Allied Irish Banks records £2.4bn loss as bad debts soar

The extent of Ireland's economic woes was writ large yesterday as Allied Irish Banks (AIB) admitted that nearly a third of its total loan book is at risk and said it needed more cash.

Unveiling a €2.4bn (£2.18bn) 2009 operating loss – against an €862m profit in 2008 – the bank said it took a €5.35bn charge against bad loans during the last year.

Colm Doherty, the managing director, is considering all options to raise capital, including asset or business sales, a rights issue, a debt exchange or, as a last resort, approaching the Irish government for more capital.

Of its total loan book, 29.5 per cent, representing €39bn, are classified as "criticised", or at risk. Two-thirds of those loans are linked to the property and construction sectors.

The bursting of the Irish property bubble has been a major cause of the bank's problems. Of the criticised loans, a total of 13.5 per cent are now fully in default – meaning that the bank has taken a charge against them.

Shareholders were given little comfort for the future either. AIB said the outlook and environment remain "extremely challenging". The Irish economy is widely expected to remain in negative territory this year, with a 2.5 per cent contraction predicted. AIB said it is still facing significant uncertainties, including an EU decision on restructuring and funding costs, together with continuing questions over how much the National Asset Management Agency – effectively Ireland's bad bank which will deal with a huge portfolio of bad or risky loans – will write down the value of the €23.2bn of loans AIB is transferring into the scheme.

AIB's UK bank contributed a provision charge of €395m, or 1.91 per cent of average loans, up from €257m. Improving its capital base is a priority for the next year.