ensure that this is reflected in the market value of the company before it goes about selling further shares. AIB shares have fallen by almost 12 per cent so far this year.
‘Material fall’
The State sold an initial 28.8 per cent stake in the bank in June last year on the market for €3.4 billion. Chief executive of the National Treasury Management Agency (NTMA) Conor O’Kelly called on the Government earlier this month to sell more bank stock or risk a “material fall” as dark clouds appear on the horizon for equity markets.
AIB's first-half profit, while consistent with the same period last year, was helped by a €140 million gain from the sale of non-performing loans to a group led by US distressed-debt firm Cerberus.
It was also boosted as the bank freed up a further €130 million of provisions previously set aside for bad loans.
Tracker mortgage crisis
However, the bank took an additional €32 million charge in the first half to cover refunds and compensation relating to the tracker mortgage crisis, bringing its total provisions for the issue to €262 million.
AIB’s loan book, which has contracted over the past nine years in line with the wider sector, grew by €500 million during the first half, excluding the impact of the non-performing loans disposal to the Cerberus-led consortium during the period.
On a reported basis, net loans shrank by €100 million to €59.9 million at a time when rival Bank of Ireland is expected to confirm next week that it returned to loan growth in the first half.
Non-performing loans (NPLs) fell by 27 per cent at AIB during the first half to €7.5 billion, with its bad-loans ratio declining to 12 per cent from 16 per cent, as a result of the portfolio sale and as the bank continued to restructured problem debt.
Ratios
The bank said it remains on track to have reached “normalised” non-performing loan levels by the end of 2019, as the European Central Bank presses lenders with large NPLs to cut their ratios to the European Union average of 5 per cent.
Davy analysts Stephen Lyons and Diarmaid Sheridan said AIB's ability to increase its common equity Tier 1 capital ratio, a key measure of a bank's reserves to withstand a shock loss, to 17.6 per cent from 17.5 per cent during the first half underpins an expectation in the market that the group will be able to return excess capital to investors over time.
