Allied Irish returns to profit as bad loans tumble

Allied Irish Banks (AIB) returned to profit in the first half of the year after its bad debts on loans fell sharply, marking a major milestone as it moves towards repaying a state bailout next year.

State-owned AIB, whose rescue in the financial crisis cost taxpayers more than 20 billion euros ($26.8 billion) - the most given to any Irish lender that is still open - made a pretax profit of 437 million euros compared with a 838 million euro loss a year ago.

AIB posted a first-half profit in 2011 but only after it imposed losses on junior debtors and sold foreign units. It was last in the black prior to that in 2008 before a banking crisis pushed Ireland into an EU/IMF bailout it completed last year.

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PETER MUHLY | AFP | Getty Images

The bank flagged its return to profitability in a trading update in May, saying it was driven by a significant reduction in impairment charges. Provisions for soured loans fell to 92 million euros from 738 million in the first half of 2013.

The level of bad loans in Ireland - where almost one in five home loans are in arrears - had made a return to profitability elusive for its banks. AIB said the total number of arrears fell by 6 percent in the period.

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The bank's proportion of owner-occupiers in arrears for more than 90 days stood at 10.5 percent at the end of June, while 25.7 percent of all buy-to-let mortgage holders were behind on payments.

AIB's core Tier 1 capital ratio, a measure of financial strength, was 16.1 percent at the end of June, and 10.5 percent complying with Basel III rules. Its net interest margin - gauging the profitability of its lending - rose to 1.60 percent.

AIB, which announced a review of its capital structure earlier this year to prepare the bank for sale in 2015, said it expected to remain profitable for 2014 but challenges remained including a still shrinking net loan book.