AIB upgrades guidance after 70% jump in first quarter income

·2-min read
Signage and logo are seen on an AIB bank building in Galway

By Padraic Halpin

DUBLIN (Reuters) -Ireland's largest mortgage lender AIB revised its full year guidance upwards across the board on Thursday after its total income jumped 70% year-on-year in the first quarter due to record increases in official interest rates.

The bank said it expects net interest income of 3.3 billion euros this year versus the 3 billion guided in March, increased its net interest margin forecast to above 2.70% from 2.40% and forecast 2023 return on tangible equity (ROTE) to be a high-teens percentage.

The majority state-owned bank said in December that it expected to reach a more than 13% ROTE by 2024 and that this would allow it to supplement increased dividend payments with share buybacks over that time.

A 215 million euro direct share buyback last week cut the government's stake in the bank to 53%.

The bank's net interest margin (NIM), a key metric showing the profitability of its lending, rose to 2.78% in the first quarter versus 1.45% a year ago when it was still operating in a negative interest rate environment.

The European Central Bank is expected to raise its deposit rate for the seventh meeting in a row to at least 3.25% later on Thursday.

AIB Chief Financial Officer Donal Galvin said the market consensus for NIMs of 2.40% and 2.50% in 2024 and 2025 seemed reasonable.

He added that the momentum in recent quarters would slow as official interest rate hikes taper and the main unknown for the bank will be how customers respond to new products it plans to bring online in the second half.

Deposit rates in Ireland's highly concentrated banking sector have risen little so far in response to ECB hikes.

"We've had such a benign rate environment for such a long period of time, it's hard for us to predict what their behaviour is going to be in the different liability cohorts," Galvin told an analyst call.

Shares in the bank were 2.9% higher at 3.9 euros by 0825 GMT.

(Reporting by Padraic Halpin; Editing by Susan Fenton, Elaine Hardcastle)