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Milestone moment as AIB bad loans fall

Wednesday, July 30 10:40:41

AIB returned to profit in the first half of the year after its bad debts on loans fell sharply, marking a major milestone as it moves towards repaying the taxpayers' bailout next year.

The bank, whose rescue in the financial crisis cost taxpayers more than E20 billion - the most given to any Irish lender that is still open - made a pretax profit of E437 million compared with a E838 million loss a year ago.

CEO David Duffy said AIB had seen a 6pc reduction in average arrears and a 9pc reduction in arrears in cases of homeowners.

Mr Duffy said the bank wanted to keep people in their home wherever possible.

He said the bank had made about 80 repossessions but the great majority of these were entirely voluntary.

Mr Duffy said AIB now had about 37pc of the mortgage-lending market, and that the bank was the lead mortgage lender in the market place.

AIB posted a first-half profit in 2011 but only after it imposed losses on junior debtors and sold foreign units. It was last in the black prior to that in 2008 before a banking crisis pushed Ireland into an EU/IMF bailout it completed last year.

The bank flagged its return to profitability in a trading update in May, saying it was driven by a significant reduction in impairment charges. Provisions for soured loans fell to 92 million euros from 738 million in the first half of 2013.

The level of bad loans in Ireland - where almost one in five home loans are in arrears - had made a return to profitability elusive for its banks. AIB said the total number of arrears fell by 6pc in the period.

The bank's proportion of owner-occupiers in arrears for more than 90 days stood at 10.5pc at the end of June, while 25.7pc of all buy-to-let mortgage holders were behind on payments.

AIB's core Tier 1 capital ratio, a measure of financial strength, was 16.1pc at the end of June, and 10.5pc complying with Basel III rules. Its net interest margin - gauging the profitability of its lending - rose to 1.60pc.

AIB, which announced a review of its capital structure earlier this year to prepare the bank for sale in 2015, said it expected to remain profitable for 2014 but challenges remained including a still shrinking net loan book.

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