Fast-growing Irish economy gives boost to AIB

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Financial Editor

The strong Irish economy, the fastest growing in Europe, helped produce a surge in lending volumes at Allied Irish Banks and a 9 per cent increase in 1995 group pre-tax profits to Irpounds 373m (pounds 384m).

AIB, which has been expanding steadily with small acquisitions in Ireland, the UK and the East Coast of the US, yesterday reported group lending volume up last year by 12 per cent, while deposits increased by 8 per cent.

Hugh Pye, analyst with BZW, said: "These are good figures, showing lending growing quite rapidly, good volumes and good cost control. But there is a problem with margins."

The bank announced a 20 per cent increase in the final dividend for 1995, resulting in a total dividend of Ir12.9p, up 17 per cent on 1994.

Ireland, the bank's core market, saw GDP growth of 8 per cent last year, combined with the lowest inflation in the European Union. Cumulative real GDP growth from 1993 to end-1996 is expected to be 26 per cent, compared with 11 per cent for the UK and an EU average of 6.8 per cent.

Kevin Kelly, AIB's group general manager, said: "The markets are very competitive and in 1996 I would see some further erosion of interest margins, but we would be reasonably optimistic about a continuation of loan growth. It might not be at quite the same levels but it will be strong enough."

The return on equity increased to 19.4 per cent for the year and return on assets amounted to 1.09 per cent.

The bank reported a 1 per cent reduction in operating expenses to Irpounds 774m while bad-debt provisions fell to Irpounds 52.5m from Irpounds 63m.

"They have achieved a winning formula - growth in lending volumes of 12 per cent while comparable UK banks are struggling, some growth in interest income and good cost-containment," John Tyce, analyst at Strauss Turnbull, said.

Late last year AIB bought John Govett, the UK investment house with pounds 3bn under management, for pounds 101m, making it the largest Irish fund manager with a total of pounds 12bn under management. Earlier, AIB had bought Zirkin- Cutler, a US fund manager with pounds 1bn under management. On the US East Coast AIB bought First Washington Bancorp for pounds 80m as part of its niche growth strategy focused on quality lending. The US division achieved a 7 per cent increase in profit in US dollar terms.

Tom Mulcahy, chief executive said he was confident the strategic initiatives announced over the past year would prove beneficial to shareholders.

Bank reporting season preview, page 28