The Irish State owns 99.8% of the ordinary shares of Allied Irish Banks (AIB) and today it reported losses of €758m in H1 (the six months to June 30) 2013, compared with €1bn in the same period in 2012.
The bank said its provisions for bad debts dropped by 24% to €738m from €973m in H1 2012. Impaired mortgages rose from €7.9bn at the end of December to €8.5bn at the end of June but the bank said it was seeing signs of improvement in the housing market in Ireland including the stabilisation of prices and increased demand in certain urban areas.
The operating loss before tax and exceptional items for the six month period was at €572m, down 47% on the same time last year, while its total operating income rose by 19% to €916m from €771m.
Overall customer accounts remain stable with the loan to deposit ratio reduced to 106% from 115% at December 2012. ECB funding is down by a further c.€4bn (20%) year to date.
SME lending approvals increased to c.16,300 customers in June year to date, with approvals for new loan facilities to SMEs up c.11% year on year.
David Duffy, chief executive, described the interim results as encouraging adding that he expects the positive performance to continue. “We are mid-way through a three year plan to return to sustainable profitability. While we have met our key strategic objectives to date, we acknowledge the continuing challenges that lie ahead.
“The bank's results for the first half of 2013 demonstrate that our strategy for stabilisation and recovery is delivering results. We are seeing a steady improvement in our operating performance and a return to pre-provision operating profit. I expect that overall progress made in the first half of 2013 will continue through this year.
“Although the economic environment remains challenging we have observed early positive trends in the SME, corporate and mortgage sectors. AIB approved over €3 billion in lending in the Irish market in the first half of 2013 and we are well positioned to actively support growth in the economy,” he said.
The level of mortgage loans more than 90 days in arrears rose to 22.7% at the end of June compared to 20.7% at the end of December.
The level of loans in AIB's owner-occupier segment which were more than 90 days in arrears rose to 16.4% from 14.9% on a half yearly basis due to falls in household income and the high level of unemployment. In the buy-to-let sector, the level of three month arrears rose from 43.6% at the end of December to 47.9% at the end of June.
AIB said that staff numbers at the bank fell by about 2,300 from 15,064 in June 2012 to stand at 12,718 in June 2013. It said that this, along with changes to pay and benefits, has resulted in a staff reduction of 16% from the first half of last year.
Personnel expenses fell from €540m to €488m. The latter includes a rise in termination costs of €33m.
Eamonn Hughes of Goodbody commented -- "Net interest income in the period pre ELG (State bank guarantee) costs was €718m which compared with €783m in H112 and our expectation of €750m. ELG costs in H113 were €123m vs €215m in H112 and our estimate of €130m. The reported net interest margin was 1.28% which compares to 1.24% in H112 and 1.19% in H212, so the margin has finally turned upwards. We had been anticipating a 1.29% margin at the half year, so almost in line, but interest income was shy as interest earnings assets -11% vs -8% expected. Non-interest income was €321m compared to €202m in H112 and our €205m expectation, helped by trading gains and gain on NAMA senior bonds. Operating costs were 16% lower at €754m (€770m forecast) highlighting the progress being made on restructuring. This drove an operating profit of €162m compared to our €55m expectation. The bad debt charge was €738m versus €890m in H112 and our €700m forecast. Below the line, there were additional disposal haircuts of €187m (€275m expected) and other items of -€79m.
There were €29.2bn of impaired loans on the balance sheet in June (34% of advances) and flat on the €29.4bn (33%) at the end of December (€26.8bn, 28.1%, in June 2012). Drilling down, impaired Irish mortgages were €8.46bn (21.8% of loans) from €7.86bn (19.9%) last December and €7.16bn (17.4%) in June 2012. On the funding side, the Loan to Deposit ratio was 106%, down from 115% in December (so pressure can be eased on deposit pricing). The bank has also indicated that deposits were €64.8bn compared with €63.6bn in both December and June 2012. The Core Tier 1 ratio was flat at 15.1%.
Though interest income is a little light, this is due to lower assets than anticipated with the margin within 1bp of our forecast, showing H212 was the trough and giving some confidence on our above consensus margin at BOI ahead of its H113 results tomorrow. The bad debt charge is a little higher than anticipated, but group impaired loans are flat, so we will likely hold our full year numbers. Major revisions today are unlikely on an underlying basis and these figures are reassuring."
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