AIB chief 'expects profitability to ease' next year as rates fall
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AIB chief executive Colin Hunt predicted the lender’s profitability would ease next year as the European Central Bank (ECB) embarks on an interest rate cut roadmap, albeit at a gradual pace.
AIB, which is a dominant player in the Republic of Ireland’s small retail banking market, posted an after-tax profit haul of €1.1bn for the first six months, bolstered by a high interest rate environment, and said it remained “confident” on its outlook for the rest of the year.
“The bank will remain very strongly profitable, although we would expect profitability to ease as we move through 2025 and into 2026,” said Mr Hunt.
Mr Hunt added the bank would enter this period from an “exceptionally strong position”, as new lending continues to grow amid demand and customer acquisition following the exit of Ulster Bank from the Republic.
The lender forecasts net interest income, fuelled by monetary policy changes by the ECB, to reach about €4bn for the year.
Mr Hunt noted the expectation ECB rates will be reduced further by 0.5% by the end of the year but maintained “there’s no implicit assumptions there in relation to our own product pricing”.
The ECB cut rates for the first time in June, since hiking them in July 2022 in an effort to drive down stubborn inflation, but industry brokers have told the they are not optimistic that Irish banks will be quick to pass on reductions to customers as they were slow to implement the increases.
Mr Hunt said he did expect some changes in consumer behaviour in the second half of this year and going into next year as monetary policy changes.
“We’ll begin to see more and more customers looking for the standard variable rate rather than fixed,” said Mr Hunt.
“As interest rates went up we saw more people take out fixed products,” he said, adding he envisaged a flow back to variable rate offerings.
AIB customers have grown from 2.7 million to 3.3 million in recent years, driven mainly by reduced levels of competition.
Earlier this year, the Economic and Social Research Institute said loan to ratios were reaching multiples of the Celtic Tiger era and a decision by the Central Bank to loosen mortgage lending rules was likely fuelling house price inflation.
However, Mr Hunt said AIB continued to be “prudent but conservative” in its lending and that there was “no evidence of over lending out there”.
Meanwhile, the bank levy will cost the lender about €102m this year, which will fall due in October, up from €37m paid last year.
The levy was introduced in Budget 2014 as a measure to ensure banks supported economic recovery following the the financial crash of 2008. It is set to be extended in the upcoming budget.