AIB could pay back €21bn to State within ten years - Duffy

AIB chief executive David Duffy said he hopes that the bank's €21 billion bailout would be returned to the State within 10 years but added that it was "impossible" to be sure about the exact timeframe.

“It’s impossible to say…it’s a matter of timing,” Mr Duffy said in response to a question from Fianna Fáil’s finance spokesman Michael McGrath at the Oireachtas finance committee.

He said the bank was currently valued at about €10 billion and expressed the hope that this could be doubled within a “few years”.

Mr Duffy reiterated that the State would receive the bailout funds back in full. “It will take time but that would be our expectation,” he said. “Our simple mission in life is to return the entire value back to the taxpayer.”

Discussions with regulators

The AIB chief said discussions would be held shortly with the Department of Finance and financial regulators in Dublin and Frankfurt to clarify its capital position, which he said was an important step before seeking any funding from capital markets.

“It is only when that is clear and resolved that investors would be willing to make an investment,” Mr Duffy said.

He added that the bank’s return to profitability and the momentum in the business meant that AIB should be an “investable proposition” by the time its full year results are published in March next year.

No big bang sale

In terms of selling a stake in the bank to private investors, Mr Duffy said it was like that there would be a “a number of sales rather than one big bang”.

AIB also told the committee that it might be able to pay the coupon to the State on its preference shares for the first time when it falls due next May. To date, the bank has issued additional shares to the State rather than paying cash to meet the terms of the preference shares.

New lending

Mr Duffy also said the bank is “on track” to provide new lending of between €7 billion and €10 billion this year.

New lending drawdowns of about €4 billion in the first nine months of the year represented a 40 per cent increase on the same period in 2013, Mr Duffy added. “These figures are reflective not only of the improving economic backdrop in our main markets of Ireland and the UK but also speak to the underlying ability of the bank to lend prudently to our customers,” he said.

Return to profit

Mr Duffy noted that AIB had returned to profit this year with a pretax surplus of €437 million in the first half of the year. To the end of September, total impaired loans reduced by about €4.6 billion - a 16 per cent drop since December 2013.

The total number of accounts in arrears in its Irish residential mortgage portfolio fell by 11 per cent and arrears for owner-occupier mortgages was down 15 per cent, he added.

“While there is much conjecture as to the appetite for banks to lend in the economy, I want to be clear that AIB is seeking to increase its lending and has the ability to do so,” Mr Duffy said,

AIB approved total lending of around €9 billion in the first nine months of 2014, up 39 per cent year on year.

Variable and fixed rates

Mr Duffy said AIB’s decision to reduce its variable and fixed interest rates for owner-occupier mortgages would benefit about 146,000 account holders. The reduction will save up to €334 a year on a €200,000 mortgage with a 25 year term, he explained.

Mr Dufy said the bank is also focusing on debt resolution for SME customers.

“We are accelerating activity in this area and are meeting targets for restructuring,” he said. “Facilitating SME customers to return to more manageable debt levels and moving onto growth requires intensive one-to-one engagement but we are seeing tangible results and this is reflected … in the reduction in the level of impaired loans on the bank’s balance sheet.”

Mr Duffy said AIB continues to face a number of challenges and that “overall personal and business debt levels and the number of impaired loans in the economy are still elevated”.