UPDATE 1-Allied Irish returns to operating profit after crash

Mon May 12, 2014 7:46am EDT

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(Adds analyst quote, details of performance)

DUBLIN May 12 (Reuters) - State-owned Allied Irish Banks (AIB) returned to a quarterly operating profit after provisions for the first time since its 2010 bailout, hitting a landmark many analysts had expected later this year.

It follows Bank of Ireland, the country's only lender to escape nationalisation, which in March said it had returned to profit in the first two months of the year.

AIB last year made its first operating profit excluding provisions for impaired loans and said it expected to post a profit including provisions by the end of 2014.

The bank did not disclose its first-quarter operating profit, but said performance was moderately ahead of expectations both in terms of income generation and provisions. It is due to publish a profit figure for the six months ending June.

The bank said profit was driven by a significant reduction in impairment charges, without elaborating.

Its net interest margin - an important measure for a bank that reflects the difference in the rates at which it lends to borrowers and pays out to depositors - was 1.57 percent in the first quarter, excluding fees it pays the government for a deposit guarantee scheme, compared with 1.37 percent three months earlier.

AIB still trails Bank of Ireland, which reported a net interest margin of 2.05 percent in the first quarter.

"AIB had said they hoped to be back in profitability at some stage during 2014, but most people had assumed that would be H2 or Q4 and now they are saying they achieved that in Q1," said Ciaran Callaghan, an analyst at Merrion Stockbrokers.

"I think it represents an important milestone in the bank's recovery," he said.

It cost taxpayers more than 20 billion euros to bail out AIB, the most given to any lender that survived Ireland's debt crisis. The bank has shut branches and is cutting almost a fifth of its staff in an effort to return to profit during this year.

AIB said a number of once-off items would also boost its half-year profitability, including the disposal of assets and the receipt of a coupon from NAMA subordinated debt.

An assessment of how to simplify its capital structure should be completed in the second half of the year, it said. (Reporting by Conor Humphries; Editing by Erica Billingham)

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