* H1 after-tax loss 758 mln euros vs 1.05 bln euros year ago
* Provisions fall 24 pct to 738 bln, deposits stable
* CFO says arrears not yet peaked, hopes for later this year
* 20 pct of those in arrears strategically defaulting-CEO
By Padraic Halpin
DUBLIN, Aug 1 State-owned Allied Irish Banks
(AIB) trimmed its half-year losses by over a quarter
and returned to operating profits, excluding a big charge for
impaired loans, as job cuts and reduced funding costs began to
During the financial crisis, AIB cost taxpayers more than 20
billion euros ($26.6 billion) - the most handed out to any Irish
lender still open. Over the past year it has shut branches and
cut its staff numbers by 15 percent in a bid to make an overall
profit by 2014.
While lenders have shrunk their balance sheets dramatically
as part of Ireland's financial bailout, soured loans have made a
return to profitability elusive. AIB announced an after-tax
loss of 758 million euros for the six months to June.
After excluding a provision of 738 million euros for
impaired loans, however, the bank made an operating profit of
162 million euros.
Its shares, which no longer trade on the main Irish stock
exchange, rose 3 percent to 0.06 euros at 0800 GMT.
"I think it is still looking okay," AIB's acting finance
chief, Paul Stanley, said in a telephone interview on Thursday,
referring to the bank's goal of returning to profit in 2014.
"The main risks are credit demand, provisions and credit
losses. They are moving in the right direction, so I wouldn't be
After a property crash forced AIB to sell interests in
Poland and the United States, its fate is now tied to a recovery
in the Irish economy, which has slipped back into recession.
AIB said in its results that there were some positive trends
emerging in loan demand from small and medium-sized business,
but Stanley added the caveat that the bank's plan to return to
profit is based on higher levels of credit demand than it is
seeing so far.
Allied Irish's net interest margin - measuring the
profitability of its lending - rose to 1.06 percent from 0.91
percent at the end of last year, partly helped by the lifting of
a costly state guarantee on deposits at the end of March.
Excluding the three months it still had to pay the fee, the
figure was 1.28 percent, ahead of its expectations. Stanley said
it should be in excess of 1.30 percent for the year as a whole.
"AIB's first-half results show some encouraging trends,
including margin expansion, cost reduction and a stabilisation
in impaired loans," Davy Stockbrokers analyst Emer Lang said.
The bank's deposit base grew 2 percent, while it completed a
programme of shedding billions of euros of loans, and its
funding from the central bank fell in the first half from the
previous six months.
Its loan book is still under pressure, however, from
mortgage arrears resulting from the protracted housing crash and
Chief Executive David Duffy said that although AIB had
forecast that arrears would peak this year, its view was now
The bank's proportion of owner-occupiers in arrears for more
than 90 days rose to 10 percent, which compared with an industry
average of 12.3 percent. The igure for buy-to-let mortgage
holders in trouble, 20.9 percent, was above the 19.7 percent
industry average reported by the central bank at the end of the
Duffy said the bank was well ahead of central bank targets
to address troubled loans. Its main challenge comes from the
more than one-in-five homeowners in arrears who choose not to
pay, he said, warning they will face action, including
"Nobody can live rent free, so we have to pursue any option
available to us," Duffy told national broadcaster RTE.