Allied Irish margins up, bad loans down as capital reorganised

DUBLIN, Nov 17 (Reuters) - Allied Irish Banks (EUREX: 558453.EX - news) (AIB) generated more capital, reduced its bad loans and increased its net interest margin in the third quarter as it finalises a reorganisation to start repaying a state bailout.

The government has pumped 21 billion euros ($22.4 billion) into AIB since the financial crisis, the biggest bailout given to any Irish bank still trading, and is now beginning the process of recovering the public money.

The bank, which almost tripled its first-half pretax profit, said on Tuesday it had increased its core tier one capital ratio by 90 basis points in the quarter under fully loaded Basel III industry rules, driven primarily by profits.

The bank's stock of defaulted loans fell 2 billion euros from the end of June to 16 billion euros while its net loan book remained stable. Performing loans have risen 2.3 billion euros to 56 billion this year, reflecting more new lending.

AIB's net interest margin, which shows how profitable its lending is, rose to 1.94 percent from 1.92 percent three months earlier. A mortgage rate reduction announced in August will temper the rate of increase in the fourth quarter, it said.

AIB got the green light from European regulators earlier this month to repay 1.7 billion euros of state bailout funds and will repay another 1.6 billion euros next July when state-owned contingent capital notes (CoCos) mature.

As part of the agreement, the 99 percent state-owned bank will issue at least 750 million euros of Lower Tier 2 (LT2) and 500 million euros of Additional Tier 1 bonds (AT1) to achieve a net increase in its capital levels.

It (Other OTC: ITGL - news) said on Tuesday, that its Core Tier 1 capital adequacy ratio would have increased to 12.2 percent of assets on a fully loaded basis from 9.2 percent had each element been completed at the end of September.

The bank's ordinary shares will be valued at approximately 11.7 billion euros after the capital reorganisation, it said.

After AIB laid out plans to start paying the government back, Finance Minister Michael Noonan said for the first time that he expects the state to recoup more than it invested in the bank over a number of years.

If re-elected early next year, the government plans to sell a 25 percent stake in AIB on the stock market. ($1 = 0.9386 euros) (Reporting by Padraic Halpin; editing by David Clarke)