herald

Thursday 14 December 2017

AIb profits unlikely to go to customers

AIB recorded a pre-tax profit of €437m during the first six months of this year, a €1.275bn turnaround on the €838m loss for the first half of 2013.

However, on closer examination the profit recorded by AIB raises as many questions as it answers.

The main contributor was a drop in loan loss provisions from €738m to just €92m. Without this huge reduction in the provision for bad loans AIB would still be in the red.

The good news is that AIB's performance also improved at the operating level i.e. before loan losses.

These quibbles aside, operating income rose by 36pc to €1.26bn in the first half while operating costs fell by 9pc to €686m over the same period at AIB.

With the exception of the first haf of 2011 this is the first pre-tax profit recorded by the bank since 2008.

After almost six years and €20.8bn of taxpayers' money what was once dubbed "Arrogant Irish Bank" is finally on the mend.

While it is still unlikely that the government will see all of our money again, a return to profitability means that the likely loss will be considerably smaller whenever it gets around to offloading its 99.8pc shareholding.

That's the good news. The bad news is that, even with AIB back in the black, its customers, both borrowers and depositors, are unlikely to benefit any time soon.

With competition having virtually disappeared from the Irish banking market AIB has been able to claw its way back to profitability by ruthlessly squeezing all of its customers.

clobbered

Depositors are getting lower interest rates on their savings, current account holders are being clobbered by higher charges while borrowers are paying higher interest rates.

Worst hit of all have been variable rate mortgage borrowers. They are now paying a 4.5pc interest rate while the official ECB interest rate is a mere 0.15pc.

The fact that AIB, and the other banks, can charge variable rate mortgage customers a 4.35pc spread over offical ECB interest rates is eloquent testimony to the lack of competition in the market.

Ironically it is this lack of competition that might make AIB attractive to an overseas bank.

If, and that's still an awfully big "if", AIB can get through next October's ECB bank stress tests, its juicy margins might begin to tempt potential buyers.

As AIB's loan losses begin to recede into the past, greed may begin to replace fear among would-be purchasers. This could mean that the government recoups most of its AIB investment.

Unfortunately this will bring no relief for AIB's customers. They will continue to pay for AIB's irresponsibility during the Celtic Tiger for many years to come.

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