STATE-CONTROLLED AIB is closing one in four of its branches to reduce costs further, as part of efforts to return to profitability by 2014 after the country’s second-largest bank reported a loss of €1.1 billion for the first half of the year.
The bank announced the closure of 67 of 267 branches under plans to reduce costs by almost a fifth, or €350 million, up to 2014.
David Duffy, bank chief executive, said the branches being closed typically carried out about 20 per cent of the volume of transactions at other branches.
The closures will not lead to compulsory redundancies, the bank said, and EBS branches will not be affected by the move. The same services will be on offer to customers of closed branches at 90 post offices through the extension of an existing arrangement with An Post.
AIB will still have the largest distribution network in the country following the closures, he said.
About half the branches being closed are owned by the bank, but Mr Duffy said selling the properties was likely to be a slow process.
The bank would consider other public uses for the branches, he said, but it had to take the best commercial decision on them.
The lender is reducing staff by 2,500, one in every five staff, and cutting salaries by up to 15 per cent, as it aims to become profitable again by 2014 and start returning some of the €21 billion bailout funding to the State.
Lending rates are being raised and deposit rates are being reduced and the bank will aim to wean itself off the costly Government’s guarantee scheme by 2014 under plans to return to viability.
AIB raised the interest rate on its standard variable mortgages, which account for 20 per cent of the bank’s mortgages, by half a percentage point to 3.5 per cent.
The move will affect 70,000 customers and raise AIB’s interest margin on €9 billion of €45 billion in residential mortgages.
Mr Duffy said the high cost of funding and fees being paid for the bank guarantee meant AIB was losing money on mortgages.
“Every time we write a mortgage we lose money. It is not sustainable for such a large proportion of our product in this bank to be continually writing losses.”
After reducing its first-half loss from €3 billion last year, Mr Duffy said the bank was still on track to make profits in two years’ time.
Guarantee fees fell to €215 million in the half-year, from €256 million in the same period last year.
AIB cut provisions for bad debts by 70 per cent on last year to €890 million. The value of impaired loans rose to €26.8 billion at the end of June from €24.8 billion at the end of last year.
The number of impaired Irish residential mortgages rose to €7.2 billion from €6 billion in the same period. Paul Stanley, chief financial officer, said mortgage arrears would continue to rise until the middle of next year, longer than previously expected.
Almost a fifth of the bank’s Irish home loans by value were in arrears of 90 days or more at the end of June, an increase from 15.5 per cent six months earlier.
Arrears on buy-to-let loans rose to 37.2 per cent in June from 31.4 per cent six months earlier.
AIB increased deposits by €3 billion and met 70 per cent of the €20 billion target of loans and other assets it must shed to meet a loans-to-deposits ratio of 122.5 per cent by the end of next year.
Mr Duffy said the number of distressed mortgages cases that the bank has used the four new advanced forbearance options with was “in the teens”. There were only “a couple of cases” where mortgages would be written down.
“We don’t have a general policy for forgiveness,” said chief risk officer Peter Rossiter. “We do look at things on a case-by-case basis.”
FINAL ACCOUNT: AIB BRANCHES TO CLOSE
LEINSTER
Dublin: Smithfield,Templeogue, Rush, Terenure, Annesley Bridge, Irish Farm Centre (Naas Road).
Wicklow: Dunlavin, Baltinglass.
Wexford: Bunclody.
Westmeath: Moate.
Meath: Dunshaughlin, Dunboyne.
Laois: Portarlington, Abbeyleix.
Kilkenny: Thomastown, Urlingford.
Kildare: Kilcock, Kildare.
ULSTER
Cavan: Cootehill, Bailieborough.
Donegal: Lifford, Dunfanaghy, Milford, Falcarragh, Gweedore, Raphoe, Moville, Bundoran.
Monaghan: Ballybay.
MUNSTER
Clare: Kildysart, Kilkee.
Cork: Mayfield, Innishannon, Passage West, Ballydehob, Buttevant, Schull, Newmarket.
Kerry: Waterville, Park Road (Killarney), Rathmore, Tarbert.
Limerick: Drumcollogher, Glin, Doon, William Street, Corbally, Croom, Hospital, Foynes.
Tipperary: Newport, Borrisokane, Killenaule, Clogheen, Templemore
Waterford: Kilmacthomas, Tallow Ferrybank.
CONNACHT
Sligo: Colloney.
Roscommon: Boyle, Ballaghadereen.
Mayo: Belmullet, Kiltimagh, Ballyhaunis, Charlestown.
Galway: Carraroe, Portumna.
