AIB has reported "exceptional" after tax profits of €2.058 billion for 2023, up from €765m the previous year and said that overall credit quality remains robust against the backdrop of inflation and higher interest rates.
Shares in the bank rose by over 4% in Dublin trade today.
Ireland's highly concentrated banking sector makes more of its profit through interest revenue than its European peers and AIB raised its net interest income guidance three times last year.
Today it reported a jump of 83% to €3.84 billion for the year to the end of December due to the changed interest rate environment and higher average customer loan volumes.
Its total income for the year rose by 64% to €4.741 billion.
AIB's chief executive Colin Hunt told Morning Ireland that today's results are not just a reflection of what happened in 2023.
"We have been building and preparing for this day for many years; welcoming new customers, acquiring loan books, enhancing our product suite, fixing our balance sheet and growing our business."
AIB said today it plans to return €1.7 billion to shareholders, €696m of it via dividends and the rest through share buybacks. That equated to a payout ratio of 82% of profit after tax, above AIB's target of 40-60%.
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The bank said that represented the start of a return of excess capital to shareholders promised at its 2017 IPO.
"AIB delivered an exceptionally strong financial performance in 2023 with profit after tax of €2 billion,
a return on tangible equity (ROTE) significantly ahead of target and proposed distributions of €1.7 billion," Mr Hunt said.
"2023 was a landmark year for AIB as we concluded our 2021-2023 strategic cycle by enhancing the suite of products and services we provide to our record customer base of 3.3 million as well as transforming the business throughout a period of extraordinary change both globally and domestically," the CEO said.
"During 2023, the Group returned to majority private ownership and we are keen to return further
capital to the State with proposed distributions of €1.3 billion, including a €1 billion directed share
buyback for which discussions are underway," he added.
Today's results show that the bank's gross loans of €67 billion increased by €5.8 billion on the back of the acquisition of loans from Ulster Bank and new lending exceeding redemptions.
AIB said it completed the migration of a further €0.9 billion of Ulster Bank corporate and commercial loans in 2023 bringing the total fair value of loans migrated to €3 billion.
It also migrated Ulster Bank tracker mortgages worth €3.8 billion with the remaining €1 billion worth of loans set to migrate this year.
The lender had a mortgage market share of 33% for 2023, which it said reflected a strong performance in a market which saw lower switching levels compared with the previous year.
New mortgage lending in Ireland reached €4 billion, it added.
The CEO said the ECB had significantly increased interest rates "in terms of scale and pace" over the course of the last 18 months, and AIB had passed on about 40% of the official rate increase to its mortgage customers.
"Our own financial projections in terms of our guidance for future profitability of the group are based on an assumption that we will see interest rates moving from a current level of 4% down to about 2.75% by the end of the year," Colin Hunt said.
"I'm not in a position where I can give any forward guidance on how we will respond to that, but I can assure your listeners this morning is that we will keep our pricing under constant review," he added.
Meanwhile, personal lending rose by 23% to €1.2 billion, which the bank said reflected its bigger customer base, an increase in consumer credit demand and its digital proposition with 89% of personal loan
applications completed online.
New lending to SMEs in Ireland increased by 3% to €1.6 billion, adding that early reaction to its new online business loan application process wan positive.
The bank said today that new green lending of €3.7 billion accounted for 30% of total new lending of €12.3 billion in 2023 while its green mortgage products represented 45% of new mortgage lending.
Last week the State cut its stake in AIB below 40%, the latest milestone in the planned privatisation of the bank, which was bailed out in 2009 and nationalised fully the following year.
The latest disposal reduced the Government's stake from 40.77% to 39.38%.
The bank said today that talks with the Department of Finance in relation to a potential directed buyback of ordinary shares from the Minister for Finance are currently underway.
"Given the size of the potential related party transaction shareholder approval will be required and it is our intention to seek approval at our AGM on 2 May 2024," it added.
AIB's main rival, Bank of Ireland, last week tripled its shareholder returns but a weaker than expected outlook and increase in 2023 profits saw its shares fall by as much as 13%, half of which has recovered by yesterday.
Like Bank of Ireland, AIB said it was setting aside cash to cover potential commercial real estate losses in 2024.
AIB's chief financial officer Donal Galvin told Reuters he expected office and retail values to begin to recover in the second half following a 5-10% fall in the first half.
Today's results show that AIB almost tripled its return on tangible equity (ROTE) to 25.7% last year, way above its target of boosting returns above 13% by 2024.
It reset its targets to 2026 as a result, seeking a ROTE of 15% that analysts at Davy Stockbrokers said would likely end up being conservative.
Shares in the bank were higher in Dublin trade today.
Following the publication of AIB's results, the Minister for Finance said today that the issue of lifting a €500,000 cap on bankers' pay remains under review.
Michael McGrath said he will continue to "consider and reflect on" the issue of a pay caps for bailed out banks, but added that it was important "that we continue to make progress in getting more of the money back that taxpayers put into the bank".
Meanwhile, the Financial Services Union has described AIB's plans to award employees a payment of 4.4% in variable pay as marginally better than other banks but still underwhelming.
The bank said every employee, subject to the eligibility criteria, will be entitled to a 4,4% payment that can be taken either in a taxable once off lump sum payment through payroll or through a share purchase scheme.
"Over the last nine days our two pillar banks have announced combined pretax profits of over €4.5billlion and nearly €2.9 billion in share buyback and cash dividends to shareholders," said John O'Connell, General Secretary of the Financial Services Union.
"This contrasts with their attitude to fair reward for employees as both banks have decided independently to reward their employees with a variable payment of 4% (BOI) and 4.4% (AIB)."
