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Ireland's AIB sees tentative recovery in lending, payment breaks down sharply

DUBLIN, Oct 30 (Reuters) - Allied Irish Banks (AIB) said third-quarter trading was more resilient than expected with tentative signs of recovery in new lending as 74% of customers on coronavirus-related payment breaks returned to regular payments.

Ireland’s largest mortgage lender said new lending was down 18% from a year earlier after a 27% fall in the first half.

Net interest income for the nine months to September 30 was down 9%.

Main rival Bank of Ireland also reported a better-than-expected performance this week, with its net interest income down just 2%.

Both lenders were cautious with AIB predicting that recently reimposed COVID-19 curbs would see the Irish economy contract again in the fourth quarter.

AIB said that of the 66,000 breaks it provided for borrowers impacted by the restrictions, just 3,985 mortgage holders were still on the payment holiday with the outstanding balance made up of almost 8,000 lower value personal loans and just over 5,000 small business loans.

The bank took an additional 100 million euro impairment charge and reiterated that the 1.3 billion it has put aside to date in 2020 would make up a significant majority of its provisions for the year.

AIB’s core Tier 1 capital ratio - a key measure of financial strength - rose to 16.1% from 15.6% at the end of June, the highest of any Irish lender.

It maintained its full-year guidance and medium-term target of a return on tangible equity (ROTE) above 8% by 2022 but said it would provide an update by year-end on how it would achieve its targets in a more challenging environment.

Davy Stockbrokers said in a note that it expected the update to focus on further cost cuts and a lowering of management’s medium-term Tier 1 capital ratio target of more than 14%. (Reporting by Padraic Halpin; editing by Jason Neely)