AIB has reported pre-tax losses of €2.656 billion for 2009 after what it called a very challenging year.
The bank said it was putting aside a €5.38 billion provision for bad loans, an increase of €1.85 billion in 2008. It said this equated to 4.05% of its average customer loans (1.3% in 2008).
AIB said that the operating environment continued to be very difficult with both the increased costs of deposits and higher funding costs evident.
Finance Minister comments
Minister for Finance Brian Lenihan said AIB's results show that NAMA is forcing the banks to face up to the reality of their bad loans, by making them take losses on speculative property loans up front.
That is borne out by the large losses that AIB is reporting today, Mr Lenihan said.
Were it not for NAMA, the banks might still be nursing their loans in an attempt to spread their losses over a prolonged period, he said. This might benefit their shareholders but it would the choke the prospects of economic recovery.
Mr Lenihan told RTÉ News that if any more taxpayers' money goes to AIB, it will be for an increased share in the bank.
However, putting more taxpayers' money into the bank is a last resort, he said.
He said that everything the Government has done to date has been in an attempt to put the banks in a positive position, so they can attract funds from elsewhere.
Asked about possible mortgage interest rate increases, Mr Lenihan said the European Central Bank has kept rates at a record low, but said banks will have to do more to keep it that way. However, he acknowledged that banks have to access money from somewhere.
AIB losses
Losses in AIB's Republic of Ireland operations were €3.5 billion last year, and it said the cost of the Irish Government guarantee scheme rose to €147m last year compared to €28m in 2008.
The Irish losses were driven by higher provisions for impaired loans of €4.5 billion. The bank said its operations here experienced a very difficult year. It said that demand for credit from customers was 'subdued', reflecting concerns about job security, reductions in disposable income and a more cautious approach toward investments.
Costs at its Irish operations were tightly managed in 2009 and total operating costs were down 15% compared to 2008. Personnel costs were down 17% as the bank's headcount fell by 380 during the year.
The bank said its group net interest income fell by €634m to €3.233 billion, with gross loans falling by 3% and customer accounts declining by 11%.
Percentage of group impaired loans jump
AIB said its group impaired loans as a percentage of total customer loans jumped to 13.5% in 2009 from 2.3% the previous year. It said 'this reflects the considerable and continued deterioration in the markets in which the group operates' - mainly the Irish property market, and to a lesser extent the UK. Property and construction impaired loans make up 77% of the total impaired loans.
It added that 11%, or 63%, of its group impaired loans, related to loans held for sale to NAMA and represent 47% of total NAMA eligible assets of up to about €23 billion.
Impaired loans in Ireland increased to 18.9% of total customer loans, an increase from 2.4% in 2008 due to the continuing and severe downturn in the property sector with little activity reported.
€10.1 billion, representing 52% of the €19.4 billion of loans held in AIB's Irish operations for transfer to NAMA, are impaired. 96% of these impaired loans relate to the property and construction sector.
Criticised loans rise to €38.2 billion
AIB said its total criticised loans by the end of the year were €38.2 billion, or 29.4% of total customer loans. This compares to €15.5 billion or 11.7% of total customer loans at the end of 2008.
The bank said its Irish operations accounted for 77% of the increase in criticised loans. As well as the downgrading of values in the property and construction sector, there were also major price downgrades in the hotels, pub and motor trade sub-sectors during the year.
Levels of arrears also increased in the residential mortgage portfolio with those in arrears for over 91 days at 1.96%, up from 0.7% at December 2008.
AIB said that following the transfer of loans to NAMA, its Irish operation's loans at about €58 billion will represent about 55% of the group's loan portfolio. This is made up of €27 billion in residential mortgages, €12.8 billion in property and construction loans, €12.6 billion in non-property loans and a further €6 billion in the personal sector.
The bank says that the outlook and environment remains extremely challenging. 'There are very significant matters and initiatives including NAMA, the European Union decision on restructuring and funding costs/market conditions, all of which would materially affect the group's performance,' its results statement said.
It added that in line with global trends for banks to hold more capital, AIB will be moving to increase its capital ratios.
Doherty won't rule out need for more state aid
AIB Group managing director Colm Doherty says he has prepared a capital development plan, which has been approved by the board of AIB, and that the plan is being implemented.
'We clearly have a number of extremely valuable and divisable assets which we will be able to optimise value from. After we have done that we could go to our shareholders for a rights issue,' he says.
Mr Doherty also says the bank has been approached by a number of other financial institutions with regard to a strategic investment in the bank, but he declined to say who those were.
He says that once the bank had exhausted all of the other options in relation to raising capital, only then would he see the bank going back to the State, though he could not rule it out.
Separately, AIB's Polish lender BZ WBK beat expectations and reported a 4% net profit rise last year, keeping its bad loans under control. The bank earned earned 886 million zlotys (€226m) last year compared to the 831 million (€212m) expected by analysts.
Shares in the bank closed up 2% at €1.02 in Dublin this afternoon.
