AIB – Solid trading update. “HOLD”
AIB announced a trading update for the 9 months to the end of September this morning.
The Group reported a solid Q3 and is on track to deliver full year financial performance in line with market expectations. There was continued growth in their earnings loan book, with new term lending drawdowns up 11% versus last year. The increase in mortgage lending was particularly strong with drawdowns up 29% versus the same period last year.
NIM increased to 2.50% to the end of Q3, up from 2.47% in H1 2017, driven by stable asset yields and lower funding costs. Regulatory costs are expected to be in line with guidance at the half year results while management reiterated their target to deliver a sustainable cost income ratio of less than 50% by the end of 2019.
With regards to the tracker mortgage issue, AIB have made significant progress working through their tracker book and already made substantial provisions in 2015. Management highlighted any change in the provisioning level is not expected to have a material impact.
Impaired loans reduced to €7.3 billion as of September 2017, a reduction of €500 million from H1 2017.
The Bank’s fully loaded CET1 ratio at September 2017 increased by 100bps to 17.6%, well in excess of the medium term target of 13%. The increase was due to a strong operating performance and a reduction in risk weighted assets. On a transitional basis CET1 was 21% and Total Capital 23.8%.
We recommended buying AIB shares on the 15th September at €4.79 and subsequently the stock has returned 18.3%. We feel AIB’s valuations are at fair value and reiterate our recommendation “HOLD”.

Dylan Simmonds
Equity Analyst

Darren McKinley, CFA
Senior Equity Analyst