AIB said on Friday that it was sticking to its full-year guidance that loan impairment charges would amount to between €1.4 billion and €1.5 billion as a result of the Covid-19 crisis. It said it had seen little further deterioration in its loan book in the third quarter.
The bank said in a trading statement that its income dropped by 11 per cent for the first nine months of the year, with net interest income falling 9 per cent and other income sliding 18 per cent.
“While there is a high level of uncertainty as we face into the fourth quarter, total income has shown a level of resilience better than that anticipated at the onset of the Covid-19 crisis earlier this year,” the group said.
Chief executive Colin Hunt also confirmed the bank would provide an update before the year-end on its "plans for the future shape" of the business.
“We are considering the future shape of our business in order to adjust to the financial impact of Covid-19 and the changed external environment, with particular reference to the acceleration of themes such as digitisation, flexible working and sustainability,” it said.
“While our strategic priorities and medium-term financial targets remain unchanged, the challenge to achieve these is greater in the wake of the Covid-19 health crisis. However, we continue to believe these targets are appropriate for the group, and intend to update the market on our pathway to achieving these targets before year-end.”
Cut jobs
The Irish Times reported earlier this month that AIB, which unveiled plans earlier this year to cut 1,500 jobs by 2022, is carrying out a fresh examination of costs as the Covid-19 economic crisis is set to weigh on bank incomes for the foreseeable future.
Goodbody Stockbrokers analysts estimate that Mr Hunt will need to find as much as €200 million in cost savings if he is to achieve his key medium-term profitability goal, outlined in March.
The central target is to deliver return on tangible equity – a key measure of profitability relative to shareholders’ equity – of more than 8 per cent by 2022, almost double last year’s level.
Although Mr Hunt has paused his current job-reduction plan amid the coronavirus shock, further cuts are likely to be on the cards in the coming years, analysts say.
Mr Hunt is also expected to look at the bank’s office space requirements in Dublin as remote working will remain a feature of the modern workplace after the pandemic.
Aside from the group’s new headquarters on Molesworth Street, the bank has taken out significant office space in recent years across locations such as Heuston South Quarter, Central Park in Leopardstown and Hume House in Ballsbridge.
More resilient
“The group performed well in the third quarter and, generally speaking, economic indicators are proving more resilient than anticipated earlier this year. However, we must acknowledge and continue to be vigilant to the significant uncertainties which persist both domestically and internationally,” said Mr Hunt, a week after the Republic went into Level 5 pandemic restrictions that are set to last six weeks and further dent economic activity.
AIB extended 66,000 payment breaks to households and small businesses in its Irish retail banking divisions between March and September, with 74 per cent of these having since come off the relief measures.
“Overall this level of roll-off has proved better than originally anticipated,” the bank said, adding that 96 per cent of extended six-month payment breaks would expire by the end of 2020. “AIB is in continual contact with customers to understand if any further support measures may be required beyond this point.”
AIB set aside €1.2 billion in the first six months of the year for an expected surge in bad loans as a result of the Covid-19 crisis. It took an additional €100 million charge in the third quarter, it said on Friday.
