16th May 2006 07:01
Allied Irish Banks PLC16 May 2006 EMBARGO 7.00 AM 16 MAY 2006 Allied Irish Banks, p.l.c. Trading Update Allied Irish Banks, p.l.c. ("AIB") (NYSE:AIB) is issuing the following update ontrading following a review of performance in the year to date. All trends inthis update are in constant currency terms. Since issuing guidance in February 2006 business in all our principal franchiseshas been strong and these positive trends are being sustained. Customer demandis buoyant and both the pipelines of new business and their high levels ofconversion at good rates of return on capital underpin our confidence in thefuture. Asset quality is very strong and recoveries of impaired loans areparticularly high in the year to date. Productivity continues to improve and we are targeting income growth to exceedcost growth at enterprise and individual division level. Economic conditions inour international and domestic markets are good and create a very positiveenvironment for us to develop high quality business. We continue to investheavily in our people and systems to underpin and sustain profitable growth. Theinvestment programme in our operations is also designed so that we are wellpositioned and prepared to meet industry wide regulatory requirements. Profit is expected to increase in each of our operating divisions this year. Wealso anticipate a good increase in the contribution from our investment in M&T. For the full year 2006, we are now targeting mid to high teens growth inadjusted basic earnings per share (EPS).* This guidance is relative to the 2005number of 145.9c. The rate of EPS growth for the interim 6 months to June isexpected to exceed that of the full year's due to a level of impaired loanrecoveries in the current period that we consider to be exceptional. Our planned growth will be supported through a combination of capital wegenerate internally and capital we select from a suite of other availablesources. Our funding profile is conservative and was recently boosted by thesuccessful and efficient raising of €3.5bn in the fixed income market. * Excludes profit on Bankcentre sale and development, profit on Aviva / ARK Lifetransaction and hedge volatility under IFRS REPUBLIC OF IRELAND DIVISION Our domestic retail and commercial banking franchise is performing strongly. Ahigher interest rate environment is expected to temper rather than materiallyreduce customer demand and we are now targeting loans to increase this year byaround 25%, higher than previously guided in February. We expect growth incustomer deposits to be around 15%. Competition remains intense although itsimpact is as anticipated. Our recently revised suite of products and servicesfurther underpins the resilience and potential of our market position. We have agreed a framework for performance related pay with our staff that setsus apart from our peers. This action reflects our confidence in the future andensures we continue to attract and retain key people to sustain long termgrowth. It increases the proportion of variable costs and together with otherdiscretionary investments in our business will mean an above trend growth incosts this year. However, we expect the rate of income growth to be greater thanthe rate of increase in costs. UK DIVISION In Great Britain our focus on chosen business sectors continues to deliver highquality growth. The consistent high grade customer service we provide iscreating an abundance of opportunities and there is strong momentum in bothloans and deposits. Our aggressive business development plan is being executedby high calibre teams in which we continue to invest and supplement withadditional skilled people. Branch and office locations are being upgraded orrelocated to ensure we optimise the potential of our market position. First Trust in Northern Ireland is performing well and in line withexpectations. Full year loan growth for the division is expected to be over 20% and depositsare expected to grow by around 15%. CAPITAL MARKETS Corporate Banking, which comprises over half this division's profit, is enjoyinganother outstanding year. We have a proven ability to identify and establishpremium positions in attractive international markets from which we derive over70% of Corporate Banking's profit. This ability, allied to a strong domesticfranchise is the hallmark of Corporate Banking's consistent outperformance. Weare targeting loans to increase by around 20% this year and expect the patternof strong profit growth to continue. Global Treasury is performing well. Performance in our customer business is welldistributed and robust across the major product lines of foreign exchange, cashmanagement and interest rate risk management. Performance in our wholesalebusiness is in line with expectations with our bond management activities ahighlight. Goodbody Stockbrokers and our corporate finance teams are notable contributorsto an overall good performance anticipated in Investment Banking. POLAND DIVISION A year of strong profit growth is expected in Poland. Buoyant demand for our best-in-class investment funds products is a particularhighlight. Momentum in the latter months of 2005 has continued and inflows fromnew and existing customers are running at record levels. An increase in our loan book of around 10% is anticipated with good demandevident for personal loans. Demand for local currency mortgages is beginning torecover which we see as a welcome development. The business lending environmentis gradually improving and while liquidity amongst corporates is still highthere is a positive outlook for investment spending which should increase loandemand. In the savings market, customers are primarily focused on investment funds; weexpect a single digit increase in our deposits this year. M&T BANK CORPORATION A good contribution is expected again in 2006 as M&T maximises opportunities ina relatively lower growth environment. In the first quarter of this year, M&Tonce again exceeded market consensus. Both efficiency gains and furtherimprovements in asset quality were highlights of performance. MARGINS In line with our guidance at the announcement of our 2005 results in February wecontinue to expect around 20 basis points of reduction in our net interestmargin this year. The causes are the same as they have been for some time -loans growing faster than deposits, lower reinvestment rates for customeraccount funds, business mix and competition. NON INTEREST INCOME We are now targeting a significant increase of around 12% in 2006. In Poland,asset management, stockbroking and payment processing fees are all growingstrongly. Activity levels and business pipelines are also well up on last yearin our Irish corporate finance business. COSTS We are confident that we will again achieve our core objective of maintaining apositive gap of at least 3% between income and cost growth. This year we expectan above trend cost increase of around 9%. In this time of exceptional opportunity and income buoyancy we consider itprudent to invest so that the long term health of our business is assured.People recruitment and reward, building common operating systems and a resilientrisk, compliance and corporate governance framework across the enterprise areall essential ingredients vital to achieving this goal. In the event of anincome slowdown, the pace of investment would be moderated without impairing ourbusiness. ASSET QUALITY All leading indicators of asset quality are solid. We remain vigilant in ourassessment and management of risk; while this is an exceptionally benign creditenvironment, there are currently no trends or developments that lead us toforesee an imminent deterioration. We now expect the bad debt provision chargein 2006 not to exceed 15 basis points of average loans. As referred to earlierin this update, very high non recurring recoveries in the first half are likelyto mean a lower charge in the interim period to June. NOTE Group results for the interim period to 30th June 2006 will be announced on 1stAugust 2006. -ENDS- For further information please contact: Alan Kelly Catherine BurkeGeneral Manager, Group Finance Head of Corporate RelationsAIB Group AIB GroupBankcentre BankcentreDublin 4 Dublin 4Tel: +353-1-6600311 ext. 12162 Tel: +353-1-6600311 ext. 13894 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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