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AIB focus on mortgage, SME arrears

Wednesday, April 09 15:06:35

AIB Chief Executive Officer David Duffy said today that the majority of restructuring on SME and mortgage arrears in the bank's loan book will be completed over the next 12 months.

Speaking to the Oireachtas Committee on Finance, Public Expenditure and Reform, Duffy said AIB remains "steadfastly focused on mortgage and SME debt arrears management and implementing solutions for customers in financial difficulty."

He said that the bank has stabilised its balance sheet, is positioned for lending growth, and is targeting a return to full underlying profit in 2014. The bank recently reported a return to pre-provision operation profit for 2013 and today Duffy noted that AIB's provision charges were E625m lower last year than in 2012. "Ultimately, we intend to see the bank make a return to the Irish State over time, at the Government's discretion," he said.

Regarding mortgage and SME arrears, Duffy said: "Resolving these cases is a difficult, labour-intensive and constant operation - and demands time, empathy and resources. But, it is not intractable. Our enduring priority is to keep people in their homes where possible and to safeguard jobs and businesses while ensuring taxpayers' capital is appropriately utilised."

Highlighting the issue of SME arrears, Duffy pointed out that in monetary terms, SME arrears are "by far the larger portion of AIB's troubled loan book". He said that the bank is making "very strong progress in resolving our SME arrears book and are seeing much higher rates of customer engagement relative to our mortgage book."

"I will not labour the point, but engagement is the key that unlocks the conundrum for most distressed borrowers. Having established positive engagement, we can then proceed to agree an outcome that provides certainty to all parties and allows both customer and bank to move onto a sustainable financial arrangement. In a bid to maximise its reach to customers in financial trouble, and after reflecting on feedback from Oireachtas members at our last meeting, AIB has explored new avenues, including the involvement of consumer advocacy groups - a development that has already led to breakthroughs in a significant number of cases. All resolutions offered to customers in difficulty are assessed on the basis of the borrower's affordability in respect of their mortgage."

"Cognisant of its responsibility to the Irish taxpayer, AIB must, as a core fiduciary principle, seek full repayment of mortgage debt where the customer has the ability to meet that payment from their NDI. Any other outcome is unacceptable from a commercial perspective and would be grossly unfair to the significant majority of mortgage customers across the country who continue to meet their full mortgage obligations despite changed circumstances."

Duffy told the committee that AIB, as a bank, cannot leave the legal process before an agreement is reached on a sustainable solution with its customers, but added that the bank is "amenable to pause the legal process when a customer chooses to engage meaningfully to reach a non-legal sustainable solution."

"I believe we have demonstrated a clear and differentiated willingness to pragmatically engage with cooperating customers in reaching sustainable solutions and also to leave the door open to those in the legal process who are non-cooperating to re-engage meaningfully with the bank. However, the flip side of this is that we must, as a commercial entity, enforce our rights over the property. To do otherwise would be a misuse of the capital that has been provided the bank by the State and would ultimately lead an unfair transfer of taxpayers funds from one citizen to another."

The AIB chief also said that the bank is focused on increased lending as part of its overall strategy to return to profit during 2014 and beyond. He said that the bank had exceeded the Government's E4 billion lending target last year, approving credit to 32,000 customers and issuing almost 2 out of every 5 mortgages drawn down in Ireland in 2013.

"The annual SME lending target no longer applies," he added, "but I can confirm that AIB's financial planning is focused on achieving E7 billion to E10 billion in total annual lending approvals - mortgages, personal and business - per year up to 2017."