Dáil Éireann Debate, Wednesday - 18 November 2015
16. Deputy Michael McGrath asked the Minister for Finance how the State will maximise the proceeds from a future disposal of Allied Irish Banks; how these proceeds will be deployed; his views on the comments by the Governor of the Central Bank of Ireland, Mr. Patrick Honohan, on the lack of competition in the Irish banking sector; if this will influence the sale process for Allied Irish Banks; and if he will make a statement on the matter. [40356/15]
View answerAs the Deputy is aware, AIB recently announced that it had received approval from its regulator, the SSM (Single Supervisory Mechanism), for a significant reorganisation of its capital structure. The approved reorganisation involves a number of elements including a redemption of the State's Preference Shares to the value of €1.7 billion in cash, as well as converting the remaining Preference Shares into Ordinary equity. The reorganisation will generate a substantial return of capital for the taxpayer and starts the process of the bank repaying the State for its substantial support.
The reorganisation which involves the removal of non-standard instruments from the bank's balance sheet is a mutually beneficial arrangement. It allows the State to begin monetising its investment in the bank while allowing AIB make clear progress in its journey towards re-emerging as a competitive, investable bank.
Between 2009 and 2011 the State invested €20.8 billion in AIB, including investments in EBS which AIB acquired. I believe that, over the course of time, the State will be able to recoup all of that investment through interest, dividends, fees and, ultimately, the sale of our shares.
As I have previously indicated, all capital returned from the State's investments in the Irish banks, will be used to reduce the national debt. This is the prudent course of action, it reduces our ongoing borrowing costs and ensures the future strength and stability of our economy. I have also indicated that while the Capital Reorganisation begins the process of the bank repaying the State aid it was granted, any decision to sell shares in the bank is a matter for the next Government. Officials in my Department will however continue to work with the bank in the coming months to ensure that the next Government has optionality in this regard.
On the second part of the Deputy's question, I would broadly agree with the views expressed by the outgoing Governor of the Central Bank regarding the lack of competition. The Irish banking and financial services sector would benefit from increased competition, though we have made some progress in this regard through initiatives such as the Strategic Banking Corporation of Ireland (SBCI), which facilitates competitive loans for Irish industry. I would anticipate competition in the sector will continue to improve, driven by domestic or international institutions as the economy recovers, the housing sector normalises and demand for new business investment expands.
While the dynamics of competition naturally affect the performance and profitability of AIB, this is true of any business. The competitive environment is only one of many factors that influence the value of AIB and it will be up the next Government to decide on the appropriate timing of any sale of shares in the bank.
