AIB’s shares fell on Friday as its loan book grew by only 1 per cent in the first half of the year and analysts queried why the overcapitalised bank is not making a large special distribution to investors, even though it will return to paying interim dividends for the first time since 2008.
The bank’s loan book grew to €71.6 billion at the end of June, it said in its latest financial report, published on Friday. This was mainly down to weakness in its international climate capital business, which specialises in large renewable and infrastructure projects across Ireland, Britain, Europe and North America, and caution among small Irish businesses.
The group downgraded its full-year loan growth forecast to 3 per cent from 5 per cent, previously, but insisted that it remains on track for 5 per cent compound annual growth from 2025 to 2027.
Shares in AIB fell as much as 5.3 per cent on Friday morning.
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“I think [climate capital finance] was a reasonably noisy market in the first six months of the year, given potential policy changes across the Atlantic,” chief executive Colin Hunt told The Irish Times. The Trump administration has rowed back on a number of previous US climate policies.
“But transition is happening. The investments are being planned. And the opportunity, I think, is immense,” he said. “We’re going to be small player, but in terms of the scale of the opportunity, it’s going to have quite a material impact on the balance sheet.”
The climate capital unit’s loans currently account for about 8.4 per cent of AIB’s gross loans.
AIB’s net profit fell 16 per cent to €927 million for the first six months of the year, as net interest income declined amid falling interest rates. Net interest income decreased by 10 per cent year-on-year to €1.87 million.
Other income fell by 9 per cent to €358 million, as higher fee and commission income was mainly offset by lower equity investment gains, it said.
The bank reiterated its full-year forecast that net interest income will amount to €3.6 billion. Last year’s result was €4.12 billion. The European Central Bank (ECB) has cut its main rate from 4 per cent to 2 per cent since June last year. Other income is expected to come in at about €750 million.
It upgraded its full-year profitability forecast, saying it now expects net profit to be more than 20 per cent of shareholders’ tangible equity in the business – or return on tangible equity (ROTE). It previously expected the figure to be “meaningfully ahead” of its 15 per cent medium-target.
AIB announced its first interim dividend since the financial crisis, saying it will pay 12.328 cents per share, or a total of €263 million. However, a number of analysts expressed frustration on a call with management about how the bank did not also announce a special shareholder distribution to lower its level of excess capital.
Its common equity tier one capital ratio – a key measure of capital – was 16.4 per cent at the end of June, well above its target of a ratio of more than 14 per cent.
Mr Hunt said the focus was on returning to paying interim dividends and that he looked forward to conversations with the board and regulators later this year on a potential distribution.
“We are amongst the best capitalised banks in the European Union. It’s a great position to be in, given the amount of uncertainties that are out there,” he said. “But we’ve no desire to be a hoarder of excess capital.”
The bank booked a net loan loss charge of €85 million for the first half, up from €61 million for the year-earlier period.
Minister for Finance Paschal Donohoe recently sold the State’s remaining 2 per cent stake in AIB for €305.3 million, bringing the total recovered to date from the bank to €19.8 billion.
