Earnings call transcript: AIB Group Q3 2025 shows strong lending growth

AIB Group has delivered a strong performance in the third quarter of 2025, highlighted by an upgrade in net interest income guidance and significant growth in new lending. The bank’s stock price rose by 3.06% to 8.27 euros, reflecting positive investor sentiment. The company also reported robust deposit growth and a strategic focus on cost efficiency.

Key Takeaways

• Upgraded net interest income guidance to over 3.7 billion euros for 2025.
• Achieved 5% growth in new lending by the end of September.
• Strong deposit growth of 4%, surpassing the initial target of 2%.
• Stock price increased by 3.06% following the earnings call.

Company Performance

AIB Group’s performance in Q3 2025 underscores its strong position in the Irish banking sector. The bank reported a year-to-date profit of 250 million euros, driven by increased lending and deposit growth. The strategic focus on project finance and climate infrastructure has bolstered its competitive edge, particularly in a market where housing and development are key issues.

Financial Highlights

• Net interest income: Projected to exceed 3.7 billion euros for 2025.
• New lending growth: 5% increase by the end of September.
• Deposit growth: 4% increase, up from the initial 2% target.
• Year-to-date profits: 250 million euros.

Outlook & Guidance

The bank has set ambitious targets for the coming years, including a 3% loan book growth in 2025 and a 5% compound annual growth rate for 2026-2027. AIB plans to execute a 2 billion euro mortgage securitization transaction in early December, which is expected to provide a 20-30 basis point boost to its Common Equity Tier 1 (CET1) ratio. The bank remains committed to a 40-60% cash dividend payout policy.

Executive Commentary

CEO Colin Hunt emphasized the bank’s strategic priorities, stating, "We are reporting 5% growth in new lending to the end of September." He also highlighted the pressing issue of housing in Ireland, noting, "The most pressing issue facing the Irish economy and Irish society today is housing output." Hunt assured investors of AIB’s prudent approach, saying, "We always maintain that we price them rationally, that we underwrite conservatively."

Risks and Challenges

• Housing market constraints: The Irish market is producing fewer units than needed, posing a challenge for growth.
• Competitive pressures: The presence of credit unions, neobanks, and fintechs intensify competition.
• Economic uncertainty: Macroeconomic factors could impact lending and deposit growth.

AIB Group’s strategic initiatives and financial performance in Q3 2025 have positioned it well for future growth, despite the challenges in the broader market. The bank’s focus on innovation and efficiency continues to drive its success in a competitive landscape.

Full transcript - AIB Group PLC (A5G) Q3 2025:

Nadia, Conference Call Operator, AIB Group: Good morning and welcome to the AIB Group Q3 2025 Trending Update Conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. To ask a question during the session, you need to press Star 11 on your telephone keypad. You will then hear an automatic message advising your hand is raised. To withdraw your question, please press Star 11 again. Finally, I would like to advise all participants that this call is being recorded. I will now pass you over to our speakers for today’s session, CEO Colin Hunt and CFO Donal Galvin. Mr. Hunt, please go ahead.

Colin Hunt, CEO, AIB Group: Thank you so much, Nadia. Good morning, everybody. We are pleased to report another strong performance in the third quarter of this year, demonstrating the ongoing resilience of our business. On the back of this morning’s release and pretty clear visibility now to the end of the year, we are nudging our NII guidance higher to greater than EUR 3.7 billion for the year as a whole. We’re reporting 5% growth in new lending to the end of September, with some particular strength being seen in personal lending and in our capital markets and U.K. businesses. Our lending book remains very resilient, and we are now guiding our cost of risk for the full year at the lower end of the previously advised 20 basis points-30 basis points range.

The domestic economic backdrop remains supportive of our business, and we will enter 2026 with good momentum in terms of both activity and pipeline. I’m going to stop there for the moment, and I’m going to open to the floor for questions.

Nadia, Conference Call Operator, AIB Group: We are going to take up a first question. It comes from the line of David Sheridan from Davy. Your line is open. Please ask a question.

Donal Galvin, CFO, AIB Group: Good morning, Donal. Good morning, Colin. Thank you for taking my question. Maybe firstly on net interest income, obviously. Colin, you referred to nudging up. I guess I wonder what the implications for 2026 are. If you look at the run rate in Q3, I guess we’re going to assume there’s going to be a little bit of growth given some of the other factors that you talked to in terms of balance sheet growth. A level of around EUR 3.8 billion, is that acceptable, or is that something that you think is possibly achievable for 2026 net interest income? Just secondly, I appreciate it’s Q3, and it will be decided upon at Q4. Just thoughts in terms of capital and distributions. Obviously, another very strong quarter in terms of capital generation. It’s not in the number I appreciate.

If we look out, how much capital do you think you can return to get back to that 14%? Because you’re trending very, very strongly at the moment. Each quarter is a little bit stronger than expected there. Is it still your expectation that you can get to 14% by full year 2027? Thank you.

Colin Hunt, CEO, AIB Group: Hi, Jeremy. Thank you very much. Look, on NII, I think as the year has progressed, we’ve got increasingly more confident on the outturn for the year, which is why we’re very happy to upgrade our guidance to greater than EUR 3.7 billion. Obviously, the moving parts there are interest rates, where I think we have, well, certainly for 2026, a lot of confidence on where they’re going to be. On the asset side, we do see growth of 3%, and we are expecting a strong fourth quarter from lending. On the liability side, that has been really, really strong throughout the year. I think we’d started the year off with kind of a 2% growth target. It’s more like 4% as we are now. November, December, normally quieter months for obvious reasons with respect to growth, but overall a really, really strong outturn on deposits.

I think that’s going to have a natural follow-through into 2026 and 2027. We’re not going to give guidance for 2026 or 2027, but I think if you take the 2026 outturn, that is going to inevitably lead to stronger performance for 2026 and 2027, and then you can adjust wherever you see ECB rate moves beyond that. Look, overall, very, very happy with the outturn for 2025. On the distribution side, as you know, our goal is always on the 1st of January to come in and deliver as strong a performance as we possibly can. We’re very pleased with the performance here today. It’s really strong capital appreciation.

We also managed to resolve and agree with the government the retiring of the warrants, which is a very, I think that’s positive news for us and for investors as well, just having a potentially dilutive instrument off the balance sheet. In Q4, we also have, in early December, we’re going to look to close a mortgage SRT transaction. A lot of positive things still to come towards the back end of the year. As you rightly say, we engage in conversations with both our board and our regulator towards the back end of the year. Normally, we will update the market at year-end results with respect to our distribution thoughts. You will see that we have throughout the year not reported in-year earnings, really just to accrue those. That’s to give both the board, that’s to give the board maximum flexibility around its distribution deliberations.

With respect to medium-term targets and reaching that greater than 14% CET1 target, like all of our medium-term targets, these are very much key areas of focus for the organization, and we will drive towards exceeding and beating all of those targets.

Nadia, Conference Call Operator, AIB Group: Thank you. Now we’re going to take our next question. It comes to the line of Dennis McGoldrick from Goodbody. Your line is open. Please ask your question.

Good morning, Colin and Donal. Thank you for taking my questions. Just two please, if I may. One is just in relation to loan book growth. That was up 1% year to date to the end of September. Maybe if you could talk us through the reasons why you’re still comfortable that you can deliver the plus 3% this year and then the CAGR of 5% over the medium term. Secondly, just on exceptional items in 2025, obviously that’s been upgraded now to a credit of EUR 150 million. Maybe if you could, again, just talk us through the moving parts. Has the gain on merchant services landed a little bit higher than you expected? Thank you.

Colin Hunt, CEO, AIB Group: On the loan book growth, Dennis, good morning to you. On the loan book growth, we’ve got 10 months activity now fully booked, and we’ve got a very clear line of sight to the end of the year. We’re very comfortable with where the pipeline is and very comfortable with our expectation that we will deliver loan growth for the full year of the number that you alluded to earlier. It is requiring less forecasting at this point of the year, as doubtless you’re aware, but the pipeline is strong. Momentum into 2026 is going to be very good as well. The business is in very good shape, and we’re very happy with where we’re positioned across the various products.

Donal Galvin, CFO, AIB Group: Yeah. I mean, I would add to that. I mean, we had imagined we’d see growth of 5% in 2025 on a reported basis. We’ve adjusted that to 3%, really to account for changes in foreign exchange of around 1%. Then we would have delivered some non-core assets, which had an effect of 1% as well. The underlying business areas and the business growth and where we’d expect to see the growth is very much in line with our expectations, which is why we’re very comfortable with the 3% for 2025 and indeed the 5% for 2026 and 2027. On the exceptional side, a couple of things. The gain on sale from AIB Merchant Services is obviously the main driver there.

As we would have talked about previously, we’ve put behind us a lot of the old legacy type of items that may have found their way through that line in the past. There’s just very little costs coming through related to any of those legacy type of items. I wouldn’t be imagining that there will be gains going forward, but certainly given those big restitutions and legacy items are closed going forward, we don’t expect to see charges coming through that line.

Nadia, Conference Call Operator, AIB Group: Thank you. The next question comes to the line of Benjamin Thoms from RBC. Your line is open. Please ask a question.

Morning, both. Thanks for taking my questions. The first one, just in relation to your NII guidance. Going into next year, one of your peers has talked about or implied guidance implies material pickup in competition impacting margins into next year. How are you currently thinking about the potential for the increase in competitive pressure as we go into 2026? Secondly, you’ve reiterated your cost guidance of less than EUR 2 billion for next year. Consensus isn’t quite there yet. What are your confidence levels on this guidance, and what are the moving parts here? Thank you.

Colin Hunt, CEO, AIB Group: Okay. Good morning, Benjamin. On the competitive pressure. Obviously, we have seen very significant structural change in the Irish banking market in the past five years with the departures of KBC and Ulster. We put ourselves into a position where we were the lead consolidator for the market. Welcoming roughly half of all the customers who were migrating from the departing banks. The competitive landscape does not include just three financial institutions. We get competition every single day from credit unions, from neobanks, from fintechs, from the post office. We are living in a competitive environment, I would argue, already. I do not see a material change in terms of the competitive landscape as we move into 2026. It is important to note that we have a pretty consistent approach in this business about how we price products.

We always maintain that we price them rationally, that we underwrite conservatively, and we are not driving our business forward on the back of significant temporary tightening of margins. We are very, very comfortable with where we stand, and we are very comfortable with the medium to long-term focus of our approach to pricing and underwriting.

Donal Galvin, CFO, AIB Group: Yeah. Just coming in there on cost, certainly for 2025, between now and the end of the year, we’re comfortable to hold that 3% number. Main driver really there is slow, gradual decrease in overall headcount, which you will have seen over the last number of quarters. That’s obviously going to move into 2026 as well. As we continue to automate and make our processes more efficient, we would expect to see headcount gains. What I would say, though, is against that, you’re obviously going to have inflationary impacts, which remain quite volatile, and then investment in technology that we make in our business as well. All of those things put together is making up the overall cost base. Look, our medium-term target is EUR 2 billion. Like all of our medium-term targets, we will look to achieve or beat all of those.

Nadia, Conference Call Operator, AIB Group: Thank you. Now we’re going to take our next question. It comes to the line of Chris Kahn from Autonomous. Your line is open. Please ask your question.

Good morning. Thanks for taking my questions. I just wanted to ask about capital, please. So Donal, you mentioned an SRT transaction in the fourth quarter. I think consensus has in 58 and change RWAs for year 2025. So with the SRT, is that the right place for us to be sat, please? Just conscious you were actually a bit below that in the first half. I know there is a bit of back-end loaded growth, but if you could give us a steer, because I think some banks have talked about operating RWA inflation coming through in the fourth quarter too, that would be helpful.

In terms of thinking about the capital ratio, if I take your 15.9 pro forma for the warrant and I add in the year-to-date profits of EUR 250 million, you had a 46 basis point interim dividend, and then you have got another quarter of profit to come. It looks like you should be coming out somewhere around 18.7 in the fourth quarter, and maybe a little bit higher if there is a meaningful impact from the SRT. If I think about where consensus is on an equivalent basis to kind of predistribution, it looks like consensus is about 18.5, I think. If you could comment on that, because the capital, I understand why you have done the non-accrual of profit, but it does make it quite difficult to track how the business’s capital position is trending relative to consensus.

It looks to me like even with the warrant surprise, which is 70 basis points rather than the 40 you guided earlier in the year, it looks like the business is probably 20 basis points ahead of consensus at the year-end and maybe a touch higher given the SRT. Thank you.

Donal Galvin, CFO, AIB Group: Yeah. Thanks very much, Chris. Look. Your walkthrough, the CET1 numbers are absolutely bang on the money. So they’re accurate. As you referenced, we have not reported any of our in-year profits. And really, the reason for that, we feel, is it is a conservative position, and it also gives us maximum flexibility in our deliberations and conversations with both the board and the regulator. At year-end, when we review what our overall payout makeup is going to look like. Look, I think, as you’re rightly saying, as I look at consensus, it’s probably fair to say that the benefit or the impact of the mortgage SRT is not fully incorporated. Now, I do accept that at the half-year, I didn’t provide very much detail on that. But we will look to transact in early December on a mortgage SRT. There’ll be EUR 2 billion worth of loans.

We’ll look to save EUR 1 billion of RWAs. And we expect the cost of equity of that to be less than 5%. And the CET1 benefit will be between 20 and 30 basis points. I think that’s perhaps where consensus could be slightly behind. I’d encourage you to adjust for that. Look, overall, as you rightly say, the business is very capital-generative at the moment. Notwithstanding the fact that we are generating a lot of core earnings from our business, we will continue to execute transactions like SRTs where we think they make sense from an overall capital perspective so that we can be as efficient with our overall capital stack as possible.

Nadia, Conference Call Operator, AIB Group: Thank you. The next question comes to the line of Borja Ramirez from Citi. Your line is open.

Borja Ramirez, Analyst, Citi: Hello. Good morning. Thank you very much for taking my questions. I have one, in particular, linked to the Irish National Development Plan, which seems to be a sizable investment into infrastructure and housing. I would like to ask what could be the potential opportunities for mortgage growth and maybe SME lending as well, please.

Colin Hunt, CEO, AIB Group: Okay. Good morning, Borja. The most pressing issue facing the Irish economy and Irish society today is housing output. We’ve built something of the order of 33,000-34,000 units in 2025 against a market backdrop which probably needs something of the order of 60,000 units. Recognizing the primacy of the concerns around housing, the government has published a national development plan which will commit total capital expenditure of about EUR 275 billion. A very substantial amount of resource in the context of the size of the Irish economy. That commitment is for a 10-year period, very much focused on, I suppose, enabling a significant increase in housing and indeed investment in transport and other critical social services as well. Some of the resource will be deployed in modernizing our electricity grid and in investing in water utilities.

In so doing, enabling an increase in the supply of service land, which should lead to an increase in total housing output. If you think about the housing market as it stands today, we finance the development of about a third of the output. If you are going to see investment which enables a significant increase in output, that is obviously going to have a positive impact in terms of the amount of capital we deploy to support residential development in this country. We have an appetite so to do. It will obviously also have a positive impact in terms of the amount of mortgages being drawn in the economy as well. Certainly, on the supply side, the NDP will have a pretty positive impact on the medium and long-term performance of the business.

In the event that there needs to be support coming from the private sector for that capital deployment, we are very well equipped, given our expertise in project finance and our climate and infrastructure capital division, to support the rollout of that much-needed investment.

Nadia, Conference Call Operator, AIB Group: Thank you. Now we’re going to take our next question. It comes to the line of Oman Raka. Your line is open. Please ask your question.

Good morning, Jens. Thanks very much for the chance to ask some questions. I had two, please. One was just on your deposit guide for full year. I just wanted to check if you’re expecting any meaningful seasonality in Q4 in deposits. I think at face value, your guide for full year deposits probably implies a flat outturn in Q4, Q on Q. I kind of just wanted to interrogate whether that was a conservative comment or if there’s any kind of noise in the balance sheet that you might want to point us to. Obviously, it’s an important driver of net interest income at the moment. That would be helpful. A follow-on on capital. Clearly, you’re set to end the year with really quite substantial levels of surplus capital despite the warrant charge, particularly post-SRTs.

I was kind of interested in what some of the constraints are that we should think about around your potential or prospective deliberations around distributions at year-end. It looks like, based on consensus and your prior comments, that the payout ratio above 100% is clearly not an issue. Could you help us think about what the kind of parameters are that you’ll be looking to operate within, and to what extent it’s kind of within AIB’s control to determine how much it wants to distribute versus, say, a conversation with the regulator? Thank you so much.

Colin Hunt, CEO, AIB Group: No problem. Listen, I would say on the liability side, we have really strong performance and outturn on growth throughout 2025. Particularly in the Republic of Ireland, which is our core market. And that’s across retail consumer segments and also SME and business segments. We’re not that prevalent, large in the wholesale corporate space. It’s a little bit more competitive. In that retail and SME space, very, very strong. We’ve given guidance overall of 4%, which is an upgrade from 3%. We’re always a little bit cautious, really just coming into the end of the year, December, given one can naturally expect to see increased expenditure. Maybe a little bit conservative there. I would say technically, it’s probably more like 4.5% growth. Historically, we have seen liabilities flat line throughout November and December. Overall, I would say trajectory throughout the year really consistent.

We do expect to see maybe just flat for November, December, and then January 26th probably return to that more normalized type of runways. On the capital side, as you know, our dividend policy will state that there’s a 40-60% cash dividend payout. Anything above that would be deemed as special or exceptional. The 40-60% conversation is within the gift of AIB and the board. That will be reviewed and agreed upon in December, where we’ll also look at our overall capital position and the trajectory looking forward. The outlook is very important. How do we see the macro environment? Do we see any significant troubles ahead? Obviously, in a world of increased uncertainties, there’s always different scenarios you can imagine. First and foremost, it’s the responsibility of the board to get comfortable and agree and approve whatever applications are made to the regulator.

There are conversations that happen throughout November and December. We feel like we’ve put ourselves in a very strong position with a very strong performance. Obviously, we’ve maintained a conservative stance with respect to our CET1 reporting by not reporting any of our in-year profits.

Nadia, Conference Call Operator, AIB Group: Thank you. Now we’re going to take our next question. It comes to the line of Shilsha. Your line is open. Please ask your question.

Great. Thank you. Can I ask about your level of confidence for the 2026 target of less than EUR 2 billion costs, please? Because that would imply maybe a sort of a flattish to maybe even down cost trajectory from 2025 to 2026. Considering inflation’s maybe running a touch hotter than expected in Ireland, IT expenditure, cyber, and whatever else is probably going up. Investments are probably increasing as well. Just understand some of the moving parts to get to that EUR 2 billion number, especially because consensus may be less optimistic on that number compared to where you stand. Thanks.

Colin Hunt, CEO, AIB Group: Thanks, Shil. What I would say on all of our targets, we obviously set them. We set them about two years ago now. We remain very committed to them. They are the key metrics by which we manage the business. On the cost target of less than EUR 2 billion for the end of 2026, that is a vitally important management tool for us as we steer the bank through the months and quarters ahead towards the end of 2026. It is a real target. It is a firm target. It is one that the executive team and the board remain very, very committed to. It is worth, I suppose, pointing out that we are seeing through retirements and natural attrition. We are seeing an ongoing reduction in our total headcount.

If you look at the position at the end of September this year compared to the end of September last year, our total headcount is down by something of the order of about 3%. That is a trend that we would expect to see continuing as we move through 2026. We are not planning, nor will we be doing any sort of special voluntary severance programs. We are seeing ongoing attrition. Of course, you always then have retirements in the normal course. I would expect that the combination of that will see our headcount edging lower as we move into 2026 and towards the end of next year.

Nadia, Conference Call Operator, AIB Group: We are going to take our last question for today. It comes to the line of Robert Noble from Deutsche Bank. Your line is open. Please ask your question.

Morning. Thanks for taking my questions. Can I just, the numbers on capital generation in Q3? It looks like you generated 100 basis points in profit. Does that include the exceptional gain from merchant services, or is that just pure organic capital? If it is, I presume that if it’s pure organic capital, I presume the cost of risk is near zero this quarter. Is that the right way to think about it? Just on whether you put profits in capital or not, I’m not really sure what the difference is. I mean, we all know it’s there. How does that actually legitimately change the conversation with the board or the regulator? Because it’s exactly the same. It’s that what payout ratio difference does it make in reality? Thanks.

Colin Hunt, CEO, AIB Group: Yeah. Look, I’ll take the second question first. I think from the way I look at it, it’s just a very strong statement of intent from the very start of the year with respect to management’s ambitions, with respect to how they view distributions and overall returns. We wanted to be very clear and very strong on that from the very start of the year for that reason and no other. Yeah. On the Q3 profits, the gain on sale from merchant services is included in there. That’s obviously a one-off item. I think you touched on cost of risk there. Overall, as Colin said, it looks like it’ll be at the lower end of the range, at 20-30 basis points. We will look at our macros and our weightings in November or December, as we normally do. That’s going to have an impact as well.

Obviously, in the first half of the year, things looked a little bit more uncertain post-liberation day. We’re really just trying to figure out how we see the macro environment in Ireland playing out in the coming years. I would say it looks marginally better now than what it did six or nine months ago.

Nadia, Conference Call Operator, AIB Group: Thank you. Dear speakers, that’s all for the questions for today. This concludes today’s conference call. Thank you for participating. You may now all disconnect. Have a nice day.

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