DUBLIN, Ireland, Dec. 4, 2002 (PRIMEZONE) -- Allied Irish Banks, p.l.c. ("AIB") (NSYE:AIB) is issuing the following update on trading prior to its year end close period.
Performance in 2002 has been underpinned by the strength of ourretail and commercial banking franchises, particularly in Ireland andthe United Kingdom, together with our other high quality relationshipbusinesses. We continue to invest in developing our capability toprovide our customers with a superior and distinctive suite ofproducts and services, delivered through the customers' preferredchannel. Our income continues to grow at a rate in excess of ourcosts which reflects our clear focus on building proactive customerrelationships.
This year, we continue to target mid-single digit growth in adjustedearnings per share, subject to any change since June 30 in theembedded value of Ark Life as a result of the performance of equitymarkets in the six months to December 31, and excluding arestructuring charge of approximately $35 million at Allfirst. (Atour interim results presentation, we referred to a recovery plan forAllfirst which would include restructuring initiatives. An earlyretirement programme was announced during August and therestructuring charge relates to the accrued retirement liability forthose employees who have accepted the invitation to participate).
A key event in the second half of this year was the announcement ofthe proposed merger of Allfirst Financial Inc. with M&T Bank, therebycreating one of the twenty largest U.S. banking companies. We believethat our partnership with M&T will reposition and strengthen ourinvolvement in U.S regional banking. Regulatory and shareholderapprovals are currently being sought and assuming approval isobtained we expect to complete the proposed merger during the firstquarter of 2003.
Republic of Ireland Division
Performance in our domestic retail and commercial banking franchisecontinues to be a key driver of Group earnings. Revenue growth isbeing generated by satisfying an increasing proportion of ourcustomers' needs. The business pipeline remains strong and we expectoverall loan growth of about 16% this year. Our home mortgageactivity remains buoyant, we continue to gain market share and loangrowth will be about 25%. Our other retail and commercial loanportfolios are also increasing strongly and we expect growth to bearound 13% for the year. Deposits in our Republic of Ireland Divisionwill increase by between 8 - 9%. Customer demand for equity linkedsavings has been materially reduced by adverse market conditions andthis will affect Ark Life revenues this year. We are aligning ArkLife more closely with our distribution channels to ensure wemaximise the significant potential in the savings and investmentmarket.
The slower growth in global economies is also being experienced inIreland where we expect GDP growth of approximately 3% in 2002. Thereare challenges to the competitiveness of the Irish economy which mustbe carefully managed to ensure that Ireland continues to realise itspotential to achieve sustainable growth of 3-4% per annum.Great Britain and Northern Ireland Division
The distinctive customer proposition that we offer business bankingcustomers in Great Britain is evidenced by the recent announcement bythe Forum of Private Business that, following their independentsurvey and for the fifth consecutive time, we have been awarded theaccolade of Best Business Bank. We continue to build the strength ofthis franchise, leveraging our relationship management skills to bothdeepen and extend our share of chosen market sectors. Our previouslystated intention to double our capability over the next three yearsremains a priority. Strong loan and deposit growth is beinggenerated. In Northern Ireland, commercial and retail lending isgrowing ahead of expectations and we continue to invest in thefurther development of our service delivery channels. Overall, weexpect 17 - 18% growth in loans in Great Britain & Northern Irelandwith deposits increasing in the 13 - 15% range.
U.S.A. Division
2002 has been a difficult year for Allfirst. We are now managing thetransition of the business into the proposed merger with M&T. Averagecore deposits have remained stable and we are achieving growth in ourretail loan portfolios. However, commercial and corporate loanvolumes are down and together with the continued reduction in ourrun-off portfolios the effect is likely to be an overall reduction of4 - 5% in loan volumes for the year.
A restructuring of the investment securities portfolio is now almostcomplete. The purpose of the restructuring is to reduce the potentialvolatility of the portfolio by replacing long dated securities withshorter dated issues and by reducing the overall portfolio byapproximately $1 billion. The expected gains, net of loss of yield inthe final quarter of 2001, are estimated to be $71 million. However,the current lack of business momentum will partly offset thisearnings benefit.
Our separate Allied Irish America franchise, focused on the not forprofit sector, continues to enjoy a year of further growth.
Capital Markets Division
In common with our other divisions, performance is being underpinnedin difficult and volatile markets by the consistent and dependablerevenues generated from its relationship customer base. CorporateBanking fees are growing strongly. Overall percentage loan growth isexpected to be about mid single digit, reflecting a combination ofgood growth in our U.K. and international mid-market corporatebusiness and subdued growth in Ireland due to reduced customerdemand. Our interest rate management activities continue to performstrongly, although the impact of continuing uncertainty in financialmarkets will adversely affect revenues from asset management and themark to market elements of our trading activity.
Poland Division
The substantial investment programme in our branch banking andservice delivery channels is on schedule and near completion. Loangrowth of 7 - 9% is expected. While deposits are expected to decreaseby around 3% in line with the overall market, we have seen stronggrowth in non interest income which includes significantly increasedsales of mutual funds products. The prevailing economic conditionsremain difficult but we do not expect any further material impairmentof the loan book. Loan loss provisions will be lower than 2001 on anunderlying basis. Our carefully developed franchise is positioned togenerate strong and sustainable earnings growth.
Non Interest Income
In the divisional analysis, we have commented on trends in componentfeatures of non-interest income. At overall Group level we expect anincrease of about 6% this year.
Costs
Productivity remains a priority with cost growth expected to bemanaged in mid single digits. We continue to target an underlyingreduction in cost/income ratios for all Divisions in 2002.
Asset Quality
Asset quality remains satisfactory overall and non-performing loansas a percentage of average loans are not significantly increasing.The quality in our retail and commercial banking franchises isrobust. We are especially vigilant in monitoring our credit exposuresin corporate markets, where we have seen some deterioration. Thecurrent unpredictability in corporate markets makes forecastingdifficult. However, at this point in time, we expect the provisioncharge for the year to be broadly similar to the first half at 37basis points as a percentage of average loans. Provision coverageremains good with a strong level of general provisions.
Margins
Some attrition due to the product mix and the effect of low interestrates on deposit margins is being broadly offset by good interestrate management. We expect the Group net interest margin for the yearto be around 3%.
Corporate Governance and Risk Framework
We have had a major focus throughout the year on implementing theactions decided upon by our Board following the Allfirst fraud. Theassessments by external consultants of our risk and governanceorganisation have been concluded. Their recommendations are guidingour work programme, on which we are making good progress.Implementation of these recommendations underpins our commitment tovalidate that our practices and policies meet the highestexpectations of our shareholders and regulators and also form anintegral part of our preparations for the requirements of Basle II.Board and Audit Committee linkages have been strengthened and we havedeepened our management capability through the recently announcedappointments of a new Group Chief Risk Officer and a new Head ofGroup Internal Audit.
Group results for the year ended December 31, 2002 will be announcedon February 19, 2003.
Key Points:
-- Mid-single digit growth in adjusted earnings per share expected(a).
-- Income continuing to grow at a rate in excess of our costs.
-- Strong loan growth continuing in Ireland and Great Britain.
-- Non interest income at overall Group level will be similar to
that achieved in 2001.
-- Cost growth expected to be managed in mid single digits.
-- Asset quality remains satisfactory with no significant increase
in non-performing loans as a percentage of average loans.
-- Group net interest margin for the year expected to be around 3%.
(a) subject to the embedded value impact on Ark Life in the second half
of the year, as a result of the performance of equity markets in the
same period, and excluding a restructuring charge of approximately
$35 million at Allfirst.