Ireland’s AIB could be fully privatised by 2025 after bumper profits

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Ireland’s AIB believes it could be fully back in private hands in 2025, as a buyback next month prepares to reduce the government’s stake in the country’s second-biggest bank to just over a third.

At the start of 2022, the state still held 71 per cent of AIB — a hangover from the government’s bailout of the sector in the global financial crisis, following reckless lending during Ireland’s Celtic Tiger boom.

Now, after what chief executive Colin Hunt calls the bank’s “transform, repair, restore” strategy, the books are cleaned up as Irish banks have laid to rest the shadow of their meltdown a decade and a half ago.

The state, which exited the country’s largest lender, Bank of Ireland, in 2022, holds less than 40 per cent of AIB. Its shareholders are expected to approve a €1bn buyback of shares from the state on May 2, the same day it releases its first-quarter results, and investors are watching for news of the pace of further reductions.

“If [the buyback is] approved, and I think it will be, the government’s shareholding will fall below 34 per cent,” Hunt said in an interview.

Analysts believe that if last year’s pace of reductions is continued, the state holding could hit the low 20s by year-end — likely fuelling calls for an end to a cap on executive pay that it still faces, despite the government relaxing some crisis-era measures in the industry, such as a ban on bank bonuses.

A total government exit in 2025 is “certainly within the bounds of possibility”, Hunt said.

Ireland’s banking comeback — the banks are now bigger and more profitable even than during the Celtic Tiger period — has been helped by shrinking competition among high street lenders. The exit of KBC and Ulster Bank from Ireland has left what Borja Ramírez, an analyst at Citigroup, has called an “oligopolistic” concentration.

Irish banks have also benefited more than European peers from high interest rates, which they were slower to pass on to customers, helping achieve stellar returns on tangible equity, a crucial efficiency measure, in 2023.

“The 2023 results were very strong, the most successful year in the history of the bank. But it’s a book end,” Hunt said. “It’s a chapter closing . . . We should never forget the [global financial crisis] because there are always lessons to be drawn from it, for we should no longer be defined by it.”

AIB posted a 2023 profit after tax of €2bn, while BoI turned a profit of €1.94bn before tax. PTSB, the smallest of Ireland’s remaining three high street banks, posted a 270 per cent increase in underlying profit, before a one-off gain and tax.

“The banks have done a really good job over the last couple of years in terms of positioning themselves — they all cleaned up their balance sheets, they were in a position to do consolidation and that did happen. They’re reaping the rewards,” said Diarmaid Sheridan at brokerage Davy in Dublin.

While global banks reaped record profits last year from rising interest rates, analysts believe those windfall gains are unlikely to be repeated. US banks have already started to report a squeeze on margins in their lending business as depositors switch to higher-yielding accounts, while markets are preparing for central banks to start cutting interest rates again later this year.

AIB is now under pressure to deliver on ambitious green energy targets. The fastest-growing part of its balance sheet is investment in renewable energy and Hunt said 45 per cent of all mortgages last year were lower rate loans for more energy efficient homes. “That’s going to further increase this year,” Hunt said.

He added: “Ultimately, we want 70 per cent of our new lending to be green or transitional in nature by 2030. Within that number, practically the entirety of our new mortgage lending would have to be green.”

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