AIB Swings to Loss on $1.4 Billion Bad Loans Charge

(Bloomberg) -- AIB Group Plc set aside 1.2 billion euro ($1.4 billion) to cover bad loans, pushing the Irish lender into a loss as the coronavirus batters the nation’s economy.

The bank, which is 71% owned by the Irish government, reported a loss after tax of 700 million euros for the first half of the year driven by the provision. That compared to a 361 million euro profit a year ago. The company’s shares fell 4.2% in Dublin.

Banks across the globe are scrambling to cope with the consequences of the coronavirus outbreak. Rival Bank of Ireland Group Plc on Wednesday took a charge of almost 1 billion euros for the first half of 2020. That lender is set to cut its headcount to below 9,000 from 10,400 in the medium term. By contrast, AIB suspended its voluntary redundancy program as the scale of the coronavirus crisis became clear.

“We need all hands on deck for the next six to nine months” to deal with coronavirus-related issues, AIB CFO Donal Galvin said in an interview. The provision should be “80% to 90% of the potential full year charge” depending on how the economy recovers, he said.

The results also showed:

• Net interest income -8% y/y to 967 million euros
• Net interest margin 2.1%
• New lending fell 27% to EU4.4B
• Pro-forma fully loaded CET1 ratio 15.6%
• NPLs increased 14%, bad loan ratio now 6.3%
• AIB expects net interest income to be 5% lower than originally expected for the full year

“We view the results as a front-loading of impairments to the benefit of future year earnings, but further cost initiatives are also expected to underpin management’s reiterated medium-term targets,” Stephen Lyons and Diarmaid Sheridan, analysts at Dublin-based securities firm Davy, said in a research note.

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