AIB chief defends hefty half-year €1.2bn profit as interest rates climb
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AIB chief executive Colin Hunt has scrambled to defend the huge returns being generated from hefty increases in interest rates as Ireland's major lender predicted it was set for an "exceptional" 2023.
The lender posted a huge uplift in operating profit to over €1.2bn for the first six months of the year, and predicted “a very good” outcome for the full year, helped by European Central Bank rate hikes and the lessening of competition from the departure of former fierce rivals, Ulster Bank and KBC Bank, from the banking market in the Republic.
The bank is the first of the three remaining major lenders to report financial results at the half-way stage. Bank of Ireland and Permanent TSB are also expected to outline the huge windfalls from rate hikes and from the further rapid contraction in what was left of competition in the Irish banking market for households and businesses.
The other lenders are set to present their financial score cards next week.
The Irish banks have come under some pressure this year over the paltry deposit rates they are offering even as the European Central Bank started to increase official rates last summer.
Following a further increase on Thursday, ECB rates are now standing at over 20-year-highs, and may rise higher again in September, which would help lenders generate even more interest income from their loan books.
That in turn has put the spotlight on the huge amounts of income that banks generate from charging interest on their mortgage, business, and personal loans, and in turn how much they are prepared to pay savers for their deposits.
Stock market investors are alert to any political pushback in European countries on the amount that lenders are paying out to savers, but in Ireland the departure of Ulster Bank and KBC Bank has considerably reduced the market pressure on the three remaining lenders to do so.
On a conference call with analysts, Mr Hunt was asked whether he anticipated pushback from regulators, or from any other sources, over banks generating hefty income returns.
Mr Hunt stressed the “exceptional” nature of the financial returns this year and insisted the lender was seeing to build a profitable base to sustain appropriate levels of lending for future years.
“On the returns, we are characterising the [rate of return] we expect to deliver in 2023 as exceptional, and I am certainly not aware of any eyebrows being raised in any quarter in relation to the exceptional performance we have delivered as a very strong financial results we have presented today," Mr Hunt said.
“There is a direct and symbiotic relationship between how strong this bank is and the Irish economy, and we are not alert to or aware of any signs that the success the bank is generating concern at regulatory or political levels,” he said.
Earlier, Mr Hunt said the bank was in a very strong financial position and had returned money to the State by way of the Government's stake of just under 47% in the lender.
The bank had opened a significant number of new customer accounts, he said, adding the economy was "resilient", and the bank had already moved from penalising some savers with negative rates to offer saver rates of as much as 2% on some products.
He said the bank had been "restrained" in not passing on in full the ECB rate increases to its mortgage and personal borrowers.
Net interest income surged to €1.77bn by the end of June, up from €895m a year earlier, and after-tax profits rose to €854m, the lender said.
In the earnings statement, AIB said the bank had “delivered a strong financial and operational performance” helped by acquiring new customers “against the backdrop of an evolving banking market, a higher interest rate environment, and a resilient Irish economy”.
Shares in AIB rose by almost 4% on Friday. They have now risen 15% since the start of the year, and have surged by an enormous 92% from this time last year.
That values the lender at more than €10.5bn on stock markets.
However, analysts have raised questions about whether Irish bank shares can continue to rise strongly should the European Central Bank start cutting interest rate next year.