Allied Irish Banks hopes to start raising funds on the external market now that the government has poured the equivalent of over $16.9-billion into the lender to ensure its balance sheet is proofed against further economic shocks.
Like all Irish banks, AIB is dependent on funding from the European Central Bank to pay for its day-to-day operations, but AIB has cut its outstanding loans from Frankfurt by €10-billion to €29-billion as of the end of June by reducing the size of its portfolio and acquiring deposits from shuttered lender Anglo Irish Bank.
“We are still dependent on the goodwill of the ECB and Europe,” executive chairman David Hodgkinson told a conference webcast from Glenties, in County Donegal.
“We are lessening our dependence all the time. As the capital has come into place we will be actively looking to ways to raise funds from the external market so that the dependence on the ECB continues to lessen,” said Mr. Hodgkinson.
“(But) because the deposit base in Ireland’s domestic economy is insufficient for domestic lending, we will depend on international funding in some way, ideally market funding, for some time to come.”
Rival Bank of Ireland is the only domestic bank to have been able to tap the debt markets so far this year. Bank of Ireland has also avoided falling into majority state control after selling overseas investors, Farifax Financial Corp., a stake worth €1.1-billion.
With Irish banks still frozen out of wholesale lending markets, Mr. Hodgkinson said the government might consider intervening to help Irish banks bridge their funding gap by introducing maximum deposit rates.
He said there is room to consider state intervention to help achieve this by imposing maximum rates “for a period.”
A collapsing property bubble brought the Irish banking sector to its knees, but Mr. Hodgkinson said he expected prices to bottom out soon.
“We seem to be getting close to what would seem to be a likely floor for the market.”
Irish house prices are 42 per cent down on their 2007 peak, and Mr. Hodgkinson, a former chief operating officer with global bank HSBC , said that in his experience a slide of 50 per cent tended to indicate a floor.
AIB has proposed different forms of debt restructuring for mortgage customers in arrears, but it said the government and the central bank needed to give their stamp of approval.
“It does need to be an industry-wide exercise, with government and central approval and endorsement.”
Hodgkinson also expressed concern about the Irish government’s wish to impose losses on around €3.7-billion in senior bonds in Anglo Irish and Irish Nationwide, which are being wound down.
“If the effect of doing that with the Anglo bonds were to further weaken the confidence of depositors in Irish banks, then overall that is not a good outcome for Ireland and its banks.”
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