AIB shares have opened sharply lower after issuing an interim management statement this morning, in which it substantially reduced its earnings forecast for this year.
The bank said it does not expect a ‘meaningful’ recovery in the residential market until 2011.
AIB Group, Ireland's biggest bank, said bad debts, largely because of loans to residential property developers in Ireland, would increase this year and next, well beyond the bank's and analysts expectations.
Worries over loans to property developers lead the group to reduce its earnings forecast for the rest of the year to €1.20.
Originally it had forecast earnings of between about €1.80 and €1.90 per share. Analysts had forecast around €1.70 before the statement was released.
AIB will not be paying a dividend to its shareholders.
Minister for Finance Brian Lenihan said he is worried that the bank does not estimate a meaningful recovery in the mortgage market until 2011.
Speaking in Dublin this morning, Minister Lenihan said AIB's trading statement showed just how important the government's action to stabilise the Irish banking sector had been.
He also said yesterday's exchequer figures were in line with those contained in the Budget and at the moment he did not see the need for a ‘mini-budget’.
However, Mr Lenihan said that if there is further deterioration, corrective action will be taken to ensure expenditure remains within the ‘proper limits’.
