Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- AIB Group PLC (AIBRF, Financial) reported a profit after-tax exceeding EUR1.1 billion for the first half of 2024, up 30% from H1 2023.
- The company upgraded its Net Interest Income (NII) guidance to circa EUR4 billion, reflecting strong financial performance.
- New lending increased by 13% to EUR6.3 billion, with significant growth in corporate and SME lending driven by the climate capital segment.
- AIB Group PLC (AIBRF) maintained a robust CET1 ratio of 15.5%, indicating strong capital strength.
- The company has launched a new sustainability academy and increased its Climate Action Fund to EUR30 billion, showing commitment to sustainability.
Negative Points
- Operating costs increased by 6% to EUR947 million, impacting the cost-to-income ratio.
- New CRE lending fell by 39% in the first half, indicating caution in the commercial real estate sector.
- Other income was down 14% year-on-year due to the absence of a forward contract benefit from Ulster Bank.
- The company faces ongoing regulatory fees and levies, estimated at EUR145 million for the year.
- Despite strong performance, the company remains cautious about the economic outlook, particularly in sectors sensitive to interest rate changes.
Q & A Highlights
Highlights of AIB Group PLC (AIBRF) Earnings Call Transcript
Q: Can you provide more details on the trajectory of Net Interest Income (NII) into 2025 and your rate sensitivity assumptions?
A: (Colin Hunt, CEO) We are upgrading our NII guidance to circa EUR4 billion for 2024. Our deposit rate assumptions have changed, and we now use 3.25% as an endpoint. We expect a deposit beta of less than 15% for 2024. The resilience in NII is underpinned by our structural hedge program, which we have increased over the years.
Q: What changed over the last few months to get regulatory approval for the share buyback, and what would prevent you from doing half-yearly buybacks going forward?
A: (Colin Hunt, CEO) Nothing changed; we just didn't want to make an announcement until we were ready. It is our firm intention to return to a normal cadence of distributions of dividends over the period ahead.
Q: Can you elaborate on the capital piece and whether you could move to greater than 100% payout for a period to reach your CET1 target?
A: (Colin Hunt, CEO) We have a strong track record of getting regulatory approval for distributions outside our normal dividend policy. We are committed to getting to the CET1 target of greater than 14% by the end of 2026.
Q: How do you see competition for deposits evolving as rates come down, and how should we think about your loan-to-deposit ratio?
A: (Colin Hunt, CEO) We have seen significant new entrants in the deposit market, yet our deposits grew by EUR2.4 billion in the first half of 2024. We expect sustained net growth on the asset side, driven by the strength of the economy and the changing banking landscape in Ireland.
Q: Can you provide more details on the structural hedge and its impact on NII?
A: (Donal Galvin, CFO) We had EUR10 billion of hedge maturing in 2024, replaced with new hedge at higher yields. The turnover for 2025 and 2026 is expected to be EUR5-6 billion. The fixed-rate mortgage book of EUR20 billion is also beginning to churn at higher rates.
Q: How did you determine the size of the midyear buyback, and what are your thoughts on the climate capital business?
A: (Colin Hunt, CEO) The size of the buyback was determined through discussions with the Board and regulators. The climate capital business is running very well, with significant growth opportunities. It is a low-risk, capital-intensive business with strong credentials.
Q: Can you explain the moving parts of RWA growth outlook into 2026 and the CET1 target timeline?
A: (Donal Galvin, CFO) For now, assume RWA growth similar to loan growth. We have ongoing RWA management efficiency programs. We are committed to reaching the CET1 target of greater than 14% by the end of 2026.
Q: Why did you separate out the EUR25 million in extra costs in the guidance, and how are you using AI to benefit the business?
A: (Colin Hunt, CEO) We are using AI in four pillars: cyber defense, fraud defense, customer experience, and operational efficiency. The EUR25 million in extra costs is for specific investments in our branch estate and operational efficiency measures.
Q: How do you view the sustainability of fee income growth, especially in the stockbroking client fees segment?
A: (Colin Hunt, CEO) The growth in fee income is driven by our enlarged customer base, which has grown from 2.7 million to over 3.3 million. We expect continued growth in fee income as we offer additional products to our customers.
Q: Can you provide more details on the SRT program and its impact on distributable capital?
A: (Donal Galvin, CFO) The SRT program is a capital management tool that will help optimize our RWAs. The first transaction will reference a corporate portfolio and is expected to have a 20 basis points impact. The program will run over multiple years.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
