5th Nov 2019 09:14
(Alliance News) - AIB Group PLC on Tuesday said it has delivered a solid underlying performance in 2019 so far despite an increasingly challenging operating environment for European banks.
The Dublin-headquartered bank said net income "remained steady" in the nine months ended September 30.
AIB's net interest margin for the period was 2.42%, though taking a 7 basis point hit year-to-date from excess liquidity and further weakened by a drop in investment securities income and "increased MREL-related funding costs". MREL stands for minimum requirement for own funds and eligible liabilities and is set by the Irish central bank.
Yield on customer loans has held steady as 4.5%, with the spread between deposit costs and customer loans widening, AIB said.
For the three months to September, an "enduring negative interest rate environment" resulted in an 11 basis point hit to AIB's net interest margin of 2.32% as a result of average euro excess liquidity totalling around EUR4 billion in the quarter.
"We continue to take management action in relation to negative deposit pricing. Due to the distortionary impact on NIM from excess euro liquidity volumes grossing up our balance sheet, we expect our full-year NIM to be marginally below 2.40%," said AIB.
For the year as a whole, fee and commission income looks to be stable, but other business income is forecast to drop.
AIB is making an effort to cut costs, expecting annual costs of around EUR1.5 billion. Regulatory costs and levies are expected at EUR100 million, which aligns with expectations. Second half exceptional items are expected to be similar to the first, inclusive of a loss on disposal of portfolio sale and termination benefits.
As at September 30, gross loans stood 0.3% higher at EUR62.7 billion versus EUR62.9 billion at the end of 2018, while the performing loan book was up 2.3% at EUR58.1 billion from EUR56.8 billion.
New lending was in line year-on-year and is expected to remain so to the end of the year.
Non-performing exposures at the end of September came to EUR4.5 billion versus EUR4.7 billion at the end of June and EUR6.1 billion at the end of 2018. "Further NPE reduction remains a priority given the impact on cost, capital requirements and balance sheet resilience," said AIB.
Customer accounts rose 3.7% to EUR70.2 billion from EUR67.7 billion on a "strong Irish macro-economic backdrop" and the loan to deposit ratio on September 30 was 87%.
Chief Executive Colin Hunt said: "Following a solid operational performance in H1, we continue to focus on controlling the controllables; non-performing exposures, quality of lending and cost discipline. Our recently announced portfolio sale brings our 2019 c. 5% NPE milestone into sight. We continue to align our business to serve our customers sustainably and look forward to updating the market in Q1 2020 with our strategic refresh and intentions for capital return."
Shares in AIB were down 1.2% at EUR3.04 on Tuesday morning in London.
By Anna Farley; [email protected]
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