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Investing.com -- Shares of AIB Group (OTC:AIBRF) PLC (ISE:AIBG) climbed 4.5% after the company reported second-half 2024 results that surpassed consensus estimates and announced a higher-than-expected dividend and directed buyback.
The Irish bank declared a dividend of EUR 0.37 per share, exceeding the consensus of EUR 0.35 per share, and revealed a directed buyback program worth EUR 1.2 billion, significantly above the expected EUR 762 million.
AIB’s capital position remained strong with a CET1 ratio (fully-loaded) of 15.1%, albeit slightly below the consensus of 15.4%. The ratio was down 36 basis points half-on-half but still 110 basis points above management’s target of more than 14%, well above the regulatory requirement of 11.4%.
The bank also updated its anticipated impact from Basel IV regulations, now expecting a circa 120 basis points reduction to the bank’s CET1 ratio, with the Pillar 2 Requirement (P2R) forecasted to reduce to 2.4% from 2.6% this year.
Net interest income (NII) for the second half of 2024 was 3% above consensus despite a 1% decrease from the previous half, driven by higher deposit interest expenses and other liability costs, which were only partly offset by increased lending income.
Looking ahead, AIB’s management provided guidance for the full year 2025, anticipating a net interest income of more than EUR 3.6 billion, aligning with consensus estimates. This forecast is based on an expected European Central Bank deposit rate of 2% by June 2025 and a deposit beta of 20% for the fiscal year 2025.
Medium-term guidance for fiscal year 2026 was also provided, with management expecting underlying operating expenses excluding levies to be less than EUR 2 billion, a cost-to-income ratio of under 50%, a return on tangible equity (ROTE) as defined by AIB of around 15%, and a CET1 ratio of over 14%. These projections are generally in line with or slightly conservative compared to consensus estimates.
Analysts at RBC commented on AIB’s position, stating, "Although new entrants represent a risk, AIB’s high Irish retail banking market share should provide superior pricing power vs peers as rates come down.
Although AIB is rate sensitive, partially driven by a relatively small structural hedge, we note that when rates went up, the bank was the most conservative Irish bank in its NII sensitivity guidance. AIB, which has high coverage levels and management overlays, is using very conservative macro assumptions to underpin its impairment modelling, in our view.
An expected end to government ownership in FY25 removes a concern for investors."
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