Allied Irish Bank Annual Report 2005

FY2005 Annual Report · Allied Irish Bank
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Contents

3

4

6

8

10

13

22

27

29

40

42

48

49

65

66

68

70

71

73

153

154

156

157

159

161

164

165

Financial highlights

Chairman’s statement

AIB Board / Executive Committee

Group Chief Executive’s review

Corporate Social Responsibility

Performance review

Divisional commentary

Pro-forma IFRS information

Financial review

Report of the Directors

Corporate Governance

First time adoption of International Financial Reporting Standards (‘IFRS’) 

Accounting policies

Consolidated income statement

Balance sheets

Statement of cash flows

Statement of recognised income and expense

Reconciliation of movements in shareholders’ equity

Notes to the accounts

Statement of Directors’ responsibilities in relation to the Accounts

Independent auditor’s report

Accounts in sterling, US dollars and Polish zloty

Five year financial summary

Principal addresses

Additional information for shareholders 

Financial calendar

Index

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Forward-Looking Information

This document contains certain forward-looking statements within the meaning

of the United States Private Securities Litigation Reform Act of 1995 with

respect to the financial condition, results of operations and business of the

Group and certain of the plans and objectives of the Group. In particular,

among other statements, certain statements in the Chairman’s statement, the

Group Chief Executive’s review, the Performance review and the Financial review

with regard to management objectives, trends in results of operations, margins,

risk management, competition and the impact of International Accounting

Standards are forward-looking in nature. By their nature, forward-looking

statements involve risk and uncertainty because they relate to events and

depend on circumstances that will occur in the future. There are a number 

of factors that could cause actual results and developments to differ materially

from those expressed or implied by these forward-looking statements. These

factors include, but are not limited to, changes in economic conditions globally

and in the regions in which the Group conducts its business, changes in fiscal or

other policies adopted by various governments and regulatory authorities, the

effects of competition in the geographic and business areas in which the Group

conducts its operations, the ability to increase market share and control

expenses, the effects of changes in taxation or accounting standards and

practices, acquisitions, future exchange and interest rates and the success of

the Group in managing these events. Any forward-looking statements made 

by or on behalf of the Group speak only as of the date they are made.

AIB cautions that the foregoing list of important factors is not exhaustive.

Investors and others should carefully consider the foregoing factors and other

uncertainties and events when making an investment decision based on any

forward-looking statement. In light of these risks, uncertainties and assumptions,

the forward-looking events discussed in this Report may not occur.

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Financial highlights

for the year ended 31 December 2005

Results

Total operating income

Operating profit

Proﬁt before taxation - continuing operations

Proﬁt attributable to equity holders of the parent

Per € 0.32 ordinary share
Earnings – basic (note 19)

Earnings – diluted (note 19)

Dividend

Dividend payout

Net assets

Performance measures

Return on average total assets

Return on average ordinary shareholders’ equity

Balance sheet

Total assets

Ordinary shareholders’ equity

Loans etc

Deposits etc

Capital ratios

Tier 1 capital

Total capital

31 December
2005
€ m

1 January
2005
€ m

31 December
2004
€ m

3,647

1,493

1,706

1,343

151.0c

149.8c
65.3c
44%

773c

1.20%

20.6%

3,216

1,214

1,372

1,129

132.0c

131.5c

59.4c

46%

671c

1.22%

20.7%

133,214

102,819

101,109

6,672

92,361

109,520

5,975

68,230

82,384

5,745

67,278

82,384

7.2%

10.7%

8.2%

10.7%

8.2%

10.9%

Allied Irish Banks, p.l.c.
Group Headquarters & 
Registered Office
Bankcentre, Ballsbridge 
Dublin 4, Ireland
Telephone (01) 6600311
Registered number 24173

The results for the year ended 31 December 2004 have been restated to represent the results of Ark Life as a discontinued
operation to reflect the disposal (Note 2) and the application of International Financial Reporting Standards, with the
exception of IAS 32, IAS 39 and IFRS 4 which apply with effect from 1 January 2005.
See First time adoption of International Financial Reporting Standards (‘IFRS’).

3
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Chairman’s statement

2005 was a very good year for AIB – and for 
its shareholders.

• The total dividend was 10% higher than 

last year.

• Basic earnings per share was EUR 151.0c while
adjusted earnings per share at EUR 145.9c was
up 15% on 2004 levels.*

• Total shareholder return was 22%.

AIB’s performance in 2005 was distinctive 
because it was consistent across all our divisions.
We recorded strong proﬁt increases while our cost 
income ratio continued to fall.

AIB’s ﬁnancial statements have been prepared 
to meet the requirements of the International
Financial Reporting Standards (IFRS). See page 
48 for more details on the adoption of IFRS.
The new standards mean that some ﬁgures 
for 2004 have been restated.These changes 
should not obscure the fact that AIB is more
successful than ever before.

The last few years have, at times, been challenging
for those who work in AIB. I want to thank all
staff and management who have made these results
possible in our increasingly competitive marketplaces.

Board changes

There were key changes in the AIB Board in 
2005. At the end of June, Michael Buckley retired
as Group Chief Executive from AIB and from 
the board.

On behalf of the AIB Board, I want to make 
public our thanks to him for his contribution 
to the organisation over the last 14 years. In his
time as CEO he faced some formidable issues 
but Michael always had the vision, stamina and
integrity to focus on what was right for AIB,
its shareholders, its staff and its customers.
We wish him well for the future.

* A 15% increase compared with the year to December
2004 pro-forma earnings per share of EUR 127.1c.

4

Michael was succeeded as Group Chief Executive
in July last year by Eugene Sheehy, who moved
from his post in the US as Chairman and CEO 
of M&T Bank’s Mid Atlantic Division. Eugene,
who has worked in a variety of key posts in AIB
over the past 30 years, brings a valuable mix of
internal and external experience to the role.

In October our non-executive board member 
Sir Derek Higgs was appointed Chairman of
Alliance & Leicester, p.l.c., the UK ﬁnancial
services group. In the light of this appointment,
Sir Derek decided it was appropriate that he should
resign from the AIB Board where he had served
since November 2000. Sir Derek brought to AIB
his wide banking and business experience, as well
as a deep insight into the UK ﬁnancial services
market and corporate governance.

In December, Gary Kennedy also stepped down
from the AIB Board and left his position as Group
Director, Finance & Enterprise Technology.
Gary played a very signiﬁcant role in both the
establishment of our business in Poland and the
transformation of our US business. I want to thank
him for his contribution to AIB over the past eight
years and we wish him well for the future.

Aidan McKeon, Managing Director AIB Group
(UK) p.l.c, left the AIB Board in December 
in conjunction with his retirement from AIB 
after more than 40 years of distinguished service.
Aidan was the key architect and leader 
of the successful revitalisation of our business
banking franchise in Great Britain.The AIB Board
thank him and wish him a happy retirement.

In January this year, John O’Donnell joined 
the AIB Board. He was previously Head of 
Investment Banking, AIB Capital Markets and
brings extensive experience and expertise 
to the role of Group Finance Director.

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Corporate Governance and Risk Management

AIB continues to make progress on improving
its risk management and control processes and
systems.There is now more comprehensive risk
reporting to the AIB Board which includes 
new categories of risks.The work on Basel II
implementation has produced better risk
management tools which will provide a more
differentiated view of the bank’s risks. In addition,
Front Line Quality Assurance processes are being
put in place.We continue to invest in our
compliance function.The objective here is to
ensure we meet stringent compliance standards 
in the way we conduct business with customers
across the group. Also in 2005, the AIB Risk
Management Committee (RMC) was strengthened
as the senior risk governance forum of the bank
with the inclusion of the members of the Group
Executive Committee.

Major development

In January this year, it was announced that  
AIB had completed an agreement with Aviva p.l.c.,
one of the world’s largest insurance companies 
to bring together Ark Life, AIB’s life assurance
subsidiary and Hibernian Life & Pensions. For
more details on this agreement, see page 9 in the 
Chief Executive’s Review.

Economic outlook 

Prospects for the Irish economy in 2006 remain
very good, helped by the continuing solid growth
of the world economy. A continuing low interest
rate environment, an expansionary ﬁscal policy 
and maturing SSIAs should see strong growth 
in domestic demand.

In the USA, the outlook remains favourable with 
its economy possessing the strength to withstand
the sharp rise in energy costs and tightening 
of monetary policy over the past two years.
Meanwhile, in Poland the economy is picking up
momentum helped by the easing of monetary
policy over the past 12 months.

The UK economy performed below par last year
but there are clear signs of an increase in housing
activity in 2006. Consumer spending is also

expected to strengthen this year and the corporate
sector is in good shape.

The dividend

The AIB Board is recommending a ﬁnal dividend
of EUR 42.3c per share payable on 27 April 2006
to shareholders on the company’s register of
members at the close of business on 3 March 2006.

The ﬁnal dividend, together with the interim
dividend of EUR 23.0c per share, amounts to 
a total dividend of EUR 65.3c per share, an
increase of 10% on 2004.

Forty years of AIB 

2006 is AIB’s 40th anniversary. In 1966, a new
force in Irish banking was created by the bringing
together of the Provincial, Royal and Munster 
& Leinster banks.

Today, AIB thrives in a very different world. It is 
an international ﬁnancial services company with
successful operations not just in Ireland but also 
in Great Britain, Poland and the USA.

I am happy to report that on its 40th anniversary
AIB Group is in good shape. Shareholder value
remains paramount.The outlook for 2006 
and beyond is bright.

Dermot Gleeson Chairman
21 February 2006

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The board and Group Executive Committee

Board of Directors

Dermot Gleeson BA, LLM – Chairman
Barrister, and member of the Adjunct Law Faculty of University College Dublin and a member of Cork University
Foundation. Member of the Royal Irish Academy and Chairman of the Irish Council for Bioethics. Director of the
Gate Theatre. Former Attorney General of Ireland and former member of the Council of State. Former Chairman 
of the Review Body on Higher Remuneration in the Public Sector. Joined the Board in 2000, and appointed
Chairman in 2003. (Age 57)

Eugene Sheehy* MSc – Group Chief Executive
Joined AIB in 1971 and spent 20 years in retail banking, including branch manager appointments in a number
of Dublin branches. Appointed General Manager, Retail Operations in 1999, and Managing Director, AIB Bank
(RoI) in 2001. Appointed Chief Executive Ofﬁcer of AIB’s USA Division and Executive Chairman-Designate of
Allﬁrst Financial Inc. (“Allﬁrst”) in March 2002. Appointed Chairman and CEO, Mid Atlantic Division, M&T Bank
(“M&T”), and to the Executive Management Committee and Board of M&T in April 2003, following the merger 
of Allﬁrst and M&T. Appointed AIB Group Chief Executive-Designate in March 2005, co-opted to the Board 
on 12 May 2005, and assumed responsibility as Group Chief Executive with effect from 1 July 2005. (Age 51)

Adrian Burke B Comm, FCA – Audit Committee Chairman
Chairman of Coyle Hamilton Willis Limited and of the Irish Credit Bureau Limited, and Director of Dairygold 
Co-Operative Society Limited.Vice Chairperson of the Institute of European Affairs. Former president of the Institute
of Chartered Accountants in Ireland, former Managing Partner of Arthur Andersen in Ireland, and former Chairman 
of the Joint Ethics Board of the Institutes of Chartered Accountants in Ireland, Scotland, and England and Wales.
Joined the Board in 1997. (Age 64)

Kieran Crowley BA, FCA
Consultant. Founder of Crowley Services Dublin Ltd., which operates Dyno-Rod franchise in Ireland. Director 
of Bank Zachodni WBK, AIB’s Polish subsidiary. Member of IBEC National Executive Council and former Chairman
of the Small Firms Association. Joined the Board in August 2004. (Age 54)

Colm Doherty* B Comm
Managing Director, AIB Capital Markets plc. Director of M&T Bank Corporation, AIB’s U.S. associate, and its
subsidiary, Manufacturers and Traders Trust Company. Joined AIB International Financial Services in 1988, and became
its Managing Director in 1991. Appointed Head of Investment Banking in 1994, and assumed his present position 
in 1999. Member of the International Financial Services Centre Clearing House Group. Joined the Board in 2003.
(Age 47)

Padraic M Fallon BBS, MA, FRSA
Chairman of Euromoney Institutional Investor PLC and Director of Daily Mail & General Trust Plc in Britain.
Member of the Board of Trinity College Dublin Foundation. Joined the Board in 1988. (Age 59)

Don Godson BE, MIE, FIEI, C.Eng
Chairman of Project Management Holdings Ltd. Board Member of the Michael Smurﬁt Graduate School of Business
at University College Dublin. Former Director and Group Chief Executive of CRH plc. Joined the Board in 1997.
(Age 66)

John B McGuckian BSc Econ – Senior Independent Non-Executive Director and Remuneration Committee Chairman
Chairman of Ulster Television plc, Irish Continental Group plc, and AIB Group (UK) p.l.c., and a Director of a number
of other companies in Ireland and the UK. Former Pro Chancellor of The Queen’s University, Belfast, and former
Chairman of The International Fund for Ireland and of the Industrial Development Board for Northern Ireland.
Joined the Board in 1977 and appointed Senior Independent Non-Executive Director in 2003. (Age 66)

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John O’Donnell* FCMA, FCCA – Group Finance Director 
Joined AIB in 1989 as Associate Director, AIB International Financial Services, becoming Managing Director in 1995.
Appointed Managing Director, AIB Corporate Finance in 1996, Head of Investment Banking, AIB Capital Markets in
2001, and Group Finance Director-Designate in July 2005. Co-opted to the Board on 11 January 2006. (Age 51)

Jim O’Leary MA, MSI
Lecturer in economics at the National University of Ireland, Maynooth. Former Chief Economist at Davy Stockbrokers,
and former Director of Aer Lingus, the National Statistics Board and Gresham Hotel Group. Joined the Board in 2001.
(Age 49)

Michael J Sullivan JD
Served as US Ambassador to Ireland from January 1999 to June 2001 and as Governor of the State of Wyoming, USA,
between 1987 and 1995. Director of Kerry Group plc, Sletten Construction Inc., Cimarex Energy, Inc., First Interstate
BancSystem, Inc., and a Trustee of the Catholic Diocese of Wyoming. Member of the Bar, State of Wyoming. Joined 
the Board in 2001. (Age 66)

Robert G Wilmers
Chairman and former President and Chief Executive Ofﬁcer of M&T Bank Corporation (“M&T”), Buffalo, New York
State. Director of The Business Council of New York State, Inc., the Buffalo Niagara Partnership, and the Andy Warhol
Foundation. Served as Chairman of the New York State Bankers’ Association in 2002, and as a Director of the Federal
Reserve Bank of New York from 1993 to 1998. Joined the Board in April 2003, as the designee of M&T, on the
acquisition by AIB of a strategic stake in M&T. (Age 71)

Jennifer Winter B Sc – Corporate Social Responsibility Committee Chairman 
Chief Executive, the Barretstown Gang Camp Limited and Director of Project Management Holdings Ltd. Former 
Vice President GlaxoSmithKline Pharmaceuticals Limited UK and former Managing Director of SmithKline Beecham,
Ireland. Joined the Board in August 2004. (Age 46)

* Executive Directors

Board Committees
Information concerning membership of the Board’s Audit, Corporate Social Responsibility, Nomination & Corporate
Governance, and Remuneration Committees is given in the Corporate Governance statement on pages 42 to 47.

Group Executive Committee 

Eugene Sheehy - Group Chief Executive

Shom Bhattacharya - Group Chief Risk Ofﬁcer

Gerry Byrne - Managing Director, AIB Poland Division

Colm Doherty - Managing Director, AIB Capital Markets

Donal Forde - Managing Director, AIB Bank (RoI)

Robbie Henneberry - Managing Director, AIB Group (UK) p.l.c.

Steve Meadows - Group Director, Operations & Technology

John O'Donnell - Group Finance Director

Mary Toomey - Head of Group Strategic Human Resources

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Group Chief Executive’s Review

In 2005, AIB Group enjoyed another year 
of high-quality, sustained growth.

The economies in all our key markets continued 
to expand – and we were well positioned to make
the most of opportunities that were presented 
by these positive conditions.

There were many reasons for our success.
We continued to develop innovative products 
and services, exercised good cost control and
reaped the beneﬁts of our customer relationship
management approach.

My colleagues throughout the group proved their
commitment to our stated goals by their hard work
and dedication in 2005 – and I want to record my
thanks for their contribution.

Key ﬁgures

AIB’s basic earnings per share was EUR 151.0c.AIB’s
adjusted basic earnings per share at EUR145.9c was
up 15% in 2005 - compared with the year to
December 2004 pro-forma earnings per share of
EUR 127.1c.Asset quality remains strong as does our
capital position with the Tier 1 capital ratio at 7.2%.

Costs increased by 7% in 2005. But this increase 
is relatively modest at a time when the group
saw its deposits rise by 16% and loans by 27%.

AIB’s performance in 2005 was striking for its
consistency. All AIB’s operating divisions recorded
proﬁt increases – and all of them saw their income
outstrip their costs.

Performance across the group 

In 2005, AIB Bank in the Republic of Ireland
delivered a proﬁt increase of 24% or 15%
excluding the €50 million of investigation related
charges incurred in 2004.

Customer demand in this market is exceptional –
especially for deposits, business lending, mortgages
and personal loans.There also was good growth 

in private banking services and in AIB’s Card 
division and its AIB Finance & Leasing operation.
Our home market is increasingly competitive
but the effect on our business has been in line 
with our expectations.

In 2005, AIB Bank in the Republic had a record
number of customers who are carrying out an
increasing level of business with us.This demand
saw us recruit an extra 500 staff members in 2005 
- and currently we have 300 vacancies.

In Great Britain, 2005 also was a year of very
strong growth. Allied Irish Bank (GB) continued 
to raise its proﬁle in the business market as a key
provider of banking to mid-corporate business.
It won new customers in such sectors as legal,
accountancy, leisure/hotels, healthcare, public
sector, charities and sports. Meanwhile, Allied 
Irish Bank (GB)’s network continues to develop –
a new ﬂagship corporate ofﬁce in Birmingham
city centre which opened last November is just
one of 43 branches and ofﬁces across England,
Wales and Scotland.

First Trust, our retail franchise in Northern 
Ireland, is operating in an economy expanding
more slowly and did well to deliver an 11%
increase in proﬁt before taxation in 2005. Loan
balances were up 25% while solid deposit growth
of 12% was achieved and, once again, costs were 
well controlled.

AIB Capital Markets saw its proﬁt increase by 27%
in 2005. At the same time, the division saw its cost
income ratio drop to 47.5% from 54.4% in 2004.

Corporate banking activities were central to
this performance in 2005.There was solid growth 
in its premium Irish franchise while the transfer 
of skills to corporate banking operations in the
USA and Europe paid dividends with the
international teams making a substantial
contribution to divisional proﬁt.

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Proﬁt also increased in Global Treasury in 
a challenging interest rate and foreign exchange
environment. Investment Banking saw its proﬁt 
rise by 22%, substantially ahead of 2004.

AIB Poland division had a ﬁne year with proﬁt
increasing by 13% – this would have been 29%
when the ﬁgures are adjusted for the disposal 
of a business in 2004. BZ WBK saw its customer
numbers increase by more than 100,000 in 2005 –
and this recruitment was spread over key customer
segments. Personal loans in particular were in
demand by our customers.There are early signs in
Poland of an increase in demand for corporate
loans – and BZ WBK is well placed to meet this
demand while maintaining its risk proﬁle.

Major developments

AIB made a major step forward in 2005 to make
the group more uniformly and consistently
operationally excellent.

The single enterprise approach to our operations and
technology will reduce our operational risk and help
AIB meet service quality and efﬁciency targets.

So far, AIB has agreed a core business banking and
payment system replacement plan for corporate and
business banking across the enterprise. A new core
retail banking system will also be deployed. Both 
of these initiatives will bring signiﬁcant service
quality, risk and cost beneﬁts to AIB, as they are
deployed over the next three years.

Ark Life

In November 2005, AIB revealed its intention to
enter into a joint venture with Aviva p.l.c., the
world's sixth largest insurance organisation.

The deal, which was completed earlier this year,
sees Ark Life, AIB’s life and pensions subsidiary,
link up with Hibernian Life & Pensions to create 
a new force in the Irish market. AIB now owns
24.99% of a new combined company Hibernian
Life Holdings with Hibernian Group owning
75.01%. AIB has entered into an exclusive
distribution agreement with the new entity 
and as part of the transaction will receive a cash
payment of up to €205.4 million.

The rationale for this deal was grounded in the
need to respond to the demands of our customers
for greater choice.To deliver such a range of
products cost effectively, it was clear there was a
need to operate on a larger scale.The joint venture
gives AIB the ability to meet the needs of our
customers and secures our life and pensions
business for the longer term.

Strategy 

Wherever we operate, AIB aims to deliver one
distinctive customer proposition.

This consists of:

•

•

•

•

best products – using third party suppliers
where appropriate to meet customer needs.

best service with dependability at its heart.

best relationships built by knowledgeable 
and engaging employees.

best delivery with a wide range of channels
available to our customers accessing 
our services.

Our customers continue to have high levels 
of customer satisfaction with AIB. Our research
shows that these levels are boosted further for
those customers who have a dedicated customer
relationship manager – the provision of which 
is an important element in our approach 
to our customers.

The future 

We expect to see very good loan and deposit
growth and robust asset quality this year.

Our single enterprise approach to our operations
and technology will boost our business capacity
at a time when all the economies in which 
we operate are growing.

The outlook is positive. AIB is set to perform
strongly in 2006.

Eugene Sheehy  Group Chief Executive

21 February 2006

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Corporate Social Responsibility 

AIB is committed to being a responsible corporate
citizen.A sub-committee of the main AIB Board – 
the Corporate Social Responsibility Committee –
guides the company in meeting this goal.AIB 
is also a member of Business in the Community.

Here are some of AIB’s achievements and initiatives
during 2005.

AIB and its customers

AIB’s relationship with its customers is at the heart 
of its business strategy.The company aims to offer 
the best service, the best products and the best
delivery methods it can to individuals and customers.

The AIB Code of Business Ethics places the core
values of honesty, integrity and fairness at the
centre of AIB’s relationship with customers as well 
as shareholders and other stakeholders. During 2005,
a number of training and communication programmes
were introduced to fully embed the code and new
support policies were developed. In late 2005, AIB’s
Chairman and CEO reviewed and re-afﬁrmed the
code, which is available on the AIB website.

AIB regularly surveys its customers to measure 
their satisfaction with its service and puts in place
training programmes for branches with the lowest
scores in these surveys. AIB has also launched 
a group-wide complaint handling project and
provided education and training materials to support
complaint handling standards.There are dedicated
customer care ofﬁcers in all branches.

To help potential entrepreneurs, AIB in Ireland
provides a range of publications on topics such 
as starting your own business, ﬁnancing a business
and services for business owners.The bank is also
one of six partners working with the Small Firms
Association in running the Better Business Show.
At the show, AIB offers simple but practical 
tips to SMEs on managing issues such as cash
management and pensions strategy in order 
to improve proﬁtability.

AIB’s approach to customers was recognised
with two awards in Ireland’s ﬁrst Financial Services
Excellence Awards. Global Treasury won the
International Banking category while AIB’s joint
venture with Bank of New York, AIB/BNY,
won the Fund Company Excellence Award.
AIB has also won awards in Poland. Its subsidiary
BZWBK won two service quality awards in 2005 –
one from Western Union and an Excellence Award
for Euro Clearing from Deutsche Bank.

AIB in the community

AIB supports a wide variety of groups in its 
local communities.

Funds from the Staff Tsunami Fund, set up in
response to the Asian tsunami of 26 December 
2004, are being spent by the charity GOAL
in Sri Lanka. For every €1 donated by staff across 
the group, AIB agreed to give €3. In total, the
fund raised €4 million.

In the ﬁrst months after the tsunami, GOAL 
used more than €500,000 of the AIB fund 
to clear water sources, build temporary shelters 
and distribute essential supplies. A further €558,000
was spent on rehabilitating the ﬁshing industry 
in Ampara, Hambantota and Matara.The focus 
is now on schools with GOAL using the remainder
of the fund to renovate and reconstruct more 
than 20 damaged schools in the Ampara district.
This will beneﬁt almost 32,000 children.

In 2005, AIB received a commendation from 
the Chambers of Commerce of Ireland for 
its contribution to improving conditions for
disadvantaged children in Ireland through the AIB
Better Ireland Programme.This programme provides
funding to groups working with children affected by 
drug and alcohol abuse, poverty and homelessness.

A study carried out by the Children’s Research
Centre at Trinity College, Dublin, found that 81%
of participants in Better Ireland schemes “have
beneﬁted or greatly beneﬁted from the intervention”.

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Donations by the AIB Better Ireland Programme
reached €10 million during the year. Since 2001
more than 1,000 projects across the island 
of Ireland have received money. In 2005, more than 
€2.6 million was donated. One of the main elements 
of the programme is Schoolmate – a joint initiative
with Barnardos, Focus Ireland and the Irish Society
for the Prevention of Cruelty to Children.

Staff involvement in charities and projects within
their communities is also recognised and rewarded.
The AIB Partnership Fund matches funds raised
by staff or makes a payment to an organisation 
to recognise personal time given by the employee.
This contribution is doubled if the application
focuses on one of the three Better Ireland causes.

One of the projects to beneﬁt from Partnership
funding was a sponsored walk undertaken by a group
of AIB staff in South Dublin for the Marie Keating
Foundation, a cancer charity.

The bank’s support for youth projects continues 
with the AIB Get Up & Go mini company
programme for second level students run by 
the Irish Department of Education & Science’s
Second Level Support Services.The mini-company
competition challenges students to come up with an
idea for a product or service and create a company.

First Trust was awarded second prize in the 
medium-size charity category of the Northern
Ireland Council for Voluntary Action Link Awards
2005.The prize recognised the support given by
First Trust staff to CLIC Sargent, the children’s
cancer charity. First Trust is also a member of the
BITC Percent Club which commits the company 
to investing at least 1% of pre-tax proﬁt back into
the community.

In Poland, BZWBK supports the Bank of Children’s
Smiles programme. Some of the programme’s
activities last year included a scholarship scheme,
a competition for children to design the bank’s
Christmas card with the theme ‘Christmas of my
dreams’ and the co-organisation of an integration
event for disabled children and adults.The
programme also launched ‘Summer in the City,
Summer in the Country with BZWBK’ to provide

short-breaks to children from disadvantaged
backgrounds and ‘Light Athletic Thursdays’
to provide physical education to children.

Branches in Great Britain have a tradition
of getting involved in their local communities.
Bromley branch, for example, saved a local school
mentoring and reading scheme from closure with 
a generous sponsorship cheque. Coventry branch
raised Stg £18,000 for Macmillan Cancer Relief 
by hosting a charity ball.

In Jersey, AIB’s sponsorship of the Tigers 
Swimming Club has played a major part in 
the club’s development. About 300 children 
are in the club.

AIB and its people

AIB aims to be an employer of choice in all the
markets in which it operates. It currently employs
more than 24,000 people, mainly in Ireland,
the UK, Poland and the US.

Training is central to the bank’s development 
of its staff. In 2005, more than 62,000 training days
were provided with more than 37,000 individual
attendees. E-learning and on-the-job training 
are also extensively used.

In addition, AIB offers education support to staff 
for relevant continuing education in accredited
colleges and institutions – and staff achieved more
than 1,200 qualiﬁcations last year. AIB invested 
more than €3 million in staff education and
educational awards in 2005.

Flexible working is another way in which AIB
supports its employees. Staff can avail of part-time,
personalised hours, job sharing and career breaks.
In total, 11% of staff work part-time, although this
ﬁgure rises to 18% in AIB Bank (RoI) and to 16% 
in GB&NI division. At the end of 2005, 3.2% 
of staff were on a career break.Typically, there 
is a high return rate and staff come back to work
with new skills and perspectives.

AIB’s partnership relationship with the IBOA,
the ﬁnance union, operates in the AIB Bank (RoI)
and GB&NI divisions.This partnership has been in

11

AIB-AR-text-a/w-05  3/3/06  6:22 PM  Page 10

place for ﬁve years.The next phase of Partnership 
was announced in 2005 and focusses on creating 
a closer link between the industrial relations agenda
and the strategic priorities of the businesses. Partnership
also allows for increased staff involvement in change
and decision-making.

AIB encourages its staff to raise any concerns 
of wrongdoing through many channels both
internal and external.The AIB ‘Speak Up’ policy 
re-afﬁrms this commitment and provides a number 
of ways for staff to raise their concerns, including
a conﬁdential external helpline.

The health of its staff is also important to AIB.
In the AIB Bank (RoI) and GB&NI divisions
optional health screening is provided to employees 
in cycles of between two and four years.This scheme
is subject to high take-up levels.

In 2005, AIB won a top international award for
one of its staff pension schemes.The Investment
& Pensions Europe magazine rated AIB’s Deﬁned
Contribution scheme, which was reviewed and
redesigned in 2004, the best in Ireland.

AIB also won a merit award at the 2005 O2
Ability Awards.The group scored on ﬁve criteria -
leadership, environmental accessibility, recruitment 
and selection, career development, training 
and retention, and customer service.

AIB & the environment
AIB is active in reducing its effect on the physical
environment and meets its environmental risk
obligations under the laws and regulations of each 
of its markets.

It recycles its ﬂuorescent light bulbs, old VCR tapes,
ionising sensors and computer monitors. During
conservation work on the group’s buildings, rooﬁng
materials are disposed of in an environmentally friendly
manner.AIB is also a member of Repak, which
supports waste recycling in Ireland.

An initiative was launched at the group’s head ofﬁce 
in Dublin during the year which asked staff to sort 
their rubbish and recycle as much as possible.About
70% of the waste generated in Bankcentre is now
recycled – far exceeding the 41% target set by the
Dublin Waste Management Plan for companies 
in the capital city.

AIB is also active in promoting green awareness.
It produced ‘Waste management – A practical guide 
for small business’ in association with the Irish Business
& Employers Confederation and the Irish Waste
Management Association.This guide provides
information for businesses on developing a strategy 
for the efﬁcient management of their waste.

AIB’s Corporate Banking area worked with 
the Department of the Environment to become 
the ﬁrst company in Ireland to co-brand with the 
‘Race Against Waste’ campaign which urges people 
to recycle more of their waste.

Employee Information – AIB Group

Total employees
Number of new employees in year
Number of promotional positions ﬁlled in year
Voluntary attrition rate (%)
Permanent/Temporary Staff (%)
Part-time/Full time Staff (%)
Male/Female employees (%)

2004
23,834
4,639
1,584
4.8%
92% (P) 8% (T)
N/A
34% (M) 66% (F)

2005
24,403
5,812
1,926 
5%
91.6% (P) 8.4% (T)
11% (PT) 89% (FT)
34% (M) 66% (F)

12

203557  02/03/2006  08:22  Page 13

Performance review

Translation of foreign
locations’ profits
Approximately 50% of the Group’s
earnings are denominated in
currencies other than the euro. As a
result, movements in exchange
rates can have an impact on
earnings growth. In 2005, the US
dollar and Sterling average
accounting rates remained broadly
stable relative to the euro and the
Polish zloty strengthened relative
to the euro by 12.5% compared
with the year to December 2004.
Exchange rate movements did not
have a material impact on earnings
per share growth when the impact
of currency hedging activities is
taken into account.

Divisional information
The business of AIB Group is
operated through four major
operating divisions as described
below:

AIB Bank ROI division
The AIB Bank ROI division, with
total assets of € 55.2 billion at 
31 December 2005, encompasses
the Group’s retail and commercial
banking operations in Ireland,
Channel Islands and Isle of Man;
AIB Finance & Leasing; Card
Services and AIB’s life and pensions
subsidiary, Ark Life Assurance
Company Limited. AIB Bank ROI
provides banking services through
a distribution network of some 275
locations (188 branches and 87
outlets), and in excess of 741
automatic teller machines
(“ATMs”). AIB cardholders also
have access to over 56,000 LINK
ATMs in the UK as well as close
to 1 million Visa Plus serviced

ATMs worldwide. AIB has an
agency agreement with An Post,
the national post office network,
which enables AIB customers to
carry out basic transactions at over
1,000 post office locations
nationwide. AIB also offers
customers a Debit card, which is
co-branded Laser and Maestro.
This card provides customers with
access to Point of Sale domestically
via the Laser Scheme (“Laser” is
operated jointly with other
financial institutions in Ireland),
ATM access domestically via Bi-
Lateral agreements and
internationally at any Point of Sale
or ATM that displays the Maestro
symbol.

In addition, the division offers

Phone and Internet Banking
Services for personal customers
through which they can avail of a
range of services including; view
account information, pay bills,
transfer money, open a savings
account, apply for a loan, top up a
mobile phone and buy and sell
shares. For business customers, an
Internet based banking service
called iBusiness Banking is
available. It offers secure Internet
banking and a comprehensive cash
management solution, including
Domestic and Cross-Border
payment functionality.

Branch banking services are

provided across the range of
customer segments, including
individuals, small and medium
sized commercial customers,
farmers and the corporate sector.
Through the branch network, the
division provides a variety of
savings and investment products,
loans and overdrafts, home loans,

home improvement loans, foreign
exchange facilities and issues Visa®
and Mastercard® credit cards.

AIB Finance & Leasing is AIB’s

asset financing arm in Ireland. It
markets its services through the
AIB branch network and through
intermediaries with whom it has
established relationships, such as
motor dealers, equipment suppliers,
brokers and other professionals,
including lawyers, accountants and
estate agents. It also lends directly
to customers. Its lending services
include vehicle, equipment and
fleet leasing, retail and investment
property loans, vehicle and
equipment hire purchase, insurance
premium financing and personal
loans.

AIB’s life assurance subsidiary,

Ark Life Assurance Company
Limited, provides a wide range of
financial planning services
including life assurance, savings and
investment instruments, pensions
and inheritance tax planning. AIB
recently announced the
completion of a Joint Venture with
the Aviva subsidiary Hibernian Life
whereby the combined entity will
provide a full range of products in
this sector through a wider channel
offering. In Ireland, general
insurance products are sold in the
branch network through alliances
with partners in the insurance
industry.

AIB Bank GB & NI division
The AIB Bank GB & NI division,
with total assets of € 20.0 billion,
operates in two distinct markets,
Great Britain and Northern
Ireland, with different economies
and operating environments. AIB

13

203557  04/03/2006  08:53  Page 14

Performance review

Group (UK) p.l.c., registered in the
UK and regulated by the FSA
(Financial Services Authority),
operates as the legal entity for the
division.

Great Britain
In this market, the division operates
under the trading name Allied Irish
Bank (GB) from 33 full service
branches and 10 business
development offices.The Divisional
Head Office is located in
Uxbridge, in West London, with
significant back office processing
undertaken at a Divisional
Processing Centre in Belfast.
A full service is offered to
business and personal customers,
although there is a clear focus on
relationship banking to the mid-
corporate business sector,
professionals, and High Net Worth
Individuals.

Corporate Banking services are

offered from London, Glasgow,
Birmingham, and Manchester, with
particular expertise in the
commercial property, education,
health and charity sectors.

service is offered to business and
personal customers, across the
range of customer segments,
including personal customers, small
and medium sized enterprises and
the corporate sector.

Specialist services, including
mortgages, credit cards, invoice
discounting and asset finance are
based in Belfast and delivered
throughout the division.

First Trust Independent
Financial Services provides sales
and advice on regulated products
and services, including protection,
investment and pension
requirements to the whole of the
division.

Capital Markets division
AIB Capital Markets, with total
assets of € 44.4 billion at 
31 December, 2005, manages the
Corporate Banking, Global
Treasury (with the exception of the
International Banking Services in
BZWBK) and Investment Banking,
which includes Asset Management
and Stockbroking activities of the
Group.

For the sixth consecutive time,

The activities of the Capital

AIB (GB) has won the title of
‘Britain’s Best Business Bank’ from
the Forum of Private Business,
being ranked top for customer
service and maintaining its lead
over other major banks.

Markets division are delivered
through the following main
business units: AIB Corporate
Banking, Global Treasury,
Investment Banking and Allied
Irish America (“AIA”).

AIB Corporate Banking

Northern Ireland
In this market, the division operates
under the trading name First Trust
Bank from 57 full service branches
throughout Northern Ireland.The
First Trust Bank Head Office is
located in Belfast, together with the
Divisional Processing Centre. A full

provides a fully integrated,
relationship-based banking service
to top-tier companies, both
domestic and international,
financial institutions and Irish
commercial state companies. AIB
Corporate Banking has a dedicated
unit focusing on developing and

arranging acquisition and project
finance principally in Ireland, the
UK and Continental Europe, and
has established Mezzanine Finance
funds and CDO funds.The
cumulative size of the CDO funds
at 31 December, 2005 was
€ 1.6 billion. AIB Corporate
Banking operates in Ireland, the UK,
the US and Continental Europe.
Global Treasury through its
treasury operations manages, on a
global basis, the liquidity and
funding requirements and the
interest and exchange rate exposure
of the Group. In addition, it
undertakes proprietary trading
activities, and provides a wide
range of treasury and risk
management services to the
corporate, commercial and retail
customers of the Group. It also
provides import and export services
through its international activities.
Investment Banking provides a

comprehensive range of services
including corporate finance
through AIB Corporate Finance
Limited, corporate finance and
stockbroking through Goodbody
Stockbrokers, structured cross-
border financing transactions and
sophisticated back-office services
through AIB International
Financial Services Limited, and
custodial, trustee and fund
administration services through a
joint venture with The Bank of
New York. At 31 December, 2005,
the AIB/The Bank of New York
joint venture, AIB/BNY Securities
Services Limited, had € 124 billion
(US$ 147 billion) of funds under
administration and had assets under
custody of € 96 billion (US$ 113
billion). Investment Banking

14

203557  04/03/2006  08:55  Page 15

services also include the
management of alternative asset
management activities (i.e. hedge
funds), venture capital funds and
property fund activities (principally
property in Poland). Asset
management is provided through
AIB Investment Managers Limited
(“AIBIM”) in the Republic of
Ireland.The company manages
assets principally for institutional
and retail clients with € 11.6 billion
of funds under management.

AIA’s core business activity is

within the not for profit sector,
operating principally from New
York, with offices in a number of
other principal US cities.The
operations also include related fund
raising businesses based in the US
and in Canada.

AIB Capital Markets is
headquartered at Dublin’s
International Financial Services
Centre. It also operates from a
number of other Dublin locations,
and operates AIB’s treasury
operations in London, New York
and Poland, corporate banking
offices in Dublin, various UK
cities, various US cities, Frankfurt
and Paris, and offices managed by
AIB International Financial
Services Limited in Budapest,
Zurich and Luxembourg.

Poland division
Poland division, with total assets of
€ 7.8 billion at 31 December,
2005 comprises Bank Zachodni
WBK (“BZWBK”) in which AIB
has a 70.5% shareholding, together
with its subsidiaries and associates.
BZWBK Wholesale Treasury and
an element of BZWBK Investment
Banking subsidiaries results are

reported in Capital Markets
division. AIB completed the
merger of its Polish operations in
2001, forming BZWBK which is
now Poland’s fifth largest bank.
BZWBK’s registered office is
located in Wroclaw in south-
western Poland. Key support
functions are also located in offices
based in Poznan and Warsaw. At the
end of 2005, BZWBK had total
assets of PLN 29.4 billion, operated
through 383 branches and outlets
and 587 ATMs. It employed
approximately 7,650 staff, including
subsidiaries. BZWBK offers
comprehensive services to retail
and corporate customers. Apart
from core banking products and
services, its offering includes
mortgages, credit cards, retail
bonds, mutual funds, treasury and
capital market products, leasing and
factoring facilities, foreign trade
services, asset management, etc. In
providing many of its specialised
services BZWBK is supported by
the subsidiaries. It operates mainly
in the western part of the country
and also has a significant presence
in major urban areas across Poland
such as Warsaw, Krakow, Gdansk
and Lodz. BZWBK Corporate
Business Centres based in Poznan,
Warsaw,Wroclaw, Krakow and
Gdansk provide direct and
comprehensive relationship-based
services to large and mid-sized
corporates. It is the aim of these
Centres to provide a top quality
customer service proposition and at
the same time ensure the highest
standards of credit underwriting.
This relationship approach provides
benefits both for the customer and
BZWBK.

15

203557  02/03/2006  08:22  Page 16

Performance review

Basis of presentation
The results for 2004 have been restated to take account of International Financial Reporting Standards (‘IFRS’) as adopted
by the European Union and implemented with effect from 1 January 2004. This restatement of results for 2004 excludes
adjustments for standards implemented with effect from 1 January 2005. IAS 32, IAS 39 and IFRS 4 have been
implemented from 1 January 2005. Had these standards been implemented from 1 January 2004, it would have impacted
the accounting for derivatives, loan impairment, income recognition on loans (Effective Interest Rate ‘EIR’), insurance
accounting and classification of financial instruments. In addition to the IFRS restated accounts, the following commentary
shows the IFRS pro-forma accounts for 2004. The pro-forma accounts for 2004 reflect the impacts of EIR, insurance
accounting and classification of non-derivative financial instruments in order to establish a 2004 pro-forma IFRS restatement
but do not reflect the impact of accounting for derivatives and loan impairment. A reconciliation of the statutory IFRS accounts
for 2004 to the IFRS pro-forma accounts is shown on page 27. In order to show comparable trends, the growth percentages in
the following commentary reflect the IFRS year to December 2005 compared with the IFRS pro-forma year to December
2004. The growth percentages are also shown on an underlying basis adjusted for the impact of exchange rate movements on
the translation of foreign locations’ profit and excluding hedge volatility under IFRS.

Investigation related charges referred to in the following commentary were incurred in 2004 and relate primarily

to the application of prices to foreign exchange products without regulatory approval. AIB provided € 50 million
for investigation related charges and costs in the year to December 2004 with € 12 million charged to net interest
income, € 24 million charged to other income and € 14 million of costs included in operating expenses.

Earnings per share
The table below shows the basic earnings per share and continuing earnings per share excluding the profit on the
new Bankcentre development (construction contract income) and the impact of hedge volatility (combines the
impact of economic and accounting hedges) under IFRS.

IFRS
Pro-forma(1)
2004

% change
2005 v
Pro-forma 2004

Earnings per share

Basic - continuing operations(2)

Basic - discontinued operations

Basic - total

less profit on new Bankcentre development
less hedge volatility under IFRS

Adjusted basic earnings per share

Basic continuing operations(2)
less profit on new Bankcentre development

less hedge volatility under IFRS

IFRS
Year
2005

145.7c

5.3c

151.0c

(4.4c)
(0.7c)

145.9c

145.7c

(4.4c)

(0.7c)

IFRS
Year
2004

125.8c

6.2c

132.0c

-
-

132.0c

125.8c

-

-

123.3c

3.8c

127.1c

-
-

127.1c

123.3c

-

-

18

39

19

-
-

15

18

-

-

14

Adjusted basic earnings per share - continuing operations

140.6c

125.8c

123.3c

(1) A reconciliation of the pro-forma and statutory earnings per share for 2004 shown on page 27.
(2) Continuing operations exclude Ark life which is reported as a discontinued operation following its disposal in 2005.

16

203557  02/03/2006  08:22  Page 17

Total income
Total income increased by 12% to € 3,647 million.

Total operating income

Net interest income
Other income

Total operating income

IFRS
Year
2005
€ m

2,530
1,117

3,647

Average interest earning assets
Average interest earning assets

IFRS
Year
2004
€ m

2,072
1,144

3,216

IFRS
Year
2005
€ m
106,380

IFRS
Pro-forma
2004
€ m

Underlying
% change
2005 v
Pro-forma 2004

2,178
1,042

3,220

IFRS
Year
2004
€ m
84,541

15
6

12

%
change (1)
2005 v 2004
26

(1) This particular analysis is not adjusted for the impact of exchange rate movements.

Net interest margin

Group net interest margin

Net interest income
Net interest income increased by
15% to € 2,530 million in the year
to December 2005.The key drivers
of the increase were strong loan and
deposit growth in Republic of
Ireland and GB & NI, strong loan
growth in Corporate Banking and
very good growth in loan
arrangement fees. Loans to
customers increased by 27% and
customer accounts increased by 16%
on a constant currency basis since 
1 January 2005 (details of loan and
deposit growth by division are
contained on page 20). Net interest
income also benefited from income
earned on the € 1 billion of
perpetual preferred securities issued
in December 2004.

The domestic and foreign
margins for 2005 are reported on
page 142.

AIB Group manages its

business divisionally on a product

IFRS
Year
2005
%

2.38

IFRS
Pro-forma
2004
%

2.58

Basis
point
change

-20

margin basis with funding and
groupwide interest exposure
centralised and managed by
Global Treasury.While a domestic
and foreign margin is calculated
for the purpose of statutory
accounts, the analysis of net
interest margin trends is best
explained by analysing business
factors as follows:

The Group net interest margin

was 2.38% in 2005, a decrease of
20 basis points compared with
2004 on a pro-forma IFRS basis.
The margin reduction was due to
a combination of the following
factors:

(a) loans increasing at a faster

rate than deposits.

(b) a changing mix of products

where stronger volume growth
has been achieved in lower
margin products; corporate loans,
home loans and prime advances
on the lending side and term

deposits and other lower margin
products on the deposit side.
There was higher growth in mid-
market loans in the Republic of
Ireland and the United Kingdom
and growth in our international
corporate operations.

(c) competitive pressures on

loan and deposit pricing.

(d) lower yields on the re-
investment of deposit and current
account funds as they mature, due
to the flattening of the yield
curve.

The largest factor in the
margin reduction was average
loans increasing at a greater rate
than average deposits compared
with 2004. While this strong
lending growth generated good
incremental profit, the funding
impact resulted in a reduction in
the overall net interest margin
calculation when net interest
income is expressed as a
percentage of average interest
earning assets.

The impact of low yields on
the investment of deposit funds
particularly affected AIB Bank
Republic of Ireland and GB & NI
divisions.

While it is difficult to
disaggregate trends in product
margins between mix and
competitive factors, competitive
pricing behaviour did impact loan
and deposit margins. The Group’s
new business lending continued to
meet targeted return on capital
hurdles. The factors affecting the
net interest margin trend are
expected to be continuing
features.

17

203557  02/03/2006  08:22  Page 18

Performance review

IFRS
Underlying %
Pro-forma
2004
change 2005 v
€ m Pro-forma 2004

Other income

Dividend income
Banking fees and commissions
Investment banking and 

asset management fees
Fee and commission income
Less: fee and commission expense
Trading income
Currency hedging (losses)/profits
Hedging volatility (IAS 39)(1)
Trading income
Profit on termination of 

off-balance sheet instruments

Other
Other operating income

IFRS
Year
2005
€ m

17
863

198
1,061
(145)
119
(13)
6
112

–
72
72

IFRS
Year
2004
€ m

27
888

155
1,043
(131)
95
1
-
96

36
73
109

27
786

155
941
(131)
95
1
-
96

36
73
109

-41
8

23
11
7
25
-
-
16

-
-6
-37

6

Total other income

1,117

1,144

1,042

(1) Combines the impact of economic and accounting hedges, (IAS 39)

Other income
Other income was up 6% to 
€ 1,117 million since the year to
December 2004.

Banking fees and commissions
increased by 8%, or 5% excluding
the € 24 million of investigation
related charges incurred in 2004.
The growth reflects increased
business and transaction volumes in
AIB Bank Republic of Ireland, GB
& NI and Corporate Banking and
there was good growth in credit card
revenue in Ireland and e-business
and payment fees in Poland.

Investment banking and asset
management fees increased by 23%
driven by particularly strong
performances in Goodbody
stockbrokers, AIB Corporate
Finance, Asset Management in
Poland and BZWBK’s brokerage
operation. Total fee and
commission income was up 11% or
8% excluding the investigation
related charges in 2004.

Trading income increased, with

strong growth in bond
management activities. Trading
income excludes interest payable
and receivable arising from these
activities, which is included in net
interest income.

Included in other income in
2004 was a gain of € 36 million
from closing out capital invested
positions in January 2004 resulting
from the introduction of a new
policy in respect of the investment
of AIB’s capital funds.

Loan arrangement fees for the
year were strong and are reported in
the net interest income line under
IFRS. The growth in other income
no longer benefits from the growth
in arrangement fees associated with
strong lending growth.

Other income as a percentage

of total income reduced to 31%
from 32% in 2004 (33% excluding
the investigation related charges
incurred).

18

Total operating expenses
Operating expenses increased by
7%.The cost base in the
comparative year to December
2004 included € 14 million of
investigation related costs. Under
IFRS, operating expenses include
other finance income relating to
the return on pension fund assets
and the cost of pension fund
liabilities and this income reduced
in 2005, increasing the growth in
personnel expenses. Excluding the
above two offsetting items, the
growth in operating expenses
remained at 7%.

The 7% increase reflects the
very strong business volume and
strong revenue growth in 2005. In
the period there were costs to
ensure compliance with a range of
regulatory initiatives such as
Sarbanes Oxley and Basel II and
there was higher performance
related remuneration resulting from
strong revenue growth. Excluding
these items the increase was 5%.
The resourcing and restructuring
of our single enterprise agenda is
in implementation and we expect
this to increase business capability,
improve efficiency and further
enable compliance.

Personnel expenses were up
13%, or 12% excluding the above
mentioned decline in other finance
income. The increase reflected a
higher level of variable costs arising
from performance related
remuneration resulting from strong
revenue growth, the cost of
additional resources to respond to
business growth demands and ensure
compliance with a range of
regulatory initiatives such as Sarbanes
Oxley and Basel II and higher

203557  02/03/2006  08:22  Page 19

Operating expenses

Personnel expenses
General and administrative expenses
Depreciation(1)/amortisation(2)
Total operating expenses before 

restructuring costs

Restructuring costs

Total operating expenses

IFRS
Year
2005
€ m

1,298
583
130

2,011
-

2,011

IFRS
Year
2004
€ m

1,136
579
145

1,860
9

1,869

IFRS
Underlying %
Pro-forma
2004
change 2005 v
€ m Pro-forma 2004

13
-1
-13

7

1,136
578
145

1,859
9

1,868

(1) Depreciation of property, plant and equipment.
(2) Amortisation / impairment of intangible assets and goodwill.

pension costs. General and
administrative expenses were down
1%, or up 2% excluding investigation
related costs in 2004.The 2%
increase includes the effects of
inflation and consultancy and systems
costs relating to the aforementioned
strengthening of internal structures
to ensure compliance with new
regulatory initiatives.
Depreciation/amortisation decreased
by 13% reflecting the benefit of
some business rationalisations.

Productivity improved with the

cost income ratio reducing to
55.2% from 57.7% in 2004.

Provisions
Total provisions were € 143
million, up from € 133 million 
in 2004.

The provision for impairment

of loans and receivables was 

Provisions

€ 115 million compared with 
€ 114 million in 2004,
representing a charge of 0.15% of
average loans compared with
0.20% in 2004.The lower charge
reflects strong asset quality, good
recoveries and a particularly benign
economic environment. Impaired
loans as a percentage of total loans
decreased from 1.3% at 31
December 2004 to 1.0% at 31
December 2005 with the total
provision cover for impaired loans
increasing to 78%.

Strong asset quality in AIB
Bank Republic of Ireland was
reflected in a reduction in impaired
loans as a percentage of total loans
to 0.7% at 31 December 2005
from 0.8% in 2004.The provision
charge reduced to 0.11% of
average loans compared with
0.14% in 2004. The quality across

IFRS

IFRS
Year 2005 Year 2004 
€ m

€ m

Provisions for impairment of loans and receivables(1)

Provisions for liabilities and commitments

Amounts written off/(written back) financial investments

Total provisions

115

20

8

143

114

20

(1)

133

(1) As noted on page 16, the pro-forma accounts for the year to December 2004 do not reflect the
impact of loan impairment under IFRS. The provision for impairment of loans and receivables in
2005 reflects the change in the financial reporting requirements from FRS 12 to IAS 39.

all sectors of the retail and
commercial portfolios remains very
good.

In AIB Bank GB & NI, the
provision charge was 0.13% of
average loans, increasing marginally
from 0.11% in 2004 but
continuing to reflect very strong
provision recoveries in both
periods. Impaired loans at 0.9% of
total loans were down from 1.1%
at 31 December 2004.

Asset quality in Capital Markets

remained strong. The provision
charge was 0.22% compared with
0.27% in 2004 and impaired loans
reduced to 0.7% from 0.8% of total
loans at 31 December 2004.

The provision charge in Poland

decreased to 0.40% of loans from
0.91% in 2004. Asset quality
continued to improve with the
ratio of impaired loans as a
percentage of loans declining to
6.8% from 8.4% at 31 December
2004.

The provision for liabilities
and commitments was € 20
million in 2005, the same level as
2004 while provisions for
amounts written off/(written
back) financial investments
were € 8 million compared with a
net credit of € 1 million in 2004.

Share of results of associated
undertakings
The profit in 2005 was € 149
million compared to € 132 million
in 2004 and mainly reflects AIB’s
23.5% average share of the income
after taxes of M&T Bank
Corporation on an IFRS basis for
the year to December 2005.

19

203557  02/03/2006  08:22  Page 20

Performance review

Risk weighted assets, loans to customers and customer accounts (excluding
currency factors)

% change 31 December 2005 v 1 January 2005

AIB Bank Republic of Ireland

AIB Bank GB & NI

Capital Markets

Poland

AIB Group 

(1) Excludes money market funds.

The following commentary is in respect

of the total Group.

Balance sheet
Total assets amounted to € 133
billion at 31 December 2005
compared to € 103 billion at 1
January 2005. Adjusting for the
impact of currency, total assets
were up 26% and loans to
customers were up 27% since 1
January 2005 while customer
accounts increased by 16%. Risk
weighted assets excluding currency
factors increased by 24% to 
€ 102 billion.

Assets under management/
administration and custody
Assets under management in the
Group amounted to € 16 billion at
31 December 2005 compared with
€ 13 billion in 2004. Assets under
administration and custody
increased to € 220 billion at 31
December 2005 from € 183
billion in 2004.

Taxation
The taxation charge was € 319
million compared with € 267
million in the year to December
2004 (€ 260 million on a pro-
forma basis for the year to
December 2004). The effective tax

Risk weighted
assets
% change

Loans to Customer
accounts(1)
% change

customers
% change

25

32

23

4

24

28

29

29

4

27

20

17

4

8

16

rate was 18.7% compared with
19.5% in the year to December
2004 (or 18.9% on a pro-forma
basis). The taxation charge
excludes taxation on share of
results of associated undertakings.
Share of results of associated
undertakings is reported net of
taxation in the Group profit before
taxation. The effective tax rate is
influenced by the geographic mix
of profits, which are taxed at the
rates applicable in the jurisdictions
where we operate.

Return on equity and return
on assets
The return on equity was 20.6%,
compared to 20.7% in 2004.The
return on assets was 1.20%, down
from 1.22% in 2004.

Capital ratios
A strong capital position was
reflected in a Tier 1 ratio at 7.2%
and a total capital ratio of 10.7%.

Outlook
The business is expected to
continue to perform strongly in
2006 in line with our strong
positions in the high growth
markets where we operate. Very
good loan and deposit growth and
strong asset quality is expected

again this year. The resourcing and
restructuring of our enterprise
wide approach to operations is in
implementation and we expect this
to further bolster our business
capability. Based on these factors
our guidance is for low double-
digit earnings per share growth in
2006 compared with the adjusted
basic earnings per share of 
EUR 145.9c in 2005 (as outlined
on page 16).This guidance
excludes the one-time gain to be
recognised from the Ark Life joint
venture with Hibernian Life &
Pensions and income from the
development of the Bankcentre
complex.

Cashflow
As reflected in the consolidated
statement of cash flows for the
group, there was a net increase in
cash of  € 4,807 million during
the year ended 31 December 2005.
Net cash inflow from operating
activities was € 4,513 million.
Cash inflows from financing were
€ 556 million.The issue of
subordinated liabilities generated
cash inflows of € 1,813 million,
offset by the redemption of
subordinated liabilities of 
€ 630 million. Cash outflows from
taxation were € 351 million while
cash outflows in relation to equity
dividends were € 532 million.
Cash outflows as a result of
investing activities were 
€ 262 million, due primarily to
net increases in financial
investments of € 264 million.

20

mortality assumptions and an
experience loss on liabilities of 
€ 62 million offset by a € 374
million experience gain on the
pension scheme assets.The net
pension scheme deficit on funded
schemes recognised within
shareholders’ equity was € 1,137
million compared with a net
pension deficit of € 828 million at
31 December 2004.

203557  02/03/2006  08:22  Page 21

Statement of recognised
income and expense (‘SORIE’)
The total recognised gains relating to
the year amounted to € 1,898
million compared to recognised gains
of € 887 million in 2004. Profit for
the year ended 31 December 2005
was € 1,433 million compared to 
€ 1,158 million in 2004. Currency
translation adjustments amounted
to € 287 million positive
compared to € 73 million negative
in 2004.The currency translation
difference principally relates to the
change in value of the Group’s net
investment in foreign operations
arising from the weakening of the
euro against the currencies in
which the net foreign investments
are held.

The net change in cash flow
hedges was € 76 million negative
in 2005. In accordance with 
IAS 39, the portion of the gain or
loss on the hedging instrument
deemed to be an effective hedge is
recognised in the cashflow hedge
reserve. Deferred gains and losses
are transferred to income statement
in the period during which the
hedged item affects profit or loss.
The net change in available for

sale securities was € 6 million
negative in 2005.This represents the
net change in fair value of available
for sale securities recognised in
equity for the period.

The actuarial loss in retirement

benefit schemes during 2005
charged to the SORIE, net of
deferred tax, of € 59 million,
amounted to € 285 million
compared to € 198 million in
2004.The actuarial loss included 
€ 656 million from a reduction in
discount rates and changes in

21

203557  02/03/2006  08:22  Page 22

Divisional commentary

On a divisional basis, profit is measured in euro and consequently includes the impact of currency movements. The
underlying percentage change is reported in the divisional income statements adjusting for the impact of exchange
rate movements on the translation of foreign locations’ profit. The AIB Bank Republic of Ireland income statement
for 2004 and 2005 has been restated to reflect Ark Life as a discontinued operation, which is now reported below profit
after taxation at Group level, arising from its disposal in 2005.The profit on disposal will be accounted for in 2006.

AIB Bank Republic of Ireland
income statement

Net interest income
Other income

Total operating income
Total operating expenses

Operating profit before provisions
Provisions

Operating profit
Share of results of associated undertakings
Profit on disposal of property

Profit before taxation

AIB Bank Republic of Ireland
profit of € 779 million was up
24% or 15% excluding the € 50
million of investigation related
charges incurred in 2004.

AIB Bank Republic of Ireland
Retail and commercial banking
operations in Republic of Ireland,
Channel Islands and Isle of Man;AIB
Finance and Leasing and Card Services.

Pre-tax profit increased by 24% or
15% excluding the € 50 million of
investigation related charges
incurred in the year to December
2004. Operating income was up
14% and operating expenses were
up 7%. Excluding the investigation
related charges these growth rates
were 11% and 8% respectively, with
the operating income/cost gap at
+3%.

The strong profit growth was
generated through higher business
volumes and the focus on customer
relationship management. Loans

IFRS
Year
2005
€ m

1,314
376

1,690
867

823
55

768
(1)
12

779

IFRS
Year
2004
€ m

1,144
340

1,484
813

671
44

627
(1)
7

633

IFRS
Pro-forma 
2004
€ m

Underlying %
change 2005 v
Pro-forma 2004

1,145
337

1,482
814

668
44

624
(1)
7

630

15
12

14
7

23
25

23
-
68

24

and deposits increased by 28% and
20% respectively since 31
December 2004. Operating
expenses were up 7% (or 8%
excluding investigation related costs
in 2004). Increased business activity,
annual salary inflation, performance
costs related to strong revenue
growth and costs associated with a
number of mandatory and
regulatory driven projects were the
key drivers of the 7% increase. A
decrease in other finance income
(income associated with the pension
fund now included in operating
expenses under IFRS), which fell
from € 20 million to € 13 million,
accounted for 1% of the operating
expenses growth. The cost income
ratio was 51.3% compared with
54.9% in 2004 (52.7% excluding
the € 50 million of investigation
related charges incurred in 2004).
Asset quality remained very good
with the provision charge as a
percentage of average loans
reducing to 0.11% from 0.14% in

2004.

Retail banking reported another

very strong year reflecting good
growth in income on the back of a
significant increase in business
volumes on both sides of the
balance sheet. Business lending,
home mortgages, personal lending
and private banking activities all
experienced excellent growth, with
strong growth in customer deposits
also reflecting buoyant customer
demand. Profit growth in AIB Card
Services was also notable, resulting
from strong revenue due to higher
consumer spending, a strong
increase in merchant turnover, lower
costs and a lower bad debt charge.
In AIB Finance and Leasing there
was good profit growth due to a
14% increase in loan volumes since
December 2004 and tight cost
management. New business was
particularly strong in the motor,
plant and equipment sectors.

22

203557  02/03/2006  08:22  Page 23

AIB Bank GB & NI income statement

Net interest income
Other income 

Total operating income
Total operating expenses

Operating profit before provisions
Provisions

Operating profit
Profit on disposal of property

Profit before taxation

AIB Bank GB & NI profit was
up 18%.

AIB Bank GB & NI Retail and
commercial banking operations in Great
Britain and Northern Ireland.

AIB Bank GB & NI reported a
strong performance in the year to
31 December 2005, with profit
before taxation increasing by 18%.
Loan and deposit balances
increased by 29% and 17%
respectively in 2005 with volume
growth reflecting buoyant business
momentum. Lending margins
were well managed in a very
competitive environment.
Operating expenses were up 7%
mainly due to staff cost increases
relating to ongoing investment in
the business. The cost income
ratio improved to 48.7% from
51.5% last year. The bad debt
charge represented 0.13% of
average loans, compared with
0.11% of average loans in 2004.
Credit quality remains robust in a
relatively benign economic climate.

IFRS
Year
2005
€ m

516
148

664
323

341
21

320
2

322

IFRS
Year
2004
€ m

416
189

605
305

300
13

287
1

288

IFRS
Pro-forma
2004
€ m

Underlying %
change 2005 v
Pro-forma 2004

447
142

589
303

286
13

273
1

274

16
5

13
7

20
61

18
-

18

Allied Irish Bank (GB), with its

primary focus on chosen business
sectors, achieved a profit increase of
25% to € 169 million, a very
strong performance, with growth
in balances of 31% in loans and
21% in deposits.The bank
continues to grow its business
customer base as a key provider of
banking to mid-corporate
businesses through its relationship-
banking model and continued
expansion. In 2005, the opening
of a corporate office in the
regenerated Birmingham city
centre demonstrated the increasing
profile of Allied Irish Bank (GB).

First Trust Bank, a retail bank in

Northern Ireland, also reported
double-digit growth, with an 11%
increase in profit before taxation to
€ 153 million, compared with
2004. Loan balances showed
strong growth of 25% and solid
deposit growth of 12% was
achieved. First Trust continues to
develop both its business and
personal customer bases.

23

203557  02/03/2006  08:22  Page 24

IFRS
Pro-forma 
2004
€ m

Underlying %
change 2005 v
Pro-forma 2004

396
345

741
403

338
29

309
4
4

317

10
18

14
-1

31
59

28
-44
12

27

comprising the remainder.

The divisional cost income
ratio decreased to 47.5% from
54.4% in 2004. Strong cost
management control coupled with
selective business rationalisation
enabled the division to retain costs
at the 2004 levels.

The bad debt provision charge

decreased to 0.22% of average
loans from 0.27% in 2004. Total
provisions increased due to a
higher nominal bad debt charge,
higher investment provisions and
some onerous lease charges on
premises.

Divisional commentary

Capital Markets income statement

Net interest income
Other income 

Total operating income
Total operating expenses

Operating profit before provisions
Provisions

Operating profit
Share of results of associated undertakings
Profit on disposal of business

Profit before taxation

IFRS
Year
2005
€ m

435
407

842
400

442
46

396
2
5

403

IFRS
Year
2004
€ m

360
390

750
403

347
29

318
4
4

326

Capital Markets profit of 
€ 403 million was up 27%.

Capital Markets Corporate
Banking, Global Treasury, and
Investment Banking.

Profit before taxation increased by
27% to € 403 million, reflecting a
very strong performance across
each business area.

The performance in Corporate

Banking was particularly strong
with pre-tax profit up 33% on the
comparative out-turn for 2004. We
experienced significant loan
growth in both the domestic and
international businesses with loans
increasing by 29% since December
2004. We continue to invest
heavily in expanding our
international and specialised loan
businesses which are experiencing
very strong growth. We retain a
rigorous and conservative approach
to credit risk management and
continually seek to optimise value
in a quality loan portfolio.

Global Treasury performed
strongly in 2005 following the
outstanding performance in its

markets business in 2004. Despite
difficult interest rate and foreign
exchange markets experienced in
2005, Global Treasury closed the
year with profit marginally ahead
(up 2%) of 2004. Our customer
business performed robustly,
showing strong growth over the
comparative period and
underpinning our leading position
in the Republic of Ireland. We
also experienced strong growth in
our investment books and bond
activities with our short term
trading activities performing
behind the very strong prior year.
Investment Banking profit was

up 22%, substantially ahead of
2004. The strong profit growth
and activity experienced in
stockbroking services, equity
trading, corporate advisory and
structured investments were once
again underpinned by the market
share positions held by each of
these businesses.

The approximate profit split by

business unit in 2005 was
Corporate Banking 55%, Global
Treasury 29% with Investment
Banking and Allied Irish America

24

203557  02/03/2006  08:22  Page 25

Poland income statement

Net interest income
Other income 

Total operating income
Total operating expenses

Operating profit before provisions
Provisions

Operating profit
Share of results of associated undertakings
Profit on disposal of property
Profit on disposal of business(1)

Profit before taxation

IFRS
Year
2005
€ m

205
222

427
280

147
15

132
–
–
–

132

IFRS
Year
2004
€ m

174
188

362
245

117
29

88
1
1
13

103

IFRS
Pro-forma
2004
€ m

Underlying %
change 2005 v
Pro-forma 2004

180
180

360
245

115
29

86
1
1
13

101

1
10

6
3

11
-54

33
–
–
–

13

(1) The profit on disposal of business in 2004 relates to the sale in April 2004 of CardPoint S.A., a merchant acquiring business responsible
for card payment processing.

Stock Exchange in 2005.
E-business and payment fees and
foreign exchange income
contributed to a strong growth
level.

Operating expenses were up
3% reflecting higher staff costs due
to increased performance related
pay, while savings were realised in
operating expenses.

Provisioning has reduced
further compared with 2004.The
charge as a percentage of average
loans declined from 0.91% to
0.40% in 2005.The downward
trend in impaired loans as a
percentage of total loans continued
from 8.4% at 31 December 2004
to 6.8% at the end of December
2005.

Poland profit was €132
million, up 13%.

Poland Bank Zachodni WBK
(‘BZWBK’), in which AIB has a
70.5% shareholding, together with its
subsidiaries and associates.
BZWBK Wholesale Treasury and
share of Investment Banking
subsidiaries results are reported in
Capital Markets division.

Profit before taxation was € 132
million in 2005 compared with
€ 101 million in 2004. On a local
currency basis pre-tax profit
increased by 13% and adjusting for
the disposal of a business in 2004
the increase was 29%.

Total operating income

increased by 6% with net interest
income increasing by 1% and other
income increasing by 10%.
Average interest rates were lower in
2005 following a 2.00% reduction
in the reference rate during the
year to 4.50% at 31 December
2005. Performing loans to

customers increased by 5% since
December 2004 with total loans to
customers up 4%. Overall the
business lending market in Poland
was subdued with higher liquidity
levels and increased competition
resulting in stagnant business
lending year on year. Personal
lending grew strongly where cash
loans in particular were in demand
by our customers. Lending
margins increased as a result of
improved mix in the portfolio.
Customer deposits increased by 8%
with margins decreasing as a result
of lower interest rates, changing
mix and increased competition.
Other income grew by 10%.
The main area of growth was asset
management fees with mutual
funds income increasing by 115%
and a continued favourable mix in
funds managed with market share
increasing from 7.5% to 12.6%.
The brokerage business enjoyed an
excellent year with substantial
increases in turnover, buoyed by
the performance of the Warsaw

25

IFRS
Year
2004
€ m

(22)
37

15
103

(88)
18

(106)
128
-

22

IFRS
Pro-forma
2004
€ m

10
38

48
103

(55)
18

(73)
128
-

55

December 2004. Diluted net
operating earnings per share, which
excludes the amortisation of core
deposit and other intangibles, was
US$ 7.03, up 10% from US$ 6.38.

203557  02/03/2006  08:22  Page 26

Divisional commentary

Group income statement

Net interest income
Other income 

Total operating income
Total operating expenses

Operating loss before provisions
Provisions

Operating loss
Share of results of associated undertaking - M&T
Construction contract income

Profit before taxation

IFRS
Year
2005
€ m

60
(36)

24
141

(117)
6

(123)
148
45

70

Group

Group includes interest income earned
on capital not allocated to divisions, the
funding cost of certain acquisitions,
economic hedging of the translation of
foreign locations’ profit, unallocated
costs of enterprise technology and
central services and the contribution
from AIB’s share of approximately
23.5% in M&T Bank Corporation
(‘M&T’).

Group reported profit before
taxation of € 70 million for the
year to December 2005 compared
with a profit of € 55 million in
2004.

Net interest income was up

due to higher capital income
resulting from increased capital
balances (strong retained earnings)
and the income generated from
investment of the funds raised on a
€ 1 billion perpetual preferred
securities issue in December 2004.
Other income was lower due to
gains of € 36 million in relation to
closing out capital invested
positions in 2004. Other income in
2005 includes economic hedging

losses in relation to foreign
currency translation exposure and
capital management, and hedge
volatility under IFRS.

Significant additional

investment in resources to facilitate
AIB’s preparation for Basel II and
Sarbanes Oxley were the main
drivers of higher operating
expenses. In addition, there was
investment to further strengthen
compliance and internal audit
structures with performance related
costs higher in line with strong
revenue and profit growth.

AIB’s share of M&T after-tax
profit in 2005 amounted to € 148
million. On a local currency basis
M&T’s contribution of US$ 185
million increased by 16% relative
to the year to December 2004 of
US$ 159 million. AIB benefited
from a 23.5% share of profit
compared to a 22.7% share in the
year to December 2004. M&T
reported its annual results on 11
January 2006, showing net income
up 8% to US$ 782 million. US
GAAP-basis diluted earnings per
share was up 12% to US$ 6.73
from US$ 6.00 in the year to

26

203557  02/03/2006  08:22  Page 27

Pro-forma IFRS information

Reconciliation of statutory IFRS accounts to pro-forma IFRS accounts for 2004

EIR(1)

Insurance(2)

Financial(3)
instruments

€ m

€ m

IFRS
Year
2004
€ m

2,072
1,144

3,216
1,869
133

1,214

132
9
17

1,372

Net interest income
Other income 

Total operating income
Total operating expenses
Provisions

Operating profit
Share of results of associated 

undertaking

Profit on disposal of property
Profit on disposal of business

Profit before taxation

Earnings per share - 

€ m

73
(102)

(29)
(1)
-

(28)

-
-
-

(28)

continuing operations

125.8c

(2.5c)

Earnings per share - 

discontinued operations

Basic earnings per share

6.2c

132.0c

-

(2.5c)

(2.4c)

(2.4c)

-
-

-
-
-

-

-
-
-

-

-

IFRS
Pro-forma
2004
€ m

2,178
1,042

3,220
1,868
133

1,219

132
9
17

1,377

123.3c

3.8c

127.1c

33
-

33
-
-

33

-
-
-

33

-

-

-

(1) (EIR) Effective interest rate (IAS 39). On transition, certain fees receivable and fees and commissions payable that had previously been taken
to the profit and loss account were treated as deferred income and deferred costs and shown within loans and receivables. These deferred fees and
costs are amortised on an effective interest basis to the profit and loss account over the expected residual lives of the financial instruments. The
change in policy gives rise to a reclassification from fee income / fee expense and administrative expenses to interest income with an impact on the
net interest margin. On a pro-forma basis the effective interest rate adjustment reduced profit before taxation by € 28 million in 2004.

(2) Insurance business (IFRS 4 / IAS 39). Accounting for contracts meeting the IFRS definition of insurance business is not impacted by
IFRS 4. Accounting for investment products under IAS 39 serves to delay the recognition of income for a number of reasons.There is a
narrower definition of costs that can be deferred on the sale of investment products. Initial charges on sale of investment products are deferred
and accrued over the expected life of the product.There is no opportunity to account for the future surpluses on an embedded value basis.
As a consequence, there was a reduction in equity on transition as the valuation of the discounted future earnings expected to emerge from the
business currently in force in the balance sheet will decrease. Income will be recognised on these contracts in later periods due to the change in
the valuation basis. On a pro-forma basis the insurance business adjustment reduced earnings per share by 2.4c in 2004.

(3) Financial instruments (IAS 32 / IAS 39). Under IAS 32 and IAS 39, all debt securities are classified and disclosed within one of the
following four categories: held-to-maturity; available-for-sale; trading; or designated as fair value through the profit and loss account. Some of
AIB’s financial instruments, which were previously held as financial fixed assets, are classified as available-for-sale on transition to IFRS.
On a pro-forma basis, classification of financial instruments increased profit before taxation by € 33 million in 2004.

27

203557  02/03/2006  08:22  Page 28

Pro-forma IFRS information

IFRS segmental pro-forma information (continuing operations)

Year 31 December 2004

AIB Bank
ROI
€ m

AIB Bank
GB & NI
€ m

Capital
Markets
€ m

Poland

Group

€ m

€ m

Operations by business segments
Net interest income
Other income

Total operating income
Total operating expenses
Provisions

Operating profit/(loss)
Share of results of associated undertakings
Profit on disposal of property
Profit on disposal of businesses

Group profit before taxation

1,145
337

1,482
814
44

624
(1)
7
-

630

447
142

589
303
13

273
-
1
-

274

396
345

741
403
29

309
4
-
4

317

180
180

360
245
29

86
1
1
13

101

10
38

48
103
18

(73)
128
-
-

55

Total

€ m

2,178
1,042

3,220
1,868
133

1,219
132
9
17

1,377

28

203557  04/03/2006  08:56  Page 29

Financial review

CAPITAL MANAGEMENT
It is the Group’s policy to maintain a
strong capital base and to utilise it
efficiently in its development as a
diversified international banking
group. As part of the Group’s
capital management activities, the
Group manages its mix of capital
by currency in order to minimise
the impact of exchange rate
fluctuations on the Group’s key
capital ratios.

The table opposite shows AIB

Group’s capital resources at 31
December 2005 and 1 January
2005. Capital resources increased by 
€ 2.0 billion during the year ended
31 December 2005.

The increase arose primarily as

a result of an increase in capital
notes. In addition, shareholders’
equity increased arising from net
retentions and exchange rate
movements offset by pension
scheme actuarial losses.

The US dollar, sterling and
Polish zloty strengthened by 15%,
3% and 6% respectively relative to
the euro, resulting in a positive
foreign currency translation
adjustment of € 423 million.
Shareholders’ equity benefited from
net retentions of € 773 million
and the reissue of shares for staff
incentive schemes of € 66 million.
The actuarial losses in the Group’s
retirement benefit schemes, which
the Group has recognised directly
in shareholders’ equity under IAS
19 – Employee benefits, amounted
to € 285 million.

There was a net increase of 

€ 1.3 billion in capital notes
reflecting the issue of Stg£ 900
million and € 500 million offset by
the redemption of € 350 million

31 December
2005
€ m

Shareholders’ equity*
Equity and non-equity minority interests
Preference shares
Undated capital notes
Dated capital notes

7,169
1,248
210
868
2,678

1 January
2005
€ m

6,472
1,211
182
346
1,923

Total capital resources

*Includes other equity interests

and US $ 350 million in
subordinated capital.

Capital ratios
In carrying out the Group’s overall
capital resources policy, a guiding
factor is the supervisory
requirements of the Irish Financial
Services Regulatory Authority
(‘IFSRA’), which applies a
capital/risk assets ratio framework
in measuring capital adequacy.This
framework analyses a bank’s capital
into three tiers.Tier 1 capital,
comprises mainly shareholders’
funds, minority equity interests in
subsidiaries and preference shares. It
is the highest tier and can be used
to meet trading and banking
activity requirements.Tier 2
includes perpetual, medium-term
and long-term subordinated debt,
certain provisions for impairment
and fixed asset revaluation reserves.
Tier 2 capital can be used to support
both trading and banking activities.
Tier 3 capital comprises short-term
subordinated debt with a minimum
original maturity of two years.The
use of tier 3 capital is restricted to
trading activities only and it is not
eligible to support counterparty or
settlement risk.The aggregate of
tiers 2 and 3 capital included in the
risk asset ratio calculation may not

12,173

10,134

exceed tier 1 capital. AIB does not
currently use tier 3 capital in its
capital calculation.The capital
adequacy framework also applies
risk weightings to balance sheet
and off-balance sheet exposures,
reflecting the credit and other risks
associated with broad categories of
transactions and counterparties, to
arrive at a figure for risk weighted
assets. An internationally agreed
minimum total capital (to risk
weighted assets) ratio of 8% and a
minimum tier 1 capital (to risk
weighted assets) ratio of 4% are the
base standards from which the
IFSRA sets individual capital ratios
for credit institutions under its
jurisdiction.

The EU Capital Adequacy
Directive (CAD) distinguishes the
risks associated with a bank’s
trading book from those in its
banking book.Trading book risks
are defined as those risks
undertaken in order to benefit in
the short-term from movements in
market prices such as interest rates,
foreign exchange rates and equity
prices.The remaining risks, relating
to the normal retail and wholesale
banking activities, are regarded as
banking book risks.

The Capital Requirements
Directive (CRD) amends the

29

203557  04/03/2006  08:59  Page 30

Financial review

existing CAD for the prudential
regulation of credit institutions and
investment firms across the EU. It
is a major piece of legislation that
introduces a modern prudential
framework, relating capital levels
more closely to risks.

The CRD implements in the
EU the revised Basel framework
which is based on three ‘Pillars’:-
Pillar 1: minimum capital
requirements for credit, market and
operational risks;
Pillar 2: supervisory review -
establishing a constructive dialogue
between a firm and the regulator
on the risks, the risk management
and capital requirements of the
firm; and
Pillar 3: market discipline - robust
requirements on public disclosure
intended to give the market a
stronger role in ensuring that firms
hold an appropriate level of capital.
A project is in place across the

Group to prepare for the
implementation of the CRD.

The table opposite shows the
components and calculation of the
Group’s tier 1 and total capital
ratios at 31 December 2005 and 
1 January 2005.

The Group was strongly
capitalised at 31 December 2005
with the tier 1 ratio 7.2% and the
total capital ratio at 10.7%. Risk
weighted assets increased by
€ 22 billion reflecting strong loan
growth across the Group.

Tier 1 capital increased by 
€ 0.8 billion to € 7.3 billion.This
increase was as a result of the
positive impact of net retentions
and the positive impact of
exchange rate movements offset by
increased supervisory deductions.

Capital base

Tier 1 
Paid up ordinary share capital
Eligible reserves
Equity and non equity minority

interests in subsidiaries

Non-cumulative preference shares
Reserve capital instruments
Less: supervisory deductions

Total tier 1 capital

Tier 2
Fixed asset revaluation reserves
IBNR provisions
Subordinated perpetual loan capital
Subordinated term loan capital

Total tier 2 capital

Gross capital
Supervisory deductions

Total capital

Risk weighted assets
Banking book:

On balance sheet
Off-balance sheet

Trading book:

Market risks
Counterparty and settlement risks

Total risk weighted assets

Capital ratios

Tier 1

Total

Tier 2 capital increased by a net

€ 1.8 billion, primarily as a result
of subordinated debt issues totalling
€ 1.8 billion and € 0.2 billion
positive exchange translation
adjustments offset by redemptions
of € 0.2 billion.

Supervisory deductions
increased by € 185 million,
reflecting primarily an increase in

31 December
2005
€ m

1 January
2005
€ m

294
6,161

1,248
210
497
(1,135)

7,275

381
162
868
2,678

4,089

11,364
(487)

10,877

79,520
14,682
94,202

6,891
563
7,454

101,656

7.2%

10.7%

294
5,249

1,211
182
497
(923)

6,510

339
139
272
1,562

2,312

8,822
(302)

8,520

62,770
10,960
73,730

5,149
712
5,861

79,591

8.2%

10.7%

the Group’s interests in other
financial investments.

30

203557  02/03/2006  08:23  Page 31

RISK MANAGEMENT
Risk-taking is inherent in
providing financial services and
AIB assumes a variety of risks in its
ordinary business activities.These
include credit risk, market risk,
liquidity risk and operational risk.
The role of Risk Management is to
ensure that AIB continues to take
risk in a controlled way in order to
enhance shareholder value. AIB’s
risk management policies are
designed to identify and analyse
these risks, to set appropriate risk
limits and to monitor these risks
and limits continually. AIB
continues to modify and enhance
its risk management practices to
reflect changes in markets, products
and evolving best practice.

Primary responsibility for risk

management lies with line
management.Within AIB, line
management is supported by 
a risk management function that
sets standards, policies, limits and
measurement methods and
provides independent oversight
through a Group Chief Risk
Officer (‘CRO’) with a direct
reporting line to the Group Chief
Executive (‘CEO’) and the Audit
Committee of the Board. The
Board of Directors formally approves
the overall strategy and the
direction of the business on an
annual basis. It regularly monitors
the Group’s financial performance,
reviews risk management activities
and controls and has responsibility
for approving the Group’s risk
appetite.The Group Executive
Committee (‘GEC’), comprising the
Group CEO, Group Finance
Director, Group Chief Risk
Officer, Group Director of

Operations, Group Director of HR
and the four Divisional Managing
Directors, manages the strategic
business risks of the Group. It sets
the business strategy within which
the risk management function
operates and oversees its activities.
The Group Risk Management
Committee (‘RMC’) is chaired by
the Group CRO and has
governance responsibility for
identifying, analysing and
monitoring exposure, adopting best
practice standards and directing
risk management activities across
the Group. It is supported by the
Group Credit Committee (‘GCC’),
the Group Operational Risk
Management Committee (‘ORMCO’)
and the Group Market Risk
Committee (‘MRC’). The Group
Asset and Liability Management
Committee (‘Group ALCO’) is
chaired by the Group Finance
Director and has responsibility for
the Group’s capital, funding, and
liquidity and structural balance
sheet activities. It is supported in
this role by a Group Asset and
Liability Management (‘ALM’)
function. In addition each of the
four operating divisions have ALM
functions supporting their
divisional ALCO. The Head of
Group ALM is a member of each
divisional ALCO.

The Group CRO has

responsibility for the Enterprise
Risk Management framework,
which includes:
– Policies, instructions and

guidelines

– Identification of risk
– Risk analysis 
– Risk measurement
– Credit and market risk limits

– Monitoring and control, and
– Reporting.

Each of the four operating

divisions have dedicated risk
management functions, with
Divisional CRO’s reporting
directly to the Group CRO. In
addition, the Group Chief Credit
Officer (‘CCO’), the Group Head
of Operational Risk Management
and the Group Head of Market
Risk management have functional
responsibility for these risks at the
centre and these also report
directly to the Group CRO. Each
Division has dedicated credit risk
management and operational risk
management functions.The Capital
Markets Division also has a
dedicated Market Risk
Management function. The
Divisional CCO chairs the credit
committee in each Division. Each
Division has an ORMCO that
reports into the Group ORMCO.
Two other functions play very
important roles in overseeing the
risk control environment.These are
Group Internal Audit and
Regulatory compliance.

Group Internal Audit provides
reasonable assurance to the Board
Audit Committee on the adequacy,
effectiveness and sustainability of
the governance, risk management
and control processes throughout
the Group. A secondary objective is
to influence the strengthening of
governance, risk management and
control processes through the
sharing of best practices.
In undertaking its

responsibilities, Group Internal
Audit adopts a risk-based
approach, which translates into a

31

203557  02/03/2006  08:23  Page 32

Financial review

comprehensive programme of
work that provides an independent
assessment of key governance, risk
management and control processes.
Included in its work are reviews of
the self-assessments of operational
risks and controls undertaken by
the businesses.There is also an
ongoing review of risk
identification standards and risk
management methodologies which
includes testing of the risk
mitigators adopted by
management.

Regulatory compliance
is an enterprise wide function
which identifies compliance
obligations in each of our
operating markets and provides
advice and guidance to
management and staff on
addressing compliance risks.
Primary responsibility for
compliance lies with line
management. Compliance risks are
associated with failures to comply
with laws, regulations, rules, self-
regulatory standards and the codes
of conduct applicable to our
business activities. Such failures
can give rise to legal or regulatory
sanctions, material financial loss, or
a loss of reputation to the bank.
The regulatory compliance
function also promotes the
embedding of an ethical
framework within our businesses to
ensure that we operate with
honesty, fairness and integrity in all
our dealings with customers.
Regulatory compliance
supports management in the
development of appropriate
policies and procedures that will
ensure compliance with all our

conduct of business obligations.
Compliance teams are located in
each Division to work closely with
management to identify and
control compliance risks.The
regulatory compliance function
assesses and monitors the
compliance risks faced by our
businesses, and independently
reports to the Audit Committee on
the compliance framework
operating across the Group, and on
line management’s attention to
compliance issues.

Credit risk
Credit risk is the risk that a
customer or counterparty will be
unable or unwilling to meet a
commitment that it has entered
into and that the pledged collateral
does not cover AIB’s claims.The
credit risks in AIB arise primarily
from lending activities to
customers but also from
guarantees, derivatives and
securities.

Credit management and
control
Credit risk is managed and
controlled throughout AIB on the
basis of established credit processes
and within a framework of credit
policy and delegated authorities
based on skill and experience.
Credit grading, scoring and
monitoring systems accommodate
the early identification and
management of deterioration in
loan quality.The credit
management process is
underpinned by an independent
system of credit review.

The Board determines the
credit authority for the Group

Credit Committee and approves
the Group’s key credit policies. It
also approves divisional credit
authorities and reviews credit
performance on a regular basis.The
GCC considers and approves,
within the parameters of the
Group Large Exposure Policy,
credit exposures which are in
excess of divisional credit
authorities.The GCC comprises
senior divisional and Group-based
management and is chaired by the
Group Chief Credit Officer.
The Group CCO sets
Groupwide standards for best
practice including credit grading
and scoring methodologies and
exposure measurement. Divisional
management approves divisional
credit policy with the
involvement and agreement of the
risk management function.
Material divisional credit policies
are referred to the Group RMC.

Credit risk on derivatives
The credit risk on derivative
contracts is the risk that AIB’s
counterparty in the contract
defaults prior to maturity at a time
when AIB has a claim on the
counterparty under the contract.
AIB would then have to replace
the contract at the current market
rate, which may result in a loss.

Derivatives are used by AIB to

meet customer needs to reduce
interest rate risk, currency risk and
in some cases, credit risk as well as
for proprietary trading purposes.
Derivatives affect both credit and
market risk exposures.The credit
exposure is treated in the same way
as other types of credit exposure

32

203557  02/03/2006  08:23  Page 33

and is included in customer limits.
The total credit exposure
consists partly of current exposure
and partly of potential future
exposure.The potential future
exposure is an estimation, which
reflects possible changes in market
values during the remaining
lifetime of the individual contract.
AIB uses a simulation tool to
estimate possible changes in future
market values and computes the
credit exposure to a high level of
statistical significance.

Country risk
Country risk is the risk that
circumstances can arise in which
customers and other counterparties
within a given country may be
unable or precluded from fulfilling
their obligations to AIB due to
deterioration in economic or
political circumstances.

Country risk is managed by
setting appropriate maximum risk
limits to reflect each country’s
overall credit worthiness.
Independent credit information
from international sources,
supported by visits to relevant
countries, is used to determine the
appropriate risk limits. Risks and
limits are monitored on an
ongoing basis.

Settlement risk
Settlement risk is the risk of loss
arising in situations where AIB has
given irrevocable instructions for a
transfer of a principal amount or
security in exchange for receiving
a payment or security from a
counterparty, which defaults before
the transaction is completed.
The settlement risk on

individual counterparties is
measured as the full value of the
transactions on the day of
settlement. It is controlled through
settlement risk limits. Each
counterparty is assessed in the
credit process and clearing agents,
correspondent banks and
custodians are selected with a view
to minimising settlement risk.

Rating methodologies
Internal rating models, which
comprise both grading and scoring
systems, lie at the heart of credit
management within AIB. They are
used to differentiate between
credits on the basis of estimated
probability of default. In
conjunction with the preparations
for Basel II, a significant review
and upgrade of all material models
has been carried out with a view
to ensuring appropriate quality and
standards are maintained in line
with best practice.

In our consumer businesses,
where there are large numbers of
customers, credit decisions are
largely informed by statistically
based scoring systems. Both
application scoring for new
customers and behavioural scoring
for existing customers are used to
measure risk and facilitate the
management of these portfolios.
In our commercial and
corporate businesses the grading
systems utilise a combination of
objective information (primarily
financial data) and subjective
assessments of non-financial risk
factors. The combination of expert
lender judgement and statistical
methodologies varies according to
the size and nature of the portfolio

and default experience.

Systems are in place to ensure

that all of these models are
continuously reviewed and
validated.

The ratings influence the
management of individual loans.
Special attention is paid to lower
quality graded loans and, when
appropriate, loans are transferred to
specialist units to help avoid
default and where in default to
minimise loss.

Provisioning for impairment
AIB provides for impairment in a
prompt and conservative way
across the credit portfolios.The
rating models provide a systematic
discipline in triggering the need
for provisioning on a timely basis.

In January 2005, AIB

introduced amended impairment
provisioning methodologies in
compliance with the International
Financial Reporting Standards
(IFRS).

In applying IFRS, AIB has
identified two types of provisions,
a) Specific and b) Incurred but not
Reported (IBNR) – i.e. collective
provisions for earning loans.

Specific provisions arise when
the recovery of a specific loan or
group of loans is significantly in
doubt.The amount of the specific
provision will reflect the financial
position of the borrower and the
net realisable value of any security
held for the loan or group of
loans. In practice the specific
provision is the difference between
the present value of expected
future cash flows for the impaired
loan(s) and the carrying / book
value.

33

203557  04/03/2006  09:02  Page 34

Financial review

IBNR provisions are also
maintained to cover loans which
are impaired at the balance sheet
date, and while not specifically
identified, are known from
experience to be present in any
portfolio of loans. IBNR
impairment provisions can only be
raised for incurred losses and will
not be permitted for losses that are
expected to happen as a result of
likely future events.

IBNR provisions are

determined by reference to loss
experience in our portfolios and to
the credit environment at balance
sheet date.

Whilst provisioning is an
ongoing process, all AIB divisions
formally review provision adequacy
on a quarterly basis and determine
the overall provision need.These
provisions are in turn reviewed and
approved on a quarterly basis with
ultimate Group levels being
approved by the Group Audit
Committee.

Credit performance
measurement framework
AIB continues to refine its
methodology of measuring the risk
adjusted profitability of its credit
business. Economic Value Added
(‘EVA’) is now the primary
measure of performance. EVA
represents the value added having
deducted all costs, including
expected loss and a charge for the
economic capital required to
support the facility.

The most important inputs into
the determination of the expected
loss and the economic capital are
the probability of default (‘PD’),
the loss given default (‘LGD’) and

the exposure at default (‘EAD’).
The rating grades produced by the
rating models are translated into a
PD, which is a key parameter when
measuring risk. LGD is measured
taking into account amongst other
things the security held by AIB.
EAD for many products is equal to
the outstanding exposure but for
some products, such as credit lines
and derivative contracts, the EAD
may be higher than the
outstanding exposure. The
methodology used in determining
economic capital is in line with
best practice.

This framework is used to guide

the pricing of credit risk and to
influence the deployment of capital
to maximise shareholder value.

Further information on credit
risk
Further information on credit risk
can be found within this report in
the following notes;
– Amounts written off/(written
back) financial investments 
(Note 13)

– Loans and receivables to banks

(Note 28)

– Loans and receivables to
customers (Note 29)

– Provisions for impairment of

loans and receivables (Note 30)
– Financial investments available

for sale (Note 33)

– Provisions for liabilities and
commitments (Note 47)

– Memorandum items: contingent
liabilities and commitments 
(Note 53)

Market risk
Market risk is the exposure to loss
arising from adverse movements in

interest rates, foreign exchange
rates and equity prices. It arises in
trading activities as well as in the
natural course of transacting
business, for example in the
provision of fixed rate loans or
equity linked tracker bonds to
customers.

Risk management and control
The principal aims of AIB’s market
risk management activities are to
limit the adverse impact of interest
rate, exchange rate and equity
price movements on profitability
and shareholder value and to
enhance earnings within defined
limits. Market risk management for
AIB is centralised in Capital
Markets Division. Interest rate,
foreign exchange rate and equity
risks incurred in retail and
corporate banking activities are
transferred into Global Treasury
where they are managed.The basic
principle is that these risks are
eliminated by matching the market
risk characteristics of assets and
liabilities. Global Treasury has the
discretion to run a small mismatch,
subject to strict limits and is also
responsible for AIB’s investment
and liquidity management
activities.

Market risks are managed by
setting limits on the amount of the
Group’s capital that can be put at
risk.These limits are based on risk
measurement methodologies
described below.The Board
delegates authority 
to the Group CRO to allocate
these limits on its behalf.The limits
for Global Treasury are set in
accordance with its business
strategy and are reviewed

34

203557  04/03/2006  09:18  Page 35

frequently.The Managing Director
of Global Treasury allocates these
limits to the various dealing desks
who supplement these with more
detailed limits and other risk
reducing features such as stop-loss
rules.Within Global Treasury, there
is a dedicated risk management
team charged with the
responsibility to ensure that the
risk measurement methodologies
used are appropriate for the risks
being taken and that appropriate
monitoring and control procedures
are in place.The Market Risk
Committee (‘MRC’) reviews
market risk strategy. It approves
policies and promotes best practice
for measurement, monitoring and
control.

Measurement methods
There is no single risk measure
that captures all aspects of market
risk. AIB uses several risk measures
including Value at Risk (‘VaR’)
models, sensitivity measures and
stress testing.

VaR
The aim of VaR is to estimate the
probable maximum loss in fair
value that could arise in one month
from a ‘worst case’ movement in
market rates.This is computed
using statistical analysis of market 
rate movements setting a
confidence level at 99%.This
means that there is a one in one
hundred chance that the potential
loss could be greater than that
estimated from the data used.VaR
figures are quoted using one-day
and one-month holding periods.
AIB’s market risk exposure is

spread across a range of

The following table illustrates the VaR figures for interest rate risk for the years
ended 31 December 2005 and 2004.

Interest rate risk

1 month holding period:

Average

High

Low

31 December

1 day holding period:

Average

High

Low

31 December

Trading
2004
€ m

Non-trading
2004
€ m

2005
€ m

7.0

10.3

4.0

7.0

1.6

2.3

0.9

1.6

28.5

37.3

18.6

32.5

6.1

8.0

4.0

6.9

18.5

26.4

11.8

13.6

4.1

5.9

2.6

3.0

2005
€ m

8.6

14.5

3.1

9.1

1.8

3.1

0.7

1.9

instruments, currencies and
maturities.The VaR for a portfolio
of market risk positions will not be
the sum of the VaRs for each
financial instrument included in
the portfolio.The VaR for a
portfolio is lower because it is
unlikely that the ‘worst case’
scenario occurs in all instruments,
currencies and maturities
simultaneously.

Sensitivity measures
The limitations of VaR techniques
are well known to banks.They
stem from the need to make
assumptions about the spread of
likely future price and rate
movements. AIB supplements its
VaR methodology with sensitivity
measures. Dealers in Global
Treasury know how much the
value of their positions could
change for a given change in rates
and/or prices.This sensitivity is
monitored at desk and
management level and reported on

by the Global Treasury risk
management unit.These measures
can also be used to decide on
hedging activities. Decisions can be
taken to close out positions when
the level of sensitivity combined
with the likelihood of a rate or
price change exposes AIB to too
high a loss in value.

Stress testing
AIB’s VaR and sensitivity measures
provide estimates of probable
maximum loss in normal market
conditions. Stress tests are used to
supplement these measures by
estimating possible losses that may
occur under extreme market
conditions.These measures feed
into the estimate of economic
capital for market risk.

Interest rate risk
Global Treasury manages the
Group’s exposure to interest rate
risk.The risk is that changes in
interest rates will have adverse

35

203557  02/03/2006  08:23  Page 36

Financial review

effects on earnings and on the value
of AIB’s assets and liabilities.This
risk is managed by setting limits on
the earnings at risk and the value at
risk (‘VaR’) from the open interest
rate risk positions of the Group.
Stop loss limits are also used to
close out loss making positions.

In managing interest rate risk, a
distinction is made between trading
and non-trading activities.Trading
activities are recorded in the trading
book. Interest rate risk associated
with AIB’s retail, corporate and
commercial activities is managed
through the non-trading book.The
reported interest rate VaR figures
on page 35 represent the average,
high, low and year end probable
maximum loss in respect of both
trading and non-trading book
positions held in Global Treasury.

Trading book
The interest rate trading book
includes all securities and interest
rate derivatives that are held for
trading purposes in Global Treasury.
These are revalued daily at market
prices (marked to market) and any
changes in value are immediately
recognised in income. During 2005,
trading book interest rate risk was
predominantly concentrated in the
euro, sterling and the US dollar.

Non-trading book
AIB’s non-trading book consists of
its retail and corporate deposit
books, Global Treasury’s cash books
and the Group’s investment
portfolios and derivatives hedging
interest rate risk within these
portfolios. AIB’s retail businesses
have a substantial level of free
current accounts, equity and other

interest-free or fixed rate liabilities
and assets. Unless carefully
managed, the net income from
these funds will fluctuate directly
with short-term interest rates. AIB
manages this volatility by
maintaining a portfolio of
instruments with interest rates fixed
for several years. In designing this
strategy, care is taken to ensure that
the management of the portfolio is
not inflexible as market conditions
and customer requirements can
bring about a need to alter the
portfolio. Group ALCO sets the
framework and reviews the
management of these activities.

AIB’s net interest rate sensitivity

as at 31 December 2005 is
illustrated in note 55.

Foreign exchange rate risk
AIB is exposed to foreign
exchange rate risk through its
international operations and
through Global Treasury activities
in foreign currencies.

Foreign exchange rate risk -
structural
Structural foreign exchange rate
risk arises from the Group’s 
non-trading net asset position in
foreign currencies. Structural risk
exposure arises almost entirely
from the Group’s net investments
in its sterling, US dollar and Polish
zloty-based subsidiaries.The Group
prepares its consolidated financial
statements in euro. Accordingly, the
consolidated balance sheet is
affected by movements in the
exchange rates between these
currencies and the euro.

Because of the Group’s

diversified international operations,

the currency profile of its capital
may not necessarily match that of
its assets and risk weighted assets.
The Group does not maintain
material non-trading open currency
positions other than the structural
risk exposure discussed here.

At 31 December 2005 and
2004, the Group’s structural foreign
exchange position was as follows:

US dollar
Sterling
Polish zloty

2005
€ m

1,627
1,029
392

3,048

2004
€ m

1,520
1,312
281

3,113

This position indicates that a 10%
movement in the value of the euro
against these currencies at
31 December 2005 would result in
an amount to be taken to reserves
of € 305 million.

Foreign exchange rate risk  -
trading
Global Treasury manages AIB’s
exposure to foreign exchange rate
risk arising from unhedged
customer transactions and
discretionary trading.The risk is
that adverse movements in foreign
exchange rates will result in losses.
This risk is managed by setting
limits on the earnings at risk and
the value at risk (‘VaR’) from the
open foreign exchange rate
positions of the Group. Stop loss
limits are also used to close out loss
making positions.The table on
page 37 sets out the VaR figures for
trading foreign exchange rate risk
for the years ended 31 December
2005 and 2004.

36

203557  04/03/2006  09:25  Page 37

Trading
2004
€ m

2005
€ m

Foreign exchange rate 
risk-trading
1 month holding period:

Average
High
Low
31 December

1.2
3.0
0.5
0.9

1 day holding period:
0.2
0.6
0.1
0.2

Average
High
Low
31 December

0.9
1.7
0.4
1.3

0.2
0.4
0.1
0.3

Trading
2004
€ m

2005
€ m

Equity risk

1 month holding period:

Average
High
Low
31 December

13.6
18.5
11.1
13.6

1 day holding period:
2.9
4.0
1.8
2.9

Average
High
Low
31 December

20.7
26.2
14.6
18.4

4.6
5.9
3.3
4.1

Equity risk
Global Treasury manages the equity
risk arising on its convertible bond
portfolio and from stock market
linked investment products (tracker
bonds) sold to customers.
Goodbody Stockbrokers manage
the equity risk in its Principal
Trading Account.The risk is that
adverse movements in share, share
index or equity option prices will
result in losses for the Group.This
risk is managed by setting limits on
the earnings at risk and the value
at risk (‘VaR’) from the open
equity positions of the Group. Stop
loss limits are also used to close out
loss making positions.The table
above sets out the VaR figures for
equity risk for the years ended 31
December 2005 and 2004.

Off-balance sheet financial
instruments
AIB uses off-balance sheet financial
instruments, to service customer
requirements, to manage the
Group’s market risk exposures and
for trading purposes.

Credit commitments
Provisions for liabilities and
commitments to extend credit are
outlined in note 47.The Group’s
maximum exposure to credit loss
in the event of non-performance
by the other party, where all
counterclaims, collateral or security
prove valueless, is represented by
the contractual amounts of these
contracts.

Derivative financial
instruments
Derivative financial instruments are
contractual agreements between
parties whose value reflects
movements in an underlying
interest rate, foreign exchange rate,
equity price or index.The table on
page 38 shows the notional
amount and gross replacement cost
for trading and non-trading interest
rate, exchange rate and equity
contracts at 31 December 2005
and 2004.While notional principal
amounts are used to express the
volume of these transactions, the
amounts subject to credit risk are
much lower.This is because most
derivatives involve payments based

on the net differences between the
rates expressed in the contracts and
other market rates.

The Group is exposed to interest

rate risk when assets and liabilities
mature or reprice at different times
or in differing amounts. Interest rate
derivatives are used to manage
interest rate risk in a cost-efficient
manner. Similarly, foreign exchange
and equity derivatives are used to
manage the Group’s exposure to
foreign exchange and equity risk, as
required.

The values of derivative
instruments can rise and fall as
market rates change.Where they
are used to hedge balance sheet
assets or liabilities, the changes in
value are generally offset by the
value changes in the hedged items.
The Group uses derivative
transactions to hedge interest rate
risk and the accounting treatment of
these transactions is set out in the
Accounting policies section. The
Group uses both fair value hedges
and cash flow hedges to achieve its
hedge objective. Derivatives are
classified as fair value hedges where
the hedging objective is to eliminate
the risk of changes in fair value,
arising from interest rate fluctuations,
of fixed rate assets or liabilities.

Derivatives are classified as cash

flow hedges where the hedging
objective is to eliminate the risk of
interest rate fluctuations over the
hedging period for variable rate
loan portfolios.

37

203557  04/03/2006  08:35  Page 38

Financial review

Interest rate contracts
Trading
Non-trading

Exchange rate contracts
Trading
Non-trading

Equity contracts
Trading
Non-trading

Notional
principal
amount
€ m

126,885
51,441

178,326

19,799
–

19,799

4,386
–

4,386

2005
Gross Notional
principal
amount
€ m

replacement
cost
€ m

2004
Gross
replacement
cost
€ m

685
461

109,372
31,695

765
294

1,146

141,067

1,059

238
–

238

253
–

253

15,870
–

15,870

3,575
–

3,575

599
–

599

112
–

112

The following is a brief
description of the derivative
instruments that account for the
major part of the Group’s
derivative activities:

Interest rate swaps are

agreements between two parties to
exchange fixed and floating rate
interest by means of periodic
payments based upon notional
principal amounts and interest rates
defined in the contract.

The Group uses interest rate
swaps to manage the impact on
income and shareholder value of
interest rate changes on variable
and fixed rate assets. In addition,
swaps are used to hedge the
Group’s funding costs.

Currency swaps are interest rate

swaps where one or both of the
legs of the swap is payable in a
different currency.They are used
by both customers and Global
Treasury to convert fixed rate assets
or liabilities to floating rate or vice
versa, or to change the maturity or
currency profile of underlying
assets and liabilities, as required.

Forward rate agreements are
individually negotiated contracts
under which an interest rate is
agreed for a notional principal
amount covering a specified period
in the future.At the settlement date,
if interest rates for the future period
are higher than the agreed rate, the
seller pays the buyer the difference
between the contract rate and the
rate prevailing. If interest rates are
lower, the buyer pays the seller.
These contracts are used by
customers to fix the rates for future
short-term borrowing or deposits.
Financial futures are exchange

traded contracts to buy or sell a
standardised amount of the
underlying item at an agreed price
on a set date. Interest rate futures
contracts are available in all of the
major currencies. Foreign currency
and equity index futures are also
available. Financial futures are used
to hedge the Group’s exposures
arising from the sale of forward rate
agreements or guaranteed equity
products.They are also used to
manage the interest rate risks arising

in the Group’s debt securities
portfolio.

Options are contracts that give
the purchaser the right, but not the
obligation, to buy or sell an
underlying asset e.g. bond, foreign
currency, or equity index, at a
certain price on or before an
agreed date.These provide more
flexible means of managing
exposure to changes in interest
rates, exchange rates and equity
index levels. Foreign exchange rate
options are used to hedge income
and expenses arising from non-
euro denominated assets and
liabilities. Foreign exchange rate
options are also used to hedge
exposures arising from customer
transactions.

Interest rate caps/floors are
series of options that give the
buyer the ability to fix the
maximum or minimum rate of
interest. A combination of an
interest rate cap and floor is known
as an interest rate collar.

Forward foreign exchange
contracts are agreements to buy or
sell a specified quantity of foreign
currency, usually on a specified
date, at an agreed exchange rate.
These contracts are used by
customers to fix the exchange rates
for future foreign exchange
transactions.They are also used by
the Group to hedge non-euro
income and expenses.

Credit derivatives are contracts,
the value of which are determined
by the credit worthiness of some
underlying borrower or borrowers.
They are used in the industry to
increase (take a position in) or
decrease (hedge) an exposure to
credit risk.

38

203557  02/03/2006  08:23  Page 39

leadership and skilled personnel, is
the key to successful operational
risk management. Each business
area is primarily responsible for
managing its own operational risks.
Risk management develops and
maintains the framework for
identifying, monitoring and
controlling operational risks and
supports the business in
implementing the framework and
raising awareness of operational
risks.

An element of AIB’s
operational risk management
framework is ongoing monitoring
through self-assessment of control
deficiencies and weaknesses, the
tracking of incidents and loss
events and the use of a structured
‘lessons learned’ process to ensure
that, once identified, control
deficiencies are communicated and
remedied across the Group.

The role of Group ORMCO is

to co-ordinate operational risk
management activities across the
Group through setting policy,
monitoring compliance and
promoting best practice disciplines.

Liquidity risk 
The objective of liquidity
management is to ensure that, at all
times, the Group holds sufficient
funds to meet its contracted and
contingent commitments to
customers and counterparties, at an
economic price.The Group
achieves this through the
maintenance of a stock of high
quality liquid assets and active
involvement in the interbank
market, supplemented by US dollar
commercial paper and CD
issuances together with a euro
medium-term note program.The
Group’s stock of liquid assets is
maintained at a level considered
sufficient to meet the withdrawal
of deposits or calls on
commitments in both normal and
abnormal trading conditions. In all
cases, net outflows are monitored
on a daily basis and the required
minimum stock of liquid assets can
be increased if these outflows
exceed predetermined target levels.
Global Treasury, through its
wholesale treasury operations
manages, on a global basis, the
liquidity and funding requirements
of the Group.

Euro, Sterling, US dollar and

Polish zloty represent the most
important currencies to AIB Group
from a liquidity perspective.The
Group has an established retail
deposit base in Ireland, Britain and
Poland which together with
wholesale market products, funds
asset growth. Although a significant
element of these retail deposits are
contractually repayable on demand
or at short notice, the Group’s
substantial customer base and
geographic spread generally ensures

that these current and deposit
accounts represent a stable and
predictable source of funds.The
retail deposit base in Ireland and
the UK continues to grow strongly,
though at a lower level than
customer loan growth.The Group’s
deposit levels in Poland also
continue to increase and overall
deposit balances exceed loan assets.

The Group has sufficient
liquidity to meet its current
funding requirements and operates
a funding strategy to meet  future
funding needs. The Group also
operates a liquidity contingency
plan for critical situations.
Counterparty ratings of AIB are as
follows: Moody’s long-term “Aa3”
and short-term “P-1”; Fitch long-
term “AAminus” and “F1+” short-
term; Standard and Poors long-
term single “A+”and “A -1” short-
term.

Operational risk
Within AIB, operational risk is
defined as the exposure to loss
from inadequate or failed internal
processes, people and systems or
from external events. It is the risk
of direct or indirect loss, or
damaged reputation, due to
deficiencies or errors in the
Group’s internal operations which
may be attributable to employees,
the organisation, control routines,
processes or technology, or due 
to external events and relations.
Operational risks are inherent in all
activities within the organisation, in
outsourced activities and in all
interaction with external parties.
Strong internal control and
quality management, consisting of a
risk management framework,

39

203557  07/03/2006  08:11  Page 40

Report of the Directors

for the year ended 31 December 2005

The Directors of Allied Irish Banks, p.l.c. present their report and the audited accounts for
the year ended 31 December 2005. A Statement of the Directors’ responsibilities in
relation to the Accounts appears on page 153.

Results
The Group profit attributable to
equity holders of the parent
amounted to € 1,343m and was
arrived at as shown in the
Consolidated Income Statement on
page 65.

conditions set out in the relevant
resolution. As at 31 December
2005 some 43,539,597 shares
purchased under similar authority
were held as Treasury Shares;
information in this regard is given
in Note 50.

Dividend
An interim dividend of EUR
23.0c per ordinary share,
amounting to € 200m, was paid
on 23 September 2005. It is
recommended that a final dividend
of EUR 42.3c per ordinary share,
amounting to € 368m (see Note
67), be paid on 27 April 2006,
making a total distribution of
EUR 65.3c per ordinary share for
the year. The profit attributable to
equity holders of the parent, which
has been transferred to reserves,
and the dividends paid during
2005, are dealt with as shown in
the ‘Reconciliation of movements
in shareholders’ equity’.

Capital
There were no allotments of new
shares during the year. Details of
treasury shares re-issued under the
AIB Employee Share Schemes, the
Allfirst Financial Stock Option
Plan, and the AIB Share Option
Schemes, are given in
Note 50.

At the 2005 Annual General
Meeting (‘AGM’), shareholders
granted authority for the
Company, or any subsidiary, to
make market purchases of up to 90
million ordinary shares of the
Company, subject to the terms and

Accounting policies
On 1 January 2005, the Group
implemented the requirements of
International Financial Reporting
Standards.The principal accounting
policies, together with the basis of
preparation of the accounts, are set
out on pages 49 to 64.

Review of activities
The Statement by the Chairman
on pages 4 and 5 and the Review
by the Group Chief Executive on
pages 8 and 9 contain a review of
the development of the business of
the Group during the year, of
recent events, and of likely future
developments.

Directors
The following Board changes
occurred with effect from the dates
shown:
-  Mr. Eugene Sheehy was

appointed an Executive Director
on 12 May 2005;

-  Mr. Michael Buckley retired as
an Executive Director on 30
June 2005;

-  Sir Derek Higgs resigned as a
Non-Executive Director on 5
October 2005;

-  Mr. Gary Kennedy resigned as an

Executive Director on 31
December 2005;

-  Mr. Aidan McKeon retired as an

Executive Director on 31
December 2005;

-  Mr. John O’Donnell was

appointed an Executive Director
on 11 January 2006.

All Directors will retire at the

2006 AGM and, being eligible,
offer themselves for
re-appointment.

The names of the Directors
appear on pages 6 and 7, together
with a short biographical note on
each Director.

Directors’ and Secretary’s
Interests in the Share Capital
The  interests  of  the  Directors  and
Secretary in the share capital of the
Company are shown in Note 57.

Substantial Interests in the
Share Capital
The following substantial interests
in the Ordinary Share Capital had
been notified to the Company at
21 February 2006:

Bank of Ireland Asset Management
Limited 5.45% (5.72% when
Treasury Shares are excluded).

None of the clients on whose
behalf these shares are held had a
beneficial interest in 3% or more of
the Ordinary Share Capital.
An analysis of shareholdings is
shown on page 164.

40

continue in office in accordance
with Section 160(2) of the
Companies Act, 1963.

Dermot Gleeson
Chairman

Eugene Sheehy
Group Chief Executive

21 February 2006

203557  07/03/2006  08:12  Page 41

Corporate Governance
The Directors’ Corporate
Governance statement appears on
pages 42 to 47.

Books of Account
The measures taken by the Directors
to secure compliance with the
Company’s obligation to keep
proper books of account are the use
of appropriate systems and
procedures, including those set out
in the Internal Control section of the
Corporate Governance statement on
pages 46 to 47, and the employment
of competent persons. The books of
account are kept at the Company’s
Registered Office, Bankcentre,
Ballsbridge, Dublin 4, Ireland; at the
principal offices of the Company’s
main subsidiary companies, as shown
on pages 108/109 and 159/160; and
at the Company’s other principal
offices, as shown on those pages.
Principal Risks and
Uncertainties
Information concerning the
principal risks and uncertainties
facing the Company and the Group,
as required under the terms of the
European Accounts Modernisation
Directive (2003/51/EEC), is set out
in the “Risk Management” section of
the Financial Review.

Branches Outside the State
The Company has established
branches, within the meaning of
EU Council Directive
89/666/EEC, in France, Germany,
the United Kingdom and the
United States of America.

Auditors
The Auditors, KPMG, have
signified their willingness to

41

203557  07/03/2006  08:13  Page 42

Corporate Governance

Corporate governance is
concerned with how companies
are managed and controlled. The
Board is committed to the highest
standards in that regard. This
statement explains how the
Company has applied the
Principles set out in the Combined
Code on Corporate Governance(1)
("the Code").

agreed by the Board.

There is a procedure in place to

enable the Directors to take
independent professional advice, at
the Company’s expense.

The Company holds insurance

cover to protect Directors and
Officers against liability arising
from legal actions brought against
them in the course of their duties.

The Board
Role
The Board is responsible for the
leadership, direction and control of
the Company and the Group and
is accountable to shareholders for
financial performance. There is a
comprehensive range of matters
specifically reserved for decision by
the Board; at a high level this
includes:
-  determining the Company’s

-

strategic objectives and policies;
appointing the Chairman and
the Group Chief Executive and
addressing succession planning;

- monitoring progress towards

-

achievement of the Company’s
objectives and compliance with
its policies;
approving annual operating and
capital budgets, major
acquisitions and disposals, and
risk management policies and
limits; and 

- monitoring and reviewing
financial performance, risk
management activities and
controls.
The role of the Chairman,
which is non-executive, is separate
from the role of the Group Chief
Executive, with clearly-defined
responsibilities attaching to each;
these are set out in writing and

Meetings
The Chairman sets the agenda for
each Board meeting. The
Directors are provided in advance
with relevant papers to enable
them to consider the agenda items,
and are encouraged to participate
fully in the Board’s deliberations.
Executive management attend
Board meetings and make regular
presentations.

The Board met on 11 occasions

in 2005. Attendance at those
meetings is reported on below.
During a number of those
meetings, the Non-Executive
Directors met in the absence of the
Executive Directors, in accordance
with good governance standards.
In addition to their attendance at
Board meetings, individual Non-
Executive Directors attended board
meetings of overseas subsidiaries
and held consultative meetings
with the Chairman.

Attendance at Board meetings
Dermot Gleeson 
Michael Buckley(a)
Adrian Burke 
Kieran Crowley 
Colm Doherty 
Padraic M Fallon 
Don Godson 
Sir Derek Higgs(b)

11/11
6/6
11/11
11/11
11/11
9/11
10/11
8/8

Gary Kennedy
John B McGuckian
Aidan McKeon 
Jim O’Leary 
Eugene Sheehy(c)
Michael J Sullivan
Robert G Wilmers 
Jennifer Winter 

8/11
11/11
10/11
11/11
7/7
11/11
6/11
10/11

(a) Retired 30 June 2005
(b) Resigned 5 October 2005
(c) Appointed 12 May 2005

Membership
It is the policy of the Board that a
significant majority of the
Directors should be Non-
Executive. At 31 December, 2005,
there were 10 Non-Executive
Directors and 4 Executive
Directors. Non-Executive
Directors are appointed so as to
maintain an appropriate balance on
the Board, and to ensure a
sufficiently wide and relevant mix
of backgrounds, skills and
experience to provide strong and
effective leadership and control of
the Group.

The names of the Directors,
and their biographical notes, appear
on pages 6 and 7. All Directors are
required to act in the best interests
of the Company, and to bring
independent judgement to bear in
discharging their duties as
Directors. Mr. Robert G.Wilmers
serves as a Director of the
Company as the designee of M&T
Bank Corporation, in which AIB
holds a 23.8% interest. In these
circumstances, Mr.Wilmers is not
determined to be independent for
the purposes of the Code.The
Board has determined that all other
Non-Executive Directors are

(1)The Code was adopted in 2003 by the Irish Stock Exchange and the UK Listing Authority.

42

203557  04/03/2006  09:53  Page 43

independent in character and
judgement and free from any
business or other relationship with
the Company or the Group that
could affect their judgement.
While two of the Non-Executive
Directors have served in excess of
nine years and are members of the
Non-Executive Directors’ Pension
Scheme (“the Scheme”), both have
been determined by the Board to
be independent. In that regard, the
benefits accruing to the Directors
concerned - Mr. Padraic M. Fallon
and Mr. John B. McGuckian -
from their historical membership
of the Scheme are not considered
to be significant to them, and their
tenure as Directors has not affected
their ability to bring independent
judgment to bear in discharging
their duties.

Chairman
Mr. Dermot Gleeson has been
Chairman of the Board since 14
October 2003. His responsibilities
include the leadership of the
Board, ensuring its effectiveness,
setting its agenda, ensuring that the
Directors receive adequate, accurate
and timely information, facilitating
the effective contribution of the
Non-Executive Directors, ensuring
the proper induction of new
Directors, and reviewing the
performance of individual
Directors.

Group Chief Executive
The day-to-day management of
the Group has been delegated to
the Group Chief Executive, Mr.
Eugene Sheehy, whose
appointment to that position was
effective from 1 July 2005. His

responsibilities include the
formulation of strategy and related
plans, and, subject to Board
approval, their execution. He is
also responsible for ensuring an
effective organisation structure, for
the appointment, motivation and
direction of the senior executive
management, and for the
operational management of all the
Group’s businesses.

Senior Independent Non-
Executive Director
Mr. John B. McGuckian, the Senior
Independent Non-Executive
Director, is available to
shareholders if they have concerns
which contact through the normal
channels of Chairman or Group
Chief Executive have failed to
resolve, or for which such contact
is considered by the shareholder(s)
concerned to be inappropriate.

Company Secretary
The Directors have access to the
advice and services of the
Company Secretary, who is
responsible for ensuring that Board
procedures are followed and that
applicable rules and regulations are
complied with.

Performance Evaluation
Evaluations of the performances of
the Board, individual Directors, and
Board Committees were conducted
during the year by the Chairman,
using a detailed questionnaire and
meetings with each of the
Directors. The results were
presented to the Board. An
evaluation of the performance of
the Chairman was conducted in
his absence by the Non-Executive

Directors, under the Chairmanship
of Mr. John B. McGuckian, the
Senior Independent Non-
Executive Director, who had also
consulted the Executive Directors.

Terms of Appointment
Non-Executive Directors are
appointed for a three-year term,
with the possibility of renewal for a
further three years; the term may
be further extended, in individual
cases, on the recommendation of
the Nomination and Corporate
Governance Committee. Following
appointment, Directors are
required by the Articles of
Association to retire at the next
Annual General Meeting (‘AGM’),
and may go before the shareholders
for re-appointment. Subsequently,
all Directors are required to submit
themselves for re-appointment at
intervals of not more than three
years. In 2005, the Directors
decided, as a measure of
strengthened corporate
governance, to retire from office at
the AGM, and offer themselves for
re-appointment. It is intended that
this practice will apply again at the
2006 AGM.

Letters of appointment, as well

as dealing with appointees’
responsibilities, stipulate that a
specific time commitment is
required from Directors; (a copy of
the standard terms of the letter of
appointment of Non-Executive
Directors is available from the
Company Secretary).

Induction 
There is an induction process for
new Directors. Its content varies
as between Executive and

43

203557  04/03/2006  09:56  Page 44

Corporate Governance

Non-Executive Directors. In
respect of the latter, the induction
is designed to familiarise Non-
Executive Directors with the
Group and its operations, and
comprises the provision of relevant
briefing material, including details
of the Company’s strategic and
operational plans, and a programme
of meetings with the Heads of
Divisions and the senior
management of businesses and
support functions. Directors also
attend external courses and
seminars to update their
knowledge.

Board Committees
The Board is assisted in the
discharge of its duties by a number
of Board Committees, whose
purpose is to consider, in greater
depth than would be practicable at
Board meetings, matters for which
the Board retains responsibility.
The composition of such
Committees is reviewed annually
by the Board. A description of
these Committees, each of which
operates under terms of reference
approved by the Board, and their
membership, is given below. The
minutes of all meetings of Board
Committees are circulated to all
Directors, for information, with
their Board papers, and are
formally noted by the Board. This
provides an opportunity for
Directors who are not members of
those Committees to seek
additional information or to
comment on issues being addressed
at Committee level. The terms of
reference of the Audit Committee,
the Nomination and Corporate
Governance Committee, and the

Remuneration Committee are
available on AIB’s website,
www.aibgroup.com

Audit Committee
Members: Mr. Adrian Burke,
Chairman; Mr. Kieran Crowley; Sir
Derek Higgs (to October); Mr. Jim
O'Leary; and Mr. Michael J Sullivan.
The role and responsibilities of
the Audit Committee are set out in
its terms of reference.Those
responsibilities are discharged
through its meetings and receipt of
reports from Management, the
Auditors, the Group Internal
Auditor, and the Group General
Manager, Regulatory Compliance.
The Audit Committee reviews

the Group’s annual and interim
accounts; the scope of the audit;
the findings, conclusions and
recommendations of the internal
and external Auditors; reports on
compliance; the nature and extent
of non-audit services provided by
the Auditors; and the effectiveness
of internal controls. The
Committee is responsible for
making recommendations on the
appointment, re-appointment and
removal of the Auditors, ensuring
the cost-effectiveness of the audit,
and for confirming the
independence of the Auditors, the
Group Internal Auditor, and the
Group General Manager,
Regulatory Compliance, each of
whom it meets separately at least
once each year, in confidential
session, in the absence of
Management. Each of these parties
has unrestricted access to the
Chairman of the Audit
Committee. A written report is
submitted annually to the Board,
showing the issues considered by

the Committee.

There is a process in place by

which the Audit Committee
reviews and, if considered
appropriate, approves, within
parameters approved by the Board,
any non-audit services undertaken
by the Auditors, and the related
fees. This ensures that the
objectivity and independence of
the Auditors is safeguarded.

The Audit Committee met on
eleven occasions during 2005. All
the members attended all the
meetings held during their terms as
members of the Committee, with
the exception of Mr. Sullivan, who
attended nine meetings. The
following attend the Committee’s
meetings, by invitation: the
Auditors; the Group Finance
Director; the Group Chief Risk
Officer; the Group General
Manager, Regulatory Compliance;
and the Group Internal Auditor.

Corporate Social Responsibility
Committee
Members: Ms. Jennifer Winter,
Chairman; Mr. Dermot Gleeson,
(Chairman until June, when he stepped
down from the Committee); Mr. Kieran
Crowley (from June); Mr. Padraic M
Fallon.

The role of the Corporate
Social Responsibility (“CSR”)
Committee is to recommend
Group CSR policies and
objectives.

The Committee met on 4
occasions during 2005. All the
members attended all the meetings
held during their terms as
members of the Committee, except
Mr. Fallon, who attended two of
the meetings.

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203557  06/03/2006  10:04  Page 45

Nomination and Corporate
Governance Committee
Members: Mr. Dermot Gleeson,
Chairman; Mr. Michael Buckley (until
June); Mr. Padraic M. Fallon (from
June); Mr. Don Godson; Mr. John B
McGuckian; Mr. Eugene Sheehy (from
July); and Mr. Michael J Sullivan.
The Nomination and

Corporate Governance
Committee’s responsibilities
include: recommending candidates
to the Board for appointment as
Directors; reviewing the size,
structure and composition of the
Board; and reviewing succession
planning. The Committee is also
responsible for reviewing the
Company’s corporate governance
policies and practices.

The Committee met on four

occasions during 2005. All the
members attended all the meetings
held during their terms as
members of the Committee, except
Mr. McGuckian, who attended two
of the meetings.

Remuneration Committee
Members: Mr. Dermot Gleeson,
Chairman (until June); Sir Derek
Higgs, Chairman (from June to
October, when he resigned as a
Director); Mr. John B McGuckian,
Chairman (from November); Mr. Don
Godson; and Mr. Jim O’Leary.
The Remuneration

Committee’s responsibilities include
recommending to the Board: (a)
Group remuneration policies and
practices; (b) performance-related
pay schemes; (c) the operation of
incentive schemes; and (d)
executive and managerial salary
ranges. The Committee also
determines the remuneration of the

Group Chief Executive, the other
Executive Directors, and the other
members of the Group Executive
Committee, under advice to the
Board.

The Committee met on eleven

occasions during 2005. All the
members attended all the meetings
held during their terms as
members of the Committee.

Directors’ Remuneration
The Report on Directors’
Remuneration and Interests
appears on pages 134 to 138.

Relations with Shareholders
To strengthen communication with
shareholders, the Company
circulates each year the statutory
Annual Report & Accounts and a
Summary Review.The Summary
Review is a short, user-friendly
booklet explaining features of the
Company's performance in the
previous year. It also focuses on
strategy, performance over the
previous five years and interaction
with customers and the wider
community and also comments on
the membership of the Board, and
other issues.

Website
Shareholders have the option of
accessing the Annual Report and
Accounts on AIB’s website, instead
of receiving that document by
post. The website contains, for the
previous five years, the Annual
Report and Accounts, the Interim
Report, and the Annual Report on
Form 20-F.

The Company’s presentations
to fund managers and analysts of
Annual and Interim Financial

Results are broadcast live on the
internet, and may be accessed on
http://www.aibgroup.com/webcast.
The times of the broadcasts are
announced in advance on the
website, which is updated with the
Company’s Stock Exchange
releases, including the Trading
Updates issued in June and
December, and formal
presentations to analysts and
investors. These items are thus
available for review by all
shareholders with internet access.

Annual General Meeting
All shareholders are invited to
attend the Annual General Meeting
(“AGM”) and to participate in the
proceedings. Shareholders are
invited to submit written questions
in advance of the AGM, and the
more frequently raised questions
are dealt with at the AGM.
Subsequently, the Chairman writes
to each shareholder who has
submitted a question. At the
AGM, it is practice to give an
update on the Group’s
performance and developments of
interest, by way of video
presentation. Separate resolutions
are proposed on each separate
issue.The proportion of proxy
votes lodged for and against each
resolution is indicated; this shows
what the voting position would be
if all votes cast, including votes cast
by shareholders not in attendance,
were taken into account.

The Chairmen of the Board’s
Committees are available to answer
questions about the Committees’
activities.

It is usual for all Directors to

attend the AGM and to be

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203557  06/03/2006  10:05  Page 46

Corporate Governance 

available to meet shareholders
before and after the Meeting.
A Help Desk facility is available to
shareholders attending.

The Company’s 2006 AGM is

scheduled for 26 April, and it is
intended that the Notice of the
Meeting will be posted to
shareholders on 27 March. This
represents a notice period of 30
calendar days and 20 working
days.

Institutional Shareholders
The Company held almost 300
meetings with its principal
institutional shareholders and with
financial analysts and brokers
during 2005. The Group Chief
Executive, the Group Finance
Director, Heads of Divisions,
other Executive Management as
requested by shareholders, and the
Head of Investor Relations
participate in those meetings, at
which care is taken to ensure that
price-sensitive information is not
divulged. Company
representatives also spoke at a
number of investor conferences.
The Chairman and the Senior
Independent Non-Executive
Director are available to meet
institutional shareholders, and the
links with those shareholders and
the communication of their views
to the Board were strengthened
through the following steps:
the Chairman wrote to
-
institutional shareholders in
Ireland, the UK, Europe and
North America, offering to
meet them if they considered
such meetings to be useful;
the Chairman held discussions
with a number of institutional

-

-

-

shareholders;
the Head of Investor Relations
reported on institutional
shareholders’ views to the
Board; and
analysts’ and brokers’ briefings
on the Company were
circulated to the Directors, on
receipt.

Accountability and Audit
Accounts and Directors’
Responsibilities
The Accounts and other
information presented in this
Report and Accounts are
consistent with the Code Principle
requiring the presentation of “a
balanced and understandable
assessment of the Company’s
position and prospects”.The
Statement concerning the
responsibilities of the Directors in
relation to the Accounts appears on
page 153.

Going Concern
The Accounts continue to be
prepared on a going concern basis,
as the Directors are satisfied that
the Company and the Group as a
whole have the resources to
continue in business for the
foreseeable future. In forming this
view, the Directors have reviewed
the Group’s budget for 2006.

Internal Control
The Directors acknowledge that
they are responsible for the Group’s
system of internal control and for
reviewing its effectiveness.
Guidance (“Internal Control:
Guidance for Directors on the
Combined Code”) has been issued
by the Irish Stock Exchange and

46

the London Stock Exchange to
assist Directors in complying with
the Code’s requirements in respect
of internal control. That Guidance
states that systems of internal
control are designed to manage,
rather than eliminate, the risk of
failure to achieve business
objectives, and can provide only
reasonable and not absolute
assurance against material
misstatement or loss.

The Group’s system of internal

control includes:
-  a clearly-defined management
structure, with defined lines of
authority and accountability;

-  a comprehensive annual
budgeting and financial
reporting system, which
incorporates clearly-defined
and communicated common
accounting policies and
financial control procedures,
including those relating to
authorisation limits; capital
expenditure and investment
procedures; physical and
computer security; and business
continuity planning. The
accuracy and integrity of the
Group’s financial information is
confirmed through Divisional
and Group-level reports to the
Group Finance Director;
the Group Risk Management
function, which is responsible
for ensuring that risks are
identified, assessed and managed
throughout the Group;
the Group General Manager,
Regulatory Compliance, who
reports independently to the
Audit Committee on the
compliance framework across
the Group and on

- 

- 

203557  06/03/2006  10:06  Page 47

with the assistance of reports from
the Audit Committee and
Management, they have reviewed
the effectiveness of the Group’s
system of internal control for the
year ended 31 December 2005.
The Audit Committee, on behalf
of the Board, monitors the
preparations being made by the
Group to ensure compliance, by
the prescribed 31 December 2006
deadline, with the requirements of
Section 404 of the U.S. Sarbanes-
Oxley Act 2002, which requires,
inter alia, Management to include
in the Annual Report on Form
20-F its assessment of the
effectiveness of internal controls
over financial reporting.

Compliance Statement
The foregoing explains how the
Company has applied the
principles set out in the Code.
The Company has complied,
throughout 2005, with the Code’s
provisions.

A brief description of the
significant differences between
AIB’s corporate governance
practices and those followed by
U.S. companies under the New
York Stock Exchange’s listing
standards is provided on AIB’s
website:
www.aibgroup.com

- 

management’s attention to
compliance matters;
the Audit Committee, which
receives reports on various
aspects of control, reviews the
Group’s statutory Accounts and
other published financial
statements and information, and
ensures that no restrictions are
placed on the scope of the
statutory audit or on the
independence of the Internal
Audit and Regulatory
Compliance functions. The
Audit Committee reports to
the Board on these matters, and
on compliance with relevant
laws and regulations, and related
issues;

-  appropriate policies and

procedures relating to capital
management, asset and liability
management (including interest
rate risk, exchange rate risk and
liquidity management), credit
risk management, and
operational risk management.
Independent testing of the risk
management and control
framework is undertaken by the
Internal Audit function;
regular review by the Board of
overall strategy, business plans,
variances against budgets and
other performance data.
The Group’s structure and on-

- 

going processes for identifying,
evaluating and managing the
significant credit, market and
operational risks faced by the
Group are described in pages 32 to
39. Those processes are regularly
reviewed by the Board, and accord
with the above-mentioned
Guidance.

The Directors confirm that,

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203557  02/03/2006  08:23  Page 48

First time adoption of International Financial Reporting
Standards (‘IFRS’)

Up to and including the year ended 31 December 2004, AIB’s primary financial statements were prepared in accordance with Irish

Generally Accepted Accounting Principles (‘Irish GAAP’). On 1 January 2005, AIB Group implemented the requirements of

International Financial Reporting Standards and International Accounting Standards (collectively, ‘IFRS’) for the first time and these

are used for the purpose of preparing the financial statements for the year ended 31 December 2005. These financial statements have

been prepared based on the recognition and measurement requirements of IFRS issued by the International Accounting Standards

Board (‘IASB’) as adopted by the European Union (‘EU’).

In accordance with IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’ (‘IFRS 1’), there have been no

adjustments to the estimates made at the time of the approval of the Irish GAAP financial statements for the year ended 31 December

2004. IFRS 1 provides first time adopters of IFRS with certain exemptions. IFRS 1 also allows or requires a number of other exceptions

to its general principle that the standards in force at the reporting date should be applied retrospectively. AIB has availed of certain

exemptions as set out below:-

First time application relating to financial instruments and insurance contracts

AIB has availed of transitional provisions for IAS 32 ‘Financial Instruments: Disclosure and Presentation’ (‘IAS 32’), IAS 39 ‘Financial

Instruments: Recognition and Measurement’ (‘IAS 39’) and IFRS 4 ‘Insurance Contracts’ (‘IFRS 4’) and has not presented

comparative information in accordance with these standards in its 2005 financial statements. Accordingly, comparative information for

2004 in respect of financial instruments and insurance contracts has been prepared on the basis of the Group’s accounting policies

under Irish GAAP.

Share based payments

AIB has implemented the requirements of IFRS 2 ‘Share Based Payment’ (‘IFRS 2’) to all equity settled share based payments

granted after 7 November 2002 that had not vested by 1 January 2005.

Property, plant & equipment

AIB has retained its existing carrying value of occupied properties, plant and equipment at 1 January 2004 as deemed cost, as

permitted by IFRS 1, rather than either reverting to historical cost or carrying out a valuation at the date of transition.

Cumulative exchange differences

AIB has elected to deem cumulative exchange differences on the net investments in foreign branches and subsidiaries to be zero at 

1 January 2004, as permitted by IFRS 1.

Employee benefits

AlB has recognised the cumulative actuarial gains and losses of defined benefit pension schemes and other post retirement benefits

upon transition at 1 January 2004.

Business combinations

AIB has elected not to apply IFRS 3 ‘Business Combinations’ to business combinations that arose prior to 1 January 2004.

Derecognition of financial instruments

Financial instruments derecognised prior to 1 January 2004 have not been subsequently recognised by the Group under IFRS.

Effects of the transition to IFRS

A description of the differences between Irish GAAP and IFRS accounting policies is set out in note 65. Reconciliations of balance

sheets prepared under Irish GAAP and IFRS at 1 January 2005 and 31 December 2004 are included in note 65. A reconciliation of

the profit and loss accounts prepared in accordance with Irish GAAP and prepared in accordance with IFRS for the period ended

31 December 2004 is included in note 65. In addition, a reconciliation of the amount of shareholders’ equity at 1 January 2005,
before and after the application of IAS 32, IAS 39 and IFRS 4, detailing the effects of their application on the 1 January 2005 balance

sheet, is presented in note 1.

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203557  04/03/2006  10:05  Page 49

Accounting policies

The accounting policies that the Group applied in the preparation of the financial statements for the year ended 31

December 2005 are set out below. Because AIB has availed of the transitional provisions for IAS 32 ‘Financial

Instruments: Disclosure and Presentation’ (‘IAS 32’), IAS 39 ‘Financial Instruments: Recognition and Measurement’

(‘IAS 39’) and IFRS 4 ‘Insurance Contracts’ (‘IFRS 4’), it has not presented comparative information in accordance

with these standards in its 2005 financial statements. Accordingly, comparative information for 2004 in respect of

financial instruments and insurance contracts has been prepared on the basis of the Group’s accounting policies

under Irish GAAP. These accounting policies applied in the comparative IFRS financial statements are set out on

pages 63 to 64.

1 Statement of compliance 

The consolidated financial statements have been presented in accordance with International Accounting Standards and International

Financial Reporting Standards (collectively ‘IFRS’) as adopted by the EU and applicable at 31 December 2005. The financial statements

also comply with the requirements of Irish Statute comprising the Companies Acts 1963 to 2005 and the European Communities (Credit

Institutions:Accounts) Regulations, 1992 as amended by the European Communities (International Financial Reporting Standards and

Miscellaneous Amendments) Regulations 2005. Both the parent company and the Group financial statements have been prepared in

accordance with IFRSs as adopted by the EU. In publishing the parent company financial statements together with the Group financial

statements, AIB has taken advantage of the exemption in paragraph 2 of the European Communities (Credit Institutions:Accounts)

Regulations, 1992 not to present its individual income statement and related notes that form part of these approved financial statements.

The Group has early adopted the fair value option under IAS 39 and amendments to IAS 19 - Actuarial Gains and Losses, Group

Plans and Disclosures, both of which have been adopted by the EU.

2 Basis of preparation

The financial statements are presented in euro, rounded to the nearest million. They have been prepared under the historical cost basis,

with the exception of the following assets and liabilities and derivatives which are stated at their fair value: derivative financial instruments,

financial instruments at fair value through profit or loss, certain hedged financial assets and financial liabilities, financial instruments held for

trading and financial assets classified as available for sale.

The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of

policies and reported amounts of certain assets, liabilities, revenues and expenses, and disclosures of contingent assets and liabilities.

The estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable under the

circumstances. Since management’s judgement involves making estimates concerning the likelihood of future events, the actual results could

differ from those estimates. The estimates that have a significant effect on the financial statements and estimates with a significant risk of

material adjustment in the next year are in the areas of impairment of financial assets, retirement benefit liabilities, share based payments and

fair value of certain financial assets and financial liabilities. A description of these estimates and judgments is set out on pages 61 and 62.

Except as described above in respect of financial instruments and insurance contracts, the accounting policies set out below have been

applied consistently to all periods presented in these consolidated financial statements and in preparing the opening IFRS balance sheet at

1 January 2004 for the purpose of transition to IFRS.

The accounting policies have been consistently applied by Group entities.

3 Basis of consolidation 

Subsidiary undertakings

The Group financial information includes the accounts of Allied Irish Banks, p.l.c. (the parent company) and its subsidiary undertakings,

including certain special purpose entities where appropriate, made up to the end of the financial year. A subsidiary is one where the

Group has the power, directly or indirectly, to govern the financial and operating policies of the entity, so as to obtain benefits from its

activities.The existence and effect of potential voting rights that are currently exercisable or convertible are considered in assessing whether

the Group controls the entity.

Subsidiaries are consolidated from the date on which control is transferred to the Group until the date that control ceases.

The Group uses the purchase method of accounting to account for the acquisition of subsidiary undertakings.The cost of an

acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date 

of the transaction, plus costs directly attributable to the acquisition. Identifiable assets acquired are fair valued at the acquisition date,

irrespective of the extent of any minority interest.The excess of the cost of acquisition over the fair value of the Group’s share of the

identifiable net assets acquired is recorded as goodwill.

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203557  04/03/2006  10:06  Page 50

Accounting policies (continued)

3 Basis of consolidation (continued)
Associated undertakings
An associate is generally one in which the Group’s interest is greater than 20% and less than 50% and in which the Group has
significant influence, but not control, over the entity’s operating and financial policies.

Investments in associated undertakings are initially recorded at cost and increased (or decreased) each year by the Group’s share 

of the post acquisition net income (or loss), and other movements reflected directly in the equity of the associated undertaking.

Goodwill arising on the acquisition of an associated undertaking is included in the carrying amount of the investment (net of 

any accumulated impairment loss).When the Group’s share of losses in an associate has reduced the carrying amount to zero,
including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations to make
payments on behalf of the entity.

The Group’s share of the results of associates after tax reflects the Group’s proportionate interest in the associates and is based on

financial statements made up to a date not earlier than three months before the balance sheet date, adjusted to conform with the
accounting polices of the Group.

Transactions eliminated on consolidation
Intra-group balances and any unrealised gains and losses, or income and expenses, arising from intra-group transactions are eliminated
on consolidation. Unrealised gains on transactions with associated undertakings are eliminated to the extent of the Group’s interest in
the investees.

4 Foreign currency translation
The consolidated financial statements are presented in Euro, which is the Group’s presentation currency.

Items included in the financial statements of each of the Group’s entities are measured using their functional currency, being the

currency of the primary economic environment in which the entity operates.

Transactions and balances
Foreign currency transactions are translated into the respective entity’s functional currency using the exchange rates prevailing at the
dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate prevailing at the
period end. Foreign exchange gains and losses resulting from the settlement of such transactions and from the retranslation at period
end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement
except for qualifying cash flow hedges. Exchange differences on equities and similar non-monetary items held at fair value through
profit or loss are reported as part of the fair value gain or loss.Translation differences on equities classified as available-for-sale
financial assets are included directly in equity.

Foreign operations
The results and financial position of all Group entities that have a functional currency different from the Euro are translated into Euro
as follows:

- assets and liabilities including goodwill and fair value adjustments arising on consolidation of foreign operations are translated at

the closing rate;

- income and expenses are translated into Euro at the average rates of exchange during the period where these rates approximate

to the foreign exchange rates ruling at the dates of the transactions; and

- all resulting exchange differences are included in cumulative translation reserves within shareholders’ equity.
Exchange differences arising after 1 January 2004, the date of transition to IFRS, from the translation of the net investment in
foreign operations, and of borrowings designated as hedges of such investments, are taken to a separate component of shareholders’
equity and included in the profit or loss on disposal or partial disposal of the foreign operations.

5 Interest income and expense recognition
Interest income and expense is recognised in the income statement for all interest-bearing financial instruments using the effective
interest method.

The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability (or group 
of assets and liabilities) and of allocating the interest income or interest expense over the relevant period.The effective interest rate is
the rate that exactly discounts the expected future cash payments or receipts through the expected life of the financial instrument,
or when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. The application of the 

50

203557  02/03/2006  08:23  Page 51

5 Interest income and expense recognition (continued)
method has the effect of recognising income (and expense) receivable (or payable) on the instrument evenly in proportion to the
amount outstanding over the period to maturity or repayment.

In calculating the effective interest rate, the Group estimates cash flows (using projections based on its experience of customers’
behaviour) considering all contractual terms of the financial instrument but excluding future credit losses.The calculation takes into
account all fees, including those for early redemption, and points paid or received between parties to the contract that are an integral
part of the effective interest rate, transaction costs and all other premiums and discounts.

All costs associated with mortgage incentive schemes are included in the effective interest calculation. Fees and commissions
payable to third parties in connection with lending arrangements, where these are direct and incremental costs related to the issue of a
financial instrument, are included in interest income as part of the effective interest rate.

6 Fee and commission income
Fees and commissions are generally recognised on an accruals basis when the service has been provided, unless they have been included in the
effective interest rate calculation. Loan syndication fees are recognised as revenue when the syndication has been completed and the Group has
retained no part of the loan package for itself or retained a part at the same effective interest rate as applicable to the other participants.

Portfolio and other management advisory and service fees are recognised based on the applicable service contracts.Asset management
fees related to investment funds are recognised over the period the service is provided.The same principle is applied to the recognition of
income from wealth management, financial planning and custody services that are continuously provided over an extended period of time.
Commitment fees, together with related direct costs, for loan facilities where draw down is probable are deferred and recognised as

an adjustment to the effective interest on the loan once drawn. Commitment fees in relation to facilities where draw down is not
probable are recognised over the term of the commitment.

7 Financial assets 
The Group classifies its financial assets into the following categories: - financial assets at fair value through profit or loss; loans and
receivables; held to maturity investments; and available for sale financial assets.

Purchases and sales of financial assets are recognised on trade date, being the date on which the Group commits to purchase or sell the
assets. Loans are recognised when cash is advanced to the borrowers. Financial assets are initially recognised at fair value, however, with the
exception of financial assets at fair value through profit or loss, the initial fair value includes direct and incremental transaction costs.
The fair value of assets traded in active markets is based on current bid prices. In the absence of current bid prices, the Group
establishes a fair value using valuation techniques.These include the use of recent arm’s-length transactions, reference to other similar
instruments, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants.
Interest is calculated using the effective interest method and credited to the income statement. Dividends on available-for-sale
equity securities are recognised in the income statement when the entity’s right to receive payment is established. Impairment losses
and translation differences on monetary items are recognised in the income statement.

Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or when the Group

has transferred substantially all the risks and rewards of ownership.

Financial assets at fair value through profit or loss
This category has two sub categories: - Financial assets held for trading; and those designated at fair value through profit or loss at
inception. A financial asset is classified in this category if it is held primarily for the purpose of selling in the short term, or if it is so
designated by management, subject to certain criteria.

The assets are recognised initially at fair value and transaction costs are taken directly to the income statement. Interest and dividends
on assets within this category are reported in interest income, and dividend income, respectively. Gains and losses arising from changes in
fair value are included directly in the income statement within other financial income.

Derivatives are also classified in this category unless they have been designated as hedges.

Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market
and which are not classified as available for sale.They arise when the Group provides money or services directly to a customer with
no intention of trading the loan. Loans and receivables are initially recognised at fair value including direct and incremental
transaction costs and are subsequently carried on an amortised cost basis.

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203557  02/03/2006  08:23  Page 52

Accounting policies (continued)

7 Financial assets (continued)

Held to maturity

Held to maturity investments are non-derivative financial assets with fixed or determinable payments that the Group’s management

has the intention and ability to hold to maturity. If the Group was to sell other than an insignificant amount of held to maturity

assets, the entire category would be required to be reclassified as available for sale.

Available for sale

Available for sale investments are non-derivative financial investments that are designated as available for sale and are not categorised

into any of the other categories described above. Available for sale investments are those intended to be held for an indefinite period

of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices.

Available for sale investments are initially recognised at fair value including direct and incremental transaction costs.They are

subsequently held at fair value. Gains and losses arising from changes in fair value are included as a separate component of equity

until sale when the cumulative gain or loss is transferred to the income statement.

Parent company accounts: Investment in subsidiary and associated undertakings

The company accounts for investments in subsidiary and associated undertakings that are not classified as held for sale at cost less

provisions for impairment. If the investment is classified as held for sale, the company accounts for it at the lower of its carrying value

and fair value less costs to sell.

8 Financial liabilities

Issued financial instruments or their components are classified as liabilities where the substance of the contractual arrangement results

in the Group having a present obligation to either deliver cash or another financial asset to the holder, to exchange financial

instruments on terms that are potentially unfavourable or to satisfy the obligation otherwise than by the exchange of a fixed amount

of cash or another financial asset for a fixed number of equity shares.

Financial liabilities are initially recognised at fair value, being their issue proceeds (fair value of consideration received) net of

transaction costs incurred. Financial liabilities are subsequently measured at amortised cost, any difference between the proceeds net 

of transaction costs and the redemption value is recognised in the income statement using the effective interest method.

Preference shares, which carry a mandatory coupon, are classified as financial liabilities.The dividends on these preference shares

are recognised in the income statement as interest expense using the effective interest method.

9 Property, plant and equipment

Property, plant and equipment are stated at cost, or deemed cost, less accumulated depreciation and provisions for impairment, if any.

Additions and subsequent expenditures are capitalised only to the extent that they enhance the future economic benefits expected to

be derived from the asset. No depreciation is provided on freehold land. Property, plant and equipment are depreciated on a straight

line basis over their estimated useful economic lives. Depreciation is calculated based on the gross carrying amount, less the estimated

residual value at the end of the assets’‚ economic life.

The Group uses the following useful lives when calculating depreciation:

Freehold buildings and long-leasehold property 

50 years

Short leasehold property

Life of lease, up to 50 years

Costs of adaptation of freehold and leasehold property

Branch properties

Office properties

Computers and similar equipment 

Fixtures and fittings and other equipment

*Subject to the maximum remaining life of the lease.

up to 10 years*

up to 15 years*

3 – 5 years

3 – 10 years

The Group reviews its depreciation rates regularly, at least annually, to take account of any change in circumstances.When

deciding on useful lives and methods, the principal factors that the Group takes into account are the expected rate of technological

developments and expected market requirements for, and the expected pattern of usage of, the assets.When reviewing residual values,

the Group estimates the amount that it would currently obtain for the disposal of the asset, after deducting the estimated cost of

disposal if the asset were already of the age and condition expected at the end of its useful life.

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203557  02/03/2006  08:23  Page 53

9 Property, plant and equipment (continued)

Gains and losses on disposal of property, plant and equipment are included in the income statement.

It is Group policy not to revalue its property, plant and equipment.

10 Intangible assets

Goodwill

Goodwill may arise on the acquisition of subsidiary and associated undertakings. Purchased goodwill is the excess of the fair value of the

purchase consideration and direct costs of making the acquisition, over the fair value of the Group’s share of the assets acquired and the

liabilities and contingent liabilities assumed on the date of the acquisition. For the purpose of calculating goodwill, fair values of

acquired assets, liabilities and contingent liabilities are determined by reference to market values or by discounting expected future cash

flows to present value.This discounting is either performed using market rates or by using risk-free rates and risk adjusted expected

future cash flows.

Goodwill is capitalised and reviewed annually for impairment, or more frequently when there are indications that impairment

may have occurred. Goodwill is allocated to cash-generating units for the purpose of impairment testing. Goodwill arising on the

acquisition of an associated undertaking is included in the carrying amount of the investment in the consolidated financial statements.

Gains or losses on the disposal of an entity include the carrying amount of the goodwill relating to the entity sold. Capitalised

goodwill was tested for impairment as at 1 January 2004, the date of transition to IFRS.

Goodwill previously written off to reserves under Irish GAAP has not been reinstated and will not be included in calculating any

subsequent profit or loss on disposal.

Computer software

Computer software is stated at cost, less amortisation on a straight line basis and provisions for impairment, if any.The identifiable and

directly associated external and internal costs of acquiring and developing software are capitalised where the software is controlled by

the Group, and where it is probable that future economic benefits that exceed its cost will flow from its use over more than one year.

Costs associated with maintaining software are recognised as an expense when incurred. Capitalised computer software is amortised

over 3 to 5 years.

11 Derivatives and hedge accounting

Derivatives, such as interest rate swaps, options and forward rate agreements are used for trading and for hedging purposes.

The Group maintains trading positions in a variety of financial instruments including derivatives.Trading transactions arise both 

as a result of activity generated by customers and from proprietary trading with a view to generating incremental income.

Non-trading derivative transactions comprise transactions held for hedging purposes as part of the Group’s risk management

strategy against assets, liabilities, positions or cash flows, and are accounted for on an amortised cost basis.

Derivatives

Derivatives are measured initially at fair value on the date on which the derivative contract is entered into and subsequently

remeasured at fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions,

and valuation techniques, and discounted cash flow models and options pricing models as appropriate. Derivatives are included in

assets when their fair value is positive, and liabilities when their fair value is negative, unless there is the legal ability and intention to

settle net. Profits or losses are only recognised on initial recognition of derivatives when there are observable current market

transactions or valuation techniques that are based on observable market inputs.

The best evidence of the fair value of a derivative at initial recognition is the transaction price (i.e. the fair value of the

consideration given or received) unless the fair value of that instrument is evidenced by comparison with other observable current

market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose

variables include only data from observable markets.

Embedded derivatives

Some hybrid contracts contain both a derivative and a non-derivative component. In such cases, the derivative component is termed

an embedded derivative.Where the economic characteristics and risks of embedded derivatives are not closely related to those of the

host contract, and the hybrid contract itself is not carried at fair value through profit or loss, the embedded derivative is treated as a

separate derivative, and reported at fair value with gains and losses being recognised in the income statement.

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Accounting policies (continued)

11 Derivatives and hedge accounting (continued)

Hedging

All derivatives are carried at fair value in the balance sheet and the accounting treatment of the resulting fair value gain or loss

depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.Where

derivatives are held for risk management purposes, and when transactions meet the criteria specified in IAS 39, the Group designates

certain derivatives as either: -

(1) hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedge); or

(2) hedges of the exposure to variability of cash flows attributable to a recognised asset or liability, or a highly probable forecasted

transaction (cash flow hedge); or 

(3) hedges of a net investment in a foreign operation.

When a financial instrument is designated as a hedge, the Group formally documents the relationship between the hedging

instrument and hedged item as well as its risk management objectives and its strategy for undertaking the various hedging

transactions.The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives

that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The Group discontinues hedge accounting when:

a) it is determined that a derivative is not, or has ceased to be, highly effective as a hedge;

b) the derivative expires, or is sold, terminated, or exercised;

c) the hedged item matures or is sold or repaid; or

d) a forecast transaction is no longer deemed highly probable.

To the extent that the changes in the fair value of the hedging derivative differ from changes in the fair value of the hedged risk

in the hedged item; or the cumulative change in the fair value of the hedging derivative differs from the cumulative change in the

fair value of expected future cash flows of the hedged item, ineffectiveness arises.The amount of ineffectiveness, (taking into account

the timing of the expected cash flows, where relevant) provided it is not so great as to disqualify the entire hedge for hedge

accounting, is recorded in the income statement.

In certain circumstances, the Group may decide to cease hedge accounting even though the hedge relationship continues to be

highly effective by no longer designating the financial instrument as a hedge.

Fair value hedge accounting

Changes in fair value of derivatives that qualify and are designated as fair value hedges are recorded in the income statement, together

with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. If the hedge no longer meets the

criteria for hedge accounting, the fair value hedging adjustment cumulatively made to the carrying value of the hedged item is, for 

items carried at amortised cost, amortised over the period to maturity of the previously designated hedge relationship using the effective

interest method. For available for sale items the fair value hedging adjustment remains in equity until the hedged item affects profit 

or loss. If the hedged item is sold or repaid, the unamortised fair value adjustment is recognised immediately in the income statement.

Cash flow hedge accounting

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is initially

recognised directly in shareholders' equity, and recycled to the income statement in the periods when the hedged item will affect

profit or loss. Any ineffective portion of the gain or loss on the hedging instrument is recognised in the income statement

immediately.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any

cumulative gain or loss existing in equity at that time, remains in equity and is recognised in the income statement when the 

forecast transaction arises.When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported 

in equity is immediately transferred to the income statement.

Net investment hedge
Hedges of net investments in foreign operations, including monetary items that are accounted for as part of the net investment, are

accounted for similarly to cash flow hedges.The effective portion of the gain or loss on the hedging instrument is recognised directly

in equity and the ineffective portion is recognised immediately in the income statement.The cumulative gain or loss previously

recognised in equity is recognised in the income statement on the disposal or partial disposal of the foreign operation. Hedges of net

investments may include non-derivative liabilities as well as derivative financial instruments.

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11 Derivatives and hedge accounting (continued)

Derivatives that do not qualify for hedge accounting

Certain derivative contracts entered into as economic hedges do not qualify for hedge accounting. Changes in the fair value of

derivative instruments that do not qualify for hedge accounting are recognised immediately in the income statement.

12 Impairment of financial assets

It is Group policy to make provisions for impairment of financial assets to reflect the losses inherent in those assets at the balance sheet date.

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a portfolio of financial

assets is impaired. A financial asset or portfolio of financial assets is impaired and impairment losses are incurred if, and only if, there is

objective evidence of impairment as a result of one or more loss events that occurred after the initial recognition of the asset and on

or before the balance sheet date, (‘a loss event’) and that loss event or events has had an impact such that the estimated present value

of future cash flows is less than the current carrying value of the financial asset, or portfolio of financial assets.

Objective evidence that a financial asset, or a portfolio of financial assets, is impaired includes observable data that comes to the

attention of the Group about the following loss events:

a)

significant financial difficulty of the issuer or obligor;

b) a breach of contract, such as a default or delinquency in interest or principal payments;

c)

the granting to the borrower of a concession, for economic or legal reasons relating to the borrower’s financial difficulty that

the Group would not otherwise consider;

d)

e)

it becomes probable that the borrower will enter bankruptcy or other financial reorganisation;

the disappearance of an active market for that financial asset because of financial difficulties; or

f) observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial

assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial

assets in the portfolio, including:

i.

adverse changes in the payment status of borrowers in the portfolio;

ii. national or local economic conditions that correlate with defaults on the assets in the portfolio.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually

significant, and individually or collectively for financial assets that are not individually significant (i.e. individually insignificant). If the

Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not,

it includes the asset in a group of financial assets with similar credit risk characteristics and includes these performing assets under the

collective incurred but not reported (‘IBNR’) assessment.An IBNR impairment provision represents an interim step pending the

identification of impairment losses on an individual asset in a group of financial assets.As soon as information is available that specifically

identifies losses on individually impaired assets in a group, those assets are removed from the group.Assets that are individually assessed for

impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

For loans and receivables and assets held to maturity, the amount of impairment loss is measured as the difference between the

asset's carrying amount and the present value of estimated future cash flows discounted at the asset's original effective interest rate.

The amount of the loss is recognised using an allowance account and the amount of the loss is included in the income statement.

The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows 

that may result from foreclosure costs for obtaining and selling the collateral, whether or not foreclosure is probable.

For the purpose of collective evaluation of impairment (individually insignificant impaired assets and IBNR) financial assets are

grouped on the basis of similar risk characteristics.These characteristics are relevant to the estimation of future cash flows for groups

of such assets by being indicative of the counterparty's ability to pay all amounts due according to the contractual terms of the assets

being evaluated.

Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the

contractual cash flows of the assets in the group and historical loss experience for assets with credit risk characteristics similar to those

in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions

that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical
period that do not currently exist.

The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between

loss estimates and actual loss experience.

Following impairment, interest income is recognised using the original effective rate of interest which was used to discount the future

cash flows for the purpose of measuring the impairment loss. If, in a subsequent period, the amount of the impairment loss decreases and 

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Accounting policies (continued)

12 Impairment of financial assets (continued)

the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment

loss is reversed by adjusting the allowance account.The amount of the reversal is recognised in the income statement.

When a loan has been subjected to a specific provision and the prospects of recovery do not improve, a time will come when it

may be concluded that there is no real prospect of recovery.When this point is reached, the amount of the loan which is considered

to be beyond the prospect of recovery is written off against the related provision for loan impairment. Subsequent recoveries of

amounts previously written off decrease the amount of the provision for loan impairment in the income statement.

Assets acquired in exchange for loans and receivables in order to achieve an orderly realisation are accounted for as a disposal of

the loan and an acquisition of an asset. Any further impairment of the assets or business acquired is treated as an impairment of the

relevant asset and not as an impairment of the original instrument.

In the case of equity instruments classified as available for sale, a significant or prolonged decline in the fair value of the

instrument below its cost is considered in determining whether impairment exists.Where such evidence exists, the cumulative net

loss that had been previously recognised directly in equity is removed from equity and recognised in the income statement. Reversals

of impairment of equity shares are not recognised in the income statement and increases in the fair value of equity shares after

impairment are recognised directly in equity.

In the case of debt instruments classified as available for sale, impairment is assessed based on the same criteria as all other

financial assets. Reversals of impairment of debt securities are recognised in the income statement.

13 Employee benefits

Retirement benefit obligations

The Group provides employees with post retirement benefits mainly in the form of pensions.

The Group provides a number of defined benefit and defined contribution retirement benefit schemes. In addition, the Group

contributes, according to local law in the various countries in which it operates, to Governmental and other plans which have the

characteristics of defined contribution plans. The majority of the defined benefit schemes are funded.

Full actuarial valuations of defined benefit schemes are undertaken every three years and are updated to reflect current conditions

at each balance sheet date. Scheme assets are valued at fair value determined by using current bid prices. Scheme liabilities are

measured on an actuarial basis using the projected unit credit method and discounted at the current rate of return on a high quality

corporate bond of equivalent term and currency to the liability.The difference between the fair value of the plan assets and the

present value of the defined benefit obligation at the balance sheet date is recognised in the balance sheet. Schemes in surplus are

shown as assets and schemes in deficit, together with unfunded schemes are shown as liabilities. Actuarial gains and losses are

recognised immediately in the statement of recognised income and expense.

The cost of providing defined benefit pension schemes to employees, comprising the current service cost, past service cost, the

expected return on plan assets and the change in the present value of scheme liabilities arising from the passage of time is charged to

the income statement within employee expenses.

The costs of the Group’s defined contribution schemes, are charged to the income statement in the accounting period in which

they are incurred. Any contributions unpaid at the balance sheet date are included as a liability.The Group has no further obligation

under these plans once these contributions have been paid.

Short-term employee benefits 

Short-term employee benefits, such as salaries and other benefits, are accounted for on an accruals basis over the period during which

employees have provided services. Bonuses are recognised to the extent that the Group has a present obligation to its employees that

can be measured reliably. The cost of providing subsidised staff loans and preferential rates on staff deposits is charged within

employee expenses.

Share based compensation

The Group operates a number of share based compensation plans. For grants of options after 7 November 2002, the fair value of the
employee services received is measured by reference to the fair value of the shares or share options granted on the date of the grant.The

cost of the employee services received in exchange for the shares or share options granted is recognised in the income statement over the

period during which the employees become unconditionally entitled to the options, which is the vesting period.The amount expensed is

determined by reference to the fair value of the options granted.The fair value of the options granted is determined using option pricing

models, which take into account the exercise price of the option, the share price at date of grant of the option, the risk free interest rate,

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13 Employee benefits (continued)

Share based compensation (continued)

the expected volatility of the share price over the life of the option and other relevant factors.Vesting conditions included in the terms of

the grant are not taken into account in estimating fair value except where those terms relate to market conditions. Non-market vesting

conditions are taken into account by adjusting the number of shares or share options included in the measurement of the cost of employee

services so that ultimately, the amount recognised in the income statement reflects the number of vested shares or share options.Where

vesting conditions are related to market conditions, the charges for the services received are recognised regardless of whether or not the

market related vesting condition is met, provided that the non-market vesting conditions are met.

The expense related to share based payments is credited to shareholders’ equity.Where the share based payment arrangements

give rise to the issue of new shares, the proceeds of issue of the shares are credited to share capital (nominal amount) and share

premium when the options are exercised.When the share based payments give rise to the reissue of shares from treasury shares, the

proceeds of issue are credited to shareholders’ equity. In addition, there is a transfer between the share based payment reserve and

profit and loss account, reflecting the cost of the share based payment recognised in the income statement.

14 Non-credit risk provisions

Provisions are recognised for present legal or constructive obligations arising as consequences of past events where it is probable 

that a transfer of economic benefit will be necessary to settle the obligation, and it can be reliably estimated.

When the effect is material, provisions are determined by discounting expected future cash flows at a pre-tax rate that reflects

current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Payments are deducted from the present value of the provision and interest at the relevant discount rates is charged annually to

interest expense. Changes in the present value of the liability as a result of movements in interest rates are included in other financial

income.The present value of provisions is included in other liabilities.

When a leasehold property ceases to be used in the business, provision is made, where the unavoidable costs of the future

obligations relating to the lease are expected to exceed anticipated income.The provision is calculated using market rates of interest

to reflect the long-term nature of the cash flows.

Restructuring costs

Where the Group has a formal plan for restructuring a business and has raised valid expectations in the areas affected by the

restructuring, by starting to implement the plan or announcing its main features, provision is made for the anticipated cost of

restructuring, including retirement benefits and redundancy costs, when an obligation exists.The provision raised is normally 

utilised within twelve months. Future operating costs are not provided for.

Legal claims and other contingencies

Provisions are made for legal claims where the Group has a present legal or constructive obligation as a result of past events and it is

more likely than not that an outflow of resources will be required to settle the obligation and the amount can be reasonably estimated.

Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events giving rise to

present obligations where the transfer of economic benefit is uncertain or cannot be reliably measured. Contingent liabilities are not

recognised but are disclosed in the notes to the financial statements unless they are remote.

15 Income tax, including deferred income tax

Income tax comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates

to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable

income for the year using tax rates enacted or substantially enacted at the balance sheet date and any adjustment to tax payable in

respect of previous years. Income tax recoverable on tax allowable losses is recognised as an asset only to the extent that it is regarded

as recoverable by offset against current or future taxable profits.

Deferred income tax is provided, using the balance sheet liability method, on temporary timing differences arising between the
tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax is determined using

tax rates based on legislation enacted or substantially enacted at the balance sheet date and expected to apply when the deferred tax

asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised where it is probable that future taxable profits

will be available against which the temporary differences will be utilised.

Deferred and current tax assets and liabilities are only offset when they arise in the same tax reporting group and where there is

both the legal right and the intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

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Accounting policies (continued)

15 Income tax, including deferred income tax (continued)

The principal temporary differences arise from depreciation of property, plant and equipment, revaluation of certain financial

assets and liabilities including derivative contracts, provisions for pensions and other post retirement benefits, tax losses carried

forward, and in relation to acquisitions, on the difference between the fair values of the net assets acquired and their tax base.

Deferred income tax is provided on temporary differences arising from investments in subsidiaries and associates, except where

the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the difference will not reverse

in the foreseeable future. In addition, the following temporary differences are not provided for: goodwill not deductible for tax

purposes and the initial recognition of assets and liabilities that affect neither accounting nor taxable profit.

Income tax payable on profits, based on the applicable tax law in each jurisdiction, is recognised as an expense in the period in

which the profits arise.The tax effects of income tax losses available for carry forward are recognised as an asset when it is probable

that future taxable profits will be available against which these losses can be utilised.

Deferred tax relating to items that are charged or credited to equity, is charged or credited directly to equity.

16 Impairment of property, plant and equipment and intangible assets

At each balance sheet date, or more frequently where events or changes in circumstances dictate, property, plant and equipment and

intangible assets, are assessed for indications of impairment. If indications are present, these assets are subject to an impairment review.

Goodwill is subject to an impairment review as at the balance sheet date each year.The impairment review comprises a comparison

of the carrying amount of the asset, or its cash generating unit, with its recoverable amount.The recoverable amount is determined as
the higher of the net selling price of the asset and its value in use. Net selling price is calculated by reference to the amount at which

the asset could be disposed of in an arm's length transaction evidenced by an active market or recent transactions for similar assets.

Value in use is calculated by discounting the expected future cash flows obtainable as a result of the asset's continued use, including

those resulting from its ultimate disposal, at a market-based discount rate on a pre-tax basis.

The carrying values of property, plant and equipment and intangible assets are written down by the amount of any impairment

and this loss is recognised in the income statement in the period in which it occurs. A previously recognised impairment loss relating

to a fixed asset may be reversed in part or in full when this is an indication that the impairment loss may no longer exist and there

has been a change in the estimates used to determine the asset’s recoverable amount.The carrying amount of the asset will only be

increased up to the amount that it would have been had the original impairment not been recognised. Impairment losses on goodwill

are not reversed. For the purpose of conducting impairment reviews in respect of goodwill, the recoverable amount is determined as

the higher of the net selling price of the cash-generating unit and its value in use. Cash-generating units are the lowest level at which

management monitors the return on investment in assets.

17 Construction contracts

Revenue from construction contacts is recognised when it is probable that the economic benefits of the transaction will flow to the

Group and when the revenue, the costs, (both incurred and in the future), the outcome of the contract and its stage of completion

can all be measured reliably. Once the above criteria are met, both contract revenue and contract costs are recognised by reference to

the stage of completion of the contract.

When the outcome of a construction contract cannot be estimated reliably, no profit is recognised, but revenue is recognised to

the extent of costs incurred that are probable of recovery. Costs are recognised as an expense in the income statement in the

accounting period in which the work is performed.

18 Non-current assets held for sale and discontinued operations

A non-current asset or a group of assets containing a non-current asset (a disposal group) is classified as held for sale if its carrying

amount will be recovered principally through sale rather than through continuing use, it is available for immediate sale and sale is

highly probable within one year.

On initial classification as held for sale, non-current assets and disposal groups are measured at the lower of previous carrying

amount and fair value less costs to sell with any adjustments taken to profit or loss.The same applies to gains and losses on subsequent
remeasurement. No reclassifications are made in respect of prior periods.

A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical

area of operations, or is a subsidiary acquired exclusively with a view to resale, that has been disposed of, has been abandoned or that

meets the criteria to be classified as held for sale.

Discontinued operations are presented on the income statement (including comparatives) as a separate amount, comprising the

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18 Non-current assets held for sale and discontinued operations (continued)

total of the post tax profit or loss of the discontinued operations for the period together with any post-tax gain or loss recognised on

the measurement to fair value less costs to sell, or on disposal of the assets/disposal groups constituting discontinued operations.

19 Collateral & netting

The Group enters into master agreements with counterparties, to ensure that if an event of default occurs, all amounts outstanding

with those counterparties will be settled on a net basis.

Collateral

The Group obtains collateral in respect of customer liabilities where this is considered appropriate.The collateral normally takes the

form of a lien over the customer’s assets and gives the Group a claim on these assets for both existing and future liabilities. The

collateral is, in general, not recorded on the Group balance sheet.

The Group also receives collateral in the form of cash or securities in respect of other credit instruments, such as stock borrowing

contracts, and derivative contracts in order to reduce credit risk. Collateral received in the form of securities is not recorded on the

balance sheet. Collateral received in the form of cash is recorded on the balance sheet with a corresponding liability or asset.These

items are assigned to deposits received from banks or other counterparties in the case of cash collateral received. Any interest payable

or receivable arising is recorded as interest expense or interest income respectively.

In certain circumstances, the Group will pledge collateral in respect of liabilities or borrowings. Collateral pledged in the form of

securities or loans and receivables continues to be recorded on the balance sheet. Collateral paid away in the form of cash is recorded in loans

and advances to banks or customers. Any interest payable or receivable arising is recorded as interest expense or interest income respectively.

Netting

Financial assets and financial liabilities are offset and the net amount reported in the balance sheet if, and only if, there is a currently

enforceable legal right to set off the recognised amounts and there is an intention to settle on a net basis, or to realise an asset and

settle the liability simultaneously.This is not generally the case with master agreements, and the related assets and liabilities are

presented gross in the balance sheet.

20 Financial guarantees

Financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and

other banking facilities (‘facility guarantees’), and to other parties in connection with the performance of customers under obligations

related to contracts, advance payments made by other parties, tenders, retentions and the payment of import duties. Financial

guarantees are initially recognised in the financial statements at fair value on the date that the guarantee is given. Subsequent to initial

recognition, the bank’s liabilities under such guarantees are measured at the higher of the initial measurement, less amortisation

calculated to recognise in the income statement the fee income earned over the period, and the best estimate of the expenditure

required to settle any financial obligation arising as a result of the guarantees at the balance sheet date.

Any increase in the liability relating to guarantees is taken to the income statement in provisions for undrawn contractually

committed facilities and guarantees.

21 Sale and repurchase agreements (including stock borrowing and lending)

Financial assets may be lent or sold subject to a commitment to repurchase them (‘repos’). Such securities are retained on the balance

sheet when substantially all the risks and rewards of ownership remain with the Group.The liability to the counterparty is included

separately on the balance sheet as appropriate.

Similarly, when securities are purchased subject to a commitment to resell (‘reverse repos’), or where the Group borrows

securities, but does not acquire the risks and rewards of ownership, the transactions are treated as collateralised loans, and the securities

are not included in the balance sheet.

The difference between the sale and repurchase price is accrued over the life of the agreements using the effective interest

method. Securities lent to counterparties are also retained in the financial statements.

Securities borrowed are not recognised in the financial statements, unless these are sold to third parties, at which point the obligation

to repurchase the securities is recorded as a trading liability at fair value and any subsequent gain or loss included in trading income.

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Accounting policies (continued)

22 Leases

Lessor

Assets leased to customers are classified as finance leases if the lease agreements transfer substantially all the risks and rewards of

ownership, with or without ultimate legal title.When assets are held subject to a finance lease, the present value of the lease payments,

discounted at the rate of interest implicit in the lease, is recognised as a receivable.The difference between the total payments

receivable under the lease and the present value of the receivable is recognised as unearned finance income, which is allocated to

accounting periods under the pre-tax net investment method to reflect a constant periodic rate of return.

Assets leased to customers are classified as operating leases if the lease agreements do not transfer substantially all the risks and

rewards of ownership.The leased assets are included within property, plant and equipment on the Group’s balance sheet and

depreciation is provided on the depreciable amount of these assets on a systematic basis over their estimated useful lives. Lease income

is recognised on a straight-line basis over the period of the lease unless another systematic basis is more appropriate.

Lessee

Operating lease rentals payable are recognised as an expense in the income statement on a straight line basis over the lease term unless

another systematic basis is more appropriate.

23 Share capital

Issued financial instruments, or their components, are classified as equity where they meet the definition of equity and confer on the

holder a residual interest in the assets of the Group.

Share issue costs

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Dividends on ordinary shares

Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Company’s shareholders, or in

the case of the interim dividend when it has been approved by the Board of directors. Dividends declared after the balance sheet date

are disclosed in the dividends note (note 67).

Treasury shares

Where the Company or other members of the consolidated Group purchases the Company’s equity share capital, the consideration

paid is deducted from total shareholders’ equity as treasury shares until they are cancelled.Where such shares are subsequently sold or

reissued, any consideration received is included in shareholders’ equity.

24 Insurance and investment contracts

The Group has classified its Long Term Assurance business in accordance with IFRS 4 ‘Insurance Contracts’. Insurance contracts are those

contracts containing significant insurance risk. In the case of a life contract, insurance risk exists if the amount payable on the occurrence

of an insured event exceeds the assets backing the contract, or could do so in certain circumstances, and the product of the probability of

the insured event occurring and the excess amount payable has commercial substance. In particular, guaranteed equity bonds which

guarantee a return of the original premium irrespective of the current value of the backing assets are deemed to be insurance contracts

notwithstanding that at the balance sheet date there may be no excess of the original premium over the backing assets. Investment

contracts are contracts that do not have significant insurance risk.There are no contracts with discretionary participating features.

Insurance contracts

The Group accounts for its insurance contracts using the embedded value basis.The embedded value comprises two components: the

net assets attributable to the Group and the present value of the in-force business (‘VIF’).The change in the VIF before tax is

accounted for as revenue.The value is estimated as the net present value of future cash flows attributable to the Group before tax,
based on the market value of the assets at the balance sheet date, using assumptions that reflect experience and a long-term outlook

for the economy and then discounting at an appropriate risk discount rate.

Insurance contract liabilities are calculated on the modified statutory basis. Premiums are recognised as revenue when due from

the policyholder. Claims, which together with the increase in insurance contract liabilities are recognised in the income statement as

they arise, are the cost of all claims arising during the period.

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24 Insurance and investment contracts (continued)
Investment contracts
Investment contracts are primarily unit-linked. Unit linked liabilities are deemed equal to the value of units attaching to contracts at
the balance sheet date.The liability is measured at fair value, which is the bid value of the assets held to match the liability, less an
amount in respect of tax. Increases in investment contract liabilities are recognised in the income statement as they arise. Revenue in
relation to investment management services is recognised as the services are provided. Certain upfront fees and charges have been
deferred and are recognised as income over the life of the contract. Premiums and claims are accounted for directly in the balance
sheet as adjustments to the investment contract liability.

25 Segment reporting
Business segments are distinguishable components of the Group that provide products or services that are subject to risks and rewards
that are different to those of other business segments. Geographical segments provide products or services within a particular
economic environment that is subject to risks and rewards that are different to those of components operating in other economic
environments.The Group has determined that business segments are the primary reporting segments.

26 Cash and cash equivalents
For the purposes of the cash flow statement, cash comprises cash on hand and demand deposits, and cash equivalents comprise highly liquid
investments that are convertible into cash with an insignificant risk of changes in value and with original maturities of less than three months.

27 Trust activities
The Group commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of
individuals, trusts, retirement benefit plans and other institutions.These assets and income arising thereon are excluded from the 
financial statements, as they are not assets of the Group.

28 Accounting estimates and judgements 
The estimates that have a significant impact on the financial statements and estimates with a significant risk of material adjustment in
the next year are set out below:-

Loan impairment
The estimation of potential loan losses is inherently uncertain and depends upon many factors, including loan loss trends, portfolio
grade profiles, local and international economic climates, conditions in various industries to which AIB Group is exposed and other
external factors such as legal and regulatory requirements. For example, should the expectation of loss within a portfolio increase, then
this may result in an increase to the required incurred but not reported (‘IBNR’) loan loss provision level.

A specific provision is made against problem loans when, in the judgement of management, the estimated repayment realisable
from the obligor, including the value of any security available, is likely to fall short of the amount of principal and interest outstanding
on the obligor’s loan or overdraft account.The amount of the specific provision made in AIB Group’s consolidated financial
statements is intended to cover the difference between the assets carrying value and the present value of estimated future cash flows
discounted at the assets original effective interest rates. The management process for the identification of loans requiring provision is
underpinned by independent tiers of review.

Credit quality and loan loss provisioning are independently monitored by head office personnel on a regular basis. A groupwide
system for grading advances according to agreed credit criteria exists with an important objective being the timely identification of
vulnerable loans so that remedial action can be taken at the earliest opportunity. Credit rating is fundamental to the determination of
provisioning in AIB Group; it triggers the process which results in the creation of a specific provision on individual loans where there
is doubt on recoverability.

IBNR provisions are also maintained to cover loans, which are impaired at balance sheet date and, while not specifically

identified, are known from experience to be present in any portfolio of loans.

IBNR provisions are maintained at levels that are deemed appropriate by management having considered: credit grading profiles and
grading movements, historic loan loss rates, changes in credit management, procedures, processes and policies, levels of credit management skills,
local and international economic climates, portfolio sector profiles/industry conditions and current estimates of expected loss in the portfolio.

Estimates of expected loss are driven by the following key factors;
– Probability of default i.e. the likelihood of a customer defaulting on its obligations over the next 12 months,
– Loss given default i.e. the fraction of the exposure amount that will be lost in the event of default, and

– Exposure at default i.e. exposure is calculated by adding the expected drawn balance plus a percentage of the unused limits.

61

203557  04/03/2006  11:47  Page 62

Accounting policies (continued)

28 Accounting estimates and judgements (continued)
Loan impairment (continued)

Our rating systems have been internally developed and are continually being enhanced, e.g. externally benchmarked, to help

underpin the aforementioned factors which determine the estimates of expected loss. Estimated expected loss is only one element

in assessing the adequacy of our allowances.

All AIB divisions assess and approve their provisions and provision adequacy on a quarterly basis.These provisions are in turn reviewed

and approved by the AIB Group Credit Committee on a quarterly basis with ultimate Group levels being approved by the Group Audit
Committee and the AIB Board of Directors.

Fair value of financial instruments
Some of the Group’s financial instruments are carried at fair value, including all derivatives, financial assets at fair value through profit or
loss and financial investments available for sale.

Financial instruments are either priced with reference to a quoted market price for that instrument or by using a valuation model.
Where the fair value is calculated using financial-markets pricing models, the methodology is to calculate the expected cash flows under
the terms of each specific contract and then discount these values back to a present value.These models use as their basis independently
sourced market parameters including, for example, interest rate yield curves, equities and commodities prices, option volatilities and
currency rates. Most market parameters are either directly observable or are implied from instrument prices. However, where no
observable price is available then instrument fair value will include a provision for the uncertainty in the market parameter based on sale
price or subsequent traded levels.The calculation of fair value for any financial instrument may require adjustment of quoted price or
model value to reflect the cost of credit risk (where not embedded in underlying models or prices used), hedging costs not captured in
pricing models and adjustments to reflect the cost of exiting illiquid or other significant positions.This would also include an estimation
of the likely occurrence of future events which could affect the cashflows of the financial instrument.The valuation model used for a
particular instrument, the quality and liquidity of market data used for pricing, other fair value adjustments not specifically captured by the
model and market data are all subject to internal review and approval procedures and consistent application between accounting periods.

Retirement benefits
The Group provides a number of defined benefit and defined contribution retirement benefit schemes in various geographic
locations, the majority of which are funded. In relation to the defined benefit schemes, a full actuarial valuation is undertaken every
three years and is updated to reflect current conditions in the intervening periods. Scheme assets are valued at market value. Scheme
liabilities are measured on an actuarial basis, using the projected unit method and discounted at the current rate of return on a high
quality corporate bond of equivalent term and currency to the liability. Actuarial gains and losses are recognised immediately in the
statement of recognised income and expense.

In calculating the scheme liabilities and the charge to the income statement, the directors have chosen a number of assumptions

within an acceptable range, under advice from the Group’s actuaries.The impact on the consolidated income statement and the
consolidated balance sheet could be materially different if a different set of assumptions were used.

29 Prospective accounting changes

The following standards/amendments to standards have been approved by the IASB, and were adopted by the EU in January 2006 but
not early adopted by the Group. These will be adopted in 2006 and thereafter:-

Amendment to IAS 1 - Capital disclosures (effective 1 January 2007). This amendment requires disclosure, both quantitative and

qualitative, of an entity’s objectives, policies and processes for managing capital. The impact is not expected to be material in terms of

Group reporting.

Amendments to IAS 39 - Cash Flow Hedge Accounting of Forecast Intragroup transactions (effective 1 January 2006). This

amendment,which is not expected to have a material impact on Group reporting, will allow the foreign currency risk of intragroup

monetary items qualify as the hedge item in certain circumstances in the consolidated financial statements.

Amendments to IAS 39 and IFRS 4: Financial Guarantee Contracts (effective 1 January 2006). This amendment will be adopted

by the Group in the accounting period commencing on 1 January 2006 and requires financial guarantee contracts to be accounted for

as financial instruments under IAS 39 unless they have been explicitly dealt with as insurance contracts in the past in which case the

previous accounting may continue. This standard is not expected to have a material impact on the Group.

IFRS 7 - Financial Instrument disclosures (effective 1 January 2007). This standard updates and augments the disclosure

requirements of IAS 30, IAS 32 and IFRS 4 and will require additional disclosures relating to risk management policies and processes.

62

203557  02/03/2006  08:23  Page 63

The Group has taken advantage of the transitional arrangements of IFRS, not to restate corresponding amounts in

accordance with the above policies on Financial assets; Financial liabilities; Derivatives and hedge accounting;

impairment of financial assets; and collateral & netting. Comparative information was prepared under Irish GAAP

and the relevant accounting policies for these are set out as follows:

Provisions for impairment of loans and receivables

It is Group policy to make provisions for bad and doubtful debts to reflect the losses inherent in the loan portfolio at the balance

sheet date.The charge to the profit and loss account reflects new provisions made during the year, plus write-offs not previously

provided for, less existing provisions no longer required and recoveries of bad debts already written off.

Specific provisions are made when, in the judgment of management, the recovery of the outstanding balance is in serious doubt.

The amount of the specific provision is intended to cover the difference between the balance outstanding on the loan or advance and

the estimated recoverable amount. In certain portfolios, provisions are applied to pools of loans on a formula driven basis depending

on levels of delinquency.

When a loan has been subjected to a specific provision, and the prospects for recovery do not improve, a point will come when it

may be concluded that there is no realistic prospect of recovery.When this point is reached, the amount of the loan which is

considered to be beyond the prospect of recovery is written off.

General provisions are also made to cover loans which are impaired at balance sheet date, and while not specifically identified, are

known from experience to be present in any portfolio of bank advances.The Group holds general provisions at a level deemed
appropriate by management taking into account a number of factors including:- the credit grading profiles and movements within

credit grades; historic loan loss rates; local and international economic climates and portfolio sector profiles/industry conditions.The

level of general provisions is reviewed quarterly to ensure that it remains appropriate.

Loans and receivables to banks and customers are reported in the balance sheet having deducted the total provisions for

impairment of loans and receivables.

Loans are deemed non-performing where interest is 90 days overdue and not taken to profit (i.e. non-accrual) or where a

provision exists in anticipation of a loss. Interest is not taken to profit when recovery is doubtful.

Debt securities

Debt securities held as financial fixed assets are those held on a continuing use basis by the Group and those held to hedge positions

which are accounted for on a historic cost basis.These debt securities are stated in the balance sheet at cost, adjusted for the

amortisation of any premiums or discounts arising on acquisition or provisions for impairment.The amortisation of premiums and

discounts is included in net interest income. Profits and losses on disposal of securities held for investment purposes are recognised

immediately in other operating income. Profits and losses on disposal of securities held for hedging purposes are amortised over the

lives of the underlying transactions and included in net interest income.

Debt securities held for trading purposes are stated in the balance sheet at market value. Both realised and unrealised profits on

trading securities are taken directly to the profit and loss account and included within dealing profits.

Equity shares

Equity shares intended to be held on a continuing basis are classified as financial fixed assets and included in the balance sheet at cost

less provision for any impairment. Profits and losses on disposal of equity shares held as financial fixed assets are recognised

immediately in the profit and loss account. Equity shares held for trading purposes are marked to market with full recognition in the
profit and loss account of changes in market value.

Derivatives

The Group uses derivatives, such as interest rate swaps, options, forward rate agreements and financial futures for trading and non-trading

purposes. The accounting treatment of these derivative instruments is dependent on the purpose for which they are entered into.

The Group maintains trading positions in a variety of financial instruments including derivatives.Trading transactions arise as a

result of activity generated by customers while others represent proprietary trading with a view to generating incremental income.

Trading instruments and hedges thereof are recognised in the accounts at fair value with the adjustment arising included in other

assets and other liabilities as appropriate. Gains and losses arising from trading activities are included in dealing profits in the profit and

loss account using the mark to market method of accounting. Interest and dividend income arising together with the funding costs

relating to trading activities are included in net interest income.

63

203557  02/03/2006  08:23  Page 64

Accounting policies (continued)

Derivatives (continued)

Non-trading derivative transactions, comprise transactions held for hedging purposes as part of the Group’s risk management

strategy, against assets, liabilities, positions or cash flows, themselves accounted for on an accruals basis.The gains and losses on these

instruments (arising from changes in fair value) are not recognised in the profit and loss account immediately as they arise. Derivative

transactions entered into for hedging purposes are recognised in the accounts on an accruals basis consistent with the accounting

treatment of the underlying transaction or transactions being hedged. Except as described below, in respect of hedges of the income

stream on Group capital, upon early termination of derivative financial instruments, classified as hedges, any realised gain or loss is

deferred and amortised to net interest income over the life of the original hedge as long as the designated assets or liabilities remain.

Upon early termination of derivative transactions classified as hedges of the income stream on Group capital, any realised gain or loss is

taken to profit and loss account as it arises.

A derivative will only be classified as a hedge where it is designated as a hedge at its inception and where it is reasonably expected

that the derivative substantially matches or eliminates the exposure being hedged.Transactions designated as hedges are reviewed and

where a transaction originally entered into for hedging purposes no longer represents a hedge, its value is restated at fair value and any

change in value is taken to profit and loss account immediately. Interest rate swaps, forward rate agreements and option contracts are

generally used to modify the interest rate characteristics of balance sheet instruments and are linked to specific assets or groups of

similar assets or specific liabilities or groups of similar liabilities. Futures contracts are designated as hedges when they reduce risk and

there is high correlation between the futures contracts and the item being hedged, both at inception and throughout the hedge period.

Amounts paid or received over the life of a futures contract are deferred and amortised over the life of the contract.

64

203557  02/03/2006  08:23  Page 65

Consolidated income statement
for the year ended 31 December 2005

Interest and similar income

Interest expense and similar charges

Net interest income

Dividend income

Fee and commission income

Fee and commission expense

Trading income 

Other operating income
Other income

Total operating income

Administrative expenses

Depreciation of property, plant and equipment

Amortisation/impairment of intangible assets and goodwill
Total operating expenses

Operating profit before provisions

Provisions for impairment of loans and receivables

Provisions for liabilities and commitments
Amounts written off/(written back) financial investments

Operating profit

Share of results of associated undertakings

Profit on disposal of property

Construction contract income
Profit on disposal of businesses

Profit before taxation – continuing operations

Taxation on ordinary activities

Profit after taxation – continuing operations

Discontinued operation, net of taxation

Profit for the period

Attributable to:

Equity holders of the parent

Minority interests in subsidiaries

Basic earnings per share – continuing operations
Basic earnings per share – discontinued operations 

Total

Diluted earnings per share – continuing operations 
Diluted earnings per share – discontinued operations 

Total

Notes

5

6

7

8

9

10

39

38

30

47
13

14
15

18

2 & 41

21

19(a)

19(b)

2005
€ m

5,151

2,621

2,530

17

1,061

(145)

112

72
1,117

3,647

1,881

83

47
2,011

1,636
115

20
8

1,493

149

14

45
5

1,706

319

1,387
46

1,433

1,343

90

1,433

145.7c
5.3c

151.0c

144.6c
5.2c

149.8c

2004
€ m

4,018

1,946

2,072

27

1,043

(131)

96

109
1,144

3,216

1,724

82

63
1,869

1,347

114

20
(1)

1,214

132

9

-
17

1,372

267

1,105
53

1,158

1,129

29

1,158

125.8c
6.2c

132.0c

125.3c
6.2c

131.5c

The results for the year ended 31 December 2004 have been restated to represent the results of Ark Life as a discontinued operation (note 2) and 
the application of International Financial Reporting Standards, with the exception of IAS 32, IAS 39 and IFRS 4 which apply with effect from 
1 January 2005. See First time adoption of International Financial Reporting Standards (‘IFRS’).

D Gleeson, Chairman. E Sheehy, Group Chief Executive. J O’Donnell, Group Finance Director.W M Kinsella, Secretary.

65

203557  02/03/2006  08:23  Page 66

Consolidated balance sheet
as at 31 December 2005

Assets
Cash and balances at central banks
Treasury bills and other eligible bills
Items in course of collection
Trading portfolio financial assets
Financial assets designated at fair value through profit or loss
Derivative financial instruments
Loans and receivables to banks
Loans and receivables to customers
Financial investments available for sale
Debt securities and equity shares
Interests in associated undertakings
Intangible assets and goodwill
Property, plant and equipment
Other assets
Current taxation
Deferred taxation
Prepayments and accrued income
Disposal group and assets classified as held for sale

Total assets

Liabilities
Deposits by banks
Customer accounts
Trading portfolio financial liabilities
Derivative financial instruments
Investment and insurance contract liabilities
Debt securities in issue
Current taxation
Other liabilities
Accruals and deferred income
Retirement benefit liabilities
Provisions for liabilities and commitments
Deferred taxation
Subordinated liabilities and other capital instruments
Disposal group classified as held for sale

Total liabilities

Shareholders’ equity
Share capital
Share premium account
Other equity interests 
Reserves
Profit and loss account
Shareholders’ equity
Minority interests in subsidiaries

Total shareholders’ equity including minority interests

31 December
2005
€ m

1 January
2005
€ m

31 December
2004
€ m

Notes

24

25
26
27
28
29
33
34 & 35
36
38
39

40

2 & 41

42
43
44
27
41
45

46

12
47
40
48
2 & 41

49

51

52

742
201
402
10,113
-
2,439
7,129
85,232
16,864
-
1,656
517
706
778
18
253
801
5,363

887
-
368
7,957
1,871
2,581
2,538
65,692
15,720
-
1,395
540
745
1,435
25
204
861
-

887
-
368
-
-
-
2,540
64,738
-
26,142
1,379
540
745
2,597
25
228
920
-

133,214

102,819

101,109

29,329
62,580
240
1,967
-
17,611
133
1,599
1,092
1,227
140
32
3,756
5,091

124,797

294
1,693
497
1,152
3,533
7,169
1,248

8,417

20,428
50,151
332
2,541
3,887
11,805
197
1,593
705
886
122
38
2,451
-

95,136

294
1,693
497
1,190
2,798
6,472
1,211

7,683

20,428
50,151
-
-
3,286
11,805
175
3,387
913
886
122
52
2,766
-

93,971

294
1,693
182
985
2,773
5,927
1,211

7,138

Total liabilities, shareholders’ equity and minority interests

133,214

102,819

101,109

The financial position as at 31 December 2004 has been restated to reflect the application of International Financial Reporting Standards,
with the exception of IAS 32, IAS 39 and IFRS 4 which apply with effect from 1 January 2005.
See First time adoption of International Financial Reporting Standards (‘IFRS’).

D Gleeson, Chairman. E Sheehy, Group Chief Executive. J O’Donnell, Group Finance Director.W M Kinsella, Secretary.

66

203557  02/03/2006  08:23  Page 67

Balance sheet Allied Irish Banks, p.l.c.
as at 31 December 2005

31 December
2005
€ m

1 January
2005
€ m

31 December
2004
€ m

Notes

Assets

Cash and balances at central banks

Items in course of collection

Trading portfolio financial assets

Derivative financial instruments

Loans and receivables to banks

Loans and receivables to customers

Financial investments available for sale

Debt securities and equity shares

Shares in Group undertakings

Interests in associated undertakings

Intangible assets and goodwill

Property, plant and equipment

Other assets

Current taxation

Deferred taxation

Prepayments and accrued income

Assets classified as held for sale

Total assets

Liabilities

Deposits by banks

Customer accounts

Trading portfolio financial liabilities

Derivative financial instruments

Debt securities in issue

Current taxation

Other liabilities

Accruals and deferred income

Retirement benefit liabilities

Provisions for liabilities and commitments
Subordinated liabilities and other capital instruments 

Total liabilities

Shareholders’ equity

Share capital

Share premium account

Other equity interests 

Reserves

Profit and loss account
Shareholders’ equity 

25

27

28

29

33

34 & 35

37

36

38

39

40

42

43

44

27

45

46

47
48

49

51

503

202

9,579

2,319

26,262

60,142

14,092

-

271

891

64

465

318

13
114
634

6

514

178

7,421

2,225

18,491

45,387

13,145

-

225

891

57

454

278

25

92

635

-

514

178

-

-

18,491

44,696

-

20,923

225

891

57

454

1,505

25

110

767

-

115,875

90,018

88,836

43,831

42,666

230

1,821

16,684

62

479

1,028

807

119
3,756

111,483

294
1,693

497

299

1,609
4,392

34,448

34,727

229

2,032

10,330

133

515

708

561

100
2,451

86,234

294

1,693

497

388

912
3,784

34,448

34,727

-

-

10,330

105

1,951

739

561

100
2,766

85,727

294

1,693

182

80

860
3,109

Total liabilities and shareholders’ equity

115,875

90,018

88,836

The financial position as at 31 December 2004 has been restated to reflect the application of International Financial Reporting Standards,
with the exception of IAS 32, IAS 39 and IFRS 4 which apply with effect from 1 January 2005.
See First time adoption of International Financial Reporting Standards (‘IFRS’).

D Gleeson, Chairman. E Sheehy, Group Chief Executive. J O’Donnell, Group Finance Director.W M Kinsella, Secretary.

67

203557  02/03/2006  08:23  Page 68

Statement of cash flows
for the year ended 31 December 2005

Reconciliation of profit before taxation to net

cash inflow from operating activities

Profit before taxation(1)

Profit on disposal of businesses

Construction contract income

Profit on disposal of property

Investment income

Share of results of associated undertakings

Decrease/(increase) in prepayments and accrued income

Increase in accruals and deferred income

Provisions for impairment of loans and receivables

Provisions for liabilities and commitments

Amounts written off/(written back) financial investments

Increase in other provisions

Depreciation, impairment and amortisation
Interest on subordinated liabilities and other capital instruments

Profit on disposal of available for sale financial instruments

Profit on termination of off-balance sheet instruments

Average gains on debt securities held for hedging purposes

Profit on disposal of investments in associated undertakings

Amortisation of premiums and discounts 
Increase in long-term assurance business

Net increase in deposits by banks

Net increase in customer accounts

Net increase in loans and receivables to customers

Net (increase)/decrease in loans and receivables to banks

Net increase in trading portfolio financial assets/liabilities

Net decrease in derivative financial instruments

Net increase in treasury bills and other eligible bills

Net increase in items in course of collection

Net increase in debt securities in issue

Net increase in notes in circulation

(Increase)/decrease in other assets

Increase/(decrease) in other liabilities
Effect of exchange translation and other adjustments

Net cash inflow from operating assets and liabilities

Net cash inflow from operating activities before taxation

Taxation paid

Net cash inflow from operating activities
Investing activities (note a)
Financing activities (note b)

Increase/(decrease) in cash and cash equivalents

Opening cash and cash equivalents
Effect of exchange translation adjustments

Closing cash and cash equivalents 

56

68

Notes

2005
€ m

Group
2004
€ m

Allied Irish Banks, p.l.c.
2004
€ m

2005
€ m

1,754

1,430

1,545

(5)

(45)

(14)

(41)

(149)

83

332

115

20

8

14

130
132

(19)

-

-

-

64
(55)

2,324

8,019

11,414

(18,350)

(30)

(1,942)

(447)

(177)

(29)

5,223

21

(1,467)
419
(114)

2,540

4,864
(351)

4,513

(262)
556

4,807

2,773
90

7,670

(17)

-

(9)

(37)

(132)

(282)

369

114

20

(1)

33

145
109

(17)

(36)

(2)

(1)

24
(62)

1,648

3,056

6,041

-

(9)

(12)

(713)

-

11

248

127

19

2

17

69
132

(15)

-

-

-

84
-

1,505

8,206

7,554

(13,721)

(14,309)

635

(2,578)

-

-

(29)

8,303

30

(754)

937
138

2,058

3,706
(317)

3,389

(4,106)
1,288

571

2,152
50

2,773

(2,941)

(1,868)

(315)

-

(24)

5,960

-

286
(47)
(151)

2,351

3,856
(200)

3,656

177
570

4,403

1,539
26

5,968

711

-

-

(7)

(56)

-

13

33

64

20

(4)

10

71
109

(20)

(36)

(2)

-

66
-

972

6,082

5,740

(10,585)

(4,676)

(2,054)

-

-

(27)

7,124

-

(534)

744
(13)

1,801

2,773
(175)

2,598

(4,003)
300

(1,105)

2,655
(11)

1,539

203557  02/03/2006  08:23  Page 69

Statement of cash flows (continued)
for the year ended 31 December 2005

(a) Investing activities

Net increase in financial investments

Additions to tangible fixed assets

Disposal of tangible fixed assets

Additions to intangible fixed assets

Investment in associated undertaking

Disposal of associated undertakings

Investment in Group undertakings

Transfer of Group undertaking

Disposal of investment in subsidiary

Dividends received from associated undertakings

Dividends received from subsidiary companies

2005
€ m

(264)

(100)

89

(36)

(3)

4

-

-

7

41

-

Group
2004
€ m

(4,038)

(68)

20

(66)

(7)

1

-

-

15

37

-

Cash flows from investing activities

(262)

(4,106)

(b) Financing activities

Issue of ordinary share capital

Redemption of subordinated liabilities

Issue of new subordinated liabilities

Issue of preferred securities

Interest paid on subordinated liabilities

Equity dividends paid

Dividends on other equity interests
Dividends paid to minority interests

Cash flows from financing activities

47

(630)

1,813

-

(90)

(532)

(38)
(14)

556

53

(32)

733

990

(105)

(345)

(4)
(2)

1,288

Allied Irish Banks, p.l.c.
2004
€ m

2005
€ m

(460)

(71)

36

-

-

-

(41)

-

-

-

713

177

47

(630)

1,813

-

(90)

(532)

(38)
-

570

(4,021)

(54)

11

-

-

-

-

5

-

-

56

(4,003)

53

(32)

733

-

(105)

(345)

(4)
-

300

(1) Represents profit before taxation – continuing activities, as per the Consolidated income statement, adjusted for the pre-tax profit
of Ark Life of € 48m in 2005 (2004: € 58m).

69

203557  02/03/2006  08:23  Page 70

Statement of recognised income and expense

Foreign exchange translation differences

Net change in cash flow hedges, net of tax

Net change in fair value of available for sale securities, net of tax

Net actuarial gains and losses in retirement benefit schemes, net of tax

Income and expense recognised directly in equity

Profit for the period

Total recognised income and expense for the period

Transition adjustment at 1 January 2005 arising from IAS 32,

IAS 39 and IFRS 4 (note 1)

Total recognised income and expense for the 

period including transition adjustment

Attributable to:

Equity holders of the parent

Minority interests in subsidiaries

Total recognised income and expense for the 
period including transition adjustment

2005
€ m

287

(76)

(6)

(285)

(80)

1,433

1,353

545

1,898

1,808

90

1,898

Group
2004
€ m

(73)

-

-

(198)

(271)

1,158

887

-

887

858

29

887

Allied Irish Banks, p.l.c.
2004
€ m

2005
€ m

7

(81)

(6)

(216)

(296)

1,394

1,098

675

1,773

1,773

-

1,773

(26)

-

-

(177)

(203)

579

376

-

376

376

-

376

70

203557  04/03/2006  10:09  Page 71

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203557  02/03/2006  08:23  Page 73

Notes to the accounts

1 Transition to IFRS 

As set out in the First time Adoption of International Financial Reporting Standards (‘IFRS’), the financial information has been prepared

based on the requirements of IFRS issued by the IASB, as adopted by the EU.AIB has availed of transitional provisions for IAS 32

‘Financial Instruments: Disclosure and Presentation’ (‘IAS 32’), IAS 39 ‘Financial Instruments: Recognition and Measurement’ (‘IAS 39’)

and IFRS 4 ‘Insurance Contracts’ (‘IFRS 4’) and has not presented comparative information in accordance with these standards.

Accordingly, comparative information for 2004 in respect of financial instruments and insurance contracts is prepared on the basis of the

Group’s accounting policies under Irish GAAP.

A description of the differences between Irish GAAP and IFRS accounting policies is set out in note 65. Reconciliations of balance

sheets for the Group and Allied Irish Banks, p.l.c. (‘the parent’) prepared under Irish GAAP and IFRS at 31 December 2004 and 1 January

2005 (after the application of IAS 32, IAS 39 and IFRS 4) are included in note 65. A reconciliation of the consolidated income statement

prepared in accordance with Irish GAAP and prepared in accordance with IFRS for the year ended 31 December 2004 is included in

note 65 and is summarised below.

The following table sets out the AIB Group reconciliation from previously reported Irish GAAP information for profit after taxation,

and the reconciliation to shareholders’ equity at 31 December 2004 and 1 January 2005 (after the application of IAS 32, IAS 39 and IFRS

4), for both AIB Group and parent.

Group
Profit after taxation
€ m

Group
Shareholders’ equity
€ m

Allied Irish Banks, p.l.c
Shareholders’ equity
€ m

As reported under Irish GAAP, at 31 December 2004

1,082

5,581

2,789

Reconciliation adjustments to IFRS excluding 

IAS 32, IAS 39 and IFRS 4:

Associated undertakings

Finance leases

Software

Taxation

Intangible assets & goodwill

Dividends

Share based payments
Employee benefits & other

1

2

6

(4)

79

-

(9)
1

12

1

20

(47)

79

336

10
(65)

64

-

15

(32)

-

336

2
(65)

IFRS excluding IAS 32, IAS 39 and IFRS 4

1,158

5,927

3,109

Reconciliation adjustments to IAS 32, IAS 39 and IFRS 4:

Loans origination 

Loan impairment

Financial instruments

Derivatives

Long-term assurance business

Financial liabilities(1)

(65)

139

273

38

(185)
345

545

(32)

97

179

86

-
345

675

Shareholders’ equity under IFRS at 1 January 2005 

(including IAS 32, IAS 39 and IFRS 4)

6,472

3,784

(1) Includes Reserve Capital Instrument (RCI) classified to equity from subordinated liabilities of € 497m, Preference Share Capital
classified from equity to subordinated liabilities of € 182m and provision for dividends written back to equity of € 30m.

2 Disposal of Ark Life Assurance Company Limited (‘Ark Life’). Acquisition of an interest of 24.99% in Hibernian

Life Holdings Limited.

On 22 November 2005, AIB announced that it had agreed the terms of a joint venture with Aviva Group plc for the manufacture and

distribution of life and pensions products in the Republic of Ireland.The joint venture brings together Hibernian Life & Pensions

Limited and Ark Life. Under the terms of the agreement, AIB will own an interest of 24.99% in the joint venture company Hibernian

Life Holdings Limited and will enter into an exclusive agreement to distribute the life and pensions products of the joint venture. As
part of the transaction, AIB will receive a cash payment of up to € 205.4m.The transaction was completed on 30 January 2006.

73

203557  02/03/2006  08:23  Page 74

Notes to the accounts

2 Disposal of Ark Life Assurance Company Limited (‘Ark Life’). Acquisition of an interest of 24.99% in Hibernian Life

Holdings Limited. (continued)

Under IFRS 5,‘Non-current assets held for sale and discontinued operations’, the income and expenses of Ark Life for December

2005 and December 2004 of the activities deemed to be disposed of have been reported net of taxation as discontinued operations

below profit after taxation.The impact of the December 2004 restatement on the previously reported figures is outlined below on the

Income Statement captions impacted. The assets and liabilities of Ark Life (note 41) as at 31 December 2005 have been classified as

held for sale and are separate from other assets and liabilities on the balance sheet.There has been no restatement of prior year balance

sheet figures as the assets and liabilities were not held for sale at that date.There was a net decrease of cash and cash equivalents in Ark
Life during 2005 of € 29m (2004: net increase € 12m). All cash flows in both periods were generated as a result of operating activities.

As previously
reported

Discontinued
operations

31 December 2004
Continuing
operations

Net interest income

Other income

Total operating income

Insurance and investment contract liabilities and claims

Total operating expenses
Provisions

Operating profit

Share of results of associated undertakings
Profit on disposal of property and businesses

Profit before taxation
Taxation

Profit after taxation 

2,134

1,474

3,608

309

1,894
133

1,272

132
26

1,430
272

1,158

62

330

392

309

25
-

58

-
-

58
5

53

2,072

1,144

3,216

-

1,869
133

1,214

132
26

1,372
267

1,105

Year 31 December 2005

3 Segmental information

Operations by business segments(1) 

Net interest income

Other income 

Total operating income

Total operating expenses
Provisions

Operating profit/(loss)

Share of results of associated undertakings

Profit on disposal of property

Construction contract income
Profit on disposal of businesses

Profit before taxation -

continuing operations

Balance sheet 

Total loans

Total deposits

Total assets

Total risk weighted assets

Net assets(2) 
Capital expenditure

AIB Bank
ROI
€ m

AIB Bank
GB & NI
€ m

Capital
Markets
€ m

Poland

€ m

Group

€ m

1,314

376

1,690

867
55

768
(1)

12

-
-

779

45,523

34,172

55,224

39,073
2,564

71

516

148

664

323
21

320
-

2

-
-

322

435

407

842

400
46

396
2

-

-
5

403

18,346

10,958

20,031

18,335
1,203

16

23,794

58,038

44,371

38,974
2,558

13

205

222

427

280
15

132
-

-

-
-

132

4,487

6,229

7,813

4,640
305

19

60

(36)

24

141
6

(123)
148

-

45
-

70

211

123

5,775

634
42

17

Total

€ m

2,530

1,117

3,647

2,011
143

1,493
149 

14

45
5

1,706

92,361

109,520

133,214

101,656
6,672

136

74

203557  02/03/2006  08:23  Page 75

3 Segmental information (continued)

Operations by business segments(1) 

Net interest income

Other income 

Total operating income

Total operating expenses
Provisions

Operating profit/(loss)

Share of results of associated undertakings

Profit on disposal of property
Profit on disposal of businesses

Profit before taxation –

continuing operations

Balance sheet (at 1 January 2005)

Total loans

Total deposits

Total assets

Total risk weighted assets

Net assets(2) 

Capital expenditure

Operations by geographical segments(3)

Net interest income

Other income 

Total operating income

Total operating expenses
Provisions

Operating profit

Share of results of associated undertakings

Profit on disposal of property

Construction contract income
Profit on disposal of businesses

Profit before taxation –

continuing operations

Balance sheet

Total loans

Total deposits

Total assets

Net assets(2)
Capital expenditure

1,144

340

1,484

813
44

627

(1)

7
–

633

35,794

27,178

42,137

31,183

2,341

82

Republic of
Ireland

€ m

1,564

537

2,101

1,239
70

792

1
12

45
-

850

58,831

77,971

91,622
4,039

100

AIB Bank
ROI
€ m

AIB Bank
GB & NI
€ m

Capital
Markets
€ m

Poland

€ m

Group

€ m

Year 31 December 2004

416

189

605

305
13

287

–

1
–

288

13,740

9,084

15,175

13,510

1,014

12

360

390

750

403
29

318

4

–
4

326

14,668

40,537

33,550

30,098

2,259

16

174

188

362

245
29

88

1

1
13

103

3,748

5,452

6,703

4,232

318

24

(22)

37

15

103
18

(106)

128

–
–

22

280

133

5,254

568

43

-

Total

€ m

2,072

1,144

3,216

1,869
133

1,214

132

9
17

1,372

68,230

82,384

102,819

79,591

5,975

134

Year 31 December 2005

United
States of 
America
€ m

United
Kingdom

Poland

Rest of
the world

€ m

€ m

€ m

45

68

113

62
1

50

148
-

-
4

202

3,863

4,021

5,071
477

1

689

252

941

413
54

474

-
2

-
1

225

251

476

290
15

171

-
-

-
-

477

171

24,888

21,291

28,411
1,810

16

4,487

6,229

7,815
320

19

7

9

16

7
3

6

-
-

-
-

6

292

8

295
26

-

Total

€ m

2,530

1,117

3,647

2,011
143

1,493

149
14

45
5

1,706

92,361

109,520

133,214
6,672

136

75

203557  02/03/2006  08:23  Page 76

Notes to the accounts

3 Segmental information (continued)

Operations by geographical segments(3)

Net interest income

Other income 

Total operating income

Total operating expenses

Provisions

Operating profit

Share of results of associated undertakings

Profit on disposal of property
Profit on disposal of businesses

Profit before taxation –

continuing operations

Balance sheet (at 1 January 2005)

Total loans

Total deposits

Total assets

Net assets(2)
Capital expenditure

Republic of
Ireland

€ m

1,314

572

1,886

1,126

70

690

5

7
–

702

43,854

55,289

70,484
2,342

97

Year 31 December 2004

United
States of 
America
€ m

United
Kingdom

€ m

Poland

€ m

Rest of
the world

€ m

23

102

125

81

(4)

48

126

–
–

174

1,464

2,691

2,568
942

1

543

259

802

392

38

372

–

1
4

377

19,044

18,952

22,885
2,299

12

190

205

395

266

29

100

1

1
13

115

3,748

5,452

6,761
322

24

2

6

8

4

–

4

–

–
–

4

120

–

121
70

-

Total

€ m

2,072

1,144

3,216

1,869

133

1,214

132

9
17

1,372

68,230

82,384

102,819
5,975

134

(1)The business segment information is based on management accounts information.Income on capital is allocated to the divisions on the

basis of the capital required to support the level of risk weighted assets.Interest income earned on capital not allocated to divisions is reported

in Group.

(2)The fungible nature of liabilities within the banking industry inevitably leads to allocations of liabilities to segments,some of which are

necessarily subjective. Accordingly,the directors believe that the analysis of total assets is more meaningful than the analysis of net assets.

(3)The geographical distribution of profit before taxation is based primarily on the location of the office recording the transaction.

4 Gross revenue by business segment

External customers

Inter-segment revenue

Total gross revenue

AIB Bank
ROI
€ m

2,232

903

3,135

External customers

Inter-segment revenue

Total gross revenue

1,869

800

2,669

AIB Bank
GB & NI
€ m

1,246

333

1,579

1,029

214

1,243

Capital
Markets 
€ m

2,260

1,260

3,520

1,825

1,012

2,837

76

Poland

Group

Eliminations

Year 31 December 2005

€ m

700

8

708

567

13

580

€ m

39

286

325

29

194

223

€ m

-

(2,790)

(2,790)

Total

€ m

6,477

-

6,477

Year 31 December 2004

-

(2,233)

(2,233)

5,319

-

5,319

203557  02/03/2006  08:23  Page 77

5 Interest and similar income

Interest on loans and receivables to banks

Interest on loans and receivables to customers

Interest on trading portfolio financial assets

Interest on financial investments

2005
€ m

167

4,032

305

647

5,151

Included within interest and similar income is income from listed investments of € 931m (2004: € 810m) and from unlisted
investments of € 86m (2004: € 83m).

6 Interest expense and similar charges

Interest on amounts due to banks and customers

Interest on debt securities in issue

Interest on subordinated liabilities and other capital instruments

7 Dividend income

The dividend income relates to income from equity shares.

8 Trading income

Foreign exchange contracts
Profits less losses from trading portfolio financial assets
Interest rate contracts

Equity index contracts

9 Other operating income

Profit on disposal of available for sale debt securities

Profit on disposal of available for sale equity shares

Profit on disposal of off-balance sheet instruments

Profit on disposal of investments in associated undertakings

Miscellaneous operating income

2005
€ m

1,944

545

132

2,621

2005
€ m

59
84
(32)

1

112

2005
€ m

17

2

-

-
53

72

2004
€ m

98

3,044

232

644

4,018

2004
€ m

1,582

255

109

1,946

2004
€ m

66
55
(30)

5

96

2004
€ m

15

2

36

1

55

109

77

203557  02/03/2006  08:23  Page 78

Notes to the accounts

10 Administrative expenses

Personnel expenses

Wages & salaries

Share-based payment schemes (note 11)

Retirement benefits (note 12)

Social security costs

Other personnel expenses

General and administrative expenses

Restructuring costs

2005
€ m

948

34

133

104

79

1,298

583

-

1,881

2004
€ m

868

25

97

92

54

1,136

579

9

1,724

The restructuring costs in 2004 related to a branch network restructuring process in BZWBK which resulted in the closure of

approximately 40 branches across Poland.

11 Share-based payment schemes

The Group operates a number of share-based compensation schemes as outlined below on terms approved by the shareholders. The

requirements of IFRS 2 ‘Share-based payment’ have been applied to all equity share based payments granted after 7 November 2002

that had not vested by 1 January 2005.

Limitations on profit sharing and share options schemes

Under the terms of the employees’ profit sharing schemes, the aggregate number of shares that may be purchased/held by the

Trustees in any ten-year period may not exceed 10% of the issued ordinary share capital.The aggregate number of shares issued

under the share option schemes in any ten-year period may not exceed 5% of the issued ordinary share capital for the time being,

provided, however, that in any year the maximum number of shares made available shall not exceed 0.5% of such share capital.The

company complies with guidelines issued by the Irish Association of Investment Managers in relation to these schemes.

AIB Share option scheme

With the introduction of the AIB Group Performance Share Plan 2005 the share option scheme has been discontinued, to the extent

that further grants of options over the Company’s shares may not be made, except in exceptional circumstances. Options were granted at

the market price, being the middle market quotation of the Bank’s shares on the Irish Stock Exchange on the day preceding the date on

which the option is granted.The exercise of options granted between 1 January 1996 and 31 December 2000 is conditional on the

achievement of earnings per share (‘EPS’) growth of at least 2% per annum, compound, above the increase in the Consumer Price Index

(‘CPI’) over a period of not less than three and not more than five years from date of grant.The exercise of options granted since 

1 January, 2001 is conditional on the achievement of EPS growth of at least 5% per annum, compound, above the increase in the CPI

over a period of not less than three and not more than five years from date of grant. Options may not be transferred or assigned and may

be settled through the issue/re-issue of shares. They may be exercised only between the third and seventh anniversaries of their grant in

the case of the options granted up to 31 December 2000, and between the third and tenth anniversaries of their grant in the case of

options granted subsequent to that date.

78

203557  02/03/2006  08:23  Page 79

11 Share-based payment schemes (continued)

The following table summarises the share option scheme activity over each of the three years ended 31 December 2005, 2004 and 2003.

Outstanding at 1 January

Granted 

Exercised

Forfeited

Expired

Outstanding at 31 December
Exercisable at 31 December

Number
of
options
‘000

21,025.2

1,459.0

(3,487.9)

(368.5)

-

18,627.8
10,924.4

2005
Weighted
average exercise
price 
€

11.90

16.21

10.55

12.74

Number
of
options
‘000

28,553.1

3,223.5

(4,338.4)

(111.5)

-

(6,301.5)

12.47
11.71

21,025.2
11,558.8

2004
Weighted
average exercise
price 
€

12.34

12.60

10.14

15.90

-

11.90
10.88

Number
of
options
‘000

29,518.2

3,272.9

(4,038.5)

(199.5)

-

28,553.1
9,360.0

2003
Weighted
average exercise
price 
€

11.73

13.30

8.63

12.24

-

12.34
13.93

The following tables present the number of options outstanding at 31 December 2005 and 31 December 2004.

Range of exercise price
€10.02- €11.98
€12.60- €13.90
€16.20- €18.63

Range of exercise price
€10.02- €11.98
€12.20- €13.90

Weighted average remaining
contractual life
in years

Number of options
outstanding
‘000

3.34

7.39

9.32

7,910.3

9,280.5

1,437.0

Weighted average remaining
contractual life
in years

Number of options
outstanding
‘000

4.90

7.90

14,634.8

6,390.4

31 December 2005
Weighted average
exercise 
price
€

11.00

13.15

16.21

31 December 2004
Weighted average
exercise 
price
€ 

11.24

13.41

The binomial option pricing model has been used in estimating the value of the options granted. The expected volatility is based on

an analysis of historical volatility over the ten years prior to the grant of the awards. The following table details the assumptions used,

and the resulting fair values provided by the option pricing model.

Number of options (‘000)

Exercise price

Vesting period (in years)

Expected volatility

Options life (years)

Risk free rate

Expected dividends expressed as a dividend yield
Fair value per option

2005

1,459.0
€16.21
3
28.1%

10

3.37%

3.8%
€4.19

2004

3,223.5
€12.60
3

30.5%

10

4.25%

3.8%
€3.24

Employee profit sharing schemes
The Company operates an ‘AIB Approved Employees’ Profit Sharing Scheme 1998’ on terms approved by the shareholders.There
are no vesting conditions. All employees, including executive directors of the Company and certain subsidiaries are eligible to participate,

subject to minimum service periods (i.e. a continuous employment for at least one year prior to the last day of the relevant accounting

period).The directors at their discretion may set aside each year a sum not exceeding 5% of eligible profits of participating companies.

Eligible employees in the Republic of Ireland may elect to receive their profit sharing allocations either in shares or in cash. Such

shares are held by Trustees for a minimum period of two years and are required to be held for a total period of three years for the

employees to obtain the maximum tax benefit. Such employees may also elect to forego an amount of salary, subject to certain

79

203557  02/03/2006  08:23  Page 80

Notes to the accounts

11 Share-based payment schemes (continued)

limitations, towards the acquisition of additional shares.The maximum market value of shares that may be appropriated to any
employee in a year may not exceed € 12,700.

In December 2002 a Share Ownership Plan was launched in the UK to replace the profit sharing scheme that previously operated
for UK-based employees.The Plan, which was approved by shareholders at the 2002 Annual General Meeting, provides for the

receipt by eligible employees of shares in a number of categories: Partnership Shares, in which employees may invest up to 

Stg £ 1,500 per annum from salary; Free Shares, involving the award by the Company of shares up to the value of Stg £ 3,000 per

annum per employee, and Dividend Shares, which may be acquired by employees by re-investing dividends of up to Stg £ 1,500 per

annum.

To participate in the scheme eligible employees must have been in the continuous employment of the Group from the 

1st July prior to the grant date. During 2005, a total of 274,251 shares with a value of € 4.3m (2004: 342,674 shares with a value of 
€ 3.6m) were awarded under the Free Share scheme. Shares are forfeited on a sliding scale should the employee leave the service of the
Group within three years of grant date. The market value was determined as the mid market price of the Company’s shares on the

Irish Stock Exchange daily official list on the relevant date.

The following table summarises the share ownership plan activity during 2005, 2004 and 2003.

Outstanding at 1 January

Granted 

Forfeited

Outstanding at 31 December

Number
of
options
‘000

661.5

274.2

(19.1)

916.6

2005
Weighted
average exercise
price 
€

11.97

15.78

15.78

13.03

Number
of
options
‘000

321.0

342.7

(2.2)

661.5

2004
Weighted
average exercise
price 
€

2003
Weighted
of average exercise
price 
€

Number

options
‘000

11.98

11.96

11.96

11.97

-

324.4

(3.4)

321.0

-

11.98

11.98

11.98

AIB Save As You Earn (SAYE) Share Option Scheme UK

The company operates a Save As You Earn Share Option Scheme in the UK. The scheme is open to all employees of AIB Group in

the UK who have completed six months continuous service at the date of grant. Under the Scheme employees may opt to save fixed

amounts on a regular basis, over a three-year period, subject to a maximum monthly saving of Stg £ 250 per employee. At the end of

the three-year period, a tax-free bonus equal to 1.7 times the participant’s monthly contribution is added. In addition, at the end of

the three-year period the participant has 6 months in which to exercise the option and purchase the shares at the option price (fixed

price being the average price per AIB share, on the London Stock Exchange on the day prior to grant date, less 20% discount,); or

the participant may withdraw the savings and bonus amount.

The following table summarises option activity during 2005 and 2004.

2005
Weighted
of average exercise
price
€

Number

options
‘000

2004
Weighted
of average exercise
price
€

Number

options
‘000

Outstanding at 1 January

Granted 

Forfeited

Outstanding at 31 December

Exercisable at 31 December

1,186.5

299.2

(51.0)

1,434.7

-

9.57

13.02

13.02

10.17

-

-

1,221.0

(34.5)

1,186.5
-

-

9.57

9.57

9.57

-

80

203557  02/03/2006  08:23  Page 81

11 Share-based payment schemes (continued)

The binominal option pricing model has been used in estimating the value of the options granted. The expected volatility is based

on historical volatility over the three and a half years prior to the grant of the SAYE options.

The following table details the assumptions used, and the resulting fair values provided by the option pricing model.

Share price at grant date

Exercise price

Vesting period (years)

Expected volatility

Options life (years)

Expected life (years)

Risk-free rate

Expected dividends expressed as a dividend yield

Possibility of ceasing employment before vesting

Fair value per option

2005
€16.28
€13.02
3

27.3%

3.5

3

2.48%

3.8%

17.67%
€3.99

2004
€11.96
€9.57
3

30.5%

3.5

3

3.40%

3.8%

17.67%
€3.26

Long Term Incentive Plans
Under the terms of the AIB Group Long Term Incentive Plan, approved by shareholders at the 2000 Annual General Meeting,
conditional grants of awards of ordinary shares had been made as at 31 December 2005 in respect of 1,305,200 ordinary shares in

aggregate, to 234 employees.These awards will vest in full in the award-holders only if (a) the growth in the Company’s EPS, as

defined in the Rules of the Plan, in any three consecutive years within the five years following the grant is not less than the growth

in the CPI plus 5% per annum, compound, over the same three year period; and (b) the growth in the Company’s core EPS, as

defined in the Rules of the Plan, over the three year period during which the criterion at (a) is satisfied, is such as to position the

Company in the top 20% of the FTSE Eurotop Banks Retail Index. Partial vesting, on a reducing scale, will occur if the growth in

the Company’s core EPS positions the Company outside the top 20% of that Index but still within its top 45%, subject to the

criterion at (a) being satisfied.Vested shares must be held until normal retirement date, except that award-holders may dispose of

shares sufficient to meet the income tax liability arising on vesting. No awards were granted under this scheme and no vesting took

place of existing awards during 2005 or 2004.

During 2005, the AIB Group Performance Share Plan 2005 was introduced on terms approved by the shareholders.This Plan is
designed to provide market-competitive incentives for senior executives, in the context of the Company’s long-term performance

against stretching growth targets and the overall return to shareholders. Conditional awards of shares are made to employees with

vesting to take place on the third anniversary of the grant subject to certain performance conditions.

10% of the shares will vest if EPS performance over a three year period exceeds the growth in Consumer Price Index (CPI) plus

5% per annum with up to 50% vesting on a graduated scale if EPS performance over a three year period exceeds CPI plus 10%. A

further 10% of the shares will vest if the Total Shareholder Return (TSR) of the Group is in the top half of a peer group of 15 banks

with up to 50% vesting on a graduated scale if the TSR of the Group over the same three year period places the Group in the top

three of the peer group. Settlement will take place through the issue/reissue of shares.

During 2005, conditional awards of 290,905 shares in aggregate were granted to nine employees and were outstanding at the end

of the period. In respect of the part of the award subject to the EPS vesting criteria, the market value of the shares at the date of

grant is used to determine the value of the grant, adjusted to take into account the expected vesting. In respect of the part of the

award subject to the Total Shareholder Return vesting criteria, the expense is determined using the expected vesting of the shares.

Income statement expense

The Group attributes a value to the service provided by the employee based on the value of the share option granted. The total
expense arising from share based payment transactions amounted to € 34m in the year ended 31 December 2005 (2004: € 25m).

81

203557  02/03/2006  08:23  Page 82

Notes to the accounts

12 Retirement benefits 

The Group operates a number of pension and retirement benefit plans for employees, the majority of which are funded. These

include defined benefit and defined contribution plans.

Defined benefit schemes

The Group operates a number of defined benefit schemes the most significant being the AIB Group Irish Pension Scheme (the Irish

scheme) and the AIB Group UK Pension Scheme (the UK scheme). Approximately 50 per cent of staff in the Republic of Ireland

are members of the Irish scheme while 47 per cent of staff in the UK are members of the UK scheme. The defined benefit schemes

in Ireland and the UK were closed to new members from December 1997. Retirement benefits for the defined benefit schemes are

calculated by reference to service and pensionable salary at normal retirement date. Independent actuarial valuations, for the main

Irish and UK schemes, are carried out on a triennial basis. The last such valuations were carried out on 30 June 2003 using the

Projected Unit Method. The schemes are funded and contribution rates of 26% and 44.6% have been set for the Irish and UK

schemes respectively with effect from 1 January 2004. The total contribution to the defined benefit pension scheme in 2006 is
estimated to be € 118m approximately. As both these schemes are closed to new entrants under the Projected Unit Method, the
current service cost and the standard contribution rates will increase as members of the schemes approach retirement. The actuarial

valuations are available for inspection only to the members of the schemes.

The following table summarises the financial assumptions adopted in the preparation of these accounts in respect of the main

schemes. The assumptions, including the expected long-term rate of return on assets, have been set based upon the advice of the

Group’s actuary.

Financial assumptions

Irish scheme

Rate of increase in salaries

Rate of increase of pensions in payment

Discount rate

Inflation assumptions

UK scheme

Rate of increase in salaries

Rate of increase of pensions in payment

Discount rate
Inflation assumptions

Other schemes

Rate of increase in salaries

Rate of increase of pensions in payment

Discount rate

Inflation assumptions

as at 31 December
2004
%

2005
%

4.0

2.25

4.30

2.25

4.0

2.75

4.75
2.5

4.0

2.50

4.90

2.50

4.0

2.75

5.30
2.5

4.0  -  4.0

4.0  -  4.25

0.0  -  2.75

0.0  -  2.75

4.30 -  5.75

4.90 -  5.75

2.25 -  2.75

2.5  -  2.75

The mortality assumptions used in estimating the actuarial value of the liabilities are based on the PM/FA92 (c=2020) table.This

reflects the use today of the expected lifetimes of pensioners in the year 2020. The use of this table represents the present best

estimate of future mortality, having taken actuarial advice.

82

203557  02/03/2006  08:23  Page 83

12 Retirement benefits (continued)

The following table sets out on a combined basis for all schemes, the fair value of the assets held by the schemes together with the 

long-term rate of return expected for each class of assets.

as at 31 December 2005

as at 31 December 2004

Equities

Bonds

Property

Cash

Total market value of assets

Actuarial value of liabilities of funded schemes

Deficit in the funded schemes

Unfunded schemes

Net pension deficit

Long term
rate of return
expected
%

7.3

3.6

6.3

2.6

6.5

Value
€ m

2,267

463

287

118

Plan
assets
%

72

15

9

4

3,135

100

(4,272)

(1,137)

(90)

(1,227)

Long term
rate of return
expected
%

7.8

4.1

6.4

3.0

6.9

Plan
assets
%

71

13

11

5

100

Value
€ m

1,780

344

274

130

2,528

(3,356)

(828)

(58)

(886)

At 31 December 2005, the pension scheme assets within equities included AIB shares amounting to € 64m (31 December 2004: € 65m).

Included in the actuarial value of the liabilities is an amount in respect of commitments to pay annual pensions amounting to € 108,341 in
aggregate to a number of former directors.

The following table sets out the components of the defined benefit cost for each of the two years ended 31 December 2005 and 2004.

Included in administrative expenses:

Current service cost

Past service cost 

Settlements and curtailments

Expected return on pension scheme assets

Interest on pension scheme liabilities

Cost of providing defined retirement benefits

The actual return on plan assets during the year ended 31 December 2005 was € 553m (2004: € 270m).

Movement in defined benefit obligation during the year

Defined benefit obligation at beginning of year

Current service cost

Past service cost

Interest cost

Actuarial gains and losses

Benefits paid

Curtailments and settlements

Translation adjustment on non-euro schemes

Defined benefit obligation at end of year

2005
€ m

103

14

(1)

(179)

171

108

2005
€ m

3,414

103

14

171

718

(84)

(1)

27

2004
€ m

91

3

-

(171)

153

76

2004
€ m

2,932

91

3

153

329

(79)

-

(15)

4,362

3,414

83

203557  02/03/2006  08:23  Page 84

Notes to the accounts

12 Retirement benefits (continued)

Movement in the fair value of plan assets during the year

Fair value of plan assets at beginning of year

Expected return

Actuarial gains and losses

Contributions by employer

Benefits paid

Translation adjustment on non-euro schemes

Fair value of plan assets at end of year

Analysis of the amount recognised in the statement of recognised income and expense

Actual return less expected return on pension scheme assets

Experience gains and losses on scheme liabilities

Changes in demographic and financial assumptions

Actuarial loss recognised under IAS 19
Deferred tax

Recognised in the statement of recognised income and expense(1)

(1) Of which € 216m (2004: € 177m) was recognised in the parent company.

History of experience gains and losses

Difference between expected and actual return on scheme assets:

Amount

Percentage of scheme assets

Experience gains and losses on scheme liabilities:

Amount 

Percentage of scheme liabilities

Total amount recognised in SORIE:

Amount 

Percentage of scheme liabilities

Defined benefit pension plans

Funded defined benefit obligation

Plan assets

Deficit/(surplus) within funded plans

Defined contribution schemes

2005
€ m

374

12%

(62)

1%

(344)

8%

2005
€ m

4,272

3,135

1,137

2004
€ m

99

4%

(150)

4%

(230)

7%

2004
€ m

3,356

2,528

828

2003
€ m

93

4%

97

3%

(67)

2%

2003
€ m

2,855

2,225

630

2005
€ m

2,528

179

374

121

(84)

17

2004
€ m

2,249

171

99

102

(79)

(14)

3,135

2,528

2005
€ m

374

(62)

(656)

(344)
59

(285)

2002
€ m

(862)

40%

(18)

1%

(1,003)

35%

2002
€ m

2,879

2,169

710

2004
€ m

99

(150)

(179)

(230)
33

(197)

2001
€ m

(438)

15%

(32)

1%

(502)

19%

2001
€ m

2,645

2,903

(258)

The Group operates a number of defined contribution schemes.The defined benefit schemes in Ireland and the UK were closed 

to new members from December 1997. Employees joining after December 1997 join on a defined contribution basis.The standard

contribution rate in Ireland is 8%.The standard contribution rate in the UK is 5% and these members are also accruing benefits

under SERPS (the State Earnings Related Pension Scheme). The total cost in respect of defined contribution schemes for 2005 was 
€ 25m (2004 € 21m). For Allied Irish Banks, p.l.c. the total cost amounted to € 16m (2004: € 13m).

84

203557  02/03/2006  08:23  Page 85

13 Amounts written off/(written back) financial investments

Debt securities

Equity shares

2005
€ m

1

7

8

2004
€ m

(4)

3

(1)

Debt and equity securities were reclassified at 1 January 2005, as either trading portfolio assets, financial investments available for sale

or loans and receivables under IAS 32 and IAS 39. The amounts written off in 2005 relate to financial instruments available for sale.

The 2004 amounts relate to the balance sheet captions debt securities and equity shares.

14 Construction contract income

In 2005, Blogram Limited a property development company and subsidiary of Allied Irish Banks, p.l.c., contracted with the

Serpentine Consortium to construct on a fixed price contract basis, a new development at Bankcentre, Ballsbridge, Dublin on their
behalf. At 31 December 2005, contract revenue of € 81m less contract expenses of € 36m have been reported as construction
contract income. At 31 December 2005, € 26m was due from the consortium in respect of construction contracts in progress.

A subsidiary of AIB has contracted with the Serpentine Consortium to lease the property on completion at an initial rent of 

€ 16.1m per annum for a period of 33 years with a break clause at year 23.

15 Profit on disposal of businesses

2005
The profit on disposal of businesses in 2005 of € 5m relates to the sale of Community Counselling Services of € 4m (tax charge
€ 1m), and the accrual of € 1m (tax charge € 0.3m), arising from the sale of the Govett business in 2003.

2004
The profit on disposal of businesses in 2004 of € 17m relates to the sale of BZWBK’s subsidiary, CardPoint S.A. of € 13m (tax
charge € 2m), and the accrual of € 4m (tax charge € 1m), arising from the sale of the Govett business in 2003.

16 Auditors’ remuneration

Auditors’ remuneration (including VAT):

Statutory audit

Audit related services

Other services:

Taxation services

Other consultancy

2005
€ m

2.5

1.9

0.8

1.2

2.0

6.4

2004
€ m

1.8

0.4

0.4

0.4

0.8

3.0

Audit related services include fees for assignments which are of an audit nature.These fees include assignments where the Auditors

provide assurance to third parties.

In the year ended 31 December 2005, 43% (2004: 53%) of the total statutory audit fees and 31% (2004: 41%) of the audit related

services fees were paid to overseas offices of the Auditors.

The Group policy on the provision of non-audit services to the bank and its subsidiary companies includes the prohibition on the

provision of certain services and the pre-approval by the Audit Committee of the engagement of the Auditors for non-audit work.

The Audit Committee has reviewed the level of non-audit services fees and is satisfied that it has not affected the independence

of the Auditors. It is Group policy to subject all large consultancy assignments to competitive tender.

85

203557  02/03/2006  08:23  Page 86

Notes to the accounts

17 Group profit before taxation

Is stated after:

Investigation related charges

2005
€ m

-

2004
€ m

50

During 2004, AIB provided € 50m for investigation related charges and costs.The investigation related primarily to the failure to
notify the Regulator as required by law in respect of the application of certain regulated charges on foreign exchange products. An
amount of € 12m was charged to net interest income, € 24m was charged to other income and there was € 14m of costs included
in other administrative expenses.The amount included a refund to customers of approximately € 26m including interest in respect of
notification errors and approximately € 10m including interest in relation to non-regulated charges.

18 Taxation

Allied Irish Banks, p.l.c. and subsidiaries

Corporation tax in Republic of Ireland

Current tax on income for the period(1)

Adjustments in respect of prior periods

Double taxation relief

Foreign tax

Current tax on income for the period

Adjustments in respect of prior periods

Deferred taxation

Origination and reversal of timing differences

Other

Total income tax expense - continuing operations

Effective income tax rate – continuing operations

2005
€ m

2004
€ m

160

1

161

(10)

151

163

(11)
152

303

16

-
16

319

133

(5)

128

(13)

115

181

(11)
170

285

(10)

(8)
(18)

267

18.7%

19.5%

(1)Includes a charge of € 29.5m in relation to the Irish Government bank levy for both years.

Factors affecting the effective income tax rate

The effective income tax rate for 2005 and 2004 is lower than the weighted average of the Group’s statutory corporation tax rates

across its geographic locations.The differences are explained below.

Weighted average corporation tax rate

Effects of:

Expenses not deductible for tax purposes

Exempted income, income at reduced rates and tax credits

Net effect of differing tax rates overseas

Capital allowances in excess of depreciation

Other differences

Tax on associated undertakings
Bank levy in Republic of Ireland
Adjustments to tax charge in respect of previous periods

Effective income tax rate - continuing operations

86

2005
%

20.7

0.4

(1.2)

0.3

0.2

(0.1)

(3.0)

1.7
(0.3)

18.7

2004
%

20.5

3.2

(1.8)

0.3

0.2

0.3

(4.5)
2.1
(0.8)

19.5

203557  02/03/2006  08:23  Page 87

19 Earnings per share

(a) Basic

Profit attributable to equity holders of the parent

Distributions to other equity holders (note 22)

Profit attributable to ordinary shareholders

Weighted average number of shares in issue during the period
Earnings per share

(b) Diluted

Profit attributable to ordinary shareholders

Dilutive impact of potential ordinary shares in associated company

Adjusted profit attributable to ordinary shareholders

Weighted average number of shares in issue during the period

Dilutive effect of options outstanding

Potential weighted average number of shares
Earnings per share - diluted

20 Adjusted earnings per share

(a) Earnings per share

As reported

Adjustments:

Construction contract income

Hedge volatility

Effective interest rate

Insurance business

(b) Earnings per share – continuing operations

As reported

Adjustments:

Construction contract income

Hedge volatility

Effective interest rate

2005
€ m

1,343

(38)

1,305

2004
€ m

1,129

(4)

1,125

864.5m

852.0m
EUR  151.0c EUR  132.0c

2005
€ m

1,305

(1)

1,304

2004
€ m

1,125

–

1,125

Number of shares (millions)

864.5

5.7

852.0

3.1

870.2

855.1
EUR  149.8c EUR  131.5c

2005
cent

Basic
2004
cent

2005
cent

Diluted
2004
cent

151.0

132.0

149.8

131.5

(4.4)

(0.7)

-

-

-

-

(2.5)

(2.4)

(4.4)

(0.7)

–

–

145.9

127.1

144.7

–

–

(2.5)

(2.4)

126.6

2005
cent

Basic
2004
cent

2005
cent

Diluted
2004
cent

145.7

125.8

144.6

125.3

(4.4)

(0.7)

-

140.6

–

–

(2.5)

123.3

(4.4)

(0.7)

–

139.5

–

–

(2.5)

122.8

Adjusted earnings per share is presented to help understand the underlying performance of the Group.The adjustments in 2005 are

items that do not reflect the underlying business performance. As IAS 39 and IFRS 4 have been implemented with effect from 

1 January 2005, the adjustments in 2004 reflect the impact that these standards would have had on the effective interest rate and

insurance business had they been applied from 1 January 2004.

87

203557  02/03/2006  08:23  Page 88

Notes to the accounts

21 Minority interests in subsidiaries

The profit attributable to minority interests is analysed as follows:

Equity interest in subsidiaries

Non-equity interest in subsidiaries (note 52)

2005
€ m

42

48

90

2004
€ m

27

2

29

22 Distributions to other equity holders
Distributions to other equity holders are recognised in equity when declared by the Board of Directors.

In 2005, the distribution on the € 500m Reserve Capital Instruments (RCIs) which were reclassified to equity on 1 January 2005

amounted to € 38m.

The dividend of € 4m in 2004 relates to the US$ 250m non-cumulative preference shares which were reclassified to liabilities on

1 January 2005.

23 Distributions on equity shares
Ordinary shares of € 0.32 each
Final dividend 2004 (2003)

Interim dividend 2005 (2004)

Total

2005

2004
cent per € 0.32 share

38.5
23.0

61.5

35.0

20.9

55.9

2005
€ m

332
200

532

2004
€ m

296

179

475

Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Company’s shareholders, or in the case
of the interim dividend when it has been declared by the Board of Directors. Dividends declared after the balance sheet date are disclosed in
note 67.

24 Treasury bills and other eligible bills
Treasury bills amounting to € 201m were held as available for sale.Their maturity profile is set out in note 55.There was no fair value gain or
loss at 31 December 2005.

25 Trading portfolio financial assets

Loans and receivables to banks

Loans and receivables to customers

Debt securities:

Government securities

Other public sector securities 

Other debt securities 

Equity shares

Of which listed:

Debt securities
Equity instruments

Of which unlisted:

Loans and receivables to banks
Loans and receivables to customers
Equity shares

88

31 December 
2005
€ m

3

72

922

19

9,008

9,949

89

10,113

31 December 
2005
€ m

Group

1 January  31 December
2005
€ m

2005
€ m

Allied Irish Banks, p.l.c.
1 January
2005
€ m

3

72

424

19

9,008

9,451

53

9,579

2

45

570

73

6,705

7,348

26

7,421

2

45

1,048

73

6,705

7,826

84

7,957

Group

1 January  31 December
2005
€ m

2005
€ m

Allied Irish Banks, p.l.c.
1 January
2005
€ m

9,949
79

3
72
10

7,826
78

2
45
6

9,451
48

3
72
5

7,348
23

2
45
3

10,113

7,957

9,579

7,421

203557  02/03/2006  08:23  Page 89

25 Trading portfolio financial assets (continued)

Analysed by residual maturity as follows:

Group

Loans and receivables to banks

Loans and receivables to customers

Debt securities

Allied Irish Banks, p.l.c.

Loans and receivables to banks

Loans and receivables to customers

Debt securities

Within Between one
one year and five years
€ m

€ m

Five years
and over
€ m

3

40

1,884

1,927

3

40

1,419

1,462

-

18

4,652

4,670

-

18

4,619

4,637

-

14

3,413

3,427

-

14

3,413

3,427

2005

Total

€ m

3

72

9,949

10,024

3

72

9,451

9,526

26 Financial assets designated at fair value through profit or loss

On transition to IFRS, certain assets held within Ark Life were designated at fair value through profit or loss. Arising from the

disposal of Ark Life (note 2), at 31 December 2005 these are included within the caption ‘Disposal group and assets classified as held

for sale’ (note 41).

These financial assets were also carried at fair value under Irish GAAP, therefore, there was no change when designated as at fair

value through profit or loss under IFRS.

27 Derivative financial instruments

The objectives, policies and strategies in managing the risks that arise in connection with the use of financial instruments, including

derivative financial instruments, are set out in the Financial review.

Derivatives are used to service customer requirements, to manage the Group’s interest rate, exchange rate and equity exposures

and for trading purposes. Derivative instruments are contractual agreements whose value is derived from price movements in

underlying assets, interest rates, foreign exchange rates or indices.The majority of the Group’s derivative activities are undertaken at

the parent company level and the discussion below applies equally to the parent company and Group.

These instruments involve, to varying degrees, elements of market risk and credit risk which are not reflected in the consolidated

balance sheet. Market risk is the exposure to potential loss through holding interest rate, exchange rate and equity positions in the

face of absolute and relative price movements, interest rate volatility, movements in exchange rates and shifts in liquidity. Credit risk 

is the exposure to loss should the counterparty to a financial instrument fail to perform in accordance with the terms of the contract.

While notional principal amounts are used to express the volume of derivative transactions, the amounts subject to credit risk are

much lower because derivative contracts typically involve payments based on the net differences between specified prices or rates.

Credit risk arises to the extent that the default of a counterparty to the derivative transaction exposes the Group to the need to

replace existing contracts at prices that are less favourable than when the contract was entered into.The potential loss to the Group is

known as the gross replacement cost. For risk management purposes, consideration is taken of the fact that not all counterparties to

derivative positions are expected to default at the point where the Group is most exposed to them.

Credit risk in derivatives contracts is the risk that the Group’s counterparty in the contract defaults prior to maturity at a time

when the Group has a claim on the counterparty under the contract.The Group would then have to replace the contract at the

current market rate, which may result in a loss.

89

203557  04/03/2006  10:10  Page 90

Notes to the accounts

27 Derivative financial instruments (continued)

The following tables present the notional principal amount and the gross replacement cost of interest rate, exchange rate and

equity contracts for 2005 and 2004.

Interest rate contracts(1)

Notional principal amount

Gross replacement cost

Exchange rate contracts(1)

Notional principal amount

Gross replacement cost

Equity contracts(1)

Notional principal amount

Gross replacement cost

2005
€ m

178,326

1,146

€ m

19,799

238

€ m

4,386

253

Group
2004
€ m

141,067

1,059

€ m

15,870

599

€ m

3,575

112

Allied Irish Banks, p.l.c.
2004
€ m

2005
€ m

161,774

1,080

133,896

1,009

€ m

17,133

194

€ m

4,089

253

€ m

13,690

444

€ m

3,575

112

(1)Interest rate and exchange rate contracts are entered into for both hedging and trading purposes. Equity contracts are entered

into for trading purposes only.

The Group uses the same credit control and risk management policies in undertaking all off-balance sheet commitments as it does

for on balance lending including counterparty credit approval, limit setting and monitoring procedures. In addition, in relation to

derivative instruments, the Group’s exposure to market risk is controlled within the risk limits in the Group’s Interest Rate Risk and

Foreign Exchange Risk Policies and is further constrained by the risk parameters incorporated in the Group’s Derivatives Policy as

approved by the Board.

The following table analyses the notional principal amount and gross replacement cost of interest rate, exchange rate and equity

contracts by maturity.

2005

Notional amount

Gross replacement cost

2004

Notional amount

Gross replacement cost

Residual maturity

< 1 year
€ m

1 < 5 years
€ m

5 years +
€ m

Total
€ m

131,780

557

54,060

645

16,671

435

202,511

1,637

100,303

758

46,330

655

13,879

357

160,512

1,770

AIB Group has the following concentration of exposures in respect of notional amount and gross replacement cost of all interest

rate, exchange rate and equity contracts.The concentrations are based primarily on the location of the office recording the

transaction.

Republic of Ireland

United States of America

United Kingdom

Poland

90

Notional amount
2004
€ m

2005
€ m

Gross replacement cost
2004
€ m

2005
€ m

161,589

121,896

1,318

4,134
18,449

18,339

3,268

26,798

8,550

40
184

95

202,511

160,512

1,637

1,316

43

219

192

1,770

203557  04/03/2006  10:11  Page 91

27 Derivative financial instruments (continued)

Trading activities
AIB Group maintains trading positions in a variety of financial instruments including derivatives.These financial instruments include
interest rate, foreign exchange and equity futures, interest rate swaps, interest rate caps and floors, forward rate agreements, and interest
rate, foreign exchange and equity index options. Most of these positions arise as a result of activity generated by corporate customers
while others represent trading decisions of the Group’s derivative and foreign exchange traders with a view to generating incremental
income.The managers and traders involved in financial derivatives have the technical expertise to trade these products and the active
involvement of the traders in these markets allows the Group to offer competitive pricing to customers.

All trading activity is conducted within risk limits approved by the Board. Systems are in place which measure risks and profitability

associated with derivative trading positions as market movements occur. Independent risk control units monitor these risks.

The Group’s credit exposure at 31 December 2005 and 2004 from derivatives held for trading purposes is represented by the fair

value of instruments with a positive fair value (assets in the table on page 92).The risk that counterparties to derivative contracts
might default on their obligations is monitored on an ongoing basis and the level of credit risk is minimised by dealing with
counterparties of good credit standing. All trading instruments are subject to market risk. As the traded instruments are recognised at
market value, these changes directly affect reported income for the period. Exposure to market risk is managed in accordance with
risk limits approved by the Board through buying or selling instruments or entering into offsetting positions.

The Group undertakes trading activities in interest rate contracts with the Group being a party to interest rate swap, forward,
futures, option, cap and floor contracts.The Group’s largest activity is in interest rate swaps.The two parties to an interest rate swap
agree to exchange, at agreed intervals, payment streams calculated on a specified notional principal amount. Forward rate agreements
are also used by the Group in its trading activities. Forward rate agreements settle in cash at a specified future date based on the
difference between agreed market rates applied to a notional principal amount. Most of these contracts have maturity terms up to
one year.

Risk management activities

In addition to meeting customer needs, the Group’s principal objective in holding or issuing derivatives for purposes other than

trading is the management of interest rate and foreign exchange rate risks.

The operations of the Group are exposed to interest rate risk arising from the fact that assets and liabilities mature or reprice at

different times or in differing amounts. Derivatives are used to modify the repricing or maturity characteristics of assets and liabilities

in a cost-efficient manner.This flexibility helps the Group to achieve liquidity and risk management objectives. Similarly, foreign

exchange and equity derivatives can be used to hedge the Group’s exposure to foreign exchange and equity risk, as required.

Derivative prices fluctuate in value as the underlying interest rate, foreign exchange rate, or equity prices change. If the derivatives

are purchased or sold as hedges of balance sheet items, the appreciation or depreciation of the derivatives, will generally be offset by

the unrealised depreciation or appreciation of the hedged items.This means that separate disclosure of market risk on derivatives used

for hedging purposes is not meaningful.

To achieve its risk management objective, the Group uses a combination of derivative financial instruments, particularly

interest rate swaps, futures and options, as well as other contracts. The tables on the pages 92 to 94 present the notional and fair

value amounts, weighted average maturity and weighted average receive and pay rates for instruments held for risk management

purposes entered into by the Group at 31 December 2005 and 2004. The table relating to 31 December 2004 was prepared under

Irish GAAP.

91

203557  02/03/2006  08:23  Page 92

Notes to the accounts

27 Derivative financial instruments (continued)

The following table shows the notional amounts of derivative financial instruments, analysed by product and purpose as at 

31 December 2005 and the fair values of derivative financial instruments, analysed by product and purpose, as at 31 December 2005

and 1 January 2005.

31 December 2005

1 January 2005

Derivatives held for trading

Interest rate derivatives - over the counter (OTC)

Interest rate swaps

Cross-currency interest rate swaps
Forward rate agreements

(1)

Interest rate options

Other interest rate contracts

Total OTC interest rate contracts

Interest rate derivatives - exchange traded

Interest rate futures

Interest rate contracts total

Foreign exchange derivatives - (OTC)

Currency forwards

Currency swaps

Currency options bought & sold

Total OTC foreign exchange derivatives

Foreign exchange derivatives - exchange traded
Foreign exchange traded options

Foreign exchange derivatives total

Equity index contracts (OTC)

Equity index options

Equity index contracts total

Notional
amount
€ m

91,154
1,509

17,056

2,716

178

Assets
€ m

556
766

8

4

-

Fair values

Liabilities
€ m

Fair values

Assets
€ m

Liabilities
€ m

(642)
(754)

(7)

(4)

-

577
679

14

8

-

(637)
(508)

(14)

(8)

-

112,613

1,334

(1,407)

1,278

(1,167)

14,272

126,885

2,451

14,640

2,664

19,755

44

19,799

4,386

4,386

-

(5)

-

(2)

1,334

(1,412)

1,278

(1,169)

8

232

21

261

-

261

254

254

(11)

(216)

(17)

(244)

-

(244)

(123)

(123)

-

567

24

591

-

591

112

112

-

(826)

(25)

(851)

-

(851)

(136)

(136)

Total trading contracts

151,070

1,849

(1,779)

1,981

(2,156)

Derivatives designated as fair value hedges

Interest rate swaps (OTC)

Derivatives designated as cash flow hedges

Interest rate swaps (OTC)

Total hedging contracts

32,923

18,518

51,441

368

222

590

(170)

(18)

(188)

263

337

600

(340)

(45)

(385)

Total derivative financial instruments

202,511

2,439

(1,967)

2,581

(2,541)

(1)

Cross currency interest rate swaps have an exchange of nominals on settlement. Such nominals are therefore shown gross on the

balance sheet.

The total hedging ineffectiveness charged to the income statement on cash flow hedges amounted to € 4.3m.

92

203557  02/03/2006  08:23  Page 93

27 Derivative financial instruments (continued)

These tables present the notional and fair value amounts, weighted average maturity and weighted average receive and pay rates for

instruments held for risk management purposes entered into by the Group for 2005 and 2004.

The table for 2004 was prepared under Irish GAAP and accordingly the classification is that reported in the 2004 Report and

Accounts.

Interest rate derivatives designated as fair 

value hedges

Interest rate swaps:

Pay fixed

1 year or less

1 - 5 years

Over 5 years

Receive fixed

1 year or less

1 - 5 years
Over 5 years

Pay/receive floating

1 year or less

1 - 5 years
Over 5 years

Interest rate derivatives designated 

as cash flows hedges

Interest rate swaps:

Pay fixed

1 year or less

1 - 5 years
Over 5 years

Receive fixed

1 year or less

1 - 5 years
Over 5 years

Notional amount

€ m

1,248

1,902

872

4,022

19,874

170
1,834

21,878

10

5,231
1,782

7,023

284

2,311
266

2,861

2,121

10,714
2,822

15,657

Weighted
average
maturity 
in years

Weighted average rate
Pay
Receive

2005

Fair value

%

%

€ m

0.42

2.52

12.85

4.11

0.27

3.56
14.63

1.50

0.75

2.28
8.17

3.77

0.59

2.97
6.93

3.10

0.52

2.66
6.71

3.10

2.81

3.09

3.44

3.08

3.14

5.00
5.34

3.33

3.69

2.56
2.71

2.60

2.27

2.45
2.38

2.42

4.11

3.87
4.62

4.04

3.99

4.40

5.10

4.42

2.98

4.33
5.11

3.17

3.88

2.51
2.67

2.55

2.99

3.05
3.82

3.12

2.64

2.68
2.56

2.65

(21)

(53)

(62)

(136)

153

14
155

322

-

8
4

12

-

(5)
(9)

(14)

12

131
75

218

93

203557  02/03/2006  08:23  Page 94

Notes to the accounts

27 Derivative financial instruments (continued)

Notional amount 

Interest rate swaps:

Receive fixed

1 year or less

1 - 5 years

Over 5 years

Pay fixed

1 year or less

1 - 5 years

Over 5 years

Pay/receive floating

1 year or less

1 - 5 years
Over 5 years

Forward rate agreements:

Loans

1 year or less

Deposits

1 year or less

Other interest rate derivatives:

1 year or less

1 - 5 years
Over 5 years

€ m

16,640

1,210

2,304

20,154

1,339

3,234

1,640

6,213

500

1,610
600

2,710

1,931

1,931

665

665

22

–
–

22

Weighted 
average
maturity 
in years

Weighted average rate
Receive

Pay

%

%

0.31

2.84

9.38

1.50

0.55

2.94

9.51

4.16

0.42

2.73
10.10

3.94

0.61

0.61

0.99

0.99

0.75

-
-

0.75

2.84

4.53

3.46

3.01

2.13

4.26

2.14
2.18

2.54

2.52

2.52

–

–

2.17

-
-

2.17

2.11

3.95

4.47

4.14

4.27

2.49

–

–

3.38

3.38

6.75

–
–

6.75

2004

Estimated
Fair value

€ m

100

60

107

267

(20)

(132)

(124)

(276)

–

3
–

3

1

1

(2)

(2)

(5)

–
–

(5)

The carrying value of the interest rate derivative financial instruments held for risk management purposes was € 48m.

Netting financial assets and financial liabilities

Derivatives financial instruments are shown on the balance sheet at their fair value, those with a positive fair value are reported as

assets and those with a negative fair value are reported as liabilities.

The Group has a number of master netting agreements in place which allow it to net positive and negative fair values on

derivatives contracts in the event of default by the counterparty. The effect of netting contracts subject to master netting agreements
would reduce the balance sheet carrying amount of derivative assets and liabilities by € 502m.

94

203557  02/03/2006  08:23  Page 95

28 Loans and receivables to banks

Analysed by residual maturity:

Repayable on demand

Other loans and advances by residual maturity:

Over 5 years

5 years or less but over 1 year

1 year or less but over 3 months

3 months or less

Provisions for impairment of loans and receivables (note 30)

Due from subsidiary undertakings:

Subordinated

Unsubordinated

Amounts include:

Reverse repurchase agreements

Due from associated undertakings

Loans and receivables to banks by geographical area

Republic of Ireland

United States of America

United Kingdom

Poland

Rest of the world

Group

Allied Irish Banks, p.l.c.

2005
€ m

316

146

11

376

6,282

7,131

2

7,129

2004
€ m

246

127

30

279

1,860

2,542

2

2,540

2,259

-

272

1

2005
€ m

262

-

11

87

5,203

5,563

-

5,563

117

20,582

20,699

26,262

2,259

-

2005
€ m

4,260

1,366

677

824

2

2004
€ m

171

-

30

229

724

1,154

-

1,154

256

17,081

17,337

18,491

272

-

Group

2004
€ m

1,372

81

685

400

2

7,129

2,540

Under reverse repurchase agreements, the Group has accepted collateral that it is permitted to sell or repledge in the absence of default by
the owner of the collateral. The fair value of collateral received amounted to € 2,259m. The collateral received consisted of government
securities of € 2,171m and other securities of € 88m. There was no collateral sold or repledged at 31 December 2005.

95

203557  02/03/2006  08:23  Page 96

Notes to the accounts

29 Loans and receivables to customers

Group

Loans and receivables to customers

Amounts receivable under finance leases and hire purchase contracts (note 31)

Unquoted securities

Analysed by residual maturity:

Over 5 years

5 years or less but over 1 year

1 year or less but over 3 months
3 months or less

Provisions for impairment of loans and receivables (note 30)

Of which repayable on demand or at short notice

Allied Irish Banks, p.l.c.

Loans and receivables to customers

Amounts receivable under finance leases (note 31)
Unquoted securities

Analysed by residual maturity:

Over 5 years

5 years or less but over 1 year

1 year or less but over 3 months
3 months or less

Provisions for impairment of loans and receivables (note 30)

Due from subsidiary undertakings:

Subordinated

Unsubordinated

Of which repayable on demand or at short notice

31 December
2005
€ m

31 December
2004
€ m

81,171

2,774

1,287

85,232

32,583

22,110

15,192
16,021

85,906
674

85,232

21,245

62,243

2,495

-

64,738

26,349

16,932

10,177
12,038

65,496
758

64,738

16,640

59,198

44,695

67
877

1
-

60,142

44,696

22,204

15,348

9,257
9,926

56,735
314

56,421

83

3,638
3,721

60,142

19,285

16,341

11,344

6,594
7,685

41,964
375

41,589

83

3,024
3,107

44,696

14,881

Amounts include reverse repurchase agreements of € 4m (2004: € 6m). The unwind of the impairment provision discount 
amounting to € 19m is included in the carrying value of loans and receivables to customers. This has been credited to interest income.

96

203557  02/03/2006  08:23  Page 97

29 Loans and receivables to customers (continued)

Impaired loans by division

AIB Bank ROI

AIB Bank GB & NI

Capital Markets

Poland

31 December
2005
€ m

Group

1 January
2005
€ m

308

166

132

262

868

295

154

100

297

846

30 Provisions for impairment of loans and receivables

Specific
€ m

31 December 2005
Total
€ m

IBNR
€ m

Specific
€ m

31 December 2004
Total
€ m

General
€ m

Group

At beginning of period

IFRS transition adjustment

Exchange translation adjustments

Transfer to provisions for liabilities and

commitments

Charge against income statement

Transfer to specific

Amounts written off

Recoveries of amounts written off in

previous years

At end of period

Amounts include:

Loans and receivables to banks (note 28)
Loans and receivables to customers (note 29)

Allied Irish Banks, p.l.c.

At beginning of period

IFRS transition adjustment

Exchange translation adjustments

Internal transfer of loan portfolio

Transfer to provisions for liabilities and charges

Charge against income statement

Transfer to specific

Amounts written off

Recoveries of amounts written off in

previous years

At end of period

478
(3)
13

-

-

95

(72)

3

514

2
512

514

203

(14)

2

9

-

-

120

(88)

1

233

282
(143)
3

-

115

(95)

-

-

162

-
162

162

172

(98)

-

-

-

127

(120)

-

-

81

760
(146)
16

-

115

-
(72)

3

676

2
674

676

375
(112)
2

9

-

127

-

(88)

1

314

443

-

23

-

-

142

(151)

21

478

2
476

478

184

-

-

-

-

-

65

(62)

16

203

323

-

2

(15)

114

(142)

-

-

282

-
282

282

189

-

(1)

-

(15)

64

(65)

-

-

172

The provisions for impairment of loans and receivables in Allied Irish Banks, p.l.c. at 31 December 2005 and 2004 relate to loans 

and receivables to customers only.

766

-

25

(15)

114

-

(151)

21

760

2
758

760

373

-

(1)

-

(15)

64

-

(62)

16

375

97

Group
2004
€ m

Allied Irish Banks, p.l.c.
2004
€ m

2005
€ m

939

1,641

167

2,747

(257)

5

19

44

13

76

(9)

-

67

18

42
7

67

-

-

1

-

-

1

-

-

1

1

-
-

1

-

-

203557  02/03/2006  08:23  Page 98

Notes to the accounts

31 Amounts receivable under finance leases
and hire purchase contracts

Gross receivables

Not later than 1 year

Later than one year and not later than 5 years

Later than 5 years

Total

Unearned future finance income

Deferred costs incurred on origination

2005
€ m

1,004

1,871

146

3,021

(254)

7

Total

2,774

2,495

Present value of minimum payments analysed by residual maturity

Not later than 1 year

Later than one year and not later than 5 years
Later than 5 years

Present value of minimum payments

Provision for uncollectible minimum

payments receivable amounted to:(1)

Unguaranteed residual values accruing to the benefit of the Group

916

1,725
133

2,774

16

12

846

1,489
160

2,495

20

13

(1)Included in the provision for impairment of loans and receivables to customers (note 30).

98

203557  02/03/2006  08:23  Page 99

32 Loans and receivables to customers - 
concentrations of credit risk

Construction and property

Republic of Ireland

United States of America

United Kingdom

Poland

Rest of world

2005
% of total

loans(1)

17.3

0.7

10.3

0.6

0.1

29.0

€ m

14,863

620

8,819

531

101

24,934

2004
% of total

loans(1)

15.3

0.3

8.8

0.6

-

25.0

€ m

10,059

191

5,769

365

-

16,384

The construction and property portfolio is well diversified across the Group’s principal markets by spread of location and individual

customer. In addition, the Group’s outstandings are dispersed across the segments within the construction and property portfolio to

ensure that the credit risk is widely spread.

Residential mortgages

Republic of Ireland

United Kingdom

Poland

2005

% of total

loans(1)

19.9

4.4

0.6

24.9

€ m

17,054

3,802

540

21,396

2004

% of total

loans(1)

20.2

4.7

0.7

25.6

€ m

13,236

3,090

477

16,803

During 2005, € 0.4bn of advances were re-classified as Residential Mortgages from other sectors in the Republic of Ireland.

The residential mortgage portfolio contains high quality lendings which are well diversified by borrower and are represented

across the Group’s principal markets.

(1)Total loans relate to loans and receivables to customers and are gross of provisions and unearned income and exclude money market

funds.

Loans and receivables to customers by geographical area

Republic of Ireland

United States of America

United Kingdom

Poland

Rest of the world

2005
€ m

54,571

2,497

24,210

3,663
291

85,232

Group

2004
€ m

41,494

1,386

18,375

3,365

118

64,738

99

203557  02/03/2006  08:23  Page 100

Notes to the accounts

33 Financial investments available for sale

Financial investments in both debt securities (note 34) and equity shares (note 35) were reclassified at 1 January 2005, as either trading

portfolio assets, financial investments available for sale or loans and receivables under IAS 32 and IAS 39.

The following tables give, for the Group and Allied Irish Banks, p.l.c. at 31 December 2005, the carrying value (fair value) of available

for sale securities by major classifications together with the unrealised gains and losses not recognised in the income statement.

Unrealised

Unrealised Net unrealised

Fair Value Gross Gains Gross (Losses)
€ m

€ m

€ m

Group

Debt securities

Irish government securities

Euro government securities

Non Euro government securities

Non European government securities

U.S.Treasury & U.S. government agencies

Collateralised mortgage obligations

Other asset backed securities

Other investments

Total debt securities
Equity shares

Total

Allied Irish Banks, p.l.c.

Debt securities

Irish government securities

Euro government securities

Non Euro government securities

Non European government securities

U.S.Treasury & U.S. government agencies

Collateralised mortgage obligations

Other asset backed securities

Other investments

Total debt securities

Equity shares

Total

492

3,943

2,877

1,035

516

638
534
6,658

16,693
171

16,864

492

3,529

1,192

1,035

491

638

367

6,343

14,087

5

14,092

10

41

39

13

4

1
2
28

138
64

202

10

27

5

13

4

1

1

28

89

-

89

-

(12)

(1)

(2)

(1)

(1)
-
(14)

(31)
(3)

(34)

-

(11)

(1)

(2)

(1)

(1)

-

(14)

(30)

-

(30)

gains/(losses) Tax effect
€ m

€ m

10

29

38

11

3

-
2
14

107
61

168

10

16

4

11

3

-

1

14

59

-

59

(1)

(6)

(7)

(1)

-

-
-
(2)

(17)
(8)

(25)

(1)

(2)

(1)

(1)

-

-

-

(2)

(7)

-

(7)

Net
after tax
€ m

9

23

31

10

3

-
2
12

90
53

143

9

14

3

10

3

-

1

12

52

-

52

The amount removed from equity and recognised in the income statement in respect of financial assets available for sale amounted to
€ 91m during period (Allied Irish Banks, p.l.c. € 91m).

100

203557  02/03/2006  08:23  Page 101

33 Financial investments available for sale (continued)

Analysis of movements in financial investments available for sale

Group

At 1 January 2005

Exchange translation adjustments

Purchases

Sales

Maturities

Provisions for impairment

Amortisation of (premiums) net of discounts

Movement in unrealised (losses)/gains

At 31 December 2005

Allied Irish Banks, p.l.c.

At 1 January 2005

Exchange translation adjustments
Purchases

Sales

Maturities

Transfer from subsidiary company

Provisions for impairment

Amortisation of (premiums) net of discounts

Movement in unrealised losses

At 31 December 2005

Debt securities analysed by remaining maturity

Due within one year

After one year, but within five years

After five years, but within ten years

After ten years

Total at 31 December 2005

Debt
securities
€ m

Equity
shares
€ m

15,546

650

9,782

(5,068)

(4,122)

(1)

(64)

(30)

174

6

15

(18)

-

(7)

-

1

Total

€ m

15,720

656

9,797

(5,086)

(4,122)

(8)

(64)

(29)

16,693

171

16,864

13,160

563
7,485

(4,939)

(2,075)

19

(1)

(84)

(41)

14,087

Group
€ m

4,825

7,645

2,865

1,358

16,693

2

-
4

-

-

-

(1)

-

-

5

13,162

563
7,489

(4,939)

(2,075)

19

(2)

(84)

(41)

14,092

Allied 
Irish Banks,
p.l.c.
€ m

3,849

6,340

2,540

1,358

14,087

101

203557  02/03/2006  08:23  Page 102

Notes to the accounts

33 Financial investments available for sale (continued)

The following tables give for the Group and Allied Irish Banks, p.l.c. at 31 December 2005, an analysis of the securities portfolio with

unrealised losses not recognised in the income statement, distinguished between unrealised losses of less than 12 months and

unrealised losses outstanding for periods in excess of 12 months.

Fair value

Unrealised losses

Investments 
with 
unrealised losses
of less than
12 months
€ m

Investments 
with
unrealised losses
of more than
12 months
€ m

Group

Debt securities

Euro government securities

Non Euro government securities

Non European government securities

U.S.Treasury & U.S. government agencies

Collateralised mortgage obligations

Other investments

Total debt securities
Equity shares

Total

Allied Irish Banks, p.l.c.

Debt securities

Euro government securities

Non Euro government securities

Non European government securities

U.S.Treasury & U.S. government agencies

Collateralised mortgage obligations
Other investments

Total debt securities
Equity shares

Total

1,804

1,638

137

102

313

1,931

5,925
6

5,931

1,729

234

137

77

313
1,765

4,255
-

4,255

221

196

81

13

43

386

940
-

940

221

96

81

13

43
386

840
-

840

Unrealised
losses
of less
than
12 months
€ m

Unrealised
losses
of more
than
12 months
€ m

Total
€ m

(10)

(1)

-

(1)

(1)

(12)

(25)
-

(25)

(10)

(1)

-

(1)

(1)
(12)

(25)
-

(25)

(2)

-

(2)

-

-

(2)

(6)
(3)

(9)

(1)

-

(2)

-

-
(2)

(5)
-

(5)

(12)

(1)

(2)

(1)

(1)

(14)

(31)
(3)

(34)

(11)

(1)

(2)

(1)

(1)
(14)

(30)
-

(30)

Total
€ m

2,025

1,834

218

115

356

2,317

6,865
6

6,871

1,950

330

218

90

356
2,151

5,095
-

5,095

Available for sale financial investments with unrealised losses of more than twelve months have been assessed for impairment and

based on the credit risk profile of the counterparties involved, it has been determined that impairment has not arisen at this time.

102

203557  02/03/2006  08:23  Page 103

34 Debt securities

Financial investments in both debt securities and equity shares were reclassified at 1 January 2005, as either trading portfolio assets,

financial investments available for sale or loans and receivables under IAS 32 and IAS 39. The following tables show the analyses of

debt securities under Irish GAAP for 2004.

Group

Held as financial fixed assets

Issued by public bodies:

Government securities

Other public sector securities

Issued by other issuers:

Bank and building society certificates of deposit

Other debt securities

Held for trading purposes

Issued by public bodies:

Government securities

Other public sector securities

Issued by other issuers:

Bank and building society certificates of deposit

Other debt securities

Allied Irish Banks, p.l.c.

Held as financial fixed assets

Issued by public bodies:

Government securities

Other public sector securities

Issued by other issuers:

Bank and building society certificates of deposit

Other debt securities

Held for trading purposes

Issued by public bodies:

Government securities

Other public sector securities

Issued by other issuers:

Bank and building society certificates of deposit

Other debt securities

7,101

854

585

7,710

16,250

1,473

73

–

6,705
8,251

24,501

Book
amount

€ m

5,486

692

284

7,093

13,555

562

73

–

6,705

7,340

20,895

Market value is market price for quoted securities and directors’ estimate for unquoted securities.

Book
amount

€ m

Gross
unrealised
gains
€ m

Gross
unrealised
losses
€ m 

137

13

–

119

269

(11)

–

–

(6)

(17)

2004

Market
value

€ m

7,227

867

585

7,823

16,502

1,473

73

–

6,705
8,251

269

(17)

24,753

Gross
unrealised
gains
€ m

Gross
unrealised
losses
€ m

108

12

–

119

239

(11)

–

–

(6)

(17)

2004
Market
value

€ m

5,583

704

284

7,206

13,777

562

73

–

6,705

7,340

239

(17)

21,117

103

203557  02/03/2006  08:23  Page 104

Notes to the accounts

34 Debt securities (continued)

Analysed by remaining maturity

Due within one year

Due one year and over

Total at 31 December 2004

Analysed by listing status

Group

Held as financial fixed assets:

Listed on a recognised stock exchange

Quoted elsewhere

Unquoted

Held for trading purposes:
Listed on a recognised stock exchange

Quoted elsewhere

Unquoted

Group
€ m

4,119

20,382

24,501

2004
Market
value
€ m

Book
amount
€ m

Allied Irish
Banks, p.l.c.
€ m

2,867

18,028

20,895

2004
Market
value
€ m

14,325

12,606

12,825

376

1,801

16,502

-

949

-

952

13,555

13,777

7,340

-

-
7,340

20,895

Book
amount
€ m

14,076

376

1,798

16,250

7,985

266

-
8,251

24,501

In AIB Group debt securities subject to repurchase agreements amounted to € 8,780m at 31 December 2004.

Subordinated debt securities included as financial fixed assets amounted to € 126m.
The unamortised premiums net of discounts on debt securities held as financial fixed assets amounted to € 53m.
The cost of debt securities held for trading purposes amounted to € 8,186m.

In Allied Irish Banks, p.l.c. debt securities subject to repurchase agreements amounted to € 8,600m at 31 December 2004.
The amount of unamortised premiums net of discounts on debt securities held as financial fixed assets was € 162m.
The cost of debt securities held for trading purposes was € 7,279m.

Analysis of movements in debt securities held as financial fixed assets

Cost Discounts and
premiums
€ m

€ m

Amounts
written off
€ m

Group
At 1 January 2004
Exchange translation adjustments
Purchases
Realisations/maturities
Amounts written back to profit and loss account
Amortisation of (premiums) net of discounts 

At 31 December 2004

Allied Irish Banks, p.l.c.
At 1 January 2004
Exchange translation adjustments
Purchases
Realisations/maturities
Amounts written back to profit and loss account 
Amortisation of (premiums) net of discounts

At 31 December 2004

104

12,430
(294)
14,281
(10,174)
–
–

16,243

10,075
(444)
12,381
(8,376)
–
–

13,636

33
1
–
7
–
(24)

17

(42)
(1)
–
31
–
(66)

(78)

(18)
(1)
–
5
4
–

(10)

(13)
1
–
5
4
–

(3)

2004
Book
amount
€ m

12,445
(294)
14,281
(10,162)
4
(24)

16,250

10,020
(444)
12,381
(8,340)
4
(66)

13,555

203557  02/03/2006  08:23  Page 105

35 Equity shares

The following tables show the analysis of equity shares under Irish GAAP for 2004.

Book
amount

€ m

Gross
unrealised
gains
€ m

Gross
unrealised
losses
€ m

Group

Held as financial fixed assets

Listed on a recognised stock exchange

Unquoted

Held for trading purposes

Listed on a recognised stock exchange

Unquoted

Allied Irish Banks, p.l.c.

Held as financial fixed assets

Unquoted

Held for trading purposes

Listed on a recognised stock exchange

Unquoted

5

106

111

1,524

6
1,530

1,641

2

23

3
26

28

Analysis of movements in equity shares held as financial fixed assets

Group

At 1 January 2004

Charge to profit and loss account

Exchange translation adjustments

Purchases

Disposals

At 31 December 2004

15

9

24

(1)

(3)

(4)

24

(4)

–

–

–

–

Cost

€ m

158

-

2

6

(15)

151

2004
Market
value

€ m

19

112

131

1,524

6
1,530

1,661

2

23

3
26

28

Amounts
written
off
€ m

Book
amount

€ m

(42)

(3)

-

-

5

(40)

116

(3)

2

6

(10)

111

105

203557  04/03/2006  10:14  Page 106

Notes to the accounts

36 Interests in associated undertakings

Share of net assets including goodwill

At 1 January

IFRS transition adjustments

Exchange translation adjustments

Purchases

Disposals

Profit for the period

Dividends

Unrealised losses on available for sale assets

Actuarial loss recognised in retirement benefit schemes

Share based payment

Other movements

At 31 December

Included in the Group’s share of net assets of associates is goodwill as follows:

Goodwill

Balance at 1 January

Additions during year(1)

Exchange translation adjustments

At 31 December

2005
€ m

1,379

16

225

3

(4)

149

(41)

(13)

-

7

(65)

1,656

2005
€ m

917

-

141

1,058

2004
€ m

1,361

-

(101)

7

-

132

(37)

-

(1)

6

12

1,379

2004
€ m

981

8

(72)

917

(1) € 5m of the goodwill arising during 2004 relates to the finalisation of the M&T fair value adjustments reflecting an adjustment to
other liabilities, in respect of the dilutive impact of the M&T employee stock options outstanding on AIB’s interest in M&T.The

remainder relates to acquisitions during the year.

Principal associated undertaking

M&T Bank Corporation(2)

Nature of business

Banking and financial services

Registered office:

One M&T Plaza, Buffalo, New York 14203, USA

(Common stock shares of US $0.50 par value each – Group interest 23.8%(2))

(2)The Group interest is held directly by Allied Irish Banks, p.l.c. and carried at cost at € 891m in the parent company balance sheet. AIB accounts
for its share of profits of M&T on the basis of its average interest in M&T throughout the period, which amounted to 23.5% during 2005 (2004:

22.7%).The agreement with M&T provides for the maintenance of AIB’s interest in M&T at 22.5% through share repurchase programmes effected

by M&T and through rights provided to AIB which allow it to subscribe for additional shares in M&T at fair market value.

The fair value of the investment in the Group’s principal associated undertaking at 31 December 2005 was € 2,468 m (2004: € 2,114 m).

106

203557  02/03/2006  08:23  Page 107

36 Interests in associated undertakings (continued)

The summary consolidated income statement, summary balance sheet and contribution of M&T Bank Corporation for 2005 and

2004 under IFRS are as follows:

Year ended
31 December
2004
US $m

Year ended
31 December
2005
US $m

1,613

949

2,562
1,409

1,153
95

1,058
335

723

1,713

967

2,680
1,410

1,270
43

1,227
409

818

31 December
2004
US $m

31 December
2005
US $m

39,508

8,516

367

1,685

50,076

35,493

11,221

762
2,600

50,076

41,698

8,400

337

1,990

52,425

37,144

11,495

903
2,883

52,425

Year ended
31 December
2004
US $m

Year ended
31 December
2005
US $m

240

(82)

158

288

(103)

185

Summary of consolidated income statement

Net interest income 

Other income

Total operating income
Total operating expenses

Group operating profit before impairment provisions
Impairment provisions

Group profit before taxation
Taxation

Group profit after taxation

Summary of consolidated balance sheet

Cash, loans and receivables

Investment securities

Fixed assets

Other assets

Total assets

Deposits

Other borrowings

Other liabilities
Shareholders’ funds

Total liabilities and shareholders’ funds

Contribution of M&T

Gross contribution  

Taxation

Contribution to Group profit before taxation

Year ended
31 December
2005
€ m

Year ended
31 December
2004
€ m

1,372

775

2,147
1,129

1,018
34

984
328

656

1,293

761

2,054
1,130

924
76

848
269

579

31 December
2005
€ m

31 December
2004
€ m

35,346

7,120

286

1,687

44,439

31,486

9,744

765
2,444

44,439

29,005

6,252

270

1,237

36,764

26,058

8,238

559
1,909

36,764

Year ended
31 December
2005
€ m

Year ended
31 December
2004
€ m

230

(82)

148

192

(65)

127

With the exception of M&T, the Group’s interests in associated undertakings are non-credit institutions, are unlisted and are held by

subsidiary undertakings.

In accordance with the European Communities (Credit Institutions: Accounts) Regulations, 1992, Allied Irish Banks, p.l.c. will

annex a full listing of associated undertakings to its annual return to the companies registration office.

107

203557  02/03/2006  08:23  Page 108

Notes to the accounts

37 Shares in Group undertakings

Allied Irish Banks, p.l.c.

At 1 January

Additions

Disposal of subsidiary undertaking

Exchange translation adjustments

At 31 December

At 31 December

Credit institutions
Other

Total – all unquoted

2005
€ m

2004
€ m

225

41

-

5

271

42
229

271

230

–

(5)

–

225

42
183

225

The shares in Group undertakings are included in the accounts on a historical cost basis.

Principal subsidiary undertakings incorporated
in the Republic of Ireland

AIB Capital Markets plc*

AIB Corporate Finance Limited

AIB Finance Limited*

AIB Leasing Limited

AIB Fund Management Limited

AIB Investment Managers Limited

Nature of business

Financial services

Corporate finance

Industrial banking

Leasing

Unit trust management

Investment management

AIB International Financial Services Limited

Ark Life Assurance Company Limited*

Goodbody Holdings Limited

International financial services

Life assurance and pensions business

Stockbroking and corporate finance

*Group interest is held directly by Allied Irish Banks, p.l.c.

The above subsidiary undertakings are incorporated in the Republic of Ireland and are wholly-owned unless otherwise stated.

The issued share capital of each undertaking is denominated in ordinary shares.

108

203557  02/03/2006  08:23  Page 109

37 Shares in Group undertakings (continued)

Principal subsidiary undertakings incorporated
outside the Republic of Ireland

AIB Group (UK) p.l.c.

trading as First Trust Bank in Northern Ireland 
trading as Allied Irish Bank (GB) in Great Britain

Registered office:

4 Queen’s Square, Belfast, BT1 3DJ

Nature of business

Banking and financial services

AIB Bank (CI) Limited*
Registered office:

AIB House, Grenville Street, St. Helier, Jersey, JE4 8WT

Banking services

Bank Zachodni WBK S.A.
Registered office:

Rynek 9/11, 50-950 Wroclaw, Poland
(Ordinary shares of PLN 10 each - Group interest 70.47%)

Banking and financial services

*Group interest is held directly by Allied Irish Banks, p.l.c.

The above subsidiary undertakings are wholly-owned unless otherwise stated.The registered office of each is located in the principal
country of operation.The issued share capital of each undertaking is denominated in ordinary shares.

In presenting details of the principal subsidiary undertakings, the exemption permitted by the European Communities 

(Credit Institutions: Accounts) Regulations, 1992, has been availed of and, in accordance with the regulations, Allied Irish Banks, p.l.c.
will annex a full listing of subsidiary undertakings to its annual return to the companies registration office.

Guarantees given to subsidiaries by Allied Irish Banks, p.l.c.
Each of the companies listed below, and consolidated into these accounts, have availed of the exemption from filing its individual
accounts as set out in Section 17 of the Companies (Amendment) Act 1986. In accordance with the Act, Allied Irish Banks, p.l.c. has
irrevocably guaranteed the liabilities of these subsidiaries.

AIB Capital Markets plc
Allied Irish Securities (Ireland) Limited
AIB Alternative Investment Services Limited
Halderstone Limited
Ark Life Nominees Limited
AIB Capital Management Holdings Limited 
AIB Corporate Banking Limited
AIB Corporate Finance Limited
AIB Corporate Service Limited
AIB Equity Capital Limited
AIB Financial Consultants Limited
AIB I.F.S.C.H.D. Limited
AIB International Consultants Limited
AIB International Financial Services Limited
AIB Services Limited
AIB Stockbrokers Limited
AIB Venture Capital Limited
Allied Combined Trust Limited
Allied Irish Banks (Holdings & Investments) Limited
Allied Irish Capital Management Limited
Allied Irish Nominees Limited

Shamberg Limited
Sillard Limited
Lavworth Limited
Kahn Holdings
Jib Ross Limited
Ark Life Trustees Limited
Co-Ordinated Trustees Limited
Errol Limited
Eyke Limited
First Venture Fund Limited
Goodbody Corporate Finance
Goodbody Economic Consultants Limited
Goodbody Pensioneer Trustees Limited
Goodbody Financial Services Limited
Goodbody Holdings Limited
Goodbody Stockbrokers
Goodbody Stockbroking Nominees Limited
Burford Nominees Ireland Limited
Skerries Nominees Limited
Skyraven Limited
Webbing Ireland Limited

Allied Irish Securities Limited

PPP Projects Limited

109

203557  04/03/2006  10:16  Page 110

Notes to the accounts

38 Intangible assets and goodwill 

Group
Balance at 1 January 2004
Additions
Effect of movements in foreign exchange

Balance at 31 December 2004
Additions
Effect of movements in foreign exchange
Disposals

Balance at 31 December 2005

Amortisation and impairment losses
Balance at 1 January 2004
Amortisation for the year
Impairment charge
Effect of movements in foreign exchange

Balance at 31 December 2004
Amortisation for the year
Impairment charge
Effect of movements in foreign exchange

Balance at 31 December 2005

Net book value
At 1 January 2004
At 31 December 2004
At 31 December 2005

Goodwill
€ m

Software
€ m

Total
€ m

420
-
(2)

418
-
4
(17)

405

-
-
13
(2)

11
-
2
2

15

420
407
390

192
66
1

259
36
8
-

303

75
50
-
1

126
45
-
5

176

117
133
127

612
66
(1)

677
36
12
(17)

708

75
50
13
(1)

137
45
2
7

191

537
540
517

The goodwill relates principally to the acquisition of the holding in Bank Zachodni WBK S.A. (‘BZWBK’).The investment in BZWBK which
is quoted on a recognised stock exchange has been assessed for impairment at 31 December 2005 and 2004.The market value at 31 December
2005 of the shareholding in BZWBK S.A. of € 1.9bn exceeds the carrying amount including goodwill of the investment by € 0.6bn.

The remaining goodwill amounts which relate to unquoted investments, have been assessed for impairment through discounting

projected cash flows with the resultant impairment charge, if any, recognised in the period.

Other intangible assets comprising computer software which is not integral to hardware were reclassified on IFRS transition from

property, plant and equipment. Additionally, internally generated intangible assets were capitalised. Internally generated intangible
assets under construction at 31 December 2005 amounted to € 21m (2004:€ 5m).

Allied Irish Banks, p.l.c.
Balance at 1 January
Additions

Balance at 31 December

Amortisation
Balance at 1 January
Amortisation for period

Balance at 31 December

Net book value at 31 December

2005
€ m 

Software
2004
€ m

132
30

162

75
23

98

64

96
36

132

48
27

75

57

Other intangible assets comprising computer software which is not integral to hardware were reclassified on IFRS transition from
property, plant and equipment. Additionally, internally generated intangible assets were capitalised. Other intangible assets under
construction amounted to € 15m (2004: € nil).

110

203557  02/03/2006  08:23  Page 111

39 Property, plant & equipment

€ m

€ m

Freehold

Long
leasehold

Group

Cost at 1 January 2005

Disposal/transfers of Group undertakings

Additions

Disposals

Exchange translation adjustments

At 31 December 2005

Accumulated depreciation at 1 January 2005

Disposal of Group undertakings

Depreciation charge for the year

Disposals

Exchange translation adjustments

At 31 December 2005

Net book value
At 31 December 2005

537

(51)

21

(19)

10

498

90

-

16

(12)

2

96

402

93

-

7

(1)

-

99

16

-

2

-

-

18

81

Property
leasehold
under 50
years
€ m

Equipment

Total

€ m

€ m

139

(1)

8

-

4

150

85

-

8

-

2

95

55

517

(2)

64

(45)

16

550

350

(2)

57

(33)

10

382

168

1,286

(54)

100

(65)

30

1,297

541

(2)

83

(45)

14

591

706

The net book value of property occupied by the Group for its own activities was € 531m.

Allied Irish Banks, p.l.c.

Cost at 1 January 2005

Additions

Disposals 

Exchange translation adjustments

At 31 December 2005

Accumulated depreciation at 1 January 2005

Depreciation charge for the year

Disposals

Exchange translation adjustments

At 31 December 2005

Net book value
At 31 December 2005

Freehold

Long
leasehold

€ m

€ m

Property
leasehold
under 50
years
€ m

Equipment

Total

€ m

€ m

306

19

(13)

-

312

40

8

-

-

48

264

81

6

-

-

87

13

2

-

-

15

72

56

4

-

2

62

34

4

-

-

38

24

267

43

(10)

-

300

169

32

(8)

2

195

105

710

72

(23)

2

761

256

46

(8)

2

296

465

The net book value of property occupied by the Allied Irish Banks, p.l.c. for its own activities was € 360m.

111

203557  02/03/2006  08:23  Page 112

Notes to the accounts

39 Property, plant & equipment (continued)

€ m

€ m

Freehold

Long
leasehold

Group

Cost at 1 January 2004

Disposal of Group undertaking

Additions

Disposals

Exchange translation adjustments

At 31 December 2004

Accumulated depreciation at 1 January 2004

Disposal of group undertaking

Depreciation charge for the year

Impairment losses

Disposals
Exchange translation adjustments

At 31 December 2004

Net book value
At 31 December 2004

513

-

19

(16)

21

537

69

-

14

9

(10)
8

90

447

90

-

3

-

-

93

13

-

3

-

-
-

16

77

The net book value of property occupied by the Group for its own activities was € 516m.

Property
leasehold
under 50
years
€ m

Equipment

Total

€ m

€ m

130

-

13

(3)

(1)

139

79

-

6

-

-
-

85

54

631

(7)

33

(174)

34

517

450

(6)

59

-

(172)
19

350

1,364

(7)

68

(193)

54

1,286

611

(6)

82

9

(182)
27

541

167

745

Allied Irish Banks, p.l.c.

Cost at 1 January 2004

Additions

Disposals 

Exchange translation adjustments

At 31 December 2004

Accumulated depreciation at 1 January 2004

Depreciation charge for the year
Disposals

At 31 December 2004

Net book value
At 31 December 2004

Freehold

€ m

293

15

(2)

-

306

34

7
(1)

40

266

Long
leasehold

€ m

Property
leasehold
under 50
years
€ m

Equipment

Total

€ m

€ m

79

2

-

-

81

11

2
-

13

68

52

5

-

(1)

56

27

7
-

34

22

393

32

(158)

-

267

296

28
(155)

169

817

54

(160)

(1)

710

368

44
(156)

256

98

454

The net book value of property occupied by Allied Irish Banks, p.l.c. for its own activities was € 342m.

112

203557  02/03/2006  08:23  Page 113

39 Property, plant & equipment (continued)

At 1 January 2004, on transition to IFRS, computer software which is not integral to hardware was reclassified from equipment to
intangible assets (net book value € 88m), for Allied Irish Banks, p.l.c. the reclassified amount was net book value € 39m.

Property leased to others had a book value of € 7m (2004: € 11m). Included in the carrying amount of property and
equipment are expenditure recognised for both property and equipment in the course of construction amounting to € 4m and 
€ 6m respectively (2004: €19m and €3m). In Allied Irish Banks, p.l.c. these amounts were € 3m and € 5m respectively 
(2004: € 18m and Nil).

40 Deferred taxation

Deferred tax assets:

Provision for impairment of loans and receivables

Amortised income

Debt securities

Retirement benefits

Timing difference on provisions for future

commitments in relation to the funding of

Icarom plc (under Administration)

Other

Total gross deferred tax assets

Deferred tax liabilities:

Assets leased to customers

Assets used in the business

Debt securities

Cash flow hedges
Other

Total gross deferred tax liabilities

Net deferred tax assets

Represented on the balance sheet as follows:

Deferred tax assets

Deferred tax liabilities

2005
€ m

(84)

(3)

-

(221)

(9)
(30)

(347)

45

34

19

28
-

126

(221)

(253)

32

(221)

Group
2004
€ m

Allied Irish Banks, p.l.c.
2004
€ m

2005
€ m

(99)

(28)

(11)

(165)

(10)

-

(313)

46

7

22

-
62

137

(176)

(228)

52

(176)

(10)

(14)

(1)

(97)

(9)
(32)

(163)

-

25

-

24
-

49

(114)

(114)

-

(114)

(24)

(8)

(8)

(68)

(10)

(28)

(146)

-

36

-

-
-

36

(110)

(110)

-

(110)

For each of the years ended 31 December, 2005 and 2004 full provision has been made for capital allowances and other temporary

timing differences.

Analysis of movements in deferred taxation

At 1 January

IFRS transition adjustment

Exchange translation and other adjustments

Deferred tax through equity

Income statement taxation credit (note 18)

At 31 December

2005
€ m

(176)

10

(11)

(60)

16

(221)

Group
2004
€ m

Allied Irish Banks, p.l.c.
2004
€ m

2005
€ m

(107)

-

(22)

(29)

(18)

(176)

(110)

18

-

(36)

14

(114)

(77)

-

(1)

(23)

(9)

(110)

Deferred tax assets have not been recognised in respect of tax losses amounting to € 49m (2004: € 43m); Allied Irish Banks, p.l.c.
€ nil (2004: € nil). The net deferred tax asset on items recognised directly in equity amounted to € 144m (2004: € 142m);
Allied Irish Banks, p.l.c. € 52m (2004: € 48m).

113

203557  04/03/2006  10:23  Page 114

Notes to the accounts

41 Long-term assurance business

On 22 November 2005, AIB announced that it had agreed the terms of a joint venture with Aviva Group p.l.c for the manufacture

and distribution of life and pensions products in the Republic of Ireland. The joint venture brings together Hibernian Life &

Pensions Limited and Ark Life Assurance Company Limited (‘Ark Life’).

As set out in note 2, the income from Ark Life that is determined to relate to discontinued operations is shown, on an after tax

basis, as a one line item on the face of the income statement. Prior year numbers have been restated.

Ark Life assets and liabilities have been included in the balance sheet at 31 December 2005 as a disposal group classified as held

for sale. Comparatives have not been restated.

Methodology

2005

International Financial Reporting Standard 4, Insurance Contracts, (IFRS 4) requires all products issued to be classified for

accounting purposes as either insurance or investment contracts, depending on whether significant insurance risks exist. In the case

of a life contract, insurance risk exists if the amount payable on the occurrence of an insured event exceeds the assets backing the

contract, or could do so in certain circumstances, and the product of the probability of the insured event occurring and the excess

amount payable has commercial substance. In particular, guaranteed equity bonds which guarantee a return of the original premium

irrespective of the current value of the backing assets are deemed to be insurance contracts notwithstanding that at the balance sheet

date there may be no excess of the original premium over the backing assets. Insurance contracts will continue to be accounted for

under the Company’s existing accounting policies, namely the embedded value method.

For contracts which are not insurance contracts the appropriate IFRS standards, and in particular IAS 18 ‘Revenue’ (‘IAS 18’) and

IAS 39 ‘Financial instruments: recognition and measurement’, (‘IAS 39’) are applied. Unit linked liabilities are deemed equal to the

value of units attaching to contracts at the balance sheet date. Certain upfront fees and charges have been deferred and included

within an explicit deferred income reserve. Whilst IAS 18 does allow for the deferral of directly variable acquisition costs such as

commissions, no such deferrable costs exist upon Group consolidation.

2004

The value of the shareholders interest in the long-term assurance business (‘the embedded value’) is comprised of the net tangible

assets of Ark Life Assurance Company Limited (‘Ark Life’), including any surplus retained in the long-term business funds, which

could be transferred to shareholders, and the present value of the in-force business.The value of the in-force business is calculated by

projecting future surpluses and other net cash flows attributable to the shareholder arising from business written by the balance sheet

date and discounting the result at a risk discount rate.

Surpluses arise following annual actuarial valuations of the long-term business funds, which are carried out in accordance with

the statutory requirements designed to ensure and demonstrate the solvency of the funds. Future surpluses will depend on 

experience in a number of areas such as investment returns, lapse rates, mortality and administrative expenses. Surpluses can be 

projected by making realistic assumptions about future experience, having regard to both actual experience and forecast long-term

economic trends. Other net cash flows principally comprise annual management charges and other fees levied upon the 

policyholders by Ark Life.

114

203557  02/03/2006  08:23  Page 115

41 Long-term assurance business (continued)

Income and expense from long-term assurance business included in the income statement is set out below:

Income and expense from Ark Life’s long-term assurance business

Net interest income

Other income

Total operating income

Increase in insurance and investment contract liabilities, and claims
Total operating expenses

Income before taxation
Taxation

Income after taxation

Analysed as to:

Continuing operations

Discontinued operations

2005
€ m

113

740

853

762
27

64
4

60

14

46

2004
€ m

62

342

404

309
26

69
6

63

10

53

Some elements of the Ark Life business are being retained within the Group and this gives rise to the difference between the amounts

recognised above and those disclosed as discontinued operations.

Assumptions

As explained above insurance contracts continue to be valued using embedded value principles. Following a review of demographic

experience and having regard to the less than 50 bp change in bond yields during the year the demographic and economic

assumptions were left unchanged. Maintenance expense assumptions were increased for one year’s inflation.

The principal economic assumptions are as follows:

Risk adjusted discount rate

Weighted average investment return

Future expense inflation

Corporation tax rate

2005
%

7.5

5.875

4.0

12.5

2004
%

7.5

5.875

4.0

12.5

115

203557  02/03/2006  08:23  Page 116

Notes to the accounts

41 Long-term assurance business (continued)

Balance sheet

The assets and liabilities of Ark Life included in the consolidated balance sheet of the Group are as follows:

Assets

Loans and receivables to banks

Assets held at fair value through profit or loss

Debt securities

Equity shares

Property, plant and equipment

Reinsurance assets

Placings with group companies

Other assets

Total assets

Liabilities

Investment contract liabilities

Insurance contract liabilities

Other liabilities

Total liabilities

Shareholders’ equity

Total liabilities and shareholders’ equity

Presentation in the Group balance sheet

31 December
2005
€ m

1 January
2005
€ m

31 December
2004
€ m

191

2,638

–

–

52

748

1,428

371

5,428

2,953

1,923

215

5,091

337

5,428

220

1,871

–

–

51

601

1,246

255

4,244

2,422

1,465

75

3,962

282

4,244

220

–

425

1,446

51

–

1,246

440

3,828

2,422

864

75

3,361

467

3,828

Holdings of shares in Allied Irish Banks, p.l.c., (by the parent or subsidiary companies), for any reason, are deducted in arriving at
shareholders’ equity. At 31 December 2005, shares in AIB with a value of € 77m (2004: € 74m) were held within the long-term
business funds to meet the liabilities to policyholders.

Long-term assurance assets attributable to policyholders are presented in the Group balance sheet net of the carrying value of the 

shares in AIB held within the fund. Group shareholders’ funds have been reduced by a similar amount.

116

203557  02/03/2006  08:23  Page 117

42 Deposits by banks

Securities sold under agreements to repurchase 

Other borrowings from banks

Of which:

Domestic offices

Foreign offices

With agreed maturity dates or periods of notice,

by remaining maturity:

Over 5 years

5 years or less but over 1 year

1 year or less but over 3 months

3 months or less but not repayable on demand

Repayable on demand

Due to subsidiary undertakings

Amounts include:
Due to associated undertakings

2005
€ m

11,038

18,291

29,329

27,401

1,928

29,329

53

517

2,271

25,843
28,684
645

29,329

Group
2004
€ m

8,523

11,905

20,428

18,450

1,978

20,428

555

50

6,456

13,014

20,075
353

20,428

Allied Irish Banks, p.l.c.
2004
€ m

2005
€ m

10,785

33,046

43,831

8,421

26,027

34,448

7

460

2,114

25,547
28,128
369

28,497

15,334

43,831

527

–

6,368

12,787

19,682
255

19,937

14,511

34,448

-

2

-

2

At 31 December 2005 € 930m (2004: € 920m) of the deposits by credit institutions comprise the bank’s obligations to the Central
Bank and Financial Services Authority of Ireland (‘CBFSAI’) under the terms of the Mortgage Backed Promissory Note (‘MBPN’)

programme. These obligations have been secured by way of a first floating charge to the CBFSAI over all its right, title, interest and
benefit, in € 1,193m (2004: € 1,192m) of loans and receivables to customers. Otherwise than with the prior written consent of the
CBFSAI, the bank has pledged under the terms of the floating charge to maintain the assets so charged free from any encumbrance

and otherwise than in the ordinary course of business not to sell, transfer, lend or otherwise dispose of any part of the charged assets.

Securities sold under agreements to repurchase are secured by Irish Government stock, US Treasury and US Government agency

securities and mature within three months.

The aggregate market value of all securities sold under agreements to repurchase did not exceed 10% of total assets and the

amount at risk with any individual counterparty or group of related counterparties did not exceed 10% of total stockholders’ equity.
The carrying amount of financial assets pledged as security for liabilities amounted to € 11,265m (Allied Irish Banks, p.l.c.

€ 11,012m).

117

2005
€ m

20,909

8,013

28,118

57,040

6

5,534

5,540

Group
2004
€ m

17,099

7,321

22,736

47,156

77

2,918

2,995

Allied Irish Banks, p.l.c.
2004
€ m

2005
€ m

13,068

6,018

18,046

37,132

-
5,534

5,534

10,886

5,433

14,269

30,588

-

4,139

4,139

62,580

50,151

42,666

34,727

7,816

2,086

6,522

1,920

32,977

19,701

62,580

200

2,308

3,573

28,130

34,211

28,369

62,580

25,425

16,284

50,151

276

2,321

2,297

20,812

25,706

24,445

50,151

150

1,851

2,355

17,083

21,439

19,074

40,513

2,153

42,666

240

2,920

1,171

12,690

17,021

16,312

33,333

1,394

34,727

38

23

7

8

203557  02/03/2006  08:23  Page 118

Notes to the accounts

43 Customer accounts

Current accounts

Demand deposits

Time deposits

Securities sold under agreements to repurchase

Other short-term borrowings

Of which:

Non-interest bearing current accounts

Domestic offices

Foreign offices

Interest bearing deposits, current accounts and 

short-term borrowings

Domestic offices

Foreign offices

Analysed by remaining maturity:

Over 5 years

5 years or less but over 1 year

1 year or less but over 3 months

3 months or less but not repayable on demand

Repayable on demand

Due to subsidiary undertakings

Amounts include:
Due to associated undertakings

118

203557  02/03/2006  08:23  Page 119

44 Trading portfolio financial liabilities

Debt securities

Government securities

Corporate listed

Equity instruments - listed

31 December
2005
€ m

Group
1 January
2005
€ m

Allied Irish Banks, p.l.c.
1 January
2005
€ m

31 December
2005
€ m

219

2

221

19

240

309

4

313

19

332

219

2

221

9

230

219

4

223

6

229

At 31 December 2005 and 1 January 2005 the debt securities within trading portfolio financial liabilities had a residual maturity 

of less than one year.

45 Debt securities in issue

Bonds and medium term notes:

European medium term note programme
Other medium term notes

Other debt securities in issue:

Commercial paper

Commercial certificates of deposit

Analysed by remaining maturity 

Bonds and medium term notes:

5 years or less but over 1 year

1 year or less but over 3 months

3 months or less

Other debt securities in issue:

5 years or less but over 1 year

1 year or less but over 3 months

3 months or less

2005
€ m

6,656
209

6,865

718

10,028
10,746

17,611

6,792

51

22

6,865

1,578

3,402

5,766
10,746

17,611

Group
2004
€ m

3,250
288

3,538

1,187

7,080
8,267

11,805

3,423

115

-

3,538

676

2,016

5,575
8,267

11,805

Allied Irish Banks, p.l.c.
2004
€ m

2005
€ m

6,656
-

6,656

-

10,028
10,028

16,684

3,250
-

3,250

-

7,080
7,080

10,330

6,656

3,250

-

-

-

-

6,656

3,250

1,578

3,388

5,062
10,028

16,684

676

2,016

4,388
7,080

10,330

119

203557  02/03/2006  08:23  Page 120

Notes to the accounts

46 Other liabilities

Notes in circulation

Future commitments in relation to the funding of Icarom(1)

Other

Group

Allied Irish Banks, p.l.c.

31 December
2005
€ m

1 January
2005
€ m

31 December
2005
€ m

1 January
2005
€ m

484
69
1,046

1,599

450

78
1,065

1,593

-

69

410

479

–

78

437

515

(1)The provision represents the present value of the cost of the future commitments arising under the 1992 agreement in relation to

the funding of Icarom. A discount rate of 3.21% was applied in the year ended 31 December 2005 (2004: 4.185%) in discounting the
cost of the future commitments arising under this agreement.The undiscounted amount was € 78m (2004: € 89m).The unwinding
of the discount on the provision amounted to € 2.3m (2004: € 3.4m).

47 Provisions for liabilities and commitments

Liabilities and
commitments
€ m

Other
provisions
€ m

Total
€ m

Group
At 1 January 2005

Exchange translation adjustments

Amounts charged to income statement

Amounts written back to income statement
Provisions utilised 

At 31 December 2005

Allied Irish Banks, p.l.c.

At 1 January 2005

Exchange translation adjustments

Amounts charged to income statement

Amounts written back to income statement

Provisions utilised

At 31 December 2005 

47
-

28

(8)
(17)

50

45

-

24

(5)

(18)

46

75
1

47

(15)
(18)

90

55

1

36

(11)

(8)

73

122
1

75

(23)
(35)

140

100

1

60

(16)

(26)

119

120

203557  02/03/2006  08:23  Page 121

48 Subordinated liabilities and other capital instruments

Allied Irish Banks, p.l.c.

Undated loan capital

Dated loan capital

US $250m non-cumulative preference shares

Reserve capital instruments

Undated loan capital

US $100m Floating Rate Notes, Undated

US $100m Floating Rate Primary Capital Perpetual Notes, Undated
€ 200m Fixed Rate Perpetual Subordinated Notes
Stg £400m Perpetual Callable Step-Up Subordinated Notes

Dated loan capital

European Medium Term Note Programme:

US $250m Floating Rate Notes due January 2010
€ 250m Floating Rate Notes due January 2010
€ 100m Floating Rate Notes due August 2010
€ 200m Floating Rate Notes due June 2013 
US $400m Floating Rate Notes due July 2015
€ 400m Floating Rate Notes due March 2015
€ 500m Callable Subordinated Step-up Floating Rate Notes due 2017
Stg £500m Callable Subordinated Fixed/Floating Rate Notes due March 2025
Stg £350m Fixed Rate Notes due November 2030

The dated loan capital outstanding is repayable as follows:

In one year or less

Between 1 and 2 years

Between 2 and 5 years

In 5 years or more

31 December
2005
€ m

1 January
2005
€ m

31 December
2004
€ m

868

2,678

210

-

3,756

-

85

199

584

868

-
-

-

200

338

400

499

730
511

346

1,923

182

-

2,451

74

73

199

-

346

184

250

100

200

293

400

-

-
496

346

1,923

-

497

2,766

74

73

199

-

346

184

250

100

200

293

400

-

-
496

2,678

1,923

1,923

31 December
2005
€ m

1 January
2005
€ m

31 December
2004
€ m

–

–

–

2,678

2,678

434

–

–

1,489

1,923

434

–

–

1,489

1,923

The loan capital of the Bank is unsecured and is subordinated in right of payment to the ordinary creditors, including depositors,

of the Bank.

121

203557  04/03/2006  10:25  Page 122

Notes to the accounts

48 Subordinated liabilities and other capital instruments (continued)

Undated loan capital 

The US$ 100m Floating Rate Notes, Undated were redeemed on 30 November 2005.The US$ 100m Floating Rate Primary

Capital Perpetual Notes have no final maturity but may be redeemed at par at the option of the Bank, with the prior approval 

of the Irish Financial Services Regulatory Authority (‘IFSRA’). Interest is payable quarterly on the US$ 100m Floating Rate 
Primary Capital Perpetual Notes.The € 200m Fixed Rate Perpetual Subordinated Notes, with interest payable annually, have 
no final maturity but may be redeemed at the option of the Bank, with the prior approval of the IFSRA, on each coupon payment

date on or after 3 August 2009. The Stg £ 400m Perpetual Callable Step-Up Subordinated Notes with interest payable annually up

to 1 September 2015, and with interest payable quarterly thereafter, have no final maturity but may be redeemed at the option of the

Bank, with the prior approval of the IFRSA, on 1 September 2015 and every interest payment date thereafter.

Dated loan capital

The European Medium Term Note Programme is subordinated in right of payment to the ordinary creditors, including depositors,
of the Bank.The US$ 250m Floating Rate Notes were redeemed on 24 January 2005, the € 250m Floating Rate Notes were
redeemed on 25 January 2005 and the € 100m Floating Rate Notes were redeemed on 2 August 2005.The € 200m Floating Rate
Notes, with interest payable quarterly, may be redeemed, in whole but not in part, on 12 June 2008 and on each interest payment

date thereafter. The US$ 400m Floating Rate Notes, with interest payable quarterly, may be redeemed, in whole but not in part,
on any interest payment date falling in or after July 2010. The € 400m Floating Rate Notes with interest payable quarterly, may be
redeemed, in whole but not in part, on any interest payment date falling in or after March 2010. The € 500m Callable Subordinated
Step-Up Floating Rate Notes with interest payable quarterly may be redeemed in whole but not in part on any interest payment date

falling in or after 24 October 2017.The STG£ 500m Subordinated Callable Fixed/Floating Rate Notes, with interest payable

annually, up to 10 March 2020 and with interest payable quarterly from 10 June 2020 thereafter may be redeemed, in whole but not

in part on any interest payment date falling in or after 10 March 2025. The Stg £ 350m Fixed Rate Notes, with interest payable

annually in arrears on 26 November in each year, may be redeemed, in whole but not in part, on the 26 November 2025 and on

each interest payment date thereafter. In all cases, redemption prior to maturity is subject to the necessary prior approval of the

IFSRA.There is no exchange exposure as the proceeds of these notes are retained in their respective currencies.

US$ 250m non-cumulative preference shares 

In 1998, 250,000 non-cumulative preference shares of US$ 25 each were issued at a price of US$ 995.16 per share raising 

US$ 248.8m before expenses.The holders of the non-cumulative preference shares are entitled to a non-cumulative preferential

dividend, payable quarterly in arrears, at a floating rate equal to 3 month dollar LIBOR plus 0.875% on the liquidation preference

amount of US$ 1,000 per share.The preference shares are redeemable at the option of the Bank, and with the agreement of the Irish

Financial Services Regulatory Authority, on or after 15 July 2008 (i) in whole or in part or (ii) prior to that date in certain

circumstances in whole, but not in part. In each case, the preference shares will be redeemed at a price equal to US$ 1,000 per share

(consisting of a redemption price of US$ 995.16 plus a special dividend of US$ 4.84 per share), plus accrued dividends.

Prior to transition to IFRS, at 1 January 2005, the US$ 250m non-cumulative preference shares were included in shareholders

funds, however, because of the terms within this instrument they have been reclassed to subordinated liabilities under IFRS.

Reserve capital instruments (RCIs)

On transition to IFRS at 1 January 2005, the Reserve capital instruments were reclassified to equity and are included in other equity

interests (note 51).

122

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49 Share capital

Ordinary share capital
Ordinary shares of € 0.32 each

Authorised:

Issued:

Movements in ordinary share capital

At 1 January

New shares issued during year - see below

At 31 December

1,160 million shares (2004: 1,160 million)

918 million shares (2004: 918 million)

2005
€ m

2004
€ m

294

294

-

294

294

290

4

294

During the year ended 31 December 2004, the number of ordinary shares in issue was increased from 907,621,316 to 918,435,570,

through the allotment of 10,814,254 shares under the Company’s dividend reinvestment plan, as follows:

(a) 6,443,950 shares were allotted to shareholders, at € 12.20 per share, in respect of the final dividend for the year ended 
31 December 2003; and
(b) 4,370,304 shares were allotted to shareholders, at € 12.77 per share, in respect of the interim dividend for the year ended 
31 December 2004.

These allotments were made in lieu of dividends amounting to € 134.4m.

Preference share capital

The company has authorisation from shareholders to issue preference share capital as follows:

20m non-cumulative preference shares of US$ 25 each
200m non-cumulative preference shares of € 1.27 each
200m non-cumulative preference shares of Stg £ 1 each

200m non-cumulative preference shares of Yen 175 each

The company has issued 250,000 non-cumulative preference shares of US$ 25 each which were reclassified as liabilities on

transition to IFRS.

50 Own shares

Share repurchases

At the 2005 Annual General Meeting, shareholders granted authority for the Company, or any subsidiary, to make market purchases of up to

90 million ordinary shares of the Company, subject to the terms and conditions set out in the relevant resolution. During the year ended 31

December 2005, ordinary shares previously purchased under a similar authority, and held as Treasury shares, were re-issued as follows:

At 1 January 

Shares re-issued under:

AIB Share Option Schemes

Allfirst Financial Stock Option Plan

AIB Approved Employee Profit Sharing Schemes

At 31 December 

2005

2004

48,889,789

55,534,156

3,487,950

26,400

1,835,842
5,350,192

4,338,350

29,600

2,276,417
6,644,367

43,539,597

48,889,789

123

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Notes to the accounts

50 Own shares (continued)

Share repurchases (continued)
In addition, 5.6 million ordinary shares were purchased by a subsidiary undertaking in 1997 at a cost of € 42m, on which the related
dividend entitlements have been waived.

The cost of share repurchases less proceeds of shares reissued has been charged to the profit and loss account reserve.
The shares issued during 2005 to participants in the AIB share option schemes were issued at prices of € 10.02,€ 11.90 and 

€ 12.20 per share.The consideration received for these shares was € 36.8m

The consideration received for the shares issued during 2005 on the exercise of Dauphin converted options to participants in the

Allfirst Financial Inc. Stock Option Plan was € 0.2m.

During 2005, the Company re-issued from its pool of Treasury Shares 1,835,842 ordinary shares to the Trustees of the employees’

profit sharing schemes, at € 15.78 per share.The consideration received for these shares was € 29m.

Allfirst Financial Inc. Stock Option Plan

Under the terms of the Agreement and Plan of Merger between the Company, First Maryland Bancorp (subsequently renamed

“Allfirst”) and Dauphin Deposit Corporation (“Dauphin”, subsequently renamed “Allfirst”), approved by shareholders at the 1997

Annual General Meeting, options to purchase Dauphin shares which were outstanding immediately prior to the merger were

converted, at the holders’ elections, into either cash or options to purchase a similar number of AIB American Depositary Shares

(“converted options”). On 1 April 2003, the merger of Allfirst Financial Inc. (“Allfirst”) with M&T Bank Corporation (“M&T”) 

was completed, pursuant to the Agreement and Plan of Reorganisation dated 26 September 2002 by and among the Company,

Allfirst and M&T. Under the terms of that Agreement, Dauphin converted options outstanding immediately prior to the merger

(over 321,598 ordinary shares) remained in force.

At 31 December 2005, converted options were outstanding over 80,598 ordinary shares.

Employee share schemes and trusts

The Group sponsors a number of employee share plans whereby purchases of shares are made in the open market to satisfy commitments

under the schemes.

At 31 December 2005, 2.2m shares (2004: 2.5m) were held by trustees with a book value of € 26.0m (2004: € 25.5m), and a market
value of € 39.9m (2004: € 38.5m).The book value is deducted from the profit and loss account reserve while the shares continue to be
held by the Group.

The Group sponsors SAYE schemes for eligible employees in the UK, the Isle of Man and Channel Islands.The trustees of the

schemes have borrowed funds from Group companies, interest free, to enable them to purchase Allied Irish Banks, p.l.c. ordinary

shares in the open market.These shares are used to satisfy commitments arising under the schemes.The trustees receive dividends on

the shares which are used to meet the expenses.The cost of providing these shares is charged to the profit and loss account on a 

systematic basis over the period that the employees are expected to benefit. At 31 December 2005, 1.4 million shares (2004: 1.0 million)
were held by the trustees with a book value of € 17.9m (2004: € 10.5m) and a market value of € 25.1m (2004: € 15.2m).

In 2001, the AIB Group Employee Share Trust was established to satisfy commitments arising under the AIB Group Long-Term

Incentive Plan (LTIP). Funds are provided to the trustees to enable them to purchase Allied Irish Banks, p.l.c. ordinary shares in the open

market. The trustees have waived their entitlement to dividends.At 31 December 2005, 0.2m shares (2004: 0.2m) were held by the
trustees with a book value of € 1.3m (2004: € 1.3m) and a market value of € 3.6m (2004: € 3.1m).

Prior to its disposal to M&T Bank Corporation, Allfirst Financial, Inc. sponsored the Allfirst Stock Option Plans, for the benefit

of key employees of Allfirst. At 31 December 2002, Allfirst had lent US$ 178m to a trust to enable it to purchase Allied Irish Banks,

p.l.c. ordinary shares in the form of American Depositary Shares in the open market.The shares purchased are used to satisfy options

which have been granted to Allfirst employees. Proceeds of option exercises are used to repay the loan to the trust. Under the terms

of the trust, the trustees receive dividends on the shares which are used to meet the expenses of the trust. A similar scheme operated

for certain eligible employees of AIB’s US operations. At 31 December 2005, 0.6 million (2004:1.4m) ordinary shares were held by
the trust with a cost of € 6.7m (2004:€ 13.3m) and a market value of € 11.1m (2004:€ 20.1m).

Subsidiary companies

Certain subsidiary companies hold shares in AIB for customer facilitation and in the normal course of business. At 31 December 2005,
4.5 million shares (2004: 4.8 million) with a book and market value of € 81.6m (2004: € 73.7m) were held by subsidiary companies.
The accounting treatment is not intended to affect the legal characterisation of the transaction or to change the situation at law

achieved by the parties to it.Thus, the inclusion of the shares as a deduction against shareholders’ funds on the Group balance sheet

does not imply that they have been purchased by the company as a matter of law.

124

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51 Other equity interests
In February 2001, Reserve capital instruments (RCIs) of € 500m were issued by Allied Irish Banks, p.l.c. at an issue price of
100.069%.The RCIs are perpetual securities and have no maturity date.The RCIs are redeemable, in whole but not in part, at the

option of the Bank and with the agreement of the IFSRA (i) upon the occurrence of certain events, or (ii) on or after 28 February

2011, an authorised officer having reported to the Trustees within the previous six months that a solvency condition is met.

The RCIs bear interest at a rate of 7.50% per annum from (and including) 5 February 2001 to (but excluding) 28 February 2011

and thereafter at 3.33% per annum above three month EURIBOR, reset quarterly.

The rights and claims of the RCI holders and the coupon holders are subordinated to the claims of the senior creditors and the

senior subordinated creditors of the issuer. In the event of a winding up of the issuer, the RCI holders will rank pari passu with the

holders of the classes of preference shares (if any) from time to time issued by the issuer and in priority to all other shareholders.

52 Minority interests in subsidiaries

Equity interest in subsidiaries

Non-equity interest in subsidiaries

2005
€ m

258

990

2004
€ m

221

990

1,248

1,211

Non-equity interest in subsidiaries
In December 2004, Fixed Rate/Floating Rate Guaranteed Non-voting Non-cumulative Perpetual Preferred Securities (‘Preferred
Securities’) in the amount of € 1,000,000,000 were issued through a Limited Partnership.The Preferred Securities were issued at par
and have the benefit of a subordinated guarantee of Allied Irish Banks, p.l.c. (‘AIB’).The Preferred Securities have no fixed final

redemption date and the holders have no rights to call for the redemption of the Preferred Securities.

The Preferred Securities are redeemable in whole but not in part at the option of the general partner and with the agreement of

the IFSRA (i) upon the occurrence of certain events, or (ii) on or after 17 December 2014, subject to the provisions of the Limited

Partnership Act, 1907.

Distributions on the Preferred Securities are non-cumulative.The distributions will be payable at a rate of 4.781% per annum up

to 17 December 2014 and thereafter at the rate of 1.10% per annum above 3 month EURIBOR, reset quarterly.The discretion of

the Board of Directors of AIB to resolve that a distribution should not be paid is unfettered.

In the event of the dissolution of the Limited Partnership, holders of Preferred Securities will be entitled to receive a liquidation

preference in an amount equal to the distributions that those holders would have received in a dissolution of AIB at that time, if they

had held, instead of the Preferred Securities, non-cumulative preference shares issued directly by AIB, having the same liquidation

preference as the Preferred Securities, and ranking junior to all liabilities of AIB including subordinated liabilities.

53 Memorandum items: contingent liabilities and commitments

In the normal course of business, the Group is a party to financial instruments with off-balance sheet risk to meet the financing 

needs of customers.

These instruments involve, to varying degrees, elements of credit risk which are not reflected in the consolidated balance 

sheet. Credit risk is defined as the possibility of sustaining a loss because the other party to a financial instrument fails to perform 

in accordance with the terms of the contract.

The Group’s maximum exposure to credit loss under contingent liabilities and commitments to extend credit, in the event of

non-performance by the other party where all counterclaims, collateral or security prove valueless, is represented by the contractual

amounts of those instruments.

The risk weighted amount is obtained by applying credit conversion factors and counterparty risk weightings in accordance 

with the IFSRA guidelines implementing the EC Own Funds and Solvency Ratio Directives.

The Group uses the same credit control and risk management policies in undertaking off-balance sheet commitments as it does

for on balance sheet lending.

125

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Notes to the accounts

53 Memorandum items: contingent liabilities and commitments (continued)

The following tables give, for the Group and Allied Irish Banks, p.l.c., the nominal or contract amounts and the risk weighted

credit equivalent of contingent liabilities and commitments.

Group

Contingent liabilities

Acceptances(1)

Endorsements

Guarantees and assets pledged as collateral security:

Guarantees and irrevocable letters of credit

Other contingent liabilities

Commitments

Documentary credits and short-term trade-related transactions

Forward asset purchases and forward deposits placed

Undrawn note issuance and revolving underwriting facilities

Undrawn formal standby facilities, credit lines and other

commitments to lend:

Less than 1 year(2)
1 year and over

Contract
amount

€ m

2005

Risk
weighted
amount
€ m

Contract
amount

€ m

2004

Risk
weighted
amount
€ m

-

-

7,157

1,396

8,553

297
-

173

6,579

12,509

19,558

28,111

-

-

7,142

982

8,124

111
-

86

-

6,223

6,420

14,544

12

2

5,394

830

6,238

267

88

108

5,665

9,999

16,127

22,365

12

2

5,287

420

5,721

103

18

54

-

4,944

5,119

10,840

(1)On transition to IFRS, at 1 January 2005, IAS 39 requires the recognition of a liability for acceptances from the date of acceptance.

A corresponding asset due from the originator is also recognised. Under Irish GAAP, acceptances were accounted for on a net basis

and shown as a contingent liability.

(2)Undrawn loan commitments which are unconditionally cancellable at any time or which have a maturity of less than one year have

a risk weighting of zero.

126

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53 Memorandum items: contingent liabilities and commitments (continued)

Concentration of exposure

Republic of Ireland

United States of America

United Kingdom

Poland

Rest of the world

Allied Irish Banks, p.l.c.

Contingent liabilities

Acceptances(1)

Guarantees and irrevocable letters of credit

Other contingent liabilities

Commitments

Documentary credits and short-term trade-related transactions

Undrawn note issuance and revolving underwriting facilities

Undrawn formal standby facilities, credit lines and other 

commitments to lend:

1 year and over

Less than 1 year(2)

Contingent liabilities
2005
2004
€ m
€ m

Commitments
2004
€ m

2005
€ m

3,860

3,366

1,287

40

-

2,580

2,614

1,004

40

-

9,165

3,007

6,069

1,237

80

7,945

1,820

4,970

1,392

-

8,553

6,238

19,558

16,127

Contract
amount

€ m

2005

Risk
weighted
amount
€ m

-

6,384

1,223

7,607

107

11

10,528

4,409

15,055

22,662

-

6,384

888

7,272

21

6

5,238

-

5,265

12,537

Contract
amount

€ m

2

4,732

636

5,370

86

–

8,111

3,705

11,902

17,272

2004

Risk
weighted
amount
€ m

2

4,635

318

4,955

17

–

4,010

–

4,027

8,982

(1)On transition to IFRS, at 1 January 2005, IAS 39 requires the recognition of a liability for acceptances from the date of acceptance.

A corresponding asset due from the originator is also recognised. Under Irish GAAP, acceptances were accounted for on a net basis

and shown as a contingent liability.

(2)Undrawn loan commitments which are unconditionally cancellable at any time or which have a maturity of less than one year have

a risk weighting of zero.

There exists a contingent liability to repay in whole or in part grants received on equipment leased to customers if certain events set

out in the agreements occur.

Allied Irish Banks, p.l.c. has given guarantees in respect of the liabilities of certain of its subsidiaries and has also given guarantees

for the satisfaction of the relevant regulatory authorities for the protection of the depositors of certain of its banking subsidiaries in

the various jurisdictions in which such subsidiaries operate.

Following the foreign exchange pricing issue in 2004,Allied Irish Banks, p.l.c. agreed a management action plan with the Financial

Regulator which included:- the introduction of a speak up policy as an additional channel to help staff raise concerns; the improvement and

simplification of product delivery processes; and the strengthening of enterprise-wide quality assurance, risk and compliance functions. This

programme is well advanced but not complete. When issues have come to light, the Financial Regulator has been briefed and appropriate

remedial action initiated.AIB has estimated the likely financial effect of such issues and this has been provided for at 31 December 2005.

Except as set out below, AIB Group is not, nor has been, involved in, nor are there, so far as the Company is aware, pending or

threatened by or against AIB Group any legal or arbitration proceedings which may have, or have had during the previous twelve

months, a significant effect on the financial position of AIB Group.

127

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Notes to the accounts

53 Memorandum items: contingent liabilities and commitments (continued)

Class action and purported shareholder derivative action

On 5th March, 2002 and on 24th April, 2002, separate class action lawsuits under the Securities Exchange Act, 1934 of the United

States were filed in the United States District Court for the Southern District of New York against AIB, Allfirst and certain serving

and past officers and directors of Allfirst and its subsidiaries, seeking compensatory damages, legal fees and other costs and expenses 

relating to alleged misrepresentations in filings of AIB and Allfirst. On 3rd May, 2002, a motion to consolidate both cases and to

appoint a lead plaintiff was filed with the Court. On 7th December, 2004 the Court granted this motion. In accordance with the

direction of the Court, the plaintiffs filed an amended and consolidated complaint on 7th February, 2005. Certain of the defendants

(including AIB and Allfirst) filed a motion to dismiss the consolidated amended complaint on 8th April, 2005. In December 2005 a

settlement was reached, under which all claims are to be dismissed without any admission of liability or wrongdoing by any

defendant. The class of security holders will receive a cash payment of US$ 2.5 million, out of which the Court will be asked to

award Attorneys’ fees to class counsel. The settlement must be approved by the Court.

On 13th May, 2002, a purported shareholder derivative action was filed in the Circuit Court for Baltimore City, Maryland.

A holder of AIB American Depositary Shares purported to sue certain present and former directors and officers of Allfirst Bank on

behalf of AIB, alleging those persons were liable for the foreign exchange trading losses. No relief was sought in the purported

derivative action against AIB, Allfirst or Allfirst Bank. On 30th December, 2002, the Court dismissed the action. On 10th January, 2003,

the plaintiffs filed a motion seeking to have the Court amend or revise the judgement, or to be granted leave to file an amended

complaint.This was dismissed on 3rd March, 2003.The plaintiffs filed a second such motion on 17th March, 2003.The Court

dismissed this on 4th April, 2003. On 20th June, 2003, the plaintiffs’ petition to bypass the Maryland Court of Special Appeals and

appeal directly to the Maryland Court of Appeals was denied by the Maryland Court of Appeals.The plaintiffs’ appeal to the Maryland

Court of Special Appeals was argued on 12th January, 2004. On 3rd December, 2004 the Maryland Court of Special Appeals affirmed

the dismissal of the action. On 21st January, 2005, the plaintiff petitioned the Maryland Court of Appeals to hear an appeal from this

decision. Oral argument on this appeal was heard on 1st September, 2005 and judgment delivered on 13th December 2005. By a vote

of six to one, the Court upheld the judgment of the Court of Special Appeals affirming the dismissal of the action. On 11th January

2006 the Attorneys for the Plaintiff filed a motion asking the Court of Appeals to reconsider its decision.

Certain of the individual defendants in these actions have asserted or may possibly assert claims for indemnification against AIB

and/or Allfirst, which, if made against Allfirst following completion of the M&T transaction, might be subject to the indemnification

obligations of AIB as part of the agreement with M&T. In the nature of any such claims, it is not possible to quantify the amount

which might be asserted in any such claim. On the basis of current information, the Board of Directors of AIB do not believe that

any of the above proceedings are likely to have (either individually or in the aggregate) a significant effect on the financial position 

of AIB and its subsidiaries taken as a whole.

54 Fair value of financial instruments

The term ‘financial instruments’ includes both financial assets and financial liabilities and also derivatives.The fair value of a financial

instrument is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an

arm’s length transaction.

Fair value is based upon quoted market prices where available. If a quoted market price is not available, fair value is estimated

using quoted market prices for similar instruments and adjusted for differences between the quoted instrument and the instrument

being valued. In certain cases, including some lendings to customers, where there are no ready markets, various techniques have been

used to estimate the fair value of the instruments.These estimates are subjective in nature and involve uncertainties and matters of

significant judgement and therefore cannot be determined with precision. Readers of these financial statements are advised to use

caution when using the data to evaluate the Group’s financial position or to make comparisons with other institutions.

Fair value information is not provided for certain financial instruments or for items that do not meet the definition of a financial

instrument.These items include short-term debtors and creditors, intangible assets such as the value of the branch network and the

long-term relationships with depositors, premises and equipment and shareholders’ equity.These items are material and accordingly

the fair value information presented does not purport to represent, nor should it be construed to represent, the underlying value of

the Group as a going concern at 31 December 2005.

128

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54 Fair value of financial instruments (continued)

The following table gives details of the carrying amounts and fair values of financial instruments at 31 December 2005 and 2004. As

permitted by IFRS 1 ‘First time adoption of International Financial Reporting Standards’ the carrying amount and fair value for

2004 are disclosed as previously reported in the 2004 Annual Report and Accounts.

Assets

Trading financial instruments(1)

Trading portfolio financial assets

Trading derivative financial instruments

Debt securities

Equity shares

Non-trading financial instruments

Cash and balances at central banks(1)

Treasury bills and other eligible bills

Items in course of collection(1)

Loans and receivables to banks(2)

Loans and receivables to customers(2)

Financial investments available for sale

Hedging derivative financial instruments

Debt securities and equity shares

Liabilities

Trading financial instruments

Trading portfolio financial liabilities

Trading derivative financial instruments

Short positions in securities(1)

Non-trading financial instruments

Deposits by banks

Customer accounts

Debt securities in issue

Hedging derivative financial instruments

Subordinated liabilities and other capital instruments

Off-balance sheet assets/(liabilities)

Trading financial instruments(1)

Interest rate contracts

Exchange rate contracts

Equity contracts

Non-trading financial instruments

Interest rate contracts

31 December 2005
Fair
value
€ m

Carrying
amount
€ m

31 December 2004
Fair
value
€ m

Carrying
amount
€ m

10,113

1,849

-

-

742

201

402

7,129

85,232

16,864

590

-

240

1,779

-

29,329

62,580

17,611

188

3,756

-

-

-

-

10,113

1,849

-

-

742

201

402

7,129

85,290

16,864

590

-

240

1,779

-

29,328

62,604

17,609

188

3,859

-

-

-

-

-

-

7,826

84

887

-

368

2,320

64,836

-

-

-

7,826

84

887

-

368

2,336

65,148

-

-

16,361

16,633

-

-

332

20,428

51,397

11,805

-

2,766

152

19

70

-

-

332

20,447

51,476

11,805

-

2,882

152

19

70

48

(12)

(1)The fair value of these financial instruments is considered equal to the carrying value.These instruments are either carried at
market value or have minimal credit losses.
(2)The carrying values are net of the provisions for impairment and related unearned income.

129

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Notes to the accounts

54 Fair value of financial instruments (continued)

The following methods and assumptions were used in estimating the fair value of financial instruments.

Trading portfolio financial assets/liabilities

Trading portfolio financial assets/liabilities are measured at fair value by reference to quoted market prices where available.

Loans and receivables to banks and loans and receivables to customers

The Group provides lending facilities of varying rates and maturities to corporate and personal customers. Several different techniques are

employed, as considered appropriate, in estimating the fair value of loans.Where secondary market prices were available, these were used.

The carrying amount of variable rate loans was considered to be at market value if there was no significant change in the credit risk of

the borrower.The fair value of fixed rate loans was calculated by discounting expected cash flows using discount rates that reflected the

credit and interest rate risk in the portfolio.

The fair value of money market funds and loans and advances to banks was estimated using discounted cash flows applying either

market rates, where practicable, or rates currently offered by other financial institutions for placings with similar characteristics.

Financial investments available for sale

The fair value of listed financial investments is based on market prices received from external pricing services or bid quotations

received from external securities dealers.The estimated value of unlisted financial investments is based on the anticipated future

cashflows arising from these items.

Debt securities and equity shares 

The fair value of listed debt securities and equity shares is based on market prices received from external pricing services or bid

quotations received from external securities dealers.The estimated value of unlisted debt securities and equity shares is based on 

the anticipated future cashflows arising from these items.

Deposits by banks, customer accounts and debt securities in issue 

The fair value of current accounts and deposit liabilities payable on demand is equal to their book value.The fair value of all other

deposits and other borrowings is estimated using discounted cash flows applying either market rates, where applicable, or interest rates

currently offered by the Group.

Subordinated liabilities and other capital instruments

The estimated fair value of subordinated liabilities is based upon quoted market rates.

Commitments pertaining to credit-related instruments

Details of the various credit-related commitments entered into by the Group and other off-balance sheet financial guarantees are

included in note 53. Fees for these instruments may be billed in advance or in arrears on an annual, quarterly or monthly basis. In

addition, the fees charged vary on the basis of instrument type and associated credit risk. As a result it is not considered practicable to

estimate the fair value of these instruments because each customer relationship would have to be separately evaluated.

Derivative financial instruments

Derivatives used for trading purposes are marked to market using independent prices and are included the consolidated balance sheet

at 31 December 2005 and 2004. The Group uses various derivatives, designated as hedges, to manage its exposure to fluctuations in

interest rates.The fair value of these instruments is estimated using market prices or pricing models consistent with the methods used

for valuing similar instruments used for trading purposes. Derivatives classified as fair value or cash flow hedges are included in the

Balance Sheet at 31 December 2005 at fair value. In 2004 hedging derivatives were carried at amortised cost. Details of derivatives in

place, including fair values, are included in note 27.

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55 Interest rate sensitivity

The net interest rate sensitivity of the Group at 31 December 2005 and 2004 is illustrated in the tables below. The tables set out

details of those assets and liabilities whose values are subject to change as interest rates change within each repricing time period.

Details regarding assets and liabilities which are not sensitive to interest rate movements are also included.The tables show the

sensitivity of the balance sheet at one point in time and are not necessarily indicative of positions at other dates. In developing the

classifications used in the tables it has been necessary to make certain assumptions and approximations in assigning assets and liabilities

to different repricing categories.

0-3

3-6

6-12
Months Months Months
€ m

€ m

€ m

1-5
Years
€ m

5 years + Non-interest
bearing
€ m

€ m

31 December 2005

Trading

Total

€ m

€ m

24

5,947

-

69,956

4,412

-

177

72

-

2,523

1,796

-

-

222

-

2,274

2,219

-

-

-

-

7,169

5,776

-

-

-

-

2,716

2,486

-

888

-

-

201

7,129 

-

10,113

10,113

594

175

-

-

85,232

16,864

-

11,818

1,857

13,675

80,339

4,568

4,715

12,945

5,202

13,475

11,970 133,214

26,728

1,103

1,207

-

47,653

14,479

-

1,708

984

-

1,622

1,814

78

-

1,638

334

-

-

74

-

1,149

-
-

85

-
-

-

-
-

-

-
-

2,522

-
-

213

-

9,885

-

-

-

29,329

240

240

-

-

-

62,580

17,611

3,756

12,529
7,169

10,829
7,169

1,700
-

90,009

3,880

4,643

2,050

2,596

28,096

1,940 133,214

Assets

Treasury bills and other eligible bills

Loans and receivables to banks

Trading portfolio financial assets

Loans and receivables to customers

Financial investments available for sale

Other assets

Total assets

Liabilities

Deposits by banks

Trading portfolio financial liabilities

Customer accounts

Debt securities in issue

Subordinated liabilities and other 

capital instruments

Other liabilities
Shareholders’ equity

Total liabilities

Derivative financial instruments

affecting interest rate sensitivity 

9,327

(1,785)

(3,423)

(112)

(4,007)

-

-

-

99,336

2,095

1,220

1,938

(1,411)

28,096

1,940 133,214

Interest sensitivity gap
Cumulative interest sensitivity gap

3,495
2,473
(18,997)
(18,997) (16,524) (13,009)

11,007
(2,022)

6,613
4,591

(14,621)
(10,030)

10,030
-

Euro m Euro m Euro m Euro m Euro m

Euro m Euro m

Interest sensitivity gap
Cumulative interest sensitivity gap

(8,234)
(8,234)

959
(7,275)

2,607
(4,668)

6,764
2,096

4,683
6,779

(12,620)
(5,841)

4,816
(1,025)

Interest sensitivity gap
Cumulative interest sensitivity gap

(6,338)
(6,338)

909
(5,429)

575
(4,854)

2,107
(2,747)

433
(2,314)

2,064
(250)

1,702
1,452

US $m US $m US $m US $m US $m

US $m US $m

Stg m Stg m Stg m Stg m

Stg m

Stg m Stg m

Interest sensitivity gap
Cumulative interest sensitivity gap

(1,344)
(1,344)

214
(1,130)

51
(1,079)

1,789
710

1,441
2,151

(3,590)
(1,439)

1,417
(22)

PLN m PLN m PLN m PLN m PLN m

PLN m PLN m

Interest sensitivity gap
Cumulative interest sensitivity gap

(1,652)
(1,652)

588
(1,064)

250
(814)

228
(586)

-
(586)

(503)
(1,089)

573
(516)

131

203557  02/03/2006  08:23  Page 132

Notes to the accounts

55 Interest rate sensitivity (continued)

As permitted by IFRS 1 ‘First time adoption of International Financial Reporting Standards’ the following interest rate sensitivity

table for 2004 is disclosed as previously reported in the 2004 Annual Report and Accounts.

0-3
Months
€ m

3-6
Months
€ m

6-12
Months
€ m

1-5
Years
€ m

5 years + Non-interest
bearing
€ m

€ m

31 December 2004
Total

Trading

€ m

€ m

1,251

54,984

3,687

–

186

2,184

898

–

85

1,683

1,344

–

–

3,456

6,806

–

–

2,529

3,515

798

–

–

–

10,102

–

–

7,826

906

2,320

64,836

24,076

11,008

59,922

3,268

3,112

10,262

6,044

10,900

8,732

102,240

13,716

37,253

9,501

1,500

–
–

3,360

1,275

1,087

73

–
–

3,086

1,100

1,068

–

–
–

–

2,662

149

–

–
–

183

226

–

1,192

–
–

83

8,881

–

–

9,053
5,581

–

–

–

–

1,211
–

20,428

51,397

11,805

2,765

10,264
5,581

61,970

5,795

5,254

2,811

1,601

23,598

1,211

102,240

Assets

Loans and advances to banks

Loans and advances to customers 

Debt securities

Other assets

Total assets

Liabilities

Deposits by banks

Customer accounts

Debt securities in issue

Subordinated liabilities

Other liabilities
Shareholders’ funds

Total liabilities

Off-balance sheet items

affecting interest rate sensitivity

5,131

(4,560)

(1,835)

67,101

1,235

3,419

Interest sensitivity gap
Cumulative interest sensitivity gap

(7,179)
(7,179)

2,033
(5,146)

(307)
(5,453)

1,933

4,744

5,518
65

(669)

–

–

–

932

23,598

1,211

102,240

5,112
5,177

(12,698)
(7,521)

7,521
–

Euro m Euro m Euro m Euro m Euro m Euro m Euro m

Interest sensitivity gap
Cumulative interest sensitivity gap

(960)
(960)

2,313
1,353

102
1,455

2,676
4,131

3,222
7,353

(11,149)
(3,796)

3,675
(121)

US $m US $m US $m US $m US $m US $m US $m

Interest sensitivity gap
Cumulative interest sensitivity gap

(4,087)
(4,087)

147
(3,940)

198
(3,742)

458
(3,284)

341
(2,943)

2,195
(748)

1,122
374

Stg m

Stg m

Stg m

Stg m

Stg m

Stg m

Stg m

Interest sensitivity gap
Cumulative interest sensitivity gap

(615)
(615)

88
(527)

(590)
(1,117)

1,713
596

1,411
2,007

(3,463)
(1,456)

1,392
(64)

PLN m PLN m PLN m PLN m PLN m PLN m PLN m

Interest sensitivity gap
Cumulative interest sensitivity gap

(1,267)
(1,267)

(98)
(1,365)

(26)
(1,391)

510
(881)

116
(765)

187
(578)

345
(233)

132

203557  02/03/2006  08:23  Page 133

56 Statement of cash flows

Analysis of cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents comprise the following balances with less than 3 months

maturity from the date of acquisition:

Cash and balances at central banks

Loans and receivables to banks

Short term investments

At 31 December

2005
€ m

742

6,598

330

7,670

Group
2004
€ m

887

1,886

-

2,773

Allied Irish Banks, p.l.c.
2004
€ m

2005
€ m

503

5,465

-

5,968

514

1,025

-

1,539

The Group is required to maintain balances with the Central Bank and Financial Services Authority of Ireland which amounted to
€ 2,694m (2004: € 446m).The Group is also required by law to maintain reserve balances with the Bank of England and with the
National Bank of Poland. At December 2005, such reserve balances amounted to € 505m (2004: € 621m).

133

203557  02/03/2006  08:23  Page 134

Notes to the accounts

57 Report on directors’ remuneration and interests 

Remuneration policy

The Company’s policy in respect of the remuneration of the executive directors aims to support and enhance business

performance, and to underpin and reinforce a high-performance and ethical culture. Remuneration packages and structures are

such as to attract, retain, motivate and reward the executives concerned and, by ensuring strong links between performance and

reward, align individual and company success. In considering such packages, cognisance is taken of: the levels of remuneration

for comparable positions, as advised by external consultants (Kepler Associates, who have not been engaged to provide any other

services to the Group); the responsibilities and complexity of the roles of the individuals concerned; their individual

performances measured against specific and challenging objectives: and the Group’s overall performance. A high proportion of

the remuneration of the senior executives will be delivered through variable pay, including equity. Senior executives

participating in the AIB Group Performance Share Plan 2005 (see note 50) are expected to build up, over time, ownership of the

Company’s shares to the equivalent of annual basic salary.

Remuneration Committee

The Remuneration Committee comprises only non-executive directors; during 2005 its members were: Mr Dermot Gleeson,

Chairman (until June), Sir Derek Higgs, Chairman (from June until October, when he resigned as a Director), Mr. John B.

McGuckian, Chairman (from November), Mr Don Godson and Mr Jim O’Leary. The Committee has a wide remit (see page 45)

which includes, inter alia, determining, under advice to the Board, the specific remuneration packages of the executive directors.

Fees(1)

Salary

Bonus(2)

€ 000

€ 000

€ 000

Profit
share(3)
€ 000

Taxable
benefits(4)
€ 000

430

471

470

403

510

400

900

265

256

426

2,284

2,247

13

13

13

4

-

43

66

45

53

34

36

234

17

-

-

35

-

52

127

85

44

375

95

75
141

97

98
-

58

1,195

Remuneration

Executive directors

Michael Buckley (retired 30 June 2005)

Colm Doherty

Gary Kennedy

Aidan McKeon

Eugene Sheehy (appointed 12 May 2005)

Non-executive directors

Adrian Burke

Kieran Crowley

Padraic M Fallon

Dermot Gleeson

Don Godson

Sir Derek Higgs (resigned 5 October 2005)

John B McGuckian

Jim O’Leary

Michael J Sullivan

Robert G Wilmers(1)
Jennifer Winter

Former directors

Pensions(6)

Total

134

Pension

contributions(5)

€ 000

533

122

2,133

180

132

3,100

-

-

11

-

-

-
11

-

-
-

-

2005
Total

€ 000

1,459

1,551

2,934

912

1,104

7,960

127

85

55

375

95

75
152

97

98

--

58

22

1,217

758

758

9,935

203557  07/03/2006  08:16  Page 135

57 Report on directors’ remuneration and interests (continued)

Remuneration (continued)

Executive directors
Michael Buckley
Colm Doherty
Gary Kennedy
Aidan McKeon

Non-executive directors
Adrian Burke
Kieran Crowley
Padraic M Fallon
Dermot Gleeson
Don Godson
Sir Derek Higgs
John B McGuckian
Carol Moffett
Jim O’Leary
Michael J Sullivan
Robert G Wilmers(1)
Jennifer Winter

Former directors
Pensions(6)
Other payments(7)

Total

Fees(1)

Salary

Bonus(2)

€ 000

€ 000

€ 000

Profit
share(3)
€ 000

Taxable
benefits(4)
€ 000

Pension

contributions(5)

€ 000

35
35
35
35

775
418
415
356

360
340
235
242

140

1,964

1,177

13
13
13
4

43

52
43
38
38

171

146
18
44
285
62
71
103
33
68
95
–
39

964

210
109
108
159

586

–
–
11
–
–
–
11
–
–
–
–
–

22

2004
Total

€ 000

1,445
958
844
834

4,081

146
18
55
285
62
71
114
33
68
95
–
39

986

758
84

842

5,909

(1) Fees comprise a basic fee of €35,000 per annum paid in respect of service as a director, and additional remuneration paid to any

non-executive director who holds the office of Chairman, Chairman of the Audit Committee or of the Remuneration

Committee, or Senior Independent Director, or who performs additional services, such as through membership of Board

Committees, or who serves on the board of a subsidiary company.

In 2005 the Board decided that the practice of paying Directors’ Fees to Executive Directors should be discontinued, and that the

salaries of those concerned should be adjusted accordingly, on an actuarially neutral basis. This adjustment was applied with effect

from 1 January 2005, save in the case of Mr. Michael Buckley (who retired on 30 June 2005) and Mr. Aidan McKeon (who

retired from the Board on 31 December 2005).
A fee of €35,000 was paid to M&T Bank Corporation (“M&T”) in the year ended 31 December 2005 (2004: €35,000), in
respect of Mr. Robert G.Wilmers’s directorship of the Company as the designee of M&T, pursuant to the Agreement and Plan 

of Reorganisation, dated 26 September 2002, by and among the Company, Allfirst Financial Inc. and M&T, as approved by

shareholders at the Extraordinary General Meeting held on 18 December 2002 (“the Agreement”).

Messrs. Michael Buckley, Eugene Sheehy, Gary Kennedy (until 20 September 2005) and Colm Doherty (from 20 September

2005) served as AIB-designated Directors of M&T, pursuant to the Agreement. The fees payable in this regard, which amounted
to €55,323 in 2005 (2004: €56,718), were paid to AIB, except that the portion of this figure payable in respect of Mr. Buckley
from the date of his retirement as Group Chief Executive and Director of AIB on 30 June 2005 (€10,656) was paid direct to Mr.
Buckley, who continues to serve as an AIB-designated Director of M&T.

Each executive director is permitted to hold no more than one directorship of another public company, subject to the approval 

of the Nomination and Corporate Governance Committee, and any related remuneration may be retained by the individual

concerned. Mr. Gary Kennedy joined the board of Elan Corporation plc on 26 May 2005; the related remuneration amounted
to €30,794 in 2005.

135

203557  02/03/2006  08:23  Page 136

Notes to the accounts

57 Report on directors’ remuneration and interests (continued)

Remuneration (continued)

(2) The executive directors participate in a discretionary, performance-related, incentive scheme for senior executives under which

bonuses may be earned on the achievement of specific, performance-related objectives, reviewed annually. The bonus may range

from 0% to 100% of annual salary; the upper limit may be exceeded at the discretion of the Remuneration Committee.

(3)

Information on the employees’ profit sharing schemes, which are operated on terms approved by the shareholders, is given in

note 11.

(4) Taxable benefits include the use of a company car or the payment of a car allowance, and benefit arising from loans made at

preferential interest rates.

(5)

“Pension contributions” represent:

(a)  payments to defined benefit pension schemes, in accordance with actuarial advice, to provide post-retirement pensions from

normal retirement date.The contribution rates, as a percentage of pensionable emoluments, are 26.0% in respect of the

Republic of Ireland pension scheme (2004: 26.0%) and 44.6% in respect of the UK pension scheme (2004: 44.6%). The fees

of the non-executive directors who joined the Board since 1990 are not pensionable; and 

(b)  in respect of 2005, one-off payments to the pension scheme to meet the scheme’s liabilities arising from the retirements of 

(i) Mr. Michael Buckley, some seven months prior to his normal retirement date (funding impact: €0.416m), and
(ii) Mr. Gary Kennedy – see Note 58 (funding impact: €2.011m).

The pension benefits earned during the year, and accrued at year-end (or date of retirement, if earlier), are as follows:

Executive directors
Michael Buckley
Colm Doherty
Gary Kennedy
Aidan McKeon
Eugene Sheehy

Non-executive directors
Padraic M Fallon
John B McGuckian

Increase in accrued
benefits during 2005(a)

€ 000

Accrued benefit

at year-end(b)

€ 000

Transfer values(c)

€ 000

68
27
94
34
257

0.5
0.2

590
188
200
270
410

16
23

1,798
307
3,614
631
3,635

6
4

(a)

Increases are after adjustment for inflation, and arise in consequence of (i) additional pensionable service; (ii) increases in

pensionable earnings; and (iii) adjustments, if any, agreed in respect of the individual’s pension payable. The increase in

accrued pension benefits in respect of Mr. Sheehy reflects primarily the increase in salary that was granted to him on his

appointment as Group Chief Executive during the year.

(b) Figures represent the accumulated total amounts of accrued benefits (i.e., annual pension) payable at normal retirement

dates, as at 31 December 2005, and at actual retirement date in respect of Mr. Buckley (30 June 2005).

(c) Figures show the transfer values of the increases in accrued benefits during 2005. These transfer values do not represent

sums paid or due, but the amounts that the Company’s pension scheme would transfer to another pension scheme, in

relation to the benefits accrued in 2005, in the event of the member leaving service.

(6)

(7)

“Pensions” (€758,000) represents the payment of pensions to former directors or their dependants granted on an ex-gratia
basis and fully provided for in the balance sheet, together with an amount of €650,000 to amortise a deficit in the Non-
Executive Directors’ Pension Scheme, in accordance with actuarial advice (2004: €758,000, inclusive of €650,000 in respect
of amortisation of the Pension Scheme deficit).
“Other payments” in 2004 (€83,507) represented a final payment to Mr. Jeremiah E. Casey under the terms of a post-
retirement consultancy contract approved by shareholders at the 1999 Annual General Meeting.

136

203557  04/03/2006  10:34  Page 137

57 Report on directors’ remuneration and interests (continued)

Interests in shares

The beneficial interests of the directors and the secretary in office at 31 December 2005, and of their spouses and minor children, are

as follows:

Ordinary Shares

Directors:
Adrian Burke
Kieran Crowley
Colm Doherty
Padraic M Fallon
Dermot Gleeson
Don Godson
Gary Kennedy
John B McGuckian
Aidan McKeon
Jim O’Leary
Eugene Sheehy
Michael J Sullivan
Robert G Wilmers
Jennifer Winter

Secretary:
W M Kinsella

* or later date of appointment

Share Options

31 December
2005

1 January
2005*

11,004
7,520
70,469
8,979
32,826
50,000
101,875
72,911
28,246
4,000
71,284
1,700
152,459
280

11,004
5,020
57,218
8,979
22,826
38,599
101,124
72,911
27,853
4,000
71,284
1,700
52,459
-

40,050

39,489

Details of the Executive Directors’ and the Secretary’s share options are given below. Information on the Share Option Schemes,

including policy on the granting of options, is given in note 11. The vesting of these options in the individuals concerned is

dependent on Earnings Per Share (“EPS”) targets being met. Subject thereto, the options outstanding at 31 December 2005 are

exercisable at various dates between 2006 and 2015. Details are shown in the Register of Directors’ and Secretary’s Interests, which

may be inspected by shareholders at the Company’s Registered Office.

31 December
2005

1 January
2005*

Since 1 January 2005*
Exercised

Granted

185,000

180,000

137,000

154,000

230,000

165,000

137,000

154,000

5,000

30,000

-

-

50,000

15,000

-

-

Price of
options
exercised

€

10.02

10.02

-

-

Market
price at
date of
exercise

Weighted average
subscription price of
options outstanding
at 31 December 2005

€

18.14

18.14

-

-

€

12.83

13.59

12.94

13.08

40,500

40,500

15,000

15,000

10.02

17.63

13.99

Directors:

Colm Doherty

Gary Kennedy

Aidan McKeon

Eugene Sheehy

Secretary:

W M Kinsella

* or later date of appointment

137

203557  04/03/2006  10:36  Page 138

Notes to the accounts

57 Report on directors’ remuneration and interests (continued)

Long Term Incentive Plans

Details of the Executive Directors’ and the Secretary’s conditional grants of awards of shares are given below. These conditional

awards are subject to onerous performance targets being met, in terms of total shareholder return and EPS growth. Information

on the Long Term Incentive Plans, including policy on the granting of awards, is given in note 11. The conditional grants of awards

outstanding at 31 December 2005 may vest between 2006 and 2008, depending on the date of the grant.

Directors:

Colm Doherty

Gary Kennedy

Aidan McKeon

Eugene Sheehy

Secretary:

W M Kinsella

* or later date of appointment

Total as at
31 December 2005

Granted during
2005

Total as at
1 January 2005*

73,715

20,000

14,000

105,650

38,715

-

-

90,650

35,000

20,000

14,000

15,000

4,500

-

4,500

Apart from the interests set out above, the Directors and Secretary in office at year-end, and their spouses and minor children, have
no interests in the shares of the Company. Mr. John O’Donnell, who was co-opted to the Board on 11 January 2006, has interests
(inclusive of the interests of his wife and minor children) in 8,844 ordinary shares of the Company; he has options over 96,000 shares,
and conditional grants of awards of 42,340 shares under the Long Term Incentive Plans. With the exception of Mr. O’Donnell’s
interests, there were no changes in the Directors’ and Secretary’s interests shown above between 31 December 2005 and 21 February
2006.

The year-end closing price, on the Irish Stock Exchange, of the Company’s ordinary shares was €18.05 per share; during the year the
price ranged from €15.20 to €18.64 per share.

Service Contracts
There are no service contracts in force for any director with the Company or any of its subsidiaries.

58 Related party transactions

(a) Transactions with subsidiary undertakings

Allied Irish Banks, p.l.c. (“AIB”) is the ultimate parent company of the Group. Banking transactions are entered into by AIB with its

subsidiaries in the normal course of business. These include loans, deposits and foreign currency transactions at an ‘arms length’ basis.

Balances between AIB and its subsidiaries are detailed in notes 28, 29, 42 and 43.

(b) Associated undertakings and joint ventures

From time to time the Group provides certain banking and financial services for associated undertakings. Details of loans to

associates are set out in Note 28, while deposits from associates are set out in Note 42 and 43.

(c) Provision of banking and related services to Group Pension Funds, unit trusts and investment funds managed by Group Companies

The Group provides certain banking and financial services for the AIB Group Pension Funds and also for unit trusts and investment

funds managed by Group companies. Such services are provided on terms similar to those that apply to third parties and are not

material to the Group.

(d) Compensation of Key Management Personnel

The following disclosures are made in accordance with the provisions of IAS 24 - Related Party Disclosures, in respect of the

compensation of key management personnel. Under IAS 24, “Key Management Personnel” are defined as comprising directors

(executive and non-executive) together with senior executive officers, viz., in the case of AIB, the members of the Group Executive

Committee (see page 6) and the Chief Financial Officer, up to the date of his retirement on 30 September 2005.

138

203557  04/03/2006  10:45  Page 139

58 Related party transactions (continued)

The figures shown below include the figures separately reported in respect of directors’ remuneration, shown in the ‘Report on

Directors’ Remuneration and Interests’ in note 57.

Short-term employee benefits(1)

Post-employment benefits(2)

Termination benefits(3)

Equity compensation benefits(4)

Total

2005
€ m
11.2

6.3

0.9

1.8

20.2

2004
€ m
7.7

1.9

-

0.7

10.3

(1) comprises (a) in the case of executive directors and the other senior executive officers: salary, directors’ fees, bonus, profit share scheme benefits, medical

insurance, benefit-in-kind arising from preferential loans and use of company car (or payment in lieu), and other short-term benefits, and (b) in the

case of non-executive directors: directors’ fees. Figures for 2005 relate to 5 executive directors (2004: 4) - see “Report on Directors’ Remuneration

and Interests” in Note 57: 9 other senior executive officers (2004: 4); and 10 non-executive directors (2004: 11), excluding Mr. R.G.Wilmers, fees
in respect of whose service as a designated director of M&T Bank Corporation (“M&T”), amounting to € 35,000 (2004: € 35,000) were paid to
M&T.

(2) comprises (a) payments to defined benefit pension schemes, in accordance with actuarial advice, to provide post-retirement pensions from normal

retirement date in respect of 5 executive directors (2004:4); 2 non-executive directors (2004:2); and 9 other senior executive officers (2004:4); (b)

one-off payments in 2005 to such schemes to meet liabilities arising from augmented pension benefits paid on retirement (see Note 57 - “Report on

Directors’ Remuneration and Interests”) in respect of 2 executive directors and 2 senior executive officers; (c) the payment of pensions to former
directors or their dependants, granted on an ex gratia basis; and (d) an amount of € 650,000 (2004: € 650,000) to amortise a deficit in the Non-
Executive Directors’ Pension Scheme, in accordance with actuarial advice;

(3) lump sum payments made on retirement to two senior executive officers, neither of whom was a director;

(4) the value of awards made to executive directors and other senior executive officers under the company’s share option scheme and long term incentive

plans (which are described in Note 11); the value shown, which have been determined by applying the valuation techniques described in Note 11,

relate to 3 executive directors and 9 other senior executive officers in 2005 (2004: 3 executive directors and 5 other senior executive officers).

(e) Loans to Directors and Other Senior Executive Officers

Loans to non-executive Directors are made in the ordinary course of business on normal commercial terms. Loans to executive directors

and other senior executive officers are made (i) on terms applicable to other employees in the Group, in accordance with established

policy, within limits set on a case by case basis, and/or (ii) otherwise, on normal commercial terms. The following amounts were

outstanding at year-end in loans, or quasi-loans (effectively, credit card facilities) to persons who at any time during the year were directors

or other senior executive officers:

A. Directors 

(number of persons)

B. Other Senior Executive Officers *

(number of persons)

Total
(number of persons)

31 December 2005
Quasi-loans

Loans

31 December 2004
Quasi-loans

Loans

€ 2.6m
(6)
€ 2.1m
(6)
€ 4.7m
(12)

€ 0.04m
(8)
€ 0.03m
(8)
€ 0.07m
(16)

€ 3.4m
(8)
€ 1.8m
(4)
€ 5.2m
(12)

€ 0.04m
(8)
€ 0.01m
(5)
€ 0.05m
(13)

* Group Executive Committee members (other than executive directors, whose figures are included in the totals at A) and the Chief Financial Officer

(f) Indemnities 

On 2 February 2004, AIB Capital Markets plc, a wholly-owned subsidiary, extended the terms of an indemnity previously given to

certain former directors, officers and employees of Govett Investment Management Ltd. (‘Govett’) - now ‘AIB Investment

Management Limited’ - to Mr. Michael Buckley, the former Group Chief Executive, and Mr. Colm Doherty, Managing Director, AIB

Capital Markets; Mr. Buckley is a former director of a split capital trust managed by Govett, and Mr. Doherty is a former director of 

139

203557  02/03/2006  08:23  Page 140

Notes to the accounts

58 Related party transactions (continued)
Govett. The aggregate liability of AIB Capital Markets plc under the aforementioned indemnity is € 10m.

The purpose of the indemnity is to protect the indemnified parties (or any of them) against any civil liability, loss and defence 

costs which they (or any of them) may suffer by reason of any claim made against them relating to certain split capital or highly

leveraged trusts previously managed by Govett and which previously would have been covered by insurance.

Prior to July 2003, the Bank’s professional indemnity and directors’ and officers’ liability insurance provided cover in respect of

the eventualities mentioned in the previous paragraph. However, on renewal of that insurance on 1 July 2003, and in line with a

general change introduced by the insurance industry, exclusions were imposed that removed that cover. By virtue of the terms of the

above-mentioned indemnity, the indemnified parties now stand in the position they would have been in if those exclusions had not
been imposed, except that the aggregate limit of liability under the indemnity is € 10m rather than the higher amount previously
provided by the insurance.

Allied Irish Banks, p.l.c. has indemnified the Directors of Allied Irish Banks Pensions Limited and AIB DC Pensions (Ireland)

Limited, the trustees of the Group’s Republic of Ireland defined benefit and defined contribution pension schemes, respectively,

against any actions, claims or demands arising out of their actions as Directors of the trustee companies, other than by reason of wilful

default. Mr. Adrian Burke, a Director of the Company, is a Director of the above-mentioned trustee companies.

(g) Mr. Gary Kennedy 

On 24 June 2005, the Group announced that Mr. Gary Kennedy was to leave his position as Group Director, Finance & Enterprise

Technology, and become special adviser to the Group on finance and risk. Mr. Kennedy ceased to be Group Director, Finance &

Enterprise Technology and resigned as a director of the company on 31 December 2005. Under the agreement reached with him,

Mr. Kennedy’s employment as special adviser on finance and risk does not preclude him taking other employment and will cease on

31 January 2008, whereupon he will be entitled to a pension in the amount shown in Note 57. The agreement also provided that he
would receive (a) subject to shareholder approval at the 2006 Annual General Meeting, a payment of €579,600 by way of
compensation for loss of office, and (b) reasonable expenses in connection with pension, taxation and other advice and a sum of
€150,000 in respect of legal fees.

140

203557  04/03/2006  10:47  Page 141

59 Commitments

Capital expenditure
Estimated outstanding commitments for capital expenditure not provided for in the accounts amounted to € 188m (2004: € 99m).
For Allied Irish Banks, p.l.c. outstanding capital commitments amounted to € 46m (2004: € 57m). Capital expenditure authorised, but
not yet contracted for, amounted to € 140m (2004: € 214m). For Allied Irish Banks, p.l.c. this amounted to € 43m (2004: € 41m).

Operating lease rentals

The annual commitments in respect of land and buildings under non-cancellable operating leases are set out below:

Group

One year

One to five years

Over five years

Total

Allied Irish Banks, p.l.c.

One year

One to five years
Over five years

Total

2005
€ m

2004
€ m

18

130

513

661

11

52
95

158

19

72

210

301

13

47
99

159

The total of future minimum sublease payments expected to be received under non-cancellable subleases at the balance sheet date
were € 13m (2004: € 8m). For Allied Irish Banks, p.l.c. this was € 9m (2004: € 5m).

Operating lease payments recognised as an expense for the period were € 37m (2004: € 37m). Sublease income amounted to
€1m (2004: € 1m). For Allied Irish Banks, p.l.c. operating lease payments recognised were € 22m (2004: € 19m). Sublease income
for Allied Irish Banks, p.l.c. amounted to € 1m (2004: € 1m).

60 Employees

The average full-time equivalent employee numbers by division were as follows:

AIB Bank ROI

AIB GB & NI

Capital Markets

Poland

Group

2005

2004

9,672

2,997

2,536

7,312

758

9,438

2,918

2,478

7,298

647

23,275

22,779

61 Companies (Amendment) Act, 1983

The Companies (Amendment) Act, 1983, requires that, when the net assets of a company are half or less than half of its called up

share capital, an extraordinary general meeting be convened.The Act further requires an expression of opinion by the auditors as to

whether the financial situation of the company at the balance sheet date is such as would require the convening of such a meeting.

62 Reporting currency
The currency used in these accounts is the euro which is denoted by ‘EUR’ or the symbol €. Each euro is made up of one hundred
cent, denoted by the symbol ‘c’ in these accounts.

141

203557  02/03/2006  08:23  Page 142

Notes to the accounts

63 Financial and other information

Operating ratios

Operating expenses(1)/operating income

Other income/operating income

Net interest margin:

Group

Domestic

Foreign

Rates of exchange
€ /US $

Closing

Average

€ /Stg £

Closing

Average

€ /PLN

Closing

Average

(1)Excludes restructuring costs of €8.7m in 2004.

Capital adequacy information

Risk weighted assets

Banking book:

On balance sheet

Off-balance sheet

Trading book:

Market risks

Counterparty and settlement risks

2005

2004

55.2%

30.6%

2.38%

2.17%

2.83%

1.1797

1.2484

0.6853

0.6851

3.8600
4.0276

57.8%

35.6%

2.45%

2.17%

3.08%

1.3621

1.2474

0.7051

0.6813

4.0845

4.5314

31 December
2005
€ m

1 January
2005
€ m

79,520

14,682

94,202

6,891

563

7,454

62,770

10,960

73,730

5,149

712

5,861

Total risk weighted assets

101,656

79,591

Capital

Tier 1
Tier 2

Supervisory deductions

Total

Capital ratios

Tier 1
Total

142

7,275
4,089

11,364
487

10,877

7.2%
10.7%

6,510
2,312

8,822
302

8,520

8.2%
10.7%

203557  02/03/2006  08:23  Page 143

63 Financial and other information (continued)

Currency information

Euro

Other

2005
€ m

75,806

57,408

Assets
2004
€ m

55,469

45,640

2005
€ m

76,831

56,383

Liabilities
2004
€ m

55,655

45,454

133,214

101,109

133,214

101,109

64 Average balance sheets and interest rates

The following tables show the average balances and interest rates of interest earning assets and interest bearing liabilities for the years

ended 31 December 2005 and 2004.The calculation of average balances include daily and monthly averages for reporting units.The

average balances used are considered to be representative of the operations of the Group.

Assets

Loans and receivables to banks

Domestic offices
Foreign offices

Loans and receivables to customers

Domestic offices

Foreign offices

Trading portfolio financial assets

Domestic offices

Foreign offices

Financial investments available for sale

Domestic offices
Foreign offices

Total interest earning assets

Domestic offices

Foreign offices
Net interest on swaps

Total average interest earning assets

Non-interest earning assets

Total average assets

Percentage of assets applicable to 

foreign activities

Average
balance
€ m

4,596
1,131

47,806

27,664

7,786

1,308

12,869
3,220

73,057

33,323

106,380
13,209

119,589

Year ended 31 December 2005
Average
rate
%

Interest

€ m

117
50

2,084

1,768

257

48

470
177

2,928

2,043
125

5,096

5,096

2.5
4.4

4.4

6.4

3.3

3.7

3.7
5.5

4.0

6.1

4.8

4.3

Average
balance
€ m

2,857
824

38,540

21,397

5,890

1,139

11,011
2,883

58,298

26,243

84,541
10,421

94,962

Year ended 31 December 2004
Average
rate
%

Interest

€ m

70
28

1,625

1,260

193

39

431
213

2,319

1,540
48

3,907

3,907

2.4
3.4

4.2

5.9

3.3

3.4

3.9
7.4

4.0

5.9

4.6

4.1

31.1

31.3

143

203557  02/03/2006  08:23  Page 144

Notes to the accounts

64 Average balance sheets and interest rates (continued)

Liabilities and shareholders’ equity

Due to banks

Domestic offices 

Foreign offices 
Due to customers

Domestic offices 

Foreign offices 
Other debt issued

Domestic offices

Foreign offices

Subordinated liabilities

Domestic offices 

Total interest earning liabilities

Domestic offices 
Foreign offices 

Total average interest earning liabilities

Non interest earning liabilities

Total liabilities 

Stockholders’ equity

Total average liabilities and
stockholders’ equity

Percentage of liabilities applicable to 

foreign operations

Year ended 31 December 2004
Average
rate
%

Interest

€ m

Year ended 31 December 2005
Average
rate
%

Interest

€ m

693

81

473

642

171

374

132

1,469
1,097

2,566

2,566

2.7

4.1

1.7

3.5

2.4

4.4

4.5

2.3
3.8

2.8

2.3

Average
balance
€ m

25,288

1,963

27,820

18,545

7,001

8,486

2,925

63,034
28,994

92,028
21,237

113,265
6,324

Average
balance
€ m

20,288

2,732

23,795

14,780

3,395

3,942

2,513

49,991
21,454

71,445
18,070

89,515
5,447

555

91

363

462

77

178

109

1,104
731

1,835

1,835

2.7

3.3

1.5

3.1

2.3

4.5

4.3

2.2
3.4

2.6

2.0

1.9

119,589

2,566

2.2

94,962

1,835

30.7

29.1

65 Reconciliations of Irish GAAP to IFRS

As stated in First time adoption of International Financial Reporting Standards (‘IFRS’) and in Note 1 to the accounts, these are the

Group’s first Financial Statements prepared in accordance with IFRS.

In order to prepare the IFRS opening balance sheet, it was necessary to adjust the amounts reported in the Financial Statements

prepared in accordance with Irish GAAP to reflect the application of the International Financial Reporting Standards.

Reconciliations of the transition from Irish GAAP to IFRS are set out below, and explain how the transition has affected the

financial position and performance of the Group and the parent company, Allied Irish Banks, p.l.c.(‘the parent’).

The balance sheet reconciliations present the restatement of the Group and the parent balance sheets at 31 December, 2004 from

Irish GAAP to IFRS including the impacts of IAS 32, IAS 39 and IFRS 4 at 1 January 2005.

The Income statement reconciliation presents for the Group the restatement from Irish GAAP Profit and loss account to IFRS

Income statement for the year ended 31 December, 2004.

Reconciliations between Irish GAAP and IFRS are summarised in note 1 for both the Group and the parent of shareholders’

equity at 31 December 2004 before the implementation of IAS 32, IAS 39 and IFRS 4 and at 1 January 2005 following the

implementation of IAS 32, IAS 39 and IFRS 4.

Additionally, detailed explanations of the key differences between Irish GAAP and IFRS impacting the Group’s financial

statements are set out in this note.

144

203557  02/03/2006  08:23  Page 145

65 Reconciliation of Irish GAAP to IFRS (continued)

31 December 2004

1 January 2005

Consolidated balance sheets

Assets

Cash and balances at central banks

Items in course of collection

Trading portfolio financial assets

Financial assets designated at fair value through profit or loss

Derivative financial instruments

Loans and receivables to banks

Loans and receivables to customers

Financial investments available for sale

Debt securities and equity shares

Interests in associated undertakings

Intangible assets and goodwill

Property, plant and equipment
Other assets

Current taxation

Deferred taxation

Prepayments and accrued income

Long-term assurance business attributable to shareholders

IFRS adjustments
To
equity
€ m

Irish Reclassi-
fication
€ m

GAAP
€ m

IAS 32, 39 & IFRS 4
To
equity
€ m

IFRS Reclassi-
fication
€ m

€ m

IFRS

€ m

887

368 

7,957 

1,871 

2,581 

2,538 

-

1,395

540

745
1,435 

25

204

861

-

-

60 65,692 

-

15,397

323 15,720 

-

-

-

-

-

-

-

-

-

62

51

-
-

-

7

2

-

-

887

368

-

-

-

2,540

64,738

-

-

7,957

1,871

2,419

(2)

894

26,142

(26,142)

-

-

-

-

162

-

-

17

-

1,379

540

745
2,597

25

228

920

-

-

(1)

-

-
(963)

-
(199)

-

-

-

-

-

(24)

(59)

-

-

887

368

-

-

-

-

-

-

-

-

2,320

64,836

-

220

(98)

-

24,271

1,871

1,317

380

785
2,247

-

198

918

467

-

109

(40)
350

25

23

-

(467)

Long-term assurance business attributable to policyholders

3,246

(3,246)

Total assets

Liabilities

Deposits by banks

Customer accounts

Trading portfolio financial liabilities

Derivative financial instruments

Investment and insurance contract liabilities

Debt securities in issue

Current taxation

Other liabilities

Accruals and deferred income

Retirement benefit liabilities

Provisions for liabilities and charges

Deferred taxation

Subordinated liabilities and other capital instruments
Long-term assurance business attributable to policyholders

Total liabilities

Shareholders’ equity

Issued share capital

Share premium account

Other equity interests

Reserves

Profit and loss account

Shareholders’ equity

Minority interests

Shareholders’ equity (including minority interests)

102,240

(1,253)

122 101,109

1,430

280 102,819

20,428

-

51,397

(1,246)

-

-

-

11,805

-

-

-

3,286

-

175

-

-

-

-

-

-

-

20,428

50,151

-

-

3,286

11,805

175

-

-

332

2,318

601

-

-

3,899

(184)

(328)

3,387

(1,794)

- 20,428

- 50,151

-

223

-

332 

2,541

3,887

- 11,805

22

-

197

1,593 

911

676

122

123

2,766
3,320

-

187

-

(151)

-
(3,320)

2

23

-

80

-
-

913

886

122

52

2,766
-

(27)

(181)

-

-

-

-
-

-

-

(14)

(315)
-

705 

886 

122 

38 

2,451 
-

95,447

(1,253)

(223) 93,971

1,430

(265) 95,136 

294

1,693

182

977

2,435

5,581

1,212

6,793

-

-

-

-

-

-

-

-

-

-

-

8

338

346

(1)

345

294

1,693

182

985

2,773

5,927

1,211

7,138

-

-

-

-

-

-

-

-

-

-

315

205

25

545

294 

1,693 

497 

1,190

2,798

6,472 

-

1,211

545

7,683 

Total liabilities, shareholders' equity and minority interests

102,240

(1,253)

122 101,109

1,430

280 102,819

145

203557  02/03/2006  08:23  Page 146

Notes to the accounts

65 Reconciliations of Irish GAAP to IFRS (continued)

Consolidated income statement

Net interest income

Other finance income

Other non-interest income

Total operating income

Insurance claims
Operating expenses

Operating profit before provisions

Provisions

Group operating profit

Share of results of associated undertakings

Amortisation of goodwill on acquisition of associated undertaking
Profit on disposals

Profit before taxation

Taxation

Profit after taxation

Profit attributable to minority interests

Preference dividends

Profit attributable to ordinary shareholders

31 December
2004
Irish GAAP
€ m

2,036

18

1,210

3,264

-
1,886

1,378
135

1,243

201

(52)
26

1,418
336

1,082

30

5

1,047

IFRS 
adjustments

€ m

98

(18)

264

344

309
8

27
(2)

29

(69)

52
-

12
(64)

76

(1)

(1)

78

31 December 
2004 
IFRS
€ m

2,134

-

1,474

3,608

309
1,894

1,405
133

1,272

132

-
26

1,430
272

1,158

29

4

1,125

(1)Reflects the 31 December 2004 IFRS income statement prior to the restatement to represent the results of Ark Life as a

discontinued operation (note 2).

146

203557  04/03/2006  10:49  Page 147

65 Reconciliation of Irish GAAP to IFRS (continued)

31 December 2004

1 January 2005

Balance sheets – Allied Irish Banks, p.l.c.

Assets

Cash and balances at central banks

Items in course of collection

Trading portfolio financial assets

Derivative financial instruments

Loans and receivables to banks

Loans and receivables to customers

Financial investments available for sale

Debt securities and equity shares

Interests in associated undertakings

Shares in Group undertakings

Intangible assets and goodwill

Property, plant and equipment

Other assets

Current taxation

Deferred taxation

Prepayments and accrued income

Total assets

Liabilities

Deposits by banks

Customer accounts

Trading portfolio financial liabilities

Derivative financial instruments

Investment and insurance contract liabilities

Debt securities in issue

Current taxation

Other liabilities

Accruals and deferred income

Retirement benefit liabilities

Provisions for liabilities and charges

Deferred taxation
Subordinated liabilities and other capital instruments

Total liabilities

Shareholders’ equity

Issued share capital

Share premium account

Other equity interests

Reserves

Profit and loss account
Total shareholders’ equity

IFRS adjustments
To
equity
€ m

Irish Reclassi-
fication
€ m

GAAP
€ m

514

178

-

-

18,489

44,696

-

20,923

826

225

-

476

1,524

-

77

767

-

-

-

-

-

-

-

-

-

-

40

(22)

(19)

25

(35)

-

-

-

-

-

2

-

-

-

65

-

17

-

-

-

68

-

IAS 32, 39 & IFRS 4
To
equity
€ m

IFRS Reclassi-
fication
€ m

€ m

514

178

-

-

18,491

44,696

-

-

7,366

2,203

-

618

IFRS

€ m

514

178 

7,421

2,225 

-

-

55

22

- 18,491 

73 45,387 

-

12,939

206 13,145 

20,923

(20,923)

891

225

57

454

-

-

-

-

1,505

(1,227)

25

110

767

-

(44)

(132)

-

-

-

-

-

-

-

26

-

-

891

225

57

454

278

25

92

635

88,695

(11)

152

88,836

800

382 90,018

34,448

34,727

-

-

-

10,330

80

2,279

735

438

100

3
2,766

-

-

-

-

-

-

25

-

-

-

-

(36)
-

-

-

-

-

-

-

-

34,448

34,727

-

-

-

10,330

105

-

-

229

2,051

-

-

-

(328)

1,951

(1,436)

4

123

-

33
-

739

561

100

-
2,766

-

-

-

- 34,448

- 34,727

-

229

(19)

2,032

-

-

- 10,330

28

-

(31)

-

-

133

515

708

561

100

(44)
-

44
(315)

-
2,451

85,906

(11)

(168) 85,727

800

(293) 86,234

294

1,693

182

100

520
2,789

-

-

-

-

-
-

-

-

-

(20)

340
320

294

1,693

182

80

860
3,109

-

-

-

-

-
-

-

-

315

308

52
675

294 

1,693 

497 

388 

912 
3,784 

Total liabilities and shareholders’ equity

88,695

(11)

152

88,836

800

382 90,018

147

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Notes to the accounts

65 Reconciliation of Irish GAAP to IFRS (continued)

The key differences between Irish GAAP and IFRS impacting the Group’s financial statements are as follows:

(a) Basis of consolidation

In order to reflect the different nature of the shareholders’ and policyholders’ interests in the long-term assurance business, these

were classified under separate headings in the consolidated balance sheet under Irish GAAP.

Movements in the value of the long-term assurance business attributable to shareholders, were presented in the profit and loss

account grossed up at the statutory tax rate.

IAS 27 ‘Consolidated and separate financial statements’ requires that all entities are consolidated on a line by line basis, except

in very limited circumstances.The assets and liabilities of the life assurance subsidiary are consolidated on a line by line basis and

all intra group transactions are eliminated.The income and expense of the life assurance subsidiary is shown within each relevant

line item of the income statement whereas under Irish GAAP it was shown as a one line item. Movements in the value of the

long-term assurance business is presented net of tax.

IFRS also requires the consolidation of certain entities that were not required under Irish GAAP, including securitisation

vehicles where appropriate.

(b) Cash and cash equivalents

Under Irish GAAP, cash comprised cash and balances at central banks and loans and receivables to banks repayable on demand.

Under IFRS, this is a presentation change on the face of the cash flow statement, resulting in an increase in the amount of

cash and cash equivalents reported, as it now includes short-term non-equity investments and bank overdrafts.

(c) Financial instruments

Debt securities held as financial fixed assets were accounted for on a historic cost basis under Irish GAAP. These debt securities

were stated in the balance sheet at cost, adjusted for the amortisation of any premiums or discounts arising on acquisition and

provisions for impairment. Debt securities held for trading purposes were stated in the balance sheet at market value. Both realised

and unrealised profits on trading securities were taken directly to the profit and loss account and included within dealing profits.

Under IAS 32 and 39, all debt securities and equity shares are classified and disclosed within one of the following three

categories: held-to-maturity; available-for-sale; or held at fair value through profit or loss.

Held-to-maturity financial instruments are stated in the balance sheet at cost, adjusted on an effective interest basis for the

amortisation of any premiums or discounts arising on acquisition and provisions for impairment.The amortisation of premiums

and discounts is included in net interest income. Provisions for impairment are included in the income statement.

Available-for-sale financial instruments are stated in the balance sheet at fair value with unrealised holding gains and losses

reported net of applicable taxes as a separate component in shareholders’ equity.

Debt securities held at fair value through profit or loss are stated in the balance sheet at market value with unrealised gains

and losses recognised immediately in the income statement.This has two sub categories: financial assets held for trading; and those

designated at fair value through profit or loss.

Almost all of AIB’s financial instruments, which were previously held as financial fixed assets, were classified as available-for-

sale on transition to IFRS.This gave rise to an adjustment to equity on transition.

(d) Derivatives

Non-trading derivative transactions comprise transactions held for hedging purposes as part of the Group’s risk management

strategy against assets, liabilities, positions or cash flows, themselves accounted for on an accruals basis.The gains and losses on

these instruments (arising from changes in fair value) were not recognised in the profit and loss account immediately as they

arose. Derivative transactions entered into for hedging purposes were recognised in the accounts on an accruals basis consistent

with the accounting treatment of the underlying transaction or transactions being hedged.

IAS 39 ‘Financial instruments: recognition and measurement’ requires all derivatives be recognised as either assets or liabilities
in the balance sheet at their fair value.The accounting for changes in the fair value of a derivative depends on the intended use of

the derivative and the resulting designation, this being either fair value hedges or cash flow hedges.

Interest income and expense on derivatives classified as hedges is recorded within interest income or expense as appropriate.

The mark to market of derivatives classified as fair value hedges is recognised in the income statement within other financial

income.The mark to market of derivatives designated as cash flow hedges is accounted for in equity, net of the deferred tax impact.

148

203557  02/03/2006  08:23  Page 149

(d) Derivatives (continued)

Because hedge effectiveness rules within IAS 39 have a stricter definition of qualifying hedges, this has resulted in the recognition

of current hedging derivatives at fair value with no matching offset where the associated hedging relationship has not met the

IAS 39 hedging requirements.There was also an impact on transition due to fair value movements on derivatives in existing

hedge relationships, that are designated as cash flow hedges being taken to the cash flow hedging reserve in equity.

(e) Netting

Under Irish GAAP, where the amounts owed by the Group and the counterparty are determinable and in freely convertible

currencies and where the Group had the ability to insist on net settlement which is assured beyond doubt and is based on a legal

right to settle net that would survive the insolvency of the counterparty, the amounts were shown in the balance sheet as net

assets or net liabilities as appropriate.

Under IAS 32 ‘Financial instruments: disclosure and presentation’, netting is only allowed if the entity currently has a legally

enforceable right to set off the recognised amounts and intends either to settle on a net basis, or to realise the asset and settle the

liability simultaneously.

(f ) Loan impairment - allowance and provision for losses

Under IAS 39, impairment provisions are recognised on an incurred loss basis if there is objective evidence that the Group will

be unable to collect all amounts due on a loan according to the original contractual terms.The estimated recoverable amount is

the present value of  expected future cash flows, which may result from restructuring or liquidation. Impairment is measured and

allowances for credit losses are established for the difference between the carrying amount and the estimated recoverable amount.

Where no objective evidence of impairment exists for an individual asset but there are indications of incurred losses in the

portfolio, IAS 39 permits the creation of provisions for credit losses on an incurred loss basis.

Application of the IFRS incurred loss model to AIB results in a reduction in the overall level of provisions carried at the

balance sheet date and a transition adjustment to equity. In addition, on recognition of individual impairment, the impairment

loss will be higher than that recorded under current GAAP due to the requirement to discount the recoverable cash flows.

The higher impairment loss will be offset by the recognition of income on the net recoverable amount due to the passage of time.

(g) Loan origination - interest income and expense recognition

Under Irish GAAP, interest income and expense was recognised in the profit and loss on an accruals basis over contract lives

except in respect of non-performing loans where interest was not taken to the profit and loss account when recovery was

doubtful. Fees which are considered to increase the yield on transactions were spread over the lives of the underlying transactions

on a level yield basis. All costs associated with mortgage incentive schemes were charged in the period in which the expense was

incurred. Fees and commissions received for services provided were recognised when earned. Fees and commissions payable to

third parties in connection with lending arrangements were charged to the profit and loss account as incurred.

On transition to IFRS, certain fees receivable, and fees and commissions payable that had previously been taken to the profit

and loss account were treated as deferred income and deferred costs and shown within loans and receivables.This gave rise to a

reclassification from liabilities and a transition adjustment to equity.These deferred fees and costs will be amortised on an effective

interest basis to the profit and loss account over the expected residual lives of the financial instruments.The change in policy gave

rise to a reclassification from fee income/fee expense and administrative expenses to interest income with an impact on the net

interest margin.

(h) Finance leases

Income from finance leasing transactions was apportioned over the primary leasing period on an after tax basis in proportion to

the net cash investment using the investment period method for Irish GAAP. Rentals received in advance but not yet amortised

to the profit and loss account were included in other liabilities.

Under IAS 17 ‘Leases’, income from finance leasing transactions is apportioned over the primary leasing period at a rate

calculated to give a constant rate of return on the investment in the lease, without taking into account the taxation flows

generated by the lease.

Finance lease receivables are stated in the balance sheet at the gross rentals receivable, less income allocated to future periods

and provisions for impairment.The reclassification of rentals received in advance from liabilities to assets reduces the size of the

balance sheet.

149

203557  02/03/2006  08:23  Page 150

Notes to the accounts

(i) Interests in associated undertakings

Under Irish GAAP, the attributable share of income of associated undertakings was included in the consolidated profit and loss

account using the equity method of accounting.

The Group share of tax of associates was included within the Group’s tax charge in the Group profit and loss account and

disclosed separately in the notes to the accounts.

IAS 1 ‘Presentation of Financial Statements’ requires the Group to include its share of the income of associated undertakings

as a single item on a net of tax basis in the consolidated income statement.

(j) Intangible assets and goodwill

Under Irish GAAP, goodwill was amortised to the profit and loss account over its estimated useful economic life.

Under IFRS, from 1 January 2004, there was  no amortisation of goodwill recorded at 31 December 2003 (after adjusting for

intangible assets required to be recognised under IFRS and any adjustments made to provisional fair values on acquisitions).

However, goodwill will be the subject of impairment testing at least annually under IFRS. In the event of impairment, the

absence of previous amortisation would lead to larger impairment charges than would have been necessary under Irish GAAP.

Goodwill previously written off to reserves prior to 1998 will not be taken into account in the calculation of profit or loss on

disposal of subsidiary or associated undertakings.This will generate a higher profit, or lower loss, on disposal of subsidiary or

associated undertakings acquired prior to 1998, under IFRS.The cessation of goodwill amortisation had a positive impact on the

income statement for the year ended 31 December 2004.

(k) Software and software development costs

For Irish GAAP reporting operating software and application software were capitalised with computer hardware within tangible

fixed assets. AIB capitalised software development costs under FRS 15, when it lead to the creation of a definable software asset,

subject to a de-minimis limit.

IAS 38 ‘Intangible assets & system development costs’ requires capitalisation of computer software development costs as an

intangible asset, where the entity will generate future economic benefits from the asset that will flow to the entity, and the cost of

the asset can be measured reliably. Capitalised costs are amortised over the software’s estimated useful life.

The classification criteria of IFRS gave rise to a reclassification from tangible fixed assets to intangible assets, being the

carrying value of previously recognised operating software.

The recognition requirements within IAS 38 increased shareholders’ equity due to an increase in capitalised assets.

(l) Acceptances

Acceptances were accounted for on a net basis under Irish GAAP.There was no gross up of the amount to be paid and the

amount receivable from the originator and thus no balance appeared in the balance sheet in relation to these products.

IAS 39 requires the recognition of a liability for acceptances from the date of acceptance. A corresponding asset due from the

originator is also recognised.

(m) Taxation

Under IFRS, additional deferred tax balances arise on transition in respect of temporary differences not previously recognised.

These include temporary differences relating to the revaluation of properties and the roll over of taxable gains and the additional

tax that may arise on unremitted profits of associated and subsidiary companies.

There will be continuing income statement implications from IAS 12, particularly the requirement to reflect the additional

tax that would be payable on the remittance of profits by associated companies.

(n) Long term assurance business

Accounting for contracts meeting the IFRS definition of insurance business is not impacted by IFRS 4.

Accounting for investment products under IAS 39 serves to delay the recognition of income for a number of reasons.There is

a narrower definition of costs that can be deferred on the sale of investment products. Initial charges on the sale of investment

products are deferred and accrued over the expected life of the product.There is no opportunity to account for the future

surpluses on an embedded value basis.

150

203557  02/03/2006  08:23  Page 151

(n) Long term assurance business (continued)

As a consequence, there was a reduction in equity on transition, as the valuation of the discounted future earnings expected to

emerge from the business currently in force in the balance sheet will decrease. Income will be recognised on these contracts in

later periods due to the change in the valuation basis.

(o) Classification of financial liabilities

Under Irish GAAP capital instruments that are not shares were treated as liabilities if they involved an obligation to transfer

economic benefits. All other capital instruments were reported in shareholders’ funds.

Under IFRS, financial instruments with an obligation to pay interest or repay principal are classified in the balance sheet as

liabilities. Financial instruments with no obligation to pay interest or repay principal are classified as equity.

The impact on the balance sheet was as follows:

The US $ 250 million non-cumulative preference shares are now classified as debt while the reserve capital instruments are

classified as equity. This is a presentation change that will impact the face of the income statement and the balance sheet.

(p) Employee and retirement benefits

Under  FRS 17 ‘Retirement Benefits’ the current service cost and past service cost of the defined benefit schemes was charged to

operating profit and the expected return on assets, net of the change in the present value of the scheme liabilities arising from the

passage of time, was credited to other finance income. Pension scheme assets were recognised in the balance sheet at their fair
value based on current mid prices.The net pension scheme liabilities were shown in the balance sheet net of deferred taxation.

(q) Dividends

Equity dividends declared after the balance sheet date but before the accounts were approved by the Directors were treated as a

deduction on the face of the profit and loss account and as a liability at the balance sheet date.

Dividends on preference shares were included in the profit and loss account on an accruals basis in accordance with FRS 4

‘Capital Instruments’

Under IAS 10 ‘Events after the balance sheet date’ dividends declared after the balance sheet date are not recognised as a

liability at the balance sheet date.

In respect of preference shares recognised as shareholders’ equity, dividends are accounted for as a movement in shareholders’

equity and as a charge against earnings per share when they are declared.

(r) Share based payments

Under Irish GAAP, no expense was recognised for grants of options under the share option schemes.

An expense was recognised for grants awarded under the long term incentive plan schemes, equivalent to the intrinsic value of

the shares awarded.This was charged to the profit and loss account over the vesting period, based on the number of options that

are expected to vest. An expense was recognised in respect of Save-As-You-Earn schemes.

IFRS 2 ‘Share-based Payment’ requires a fair value based method of accounting for all share-based payments.This value is

determined using an options pricing model.

AIB elected to apply IFRS 2 to all equity settled share based payments occurring after 7 November 2002 that had not vested

by 1 January 2005.

Applying IFRS 2 to AIB’s share based payment schemes gave rise to a higher expense than that arising under Irish GAAP. It

also gave rise to some changes in the timing of recognition of the expense with a transition adjustment at 1 January 2004.

(s) Foreign currency

IFRS 1 permits companies to deem cumulative exchange differences as zero at 1 January 2004.This will primarily be a

presentation change within shareholders’ equity.

151

203557  04/03/2006  10:51  Page 152

Notes to the accounts

66 Post-balance sheet events

There have been no material post-balance sheet events which would require disclosure or adjustment to the 31 December 2005

Financial Statements. On 21 February 2006, the Board of Directors reviewed the Financial Statements and authorised them for issue.

These Financial Statements will be submitted to the Annual General Meeting of Shareholders to be held on 26 April 2006 for approval.

AIB Mortgage Bank
On 13th February 2006 home mortgages in the amount of € 13.6bn were transferred from Allied Irish Banks, p.l.c. to AIB Mortgage
Bank, a wholly owned subsidiary and a designated mortgage credit institution for the purposes of the Asset Covered Securities Act, 2001.

67 Dividends

Final dividends are not accounted for until they have been approved at the Annual General Meeting of Shareholders to be held on 
26 April 2006. It is recommended that a final dividend of Eur 42.30c per ordinary share, amounting to a total of  € 368m, be paid
on 27 April 2006. The Financial Statements for the year ended 31 December 2005 do not reflect this resolution, which will be

accounted for in shareholders’ equity as an appropriation of retained profits in the year ending 31 December 2006.

68 Form 20-F

An annual report on Form 20-F will be filed with the Securities and Exchange Commission,Washington D.C. and, when filed,

will be published on the Company’s website and will be available to shareholders on application to the Company Secretary.

69 Approval of accounts

The accounts were approved by the Board of Directors on 21 February 2006.

152

AIB-AR-text-a/w-05  3/3/06  6:22 PM  Page 11

Statement of Directors’ responsibilities 
in relation to the Accounts

policies consistently applied and supported by
reasonable and prudent judgements and estimates 
and that all accounting standards, which, following
discussions with the auditors, they consider applicable,
have been followed (subject to any explanations 
and any material departures disclosed in the notes 
to the accounts).

The directors are responsible for taking all reasonable
steps to secure that the company causes to be kept
proper books of account that disclose with reasonable
accuracy at any time the ﬁnancial position of the
parent company and enable them to ensure that its
accounts comply with the Companies Acts.They have
also general responsibility for taking such steps as are
reasonably open to them to safeguard the assets 
of the group and to prevent and detect fraud and
other irregularities.

Under applicable law and the requirements of the
Listing Rules issued by the Irish Stock Exchange,
the directors are also responsible for preparing 
a Directors’ Report and reports relating to directors’
remuneration and corporate governance that comply
with that law and those rules.

The directors are responsible for the maintenance and
integrity of the corporate and ﬁnancial information
included on the company’s website. Legislation in
Ireland governing the preparation and dissemination
of ﬁnancial statements may differ from legislation in
other jurisdictions.

The directors, having prepared the accounts,
have requested the auditors to take whatever steps
and undertake whatever inspections they consider 
to be appropriate for the purpose of enabling them
to give their audit report.

The following statement, which should be 
read in conjunction with the statement of auditors’
responsibilities set out within their audit report,
is made with a view to distinguishing for shareholders
the respective responsibilities of the directors 
and of the auditors in relation to the accounts.

The directors are responsible for preparing the
Annual Report and the group and parent company
accounts, in accordance with applicable law 
and regulations.

The Companies Acts require the directors to prepare
group and parent company accounts for each
ﬁnancial year. Under the Acts, the directors are
required to prepare the group accounts in accordance
with international ﬁnancial reporting standards
(“IFRS”), adopted from time to time by the
European Commission, in accordance with
Regulation (EC) No. 1606/2002 of the European
Parliament and of the Council of 19th July 2002.
The directors have elected to prepare the parent
company accounts in accordance with Generally
Accepted Accounting Practice in Ireland, comprising
applicable law and the accounting standards issued 
by the Accounting Standards Board and promulgated
by the Institute of Chartered Accountants in Ireland.

The accounts are required by law and IFRS to
present fairly the ﬁnancial position and performance
of the group; the Companies Acts provide in relation
to such accounts that references to accounts giving 
a true and fair view are references to their achieving 
a fair presentation.

In preparing each of the group and parent company
accounts, the directors are required to:
•

select suitable accounting policies and then apply
them consistently;

• make judgements and estimates that are reasonable

and prudent; and 

•

prepare the accounts on the going concern 
basis unless it is inappropriate to presume 
that the group and the parent company 
will continue in business.

The directors consider that, in preparing the 
accounts on pages 48 to 152, which have been
prepared on a going concern basis, the parent
company and the group have, following discussions
with the auditors, used appropriate accounting

153

203557  07/03/2006  08:18  Page 154

Independent auditor’s report

Independent Auditor’s Report to the Members of Allied Irish Banks, p.l.c.

We have audited the group and parent company financial statements of Allied Irish Banks, p.l.c for the year ended 31 December 2005
(‘the financial statements’) which comprise the Group Income Statement, the Group and Parent Company Balance Sheets, the Group
and Parent Company Cash Flow Statements, the Group and Parent Company Statements of Recognised Income and Expense and
the related notes. These financial statements have been prepared under the accounting policies set out therein.

This report is made solely to the company’s members, as a body, in accordance with section 193 of the Companies Act 1990.
Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the
opinions we have formed.

Respective responsibilities of directors and auditors

The directors’ responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the EU are set out in the Statement of Directors’ Responsibilities
on page 153.

Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and

International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view in accordance with IFRSs as
adopted by the EU and, in the case of the parent company applied in accordance with the provisions of the Companies Acts 1963 to
2005, and have been properly prepared in accordance with the Companies Acts 1963 to 2005 and Article 4 of the IAS Regulation.

We also report to you whether, in our opinion: proper books of account have been kept by the company; at the balance sheet

date, there exists a financial situation requiring the convening of an extraordinary general meeting of the company; and the
information given in the Report of the Directors is consistent with the financial statements.

In addition, we state whether we have obtained all the information and explanations necessary for the purposes of our audit, and

whether the parent company’s balance sheet is in agreement with the books of account.

We also report to you if, in our opinion, any information specified by law or the Listing Rules of the Irish Stock Exchange
regarding directors’ remuneration and directors’ transactions is not disclosed and, where practicable, include such information in our
report.

We review whether the Corporate Governance Statement reflects the company’s compliance with the nine provisions of the
2003 FRC Combined Code specified for our review by the Listing Rules of the Irish Stock Exchange, and we report if it does not.
We are not required to consider whether the board’s statements on internal control cover all risks and controls, or form an

opinion on the effectiveness of the group’s corporate governance procedures or its risk and control procedures.

We read other information contained in the Annual Report and consider whether it is consistent with the audited financial
statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies
with the financial statements. Our responsibilities do not extend to any other information.

Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices
Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial
statements, and of whether the accounting policies are appropriate to the group’s and company’s circumstances, consistently applied
and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in

order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material
misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy
of the presentation of information in the financial statements.

154

203557-Web  09/03/2006  12:47  Page 155

Opinion

In our opinion:
• the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU, of the state of the

Group’s affairs as at 31 December 2005 and of its profit for the year then ended;

• the parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU as applied
in accordance with the provisions of the Companies Acts 1963 to 2005, of the state of the parent company’s affairs as at 31
December 2005; and 

• the financial statements have been properly prepared in accordance with the Companies Acts 1963 to 2005 and Article 4 of the

IAS Regulation.

We have obtained all the information and explanations which we consider necessary for the purposes of our audit. In our
opinion proper books of account have been kept by the company.The company balance sheet is in agreement with the books of
account.

In our opinion the information given in the Report of the Directors is consistent with the financial statements.
The net assets of the company, as stated in the company balance sheet, are more than half of the amount of its called-up share

capital and, in our opinion, on that basis there did not exist at 31 December 2005 a financial situation which under Section 40 (1) 
of the Companies (Amendment) Act, 1983 would require the convening of an extraordinary general meeting of the company.

Chartered Accountants  
Registered Auditor
1 Harbourmaster Place
International Financial Services Centre
Dublin 1
Ireland

21 February 2006

Notes:

a. The maintenance and integrity of the Allied Irish Banks, p.l.c. website is the responsibility of the directors; the work carried out by the
auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may
have occurred to the financial statements or audit report since they were initially presented on the website.

b. Legislation in the Republic of Ireland governing the preparation and dissemination of financial statements may differ from legislation

in other jurisdictions.

155

203557  02/03/2006  08:23  Page 156

Accounts in sterling, US dollars and Polish zloty

€ m

1,636

143

1,493

149

14

45
5

1,706
319

1,387
46

1,433

90

1,343

STG £m
STG £ 0.6853
= € 1

US $m
US $1.1797
= € 1

PLN m
PLN 3.8600
= € 1

1,121

98

1,023

102

10

31
3

1,169
219

950
32

982

62

920

1,930

168

1,762

176

16

53
5

2,012
376

1,636
54

1,690

106

1,584

6,314

549

5,765

577

52

172
18

6,584
1,231

5,353
176

5,529

346

5,183

151.0c
149.8c

103.5p
102.7p

178.1¢
176.7¢

582.9 PLN
578.2 PLN

€ m

Stg £m

US $m

PLN m

10,113

2,439

7,129

85,232

16,864

517

706

5,363

4,851

6,931

1,671

4,886

58,409

11,557

354

484

3,675

3,324

11,931

2,877

8,411

100,548

19,894

609

833

6,326

5,723

39,037

9,415

27,519

328,996

65,095

1,994

2,724

20,700

18,725

133,214

91,291

157,152

514,205

29,329

62,580
1,967

17,611

4,463

3,756

5,091

1,248

7,169

20,099

42,886
1,348

12,069

3,058

2,573

3,489

856

4,913

34,600

73,825
2,320

20,776

5,265

4,430

6,006

1,473

8,457

113,211

241,558
7,591

67,979

17,227

14,495

19,652

4,819

27,673

133,214

91,291

157,152

514,205

Summary of consolidated income statement
for the year ended 31 December 2005

Operating profit before provisions

Provisions

Operating profit 

Share of results of associated undertakings

Profit on disposal of property

Construction contract income
Profit on disposal of businesses

Profit before taxation - continuing operations
Taxation

Profit after taxation - continuing operations
Discontinued operation, net of taxation

Profit for the period

Minority interests in subsidiaries

Profit attributable to equity holders of the parent

Basic earnings per share
Diluted earnings per share

Summary of consolidated balance sheet
31 December 2005 

Assets

Trading portfolio financial assets

Derivative financial instruments

Loans and receivables to banks

Loans and receivables to customers

Financial investments available for sale

Intangible assets and goodwill

Property, plant and equipment

Disposal group and assets classified as held for sale

Other assets

Liabilities

Deposits by banks

Customer accounts

Derivative financial instruments

Debt securities in issue

Other liabilities

Subordinated liabilities and other capital instruments

Disposal group classified as held for sale

Minority interests in subsidiaries

Shareholders’ equity

156

203557  02/03/2006  08:23  Page 157

Five year financial summary

2005

US $m Summary of consolidated income statement(1)

2,985 Net interest income 

- Other finance income

1,318 Other income before exceptional item

-

Exceptional foreign exchange dealing losses

4,303 Total operating income after exceptional item
2,373 Total operating expenses

1,930 Operating profit before provisions

168

Provisions

1,762 Operating profit

176

Share of results of associated undertakings

Share of restructuring & integration costs in 

-

-

associated undertaking

Amortisation of goodwill on acquisition of 

associated undertaking

16
Profit on disposal of property
53 Construction contract income
5

Profit/(loss) on disposal of businesses

2,012

Profit before taxation - continuing operations

376 Taxation

1,636

Profit after taxation - continuing operations

54 Discontinued operation, net of taxation

1,690

Profit for the period

178.1¢ Basic earnings per share
176.7¢ Diluted earnings per share

2005

US $m Summary of consolidated balance sheet(1)

157,152 Total assets
108,959 Total loans 
129,201 Total deposits 

3,159 Dated capital notes
1,023 Undated capital notes

248 Other capital instruments

1,473 Minority interests in subsidiaries

586

Shareholders’ equity: non-equity interests

7,871

Shareholders’ equity: equity interests

14,360 Total capital resources

2005
IFRS
€ m

2,530

-

1,117

-

3,647

2,011

1,636

143

1,493

149

-

-

14

45

5

1,706

319

1,387
46

1,433

151.0c
149.8c

2005
IFRS
€ m

133,214

92,361

109,520

2,678

868

210

1,248

497

6,672

12,173

2004
IFRS
€ m

2,072

-

1,144

-

3,216

1,869

1,347

133

1,214

132

-

-

9

-

17

1,372

267

1,105
53

1,158

132.0c
131.5c

2003
IR GAAP
€ m

Year ended 31 December
2001
IR GAAP
€ m

2002
IR GAAP
€ m

1,934

12

1,230

-

3,176

1,960

1,216

177

1,039

143

(20)

(42)

32

-

(141)

1,011

318

693
-

693

78.8c
78.4c

2,351

62

1,514

-

3,927

2,318

1,609

251

1,358

9

-

-

5

-

-

1,372

306

1,066
-

1,066

119.1c
117.9c

2,258

67

1,426

(789)

2,962

2,284

678

204

474

4

-

-

6

-

93

577

55

522
-

522

56.2c
55.9c

2004
IFRS
€ m

2003
IR GAAP
€ m

As at 31 December
2001
IR GAAP
€ m

2002
IR GAAP
€ m

101,109

67,278

82,384

80,960

53,326

66,195

85,821

58,483

72,190

89,061

57,445

72,813

1,923

346

497

1,211

182

5,745

9,904

1,276

1,287

1,594

357

497

158

196

4,942

7,426

389

496

274

235

4,180

6,861

426

496

312

279

4,554

7,661

157

203557  02/03/2006  08:23  Page 158

Five year financial summary (continued)

Other financial data(1)

Return on average total assets

Return on average ordinary shareholders’ equity

Dividend payout ratio

Average ordinary shareholders’ equity 

as a percentage of average total assets

Allowance for loan losses as a percentage

of total loans to customers at year end

Net interest margin

Tier 1 capital ratio

Total capital ratio

2005
IFRS
%

1.20

20.6

43.5

5.3

0.8

2.38

7.2

10.7

2003
IR GAAP
%

Year ended 31 December
2001
IR GAAP
%

2002
IR GAAP
%

0.90

14.5

66.8

6.0

1.3

2.72

7.1

10.4

1.24

23.7

41.5

0.62(2)

10.4(2)

78.5

5.1

5.8

1.6

3.00

6.9

10.1

1.9

2.99

6.5

10.1

2004
IFRS
%

1.22

20.7

45.5

5.7

1.2

2.45

8.2

10.9

(1) The results for the year ended 31 December 2004 have been restated to represent the results of Ark Life as a discontinued operation to reflect the

disposal (note 2) and the application of International Financial Reporting Standards (‘IFRS’), with the exception of IAS 32, IAS 39 and IFRS 4

which apply with effect from 1 January 2005 (see First time adoption of International Financial Reporting Standards (‘IFRS’)).The financial

position at 31 December 2004 has been restated for the application of IFRS only.The historical information has not been restated for IFRS and is

therefore presented as previously reported under Irish GAAP. Thus the five year trends will not be entirely comparable.

(2)Excluding the impact of the exceptional foreign exchange dealing losses, the return on average total assets was 1.23% and the return on average

ordinary shareholders’ equity was 20.4%.

158

AIB-AR-text-a/w-05  3/3/06  6:22 PM  Page 17

Principal addresses

Ireland & Britain

Group Headquarters

Bankcentre, PO Box 452,

Ballsbridge, Dublin 4.

Telephone + 353 1 660 0311

http://www.aibgroup.com

AIB Bank (ROI)

Bankcentre, Ballsbridge, Dublin 4.

Telephone + 353 1 660 0311

Facsimile + 353 1 2830490

First Trust Bank 

First Trust Centre, PO Box 123,

92 Ann Street, Belfast BT1 3AY.

Telephone + 44 28 9032 5599

From ROI 048 9032 5599

Facsimile + 44 28 9043 8338

From ROI 048 9043 8338

First Trust Bank

4 Queens Square, Belfast, BT1 3DJ

Telephone + 44 28 9024 2423

Facsimile + 44 28 902 42464

Allied Irish Bank (GB)

Bankcentre, Belmont Road,

Uxbridge, Middlesex UB8 1SA.

Telephone + 44 1895 272 222

Facsimile + 44 1895 619 305

AIB Finance & Leasing

Sandyford Business Centre,

Blackthorn Road,

Sandyford, Dublin 18.

Telephone + 353 1 660 3011

Facsimile + 353 1 295 9773

aibﬁnl@aib.ie

AIB Card Services

Donnybrook House,

Donnybrook, Dublin 4.

AIB Corporate Finance Limited

85 Pembroke Road,

Ballsbridge, Dublin 4.

Telephone + 353 1 668 5500

Telephone + 353 1 667 0233

Facsimile + 353 1 668 5901

Facsimile + 353 1 667 0250

credcard@aib.ie

AIB Capital Markets

AIB International Centre,

IFSC, Dublin 1.

AIB Irish Capital Management

Limited

85 Pembroke Road, Ballsbridge, Dublin 4.

Telephone + 353 1 668 8860

Telephone + 353 1 874 0222

Facsimile + 353 1 668 8831

Facsimile + 353 1 679 5933

AIB Global Treasury

AIB International Centre,

IFSC, Dublin 1.

AIB/BNY Securities Services (Ireland)

Limited

Guild House, Guild Street,

IFSC, Dublin 1.

Telephone + 353 1 874 0222

Telephone + 353 1 642 8099

Facsimile + 353 1 679 5933

Facsimile + 353 1 829 0833

Corporate Banking Britain 

St Helen’s, 1 Undershaft,

London EC3A 8AB.

Telephone + 44 20 7090 7130

Facsimile + 44 20 7090 7101

12 Old Jewry, London EC2R 8DP.

Telephone + 44 20 7606 3070

Facsimile + 44 20 7726 6683

AIB Investment Managers Limited

AIB Investment House,

Percy Place, Dublin 4.

Telephone + 353 1 661 7077

Facsimile + 353 1 661 7038

AIB International Financial 

Services Limited

AIB International Centre, IFSC, Dublin 1.

Telephone + 353 1 874 0777

Facsimile + 353 1 874 3050

Goodbody Stockbrokers

Ballsbridge Park, Ballsbridge, Dublin 4.

Telephone + 353 1 667 0400

Facsimile + 353 1 667 0422

AIB Corporate Banking

Bankcentre, Ballsbridge, Dublin 4.

Telephone + 353 1 660 0311

Facsimile + 353 1 668 2508

159

AIB-AR-text-a/w-05  3/3/06  6:22 PM  Page 18

USA

Poland

Rest of World

Allied Irish Banks, plc

Bank Zachodni WBK S.A.

405 Park Avenue, New York,

Rynek 9/11, 50-950 Wroclaw.

NY 10022.

Telephone + 48 71 370 2478

AIB Bank (CI) Limited

AIB House, PO Box 468,

Grenville Street, St Helier,

Telephone + 1 212 339 8000

Facsimile + 48 71 370 2771

Jersey, JE4 8WT, Channel Islands.

Facsimile + 1 212 339 8007/8

Telephone + 44 1534 883 000

AIB European Investments

Facsimile + 44 1534 883 112

AIB Corporate Banking 

(Warsaw) Sp. Z o.o.

North America

Krolewska Building, 4th ﬂoor,

AIB Corporate Banking France

4th ﬂoor, 405 Park Avenue,

ul.Marszalkowska 142,

Real Estate Finance,

New York, NY 10022.

00-061 Warsaw.

39 avenue Pierre 1er de Serbie,

Telephone + 1 212 515 6788

Telephone + 48 22 586 8002

75008 Paris.

Facsimile +1 212 339 8325

Facsimile + 48 22 586 8001

AIB Treasury Services

405 Park Avenue, New York,

NY 10022.

Telephone + 1 212 339 8000

Facsimile + 1 212 339 8006

AIB PPM Sp. Z o.o.

Atrium Tower,

Al. Jana Pawla II 25,

00-854 Warsaw.

Telephone + 48 22 653 4700 

Facsimile + 48 22 653 4707 

Telephone +33 1 53 57 76 00

Facsimile +33 1 53 57 76 20

AIB Corporate Banking Germany

Reuterweg 49, D-60323,

Frankfurt am Main, Germany.

Telephone + 49 69 971 4210

Facsimile + 49 69 971 42116

AIB Bank (CI) Limited

Isle of Man Branch

PO Box 186, 10 Finch Road,

Douglas, Isle of Man, IM99 1QE.

Telephone + 44 1624 639 639

Facsimile + 44 1624 639 636

AIB Hungary

Dohány Utca 12,

H-1074 Budapest,

Hungary.

Telephone + 36 1 328 6805

Facsimile + 36 1 328 6801

AIB Luxembourg

69A boulevard de la Pétrusse,

L-2320 Luxembourg,

Grand Duchy of Luxembourg.

Telephone + 352 261 2181

Facsimile + 352 261 21830

All numbers are listed with international codes. To dial a location from within the same jurisdiction, drop the country code after 

the + sign and place a 0 before the area code. This does not apply to calls to First Trust from Ireland (Republic).

160

AIB-AR-text-a/w-05  3/3/06  6:22 PM  Page 13

Additional Information for Shareholders

1.

Internet-based Shareholder Services

The Company’s ordinary share and non-cumulative preference

Ordinary Shareholders with access to the internet may 

share ADR programmes are administered by The Bank 

– check their shareholdings on the Company’s 

Share Register;

– check recent dividend payment details; and

– download standard forms required to initiate changes 

in details held by the Registrar,

by accessing AIB’s website at www.aibgroup.com, clicking
on the “Check your Shareholding” option, and following the
on-screen instructions.When prompted, the Shareholder
Reference Number (shown on the shareholder’s share
certiﬁcate, dividend counterfoil and personalised circulars)
should be entered.These services may also be accessed via the
Registrar’s website at www.computershare.com.

Shareholders may also use AIB’s website to access the 

Company’s Annual Report & Accounts.

2. Stock Exchange Listings 

Allied Irish Banks, p.l.c. is an Irish-registered company.
Its ordinary shares are traded on the Irish Stock Exchange,
the London Stock Exchange and, in the form of American
Depositary Shares (ADSs), on the New York Stock Exchange
(symbol AIB). Each ADS represents two ordinary shares and
is evidenced by an American Depositary Receipt (ADR).
The Company’s non-cumulative preference shares are listed 
on the Irish Stock Exchange, and are eligible for trading 
in the USA, in the form of American Depositary Shares,
in the National Association of Securities Dealers, Inc.’s
PORTAL system under rule 144A.

3. Registrar 

The Company’s Registrar is:

Computershare Investor Services (Ireland) Ltd.,
Heron House, Corrig Road, Sandyford Industrial Estate,
Dublin 18.
Telephone: +353-1-247 5411. Facsimile: +353-1-216 3151.
Website: http://www.computershare.com
e-mail: web.queries@computershare.ie

4. Payment of Dividends direct to a bank account
Ordinary Shareholders resident in Ireland or the UK 
may have their dividends paid direct to a designated bank
account, under advice of full details of the amounts so
credited. Shareholders who wish to avail of this facility 
should contact the Registrar (see 3 above).

5. American Depositary Shares 

American Depositary Shares provide US residents wishing 

to invest in overseas securities with a share certiﬁcate and 

dividend payment in a form familiar and convenient to them.

of New York – see address on page 164.

6. Dividend Reinvestment Plan – US ADR Holders 

AIB’s ordinary share ADR holders who wish to re-invest 

their dividends may participate in The Bank of New York’s

Global Buy Direct program, details of which may be obtained

from The Bank of New York at 1-800-943-9715.

7. Direct Deposit of Dividend Payments – 

US ADR Holders 

Ordinary Share ADR holders may elect to have their

dividends deposited direct into a bank account through

electronic funds transfer. Information concerning this 

service may be obtained from The Bank of New York

at 1-888-269-2377.

8. Dividend Withholding Tax (“DWT”) 

Note:The following information, which is given for the

general guidance of shareholders, does not purport to be 

a deﬁnitive guide to relevant taxation provisions. It is based 

on the law and practice as provided for under Irish tax

legislation. Shareholders should take professional advice if they

are in any doubt about their individual tax positions. Further

information concerning DWT may be obtained from:

DWT Section, Ofﬁce of the Revenue Commissioners,

Government Ofﬁces, Nenagh, Co.Tipperary, Ireland.

Telephone +353-67-33533. Facsimile +353-67-33822.
e-mail infodwt@revenue.ie.

General

With certain exceptions, which include dividends received

by non-resident shareholders who have furnished valid

declaration forms (see below), dividends paid by Irish resident

companies are subject to DWT at the standard rate of income

tax, currently 20%.The following summarises the position
in respect of different categories of shareholder:

A. Irish Resident Shareholders

– Individuals

DWT is deducted from dividends paid to individuals 

resident in the Republic of Ireland for tax purposes.

Individual shareholders are liable to Irish income tax on the

amount of the dividend before deduction of DWT, and the 

DWT is available either for offset against their income tax 

liability, or for repayment, where it exceeds the total 

income tax liability.

161

AIB-AR-text-a/w-05  3/3/06  6:22 PM  Page 14

Additional Information for Shareholders (continued)

– Shareholders not liable to DWT

– Qualifying Intermediaries (other than American Depositary 

The following classes of shareholder who receive the 
dividend in a beneﬁcial capacity are exempt from DWT,
provided the shareholder furnishes a properly completed 
declaration, on a standard form (see below), to the
Registrar, not less than three working days prior 
to the relevant dividend payment record date:

- Companies resident in the Republic of Ireland for 

tax purposes;

- Qualifying Employee Share Ownership Trusts;

- Exempt Approved Pension Schemes;

- Qualifying Fund Managers who receive the dividend
in respect of an approved retirement or minimum 
retirement fund;

- Qualifying Savings Managers who receive the dividend 
in connection with assets held in a Special Savings 
Incentive Account;

Banks - see D below)

Dividends received by a shareholder who is a qualifying 

intermediary on behalf of a shareholder not liable to DWT 

may be received without deduction of DWT. A “qualifying 

intermediary” is a person who receives dividends on behalf 

of a third party, is resident for tax purposes in the Republic

of Ireland or in a relevant territory*, and:

– holds a licence under the Central Bank Act, 1971,

or a similar authorisation under the law of a relevant 

territory, or is owned by a company which holds such 

a licence;

– is a member ﬁrm of the Irish Stock Exchange or 

of a recognised stock exchange in a relevant territory;

or

– otherwise is, in the opinion of the Irish Revenue 

Commissioners, a person suitable to be a qualifying 

- Collective Investment Undertakings;

intermediary;

- Charities exempt from income tax on their income;

and who (a) enters into a qualifying intermediary

- Athletic/amateur sports bodies whose income is exempt 

agreement with the Irish Revenue Commissioners and 

from income tax;

- Designated stockbrokers receiving a dividend for the 

beneﬁt of the holder of a Special Portfolio Investment 
Account (“SPIA”);

- Certain permanently incapacitated persons who are 
exempt from income tax; trusts established for the 
beneﬁt of such persons; and Thalidomide victims 
exempt from income tax in respect of income arising 
from the investment of certain compensation payments;

- The Administrator of a Personal Retirement Savings 
Account (“PRSA”) who receives the dividend in 
respect of the PRSA assets; and

- Certain Unit Trusts (Revenue-approved Charities and 
Pension Schemes) which are exempt from Capital 
Gains Tax where the dividends are received in relation 
to units in the trust.

Copies of the relevant declaration form may be obtained
from the Company’s Registrar at the address shown 
at 3 above, or from the Revenue Commissioners at the
above address. Once lodged with the Company’s Registrar,
the declaration form remains current from its date of issue 
until the exempt shareholder notiﬁes the Registrar that 
entitlement to exemption is no longer applicable.Where 
DWT is deducted from dividends paid to a shareholder not 
liable to DWT, the shareholder may apply to the Revenue 
Commissioners, at the address shown above, for a refund 
of the DWT so deducted.

(b) is authorised by them as a qualifying intermediary.

Information concerning the conditions to be satisﬁed 

by intending qualifying intermediaries may be obtained 

from the Irish Revenue Commissioners at the address 

shown above. A qualifying intermediary should ensure 

that it receives completed declarations from underlying 

shareholders eligible for DWT exemption, so as to be in 

a position to notify the Company’s Registrar, in advance 

of each dividend record payment date, of the extent to 

which the dividend payable to the qualifying intermediary 

is to be paid without deduction of DWT.

A shareholder wishing to ascertain whether an entity 

is a qualifying intermediary should contact the Irish 

Revenue Commissioners at the address shown above.

*

A “relevant territory” means a member state of the European 
Union, other than the Republic of Ireland, or a country with 
which the Republic of Ireland has entered into a double 
taxation agreement.

B.

Shareholders not resident for tax purposes in the 

Republic of Ireland

The following categories of shareholder not resident 

for tax purposes in the Republic of Ireland may claim 

exemption from DWT, as outlined below:

(a) an individual who is neither resident nor ordinarily 

resident in the Republic of Ireland and who is resident 

for tax purposes in a relevant territory (as deﬁned 

at * above);

162

AIB-AR-text-a/w-05  3/3/06  6:22 PM  Page 15

(b)

an unincorporated entity resident for tax purposes 

C. Dividend Statements

in a relevant territory;

Each shareholder receives a statement showing the 

(c)

a company resident in a relevant territory and controlled 

shareholder’s name and address, the dividend payment 

by a non-Irish resident/residents;

date, the amount of the dividend, and the amount of DWT,

(d)

a company not resident in the Republic of Ireland and 

if any, deducted. In accordance with the requirements of 

which is controlled by a person or persons resident for 

legislation, this information is also furnished to the Irish 

tax purposes in a relevant territory; or

Revenue Commissioners.

(e)

a company not resident in the Republic of Ireland,

the principal class of whose shares are traded on 

a recognised stock exchange in a relevant territory 

or on such other stock exchange as may be approved 

by the Minister for Finance, including

a company which is a 75% subsidiary of such 

a company; or 

a company not resident in the Republic of Ireland that

is wholly-owned by two or more companies, each 

of whose principal class of shares is so traded.

To claim exemption, any such shareholder must furnish

a valid declaration, on a standard form (available from the Irish

D.

American Depositary Receipt (“ADR”) Holders

An ADR holder whose address:

-

on the register of ADRs maintained by AIB’s ADR 

programme administrator, the Bank of New  York 

(“BONY”), or 

- 

in the records of a further intermediary through which 

the dividend is paid 

is located in the United States of America is exempt from

DWT, provided BONY or the intermediary concerned,

as the case may be, satisﬁes certain conditions. In such

circumstances, there is no requirement for the holder to

make a declaration in order to obtain exemption from 

Revenue Commissioners and from the Company’s Registrar),

Irish DWT.

to the Registrar not less than three working days in advance

of the relevant dividend payment record date, and:

– Categories (a) and (b) above:The declaration must be

certiﬁed by the tax authority of the country in which the

shareholder is resident for tax purposes.Where the shareholder

is a trust, the declaration must be accompanied by (i) a

certiﬁcate signed by the trustee(s) showing the name and

address of each settlor and beneﬁciary; and (ii) a certiﬁcate

from the Irish Revenue Commissioners, certifying that they

have noted the information provided by the trustees.

– Categories (c), (d) and (e) above:The company’s auditor

must certify the declaration. In addition, where the company

is resident in a relevant territory, the declaration must 

be certiﬁed by the tax authority of the country in which

the shareholder is resident for tax purposes.

Once lodged with the Company’s Registrar, declaration forms

remain current from their date of issue until 31 December in the 

ﬁfth year following the year of issue, or, within such period, until the

shareholder notiﬁes the Registrar that entitlement to exemption 

is no longer applicable.

Dividends received by a shareholder who is a qualifying

intermediary on behalf of a qualifying non-resident person

may be received without deduction of DWT - see “Qualifying

Intermediaries” under “Irish-Resident Shareholders”

at A above.

US Withholding Tax:

Note:The following information, which is given for the general 

guidance of ADR holders, does not purport to be a deﬁnitive guide to 

relevant taxation provisions.While it is believed to be accurate at the 

time of ﬁnalising this Report for publication,ADR holders should 

take professional advice if they are in any doubt about their individual 

tax positions.

Notwithstanding entitlement to exemption from Irish DWT,

referred to above, ADR holders should note that US-resident 

holders of ADRs may, in certain circumstances, be liable to 

a US withholding tax on dividends received on such ADRs.

This would arise, for example, where a US resident, being 

the beneﬁcial owner of ADRs issued by an overseas company,

fails to provide the depositary bank – or, where applicable,

the Registered Broker – with a Form W-9 (tax certiﬁed 

document), showing, inter alia, the holder’s Social Security 

Number or Taxpayer Identiﬁcation Number. Non-US 

residents holding ADRs are required to submit a Form W-8 

to the depositary bank/Registered Broker, as appropriate, to 

become tax certiﬁed and to avoid US witholding tax. ADR 

holders with queries in this regard should contact either 

(i) The Bank of New York, in the case of holders registered 

direct with that institution – see address on page 164;

(ii) the holder’s Registered Broker, where applicable; or 

(iii) the holder’s ﬁnancial/taxation adviser.

163

AIB-AR-text-a/w-05  3/3/06  6:22 PM  Page 16

Shareholding analysis

as at 31 December 2005

Size of shareholding

Number

1-1,000

1,001-5,000

5,001-10,000

10,001-100,000

100,001-over

Total

Geographical division

Republic of Ireland

Elsewhere

Total

38,204

19,557

4,497

3,855

376

66,489

56,401

10,088

66,489

Shareholder Accounts*

Shares**

%

57

29

7

6

1

Number

12,676,783

45,075,945

31,484,837

90,096,373

695,562,035

100

874,895,973

85

15

100

332,401,336

542,494,637

874,895,973

%

1

5

4

10

80

100

38

62

100

* Shareholder account numbers reﬂect US ADR account holders (17,000 approx.) held in a single nominee account

** Excludes 43,539,597 shares held as Treasury Shares - see note 50 on page 123.

Financial calendar

Annual General Meeting:Wednesday, 26 April 2006, commencing at 12 o’clock noon, at the Rochestown Park Hotel, Douglas, Cork

Dividend payment dates - Ordinary Shares:

– Final Dividend 2005 - 27 April 2006

– Interim Dividend 2006 - 26 September 2006

Interim results

Unaudited interim results for the half-year ending 30 June 2006 will be announced on 1 August 2006.The Interim Report for 

the half-year ending 30 June 2006 will be published as a press advertisement in early August 2006, and will also be available on the

Company’s website - www.aibgroup.com.

Shareholder enquiries should be addressed to:
For holders of Ordinary Shares:
Computershare Investor Services (Ireland) Ltd.,
Heron House,
Corrig Road,
Sandyford Industrial Estate,
Dublin 18, Ireland
Telephone: +353 1 247 5411
Facsimile: +353 1 216 3151
e-mail: web.queries@computershare.ie
Website: (for on-line shareholder enquiries)
www.aibgroup.com - click on ‘Check your Shareholding’
or
www.computershare.com

164

For holders of ADRs in the United States:
The Bank of New York,
Shareholder Relations,
PO Box 11258,
Church Street Station,
New York, NY 10286-1258, USA 
Telephone 1-888-BNY-ADRS/1-888-269-2377
Website: http//www.adrbny.com

or
Ann Kerman
AIB Shareholder Relations,
300 North 2nd Street
7th Floor
Suite 711
Harrisburg PA 17101,
USA
Telephone 1-800-458 0348
e-mail: ann.l.kerman@aibny.com

203557  02/03/2006  08:23  Page 165

Index

A

D

Accounting policies

49

Debt securities 

Accounts in sterling, US dollars, etc.

156

Debt securities in issue 

Administrative expenses 

78

Deferred taxation 

Amounts written off /(written back)

Deposits by banks 

I

Income statement

Independent auditor’s report

Intangible assets and goodwill

Interest and similar income

103

119

113

117

fixed asset investments 

85

Derivative financial instruments

37 & 89

Interest rate sensitivity 

Approval of accounts 

Associated undertakings 

Audit Committee

Auditors

Auditors’ remuneration

152

106

44

41

85

Directors

Directors’ interests  

Directors’ remuneration 

Disposal of Ark Life 

Assurance Company

Average balance sheets and 

Dividend income 

6

Internal control

137

134

73

77

L

Loans and receivables to banks 

Loans and receivables to customers 

interest rates 

143

Dividends

152

Long-term assurance business 

Divisional commentary

Distributions to other equity holders

B

Balance sheets

66 & 67

C

Capital management

Chairman’s statement

Class actions

Commitments 

E

Earnings per share 

Employees 

Equity shares 

Exchange rates 

29

4

128

141

22

88

87

141

105

M

Market risk

Minority interests in 

subsidiaries

88 & 125

13 & 142

N

Nomination and Corporate 

Governance Committee

45

65

154

110

77

131

46

95

96

114

34

Construction Contract Income

85

F

Contingent liabilities 

Fair value of financial instruments

and commitments

126

Financial and other information 

Corporate and social responsibility

10

Financial calendar

128

142

164

O

Operational risk

Corporate Social Responsibility

Financial highlights

3

Other liabilities 

Committee

Corporate Governance

44

42

Finance leases

Financial investments available for sale 100

Other operating income 

Credit risk 

32 & 99

Financial review

Customer accounts  

118

Five year financial summary

Form 20-F

G

Group Chief Executive’s review

Gross revenue by business segment

Outlook

Own shares 

Other equity interests

98

29

157

141

8

76

39

120

77

20

123

125

165

203557  04/03/2006  11:08  Page 166

Index

P

S

Performance review

13

Segmental information  

Post balance sheet events

Principal addresses

Pro-forma IFRS information

Profit on disposal of businesses

152

159

27

85

Share-based payment schemes

Share capital

Share repurchases

Shareholder information

Provisions for impairment of

Shares in Group undertakings 

loans and receivables

19 & 97

Statement of cash flows

74

78

123

123

161

108

68

153

Provisions for liabilities 

and commitments

Property, plant & equipment 

120

111

R

Statement of Director’s 

Responsibilities

Statement of recognised income 

and expense

21 & 70

Subordinated liabilities and 

other capital instruments 

121

Reconciliation of Irish GAAP 

to IFRS

144

Reconciliation of movements 

T

in shareholders’ equity 

71 & 72

Taxation 

20 & 86

Remuneration Committee

45 & 134

Trading income

Related Party Transactions

138

Trading portfolio financial assets

Report of the Directors

40

Trading portfolio financial liabilities

Reporting currency 

Retirement benefits

Risk management

141

Transition to IFRS

82

31

Treasury bills and other 

eligible bills

77

88

119

73

88

166