AIB chief executive Colin Hunt said on Wednesday he expects the bank to “materially exceed” its own medium-term profitability target this year amid rising interest rates and its purchase of loans from Ulster Bank.
The bank set an overriding financial goal in December for its net profit to rise by 2024 equivalent to at least 13 per cent of tangible equity shareholders (ROTE) hold in the business from 8.2 per cent in 2021.
However, speaking on a call with analysts on Wednesday, Mr Hunt said he now expects that medium-term target to be beaten in 2023. His comments came after AIB posted a better-than-expected 19 per cent increase in net profit last year and said that it plans to increase investor distributions to €381 million.
The proposed cash returns compare with €213 million the lender spent a year ago on dividends and share buy-backs. Further increases are expected in the coming years as the bank’s profitability continues to improve. The State continues to own about 55 per cent of the bank, having reduced its holding from 71 per cent early last year by selling shares.
Net profit at AIB rose to €765 million from €629 million a year earlier, the bank said in a statement on Wednesday. Its €880 million pretax profit was more than a fifth ahead of consensus estimates in the market, said Davy analyst Diarmaid Sheridan.
Total income increased 21 per cent last year to €2.89 billion, fuelled by a 20 per cent jump in net interest income to €2.16 billion. The was driven mainly by €32 billion of excess customer deposits and cash which became profitable as the European Central Bank (ECB) moved from charging banks for surplus money lodged with it to paying interest. AIB also passed on some of the ECB’s main lending rate increases to customers.
AIB has forecast that its net interest income will exceed €3 billion this year. Mr Sheridan at Davy said analysts will have to upgrade their 2023 earnings forecasts for the bank.
Other income rose by a quarter to €736 million, boosted by the acquisition in late 2021 of Goodbody Stockbrokers as well as other commissions and fees on the back of rising business activity.
“2022 was an eventful year as the impact of the Covid-19 pandemic receded, geopolitical uncertainty increased and cost of living pressures emerged amid rising interest rates,” said chief executive Colin Hunt. “Despite high levels of volatility in the global environment, the Irish economy performed well and remains on track to record further growth in 2023.”
The bank took a net €7 million loans impairment charge for the year, with a release of Covid-related provisions in the first half offset by €316 million charge taken in the second six months of the year “driven by macroeconomic uncertainty and the potential impact from inflationary and interest rate risks”.
The lender also booked €231 million of exceptional charges, including €101 million to cover compensation and associated costs as it redressed investors affected by a failed series of boom-time UK commercial property funds, known as the Belfry Funds. The bank had set aside a similar-sized provision against the funds in 2021.
AIB is currently in the process of taking over about €9.5 billion of corporate, commercial and tracker mortgage loans from Ulster Bank, as the latter exits the market. Some €2.1 billion of corporate and commercial loans had already transferred by the end of December, with the remainder expected to be largely complete by the end of June.
The company’s new life and pensions joint venture with Canada Life Irish Holding Company, called AIB Life, is now operational, it said, having received regulatory approval. AIB expects the life and pensions venture to launch products in the second quarter of this year, but it will be 2027 before it is making a “meaningful contribution” to group earnings.
Addressing recent political and public disquiet on revelations that former Kilkenny hurling star DJ Carey had secured a writedown of about 80 per cent on €9.5 million of AIB borrowings, after the sale of assets were taken into consideration, Mr Hunt insisted on RTÉ's Morning Ireland programme that the bank treats customers in financial difficulty in a fair and consistent manner.
“There are no special rules. There is no special treatment. There are no special cases,” he said.
Meanwhile, the bank said in its annual report that it will “explore the potential” introduction of AIB stock-based profit-share schemes following the Government’s decision last year to allow bailed-out banks to pay bonuses of up to €20,000 for the first time since the financial crisis. It will also pay healthcare benefits to all staff.
