Backing our Customers Half-Yearly Financial Report For the six months ended 30 June 2020 AIB Group plc 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 supporting the transition to a low-carbon economy and backing sustainable communities. In the first half of 2020,we introduced a range of supports for our customers impacted by COVID-19 and funded the COVID-19 Research Hub to help meet the challenges ahead. ON OUR COVER Ger Leahy, AIB customer and Tillage Farmer from Co. Tipperary. Featured as part of our Backing Brave campaign. AIB Group plc Half-Yearly Financial Report 2020 1 Half-Yearly Financial Report For the six months ended 30 June 2020 01 02 OVERVIEW BUSINESS REVIEW 02 Business performance 16 Operating and financial review 04 Chief Executive’s review 31 Capital 12 COVID-19 supports 03 04 RISK MANAGEMENT FINANCIAL STATEMENTS 36 Update on risk management and governance 90 Condensed consolidated interim financial statements 38 Credit risk 97 Notes to the condensed consolidated interim 80 Additional credit quality and forbearance disclosures financial statements on loans and advances to customers 142 Directors’ Responsibility Statement 85 Funding and liquidity risk 143 Independent review report 144 Forward looking statements This Half-Yearly 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 141. 2 AIB Group plc Half-Yearly Financial Report 2020 BUSINESS PERFORMANCE H1 2020 RESULTS FINANCIAL PERFORMANCE €1,050m NET INTEREST €967m INCOME €967m LOW INTEREST RATE ENVIRONMENT IMPACTING INCOME Down 8% due to the low interest rate environment, lower investment securities income and reduced loan volumes H1 2020 H1 2019 partially offset by a decrease in the cost of customer accounts NET CREDIT IMPAIRMENT €1,216m CHARGE €1,216m INCREASE IN PROVISION STOCK DUE TO DETERIORATION IN ECONOMIC OUTLOOK €9m Impairment charge of €1,216m reflecting prudent provisioning H1 2020 H1 2019 approach given the revised economic outlook (LOSS)/PROFIT €436m BEFORE TAX (€909m) H1 2019 IMPACTED BY IMPAIRMENT CHARGE H1 2020 Operating profit1 of €377m, with operating income down 13% due to interest rates and sharp decline in economic activity, offset by impairment charge of €1,216m and exceptional items of €75m (€909m) NEW €6.0bn LENDING bn €4.4 bn LOWER INTERNATIONAL LENDING, Q2 €4.4 IMPACTED BY COVID LOCKDOWN New lending down 27% reflects lower syndicated H1 2020 H1 2019 and UK lending. Mortgage lending down 17% €58.2bn €60.9bn NET LOANS €58.2bn GROSS LOANS DOWN 3% TO €60.6BN DUE TO LOWER ECONOMIC ACTIVITY 30 Jun 31 Dec Net loans down €2.1bn (excluding FX impact) with redemptions 2020 2019 exceeding new lending and increase in provision stock NON-PERFORMING €3.8bn EXPOSURES2 €3.8bn €3.3bn 6.3% OF GROSS LOANS Non-performing exposures (NPEs) increased by €0.5bn to 30 Jun 31 Dec €3.8bn primarily reflecting changes to definition of default 2020 2019 1. Operating profit before impairment losses and exceptional items. 2. Non-performing exposures (NPEs) refers to non-performing loans (NPLs) and excludes €147m of off-balance sheet commitments. For further information see pages 52 and 53. AIB Group plc Half-Yearly Financial Report 2020 3 In March 2020, in line with our strategy, we set a number of medium-term financial targets to 2022 along with long-term non-financial targets. MEDIUM-TERM FINANCIAL TARGETS (END 2022) TARGETS OUTCOMES €747m €744m ABSOLUTE COST BASE3 €1.5bn Cost of running the business, Focussed cost discipline; controlling H1 2020 H1 2019 excluding exceptional costs costs annually at €1.5bn by 2022 RETURN ON n/a 4.5% TANGIBLE EQUITY4 >8% A measure of how well capital is Deliver sustainable returns; 30 Jun 31 Dec deployed to generate earnings growth ROTE >8% by 2022 2020 2019 17.3% CET1 RATIO 16.4%5 (FULLY LOADED) >14% A measure of our ability to Appropriate capital target; withstand financial stress and CET1 >14% needed to run the business 30 Jun 31 Dec remain solvent 2020 2019 LONG-TERM NON-FINANCIAL TARGETS6 34 RELATIONSHIP NET 25 PROMOTER SCORE (NPS) 50+ A measure of our personal customers’ overall AIB relationship experience 30 Jun 31 Dec 2020 2019 TRANSACTION NET HOMES: 54 53 PROMOTER SCORE 60+ 65 60 (NPS) SME: 70+ Measured after customer 30 Jun 31 Dec transactions for key touch points7 2020 2019 ACTIVE MOBILE 1.34 1.30 USERS >2 million million million Number of active users 30 Jun 31 Dec on mobile platform 2020 2019 DIVERSITY GENDER BALANCED 41% 41.5% Women as % of management 30 Jun 31 Dec 2020 2019 3. Before bank levies, regulatory fees and exceptional items. For exceptional items see pages 20 and 29. 4. For further information see the Capital section on page 31. The RoTE actual outcome is not reported for the 30 June 2020 as it would require the loss for the period to be annualised which is considered not appropriate at this stage. 5. Pro forma CET1 including TRIM indicative impact of 80bps is 15.6% - see page 32 for further information. 6. Long-term non-financial targets for Engagement, Reduction in Emissions and ESG Ratings are reported on an annual basis. 7. The Transactional NPS score for Homes is an aggregation of Mortgage Success, Mortgage Drawdown and Mortgage Decline customer journeys; the Transactional NPS score for SME comprises Loan Success, New Current Account, Asset Finance, Cashflow and Onboarding journeys. 4 AIB Group plc Half-Yearly Financial Report 2020 CHIEF EXECUTIVE’S REVIEW RESILIENCE IN THE FACE OF ADVERSITY Although it has been an extraordinary six months, AIB remains committed to supporting economic recovery while maintaining a strong and resilient balance sheet. COLIN HUNT AIB’s Chief Executive Officer AIB Group plc Half-Yearly Financial Report 2020 5 As I reflect on the first seven months of 2020, a total of c. 64,000 payment breaks on mortgages, they are without doubt, unlike anything we have small business and personal loans to customers experienced in our lifetimes. The exceptional impacted by COVID-19. These moratoria provided challenges caused by the COVID-19 pandemic vital immediate liquidity to households and are still unfolding in real time and their scale and businesses; a deferral of fees and charges was also ultimate impact, as yet, are impossible to measure effected; the contactless card charge was waived at a public health, social and economic level and increased limits on cashless payments were domestically or globally. We are now compelled to facilitated in order to reduce health risks. All of adjust and acclimatise to meet, head-on, challenges these changes were effected whilst maintaining an few could have envisaged. open dialogue with the Minister for Finance, the Regulator and other stakeholders. Because it is virus-led, the current recession is not a “conventional” one. The normal text book As customer calls to AIB’s contact centres increased response has had to be rewritten in a short space significantly overnight, we reassigned staff and kept of time as the demands now placed on the banking 99.4% of our branch network open. We introduced sector are unmatched. As an industry, we are priority banking hours for those that needed it as responding with unprecedented flexibility and this well as a dedicated helpline for over 65s, to ensure extraordinarily severe crisis demands that we call safe service for all our customers. While adhering on all our strength as a resilient financial force to to the prudential rules of responsible lending, we support our customers and the economies in which ensured that credit facilities aimed at mitigating we operate. The emergency has demanded that the impact of the coronavirus on businesses were we respond rapidly and with agility to play a central released as quickly as possible. role, in particular, in Ireland’s recovery. At the outset of COVID-19, I said the banking sector could be the Our sectoral teams worked assiduously to provide difference between this country’s economy slipping expert advice and assistance to our thousands of from crisis to catastrophe and we will demonstrate SME customers across the retail trade, hospitality, by our actions that this assessment holds true. tourism, pubs and restaurants who were, at best, cast into uncertainty overnight and, at worst, There are striking differences between banks’ temporarily forced to cease trading. circumstances during the COVID-19 crisis and the collapse of the financial sector 12 years ago. Like others globally, the Irish government has In 2008, the country’s lenders were part of the sought to cushion the impact of the shock on the problem and today banks are part of the solution. economy through a series of measures including, In March 2020, when the COVID-19 pandemic sent most recently, the €7.4bn Stimulus Package its first shockwaves through the economy, leading announced in July. As an integral part of this to widespread disruption to supply chains, jobs raft of measures to reflate the economy, AIB is and incomes, AIB had the financial and technical participating fully with the provision of low-cost wherewithal to rapidly implement exceptional loans to SMEs, the backbone of our national economy, through the €2.8bn Strategic Banking “WE STREAMLINED Corporation Ireland (SBCI) Credit Guarantee and Future Growth Schemes.