AIB Group has become the first Irish company to report profits of more than €1 billion with the announcement of pre-tax profits of £826 million (€1.05 billion) for 1998. Profits increased by 42 per cent.
Strong growth in both interest and non-interest income together with tight cost control underlie the record performance. A buoyant domestic economy together with strong performances in Britain, Poland and the US helped the group to generate operating profits before provisions of £903 million (€1.15 billion), an increase of 52 per cent.
Just under half group profits (47 per cent) came from the domestic market where strong loan growth advanced profits. All the group's domestic businesses performed strongly against the background of a buoyant economy with good profit growth from credit cards, leasing, life assurance, treasury operations and Goodbody Stockbrokers.
The results include a once-off profit of £25 million on property disposals bringing the underlying profit back to £801 million. Group chief executive, Mr Tom Mulcahy expressed his great pleasure with the results and his confidence in the outlook for the current year.
Shareholders are to get a second interim dividend of 14p per share (17.78 cents), bringing the total dividend for the year to 22.10p per share (28.06 cents), up 25 per cent.
A breakdown of profits by operating division showed a 39 per cent rise in profits at AIB Bank to £396 million. Made up of branch banking in the Republic, operations in Northern Ireland and Britain and branded businesses such as Ark Life, it accounted for just under half of group profits. Mr Mulcahy described the performance of the division as "colossal".
Branch banking in the domestic market recorded a 23 per cent rise in profits with a 21 per cent increase in loans, a 13 per cent rise in deposits and an improved cost/ income ratio in this sector, down to 57.4 per cent from 61.3 per cent. Profits at Ark Life were 50 per cent ahead at £39 million, while AIB Leasing and Finance produced an increase of 20 per cent and profits on credit cards jumped by 54 per cent.
Asked about the high interest rates on credit cards, Mr Mulcahy accepted the time may have come to review them within the context of lower euro zone interest rates.
Profits in Northern Ireland were 15 per cent higher with a 14 per cent rise in loans and a 9 per cent increase in deposits. In Britain, where AIB specialises in small and medium-sized business, profits rose by 26 per cent. Loans increased by 9 per cent while deposits grew more strongly at 12 per cent reflecting an increase in current account business. The US division was the second largest contributor to profit. With a 28 per cent rise in profits to £200 million, it accounted for 25 per cent of group profits. Fee income from trust and investment advisory services rose by 55 per cent and commercial lending increased by 20 per cent. Retail loan growth was slower at 7 per cent.
AIB had now completed the integration of its £840 million Dauphin acquisition, extracting cost savings of £32 million in 1998 with an additional £16 million of savings projected for this year.
Capital markets was the next largest division in profits terms through growth was slower than in 1997. Profits increased by 7 per cent to £85 million, or 10.6 per cent of group profits. This division is made up of treasury, corporate banking and investment banking operations.
Treasury profits were down on a very strong 1997 outcome but corporate and commercial treasury business increased. Corporate banking profits rose, buoyed by strong loan growth and higher fee income. Investment banking profits rose on strong performances by Goodbody Stockbrokers and International Financial Services Centre operations. Profit growth was restricted by the fallout of the Asia crisis.
The Poland division chipped in £48 million to group profits, up 30 per cent and 6 per cent of group profits. Loans rose by 33 per cent while deposits increased by 24 per cent. Net interest margins fell in an economy where interest rates fell rapidly from 26 per cent in 1997 to 16 per cent in 1998. AIB expanded its network and its product range adding 23 new branches and 38 automatic teller machines as well as new investment and insurance products. The divisional breakdown includes profits of £72 million from group. This included interest on capital not allocated to divisions less central services costs. It rose from £32 million in 1997. Group results show a 17 per cent rise in net interest income to £1.27 billion (€1.61 billion) while other income - from fees and commissions - was 28 per cent stronger at £775 million (€984 million). Non-interest income rose to 38 per cent of total income from 36 per cent. Competition, lower market interest rates and new lower margin products meant further shrinkage in net interest margins - profits from lending less the cost of funds. The group margin fell to 3.33 per cent from 3.67 per cent.
With a 21 per cent rise in total income to just over £2 billion (€2.54 billion) and a 7 per cent rise in expenses to £1.1 billion (€1.4 billion), the group cost/income ratio fell under the 60 per cent level to 54.9 per cent.
Asset quality improved with non-performing loans down to 1.4 per cent of total loans from 1.6 per cent. Provisions were increased as "the prudent thing to do" to 123 per cent of non-performing loans from 113 per cent.
The group recorded a 1.39 per cent return on assets, up from 1.23 per cent.
