Bad debt picture will not become clear for 12 months

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Even at the height of Covid-19 uncertainty a year ago, AIB’s decision to set aside interim € 1.2 billion to cover potential loan losses resulting from the coronavirus crisis appeared, in the eyes of analysts, be cautious. And its annual charge of 1.45 billion euros would place it among the most pessimistic banks in Europe, relative to the size of its balance sheet.

It is therefore no surprise that the bank revealed on Wednesday that it had started to release part of these provisions, freeing up 103 million euros.

The economy is in much better shape than once feared, even though the Covid-19 restrictions, while easing in recent months, have lasted much longer than expected.

Reversals of provisions have occurred at all banks internationally in the midst of the recent earnings season, as government and central bank support to households and businesses and vaccine deployments have helped. stem the fallout from the crisis.

But while the Bank of Ireland’s impairment charge amounted to only € 1 million for the first half of the year, compared to € 1.1 billion for 2020 as a whole, and that of Permanent TSB is From 155 million euros to 3 million euros, none have followed AIB’s example, although they are much more optimistic than a year ago.

Fortunately, the government’s various Covid-19 supports, in particular pandemic unemployment benefits and wage subsidies, have kept NPLs under control for the time being. But there will inevitably be an increase in defects as the stimulus decreases.

AIB chief executive Colin Hunt declined to be drawn when asked by The Irish Times on Wednesday whether he would release more supplies in the second half of the year. “It is far too early to speculate. Let’s wait and see how the economy and the immunization program evolve, if we have other variations and what the credit experience looks like when the economy reopens, ”he said.

According to Hunt, it could be until 2022 before we have a clear idea of ​​how bad the NPL situation is.

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