AIB non-performing loans reduction may pave way for stake sale

The rally by AIB shares, following a 33 per cent slump in 2018, was given a further boost on Monday by confirmation that the group is set to sell a further €1 billion of non-performing loans.

AIB shares are up almost 12 per cent so far this year. Still, they continue to trade 8.4 per cent below their €4.50 initial public offering (IPO) price of June 2017, when the Government sold a 29 per cent stake on the stock market.

Having reduced its non-performing loans ratio from 37.5 per cent of loans in 2013 to 9.6 per cent in December, the bank is now down to the tricky cases as it seeks to hit the 5 per cent level considered acceptable by regulators. Expect to see another portfolio sale by year-end, as the bank’s ability to restructure problem loans through business-as-usual restructuring slows.

Only when AIB achieves its non-performing loans target will it be able to approach supervisors about a key part of the IPO pitch to investors: the potential for the bank to be able to free up billions of euro of surplus cash on its balance sheet.

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Analysts estimate that AIB is sitting on €2.5 billion-€3 billion of excess capital following government bailouts during the crisis.

As a 71 per cent shareholder in the bank, the State stands first in line to benefit from any return of surplus money. But an increased focus on this may also trigger a further rally by the stock, and provide an opportunity for the Minister for Finance to sell further shares (assuming, of course, we don’t see something like a nasty Brexit or the bottom falling out of the global economy).

AIB cost €20.8 billion to bail out. So far, taxpayers have recovered just over half of the AIB aid. Hitting the non-performing loans target is key.