AIB Says Loan Woes Ease as Moody’s Sees Ireland at Bottom

Allied Irish Banks Plc, the nation’s largest state-owned lender, reported overdue home-loan growth eased “significantly” in the third quarter as Moody’s Investors Service said Ireland’s housing market may have hit bottom.

“There are signs of stabilization in the quality of the bank’s loan portfolios, with the pace of new impairments slowing significantly year-on-year,” the Dublin-based lender said in a statement today, without providing numbers. By value, Allied Irish’s level of owner-occupied residential mortgages at least 90 days overdue rose to 16.4 percent the end of June from 14.9 percent in December, it said in August.

After seven years, Ireland’s housing recession “is finally showing signs of bottoming out,” Moody’s said today, adding that this will limit the level of losses Irish banks face on residential mortgages. Allied Irish said its bad-loan losses “are trending lower in line with expectations,” after declining 16 percent to 744 million euros ($1 billion) from a year earlier.

Allied Irish, 99.8 percent state-owned after an almost 21 billion-euro bailout, said it was in “advanced” talks with the European Union on its restructuring plan.

Margin Widens

The lender’s net interest margin, the difference between the rate at which it borrowers and lends to customers, widened to more than 1.4 percent in the third quarter, excluding government guarantee costs. The margin expanded to 1.28 percent in the first half from 1.20 percent in the previous six months as the bank and Irish competitors cut deposit rates and raised lending costs, it said on Aug. 1.

“We welcome confirmation that discussions with the European Commission in relation to the approval of the AIB restructuring plan are at an advanced stage,” said Philip O’Sullivan, an economist with Investec Plc in Dublin. “The resolution of this will bring certainty to the group and allow management to focus on how to best meet the needs of a re-emerging Irish economy.”

Moody’s said that overdue loan rates in Irish residential mortgage-backed securities is flattening out as the economy stabilizes. Dublin home prices rose 3.9 percent in September, the biggest increase in at least eight years, according to the Central Statistics Office. Prices in the Irish capital are still 51 percent off their 2007 peak.

‘Unsustainable Debt’

“Despite these developments, however, there are a substantial number of Irish borrowers with unsustainable debt levels,” said Moody’s. “High losses from these borrowers are inevitable either through repossession or more likely for the majority of cases debt forgiveness.”

Separately, KBC Groep NV said today its Irish unit will set aside as much as 775 million euros of loan-loss provisions in the fourth quarter in anticipation of the European Central Bank’s review next year of banks’ asset quality.

KBC said it may reclassify as impaired about 2 billion euros of Irish home loans where borrowers’ terms were eased, following recent European Banking Authority guidance on non-performing loans. Loan losses at KBC Ireland, where John Reynolds is stepping down as chief executive officer “to pursue other opportunities,” are forecast to decline in the next two years before the lender returns to profit in 2016, its Brussels-based parent said in a statement.

“Whether there is any read-across to the domestic banks is unclear as Irish central bank guidelines, issued in May and which prompted Bank of Ireland Plc to top up provisions by 100 million euros in the first half, appear to be broadly consistent with EBA definitions,” Emer Lang, an analyst with Davy, Ireland’s largest securities firm, said in a note to clients.

KBC said non-performing loans made up 25.9 percent of its Irish 15.5 billion-euro loan book at the end of September, little changed from three months earlier, according to a presentation the bank did for analysts, posted on its website.