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Home , Danske Bank, Danske Bank (Ireland), Permanent TSB, Ulster Bank

Market background

A. Macroeconomics . Banking sector

Copenhagen, December 14, 2004 A. Macroeconomics

Overview (1/2)

Republic of

• The was the fastest growing economy in • Northern Ireland is the fastest growing regional economy in the European Union from 1994 to 2002 the

• The strong growth has been driven by: • The strong relative growth has been driven by: - Favourable demographic trends - Structural funding and grant support from the EU - Benign interest rate environment - UK government support - Low corporate tax rates - Economic support from the European Union • The Northern Irish economy has been stable in recent years despite adverse global conditions and outstanding • The economy is expected to continue to exhibit strong political issues growth momentum - Forecasted GDP growth rates for the period 2004- • Economic growth is expected to continue at a more modest 2008 are in the 3.5%-5% range pace - Growth is predicted to slow in the outer years - Growth will remain slightly above that of the overall UK - Given a continuation of high population growth, GDP economy, which is expected to grow in the range of per capita will not grow at the same pace as currently 2%-2.5% in the coming years - Northern Ireland is expected to benefit from • Ireland has a significantly higher savings ratio than the approximately GBP 2.7bn of infrastructure United Kingdom expenditure through public private partnerships and private finance initiatives

2 A. Macroeconomics

Overview (2/2)

Republic of Ireland Northern Ireland

• Employment: • Employment - Low unemployment rate - Low unemployment rate - Main sectors in terms of employment are - Main sectors in terms of employment are public manufacturing industries, education, health, and administration, defense and wholesale and retail Trade wholesale and retail trade

3 A. Macroeconomics

Key economic indicators

Republic of Ireland Northern Ireland

Business environment Business environment Population (2002) 3.9m Population (2002) 1.7m Gross value added (GVA)1 EUR 103.2bn Gross value added (GVA)1 GBP 19.1bn - CAGR 1991-2001 11.6% - CAGR 1991-2001 5.7% GVA per person (2001) EUR 26,894 GVA per person (2001) GBP11,311 - CAGR 1991-2001 10.7% - CAGR 1991-2001 5.2%

Economic status of population Economic status of population At work 57.6% At work 57.8% Unemployed 5.6% Unemployed 4.4% Other 36.8% Other 37.8%

Household statistics Household statistics Average household size (persons) 2.94 Average household size (persons) 2.58 Owner-occupied housing with Owner-occupied housing with a mortgage (% of total) 37.9% a mortgage (% of total) 39.4%

Companies Companies VAT-registered enterprises (2002) 212,070 VAT-registered enterprises (2002) 55,810 - CAGR 1997-2002 10.7% - CAGR 1997-2002 0.4% 1GDP excl. VAT Source: Economist Intelligence Unit 4 B. Banking sector

Irish banking market (1/5) - Overview

• Favourable demographics and net inward migration €m % likely to boost demand for banking services in the Slowing, but still strong mortgage loan growth medium term 60 40

• Key market driver remains mortgage growth, but 35 SME lending also robust 50 - Yearly mortgage growth has been above 10% in every one of the last ten years 30 40 • Consumer banking heavily dominated by two players, 25 of Ireland and Allied Irish , with 75% market share of current accounts 30 20 • Mortgage lending is dominated by Permanent TSB, , FirstActive and , 15 with a 59% market share of the mortgage stock 20

• Commercial banking segment heavily dominated by 10 the two main players, BoI and AIB, with a combined 10 market share of 82% of current accounts 5

0 0 1999 2000 2001 2002 2003E 2004E 1994 1995 1996 1997 1998 Mortgage loans outstanding Growth rates (y/y)

Source: Goldman Sachs Economic Research 5 B. Banking sector

Irish banking market (2/5) - Retail: Slowing but still strong retail lending growth

Retail bank lending, Rep. of Ireland Annual growth, (right hand scale) €bn % 120 35

80 25

40 15

0 5 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004E 2005E 2006E

Source: & of Ireland/ 6 B. Banking sector

Irish banking market (3/5) - Comparison with other markets

GDP/Capita (€)Deposits/GDP 2.4x 34,720 33,785 32,674 28,306 27,406 1.6x 26,540 26,429 25,983 1.6x 22,365 21,998 19,345 1.2x 17,380 1.1x 1.1x 13,639 1.0x 1.0x 12,876 0.9x 0.9x 0.6x 0.5x 0.4x 0.4x UK UK Italy Italy USA USA Spain Spain Nordic Nordic Ireland Ireland France Austria France Austria Greece Greece Canada Canada Benelux Benelux Portugal Portugal Australia Australia Germany Germany Long-term GDP growth Loans/GDP 6.6% 2.2x 5.4% 5.3% 1.7x 1.6x 4.9% 4.8% 4.6% 1.4x 4.3% 4.1% 3.9% 3.8% 1.3x 3.7% 1.3x 3.6% 3.5% 1.1x 2.6% 0.9x 0.8x 0.7x 0.7x 0.6x 0.6x 0.4x UK UK Italy Italy USA USA Spain Spain Nordic Nordic Ireland Austria France Ireland Austria France Greece Greece Canada Canada Benelux Benelux Portugal Portugal Australia Australia Germany Germany Top five market share Total banking assets / GDP 90% 88% 87% 87% 81% 80% 4.6x 74% 66% 62% 61% 56% 55% 3.3x 3.3x 3.0x 2.7x 2.3x 2.2x 1.7x 1.7x 1.5x 1.4x 1.3x 1.2x 20% 16% 0.7x UK UK Italy Italy USA USA Spain Spain Nordic Nordic Ireland Austria Ireland France France Austria Greece Greece Canada Canada Benelux Benelux Portugal Portugal Australia Australia Germany Germany Sources: Eurostat, EBF, EIU, Canadian Bankers Association, Federal Reserve, Reserve Bank of Australia 7 B. Banking sector

Irish banking market (4/5) - Benchmarking Ireland vs. European banking sector

Number of banks per inhabitant1 Number of branches per inhabitant1 367 968

629 539 526 524 478 443 435 429 374 365 110107 295 291 291 247 65 212 212 193 47 37 33 30 23 15 14 14 11 9 6 6 6 5

s s d rk d rk Italy Italy lgium Spain Spain lgium Austria IrelandFrance rland Austria France rland Ireland Icelan Be e Greece Icelan Be NorwayFinlandGreecee Sweden Denma Germany Kingdom Portugal Portugal Germany Denma Kingdom Luxembourg Switzerland Neth Luxembourg Switzerland Neth United United

Banks’ staff/population (‘000) Banks’ total assets2/population1

5,784 49.0

1,426

431 377 306 288 13.612.0 10.4 142 8.9 8.6 7.7 7.6 7.2 7.0 118 5.9 5.8 5.7 5.2 4.7 4.5 4.3 86 78 74 69 63 NA 37 35 34 31 19

s s d rk d rk Italy Italy lgium Spain lgium Spain Ireland rland Austria France Ireland rland Austria France Icelan e Be Greece NorwayFinlandSweden Icelan Norway Sweden e Be Finland Greece Germany KingdomDenma Portugal Denma Germany Kingdom Portugal LuxembourgSwitzerland Neth Luxembourg Switzerland Neth United United

1Population data in millions Source: European Banking Federation 8 2 Banks’ total assets in billions of euros B. Banking sector

Irish banking market (5/5) - Market shares – corporate

Custom/Corporate1 Package2 44% 42% 40% 36%

12% 12% 4% 5% 0% 0% 2% 1%

Allied Irish Bank of NIB Permanent Other Allied Irish Bank of Ulster Bank NIB Permanent Other Banks Ireland TSB Banks Ireland TSB

Micro3 Unallocated

43% 43% 37% 38%

11% 13% 5% 3% 4% 1% 1% 1%

Allied Irish Bank of Ulster Bank NIB Permanent Other Allied Irish Bank of Ulster Bank NIB Permanent Other Banks Ireland TSB Banks Ireland TSB

Note: Business segment definitions are those of pH group. They are 1 not the same as the Group’s segment definitions. Custom/Corporate defined as 10+ employees 2 Package defined as 5-9 employees Source: pH Group (Aug. 2004) 3 Micro defined as 1-4 employees 9 B. Banking sector

Northern Ireland banking market - Overview

• The main banks in Northern Ireland are: - Northern Bank, Ulster Bank (owned by RBS), Bank of Ireland, and First Trust (owned by Allied Irish Banks)

• These main banking players compete with former building societies and other financial institutions in the retail segment

• Northern Ireland is a natural geographical extension for the major UK banking players - Incumbent players are experiencing increased competition from UK banks - Local banks have not seen their competitive position challenged except in mortgages, where (HBOS), and Alliance & Leicester have a combined market share of 52%

• The banking sector has benefited from the benign macroeconomic environment following both EU and UK structural and regional aid - Fastest growing region in the United Kingdom - Rapid growth in the Republic of Ireland has had a “spillover” effect on Northern Ireland

• Retail banking is heavily dominated by three players - Northern Bank, Ulster Bank (RBS) and First Trust (Allied Irish Banks) - They command a combined 66% market share in current accounts

• Mortgage lending is dominated by the UK banking players HBOS, Alliance & Leicester and Abbey National

• Business banking is split between four players, with Northern Bank commanding the strongest market position through a 36% market share in the corporate segment - Northern Bank, Ulster Bank, Bank of Ireland and First Trust have a combined market share of 97% in the custom/corporate segment 10 For more information, please visit

www.danskebank.com/irireland