TIDMALBK
RNS Number : 3605Y
Allied Irish Banks PLC
05 December 2017
EMBARGO 07:00 5 December 2017
Allied Irish Banks, p.l.c. ("AIB") - Trading update
(UNAUDITED)
On track to deliver a full year financial performance in line
with market expectations
CEO Comment on Financial Performance
"Following a strong financial performance in H1 and the
successful completion of the IPO in June, H2 YTD performance
continues to deliver sustainable profitability, generating capital
of 100bps to finish Q3 with a fully loaded CET1 ratio of 17.6%. The
growth in new lending and earning loan balances combined with
further reductions in impaired loans are creating a stronger
balance sheet and further improving the bank's risk profile. As we
approach the end of the three year EUR870m investment programme, we
continue to focus on understanding better our customers' needs,
becoming more efficient and sustainably delivering for both our
customers and our shareholders."
Key Highlights
-- Continued strong profitability and consistent capital
generation
-- Fully loaded CET1 of 17.6% at end September 2017 up 230bps
from 15.3% at December 2016, remaining well in excess of our medium
term CET1 target of 13%
-- Transitional CET1 of 21% at end September 2017 very
materially above SREP requirements
-- Net Interest Margin(1) (NIM) of 2.57% for the nine months to
September 2017 up 3bps from H1 NIM (2.54%)
-- New ROI lending drawdowns to Q3 up 15% yoy
-- Earning loan book continues to grow in line with H1
performance
-- Impaired loans of EUR7.3bn at end Q3 down 20% from EUR9.1bn
at year end 2016 with strong momentum continuing into year end
Economic Environment
Economic conditions in the domestic Irish economy remain
positive. GDP growth in 2017 has been stronger than expected and is
now c. 4.5%. The unemployment rate in October 2017 fell to a new
nine-year low of 6%. Employment growth is trending at c. 2.5% with
job creation across most sectors, including the construction
sector. Activity metrics in the housing market point to a steady
improvement although supply constraints remain.
With high levels of uncertainty in the global economy and in
particular with the potential challenges of Brexit, we continue to
work closely with our Irish and UK-based customers to better
understand the potential implications of Brexit and to support
their businesses. To date the impact has been modest for both the
Irish and UK economies.
Financial Performance
The Group had a strong Q3 performance and is on track to deliver
a full year financial performance in line with market expectations.
Sustainable NIM increased to 2.50%(1) by the end of Q3 up from
2.47% in H1 2017 with stable asset yields and lower funding costs.
Taking account of interest income from cured loans, reported NIM
was 2.57% at the end of Q3, up 3bps and well ahead of our medium
term target of 2.40%+.
Customer fees and commissions are stable and in line with
expectations. In the first half of 2017 Other Income benefitted
from gains on re-estimation of cash-flows of loans previously
restructured (including a small number of large transactions) -
reported income from this source has reverted to more normalised
levels in the second half.
Disciplined cost management is a priority across the Group and
trends experienced in H1 are expected to continue for the remainder
of the year. As previously communicated, the factors expected to
impact costs in 2017 include ongoing operational efficiencies, wage
inflation, continued operational investment in loan restructuring
activity and increased cost of regulatory compliance. Our
three-year strategic investment programme is on track and will
conclude in 2017 with more normalised levels of investment spend
expected thereafter. We remain on track to deliver on our
sustainable cost income ratio target of less than 50% by end
2019.
Regulatory costs and levies for 2017, relating to the Single
Resolution Fund (SRF), the Deposit Guarantee Scheme (DGS) and the
Bank Levy, are expected to be broadly in line with guidance given
at the half year stage of c. EUR100m.
We continue to focus on actively implementing sustainable
solutions for customers in financial difficulty who engage with us.
Case by case restructuring is ongoing as we work through higher
volume, lower value impaired loans. Following a small credit
provision write-back in H1 2017, we expect a credit provision
write-back to be recorded for the full year which will be, as
signalled, materially lower than write-backs reported in previous
years.
Exceptional costs in H2 2017 will include costs incurred in the
implementation of IFRS 9 and some lease-related provisions as we
roll out our ongoing property programme.
We are well-progressed with our work on the tracker mortgage
examination and made a substantial provision in this regard in
2015. The Bank continues its work which is subject to review by the
Central Bank. Any change in provisioning levels, as we conclude, is
not expected to have a material impact.
Balance Sheet
Net loans remain stable and in line with H1, reflecting strong
growth in new lending, growth in earning loans and the continued
reduction in impaired loans.
The growth in the earning loan book continued to feature in Q3.
Overall new term lending drawdowns to Q3 2017 were 11% higher than
the equivalent prior year period with a stronger performance from
ROI sectors in particular, which are up 15%. Mortgage lending was
particularly strong with drawdowns up 29%. Our market share(2) of
mortgage drawdowns was 34% to September 2017, in line with our goal
of holding mid-30% mortgage market share over the medium term. UK
lending remains stable, is performing well and reflects the Bank's
current appetite given the Brexit backdrop.
Impaired loans reduced to EUR7.3bn (NPE EUR11.5bn) at September
2017 from EUR7.8bn (NPE EUR12.1bn) in June 2017 and reflects a
strongly resourced and experienced work out unit continuing to
deliver significant progress. This is in line with our plan to
reach normalised European levels of NPEs by end 2019 through
continued case by case loan restructuring and portfolio
deleveraging. The continued reduction in impaired loans and the
associated restructuring activity remains a key focus and a
strategic priority for the Bank.
NAMA Senior Bonds which were EUR0.4bn at June 2017 were fully
redeemed in October.
Overall customer account credit balances remain consistently
stable with a higher mix of current account balances positively
impacting NIM. The loan to deposit ratio was 93% at the end of Q3
2017. Combined with the Bank's strong capital position (see below),
AIB is well positioned to deliver its strategic objectives in a
growing Irish economy.
Capital
The Bank's fully loaded CET1 ratio at September 2017 increased
by 100bps to 17.6%, well in excess of the medium term target of
13%. The increase was due to a strong operating performance and a
reduction in risk weighted assets. On a transitional basis CET1 was
21% and Total Capital 23.8%.
The SREP CET 1 ratio for 2018 is 9.525% with overall
requirements remaining broadly unchanged. The Bank's reported
capital ratios are materially in excess of minimum regulatory
requirements and AIB continues to maintain a very significant
buffer above maximum distributable amount (MDA) trigger levels.
Fitch Rating Agency upgraded AIB plc's Long Term Rating to BBB-
in November 2017. AIB plc is now rated Investment Grade by S&P,
Moody's and Fitch.
Previous guidance relating to the adoption of IFRS 9 and
expected MREL issuance remains unchanged.
Summary
2017 continues to be a year of strong performance for AIB. The
business strategy underpinning the successful IPO in June 2017 is
delivering sustainable profitability and strong capital generation.
The economic backdrop is favourable and our customer first strategy
is delivering results across all our business segments. With regard
to legacy challenges, we remain committed to resolving them in a
fair and equitable way for our customers. We continue to make
progress on our key priorities of simplification, efficiency and
balance sheet normalisation and we are on track to deliver our
medium term targets and commitments.
(1) Interest income also contains additional income from cured
loans, which increased NIM from 2.50% to 2.57%
(2) Source: Mortgage drawdowns ytd to September 2017 BPFI
-S-
For further information, please contact:
Mark Bourke Niamh Hore Orla Bird
Chief Financial Officer Investor Relations Head of Communications
AIB Bankcentre AIB Bankcentre AIB Bankcentre
Dublin Dublin Dublin
Tel: +353-1-6412195 Tel: +353-1-6411817 Tel: +353-1-6415375
email: email: email:
mark.g.bourke@aib.ie niamh.a.hore@aib.ie orla.c.bird@aib.ie
Appendix - Additional information on capital:
Please see table below for further detail on capital
requirements:
SREP Requirements Preliminary AIB SREP Requirement 2018 AIB SREP Requirement 2017
Pillar 1 CET1 4.50% 4.50%
Pillar 2 Requirement (P2R) 3.15% 3.25%
Capital Conservation Buffer (CCB) 1.875% 1.25%
Other Systemically Important Institutions Buffer
(O-SII) (1) 0.00% 0.00%
Total CET1 (2) / MDA trigger 9.525% 9.00%
-------------------------------------------------- -------------------------------------- --------------------------
(1) O-SII phased in from 2019 to 2021 at
0.5% per annum
(2) Excludes Pillar 2 Guidance
-------------------------------------------------- -------------------------------------- --------------------------
Please click here for a link to updated debt investor relations
slides
http://www.rns-pdf.londonstockexchange.com/rns/3605Y_-2017-12-4.pdf
Conference Call Dial-In Details:
Mark Bourke, CFO, will host a conference call for analysts today
at 09.00 GMT
Please dial in 5 to 10 minutes prior to start time
Title: AIB Trading Update - access code 491816
Republic of Ireland +353 (0) 1 246 5637
UK +44 (0) 330 336 9104
Replay facility available until 12:00 GMT 12(th) December 2017 -
access code 8096888
Republic of Ireland +353 (0) 1 5339810
UK +44 (0) 207 660 0134
USA +1 719 457 0820
Important Information and forward-looking statements
This document should be considered with AIB's Annual Financial
Report 2016 and Half-Yearly Financial Report 2017, and all other
relevant market disclosures, copies of which can be found at the
following link: http://aib.ie/investorrelations
This document contains certain forward-looking statements with
respect to the financial condition, results of operations and
business of AIB Group and certain of the plans and objectives of
the Group. These forward-looking statements can be identified by
the fact that they do not relate only to historical or current
facts. Forward-looking statements sometimes use words such as
'aim', 'anticipate', 'target', ' expect', 'estimate', 'intend',
'plan', 'goal', 'believe', 'may', 'could', 'will', 'seek',
'continue', 'should', 'assume', or other words of similar meaning.
Examples of forward-looking statements include, among others,
statements regarding the Group's future financial position, capital
structure, Government shareholding in the Group, income growth,
loan losses, business strategy, projected costs, capital ratios,
estimates of capital expenditures, and plans and objectives for
future operations. Because such statements are inherently subject
to risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward-looking
information. By their nature, forward-looking statements involve
risk and uncertainty because they relate to events and depend on
circumstances that will occur in the future. There are a number of
factors that could cause actual results and developments to differ
materially from those expressed or implied by these forward-looking
statements. These are set out in the 'Principal risks and
uncertainties' on pages 50 to 58 of the Annual Financial Report
2016 and on page 34 'Update on risk management and governance' of
the Half-Yearly Financial Report 2017. In addition to matters
relating to the Group's business, future performance will be
impacted by Irish, UK and wider European and global economic and
financial market considerations. Any forward-looking statements
made by or on behalf of the Group speak only as of the date they
are made. The Group cautions that the list of important factors on
pages 50 to 58 of the Annual Financial Report 2016 and on page 34
of the Half-Yearly Financial Report 2017 is not exhaustive.
Investors and others should carefully consider the foregoing
factors and other uncertainties and events when making an
investment decision based on any forward-looking statement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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