Allied Irish Banks (LON:AIBG) has raised its full-year net interest income (NII) forecast to €3.75 billion ($4.26 billion), up by €150 million from previous estimates, according to CEO Colin Hunt. This upward revision is attributed to slower savers' migration from low-rate accounts to higher-yield products, which has led to a projected net interest margin (NIM) surpassing 3%, a rise from the prior estimate of over 2.9%.
The bank experienced a 70% surge in total income in Q3 compared to the same period in 2022, primarily driven by higher interest rates. Net interest income, a key profitability metric, jumped 95%, while the NIM stood at 3.08% in September. Fee and commission income also saw an 8% increase.
Despite rate hikes by AIB and other Irish banks in response to European Central Bank's inflation-fighting measures, about 95% of household savings remain in low-yield on-demand accounts. AIB's excess customer deposits at the Central Bank currently earn a 4% rate, a significant increase from zero last year.
However, new lending at AIB fell by 6% to €8.5 billion during the first nine months of the year due to declines in mortgage, commercial property, and UK activity. This was partly offset by acquisitions from Ulster Bank, which contributed to a €5.6 billion increase in gross loans, reaching €66.8 billion. As a result, AIB held a mortgage market share of 32.1%.
The bank expects its other business income to reach around €850 million for the year. Customer accounts grew by €2 billion to €104.4 billion during the period.
AIB also anticipates an increase in the bank levy to €100 million next year, a substantial rise from €60 million in 2023. This increase is due to revised calculation methods. The State, owning almost 46% of AIB, will receive the increased levy.
Despite geopolitical uncertainties and ECB rate uncertainties leading homeowners to fix rates, Hunt remains optimistic about 2023. He predicts a record-breaking year for AIB with a return on tangible equity surpassing 20% and plans to distribute excess capital.
InvestingPro Insights
InvestingPro data shows that Allied Irish Banks has a market cap of $11.5 billion and a P/E ratio of 9.92, indicating a potentially undervalued stock given its consistent earnings growth. Over the last twelve months as of Q2 2023, AIB's revenue growth was a robust 14.96%, supporting the bank's positive outlook for the year.
InvestingPro Tips highlight that AIB's revenue growth has been accelerating and the bank has been consistently increasing its earnings per share. However, the bank's low P/E ratio relative to near-term earnings growth suggests there might be more room for the stock price to appreciate. On the flip side, the bank has been burning through cash quickly, which could potentially impact its dividends.
In total, InvestingPro offers 11 additional tips related to AIB's financial performance. These insights, along with many others, are available on InvestingPro's platform, aiding investors in making informed decisions.
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