AIB may cut bad loans by €3bn more

AIB will consider a further sale as part of efforts to reduce the amount of soured loans on its books.

New chief executive Colin Hunt did not dispute the €2bn to €3bn figure when put to him by Senator Gerry Horkan of the Oireachtas Finance Committee. Mr Hunt said no option would be ruled out that would get the bank’s bad debt levels down to “sustainable levels”.

Mr Hunt said its preferred way of dealing with bad loans was “loan restructuring in an agreed way” with customers. However, further sales following a €1bn sale announced two weeks ago would be considered “as a last resort” if other options were not viable, he said.

He said the latest €1bn sale had reduced the non-performing loan (NPL) levels to around 8% and that its aim to reduce the ratio to 5% by the end of the year. “AIB is still carrying a large chunk of deep long-term arrears that simply must be reduced by year-end...NPLs inhibit banks’ primary function of lending to the economy and ultimately they increase bank costs, resulting in higher rates for businesses and home-buyers,” Mr Hunt said.

He also told the committee that he had been surprised by the negative impact of Brexit on SMEs, which he described as “extraordinary”.

He said there was a marked difference of negativity between the Republic and the North, where the impact had so far been much less felt by SMEs. The regions outside of Dublin were feeling particularly pessimistic about the impact of Brexit because of their “heavy reliance” on the UK market, Mr Hunt said.

There have been a lot of deferrals of investments planned by SMEs in recent months, while the atmosphere was also being influenced by the current “straws in the wind” including trade wars and global uncertainty, he said.

The tracker mortgage scandal, which happened when around 40,000 customers were wrongly put on more expensive loans by more than a dozen lenders, was a “stain on the reputation” of AIB, and the bank had much work to do to restore customer confidence, he said.

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