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Backing Our Customers BACKING OUR CUSTOMERS Annual Financial Report for the financial year ended 31 December 2019 AIB Group plc Gruig, Co Antrim, one of two wind farms acquired by Foresight Group LLP in 2019 with finance provided by AIB. OUR PURPOSE IS TO BACK OUR CUSTOMERS TO ACHIEVE THEIR DREAMS AND AMBITIONS AIB is a financial services group operating predominantly in Ireland and the United Kingdom. We provide a range of services to retail, business and corporate customers, with market-leading positions in key segments. AIB is our principal brand across all geographies. In Ireland, EBS is our challenger brand and Haven is our mortgage broker channel. With over 2.8 million customers, we are committed to backing sustainable communities. We pledge to do more to support the transition to a low-carbon economy. ANNUAL FINANCIAL REPORT 2019 01 02 03 ANNUAL BUSINESS RISK REVIEW REVIEW MANAGEMENT 04 Financial Highlights 52 Operating and 72 Framework 06 AIB at a Glance Financial Review 79 Individual Risk Types 10 Chairman’s Statement 67 Capital 14 Chief Executive’s Review 20 2019 Highlights 22 Overview of the Irish Economy 24 Our Strategy 32 Governance in AIB 38 Risk Summary 44 Board of Directors 46 Executive Committee 48 Our Non-Financial Statement ON OUR COVER Oweninny Wind Farm in Co Mayo, an AIB customer. Read more in our Detailed Sustainability We pledge to Report 2019: DO MORE. Detailed Sustainability Report for the financial year ended 31 December 2019 aib.ie/sustainability AIB Group plc 04 05 06 GOVERNANCE FINANCIAL GENERAL AND OVERSIGHT STATEMENTS INFORMATION 172 Group Directors’ Report 224 Directors’ Responsibility Statement 375 Shareholder Information 175 Schedule to the Group 225 Independent Auditor’s Report 376 Forward Looking Statements Directors’ Report 237 Consolidated Financial Statements 377 Glossary of Terms 178 Corporate Governance Report 243 Notes to the Consolidated 383 Principal Addresses 194 Report of the Board Audit Financial Statements 384 Index Committee 366 AIB Group plc Company 200 Report of the Board Risk Financial Statements Committee 369 Notes to AIB Group plc 204 Report of the Nomination & Company Financial Statements Corporate Governance Committee 208 Report of the Remuneration Committee 212 Corporate Governance Remuneration Statement 219 Viability Statement 220 Internal Controls 221 Other Governance Information 222 Supervision and Regulation This Annual Financial Report contains forward looking statements with respect to certain of the Group’s plans and its current goals and expectations relating to its future financial condition, performance, results, strategic initiatives and objectives. See page 376. 4 AIB Group plc Annual Financial Report 2019 Annual Review Financial Highlights FINANCIAL HIGHLIGHTS OUR FINANCIAL PERFORMANCE IN 2019 NET 2.47% INTEREST 2.37% MARGIN 2.37% STABLE CUSTOMER LOAN YIELDS Stable customer loan yields. Impact of excess liquidity and higher cost of MREL issuances driving lower net interest margin (NIM) of 2019 2018 2.37%. Interest income in line with 2018. COST 56% INCOME 53%2 RATIO1 56% RENEWED FOCUS ON COST DISCIPLINE Higher costs and lower income driving increase in cost income ratio (CIR). Renewed focus on cost discipline. 2019 2018 PROFIT BEFORE €1,247m TAX €499m PROFIT BEFORE TAX IMPACTED BY EXCEPTIONAL ITEMS OF €592M 2019 impacted by exceptional items, including €499m provision for tracker mortgage examination, while 2018 benefited from impairment writebacks and 2019 2018 gain on disposal of loan portfolios. Profit before exceptional items in 2019 is €1,091m (2018: €1,414m). 1. Before bank levies, regulatory fees and exceptional items, cost income ratio (CIR) including these items is 82% in 2019 (2018: 63%). For exceptional items see pages 56 and 65. 2. Other regulatory levies and charges are now presented as bank levies and regulatory fees (€17m in 2018 previously included in operating expenses has been re-presented as bank levies and regulatory fees). Financial Highlights Annual Review AIB Group plc Annual Financial Report 2019 5 1 2 3 4 5 6 NEW LENDING €12.3bn €12.3bn €12.1bn MODERATE GROWTH IN NEW LENDING New lending up 2% with growth of 8% in mortgages in Ireland and 2019 2018 strong lending to the energy sector offset by lower syndicated lending. NON- PERFORMING €6.1bn EXPOSURES3 €3.3bn SIGNIFICANT REDUCTION, 5.4% OF GROSS LOANS €3.3bn Significant progress in reducing non-performing exposures (NPEs) with a 45% reduction from 2019 2018 €6.1bn (9.6% of gross loans) to €3.3bn to reach our milestone of c. 5% by end of 2019. NET LOANS €60.9bn €60.9bn €60.9bn STABLE NET LOANS AS GROSS PERFORMING LOANS GROW 3% Excluding disposal of loan portfolios and FX impact, growth in net loan book is €0.7bn. Gross performing loans of €58.8bn increased 2019 2018 by 3% (up 2% excluding FX impact). CET1 FULLY 17.5% LOADED 17.3% 17.3% STRONG CAPITAL BASE Strong capital base with solid underlying capital generation. Proposed ordinary dividend of €217m (8c per share). Pro forma CET1 including TRIM4 indicative impact of 90bps is 16.4%. 2019 2018 3. Non-performing exposures (NPEs) refers to non-performing loans (NPLs) and excludes €162m of off-balance sheet commitments. For further information see pages 105 and 106. 4. For further information on TRIM see page 68. 6 AIB Group plc Annual Financial Report 2019 Annual Review AIB at a Glance AIB AT A GLANCE HOW WE BACK OUR CUSTOMERS OUR BUSINESS STRUCTURE We back our customers through two core segments – Retail Banking and Corporate, Institutional & Business Banking – together with our AIB UK business and Group control and support functions. CORPORATE, RETAIL AIB INSTITUTIONAL & BANKING UK BUSINESS BANKING BUSINESS & CUSTOMER FINANCE RISK SERVICES LEGAL & CORPORATE HUMAN CORPORATE AFFAIRS & RESOURCES GOVERNANCE STRATEGY GROUP INTERNAL AUDIT – REPORT TO BOARD AUDIT COMMITTEE Business structure in operation from 11 November 2019. AIB at a Glance Annual Review AIB Group plc Annual Financial Report 2019 7 1 2 3 4 5 RETAIL BANKING 6 Retail Banking’s core business lines include: mortgages, 58% consumer lending, SME lending, asset-backed lending, OF NET LOANS wealth management, daily banking and general insurance, as well as our Financial Solutions Group. m m CUSTOMERS2.5 296LOCATIONS 1.5DIGITAL CUSTOMERS Leading retail banking franchise Largest physical distribution No. 1 digital bank in Ireland, in Ireland with over 2.5 million network in Ireland, with 296 AIB with over 1.5 million active digital personal and SME customers. and EBS locations and a further customers and 1.3 million active c. 950 locations through the mobile customers. An Post network. bn m bn €35.5 €707 1 NEW€4.9 LENDING NET LOANS OPERATING CONTRIBUTION CORPORATE, INSTITUTIONAL & BUSINESS 27% BANKING (CIB) OF NET LOANS Established, diversified business with market-leading positions in core domestic markets and extensive experience in US and European syndicated loan markets. RELATIONSHIP CUSTOMER-FOCUSED SECTOR DRIVEN MODEL SOLUTIONS SPECIALIST TEAMS Trusted strategic long-term partner Complementing traditional debt Centre of Excellence approach for Irish businesses, with primary offering through specialised finance, to management of key sectors to focus on senior debt lending. commercial finance, syndicated bring sector-specific insights and finance and corporate finance expertise to our customers. advisory services, as well as Private Banking services and advice. bn bn m €5.0 €16.2 €443 1 NEW LENDING NET LOANS OPERATING CONTRIBUTION 1. Operating contribution before impairments and exceptional items. 8 AIB Group plc Annual Financial Report 2019 Annual Review AIB at a Glance AIB UK AIB UK operates in two distinct markets: providing corporate and commercial banking services in Great Britain, trading as Allied Irish 15% OF NET LOANS Bank (GB); and retail and business banking services in Northern Ireland, trading as AIB (NI). k k CUSTOMERS294 LOCATIONS29 DIGITAL126 CUSTOMERS 294k retail, corporate and 14 business centres in Great Britain 126k customers actively engaging business customers across along with 15 branches in Northern across our digital channels. the United Kingdom. Ireland, including six business centres co-located in branches and one centre for small and micro business. bn bn m £2.1 £7.7 £140 1 NEW LENDING NET LOANS OPERATING CONTRIBUTION OPERATING GROUP CONTRIBUTION1 Group comprises wholesale treasury activities and BY SEGMENT Group control and support functions. 12% TREASURY AIB UK 54% Part of our Finance function, Treasury manages the Retail Group’s liquidity and funding position while providing Banking customer treasury services and economic research. 34% 2 Corporate, €1.3bn CONTROL Institutional FY 2019 TOTAL & Business AND SUPPORT Banking Group control and support functions are: Business & Customer Services; Finance; Risk; Legal & Corporate Governance; Human Resources; Corporate Affairs & Strategy; and Group Internal Audit. For a detailed report on our performance, read the ‘Operating and financial review’ section on pages 52 to 66. 1. Operating contribution before impairments and exceptional items 2. Excludes Group segment operating loss €0.2bn. AIB at a Glance Annual Review AIB Group plc Annual Financial Report 2019 9 1 2 3 4 5 6 Since 2001, AIB has sponsored Dublin Chamber’s Annual Dinner, which brings over 1,600 business leaders together 10 AIB Group plc Annual Financial Report 2019 Annual Review Chairman’s Statement CHAIRMAN’S STATEMENT A GREAT INSTITUTION WITH A STRONG CUSTOMER FRANCHISE At the end of his term, the Chairman reflects on significant NPE reduction, culture development and continued customer success in 2019. Richard Pym, AIB’s Chairman Chairman’s Statement Annual Review AIB Group plc Annual Financial Report 2019 11 1 2 3 4 5 6 This annual report details the results for concluded the year in a strong capital 2019 and the progress being made in the position with fully-loaded CET1 ratio of bank. Allied Irish Banks is a great institution 16.4%. with a strong and profitable customer franchise and against that background it In 2019 banks have been experiencing is particularly regrettable that the Board is a challenging economic environment of recommending a reduction in the ordinary negative interest rates in the Eurozone dividend.
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