Contents
Business review
Chairman’s statement
Chief Executive Officer’s review
Corporate Social Responsibility
Business overview
Financial review
Risk Management
Risk factors
Framework
Individual risk types
Governance and oversight
The Board and Executive Officers
Report of the Directors
Corporate Governance statement
Supervision and Regulation
Financial statements
Accounting policies
Consolidated financial statements
Notes to the consolidated financial statements
Parent company financial statements
Notes to the parent company financial statements
Statement of Directors’ responsibilities
in relation to the Accounts
Independent Auditor’s Report
General information
Additional information
Glossary of terms
Principal addresses
Index
Page
4
6
9
10
15
61
67
70
184
187
189
201
209
236
243
356
362
403
404
407
427
432
433
1
Forward-looking information
This document contains certain forward-looking statements within the meaning of Section 27A of the US Securities Act
of 1933, as amended, and Section 21E of the US Securities Exchange Act of 1934, as amended, 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 in this Annual Financial Report, with regard to management objectives,
trends in results of operations, margins, risk management, competition and the impact of changes in International
Financial Reporting Standards are forward-looking in nature. These forward-looking statements can be identified by the
fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as
‘aim’, ‘anticipate’, ‘target’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’, ‘may’, ‘could’, ‘will’, ‘seek’, ‘continue’,
‘should’, ‘assume’, or other words of similar meaning. Examples of forward-looking statements include among others,
statements regarding the Group’s future financial position, income growth, loan losses, business strategy, projected
costs, capital ratios, estimates of capital expenditures, and plans and objectives for future operations. Because such
statements are inherently subject to risks and uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking information. 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 are set out in ‘Risk factors’ on pages 61 to 66. These factors include, but are not limited to
the Group’s access to funding and liquidity, impacted by the financial instability within the eurozone; constraints on
liquidity, and market reaction to factors affecting Ireland and the Irish economy have created a challenging environment
for the management of the Group’s liquidity; the Group’s business may be adversely affected by a deterioration in
economic and market conditions; contagion risks could disrupt the markets and adversely affect the Group’s financial
condition; the Group faces market risks, including non-trading interest rate risk; the Group is subject to rigorous and
demanding Government supervision and oversight; the future of the Group’s business activities are subject to possible
interventions by the Irish Government or the disposal of the Irish State’s ownership interest in the Group; the Group may
be subject to the risk of having insufficient capital to meet increased minimum regulatory requirements; the Group’s
business activities must comply with increasing levels of regulation; the Group’s participation in the NAMA Programme
gives rise to certain residual financial risks; the Group may be adversely affected by further austerity and budget
measures introduced by the Irish Government; the value of certain financial instruments recorded at fair value is
determined using financial models incorporating assumptions, judgements, and estimates that may change over time, or
may ultimately not turn out to be accurate, and the value realised by the Group for these assets may be materially
different from their current, or estimated, fair value; the Group’s deferred tax assets depend substantially on the
generation of future profits over an extended number of years; the Group is subject to inherent credit risks in respect of
customers and counterparties which could adversely affect the Group’s results, financial condition and future prospects;
the Group faces heightened operational risks; the Group’s risk management strategies and techniques may be
unsuccessful; and there is always a risk of litigation arising from the Group’s activities. 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 Annual Financial Report may not occur.
The Group does not undertake to release publicly any revision to these forward-looking statements to reflect events,
circumstances or unanticipated events occurring after the date hereof.
2
2013 Financial Summary
“2013 was a year of continued recovery at AIB and significant
progress was made in the implementation of the bank's key
strategic objectives.
The results demonstrate the strong momentum in the business
and a robust capital and stable liquidity position.”
Balance sheet / capital
Core tier 1 ratio(1)
14.3% 0.9%►
Capital position remains robust
Loan to deposit ratio(2)
100% 15%▼
Loan to deposit ratio further reduced
Monetary authority funding
€ 12.7bn € 9.5bn▼
Funding model stabilising and improving
Non-core deleveraging(3)
€ 20.5bn
Achieved 2013 target ahead of schedule
Funding issuances 2013
Pension deficit
€ 2.0bn
4 issuances including € 500m unsecured
€ 0.1bn € 0.7bn▼
Pension fund deficit materially reduced
Closed to future accrual
Operating performance
Pre-provision operating profit(4)
€ 445m € 769m▲
Underlying business model returned to
profit
Net interest margin(5)
1.37% 15bps▲
Continuing positive momentum in NIM
Loss before tax(6)
€ 1,687m
Reduction in loss before tax from € 3,729m
Operating expenses(4)
€ 1,470m 16%▼
Significant changes to cost model
Total provisions(4)
€ 1,904m € 625m▼
Asset quality stabilising
Staff numbers(7)
11,431 15%▼
Achieving cost reduction targets
Domestic Irish Franchise Customers(8)
Active Direct Banking users
920k
Personal, Business & Corporate
customers
2.2m
Mobile banking customers(9)
>465k
SME applications in 2013
34k
SME approval rate in 2013
92%
New lending approvals in 2013
€ 7bn (incl € 4bn SME)
(1)Core tier 1 capital ratio of 14.3% is above the minimum PCAR ratio of 10.5%.
(7)Period end staff numbers on a full time equivalent basis (“FTE”) at
(2)Includes Repos of € 5.8 billion.
(3)Central Bank of Ireland target.
(4)Before exceptional items. Exceptional items are detailed on page 23.
(5)Net interest margin excluding ELG.
(6)Loss of € 3.7 billion in 2012 was restated due to change in accounting policy
for employee benefits (note 60).
31 December 2013, down 1,998 on 31 December 2012.
(8)Domestic Core Bank customer metrics.
(9)As at February 2014.
3
Chairman’s statement
The past year is one in which AIB made consistent progress in
has endeavoured to price its services to cover the costs incurred
achieving the bank’s business objectives. Progressively
and offers more cost effective online, self-service and paperless
rebuilding trust with our customers, restoring the bank to better
options. Charging for our services must mean, however, that we
financial health and playing a robust role in the recovery of the
continue to improve and focus on our customer service levels.
Irish economy were critical priorities for the bank and we made
solid progress across all these areas throughout 2013.
Whilst remaining prudent in the application of lending standards,
AIB allows branch managers discretion to approve certain loan
Evidence of AIB’s pace of change is clear. We achieved
requests, as well as reinforcing the market and sectoral expertise
significant cost restructuring, improved levels of lending, finalised
of its relationship management teams. I firmly reject any
the asset disposals required in our deleveraging plan, made
assertion that the bank is not lending – it is vital to our customers
tangible progress towards resolving the arrears problem, and
as well as the bank that we provide credit and we welcome
completed four issuances in the funding markets. Stabilisation of
constructive engagement to improve our offerings and resolve
the bank is now well advanced and we look forward to a return to
specific customer concerns.
profitability before tax during 2014. It has not been an easy
journey for any stakeholder in AIB and while the path ahead is
There has been much commentary about the possible need for
more encouraging, a number of challenges remain, for the bank
further recapitalisation after the Euro-wide stress tests later this
and the wider Irish economy.
year. AIB remains robustly capitalised relative to our minimum
regulatory requirements and, unless external extenuating
The AIB Group’s UK operations, Allied Irish Bank (GB) and First
circumstances beyond our control dictate otherwise, I do not
Trust Bank in Northern Ireland also saw significant progress in
envisage any change in that situation.
continuing to win business in challenging environments.
Fulfilling the necessity to develop a banking model fit for the
Acutely aware of the financial stress facing many of our
future has, and will continue to involve enormous determination
customers, AIB has progressively built its capabilities to deal
on the part of AIB’s Board, management and employees. We
more expeditiously with arrears and customers in financial
remain constantly aware and thankful for the support of the Irish
difficulty. It is a significant task. The process is, by definition,
taxpayer since the economic crisis began and our focus now is to
labour-intensive and each case requires understanding, empathy
deliver a return to the State over time as market conditions
with the difficulties facing customers, patience as well as
permit. After five years of economic turmoil, we are at last seeing
persistence, but we are making significant inroads to reach
welcome signs of a turnaround. In order to survive as a bank of
appropriate, sustainable solutions in scale.
systemic importance to the economy and in order to restore our
Our priority remains as it was – to agree sustainable solutions
with customers where possible. This requires borrowers in
After a year of solid progress in 2013, I am very satisfied that
arrears to prioritise their mortgage debt, and pay back what is,
AIB’s recovery strategy allows us to play an increasingly
customers’ lost trust, we had to undertake radical reform.
affordable in the context of reasonable living expenses. We
believe the loan loss provisions already made to date are
sufficient to allow the debt restructuring that may be required.
Engagement is the key to reaching long-term arrears resolutions
and in order to increase this we have actively sought to explore
new avenues. This has included ongoing engagement with
consumer advocacy groups.
A large portion of the national debate around arrears has been
focused on the issue of mortgage arrears, to a far greater degree
than that of SME arrears. This is despite the fact that SME
arrears, in monetary terms, are the larger issue for AIB. As part
of the overall resolution process AIB is making significant
progress and continues to devote considerable time and
resources working to return troubled SMEs to viability.
When it comes to banking services, we do not believe the
concept of “free banking” is sustainable over the long term. AIB
important and beneficial role in Ireland’s recovering economy.
One of our objectives is that AIB will progressively move back
into private ownership and we will work closely with Government
on how and when is best to achieve this, taking into account the
capital structure of the bank in the context of emerging regulatory
requirements. While dealing with a number of legacy issues, the
bank’s strategy is progressing and is evident in these annual
results and we are focused on achieving our goals
notwithstanding the ongoing challenges facing the bank.
In difficult circumstances, the bank’s employees continue to work
extremely hard and frequently absorb much criticism – and I
thank them for implementing the required changes and for
striving to provide a consistently professional and reliable service
to our customers. I also wish to sincerely thank our colleagues
who have left the organisation in 2013 for their contribution to the
bank and I wish them success in their future endeavours.
4
In summary, to our customers and the Irish public, I again say
thank you for your ongoing support. The Department of Finance
and the Central Bank of Ireland continued to work closely and
proactively with AIB throughout 2013. Finally, I would like to
acknowledge the on-going support and dedication of the Board
of Directors. Together we look forward to reaching our mutual
goal – a sound, reliable and profitable AIB. No effort will be
spared in the achievement of this objective.
David Hodgkinson
Chairman
4 March 2014
5
Chief Executive’s review
In the second year of our three-year strategic plan, we have met,
and in some cases exceeded our targets in the delivery of our
business agenda despite a challenging but improving external
environment. We remain focused on sustainable growth and
returning to profitability during 2014. Notwithstanding the ongoing
challenges facing the bank, we are more optimistic for the
outlook of both the bank and the Irish economy.
Strategic Objectives
Introduction
2013 was a year of steady progress at AIB as we implemented
our key strategic objectives which saw the bank return to
pre-provision, pre-exceptional operating profit for the year. A
number of important milestones have been reached and the
fundamentals of AIB’s operating performance are now trending
more positively both from a bank and economic perspective.
Pre-provision operating profit was achieved
AIB’s financial performance in 2013 was a significant
improvement on 2012, with pre-provision, pre exceptional
operating profit of € 445 million in 2013. This was achieved in
part through continued positive momentum in our Net Interest
Margin (“NIM”) which has increased by 15 basis points from
2012, to an average of 1.37% in 2013 excluding Eligible
Liabilities Guarantee (“ELG”) costs. NIM increased by 27 bps
from 2012 to an average of 1.54% in 2013 excluding ELG and
NAMA bonds.
ELG costs have reduced by € 215 million without materially
impacting deposit balances. The bank has maintained an
ongoing strong focus on efficiency and cost reductions
particularly since mid 2012, the benefits of which were evidenced
in 2013, with a € 278 million or 16% year-on-year, reduction in
operating expenses, pre exceptional items.
Impairment charges reducing
There has been stabilisation in the asset quality of our loan
portfolios and the pace of growth in impaired loans, has slowed,
relative to 2012, with the overall level of impaired and criticised
loans reducing. Impairments and arrears in our mortgage
portfolios increased during 2013, however, the pace of increase
has slowed compared to 2012.
Our provision charges were € 625 million lower in 2013 than in
Balance sheet dynamics stabilising
Our gross loan book reduced by € 7 billion in 2013, due to sales
of non-core assets as well as amortisation exceeding demand
for new credit. The Central Bank of Ireland’s PLAR non-core
deleveraging target of € 20.5 billion was completed in September
2013, ahead of schedule and within capital assumptions. Our
loan to deposit ratio reduced to 100% reflecting both increased
customer accounts and a reduction in net loans. Our core tier
one capital ratio, was 14.3%, well above the minimum
regulatory requirement of 10.5%. Based on the transitional provi-
sions of CRD IV, the Group’s pro-forma CET 1 ratio, including the
2009 Preference Shares is estimated at 15.0% as at
31 December 2013.
Meeting targets in relation to arrears management
Arrears management and implementing resolutions for customers
in financial difficulty has been a key focus of AIB during 2013 and
has been designated as the number one area of focus for the
bank.
AIB met the quarterly Mortgage Arrears Resolution Targets for
sustainable offers during 2013. We have developed a range of
tailored permanent solutions and we are implementing
resolutions for customers who are engaging with the bank and
who are prioritising their mortgage repayments.
We are making tangible progress in restructuring our facilities to
SME customers in financial difficulty and are implementing a
range of solutions across various asset classes. We aim to have
completed a significant portion of SME restructures by the end of
2014 with co-operating customers while implementing our
strategy of supporting viable businesses and protecting jobs
where possible.
Successful return to the funding markets
Our funding profile was strengthened during 2013, due to
stabilisation in both customer account balances and pricing
together with the market issuances of € 2 billion. These
issuances, which included two Asset Covered Securities, the first
Credit Card Securitisation in the Irish market and Senior
Unsecured funding demonstrated further normalisation of market
conditions.
2012. The bank determines impairment provisions on an ongoing
Expected approval of the EU Restructuring Plan
basis in accordance with IFRS accounting standards, which
AIB, through the Department of Finance, has been in detailed
takes into account impairment triggers, collateral valuations and
discussions with the European Commission to finalise the terms
the timing of realisation. In arriving at the 2013 total credit
impairment provisions charge of € 1.9 billion, the Group also
of the bank’s EU Restructuring Plan. The bank expects to
implement a range of commitments in line with operational
considered the Central Bank of Ireland’s (“CBI”) Balance Sheet
expectations, given the restructuring that has taken place to date,
Assessment (“BSA”) findings and impairment guidelines. The
bank’s own assessment of the impairment charge for 2013 is
and anticipates approval of the plan in the short term.
substantially consistent with all of the BSA mean provision finding
Employee commitment to our strategic objectives
of € 1.1 billion. Our specific impairment provision coverage is now
The engagement, dedication and professionalism of AIB
55%. Including impairments and exceptional items, the bank’s
loss before tax reduced by € 2.0 billion to € 1.7 billion for 2013.
employees has remained outstanding in the face of significant
restructuring following the reduction of c.3,600 employees since
6
June 2012, including those who have left under our voluntary
We have continued to develop our online presence and launched
severance programme.
I thank and commend all my colleagues for their hard work and
commitment to AIB despite the many challenges.
Customers
We are well positioned in our customer businesses, we have
leading market shares across the bank’s key product lines in
Ireland and we continue to invest in our franchise. We are
committed, to supporting our customers and economic recovery
in Ireland by providing credit and a wide range of products to our
personal, business and corporate customers. We approved over
€ 7 billion in mortgage, personal, SME and corporate lending into
the Irish economy during 2013 and we are targeting € 7 billion to
€ 10 billion in lending approvals per year over the next five years.
Delivering differentiated customer service
During 2013, we continued to make investments in our branch
transformation agenda and added further enhancements to our
digital offering including the launch of tablet banking, the opening
of a digital banking location called “The Lab” (learn about
banking) and a continued integration and alignment of branch
and online banking services for both personal and business
customers. We also launched a comprehensive customer
experience programme to enhance customer service insight and
will continue to use the outputs to shape future offerings.
Focused on lending to Irish SMEs
an online mortgage calculator and application, including an online
sanction in principle facility. As well as our online presence, we
also have a multi-channel distribution model which expands
across branches, brokers and the EBS branch network.
Growth in Irish Corporate lending approvals
The corporate market was very active throughout 2013 and our
Corporate business has a leading position in this sector.
Corporate lending approvals to new and existing customers
increased in comparison to 2012 and we maintained our status
as the leading bank of choice for FDI companies in Ireland. We
have a strong and active pipeline to support our business goals
and our customer strategy is built on service and relationship.
AIB GB and First Trust Bank
The economic outlook for Northern Ireland and Great Britain
improved in 2013 and AIB UK remains a core component of AIB’s
long term strategy. We are focused on growing the business
while continuing to emphasise cost control and greater synergies
with the domestic core bank
Outlook
Relationship with the Irish Government
We believe that re-establishing AIB as a profitable, investable
bank is the best way to provide opportunity for the Irish
Government to begin to recover the State’s investment. Creating
We are focused on delivering a sectoral led approach which is
a stable and profitable model is a key strategic priority for the
customer centric. In partnership with key industry bodies, we are
bank in order to return capital to the Irish Government over time.
undertaking a series of ‘Outlook Research Reports’ across the
The bank continues to engage closely with the Department of
SME sector of which five were launched during 2013 covering
the retail, hotel, dairy, licensed trade and energy sectors. The
findings of these extensive reports represent the views of SMEs
across a broad spectrum of the economy. AIB exceeded the Irish
Government’s € 4 billion SME lending target in 2013 by
approving credit to c.32,000 customers, including new,
refinanced and restructured facilities. Lending approvals for new
facilities increased year-on-year, with an improvement in market
conditions in the fourth quarter.
In line with our sectoral strategy, and to meet the need of
individual SME sectors, we have recruited expertise from some
key growth sectors of the market such as Retail, Energy,
Hospitality and Tourism, Healthcare and Life Sciences and Export
which will complement our strong Agri team into the future.
The Irish mortgage market remains a key priority for the
Finance in line with the terms of the March 2012 Relationship
Framework.
Reviewing options in relation to the bank’s capital structure
During the course of 2014 we intend to provide further guidance
on AIB’s capital targets. The Department of Finance has
indicated that it will enter into discussions with AIB during 2014
regarding AIB’s future capital structure, including the potential
conversion of the 2009 preference shares into equity and
potential options, in respect of the contingent capital notes. Any
possible actions would be subject to all required shareholder and
regulatory approvals. The potential conversion of the 2009
Preference Shares into equity and the resulting clarity regarding
AIB’s “fully loaded” CRD IV CET1 position is considered a key
step towards capital structure simplification.
bank
Forward looking considerations
The pace of drawdowns in the market in 2013 improved as the
We made continuous and steady progress during 2013 however,
year progressed, however, the size of the market remains at
a number of challenges remain as we seek to return the bank to
historically low levels reflecting supply and demand dynamics in
fully normalised operations. While economic conditions improved
certain parts of the country, as well as underlying market
in Ireland in 2013, unemployment levels remain elevated and
conditions.
AIB has maintained a leading position with c. 38% market share
of drawdowns in 2013, and approved mortgage lending to over
7,200 mortgage customers.
recovery in the property market is still at an early stage. The
bank's operating performance will be influenced by the continued
stabilisation in the economic environment in Ireland, the UK and
7
Chief Executive’s review
the Eurozone, sustained recovery in business and consumer
confidence, continued reductions in unemployment levels, an
increase in credit demand, as well as the ongoing commitment
and dedication of employees. Notwithstanding these and other
dependencies, I remain confident of our ability to deliver against
our strategic objectives in the coming period and our stated aim
of returning to sustainable profitability during 2014 remains on
target. The bank’s forward strategy will continue to focus on:
– Supporting sustainable new lending in the markets in which
we operate with a target medium term net interest margin of
> 2.0% and a loan to deposit ratio of 100 – 120%.
–
Implementing sustainable permanent solutions for our
mortgage and SME customers in financial difficulty.
– Continuing to manage our cost base while investing in
enhancing the bank’s customer franchise and employees
with a medium term target cost income ratio of < 50%.
– Ensuring ongoing measured engagement with the funding
markets.
– Taking appropriate steps to deliver a path to a transparent
CRD IV capital structure with a medium term target “fully
loaded” CET1 ratio > 10%.
– Reducing impairment charges, subject to economic
conditions, with impairment provision charges of < 65 bps
over the medium term.
David Duffy
Chief Executive Officer
4 March 2014
8
Corporate Social Responsibility
AIB seeks to make a positive contribution to the communities in
which we and our customers operate. Central to this is our strategic
objective to contribute to economic recovery in Ireland over time.
The following section gives a brief overview of some of the actions
undertaken by the bank as part of its four pillars of Corporate Social
Responsibility activity in supporting these goals.
AIB in the Community
At AIB, we recognise that our involvement and responsibility
extends beyond commercial activities and AIB has an
established culture of encouraging staff to actively support a
wide variety of groups in our local communities. AIB is actively
involved in financial education initiatives in communities and
schools, and supports organisations such as the National
Consumer Agency and Junior Achievement in their financial
education programmes.
AIB has been associated with the GAA for over 30 years and
2013 marked AIB's twenty second year as official sponsor of the
GAA Football and Hurling All-Ireland Club Championships, which
now encapsulates Junior, Intermediate and Senior level. In
October 2013, AIB also announced the additional sponsorship of
the AIB Camogie All Ireland Junior, Intermediate and Senior Club
Championships. The Bank seeks to support clubs throughout the
country and elevate the profile of the AIB GAA Club
Championships.
AIB’s Add More Green Programme continued in 2013 with AIB
AIB and the Environment
AIB continued to make progress in 2013 in the areas of energy
and environmental management, with foundations laid for further
work in 2014. AIB made its annual return to the Carbon
Disclosure Project in May 2013 which showed an overall score of
85% for disclosure, moving from a performance band ‘C’ to a
performance band ‘B’. AIB retains its position as a 'Carbon
Leader', (exceeding the requisite score of 75%), demonstrating
AIB’s commitments and continued improvements within the
energy and environmental management delivery.
In 2013, AIB undertook a project to commence implementation
of an environmental management system (ISO14001
environmental management standard) and is on track to be
awarded this standard in 2014 for its Bankcentre location.
AIB are working closely with the Sustainable Energy Authority
of Ireland (“SEAI”) to promote energy efficiency and reduction
of energy consumption. Considerable work has been
completed to date with the objective of achieving the ISO50001
energy management standard in 2014.
Energy related projects undertaken included: upgrading in
energy monitoring systems in head office locations; the addition
of metering and monitoring systems for all catering facilities of
significant size; development of an energy utility database and
an upgrade of lighting control systems in Bankcentre.
supporting the Grow It Yourself (“GIY”) Get Ireland Growing
Finally, in December 2013, AIB announced that it intends to
Fund, a community and environmental project. This fund is open
make € 100 million available for lending to enable Irish SMEs to
to community groups, schools, allotments, community gardens
lower their energy bills – with the bank taking into account the
and not-for-profits looking to develop or enhance an existing
projected savings from energy efficiency projects when
community food-growing initiative. In 2013, a total of 72
calculating a borrower’s repayment capacity.
community food projects nationwide received grants from the
GIY Get Ireland Growing Fund.
In 2013, AIB supported the Press Photographers Association of
Ireland for the eleventh consecutive year in the Photojournalism
Awards. These awards are open to members of the Press
Photographer’s Association of Ireland, and celebrate and reward
excellence in Irish photojournalism. The AIB Photojournalism
AIB in the Marketplace
We are actively seeking to support economic recovery in
Ireland through the provision of products and services to our
business and personal customers. As part of this strategy in
2013, we continued to develop our customer proposition for our
personal and business customers.
Exhibition visited 20 AIB branch locations nationwide and other
With the majority of AIB banking transactions now taking place
venues throughout Ireland during the year. Classes for schools,
away from the branch counter, we continued to invest in our
camera clubs and photography students were also held.
technology banking platform in 2013. We increased investment
AIB continued to support a number of charities across the
of self-service banking kiosks and enhanced our offerings with
country by organising a wide range of fundraising activities
improved availability and functionality of Intelligent Deposit
throughout the year. For example, various charities were invited
Devices which are now in place at many branches nationwide.
into AIB Bankcentre to take part in a charity Christmas market in
Our dedicated digital banking store “The Lab” opened in
December. The money raised by purchases and donations made
Dundrum Town Centre, Dublin, allowing customers to learn
by AIB staff on the day made a tangible difference to these
about the use of existing and emerging technologies in banking
in our physical banking infrastructure including the deployment
causes. EBS also continued its charity support with an ongoing
partnership with Temple Street Children’s Hospital in Dublin.
AIB GB and First Trust also undertook numerous staff
fundraising initiatives throughout 2013 and the GB Staff Care
Committee made its annual charity donation.
services. These enhancements to our physical branch network
were made in tandem with improvements to our mobile and
internet banking capabilities for our business and personal
customers.
9
Corporate Social Responsibility
AIB‘s strategy for the SME market has taken on a strong
sectoral focus as we examine and address the specific needs
of individual SME sectors. As part of our strategy development,
we are aligning our strategy to those sectors of the market with
the strongest potential to contribute to the recovery of Ireland
and thus create jobs.
A core part of our new SME strategy is that we are equipped to
support business needs across sectors and business
disciplines. Progress has been made in recruiting external
expertise from some key growth sectors to further develop our
sectoral knowledge. AIB commissioned significant research
throughout 2013, to deepen our understanding of customers’
needs, resulting in a series of sectoral ‘Outlook’ reports. The
reports analysed the key issues and opportunities in particular
sectors within the Irish economy, offering opinion from relevant
stakeholders. Five comprehensive reports have been issued to
date focusing on the retail, hotels, licensed trade, dairy and
energy sectors of the Irish economy.
Finally, AIB continued to support a number of national SME and
Agricultural events throughout 2013, including the SFA National
Small Business Awards, Business and Finance Awards and the
National Ploughing Championships.
AIB and our people
Our employees are central to recovery at AIB and in 2013, we
made tangible progress on our strategy of engaging with our
employees across the business. We began the year with the
launch of our new performance management programme which
focused on aligning individual employee objectives more
closely with AIB’s strategic priorities. In 2013, we also made a
significant investment in our people leadership agenda. This
included the launch of our first People Leadership Summit
which was attended by over 1,300 people leaders across the
Bank. We also launched an employee survey, achieving
significant overall response rates from employees which is
being used to improve engagement levels across the bank. We
will continue to focus on improving employee engagement
during 2014.
10
Business Overview
In the latter part of 2012 AIB commenced organising its internal
and Financial Solutions Group (“FSG”). Reporting on this new
structure to a more customer centric model comprising the
segment basis commenced in 2013. The following pages provide
following key segments: Domestic Core Bank (“DCB”), AIB UK,
an overview of these business segments.
Domestic Core Bank Overview
Business description
The Domestic Core Bank is made up of two business areas –
Personal, Business & Corporate Banking and Products.
Products
The Products area is responsible for portfolio and balance sheet
management. It provides a portfolio of banking products for
distribution across the bank. Through focused pricing strategies, the
business area balances customer value with delivery of an
appropriate return for the Bank. The area continues to redesign and
simplify the bank’s product portfolio to facilitate a digitally-enabled
Customers
Personal
Business
Corporate
31/12/13 People & places
c. 2.0m Staff (FTE)
c. 180k AIB Branches
c. 1.3k EBS offices
31/12/13
5,185
200
74
Year
Balance sheet
2013
€ 1,433m
Gross loans
New lending drawdowns € 3bn Operating contribution(1) € 683m
52%
Customer accounts
31/12/13 Contribution statement
€ 54bn Cost income ratio
€ 48bn Total income
EBS Limited, whilst part of the AIB Group, operates as a standalone,
omni-channel distribution strategy with a customer centric focus.
separately branded subsidiary of AIB with its own banking licence.
Products is also responsible for the bank’s treasury & capital
EBS operates in the Republic of Ireland and has a countrywide
markets functions including identification and execution of specific
network of 74 offices. EBS’s network gives it a physical presence in
balance sheet restructuring initiatives.
Personal, Business and Corporate Banking
Personal, Business and Corporate Banking (“PBC”) services the
communities across Ireland and this is important in allowing it to
provide a high quality personal service to its customers. EBS offers
residential mortgages and savings products, bancassurance,
personal banking and general insurance products on an agency
personal, business and corporate customers of AIB in the Republic
basis.
of Ireland including wealth management services. PBC has a strong
Customer Strategy
The strategy for the Domestic Core Bank is to be a customer-led
bank. AIB’s customer strategy is enabled by digital technology.
Global consumer trends show that more and more consumers are
using technology to make their lives easier. AIB is enabling its
customers with technology to give greater flexibility as to how and
when they want to interact with the bank. The bank’s continued
investment and development of technology complements the
existing ways of banking through branch and phone channels,
providing customers with an omni-channel banking experience.
presence in all key sectors including SMEs, mortgages, personal
banking and corporate banking. It provides customers with choice
through a range of delivery channels consisting of a network of
200 AIB branches/outlets, 74 EBS offices, 10 business centres,
c. 755 ATMs and AIB phone and internet banking as well as a
partnership with An Post offering services at over 1,000 post offices
nationwide.
Complementing the physical distribution channels of branches
(including EBS) and business centres, is AIB’s Direct Channels
operation, offering self service capability through self-service kiosks
and automated payments including telephone, internet, mobile and
tablet banking.
The Wealth Management unit delivers wealth propositions to AIB
customers, tailored to the needs of specific customer segments,
including a Private Banking offering to high net worth clients. AIB
Corporate banking provides a fully integrated relationship-based
banking service to top-tier companies, both domestic and
international, including financial institutions, Irish commercial state
companies and large multinationals.
(1)Contribution before central costs, provisions and exceptional items.
11
Domestic Core Bank Overview
12%
Loan Book Composition
10%
Personal
Business
Corporate
Mortgages 74%
Other personal 4%
78%
sector, during the harsh weather conditions of early 2013. AIB also
launched the Small Business Internet Banking facility with
enhanced capabilities on Internet Banking for SME customers to
make banking online easier and more useful for them.
Corporate Customers
For corporate customers, AIB continued to develop and deepen
relationships with existing and new corporate customers
throughout 2013. AIB maintained its position as the No 1 bank of
choice for providing banking services to Foreign Direct Investment
companies in Ireland in 2013.
Personal Customers
For personal customers, AIB wants to be their bank of choice; a
bank where customers choose to come to and be with because of
the proposition and service provided. AIB’s customer proposition is
a combination of the wide range of products offered, relationship
management approach and the capability customers have, to do
their banking across multiple channels from branches through to
online, mobile and tablet.
Investing in Distribution
To allow AIB to continue to serve its Personal, SME and Corporate
customers, AIB have continued to invest in its physical channels.
AIB continues to maintain the largest physical distribution
capability of any of the financial institutions in Ireland, with its
branch locations, EBS offices in addition to its banking relationship
with An Post.
In 2013 customers continued to adapt to digital technology.
465,000 customers do their banking at a time and place that suits
them using the Mobile Banking app on their smartphones. AIB
launched Tablet Banking where a key feature is the ‘My Money
Manager’ tool. Customers are using this tool to classify their
spending, create budgets and set savings goals helping them to
manage their finances. AIB also launched its smartphone
person-to-person payments app called Me2U. Customers send
money to their friends by simply using the receiver’s mobile phone
number on Me2U.
In 2013, although AIB closed some branch locations, the bank has
continued to invest in branches. AIB opened a new branch of the
future in Dublin called the LAB (‘Learn About Banking’). The Lab is
an innovative learning and research banking store focused on
helping customers to maximise their use of existing and new
technologies in banking services. AIB continued to invest in
Self-Service lobbies, with 11 now open, and plans to open more
lobbies in 2014. These lobbies allow customers to do their banking
outside of normal banking hours. In addition, AIB also continued to
upgrade and invest in branches across the country to allow AIB to
For customers looking for mortgages in 2013, AIB estimates it
provided c. 38% of all mortgage drawdowns and supported First
Time and Second Time Buyers with financing their new home and
providing funds to refurbish existing homes.
Business Customers
AIB is focused on Business Customers through a sectoral strategy
approach. This strategic approach allows AIB to understand the
challenges and opportunities that exist for customers in those
sectors. To support this approach, in 2013 AIB commissioned
in-depth research in partnership with key industry experts, on a
better serve its customers.
DCB Franchise in figures
• 2.2 million customers - 125 thousand net new customers in
2013
• 465 thousand mobile banking users(1)
• c. 900 thousand internet banking customers(1)
• AIB.ie - 62 million visits in 2013
• > 33% of personal product sales conducted through direct
channels in 2013
• Exceeded Government’s € 4 billion SME lending approvals
target
number of sectors. AIB launched a series of sectoral research
• 22% increase in SME new money lending approvals from
reports focused on specific sectors to include, Retail, Hotels,
2012
Dairy, Energy and the Licence Trade. AIB will continue with this
• 34 thousand SME lending applications with a 92% approval
programme in 2014.
rate
• Estimated c. 38% mortgage drawdowns market share
AIB launched a series of funds in 2013 demonstrating commitment
• > 70% increase in mortgage drawdowns H2 2013 v H1 2013
to customers. These included a €200m Renewable Energy Fund,
• 11% increase in mortgage sanctions H2 2013 v H1 2013
€100m Energy Efficiency Finance Fund and a €200m EIB SME
• € 7 billion in lending approvals for customers in 2013
Loan Fund. In addition, a €50m Agri Loan Fund was made
available to promote credit for farming customers in the agri
(1)As at February 2014
12
AIB UK Overview
Business description
The AIB UK segment operates in two distinct markets, Great
Britain and Northern Ireland, with different economies and
operating environments. The segment’s activities are carried out
primarily through AIB Group (UK) p.l.c., a bank registered in the
UK and regulated by the Financial Conduct Authority and the
Prudential Regulation Authority. In addition, Structured Lending
Solutions for the UK deals with all its customers in difficulty, and
principally manages assets that are in AIB UK Loan Management
and the UK Corporate Banking branch of AIB plc.
Great Britain
In this market, the segment operates under the trading name
Allied Irish Bank (GB) from 20 locations in major business
centres in Great Britain. The head office is located in Central
London with a processing centre based in Belfast. A full banking
service is offered to business customers (primarily owner
managed businesses and professional services firms) and
associated high net worth individuals with a strong focus placed
on supporting British Irish Trade.
Northern Ireland
31/12/13
85k
286k
Customers
GB
FTB
People & places
Staff (FTE)
Branches
31/12/13
1,303
52
Year
31/12/13 Contribution statement 2013
Balance sheet
Gross loans
£ 209m
New lending drawdowns £ 1bn Operating contribution(1) £ 64m
69%
Customer accounts
£ 9bn Cost income ratio
Total income
£ 11bn
services. GB has also achieved considerable success in terms of
deposit gathering from its traditional core relationship deposits in
the branch network as well as its new Savings Direct retail offering
via remote channels.
‘Award-winning commitment to exceptional service’
It is a testament to the Bank's long standing commitment to
exceptional customer service, that Allied Irish Bank (GB) boasts
an impressive history of business awards. Winner of Best
Business Fixed Account provider at Business Moneyfacts Awards
in 2013. Moneyfacts Awards Finalist in three categories: Business
Bank of the Year 2013, Best Service from a Business Bank 2013
In this market, the segment operates under the trading name
and Best Business Card Provider 2013. Multiple former winner of
First Trust Bank from 32 branches and outlets throughout
Britain’s Best Business Bank from the Forum for Private Business.
Northern Ireland. The First Trust Bank head office is located in
Belfast, together with a processing centre. A full service,
including online, mobile and telephone banking is offered to
business and personal customers across a range of customer
segments, including professionals, high net worth individuals,
SMEs, as well as the public and corporate sectors.
Both of these institutions remain a core element of the future
strategy for the bank.
Performance
The financial performance in 2013 has been achieved in an
economic environment that has been particularly challenging in
Northern Ireland and in the regions of GB, with resilient economic
conditions in London and South East Great Britain.
Despite that challenging backdrop the bank is engaging in new
business in both FTB and GB. The strength of our brands and the
dedication of our employees demonstrates to customers that the
bank can genuinely differentiate on quality of the service.
AIB GB
We believe that customers bank with Allied Irish Bank (GB)
First Trust
Throughout 2013, First Trust Bank has been actively promoting its
‘Open for business’ agenda with a clear focus on strengthening
customer relationships and capitalising on new business
opportunities, particularly in relation to home loans and SME
lending.
In 2013 the Bank launched a new suite of mortgage products
which have successfully achieved Moneyfacts 5* ratings. A mobile
banking website and app were also launched to customers in June
2013, with significant numbers of downloads achieved in the first
few months. Free Wifi was installed in all First Trust Bank
branches from October 2013, primarily as an enabler for customer
education and support in relation to online and mobile banking
technologies.
For the SME market, two business lending funds have, and
continue to be, actively promoted: the Business Support Fund and
the Owner Managed Fund. Both offer transparent pricing with a
clear application process in direct response to feedback from local
SME customers. The Bank is keen to ensure that credit demand
for viable business is met; thereby ensuring it plays its part in the
because of the quality of its customer service and its delivery of
recovery of the NI economy.
genuine relationship banking for businesses.
‘Tailoring services to British businesses’
Allied Irish Bank (GB) has a long history of banking in Great
Britain and can trace its roots back to London in 1825. Allied Irish
Bank (GB) operates from 20 locations in major business centres
across Great Britain and employs 700 staff. A full range of
business banking, corporate banking and international trade
services are available from Allied Irish Bank (GB), as well as
dedicated wealth management, personal banking and direct
savings
(1)Contribution before central costs, provisions and exceptional items.
UK Structured Lending Solutions (“SLS”)
As a result of loan transfers AIB UK set up SLS to deal with all its
customers in difficulty. This will ensure there is a centre of
expertise where the right people with the appropriate products can
tailor solutions for each customer on a case by case basis. In all
cases possible AIB UK will work with its customers whether they
be mortgage holders, SME's or Corporate to establish a path back
to affordability/viability. The emphasis is on early engagement as it
is mutually beneficial for the bank and customers to manage
issues in a constructive way.
13
Financial Solutions Group Overview
Business description
The Financial Solutions Group (“FSG”) is a segment dedicated to
supporting business and personal customers in financial
difficulties, including BTL (“Buy To Let”) mortgages. It also provides
a service to DCB to manage its PDH (“Private Dwelling House”)
arrears cases. The FSG team have the training, the focus and the
products to tailor solutions for customers on a case by case basis.
FSG consists of the following AIB business units:
• FSG Corporate, Commercial, Retail
These three business units manage customers in financial
difficulty, including corporates, SMEs and personal borrowers.
The portfolio includes a wide spectrum of industries and asset
types.
• Arrears Support Unit
This unit includes AIB and EBS consumer mortgages that
are either in arrears or in pre-arrears.
• Third Party & Asset Managers
This team incorporates centralised asset management,
litigation management and personal insolvency units.
• Third Party Servicing
Third Party Servicing in AIB is a service provider to NAMA,
assisting NAMA in the management of a portfolio of assets
acquired by NAMA from AIB.
Strategy
FSG comprises staff trained in financial restructuring and applies
tailored solutions through the use of established treatment
strategies, focused on:
Balance sheet(1)
Gross loans
Provisions
Net loans
Impaired loans
Impaired loans as a %
of Gross loans
Provision coverage
Non-core deleveraging
2013
2012
€ 21.8 bn
€ 11.6 bn
€ 10.2 bn
€ 18.3 bn
84%
64%
Complete (€ 20.5bn)
€ 32.6 bn
€ 13.8 bn
€ 18.8 bn
€ 23.4 bn
72%
59%
FSG Loan Book 2013
16%
84%
Performing loans
Impaired loans
non co-operating customers. Increasing levels of engagement with
customers remains a crucial component of agreeing sustainable
• supporting viable customers back to financial health where
solutions.
feasible
• ensuring consistent and fair treatment of all customers in
compliance with regulatory and bank policy
• fulfilling all of its business and service obligations to NAMA
as third party servicers to a substantial portfolio of NAMA
assets
In order to be efficient and effective AIB have restructured the
business to create a flatter, more streamlined, centralised operating
model with regionalised teams that:
• can enable the delivery of FSG’s strategic objectives
• is fully aligned with AIB’s model
• is organised on a regional basis in line with business
requirements and the structure of its domestic bank
• enables implementation of differentiated customer treatment
strategies
• operate simplified and streamlined processes to enable AIB to
accelerate the pace of restructuring
• supports a high performance, team culture across the entire
FSG business
Mortgage Arrears Resolution
AIB’s strategy is to stem the growth in arrears, to return as many
loans as possible to performing status, and where necessary to
make such modifications to loans as are necessary to have a
sustainable outcome.
AIB’s focus is on replacing short term forbearance measures with
sustainable solutions including where necessary legal options for
The Central Bank of Ireland outlined Mortgage Arrears Resolution
Targets in March 2013. In November 2013 the Central Bank of
Ireland confirmed that in line with requirements AIB had reported
sufficient proposed solutions to meet the target of 20% proposed
sustainable solutions in Quarter 2 and 30% in Quarter 3. The bank
has met the 50% target required for Quarter 4. In December 2013
and in line with the EU/IMF Programme, the Central Bank of Ireland
set its expectation for end June 2014 which requires sustainable
solutions offered to mortgage customers to reach 75% of over
90-days arrears and for concluded solutions to reach 35% by that
date. AIB is focused on continuing to meet all relevant targets.
Non-core deleverage programme
On 24 September 2013 AIB confirmed completion of its
deleveraging plan, a significant milestone in the bank’s overall
restructuring as part of its strategy to return to sustainable
profitability. Under the terms of the March 2011 Prudential Liquidity
Adequacy Review (‘PLAR’) contained in the Financial Measures
Programme, AIB was required to deleverage € 20.5 billion of
non-core net loans by December 2013.
Despite challenging market conditions in recent years the plan has
been achieved ahead of schedule with a positive capital variance
versus the Financial Measures Programme Assumptions.
Deleveraging of € 2.2 billion of non-core net loans was achieved in
2013. In addition, on completion of non-core deleveraging,
€ 6.7 billion of loans were transferred from FSG to other segments.
See page 38 for further details.
(1)Excludes PDHs where FSG provides a service to DCB to manage PDH arrears cases.
14
Financial review
Page
1. Business description
1.1 History
1.2 Developments in recent years
1.3 Competition
1.4 Economic conditions affecting the Group
2. Financial data
3. Management report
4. Capital management
5. Critical accounting policies and estimates
6. Deposits and short term borrowings
7. Financial investments available for sale
8. Contractual obligations
16
16
17
18
19
23
47
50
54
57
59
15
Financial review -1. Business description
1.1 History
The AIB parent company, Allied Irish Banks, p.l.c., originally
named Allied Irish Banks Limited, was incorporated in Ireland in
September 1966 as a result of the amalgamation of three long
established banks: the Munster and Leinster Bank Limited
(established 1885), the Provincial Bank of Ireland Limited
(established 1825) and the Royal Bank of Ireland Limited
(established 1836).
interest rates continued to increase, housing oversupply
persisted and mortgage delinquencies increased. Declining
residential and commercial property prices also led to a
significant slowdown in the construction sector in Ireland. As a
result, loan impairments in the Irish construction and property
and residential mortgage sectors, to which AIB was heavily
exposed, increased substantially. These dynamics began to
present funding and liquidity issues for AIB as well as a rapid
deterioration in the Group’s capital base.
The following material transactions have taken place since 1983:
–
1983 - AIB acquired 43% of the outstanding shares of First
Maryland Bankcorp (“FMB”), and completed the acquisition
of 100% of the outstanding shares of common stock of FMB
in 1989. Additional ‘bolt-on’ acquisitions were completed
during the 1990s including, Dauphin Deposit Bank and Trust
Company and subsequently, all banking operations were
merged into Allfirst. In 2003, Allfirst was integrated with M&T
Bank Corporation (“M&T”). Under the terms of the agreement
AIB received 26.7 million shares in M&T, representing
a stake of approximately 22.5% in the enlarged M&T;
1995 - AIB acquired a non-controlling interest in Polish bank
Wielkopolski Bank Kredytowy S.A. (“WBK”). In 1999 AIB
acquired an 80% shareholding in Bank Zachodni S.A. (‘Bank
Zachodni’) from the Polish State Treasury. In June 2001,
WBK merged with Bank Zachodni to form BZWBK, following
which the Group held a 70.5% interest in the newly-merged
entity;
1996 - AIB's retail operations in the United Kingdom were
integrated and the enlarged entity was renamed AIB Group
(UK) p.l.c. with two distinct trading names, First Trust Bank in
Northern Ireland and Allied Irish Bank (GB) in Great Britain;
and
2006 - Aviva Life & Pensions Ireland Limited and AIB’s life
assurance subsidiary, Ark Life, were brought together under
a holding company Aviva Life Holdings Ireland Limited
(“ALH”), formerly Hibernian Life Holdings Limited. This
resulted in AIB owning an interest of 24.99% in ALH.
–
–
–
1.2 Developments in recent years
A key element of AIB’s pre-crisis market positioning was its
involvement in the Irish property sector, which was the fastest
growing segment of the Irish economy. From the late 1990s to
2006, the mortgage market in Ireland expanded rapidly as
housing prices soared, driven in part by economic and wage
growth and a low interest rate environment.
The global financial system began to experience difficulties in
mid-2007 resulting in severe dislocation of international financial
markets around the world with unprecedented levels of illiquidity
in the global capital markets and significant declines in the
values of asset classes. Governments throughout the world took
action to support their financial systems and banks, given the
critical role which properly functioning financial systems and
banks play in economies.
Global financial market conditions triggered a substantial
deterioration in domestic economic conditions and property
values. In 2008, as the Irish economy started to decline and as
16
The Irish Government recognised the pressing need to stabilise
Irish financial institutions and to create greater certainty for all
stakeholders. A number of measures were implemented by the
Irish Government in response to the crisis including:
–
30 September 2008 - the Minister for Finance guaranteed
certain liabilities of covered institutions, including AIB, until
29 September 2010;
13 May 2009 - a € 3.5 billion subscription into AIB by the
National Pension Reserve Fund Commission (“NPRFC”) for
the 2009 Preference Shares and 2009 Warrants;
–
– December 2009 - The Minister for Finance established the
Credit Institutions (Eligible Liabilities Guarantee) (“ELG”)
Scheme which facilitates participating institutions issuing
debt securities and taking deposits during an issuance
window and with a maximum maturity of 5 years. AIB joined
the ELG Scheme on 21 January 2010;
– December 2009 - The Irish Government established the
National Asset Management Agency (“NAMA”) which has
acquired certain performing and non-performing land and
development and associated loans from participating banks,
with the aim of freeing up banks’ balance sheets and
facilitating the easier flow of credit throughout the Irish
economy. AIB transferred approximately € 20 billion of assets
to NAMA during 2010 and 2011;
30 March 2010 - The original Prudential Capital Assessment
Review (“PCAR”) announced by the Central Bank of Ireland
(‘the Central Bank’) assessed the capital requirement of Irish
credit institutions in the context of expected losses and other
financial developments, under both base and stress-case
scenarios, over the period from 2010 to 2012. A requirement
was imposed on AIB, among other credit institutions, to
strengthen and increase its capital base to help restore
confidence in the Irish banking sector;
10 September 2010 - AIB announced the sale of its Polish
interests to Banco Santander S.A. for a total cash
consideration of € 3.1 billion. This transaction completed on
1 April 2011 and AIB generated core tier 1 capital of
approximately € 2.3 billion as a result of the disposal;
4 November 2010 - AIB disposed of its stake in M&T
–
–
–
generating core tier 1 capital of € 0.9 billion;
– AIB also disposed of Goodbody Holdings Limited; AIB
International Financial Services Limited; AIB Jerseytrust
Limited; its 49.99% shareholding in Bulgarian-American
Credit Bank and AIB Asset Management Holdings (Ireland)
Limited, including AIB Investment Managers;
23 December 2010 - a direction order under the Credit
Institutions (Stabilisation) Act 2010 with the consent of AIB,
directed AIB to issue € 3.8 billion of new equity capital to the
–
NPRFC. This issuance ultimately resulted in the NPRFC’s
shareholding in AIB increasing to 92.8%. This also resulted
in the delisting of AIB’s ordinary shares from both the Main
Securities Market of the Irish Stock Exchange and from the
Official List maintained by the UK Financial Services
Authority. AIB’s ordinary shares were subsequently admitted,
in January 2011, to the Enterprise Securities Market of the
Irish Stock Exchange. Furthermore, AIB announced in
August 2011 that its American Depository Shares (“ADSs”)
were delisted and ceased to be traded on the New York
Stock Exchange.
– On 24 February 2011, AIB acquired deposits of € 7 billion
and NAMA senior bonds with a nominal value of € 12 billion
from Anglo Irish Bank, pursuant to a transfer order issued by
the High Court under the Credit Institutions (Stabilisation) Act
2010. AIB also acquired Anglo Irish Bank Corporation
(International) PLC in the Isle of Man, including customer
deposits of almost € 1.6 billion.
31 March 2011 - The Central Bank of Ireland published its
‘Financial Measures Programme Report’, which detailed the
outcome of PCAR 2011 and Prudential Liquidity Assessment
Review (“PLAR”) 2011 for certain Irish credit institutions,
including AIB and EBS. The Central Bank stated that it had
set a new capital target for AIB and EBS with a total of
–
1.3 Competition
Republic of Ireland
Competition in the retail banking sector in the Republic of Ireland
has changed significantly since 2008 as a result of the prolonged
downturn in the Irish economy and changes to the operating
models of both foreign and domestic institutions. The number of
banks (both domestic and foreign) operating in Ireland has
declined significantly from pre crisis levels and a majority of the
banks still operating in Ireland have received state sponsored
capital injections which has necessitated a restructuring of
operating models as well as the transfer of property related
assets to the National Asset Management Agency in some
instances.
The focus of retail banking continues to be to provide sustainable
credit to customers, in particular SMEs and mortgages to support
stimulation of economic turnaround, provision of support for
customers in financial difficulty, as well as retention and
gathering of deposits. Activity in the mortgage market in 2013
was constrained due to limited supply of appropriate housing in
many urban areas, however, a stabilisation in the housing market
has led to increased competition and availability of credit.
Deposits pricing continues to be competitive although market
pricing levels have declined from elevated rates. Demand for
€ 14.8 billion of additional capital to be generated. This
business lending has improved although the overhang from
additional capital requirement was satisfied in July 2011
legacy debt associated in large part with property, continues to
through:
constrain demand.
– AIB’s placing of € 5.0 billion of new ordinary shares with
the NPRFC at €0.01 per share, following which the
NPRFC owned 99.8% of the ordinary shares of AIB. AIB
UK
had 521,261,151,503 ordinary shares outstanding at
While the UK economy has had limited growth over the past
31 December 2013;
three years, signs of improvement were evident in 2013 with
– Capital contributions totalling € 6.1 billion from the
growth forecasts for 2014 now exceeding most other European
Minister for Finance (‘the Minister’) and the NPRFC;
countries.
– The issue of € 1.6 billion of contingent capital notes at
par to the Minister;
The UK government continues to play an active role in the
– Burden-sharing measures undertaken with the Group’s
banking market through initiatives designed to drive bank support
subordinated debt-holders;
for business and retail customers. New entrants continue to
–
July 2011 - AIB completed the acquisition of EBS for a
emerge with established players developing their offerings. As a
nominal cash payment of € 1.00. This transaction
result, the competitive landscape in the UK continues to evolve.
represented a significant consolidation within the Irish
banking sector, resulting in the formation of one of two
AIB’s focus remains on maintaining close customer relationships
pillar banks in Ireland;
and community links throughout Great Britain and Northern
In addition, the following notable events occurred during 2013:
Ireland.
– AIB disposed of its investment in ALH and re-acquired
Ark Life, exclusively held for resale;
– With effect from 28 March 2013 the ELG Scheme ended
for all new liabilities reflecting improved and more
stabilised funding conditions; and
– The Central Bank of Ireland conducted a Balance Sheet
Assessment (“BSA”)/Asset Quality Review (“AQR”)
which concluded in November 2013. AIB did not have to
raise additional capital to meet ongoing regulatory capital
requirements of 10.5% core tier one capital ratio as a
result of this process.
1.4 Economic conditions affecting the Group
AIB’s activities in Ireland accounted for the bulk of the Group’s
business. As a result, the performance of the Irish economy is
extremely important to the Group. The Group also continues to
operate significant business in the United Kingdom, which means
that it is also influenced directly by political, economic and
financial developments there.
The United States, the United Kingdom and the Eurozone are
Ireland’s three most important trading partners. A moderate
recovery in activity has been underway in all three economies in
2013. US GDP is estimated by the IMF to have grown by 1.9% in
2013 following growth of 2.8% in 2012, with the IMF forecasting
17
Financial review -1. Business description
for an extended period of time” (Source: European Central Bank
Governing Council Statement July 2013).
After having deteriorated sharply during the recession, Irish
public finances continued to show improvement over the course
of 2013. The Department of Finance estimates that the budget
deficit declined to 7.3% of GDP in 2013. This compares to a high
of 11% in the underlying deficit in 2010. As of Budget 2014, the
Government has now implemented € 30 billion of the planned
€ 32 billion fiscal consolidation programme, leaving around
€ 2 billion to be completed in 2015 with the aim of reducing the
deficit to below 3% of GDP by 2015. (Source: Department of
Finance, Budget 2014).
Ireland’s General Government Gross debt/GDP ratio is estimated
by the Department of Finance (Budget 2014) to have peaked at
124% of GDP at end 2013, up from 117% in 2012, however, the
high Exchequer cash balances and deposits, reduces the Net
debt ratio to 98.7% at end 2013.
Since the middle of 2011, there has been a marked improvement
in market sentiment towards Ireland with a consequent sharp
drop in yields on Irish Government bonds. The National Treasury
Management Agency issued € 3.75 billion of ten year debt at a
yield of 3.54% on the 7 January 2014. This ten year bond yield is
a material reduction from the peak of 14% back in 2011 (Source:
Thomson Datastream). This represented Ireland’s first debt is-
suance since it exited the EU/IMF programme on the
15 December 2013.
In January 2014, Moody’s restored Ireland’s long-term sovereign
credit ratings to investment grade of Baa3. S&P and Fitch had
Ireland at an investment grade rating of BBB+ in 2013. Both S&P
and Moody’s have Ireland on a positive outlook, while Fitch has
the sovereign on a stable outlook for their respective ratings.
(Source: National Treasury Management Agency).
growth of 2.8% for 2014. Meanwhile, GDP in the United Kingdom
is estimated to have risen by 1.9% in 2013 after growth of 0.3%
in 2012, and the IMF is forecasting UK GDP growth of 2.4% for
2014. For the Eurozone, the IMF estimates the economy to have
contracted by 0.4% in 2013, following a 0.7% decline in 2012.
Both the IMF and ECB forecast that the eurozone GDP will grow
by 1% this year.
According to Ireland’s Central Statistics Office (“CSO”) National
Accounts data, real GDP in Ireland rose by 0.2% in 2012,
following growth of 2.2% in 2011.CSO data currently available for
2013 covers up to end of the third quarter, and shows that GDP
is 0.5% lower in the first three quarters of 2013 than in the same
period of 2012
The slowdown in growth in 2012 – 2013 was mainly due to a
slower rate of growth in exports, arising from the slowdown in our
key trading partners and weak pharmaceutical exports due to the
impact from the patent cliff which was the clustering of a number
of patented drugs going off patent in quick succession.
The Irish Department of Finance estimates another modest rise
in GDP of around 0.2% in 2013. For 2014, the Department is
forecasting GDP growth of 2%, helped by a pick up in exports
and some modest growth in domestic demand. (Source: Dept of
Finance Budget 2014).
In terms of the labour market, conditions improved steadily over
the course of 2013. Employment rose for the fifth consecutive
quarter in the fourth quarter of 2013. There was a rise of 61,000
in employment, or 3.3%, compared to the corresponding quarter
of 2012 (Source: CSO Quarterly National Household Survey Q4
2013). The unemployment rate fell to 12.1% in the fourth quarter,
from 12.7% in quarter two and 14.2% a year earlier. (Source:
CSO Quarterly National Household Survey Q4 2013).
Credit growth remained weak in Ireland in 2013. Total household
loans outstanding were down 4.1% year-on-year at end of
December 2013, while lending for house purchase fell by 3.0% in
the same period. (Source: Central Bank of Ireland, Money and
Banking Statistics December 2013).
House prices rose every month from April through to December
2013 according to the CSO house price index. As a result, prices
were up by 6.4% year on year by end December. (Source: CSO
Residential Property Price Index, December 2013). Overall, the
housing market showed signs of stabilising last year, albeit at low
activity levels, with increases in mortgage approvals and
transactions, as well as prices increases.
The European Central Bank, which has responsibility for
monetary policy in the Euro area as a whole, cut the official
refinancing rate by 50 basis points (“bps”) over the course of
2013 ( 25 bps in May and November), with the rate finishing the
year at 0.25%. The ECB also introduced forward guidance on
interest rate policy at its July meeting, by stating that it expects
the key ECB interest rates to “remain at present or lower levels
18
Financial review - 2. Financial data
Summary of consolidated income statement
The financial information in the tables below for the years ended 31 December 2013, 2012, 2011, 2010 and 2009 has been derived from
the audited consolidated financial statements of AIB Group for those periods. AIB Group’s consolidated financial statements are
prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards
Board (“IASB”) and IFRS as adopted by the European Union (“EU”). The EU adopted version of IAS 39 currently relaxes some of the
hedge accounting rules in IAS 39 ‘Financial Instruments: Recognition and Measurement’. The Group has not availed of these, therefore,
these financial statements comply with both IFRS as issued by the IASB and IFRS as adopted by the EU. This information should be
read in conjunction with, and is qualified by reference to, the accounting policies adopted, the consolidated financial statements of AIB
Group and notes therein for the years ended 31 December 2013, 2012 and 2011 included in this Annual Financial Report. The summary
of consolidated income statement represents the results of continuing operations, where the results of Bank Zachodni WBK S.A.
(“BZWBK”), M&T Bank Corporation and Bulgarian American Credit Bank AD as applicable, are accounted for as discontinued operations
net of taxation for all relevant years.
Net interest income
Other income/(loss)
Total operating income/(loss)
Total operating expenses
Operating profit/(loss) before provisions
Provisions
Operating loss
Associated undertakings
Profit/(loss) on disposal of property
Construction contract income
Profit/(loss) on disposal of businesses(1)
Loss before taxation from continuing operations
Income tax credit from continuing operations
Loss after taxation from continuing operations
Discontinued operations, net of taxation
Loss for the year
Non-controlling interests from discontinued operations
Distributions to RCI holders(2)
Years ended 31 Decemb er
Restated*
2012
€ m
Restated*
2011
€ m
2010**
€ m
2009**
€ m
1,106
(485)
621
(1,836)
(1,215)
(2,529)
(3,744)
10
2
–
3
(3,729)
172
(3,557)
–
(3,557)
–
–
1,350
2,990
4,340
(1,751)
2,589
(7,728)
(5,139)
(37)
(1)
–
38
(5,139)
1,193
(3,946)
1,628
(2,318)
(20)
–
1,844
(5,201)
(3,357)
(1,649)
(5,006)
(7,118)
(12,124)
18
46
–
(11)
(12,071)
1,710
(10,361)
199
(10,162)
(70)
–
2,872
1,234
4,106
(1,522)
2,584
(5,267)
(2,683)
(3)
23
1
–
(2,662)
373
(2,289)
(45)
(2,334)
(79)
(44)
2013
€ m
1,348
362
1,710
(1,483)
227
(1,924)
(1,697)
7
2
–
1
(1,687)
90
(1,597)
–
(1,597)
–
–
Loss for the year attributable to owners of the parent
(1,597)
(3,557)
(2,338)
(10,232)
(2,457)
Basic (loss)/earnings per ordinary/CNV share(3)
Continuing operations
Discontinued operations
Diluted (loss)/earnings per ordinary/CNV share(3)
Continuing operations
Discontinued operations
(0.3c)
–
(0.3c)
(0.3c)
–
(0.3c)
(0.7c)
–
(0.7c)
(0.7c)
–
(0.7c)
(1.6c)
0.7c
(0.9c)
(1.6c)
0.7c
(0.9c)
(571.1c)
7.1c
(564.0c)
(571.1c)
7.1c
(203.5c)
(11.7c)
(215.2c)
(203.5c)
(11.7c)
(564.0c)
(215.2c)
*Restated due to change in accounting policy for employee benefits (note 60).
**The financial information for 2010 and 2009 has not been restated because it was impracticable to do so.
19
Financial review - 2. Financial data
Selected consolidated statement of financial position data
Years ended 31 December
2013
€ m
Restated*
2012
€ m
Restated*
2011
€ m
2010
€ m
2009
€ m
Total assets...............................................................
122,923117,734x
122,501
136,651
145,222
174,314
Loans and receivables to banks and customers(4) ....
67,761
75,886
88,258
91,212
131,464
Deposits by central banks and banks, customer accounts
and debt securities in issue ................................
€ 1.6bn Contingent Capital Tier 2 Notes due 2016(5)
Dated loan capital .....................................................
Undated loan capital..................................................
Other capital instruments ..........................................
Non-controlling interests in subsidiaries....................
Shareholders’ funds: other equity interests ..............
Shareholders’ equity(6) ..............................................
Total capital resources ..........................................
.
.
.
.
.
.
.
97,547
102,718x
113,218
117,922
147,940
1,316
36
1,237
34
1,177
32
–
–
–
–
–
–
–
–
–
–
–
–
10,494
11,846
11,355
12,626
14,463
15,672
–
3,996
197
138
690
239
3,420
8,680
–
4,261
189
136
626
389
10,320
15,921
*Restated due to change in accounting policy for employee benefits (note 60).
Years ended 31 Decemb er
2013
m
2012
m
2011
m
2010
m
Share capital - ordinary shares
Number of shares outstanding ...................................
521,296.8
517,152.8
513,528.8
€ 5,213
€ 5,171
€ 5,135
1,791.6
€ 573
2009
m
918.4
€ 294
Nominal value of € 0.01 per share (2010: € 0.32 per share)
Share capital - convertible non-voting shares(3)
Number of shares outstanding ..................................
Nominal value of € 0.32 per share ............................
2009 Preference shares(7)
.
.
.
–
–
–
–
–
–
10,489.9
€ 3,357
–
–
Number of shares outstanding ...................................
Nominal value of € 0.01 per share .............................
3,500
€ 35
3,500
€ 35
3,500
€ 35
3,500
€ 35
3,500
€ 35
20
Selected consolidated statement of financial position data (continued)
Other financial data(8)
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
Year end impairment provisions as a percentage
of total loans to customers:(4)
Total Group
Continuing operations
Net interest margin(9)
Core tier 1 capital ratio(10)(11)
Total capital ratio(10)(11)
Years ended 31 December
2013
%
(1.32)
(21.51)
–
6.1
20.6
20.6
1.21
14.3
16.6
Restated*
2012
%
Restated*
2011
%
(2.76)
(37.0)
–
(1.66)
(48.8)
–
7.5
5.8
18.4
18.4
0.91
15.2
17.8
15.1
15.1
1.03
17.9
20.5
2010**
%
(6.21)
(222.5)
–
2.8
7.1
7.4
1.49
4.0
9.2
2009**
%
(1.29)
(24.8)
–
4.3
5.5
5.5
1.92
7.9
10.2
(1)Profit of € 1 million on disposal of businesses in 2013 relates to deferred consideration received from previous disposals (note 15).
The profit of € 3 million on disposal of businesses in 2012 relates to the sale of AIB Asset Management Holdings (Ireland) Limited - € 2 million (tax
charge: Nil) and the sale of an Offshore subsidiary - € 1 million (tax charge: Nil).
The profit on disposal of businesses in 2011 relates to (a) AIB International Financial Services Limited and related companies € 27 million (tax charge
Nil); (b) AIB Jerseytrust Limited € 10 million (tax charge Nil); and (c) deferred consideration of € 1 million from the sale of Goodbody Holdings Limited in
2010 (note 15).
The loss on disposal of businesses in 2010 of € 11 million relates to the sale of AIB’s investment in Goodbody Holdings Limited and related companies
(2)The distributions in 2009 relate to the Reserve Capital Instruments which were redeemed/purchased for cash in 2009 and 2011 respectively.
(3)Convertible non-voting shares issued to the NPRFC on 23 December 2010 ranked equally with ordinary shares and were convertible into ordinary
shares on a one to one basis. These converted to ordinary shares in April 2011.
(4)Loans and receivables to customers included loans and receivables held for sale to NAMA in 2009 and 2010.
(5)Relates to the issue of € 1.6 billion in Contingent Capital Notes to the Minister for Finance of Ireland during 2011 (note 40).
(6)Includes ordinary shareholders’ equity (in July 2011, 500 billion ordinary shares were issued to the NPRFC at a subscription price of € 0.01 per share
and 3,500 million 2009 Preference Shares were issued to the NPRFC in May 2009 (note 41) and the convertible non-voting shares issued to the NPRFC
on the 23 December 2010 which were converted to ordinary shares in April 2011).
(7)2009 Preference Shares issued to the NPRFC on 13 May 2009.
(8)The calculation of the average balances includes daily and monthly averages and are considered to be representative of the operations of the Group.
(9)Net interest margin represents net interest income as a percentage of average interest earning assets. The net interest margin is presented on a
continuing basis for 2013, 2012, 2011, 2010 and 2009.
(10)The minimum regulatory capital requirements set by the Central Bank of Ireland, which reflect the requirements of the Capital Requirements Directive
(“CRD”), established a floor of 4% under which the core tier 1 capital ratio must not fall (8% for total capital ratio). These ratios were the capital
adequacy requirements effective up to 31 December 2010. Following the Prudential Capital Assessment Review (“PCAR”) in March 2011, the
Central Bank of Ireland announced a new minimum capital target for AIB Group of 10.5% core tier 1 ratio in a base scenario and 6% core tier 1 ratio in a
stressed scenario. These target ratios form the basis of the Group’s capital management policy and are the capital adequacy requirements effective as at
31 December 2013.
(11)Please see Capital Management section for further detail.
*Restated due to accounting policy for employee benefits (note 60).
**The financial information for 2010 and 2009 has not been restated because it was impracticable to do.
21
Financial review - 2. Financial highlights
Results
Total operating income
Operating loss
Loss before taxation from continuing operations before exceptional items(1)
Loss before taxation from continuing operations (including exceptional items)
Loss attributable to owners of the parent
Per ordinary share
Loss – basic from continuing operations
Loss – diluted from continuing operations
Dividend
Dividend payout
Net assets
Performance measures
Return on average total assets
Return on average ordinary shareholders’ equity
Statement of financial position
Total assets
Ordinary shareholders’ equity
Shareholders’ equity
Loans and receivables to customers including held for sale
Customer accounts
Capital ratios
Core tier 1 capital
Total capital
(1)Exceptional items are detailed on page 23 of the Management report.
*Restated due to accounting policy for employee benefits (note 60).
2013
€ m
1,710
(1,697)
(1,450)
(1,687)
(1,597)
Restated*
2012
€ m
621
(3,744)
(2,838)
(3,729)
(3,557)
(0.3c)
(0.3c)
–
–
(0.7c)
(0.7c)
–
–
€ 0.02
€ 0.02
(1.32%)
(21.82%)
(2.7%)
(36.0%)
117,734
122,501
6,994
10,494
65,741
65,667
7,855
11,355
73,325
63,610
14.3%
16.6%
15.2%
17.8%
22
Financial review - 3. Management report
Basis of presentation
The following management report is prepared in line with how
management views the ongoing performance of the Group. The
information is presented with exceptional and one-off items which
management deem do not present an accurate reflection of
performance during the period highlighted separately. A list of the
items classified as exceptional and one-off are included below.
Comparative data has been restated to reflect the impact of IAS 19
Employee benefits (see note 12 for further details). Percentages
presented throughout this report are calculated on the underlying
figures and therefore may differ from the percentages based on
the rounded numbers in the report.
Exceptional items
The Group’s performance is presented to exclude those items
that management believe obscures the underlying performance
trends in the business.
– Loss on disposal of loans and transfer of financial instruments
to NAMA: There was € 226 million loss on disposal of loans and
transfer of financial instruments to NAMA. The loss on disposal
of loans of € 201 million mainly related to the deleveraging
programme in the non-core portfolio compared with
€ 962 million loss in 2012. The deleveraging programme was
completed in 2013, meeting the Central Bank of Ireland target
set on asset deleveraging of € 20.5 billion. The loss also
included a € 25 million loss on transfer of financial instruments
to NAMA compared to a profit of € 159 million in 2012. This is
due to valuation adjustments on previous transfers of financial
assets to NAMA (see note 8 to the financial statements for
further detail).
– Interest rate hedge volatility of € 9 million positive compared
with nil in 2012.
– Gain arising on disposal of Aviva Life Holdings (“ALH”) of
€ 10 million. See note 31 to the financial statements for further
detail.
– Termination benefits: Termination benefits from the voluntary
severance programme were € 86 million in 2013 compared to
€ 164 million* in 2012. See note 10 to the financial statements
for further detail.
– Retirement benefit curtailment of € 240 million in 2013 was due
to the closure of the defined benefit pension schemes to future
accrual and removal of discretionary pension increases. In
2012, AIB affirmed its approach to the funding of the Irish
pension scheme which resulted in a reduction in the scheme
obligations under IAS 19 Employee Benefits of € 204 million
which was recognised in the income statement.
– Restructuring and restitution expenses of € 184 million
compared with € 128 million in 2012. These include
restructuring costs associated with a range of management
actions including:
• restitution expenses including a UK interest rate hedging
provision
• re-organisation of premises
• writedown of intangible assets
• closure of AIB’s operations in the Isle of Man and Channel
Islands
• expenses relating to the acquisition of AIB’s interest in Ark
Life.
*Restated due to change in accounting policy for employee benefits (note 60).
23
Financial review - 3. Management report
Summary income statement
Net interest income
Fee and commission income
Trading and other operating income
Other income
Total operating income
Personnel expenses
General and administrative expenses
Depreciation(1), impairment and amortisation(2)
Total operating expenses
Operating profit/(loss) before provisions(3)
Provisions for impairment on loans and receivables
Writeback/(provisions) for liabilities and commitments
Writeback/(provisions) for impairment on financial investments available for sale
Total provisions
Operating loss
Associated undertakings
Profit on disposal of property
Profit on disposal of business
Loss from continuing operations before exceptional items
Loss on disposal of loans and transfer of financial instruments to NAMA
Interest rate hedge volatility
Gain arising on disposal of Aviva Life Holdings (“ALH”)
Termination benefits
Retirement benefit curtailment
Restructuring and restitution expenses
Total exceptional items
Loss before taxation from continuing operations
Income tax credit from continuing operations
Loss for the period
Cost income ratio(4)
Operating contribution before provisions by segment
Domestic Core Bank (“DCB”)
AIB UK
Financial Solutions Group (“FSG”)
Group
Operating profit before provisions(3)
Restated*
2012
€ m
% change
22
3
-
79
34
-18
-12
-15
-16
-
-21
-
-
-25
49
-30
-50
-67
49
-
-
-
-
-
-
-
55
-
55
1,106
367
(49)
318
1,424
(1,041)
(589)
(118)
(1,748)
(324)
(2,434)
(9)
(86)
(2,529)
(2,853)
10
2
3
(2,838)
(803)
-
-
(164)
204
(128)
(891)
(3,729)
172
(3,557)
%
123
2013
€ m
1,345
378
192
570
1,915
(851)
(519)
(100)
(1,470)
445
(1,916)
3
9
(1,904)
(1,459)
7
1
1
(1,450)
(226)
9
10
(86)
240
(184)
(237)
(1,687)
90
(1,597)
%
77
€ m
683
74
54
(366)
445
(1)Depreciation of property, plant and equipment.
(2)Impairment and amortisation of intangible assets.
(3)Operating profit/(loss) before provisions and exceptional items.
(4)Excluding exceptional items.
*Restated due to change in accounting policy for employee benefits (note 60).
24
Financial review - 3. Management report
Overview of results
Operating profit before provisions and exceptional items of
deposits and other liabilities and higher asset pricing, partly offset
by lower average interest earning assets. Other income was
€ 445 million in 2013 compared to a loss of € 324 million in 2012, a
€ 252 million (79%) higher with higher banking fee and
€ 769 million turnaround.
commission income and increased non-banking fee income
including a gain of € 62 million resulting from re-estimating the
timing of cash flows on NAMA senior bonds and investment asset
€ m
400
300
200
100
0
-100
-200
-300
Return to pre-provision profitability
realisations.
283
162
Total operating expenses were € 278 million (16%) lower
compared to 2012. This reduction in costs mainly related to the
impact of staff exits in the latter part of 2012 and throughout 2013
as part of the voluntary severance/early retirement schemes,
lower occupancy costs and lower external consultancy and
H1 2012
H2 2012
H1 2013
H2 2013
advisory fees.
-110
-214
Year 2013: €445m
Provisions for impairment on loans and receivables reduced by
€ 518 million to € 1,916 million in 2013. See the Asset quality
section (page 31 to page 32) for more detail on provisions.
The Group recorded a loss before taxation from continuing
operations of € 1,687 million in 2013 compared to a loss of
At 31 December 2013, the Group remained well capitalised with a
€ 3,729 million* in 2012. The performance reflected higher levels of
core tier 1 capital ratio of 14.3%, comfortably above the 10.5%
income, lower costs and a reduction in provisions.
minimum target level as prescribed by the Central Bank of Ireland.
The Basel III fully loaded common equity tier 1 ratio was 10.5% at
Net interest income increased by € 239 million (22%) compared to
31 December 2013 including the 2009 preference shares of
2012, reflecting a lower ELG charge (€ 215 million lower) as a
€ 3.5 billion.
result of the cessation of the ELG scheme, a lower cost of
*Restated due to change in accounting policy for employee benefits (note 60).
25
Financial review - 3. Management report
Net interest income
• NIM EXCLUDING ELG UP 15 BPS TO 1.37%.
• LOWER COST OF CUSTOMER ACCOUNTS AND REDUCED
FUNDING COSTS.
Net interest income
1,345
1,106
Average interest earning assets
111,004 122,200
22
-9
2013
€ m
2012
%
€ m change
• NEGATIVE IMPACT OF LOW YIELDING NAMA BONDS
Group net interest margin
%
1.21
IN 2013 OF 17 BPS.
Group net interest margin excluding ELG 1.37
% change
0.91
1.22
0.30
0.15
Group net interest margin excluding ELG
and NAMA Senior Bonds
1.54
1.27
0.27
Growth in NIM
1.67%
1.45%
1.42%
1.28%
1.75%
1.50%
1.27%
1.27%
1.25%
1.24%
1.20%
1.00%
H1 2012
H2 2012
H1 2013
H2 2013
NIM excluding ELG
NIM excluding ELG & NAMA Senior Bonds
%
4
3
2
1
0
Net Interest Margin Drivers
3.14
2.41
0.73
3.01
2.24
Asset Yield
Cost of Funds (excluding ELG)
2.87
2.83
2.01
1.09
1.74
H1 2012
H2 2012
H1 2013
H2 2013
Net interest income increased € 239 million (22%) to
€ 1,345 million in 2013 from € 1,106 million in 2012. The increase
of € 239 million was mainly due to reductions in the cost of the
ELG scheme of € 215 million and lower costs of funding partly
offset by lower loan income on lower loan balances.
The impact of the decreasing interest rate environment on asset
yields and the bank’s continued deposit pricing actions to manage
down the cost of customer accounts resulted in the gap between
asset yields and the cost of funds increasing from 73 bps in
H1 2012 to 109 bps in H2 2013.
The reduction in funding costs largely resulted from deposit pricing
actions on interest bearing customer accounts which commenced
in 2012 and continued during 2013. The gross cost of customer
accounts decreased from 264 basis points (“bps”) in 2012 to
187 bps in 2013.
Reduction in market rates
0.76%
0.68%
1.00%
0.52%
ECB Refi
1 month Euribor
0.43%
0.13%
0.12%
0.14%
1.20%
0.80%
0.40%
0.00%
H1 2012
H2 2012
H1 2013
H2 2013
Market rates reduced between 2012 and 2013 driving lower yields
on assets and reducing the cost of interest earning liabilities.
Yield %
H1 2012 H2 2012 H1 2013 H2 2013
Customer loans
Customer accounts(2)
3.37
2.70
3.28
2.58
3.27
2.07
3.39
1.68
Eligible liabilities guarantee (“ELG”)
The ELG charge was € 173 million in 2013 compared with
€ 388 million in 2012. The reduction in the charge was due to the
withdrawal of AIB Group (UK) p.l.c. from the scheme in August
2012 and the cessation of the ELG scheme in the Republic of
Ireland for new liabilities in March 2013. As existing liabilities that
are covered by the scheme mature, the ELG charge will reduce.
ELG charge
Half-year to June 2012
Half-year to December 2012
Half-year to June 2013
Half-year to December 2013(1)
€ m
215
173
123
50
(1)The total liabilities guaranteed under the ELG Scheme at 31 December 2013 amounted to € 8 billion.
(2)Includes Repos.
26
Financial review - 3. Management report
Average Balance Sheet(1)
Assets
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale
Other
Net interest on swaps
Average interest earning assets
Non interest earning assets
Total assets
Liabilities & stockholders' equity
Deposits by banks
Customer accounts
Subordinated liabilities
Other debt issued
Average interest earning liabilities
Non interest earning liabilities
Shareholders’ equity
Year ended
31 December 2013
Average Interest Average
rate
balance
%
€ m
€ m
69,902
16,743
18,621
5,738
2,326
130
652
19
36
3.33
0.78
3.50
0.33
Average
balance
€ m
81,003
18,957
14,510
7,730
Year ended
31 December 2012
Interest Average
rate
%
€ m
2,701
329
579
32
130
3.32
1.73
3.98
0.41
111,004
3,163
2.85
122,200
3,771
3.08
9,635
9,767
120,639
3,163
131,967
3,771
123
968
241
313
1,645
0.47
1.87
18.38
3.63
1.87
26,242
51,669
1,311
8,622
87,844
21,975
10,820
261
1,340
223
453
2,277
0.78
2.64
17.96
3.67
2.32
33,522
50,634
1,240
12,294
97,690
20,899
13,378
Total liabilities & stockholders’ equity
120,639
1,645
131,967
2,277
Net interest income excluding ELG
Eligible liabilities guarantee (“ELG”)(1)
Net interest income including ELG
1,518
1.37
(173)
(0.16)
1,345
1.21
1,494
1.22
(388)
(0.31)
1,106
0.91
(1)The Average Balance Sheet (note 59 to the financial statements) is presented differently and includes the cost of ELG in interest within liabilities and
stockholders’ equity.
Wholesale market rates reduced between 2012 and 2013 which
impacted on the yields included in the table above. The average
1 month Euribor rate which is used for most non-mortgage lending
and deposit pricing reduced from 33 bps to 13 bps while the
average ECB Refi rate reduced from 88 bps to 55 bps.
bonds of € 2.2 billion were partly offset by increases in financial
investments available for sale of € 4.1 billion. Net interest on
swaps reduced € 93 million mainly due to the maturity of long term
swaps on debt instruments (€ 2.2 billion of Euro Medium Term
Notes matured in 2013) and the impact of the lower interest rate
Income from loans was lower than in 2012 as a result of an
€ 11.1 billion reduction in average loans as loan amortisation and
The cost of interest earning liabilities reduced from € 2,277 million
deleveraging exceeded new lending during the period. Lower loan
to € 1,645 million in 2013 due to a reduced funding requirement
balances and their impact on income along with reductions in
which resulted in lower volumes of monetary authority funding and
wholesale market rates were partly offset by loan pricing actions
debt issued. This resulted in lower funding costs along with the
during 2012/2013 and higher margins on new lending.
impact of wholesale market rates on customer accounts and
environment on new or renewed swaps.
Income from financial investments available for sale increased
€ 73 million following increased investment during 2013 to manage
The net interest margin excluding ELG increased 15 bps from
income volatility on interest free liabilities in a lower interest rate
environment. NAMA senior bond income reduced € 199 million as
a result of both lower interest rates and reduced volumes following
redemptions of € 1.9 billion during 2013.
1.22% in 2012 to 1.37% in 2013. The factors contributing to the
increase of 15 bps were a contraction in yields on interest earning
assets (-23 bps) more than offset by a decrease in the cost of
funding those assets (+38 bps).
monetary authority funding.
Average interest earning assets reduced from € 122 billion to
€ 111 billion as lower loans of € 11.1 billion and lower NAMA senior
The net interest margin has continued an upward trajectory since
its trough in Q3 2012 with an increase of 25 bps in the half-year to
27
Financial review - 3. Management report
December 2013 to 1.45% when compared with the half-year to
December 2012. This increase was due to a lower cost of interest
earning liabilities (+44 bps) and a reduction in the yield on interest
earning assets (-19 bps).
Excluding the impact of the Group’s low yielding NAMA senior
bonds, the net interest margin excluding ELG was 1.54% in 2013
compared to 1.27% in 2012.
28
Financial review - 3. Management report
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/(loss)(1)
Other operating income
2013
€ m
4
410
4
414
(36)
84
104
Other income before exceptional items
570
2012
%
€ m change
1
382
14
396
(29)
(100)
50
318
300
7
-71
5
24
-
108
79
(1)Trading income/(loss) includes foreign exchange contracts, debt
securities and interest rate contracts, credit derivative contracts, equity
securities and index contracts. See table below.
Net Trading income/(loss)
Foreign exchange contracts
Debt securities and interest
rate contracts
Credit derivative contracts
Equity securities and index contracts
Net Trading income/(loss)
2013
€ m
2012
%
€ m change
37
44
-
3
84
45
-18
(75)
(38)
(32)
(100)
-
-
-
-
Other income
• INCREASE IN BANKING FEES AND COMMISSIONS.
• IMPROVED TRADING INCOME FOLLOWING HIGHER LOAN
BREAKAGE AND ASSOCIATED DELEVERAGING COSTS IN
2012.
• € 62 MILLION GAIN FROM RE-ESTIMATING TIMING OF CASH
FLOWS ON NAMA SENIOR BONDS.
Other income before exceptional items was € 570 million in 2013
compared with € 318 million in 2012, an increase of € 252 million
(79%). Other income consisted of fee and commission income of
€ 378 million compared to € 367 million in 2012 and trading/other
income of € 188 million compared to negative income of
€ 50 million in 2012.
Fee and commission income
Net fee and commission income was € 11 million higher than 2012
as current account fee income increased. This was partly offset by
lower other fee and commission income following a transition in
customer usage from credit cards to debit cards which generate
lower income and the disposal of investment banking fee
generating businesses (AIBIM was disposed in May 2012).
Trading income
Trading income of € 84 million in 2013 compared to negative
income of € 100 million in 2012. Debt securities and interest rate
contracts improved € 119 million to € 44 million and included
improved mark to market on interest rate swaps of € 69 million and
€ 42 million deleveraging and associated loan breakage costs in
2012. Credit Derivatives in 2012 included € 38 million losses as a
result of the unwind of credit default swaps. Equity securities in
2012 were impacted by € 32 million negative fair value movement
on the options relating to the Aviva Life Holdings transaction (see
note 6 to the financial statements for further detail).
Other operating income
Other operating income of € 104 million in 2013 included a
€ 62 million gain from re-estimating the timing of cash flows on
NAMA senior bonds and a net profit of € 41 million from the
disposal of available for sale debt and equity securities. In 2012,
there was a net profit of € 31 million from the disposal of available
for sale debt and equity securities and income from asset
disposals.
29
Financial review - 3. Management report
Total operating expenses
• COSTS DOWN € 278 MILLION (16%).
Operating expenses
Restated*
2012
2013
€ m
%
€ m change
• AVERAGE STAFF NUMBERS DOWN 2,060 (14%).
• ONGOING COST MANAGEMENT WITH COST INCOME
RATIO DOWN TO 77% FROM 123%.
Total operating expenses before exceptional items were
€ 1,470 million in 2013 compared with € 1,748 million in 2012, a
reduction of € 278 million (16%). The reduction is evident across
the main cost classifications and was mainly as a result of lower
staff numbers and the impact of ongoing cost management.
Personnel expenses
General and administrative expenses
Depreciation(1), impairment and
amortisation(2)
851
519
1,041
589
100
118
Total operating expenses before
exceptional items
1,470
1,748
Staff numbers at period end (FTE)(3)(4)
Average staff numbers (FTE)(4)
11,431
12,648
13,429
14,708
-18
-12
-15
-16
-15
-14
(1)Depreciation of property, plant and equipment.
(2)Impairment and amortisation of intangible assets.
*Restated due to change in accounting policy for employee
benefits (note 60).
Reduction in staff numbers (period end)(4)
15,064
13,429
12,718
11,431(3)
FTE
16,000
14,000
12,000
10,000
Other costs
Staff costs
Significant reduction in costs
881
349
867
358
532
509
754
307
447
716
312
404
€ m
1,000
750
500
250
0
June 2012
Dec 2012
June 2013
Dec 2013
H1 2012
H2 2012
H1 2013
H2 2013
Personnel expenses
relations. Technology costs increased as investments were made
Personnel expenses reduced € 190 million (18%) with a reduction
as the bank continues to become more technology focused.
in costs reflecting lower staff numbers. Average staff numbers
reduced 2,060 (14%) which reflected the early retirement/
Depreciation, impairment and amortisation
voluntary severance in the second half of 2012 and a full year
The charge for depreciation, impairment and amortisation of
impact in 2013. During 2013, 1,280 staff left as part of the early
€ 100 million was € 18 million (15%) lower than 2012. The unwind
retirement/voluntary severance scheme with a total of 2,877 staff
of depreciation relating to capital investments in prior periods
leaving under the scheme to date. 2013 also had lower expenses
resulted in a lower depreciation charge in 2013, relative to 2012.
following elimination of preferential rates paid to staff on deposits
in 2012 as part of cost saving measures introduced.
General and administrative expenses
Costs reduced € 70 million (12%) to € 519 million with reductions
across most classifications as part of ongoing cost management
and control. Occupancy costs reduced as a result of lower staff
numbers and consolidation of head office locations. External
provider fees were lower due to reduced reliance on external
consultancy and advisory services. There were also lower
expenses in relation to insurance costs, marketing and public
(3)Excluding Ark Life staff numbers of 146. Ark Life is held for sale at 31 December 2013.
(4)Staff numbers quoted in the commentary above are on a full time equivalent (“FTE”) basis.
30
Financial review - 3. Management report
Asset quality
The following commentary on asset quality summarises the key
messages and trends. For a more detailed commentary and
analysis, the reader should refer to the more extensive
disclosures in the Risk Management section of this report from
pages 60 to 182.
The total provision charge reduced by € 625 million (25%),
impaired loans reduced by € 0.5 billion and total provisions as a
percentage of total loans increased from 18% in 2012 to 21% in
2013.
Specific Impairment Charge
€bn
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
3.8
0.2
0.7
1.5
0.3
1.1
45% Lower
0.1
2.1
0.4
0.8
0.1
0.7
FY 2012
FY 2013
Corporate
Property & Construction
Residential Mortgages
SME/Other Commercial
Other Personal
Excluding IBNR, the income statement specific provision charge
reduced by 45% in 2013, due to continued signs of stabilisation in
the economic environment. The income statement total credit
provision charge reduced by 21% in 2013.
Credit Profile – Criticised Loans
€0.9bn decrease
42.7
42.5
29.4
29.2
6.3
7.0
6.0
7.3
41.8
28.9
6.1
6.8
€bn
50
40
30
20
10
0
Dec 2012
June 2013
Dec 2013
Watch
Vulnerable
Impaired
Criticised loans decreased by € 0.9 billion in the year, including a
reduction in impaired loans of € 0.5 billion due to write offs,
repayments and asset sales, partly offset by new impaired loans.
There are indications of stabilisation in credit quality in the portfolio,
particularly in the property and construction and SME/other
commercial lending sectors, with the level of new loan impairments
having reduced significantly in 2013. Despite the challenging
conditions, € 4.3 billion of SME loans and € 1.3 billion of residential
mortgages were approved in 2013.
While residential mortgage arrears have continued to increase over
the past year, the rate of increase slowed significantly in the second
half of the year. There was a notable decrease in loans in early
arrears (less than 90 days past due) over the same period.
The CSO index for December 2013 provides evidence, especially in
Dublin, of residential house price increases during 2013. Weighted
average loan-to values in the residential mortgage portfolio improved
Asset quality income statement
Credit provisions
Other provisions
Total provisions
2013
€ m
(1,916)
12
(1,904)
2012
%
€ m change
(2,434)
(95)
(2,529)
-21
-25
Provision charge %
2.24
2.57
Asset quality balance sheet
Impaired loans
Balance sheet provisions
Amounts written off
Specific provisions/impaired loans
Total provisions/Total loans
31 Dec
2013
€ bn
31 Dec
2012
€ bn
%
change
-2
3
68
28.9
17.1
1.1
%
55
21
29.4
16.5
0.7
%
52
18
from 110% at 31 December 2012 to 103% at 31 December 2013
due to price increases and amortisation. There are signs of recovery
in the property investment markets with increased transactions and
an uplift in prime rental and capital values in 2013.
The non-core deleveraging target of € 20.5 billion of net loans was
achieved, including € 2.2 billion of net loans deleveraged in 2013
through sales and amortisation.
Specific provisions as a percentage of impaired loans increased
from 52% at 31 December 2012 to 55% at 31 December 2013
driven by top-ups of existing provisions and repayments of impaired
loans. The provision coverage increased on the residential mortgage
portfolio due to changes in mortgage model assumptions to reflect
current data on loss history and portfolio development as well as
incorporating additional loss parameters assessed on restructuring
outcomes.
The Group determines impairment provisions on an ongoing basis in
accordance with IFRS accounting standards, which takes into
account impairment triggers, collateral valuations and the timing of
realisation. In arriving at the 2013 impairment provision charge of
€ 1.9 billion, the Group also considered the Central Bank of Ireland
Balance Sheet Assessment and impairment guidelines. The Group’s
own charge for 2013 is substantially consistent with all of the
Balance Sheet Assessment mean provision finding of € 1.1 billion.
The stock of IBNR impairment provisions reduced by € 0.2 billion to
€ 1.2 billion at 31 December 2013, influenced by improved case
review processes, the specific provisions processed during 2013
and the reduction in the performing portfolio. This was partly offset
by an increase due to a change in the Emergence Period used in the
calculation of IBNR impairment provisions for Republic of Ireland
residential mortgages from 6 months to 9 months. The IBNR
impairment provision level of 2.2% of performing loans is in line with
the level at 31 December 2012.
The income statement impairment provision charge for 2013 was
€ 1.9 billion (2012: € 2.4 billion) including a write-back of IBNR of
€ 0.1 billion.
31
Financial review - 3. Management report
Credit Quality Metrics by Asset Class
Loan Book Sectoral Profile
December 2013
Gross loans to customers(1)
Impaired
Specific Impairment Charge
Impairment Charge(2) (12 Month P&L)
Balance Sheet Provisions (Specific + IBNR)
Specific Provisions / Impaired Loans (%)
Total Provisions / Total Loans (%)
December 2012
Gross loans to customers(1)
Impaired
Specific Impairment Charge
Impairment Charge(2) (12 Month P&L)
Balance Sheet Provisions (Specific + IBNR)
Specific Provisions / Impaired Loans (%)
Total Provisions / Total Loans (%)
Residential
Mortgages
€ m
Property&
Construction
€ m
SME/Other Other Personal
Lending
Commercial
€ m
€ m
Corporate
Lending
€ m
40,764
9,083
696
813
3,952
37%
10%
€ m
42,521
8,130
1,119
750
3,206
33%
8%
19,710
13,154
817
724
8,438
62%
43%
€ m
22,251
13,804
1,440
781
8,104
56%
36%
13,779
4,775
349
221
3,239
66%
24%
€ m
15,245
5,248
722
517
3,496
62%
23%
4,291
1,423
147
125
1,147
77%
27%
€ m
4,698
1,431
303
219
1,139
74%
24%
4,307
476
49
30
307
48%
7%
€ m
5,157
803
172
167
583
60%
11%
Total
€ m
82,851
28,911
2,058
1,913
17,083
55%
21%
€ m
89,872
29,416
3,756
2,434
16,528
52%
18%
Residential Mortgages
€ 38.1 billion (94%) of the residential mortgage portfolio relates to
residential mortgages in the Republic of Ireland and is split 81%
owner occupier and 19% buy-to-let, with most of the remaining
€ 2.6 billion relating to residential mortgages in Northern Ireland.
The pace of increase in total residential mortgages in arrears in the
Republic of Ireland decreased in the second half of the year whilst
there was a notable decrease in loans in arrears for less than 90
days over the same period. Whilst impaired loans in Republic of
Ireland increased by € 0.9 billion in 2013, the level of newly impaired
loans decreased by 40% in comparison to 2012. New impaired
loans were split 62% owner occupier (3% of the opening
provisions for some cases in secondary locations and the impact of
debt repayments. During 2013, there was some evidence of
recovery in property values especially in prime locations.
SME/Other Commercial
The SME/other commercial portfolio, of which 69% relates to the
Republic of Ireland, is dependent on the domestic economy and
reduced by € 1.5 billion in 2013 reflecting the impact of asset sales,
write-offs and repayments. The reduction was across all industry
sectors, with the exception of the agriculture sector which remained
flat in comparison to 31 December 2012. The levels of impaired
non-impaired book) and 38% buy-to-let (12% of the opening
loans reduced by € 0.5 billion to € 4.8 billion. Specific provision
non-impaired book). Specific provision cover increased from 33% to
cover increased from 62% to 66% driven by increased provisions for
37% primarily driven by changes in mortgage model assumptions to
impaired loans and debt repayments. Challenging economic
reflect current data on loss history and portfolio development as well
conditions and the level of indebtedness in the sector (including
as incorporating additional loss parameters assessed on
property exposures) has resulted in many SMEs experiencing
restructuring outcomes. The 55% peak-to-trough house price
difficulty in managing the finances of their businesses.
decline assumption used in the calculation of collective provisions
Consequently, AIB is engaged with customers in restructuring
remains unchanged based on the Group's assessment of property
existing facilities where necessary in order to sustain viable
market conditions and liquidity, despite some evidence of increases
businesses.
in property prices in 2013 in certain areas. This will be reassessed in
2014.
Other Personal Lending
Property and Construction
Other personal lending mainly comprises loans and overdrafts and
reduced by € 0.4 billion during the year, reflecting accelerated
The property and construction portfolio comprises 66% investment
repayments and subdued demand for credit. The levels of impaired
loans (€ 13.0 billion), 30% land and development loans (€ 5.9 billion)
loans were at a similar level to 31 December 2012, whilst the
and 4% of other property and construction loans (€ 0.8 billion).
74% of the portfolio relates to the Republic of Ireland. The levels of
specific provision cover increased marginally from 74% to 77%.
impaired loans reduced by € 0.6 billion to € 13.2 billion reflecting the
Corporate Lending
impact of asset sales, write-offs and repayments. The rate of new
impairments also reduced significantly in 2013 partly reflecting the
high level of current impairment and provisions in the portfolio (e.g.
90% of land and development impaired with 77% cover). Specific
provision cover increased from 56% to 62% due to increased
The corporate lending portfolio continues to perform better than
other sectors due to its lesser reliance on the domestic economy
and property markets. The levels of impaired loans reduced by
€ 0.3 billion to € 0.5 billion and carry a specific provision cover of
48%.
(1)The table above reconciles to the Credit Risk notes in section 3.1 of the Risk management section.
(2)Impairment charge excludes provisions on loans to banks of € 3 million in 2013 and nil in 2012.
32
Financial review - 3. Management report
Associated undertakings
Income from associated undertakings in 2013 was € 7 million
compared with income of € 10 million in 2012. Income in 2013 was
mainly from AIB’s share in the joint venture with First Data
International trading as AIB Merchant Services. 2012 included
Aviva Health Insurance Ireland Limited and AIB Merchant
Services. On 1 July 2012, AIB re-designated its investment in
Aviva Life Holdings as an equity investment at fair value through
the income statement (see note 31 to the financial statements).
Income tax
The total taxation credit for 2013 was € 90 million compared with a
total taxation credit of € 172 million in 2012 reflecting a reduction
in the overall level of losses in 2013 as compared with 2012. The
net credit is reduced by tax charges resulting from a reduction in
the UK tax rate, which reduces the carrying value of UK deferred
tax assets in the balance sheet, and deferred tax credits which
have not been recognised for certain subsidiaries and branches.
With specific exceptions as set out in note 34 to the financial
statements, the largest of which relates to UK tax losses, deferred
tax credit continues to be recognised in full for the value of tax
losses arising in Group companies, as it is expected that the tax
losses will be utilised in full against future profits.
33
Financial review - 3. Management report
Balance sheet commentary
• €500 MILLION DEBT ISSUE IN NOVEMBER 2013: FIRST
FULLY UNSECURED, UNGUARANTEED DEBT TRANSACTION
BY AIB SINCE 2009.
Balance sheet
Gross loans to customers
Provisions(1)
Restated*
31 Dec 31 Dec
2012
%
€ bn change
2013
€ bn
82.8
(17.1)
89.9
(16.6)
• LOAN DEPOSIT RATIO IMPROVED FROM 115% TO 100%.
• REDUCTION IN ECB FUNDING OF € 9.5 BILLION (43%).
The following commentary highlights the main components of the
balance sheet at 31 December 2013 and the movement in these
components since 31 December 2012 unless otherwise noted.
Loans to customers
Gross loans to customers
Net loans to customers
Financial investments available for sale
NAMA senior bonds
Other assets
65.7
20.4
15.6
16.0
73.3
16.3
17.4
15.5
Total assets
117.7
122.5
Customer accounts
Deposits by banks - ECB
Other market funding
Debt securities in issue
Other liabilities
65.7
12.7
10.4
8.8
9.6
63.6
22.2
6.2
10.7
8.4
Gross loans at € 82.8 billion were down € 7.1 billion (8%)
since 31 December 2012 and € 2.4 billion (3%) since
30 June 2013. The reduction since 2012 of € 7.1 billion was
due to loan amortisation of € 8.4 billion and deleveraging of
€ 2.5 billion during the period partly offset by new lending of
Total liabilities
107.2
111.1
Shareholders’ equity
10.5
11.4
Total liabilities & stockholders’ equity
117.7
122.5
-8
-3
-10
25
-10
3
-4
3
-43
68
-18
14
-4
-8
-4
€ 3.8 billion.
Provisions
Balance sheet provisions have increased from € 16.6 billion to
€ 17.1 billion. See the Risk management section (page 96 to
page 97) for more detail on the provisions raised during 2013.
Net loans to customers
Net loans reduced € 7.6 billion (10%) and reflect the gross
loan movements as set out above along with the impact of
provisions.
Non-core deleveraging
The Group’s commitment as part of the Financial Measures
Loan deposit ratio
Core tier 1 ratio
Basel III fully loaded CET1 ratio(2)
%
100
14.3
10.5
% change
115
15.2
10.2
-15
-0.9
0.3
arising from loan amortisation, deleveraging and provisions during
the period while customer accounts increased which included
Repos of € 5.8 billion.
Financial investments available for sale (“AFS”)
AFS assets increased from € 16.3 billion to € 20.4 billion during
2013 reflecting the purchase of € 6.8 billion, mainly in relation to
reducing income volatility on interest free liabilities and capital
Programme in 2011, required deleveraging of € 20.5 billion of net
balances in a low interest rate environment partly offset by
loans by 31 December 2013. This requirement was met in
disposals of € 1.5 billion and maturities of € 1.2 billion. The
September 2013 ahead of schedule and with a positive variance
purchases were in Irish Government securities (€ 2.7 billion), Euro
compared with the original capital loss assumptions. Deleveraging
government securities (€ 3.4 billion) and non-Euro government
of € 2.2 billion in net loans was achieved in 2013.
securities (€ 0.7 billion). Further detail in respect of AFS is covered
Non-Core Deleveraging Completed
on pages 150 to 152.
€ bn
21
14
7
0
4.3
20.5
4.4
11.8
Achieved within PCAR
capital assumptions
Disposals
Redemptions
Provisions
Deleveraging
Plan
The Group’s loan to deposit ratio reduced from 115% to 100%.
The reduction in the ratio was due to a reduction in net loans
€ bn
100
138%
Stabilising Funding Profile
75
50
25
0
115%
100%
83.7
60.7
73.3
63.6
65.7
65.7
2011
2012
2013
Loans
Customer Accounts
Loan Deposit ratio
150%
120%
90%
60%
30%
0%
(1)Rounded figure at 31 December 2012. Actual figure is € 16,532 million which includes loans to banks.
(2)Based on full implementation of Basel III CRD IV regulations and includes 2009 Preference Shares.
*Restated due to change in accounting policy for employee benefits (note 60).
34
Financial review - 3. Management report
NAMA senior bonds
These bonds reduced € 1.8 billion to € 15.6 billion in 2013 due to
redemptions by NAMA.
Other assets
Other assets of € 16.0 billion comprised of:
-
cash and loans to banks of € 6.2 billion down 9% from
€ 6.8 billion.
deferred taxation of € 3.8 billion broadly in line with 2012.
assets held for sale (mainly Ark Life) € 2.8 billion.
derivative financial instruments of € 1.6 billion down 43% from
€ 2.8 billion.
the remaining assets of € 1.6 billion were down 27% from
€ 2.2 billion.
-
-
-
-
Customer accounts
Customer accounts increased € 2.1 billion (3%) to € 65.7 billion
due to an increase in Repos of € 5.8 billion partly offset by Ark Life
deposit elimination of €1.2 billion and a managed pricing reduction
on deposit products contributed to a decrease of € 3.7 billion. The
average cost of customer accounts dropped from 264 bps in 2012
to 187 bps in 2013. There were no material outflows following the
cessation of the ELG scheme for new deposits at the end of March
2013.
Deposits by banks - ECB
There was a reduction of € 9.5 billion (43%) in monetary authority
funding during the period as the overall funding requirement
reduced during 2013. This was as a result of ongoing loan
amortisation exceeding new lending, higher customer accounts
and increased deposits from banks.
€ 8.8 billion during 2013. € 2.2 billion of European Medium Term
Notes matured along with a € 1.0 billion Asset Covered
Securitisation bond. These maturities were partly offset by two
Mortgage Bank bond issuances of € 500 million in January and
September 2013. In November 2013 AIB completed a 3 year
€ 500 million fixed rate senior unsecured debt issue. It was the first
fully unsecured, unguaranteed debt transaction by AIB since 2009.
The issuances above have been part of a balanced and measured
re-engagement in the wholesale markets.
Other liabilities
Other liabilities of € 9.6 billion comprised of:
-
derivative financial instruments of € 2.0 billion down
€ 1.3 billion (39%) from € 3.3 billion.
contingent convertible subordinated bond with a fair value of
€ 1.4 billion (nominal value of € 1.6 billion) up from
€ 1.3 billion in 2012 as the bonds approach maturity in 2016.
liabilities held for sale (Ark Life) € 3.6 billion.
retirement benefit liabilities € 0.2 billion compared to
€ 0.8 billion in 2012.
the remaining liabilities of € 2.4 billion were broadly in line
with 2012.
-
-
-
-
Shareholders’ equity
Shareholders’ equity reduced € 0.9 billion from € 11.4 billion* in
2012 to € 10.5 billion in 2013. This reduction was mainly due to the
loss for the period of € 1.6 billion partly offset by positive fair value
on available for sale securities of € 0.5 billion and an actuarial gain
of € 0.3 billion. The net pension deficit has materially reduced by
€ 0.7 billion from a deficit of € 0.8 billion at 31 December 2012 to
€ 0.1 billion at 31 December 2013.
€ bn
30
25.4
20
10
0
Monetary Authority Funding / Funding Gap(1)
Funding
22.2
Monetary Authority Funding
Funding Gap
At 31 December 2013, the Group held € 42 billion in qualifying
liquid assets/contingent funding (excluding liquid assets in AIB
Group (UK) p.l.c. which was unavailable for use at an overall
Group level) of which approximately € 28 billion was used in
16.2
9.7
12.7
repurchase agreements.
0.1
2013
12%
Sources of funds
2012
19%
June 2012
Dec 2012
Dec 2013
The funding gap(1) reduced to € 0.1 billion at 31 December 2013
which is reflected in a loan to deposit ratio of 100%.
Other market funding
Other market funding increased € 4.2 billion in 2013 as more
normalised market conditions emerged and AIB was able to
access additional sources of funds. A credit card securitisation was
issued in October 2013 for € 500 million based on high quality
credit card receivables and was the first of its kind issued by an
Irish bank.
Debt securities in issue
Debt securities in issue reduced € 1.9 billion from € 10.7 billion to
17%
11%
15%
60%
11%
55%
Customer accounts
Capital
Wholesale Funding
Monetary Authority Funding
Customer accounts contributed 60% of the total funding
requirement at 31 December 2013, up from 55% at
31 December 2012.
(1)The funding gap reflects net loans (including held for sale) less customer accounts.
*Restated due to change in accounting policy for employee benefits (note 60).
35
Financial review - 3. Management report
Capital
The capital ratios continue to be comfortably above minimum
regulatory requirements with the core tier 1 ratio of 14.3%
compared to the regulatory requirement of 10.5%.
Capital
Risk weighted assets
Core tier 1 ratio
Total capital ratio
Basel III fully loaded CET1 ratio(1)
Basel III transitional CET1 ratio(2)
Restated*
2012
€ bn
%
change
71
-13
%
15.2
17.8
10.2
2013
€ bn
62
%
14.3
16.6
10.5
15.0
The core tier 1 ratio reduced to 14.3% from 15.2% at 31 December
2012 due to credit provisions partially offset by operating profit
before provisions and lower risk weighted assets.
Risk weighted assets reduced € 9 billion to € 62 billion mainly as a
result of lower net loan balances, available for sale disposals and
reductions in both Operational and Market risk. These reductions
were partly offset by increases due to changes in risk models and
credit quality.
The total capital ratio reduced by 1.2% to 16.6% at 31 December
2013 following the reduction in core tier 1 as mentioned above
along with a reduction due to the continued amortisation of the
contingent capital instrument (“CoCo”).
The Basel III fully loaded CET1 ratio(1) of 10.5% at 31 December
2013 increased 0.3% from 31 December 2012. This increase was
due to lower risk weighted assets, a reduction in the pension fund
deficit and a capital benefit from disposals of available for sale
securities partly offset by the loss in the period. The leverage ratio
at 31 December 2013 was c. 5%(1).
For further commentary on capital, see the Capital Management
section on pages 47 to 49.
Balance Sheet Assessment (“BSA”)
The Central Bank of Ireland (“CBI”) concluded a BSA of the three
credit institutions covered under the Eligible Liability Guarantee
Scheme, including AIB, in the fourth quarter of 2013. This review
included an assessment of asset quality, risk weighted assets and
point in time capital adequacy as at 30 June 2013. As disclosed in
early December 2013, AIB was advised of the findings of this
review and has considered them in the preparation of the Group's
year end December 2013 impairment provisions, capital position
and financial statements. The BSA review process included a top
down mortgage modelling exercise and a review of the
classification of 670 mortgages. 1,210 non-mortgage sample file
reviews were also performed. The review was conducted in line
with the CBI impairment guidelines issued in May 2013. The
findings as at 30 June 2013 suggested higher mean impairment
provisions of € 1,135 million and higher risk weighted assets of
€ 1,564 million for consideration by the Group. The Group
determines impairment provisions on an ongoing basis in
accordance with IFRS accounting standards, which takes into
account impairment triggers, collateral valuations and the timing of
realisation. In arriving at the 2013 total credit impairment
provisions charge of € 1,916 million, the Group also considered
the CBI BSA findings and impairment guidelines The Group's own
assessment of the impairment charge for 2013 is substantially
consistent with all of the BSA mean provision finding of
€ 1,135 million. The table on this page summarises AIB Group’s
capital ratios as at 31 December 2013 and 2012.
Risk weighted assets (“RWAs”) reduced by € 9.0 billion in the year
to 31 December 2013. The credit RWAs reduction of € 7.3 billion is
primarily a result of amortisations, deleveraging, increased
provisions and foreign exchange movements, which were offset to
a degree by changes implemented in risk models, including those
identified as part of the BSA exercise, and deterioration in credit
quality, particularly in the mortgage portfolio. The RWAs attaching
to market risk reduced by € 0.4 billion, primarily due to the
maturing of positions in traded debt instruments and equities. The
RWAs attaching to operational risk reduced by € 1.3 billion in 2013
reflecting the reduced levels of income in the annual calculation,
arising in the main from disposals and the impact of the economic
decline in the last three years.
(1)Based on full implementation of the Basel III CRD IV regulations and includes 2009 Preference Shares.
(2)Based on a phased implementation of the Basel III CRD IV regulations and includes 2009 Preference Shares.
*Restated due to change in accounting policy for employee benefits (note 60).
36
Financial review - 3. Management report
Half-year analysis
Half-year balance sheet metrics
Gross loans
Gross loans held for sale
Net loans
Net loans held for sale
Customer accounts
Half-year income statement
Net interest income before ELG
ELG
Net interest income
Other income
Total operating income
Total operating expenses
Operating profit/(loss) before provisions
Total provisions
Operating loss
Associated undertakings
Profit/(loss) on disposal of property
Profit/(loss) on disposal of business
Loss before exceptional items
Cost income ratio
Net interest margin excluding ELG
Loan deposit ratio
31 December
2013
€ bn
30 June
2013
€ bn
31 December
2012
€ bn
30 June
2012
€ bn
82.8
-
65.7
-
65.7
85.2
0.1
68.7
0.1
64.8
89.3
0.6
72.9
0.4
63.6
93.3
2.0
78.0
1.7
63.6
Half-year
31 December
2013
€ m
Half-year
30 June
2013
€ m
Restated*
Half-year
31 December
2012
€ m
Restated*
Half-year
30 June
2012
€ m
800
(50)
750
249
999
(716)
283
(1,166)
(883)
4
1
-
(878)
%
72
1.45
100
718
(123)
595
321
916
(754)
162
(738)
(576)
3
-
1
(572)
%
82
1.28
106
711
(173)
538
115
653
(867)
(214)
(1,556)
(1,770)
9
2
5
(1,754)
%
133
1.20
115
783
(215)
568
203
771
(881)
(110)
(973)
(1,083)
1
-
(2)
(1,084)
%
114
1.24
123
*Restated due to change in accounting policy for employee benefits (note 60).
Half-year 31 December 2013 v Half-year 30 June 2013
Half-year 31 December 2013 v Half-year 31 December 2012
Net loans including held for sale reduced by € 3.1 billion (5%) as a
Net loans including held for sale have reduced by € 7.6 billion
result of loan amortisation and provisions. Customer accounts
increased € 0.9 billion (1%) resulting in an improvement in the loan
(10%) as a result of deleveraging, loan amortisation and provisions.
Customer accounts increased € 2.1 billion (3%) resulting in an
deposit ratio, reducing from 106% to 100%.
improvement in the loan deposit ratio, reducing from 115% to 100%.
Net interest margin excluding ELG of 1.45% was 17 bps higher due
to lower funding costs and the impact of asset and deposit re-pricing.
Net interest margin excluding ELG of 1.45% was 25 bps higher due
to lower funding costs, and re-pricing of both customer accounts
Operating profit before provisions of € 283 million was € 121 million
and loans.
(75%) higher. The increase reflected higher net interest income as a
Operating profit before provisions of € 283 million was € 497 million
result of lower ELG and funding costs and lower operating expenses
higher due to higher net interest income as a result of lower ELG
mainly driven by lower staff numbers. These positive drivers were
and funding costs, higher other income, and lower operating
partly offset by lower other income as the half-year to 30 June 2013
expenses mainly driven by lower staff numbers and cost saving
included a gain of € 62 million resulting from re-estimating the timing
initiatives. The cost income ratio improved from 133% to 72%.
of cash flows on NAMA senior bonds. The cost income ratio improved
from 82% to 72%.
37
Financial review - 3. Management report
Segment reporting
In the latter part of 2012 AIB commenced organising its internal
structure to a more customer centric model comprising the
following key segments: Domestic Core Bank (“DCB”), AIB UK,
and Financial Solutions Group (“FSG”). Reporting on this new
segment basis commenced in 2013. Consequently, the full year to
December 2012 has been presented in the new operating
structure. A summary description of each segment is outlined
below with a more comprehensive overview available on
pages 11 to 14.
Domestic Core Bank (“DCB”) services the personal, business
and corporate customers of AIB in the Republic of Ireland, in
addition to wealth management services and has a strong
presence in all key sectors including SMEs, mortgages, personal
and corporate banking. All owner occupier mortgages in the
Republic of Ireland are reported in DCB. This segment also
includes the bank’s treasury and capital markets functions.
AIB UK comprises retail and commercial banking operations in
Great Britain operating under the trading name Allied Irish
Bank (GB) (“AIB GB”) and in Northern Ireland operating under the
trading name First Trust Bank (“FTB”). UK Structured Lending
Services (“SLS”) deals with AIB UK customers in difficulty within
one centre of expertise.
Segment transfers
AIB completed non-core deleveraging during 2013 under the
Financial Measures Programme. Upon completion of the non-core
deleveraging target, certain assets were transferred back to the
relevant segments. The table below gives a summary of the
balance sheet transfers at 1 July 2013.
Balance sheet transfers
Non-core
Gross loans to customers
Credit provisions
Net loans to customers
DCB AIB UK
€ bn
€ bn
FSG
€ bn
Total
€ bn
1.7
(0.4)
1.3
5.0
(1.7)
3.3
(6.7)
2.1
(4.6)
-
-
-
In addition a decision was made to transfer management of
Corporate Banking Britain (“CBB”) to AIB UK segment as part of a
strategy change to grow and manage the corporate business
under the AIB GB brand. This transfer is set out below.
Balance sheet transfers
DCB AIB UK
€ bn
€ bn
FSG
€ bn
Total
€ bn
Financial Solutions Group (“FSG”) segment is dedicated to
CBB
supporting business and personal customers in financial difficulties
on a case by case basis and Third Party Servicing of NAMA loans.
Non-impaired loans connected to customers in financial difficulty
are also reported in this segment.
Gross loans to customers
Credit provisions
Net loans to customers
Customer accounts
(0.7)
-
(0.7)
(0.9)
0.7
-
0.7
0.9
-
-
-
-
-
-
-
-
Group includes AIB’s operations in the Isle of Man/Channel
Islands in 2012 (operations closed in 2013) and central control
and support functions costs. Central control and support function
costs include operations & technology, risk, audit, finance, general
counsel, human resources and corporate affairs & strategy.
Certain overheads related to these activities are managed and
reported in the Group segment.
The table below gives a summary of the contribution statement
impacts of the above mentioned transfers for the second half of
2013.
The segments’ performance statements include all income and
direct costs but exclude certain overheads which are managed
H2 2013
Contribution statement impact
DCB AIB UK
€ m
€ m
centrally and the costs of these are included in the ‘Group’
segment. Funding and liquidity charges are based on actual
Net interest income
Other income
wholesale funding costs incurred and segments’ net funding
Total operating expenses
requirements. Income on capital is allocated to segments based
Total provisions
on each segment’s capital requirement. The cost of services
Operating contribution
6
(7)
1
2
2
16
3
(3)
(138)
(122)
FSG
€ m
(22)
4
2
136
120
Total
€ m
-
-
-
-
-
between segments and from central support functions is based on
the estimated actual cost incurred in providing the service.
A summarised view of the Group’s segmental performance is
available in note 1 to the financial statements.
38
48.1
46.0
51.2
-1
-4
5
% change
90
-7
2012
%
€ m change
1,068
(321)
747
346
(809)
284
(290)
(6)
13
7
-
7
1
8
5
-54
30
33
31
-7
140
191
-
-38
-
-
-
-
-
Financial review - 3. Management report
Domestic Core Bank (“DCB”)
• CONTRIBUTION BEFORE PROVISIONS OF € 683 MILLION
COMPARED TO A CONTRIBUTION OF € 284 MILLION IN 2012.
DCB balance sheet metrics(1)
31 Dec
2013
€ bn
31 Dec
2012
€ bn
%
change
• TOTAL OPERATING INCOME WAS € 340 MILLION (31%)
HIGHER AND TOTAL OPERATING EXPENSES WERE
€ 59 MILLION (7%) LOWER THAN 2012.
Balance sheet
Gross loans reduced € 0.5 billion (1%) since 31 December 2012.
There were € 1 billion of loan transfers(1) into DCB which were
more than offset by repayments which exceeded new lending.
Customer accounts increased € 2.4 billion (5%) since
31 December 2012 (including Repos of € 5.8 billion). Excluding
Repos, Ark Life deposit elimination and the € 0.9 billion CBB
deposits transferred to UK, customer accounts were € 1.3 billion
(3%) lower than 31 December 2012 as a result of balance sheet
management.
Gross loans
Net loans
Customer accounts
Loan deposit ratio
DCB contribution statement(1)
Net interest income before ELG
ELG
Net interest income
Other income
47.6
44.3
53.6
%
83
2013
€ m
1,120
(147)
973
460
Total operating income
1,433
1,093
Total operating expenses
(750)
€ m
1,600
1,400
1,200
1,000
800
600
400
200
0
Growth in operating contribution
Operating contribution before provisions 683
1,433
750
683
1,093
809
284
Total provisions
Operating contribution
Associated undertakings
(843)
(160)
8
Contribution before disposal of property (152)
Profit on disposal of property
1
Contribution before disposal of business (151)
Profit on disposal of business
-
Contribution before exceptional items
(151)
2012
2013
Total income
Total operating expenses
Operating contribution
Contribution
DCB operating contribution before provisions of € 683 million was
€ 399 million (140%) higher than 2012 with income € 340 million
(31%) higher and costs € 59 million (7%) lower. After provisions of
Cost income ratio
%
52
% change
74
-22
€ 843 million the negative contribution before exceptional items
Operating expenses
was € 151 million, compared to a contribution of € 8 million in
Total operating expenses reduced € 59 million (7%) to
2012.
Net interest income
€ 750 million as reduced staff numbers resulted in lower salary
and associated costs compared with 2012.
Net interest income of € 973 million was € 226 million (30%)
Personnel expenses of € 452 million were € 65 million (13%) lower
higher than 2012 due to reductions in the ELG charge following
than 2012 mainly as a result of reductions in staff numbers.
cessation of the ELG scheme for new liabilities on 28 March 2013,
General and administrative expenses of € 244 million were
lower funding costs, loan pricing actions and increased
€ 6 million higher than 2012 due to higher technology costs as the
investments in securities. These positive impacts were partly offset
bank continues to become more technology focused. The charge
by lower loan volumes; as repayments exceeded new lending,
for depreciation, impairment and amortisation of € 54 million was
lower income on NAMA bonds, and the impact of lower interest
in line with 2012.
rates and yields on treasury operations.
Provisions
Other income
Total provisions of € 843 million were € 553 million higher than
Other income improved € 114 million (33%) to € 460 million with
2012. The increase was mainly in mortgages reflecting changes in
higher current account fees, improved treasury income and the
assumptions to reflect current data on loss history and portfolio
positive impact from re-estimating the timing of cash flows on
development as well as incorporating additional loss parameters
NAMA senior bonds.
(1)For details of balance sheet transfers see page 38.
assessed on restructuring outcomes. The increase also included
an increase in IBNR due to a change in the emergence period
from 6 months to 9 months.
39
Financial review - 3. Management report
AIB UK
• OPERATING CONTRIBUTION BEFORE PROVISIONS OF
£ 64 MILLION COMPARED TO A NEGATIVE CONTRIBUTION
OF £ 31 MILLION IN 2012.
AIB UK balance sheet metrics(1)
Gross loans
Net loans
• COST INCOME RATIO IMPROVEMENT, 69% IN 2013
Customer accounts
COMPARED TO 123% IN 2012.
31 Dec
2013
£ bn
31 Dec
2012
£ bn
%
change
11.2
9.4
9.1
%
103
7.3
6.8
8.9
53
38
2
% change
76
27
Restated*
2012
%
£ m change
2013
£ m
161
(10)
151
58
209
(145)
64
(133)
(69)
1
(68)
112
(29)
83
54
137
(168)
(31)
(79)
(110)
2
(108)
(133)
44
-66
82
7
53
-14
-
68
37
-50
37
40
Loan deposit ratio
AIB UK contribution statement(1)
Net interest income before ELG
ELG
Net interest income
Other income
Total operating income
Total operating expenses
Operating contribution
before provisions
Total provisions
Operating contribution
Associated undertakings
Contribution before exceptional items
Contribution before exceptional items € m (80)
Balance sheet
AIB UK gross loans to customers increased £ 3.9 billion (53%)
since 31 December 2012 including loan transfers(1). Excluding the
loan transfers gross loans reduced £ 1.0 billion to £ 6.3 billion
following loan repayments during the period.
Customer accounts excluding transfers(1) reduced by £ 0.6 billion
(7%) since 31 December 2012 following deposit pricing actions,
which resulted in a managed reduction in UK deposits.
Loan deposit ratio has increased to 103% in 2013 compared to
76% in 2012. The increase was mainly driven by the CBB and
non-core transfers into the UK segment on 1 July 2013.
Return to pre-provision profitability
168
137
209
145
64
£ m
250
200
150
100
50
0
-50
-31
2012
2013
Cost income ratio
%
69
% change
123
-54
Total income
Total operating expenses
Operating contribution
*Restated due to change in accounting policy for employee
Contribution
AIB UK operating contribution before provisions of £ 64 million was
£ 95 million higher than the negative contribution of £ 31 million in
2012 with income £ 72 million (53%) higher and costs £ 23 million
benefits (note 60).
£ 145 million. Personnel expenses of £ 92 million were £ 3 million
(14%) lower. The negative contribution before exceptional items
(3%) higher than 2012. Reduced staff numbers resulted in lower
was £ 68 million, an improvement of £ 40 million (37%) on 2012
salary and associated costs which were more than offset by higher
negative contribution of £ 108 million.
retirement benefit expenses.
Net interest income
General and administrative expenses of £ 48 million were
Net interest income of £ 151 million was £ 68 million (82%) higher
£ 22 million (31%) lower than 2012 mainly due to lower occupancy
than 2012 mainly due to reductions in the ELG charge following
costs as a result of the restructuring of the UK business and the
AIB UK’s withdrawal from the ELG scheme in August 2012 and
impact of lower staff numbers.
lower funding costs as a result of deposit pricing actions along with
the impact of loan repricing.
Other income
Other income of £ 58 million in 2013 was £ 4 million higher than
2012 following transfer of CBB and non-core on 1 July 2013.
Total operating expenses
Total operating expenses reduced £ 23 million (14%) to
The increase in total income along with a decrease in total
operating expenses resulted in an improvement in the cost income
ratio from 123% in 2012 to 69% in 2013.
Provisions
Total provisions of £ 133 million were £ 54 million (68%) higher
than 2012 due to loan transfers. Excluding transfers, provisions
were lower than 2012.
(1)For details of balance sheet transfers see page 38.
40
Financial review - 3. Management report
Financial Solutions Group (“FSG”)
• GROSS LOANS REDUCED € 10.8 BILLION SINCE
31 DECEMBER 2012 DUE TO TRANSFERS, DELEVERAGING
AND LOAN AMORTISATION.
• NON-CORE DELEVERAGING TARGET OF € 20.5 BILLION
(NET LOANS) ACHIEVED.
• TOTAL PROVISIONS REDUCED BY € 1,236 MILLION (58%)
COMPARED TO 2012.
Balance sheet
Gross loans reduced € 10.8 billion (33%) since 31 December 2012
mainly due to non-core deleveraging of € 2.5 billion, loan transfers
of € 6.7 billion and loan amortisation/charge-offs of € 1.6 billion
during the period. Provisions have reduced € 2.2 billion (16%)
since 31 December 2012. Transfers accounted for € 2.1 billion of
the reduction with the remaining net movement mainly consisting
of income statement provision charge, charge-offs and foreign
exchange movement.
Gross loan movement
32.6
6.7
FSG balance sheet metrics(1)
Gross loans
Gross loans held for sale
Net loans
Net loans held for sale
Customer accounts
FSG contribution statement(1)
Net interest income before ELG
ELG
Net interest income
Other income
Total operating income
Total operating expenses
Operating contribution
before provisions
Total provisions
Operating contribution
Associated undertakings
31 Dec
2013
€ bn
31 Dec
2012
€ bn
%
change
21.8
-
10.2
-
1.1
2013
€ m
204
(14)
190
25
215
(161)
32.0
0.6
18.4
0.4
1.3
-32
-
-45
-
-15
2012
%
€ m change
254
(24)
230
(45)
185
(243)
54
(58)
(906)
(2,142)
(852)
(2,200)
(3)
(5)
-20
-42
-17
-
16
-34
-
-58
61
40
61
-
61
€ bn
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
2.5
1.6
21.8
Contribution before disposal of business (855)
(2,205)
Profit on disposal of business
-
2
Contribution before exceptional items
(855)
(2,203)
Dec-12
Transfers
Non-core
deleveraging
Other(2)
Dec-13
Cost income ratio
%
75
% change
131
-56
The non-core deleveraging target of € 20.5 billion was successfully
completed ahead of schedule, with € 2.2 billion reduction in net
loans achieved in 2013.
Contribution
Operating expenses
Total operating expenses reduced € 82 million (34%) to
€ 161 million with lower salary and associated costs and lower
FSG operating contribution before provisions of € 54 million was
external consultancy and advisory fees compared with 2012.
€ 112 million higher than 2012 with income € 30 million (16%)
higher and total operating expenses € 82 million (34%) lower. The
Personnel expenses of € 128 million were € 40 million (24%) lower
negative contribution before exceptional items was € 855 million,
than 2012 as reduced staff numbers and the transfer of assets out
an improvement of € 1,348 million (61%) compared with the 2012
of FSG on completion of the deleveraging programme resulted in
negative contribution of € 2,203 million.
lower salary and associated costs. FSG are resourced to manage
impaired loans of c.€ 18 billion and support business and personal
Net interest income
customers in financial difficulties.
Net interest income of € 190 million was € 40 million (17%) lower
than 2012 due to lower loan volumes including transfers of loans to
General and administrative expenses of € 32 million were
other segments. This was partly offset by reductions in the ELG
€ 37 million (54%) lower than 2012 mainly due to lower external
charge following cessation of the ELG scheme for new liabilities on
consultancy and advisory fees associated with deleveraging.
28 March 2013 and lower funding costs.
Other income
Other income improved € 70 million to € 25 million. 2012 included
higher loan breakage and associated costs relating to deleveraging
and mark to market writedowns on credit default swaps.
(1)For details of balance sheet transfers see page 38.
(2)Includes amortisation, charge-offs and foreign exchange movements.
Provisions
Total provisions of € 906 million were € 1,236 million (58%) lower
than 2012. While there have been positive indications that the Irish
and global economies are stabilising, challenging conditions
continue to remain.
41
Financial review - 3. Management report
-
-
-21
29
-
31
-
28
-
29
Restated*
2012
%
€ m change
-81
27
Group contribution statement
Net interest income
Other income
Total operating income
2013
€ m
5
17
22
Total operating expenses
(388)
Operating contribution before provisions (366)
Total provisions
1
(50)
(23)
(489)
(512)
-
Contribution before disposal
of property
Loss on disposal of property
Contribution before disposal
of business
(365)
(512)
-
2
(365)
(510)
Contribution on disposal of business
1
-
Contribution before exceptional items
(364)
(510)
*Restated due to change in accounting policy for employee
benefits (note 60).
€ m
500
250
0
489
243
246
2012
Reduction in costs
Other costs
Staff costs
388
226
162
2013
Group
• TOTAL OPERATING EXPENSES HAVE REDUCED BY
€ 101 MILLION (21%), € 388 MILLION IN 2013 COMPARED TO
€ 489 MILLION IN 2012.
Contribution
Group operating contribution before provisions of € 366 million was
€ 146 million lower than 2012 with income € 45 million higher and
costs € 101 million lower.
The negative contribution before exceptional items was
€ 364 million, a decrease of € 146 million on the 2012 negative
contribution of € 510 million.
Total operating income improved € 45 million in 2013. 2012 income
was negatively impacted by € 32 million negative fair value
movement on the options relating to the Aviva Life Holdings
transaction.
Operating expenses
Total operating expenses reduced € 101 million to € 388 million in
2013 due to lower salary and associated costs resulting from
reduced staff numbers, lower external consultancy and advisory
fees and lower occupancy costs. Operating expenses in Group
include unallocated overheads relating to operations & technology,
risk, audit, finance, general counsel, human resources and
corporate affairs & strategy.
Personnel expenses of € 162 million in 2013 were € 84 million
(34%) lower than 2012 as a result of the reduction in staff
numbers.
General and administrative expenses of € 187 million in 2013 were
€ 9 million (5%) lower than 2012 due to lower occupancy costs as
a result of restructuring and the impact of lower staff numbers, and
lower external consultancy and advisory fees.
The charge for depreciation, impairment and amortisation of
€ 39 million in 2013 was € 8 million (17%) lower than 2012 as a
result of the unwind of depreciation relating to capital investments
in prior periods.
42
Financial review - 3. Management report
Performance commentary comparing 2012 performance with 2011
The following performance commentary compares the 2012 performance with 2011. In the latter part of 2012 AIB commenced
organising its internal structure to a more customer centric model. Therefore the comparison between 2012 and 2011 is prepared at a
Group level and includes the restatement due to a change in accounting policy for employee benefits.
Summary income statement
Net interest income
Other income
Total operating income
Personnel expenses
General and administrative expenses
Depreciation(1), impairment and amortisation(2)
Total operating expenses
Operating(loss)/profit before provisions
Provisions for impairment on loans and receivables
Provisions for liabilities and commitments
Provisions for impairment on financial investments available for sale
Total provisions
Operating loss
Associated undertakings
Profit/(loss) on disposal of property
Profit/(loss) on disposal of businesses
Loss from continuing operations before exceptional items
Loss on disposal of loans
Profit/(loss) on transfer of financial instruments to NAMA
Gain on redemption of subordinated debt and other capital instruments
Interest rate hedge volatility
Retirement benefits curtailment
Restructuring and restitution expenses
Writeback/(charge) of contingent provisions for NAMA loans
Total exceptional items
Loss before taxation from continuing operations
Income tax credit from continuing operations
Loss after taxation from continuing operations
Profit after taxation from discontinued operations
Loss for the year
Cost income ratio(3)
(1)Depreciation of property, plant and equipment.
(2)Impairment and amortisation of intangible assets.
(3)Excluding exceptional items.
Restated*
2012
€ m
Restated*
2011
€ m
% change
-18
-27
-20
8
-8
3
2
-
-69
-47
-70
-69
65
-
-
-92
65
-
-
-
-
-
-
-
-
27
-86
10
-
-53
1,106
318
1,424
(1,041)
(589)
(118)
(1,748)
(324)
(2,434)
(9)
(86)
(2,529)
(2,853)
10
2
3
(2,838)
(962)
159
–
–
204
(292)
–
(891)
(3,729)
172
(3,557)
–
(3,557)
2012
%
123
1,350
438
1,788
(966)
(637)
(115)
(1,718)
70
(7,861)
(17)
(283)
(8,161)
(8,091)
(37)
(1)
38
(8,091)
(322)
(364)
3,277
(39)
–
(33)
433
2,952
(5,139)
1,193
(3,946)
1,628
(2,318)
2011
%
96
*Restated due to change in accounting policy for employee benefits (note 60).
Overview of results
The Group recorded a loss before taxation from continuing operations of € 3.7 billion in 2012 compared to a loss of € 5.1 billion in 2011.
When exceptional items of € 0.9 billion in 2012 are excluded the loss from continuing operations was € 2.8 billion in 2012 compared to
€ 8.1 billion in 2011. The performance reflected a material reduction in provisions and lower levels of income on reduced business
volumes. Provisions for impairment on loans and receivables were € 2.4 billion in 2012, a reduction of € 5.4 billion from 2011. The level
of provisions in 2012 continues to reflect the continued weak economic environment.
The Group recorded an operating loss before provisions and excluding exceptional items of € 324 million in 2012 compared to € 70 million
profit in 2011. Net interest income reduced by 18% compared to 2011, reflecting lower loan balances following deleveraging, higher volumes
43
Financial review - 3. Management report
of impaired loans and an increase in the cost of funds for the bank. Other income was 27% lower as fee and commission income reduced in
2012 reflecting subdued demand, lower business volumes and weak economic conditions. Total operating expenses were 2% higher
compared to 2011, and 1% higher when the impact of EBS for the full twelve months in 2012 is taken into account. This increase in costs
mainly related to additional external provider fees on credit management improvement, partially offset by the impact of staff exits in 2012.
At 31 December 2012, the Group remains well capitalised with a core tier 1 capital ratio of 15.2%, comfortably above the 10.5%
minimum target level as prescribed by the Central Bank of Ireland.
Exceptional items
The Group’s performance is presented to exclude those items that the Group believes obscure the underlying performance trends in the
business.
–
Loss on disposal of loans: There was € 962 million loss on disposal of loans of which € 952 million related to the ongoing
deleveraging programme in the Non-Core portfolio.
– Profit/(loss) on transfer of financial instruments to NAMA: valuation adjustments on previous transfers of financial assets to NAMA.
– Retirement benefits curtailment: AIB affirmed its approach to the funding of the Irish pension scheme during the year which resulted
in a reduction in the scheme obligations under IAS 19 Employee Benefits of € 204 million which was recognised in the income statement.
– Restructuring and restitution expenses: includes early retirement/voluntary severance termination benefits, restructuring costs
associated with the closure of AIB’s operations in the Isle of Man and Channel Islands and restitution expenses for Payment
Protection Insurance and the UK Derivatives investigation.
Net interest income
Net interest income was € 1,106 million in 2012 compared with € 1,350 million in 2011, a decrease of € 244 million or 18%.
Average interest earning assets decreased by € 9 billion in 2012 to € 122 billion compared with € 131 billion in 2011. Group net interest
margin was 91 basis points (“bps”) in 2012 compared with 103bps in 2011.
The underlying reduction in net interest income mainly reflected lower loan balances along with higher funding costs through interest bearing
customer accounts, which saw the average gross cost increase from 219bps to 264bps, notwithstanding appreciably lower wholesale market
rates. These factors were partially offset by the impact of the recapitalisation during 2011 and lower wholesale funding costs in 2012. In the
second half of 2012, deposit pricing actions along with the impact of standard variable rate mortgage increases have resulted in a
stabilisation in the net interest margin.
The ELG charge for 2012 was € 388 million as compared to € 488 million for 2011. The reduction in the ELG charge is due to lower levels of
wholesale funding in 2012, withdrawal of AIB UK from the ELG scheme in August 2012 and NTMA deposits of € 11 billion which impacted the
ELG charge until July 2011. Excluding ELG, net interest income reduced by € 344 million or 19%.
Net interest income excluding ELG for EBS was € 198 million for the full year in 2012 compared with € 158 million from 1 July 2011, the date
of EBS acquisition.
Excluding the cost of the ELG scheme, the net interest margin for 2012 was 1.22% compared with 1.40% in 2011. The factors contributing to
the decline in the margin of 18bps are due to a contraction in yields on interest earning assets of 14bps and an increase of 4bps on the cost
of funding those assets.
Other income
Other income before exceptional items was € 318 million in 2012 compared with € 438 million in 2011, a reduction of €120 million or 27%.
Fee and commission income decreased by € 74 million as fees including those related to life assurance, ATM fees and various branch fees
all reduced due to lower levels of activity. Investment banking and asset management fees were lower primarily due to the disposal of AIBIFS
(November 2011) and AIBIM (May 2012).
Negative trading income was € 100 million in 2012 compared to € 74 million in 2011. Increase in negative income reflects a further fair value
movement on the options relating to transactions on the expected disposal of Aviva Life Holdings (see note 31 to the financial statements)
and loan breakage and associated costs relating to deleveraging.
Other operating income in 2012 was € 50 million compared with € 67 million in 2011. In 2012 there was a net € 31 million profit from the
disposal of available for sale debt and equity securities. The comparative period in 2011 included € 61 million from litigation settlements,
€ 40 million in foreign exchange gains and € 8 million income from the disposal of available for sale equity shares, partially offset by a loss of
€ 36 million from the disposal of available for sale debt securities which primarily related to bonds in peripheral Eurozone countries. Other
income for EBS was € 14 million for the full year in 2012 compared with € 5 million from 1 July 2011, the date of EBS acquisition.
44
Financial review - 3. Management report
Total operating expenses
2012 operating expenses of € 1,748 million includes EBS costs of € 80 million for a full twelve months compared to € 46 million for six
months in 2011 (date of acquisition 1 July 2011). Adjusting for the acquired EBS business, operating costs of € 1,668 million are
€ 4 million lower than 2011.
Personnel expenses in 2012 were € 1,041 million, an increase of € 75 million or 8% compared with € 966 million in 2011, and include the full
year impact of EBS of € 36 million compared to the six month impact of € 21 million in 2011. The higher costs reflected the higher pension
costs and an increase in the number of fixed term contract staff, particularly in credit management areas. The implementation of the early
retirement/voluntary severance scheme in 2012 included the departure of 1,744 staff from AIB resulting in an overall net decrease in FTE of
1,072 compared to 2011. The majority of the early retirement/voluntary severance scheme exits occurred in the latter part of 2012.
General and administrative expenses of € 589 million in 2012 were € 48 million or 8% lower than 2011 and reflect lower external provider
fees compared to 2011. External provider fees in both periods were associated with business outsourcing and credit management.
Additionally, external provider fees in 2011 were incurred on capital raising initiatives.
Depreciation, impairment and amortisation expense of € 118 million in 2012 was € 3 million or 3% higher when compared to 2011.
Asset quality
The provision for impairment on loans and receivables reduced 69% from € 7.9 billion (7.84% of average loans) in 2011 to € 2.4 billion
(2.57% of average loans) in 2012. Impaired loans increased from € 24.8 billion (25% of loans) in 2011 to € 29.4 billion (33% of loans) in
2012. Specific provisions as a percentage of impaired loans increased from 49% in 2011 to 52% in 2012. Total balance sheet provisions at
31 December 2012 were € 16.5 billion up from € 14.9 billion in 2011.
Associated undertakings
Income from associated undertakings in 2012 was € 10 million compared with a loss of € 37 million in 2011, 2012 income includes Aviva
Health Insurance Ireland Limited and AIB’s share in the joint venture with First Data International trading as AIB Merchant Services. On
1 July 2012, AIB re-designated its investment in Aviva Life Holdings as an equity investment at fair value through the income statement (see
note 31 to the financial statements).
Income tax
The taxation credit for 2012 was € 172 million (being a € 172 million credit relating to deferred taxation), compared with a taxation credit of
€ 1,193 million in 2011(including a credit of € 1,153 million relating to deferred taxation). The credit is influenced by the geographic mix of
profits and losses, which are taxed at the rates applicable in the jurisdictions where the Group operates. With specific exceptions, the largest
of which relates to UK tax losses, deferred tax credit continues to be recognised in full for the value of tax losses arising in Group companies,
as it is expected that the tax losses will be utilised in full against future profits.
Discontinued operations
Discontinued operations recorded a profit after taxation of € 1,628 million in 2011. BZWBK recorded a profit after taxation of € 82 million in
the three months to March 2011 and there was a profit on disposal of the business of € 1,546 million, following completion of the sale on
1 April 2011.
Balance sheet commentary
The commentary on the balance sheet is on a continuing operations basis unless otherwise stated.
Gross loans(1)
Total Core
Non-Core
Total gross customer loans
Other gross loans held for sale (Non-Core)
Total gross loans
31 December
2012
€ bn
31 December
2011
€ bn
74.3
15.0
89.3
0.6
89.9
76.9
20.5
97.4
1.2
98.6
%
change
-3
-27
-8
-50
-9
(1)The balance sheet identifies loans eligible for sale to NAMA and loans classified as held for sale as part of deleveraging measures (included in ‘Disposal
groups and non-current assets held for sale’) separately from other customer loans.
Total gross loans were down € 8.7 billion or 9% since 31 December 2011. This reduction reflected deleveraging measures and continued
weak demand for credit from certain sectors in 2012. Total Core loans are down € 2.6 billion which reflects lower demand from larger
businesses and corporates, partially offset by new lending to personal and small businesses. Additionally € 0.8 billion of loans were
transferred from Core to Non-Core in 2012. Non-Core loans reduced by € 6.1 billion or 28% and is in line with the Group’s commitments to
the Financial Measures Programme in 2011.
45
Financial review - 3. Management report
Net loans(1)
Total Core
Non-Core
Total net customer loans
Other net loans held for sale (Non-Core)
Total net loans
31 December
2012
€ bn
31 December
2011
€ bn
63.7
9.2
72.9
0.4
73.3
68.7
13.8
82.5
1.2
83.7
%
change
-7
-33
-12
-67
-12
(1)The balance sheet identifies loans eligible for sale to NAMA and loans classified as held for sale as part of deleveraging measures (included in ‘Disposal
groups and non-current assets held for sale’) separately from other customer loans.
Total net loans decreased by € 10.4 billion or 12%, reflecting the movement of gross loans as set out above and additional impairment
charge in the year. The identified pool of Non-Core assets including net customer loans classified as held for sale reduced from
€ 15.0 billion at 31 December 2011 to € 9.6 billion at 31 December 2012.
Customer accounts
Total Core
Non-Core
Total customer accounts
31 December
2012
€ bn
31 December
2011
€ bn
63.6
–
63.6
60.7
–
60.7
%
change
5
–
5
Customer accounts of € 63.6 billion are up € 2.9 billion (5%) since 2011. The increase in 2012 was achieved despite a range of deposit
pricing actions taken in 2012 and generally reflects a return to more normalised market behaviour.
Funding(1)
Customer accounts contributed 55% of the total funding requirement at 31 December 2012, up from 47% at 31 December 2011. This
represents a € 3 billion increase in customer accounts in 2012, notwithstanding outflows of € 2 billion as a result of the announced
closure of AIB’s operations in Isle of Man and Channel Islands. This level of growth was noteworthy given management’s focus on
reducing the pricing of deposits in both the Irish and UK markets in the second half of 2012.
While wholesale funding markets continued to be challenging in 2012, the second half of the year showed significant improvement in
sentiment towards Ireland. Given the emergence of a return to more normalised market operations, AIB re-entered the wholesale
market issuing a € 500 million covered bond in November 2012.
At 31 December 2012, the Group held € 41 billion in qualifying liquid assets/contingent funding (excluding trapped liquidity at a Group
level relating to AIB Group (UK) plc) of which approximately € 28 billion was used in repurchase agreements. The Group continues to
explore and develop contingent collateral and funding facilities to support its funding requirements. In this regard, AIB issued an external
residential mortgage backed security (“RMBS”) in May 2012 using mortgage collateral from its UK operations, raising £ 0.3 billion in
funding.
Deposits by central banks and banks decreased by € 8 billion year on year. At 31 December 2012 AIB availed of Central Bank funding
of € 22 billion, down from € 31 billion in 2011. This included the switching of an additional € 8 billion from short term Central Bank
drawings into the 3 year Long Term Repurchase Operation (“LTRO”), with the total 3 year LTRO balance of € 11 billion at
December 2012. The reduction in Central Bank drawings in 2012 was due to asset deleveraging, loan amortisation and continued weak
demand for credit, the redemption of NAMA senior bonds and increased deposits, offset partially by maturing secured and unsecured
bonds (ACS and medium term notes (“MTN”) respectively). Reducing the reliance on Central Bank funding will continue to be a key
objective of the Group. The strong deposit growth and the lower loan balances, including deleveraging actions contributed to an
improved Group loan to deposit ratio. The Group’s loan to deposit ratio including loans and receivables held for sale decreased from
138% at 31 December 2011 to 115% at 31 December 2012.
Senior debt funding of € 6 billion at 31 December 2012 decreased from € 11 billion at 31 December 2011 due to contractual maturing
bonds.
(1)The funding commentary is on a total AIB Group basis.
46
Financial review - 4. Capital management
Capital
The objectives of the Group’s capital management policy are to at all times comply with regulatory capital requirements and to ensure
that the Group has sufficient capital to cover the current and future risks inherent in its business and to support its future development.
The Group does this through an Internal Capital Adequacy Assessment Process (“ICAAP”), which is subject to supervisory review and
evaluation. The minimum regulatory capital requirements set by the Central Bank of Ireland (‘the Central Bank’) or (”CBI”), which reflect
the requirements of the Capital Requirements Directive (“CRD”) established a floor of 4% under which the core tier 1 capital ratio must
not fall (8% for total capital ratio).
Following the Prudential Capital Assessment Review (“PCAR”) in March 2011, the Central Bank announced a new minimum capital
target for AIB of 10.5% core tier 1 capital ratio in a base scenario and 6% core tier 1 capital ratio in a stressed scenario. These target
ratios form the basis of the Group’s capital management policy and are the capital adequacy requirements effective as at 31 December
2013.
The Group’s core tier 1 capital ratio was 14.3% as at 31 December 2013, down from 15.2% as at 31 December 2012 (see page 49).
Capital Requirements Directive (“CRD”)
The CRD, which came into force on 1 January 2007, is the EU directive that establishes the regulatory capital adequacy requirements
for credit institutions. It is set out in three distinct ‘Pillars’. Pillar 1 is concerned with the calculation of the minimum capital requirements
for credit risk, market risk and operational risk. It introduced greater granularity and sensitivity in risk weightings, including for certain
portfolios risk weightings determined by regulatory approved internal rating models (known as the Internal Ratings Based approach).
Under Pillar 2, banks are required to estimate their own internal capital requirements to cover all material risks (not limited to the Pillar 1
risks) as part of their ICAAP which is then subject to supervisory review and evaluation (known as the “SREP”). Pillar 3 (‘market
discipline’) involves the disclosure of a suite of qualitative and quantitative risk management information to the market. The Group
issued its most recent Pillar 3 disclosures in June 2013.
Since it first came into effect, the CRD has been amended a number of times (“CRD II” and “CRD III”). These amendments reflected in
the main; new requirements on hybrid tier one capital instruments; updates to the large exposures regime; improved risk management
requirements for securitisations; and changes to trading book capital requirements. These amendments have not had a material impact
on the capital position of the Group.
In 2013, the European Union (“EU”) adopted a legislative package known as “CRD IV”, to strengthen the regulation of the banking
sector and to implement the Basel III agreement in the EU legal framework. The EU text was formally published in the Official Journal of
the EU on 27 June 2013. The CRD IV package entered into force on 1 January 2014, with some of the new provisions being phased-in
between 2014 and 2019.
CRD IV consists of the Capital Requirements Regulation (“CRR”), which is directly applicable to firms across the EU, and new Capital
Requirements Directive (“CRD”), which must be implemented by member states of the European Union Economic area through national
law. These include enhanced requirements for quality and quantity of capital, a basis for new liquidity and leverage requirements, new
rules for counterparty risk, and new macroprudential standards including a countercyclical capital buffer and capital buffers for
systemically important institutions. CRD IV also makes changes to rules on corporate governance, including remuneration, and
introduces standardised EU regulatory reporting - referred to as COREP and FINREP. These reporting requirements will specify the
information that firms must report to supervisors in areas such as own funds, large exposures and financial information.
Based on full implementation of the CRD IV regulations, the Group’s pro-forma Common Equity Tier 1 (“CET 1”) ratio, including the
2009 Preference Shares (which will continue to be considered as CET 1 until 31 December 2017), is estimated at 10.5% as at
31 December 2013. Based on the transitional provisions of CRD IV, the Group’s pro-forma CET 1 ratio, including the 2009 Preference
Shares, is estimated at 15.0% as at 31 December 2013.
CRD IV also introduces a Leverage Ratio, designed to act as a non-risk sensitive back-stop measure to reduce the risk of a build-up of
excessive leverage in an individual bank and the financial system as a whole. It is defined as tier 1 capital divided by a non-risk adjusted
measure of assets. Based on full implementation of CRD IV, the pro-forma Leverage Ratio, including the 2009 Preference Shares, is
estimated at 5%.
47
Financial review - 4. Capital management
Balance Sheet Assessment (“BSA”)
The CBI concluded a BSA of the three credit institutions covered under the Eligible Liability Guarantee Scheme,including AIB, in the fourth
quarter of 2013. This review included an assessment of asset quality, risk weighted assets and point in time capital adequacy as at 30 June
2013. As disclosed in early December 2013, AIB was advised of the findings of this review and has considered them in the preparation of
the Group's year end December 2013 impairment provisions, capital position and financial statements.
The BSA review process included a top down mortgage modelling exercise and a review of the classification of 670 mortgages. 1,210
non-mortgage sample file reviews were also performed. The review was conducted in line with the CBI impairment guidelines issued in
May 2013.
The CBI ‘point in time’ BSA exercise was conducted as at 30 June 2013. The findings suggested higher mean impairment provisions of
€ 1,135 million and higher risk weighted assets of € 1,564 million for consideration by the Group.
The Group determines impairment provisions on an on-going basis in accordance with IFRS accounting standards, which takes into
account impairment triggers, collateral valuations and the timing of realisation. In arriving at the 2013 total credit impairment provisions
charge of € 1,916 million, the Group also considered the CBI BSA findings and impairment guidelines
The Group's own assessment of the impairment charge for 2013 is substantially consistent with all of the BSA mean provision finding of
€ 1,135 million.
The table on the following page summarises AIB Group’s capital position as at 31 December 2013 and 2012.
48
Financial review - 4. Capital management
Capital adequacy information*
Core tier 1
Paid up share capital and related share premium
Eligible reserves
Regulatory adjustments
Defined benefit pension adjustment
Intangible assets
Other
Supervisory deductions from core tier 1
Unconsolidated financial investments(1)
Securitisations
Total core tier 1 capital
Tier 2
Eligible reserves
Credit provisions
Subordinated term loan capital
Supervisory deductions from tier 2 capital(1)
Total tier 2 capital
Gross capital
Supervisory deductions(1)
Total capital
Risk weighted assets (unaudited)
Credit risk
Market risk
Operational risk
Total risk weighted assets
Capital ratios (unaudited)
Core tier 1
Total
2013
€ m
8,096
1,436
(242)
(176)
(30)
(448)
(158)
–
Restated*
2012
€ m
8,096
3,113
(107)
(187)
(18)
(312)
(6)
(45)
8,926
10,846
140
595
833
(158)
1,410
10,336
–
10,336
59,038
177
3,180
62,395
125
682
1,154
(51)
1,910
12,756
(74)
12,682
66,335
616
4,466
71,417
14.3%
16.6%
15.2%
17.8%
(1)Supervisory deductions relate to the life assurance business, Ark Life, which was acquired exclusively for resale in March 2013.
Risk weighted assets (“RWAs”) reduced by € 9.0 billion in the year to 31 December 2013. The credit RWAs reduction of € 7.3 billion is
primarily a result of amortisations, deleveraging, increased provisions and foreign exchange movements, which were offset to a
degree by changes implemented in risk models, including those identified as part of the BSA exercise, and deterioration in credit quality,
particularly in the mortgage portfolio. The RWAs attaching to market risk reduced by € 0.4 billion, primarily due to the maturing of
positions in traded debt instruments and equities.The RWAs attaching to operational risk reduced by € 1.3 billion in 2013 reflecting the
reduced levels of income in the annual calculation, arising in the main from disposals and the impact of the economic decline in the last
three years.
Core tier 1 capital has reduced by € 1.9 billion in the year; this is primarily due to the loss for 2013 and an increase in supervisory
deductions. The impact of this movement which was partly offset by the RWA reductions as outlined above, resulted in a reduction in the
core tier 1 capital ratio from 15.2% at 31 December 2012 to 14.3% at 31 December 2013.The core tier 1 ratio is in excess of the 10.5%
target core tier 1 requirement as announced under the Financial Measures Programme in March 2011.
Total capital reduced by € 2.3 billion in the year to 31 December 2013, due to the € 1.9 billion movements in core tier 1 capital described
above and a € 0.5 billion reduction in tier 2 capital. The reduction in tier 2 capital primarily results from the continued amortisation of the
contingent capital instrument that is due to mature in July 2016. The impact of this reduction in capital was partly offset by the RWA
reductions, resulting in a reduction in the total capital ratio from 17.8% at 31 December 2012 to 16.6% at 31 December 2013.
*Forms an integral part of the audited financial statements.
49
Financial review - 5. Critical accounting policies and estimates
The Group’s accounting policies are set out on pages 209 to 235 of this report.
The preparation of financial statements requires management to make judgements, 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 judgement involves making estimates concerning the likelihood of future
events, the actual results could differ from those estimates.
The accounting policies that are deemed critical to AIB’s results and financial position, in terms of the materiality of the items to which
the policy is applied and the estimates that have a significant impact on the financial statements are set out in this section. In addition,
estimates with a significant risk of material adjustment in the next year are also discussed.
Going concern*
The financial statements for the year ended 31 December 2013 have been prepared on a going concern basis as the Directors are
satisfied, having considered the risks and uncertainties impacting the Group, that it has the ability to continue in business for the period
of assessment.
In making its assessment, the Directors have considered a wide range of information relating to present and future conditions. These
have included financial plans prepared in November 2013 covering the period 2014 to 2016, the restructuring plan submitted to the
European Commission in September 2012, liquidity and funding forecasts, and capital resources projections, all of which have been
prepared under base and stress scenarios. In addition, the Directors have considered the commitment of support provided to AIB by
the Irish Government. Furthermore, the Directors have considered the outlook for the Irish, the eurozone and UK economies.
Loan impairment*
AIB’s accounting policy for impairment of financial assets is set out in accounting policy number 15. The provisions for impairment on
loans and receivables at 31 December 2013 represent management’s best estimate of the losses incurred in the loan portfolios at the
reporting date.
The estimation of 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.
Credit risk is identified, assessed and measured through the use of credit rating and scoring tools. The ratings influence the
management of individual loans. Special attention is paid to lower quality rated loans and when appropriate, loans are transferred to
specialist units to help avoid default, or where in default, to help minimise loss. The credit rating triggers the impairment assessment and
if relevant the raising of specific provisions on individual loans where there is doubt about their recoverability.
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 credit and risk management on a regular basis. All AIB segments 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 Audit Committee and the Board.
Key assumptions underpinning the Group’s estimates of collective and IBNR provisioning are back tested with the benefit of experience
and revisited for currency on a regular basis.
Specific provisions
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 the 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. Specific provisions are created for cases that are individually significant (i.e. above certain
thresholds), and also collectively for assets that are not individually significant.
The amount of specific provision required on an individually assessed loan is highly dependent on estimates of the amount of future
cash flows and their timing. Individually insignificant impaired loans are collectively evaluated for impairment provisions. As this process
is model driven, the total amount of the Group’s impairment provisions on these loans is somewhat uncertain as it may not totally reflect
the impact of the prevailing market conditions. For further details please refer to: ‘Impact of changes to key assumptions and estimates
on the impairment provisions’ on pages 85 and 86 of the Risk managment section of this report.
50
*Forms an integral part of the audited financial statements.
Specific provisions (continued)
The property and construction loan portfolio continues to be adversely impacted by the downturn in both the Irish and UK economies.
Collateral values have significantly reduced and, particularly in Ireland, market activity is very low in the sector. Accordingly, the
estimation of cash flows likely to arise from the realisation of such collateral is subject to a high degree of uncertainty.
Incurred but not reported provisions
Incurred but not reported (“IBNR”) provisions are also maintained to cover loans which are impaired at the reporting 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 loss in the portfolio.
The total amount of impairment loss in the Group’s non-impaired portfolio, and therefore, the adequacy of the IBNR allowance, is
inherently uncertain. There may be factors in the portfolio that have not been a feature of the past and changes in credit grading profiles
and grading movements may lag the change in the credit profile of the customer. In addition, current estimates of loss within the
non-impaired portfolio and the period of time it takes following a loss event for an individual loan to be recognised as impaired
(‘emergence period’) are subject to a greater element of estimation due to the speed of change in the economies in which the Group
operates and the unprecedented market conditions. Furthermore, the potential impact of customers’ attitudes to debt obligations
following new Personal Insolvency legislation, which took effect in December 2013, may impact the level of impairment provisions
required. For further details of the potential impact of an increase in the emergence period, please refer to: ‘Impact of changes to key
assumptions and estimates on the impairment provisions’ on pages 85 and 86 of the Risk managment section of this report.
Forbearance
The Group’s accounting policy for forbearance is set out in accounting policy number 15 ‘Impairment of financial assets’ which incorporates
forbearance.
The Group has developed a number of forbearance strategies for both short-term and longer-term solutions to assist customers
experiencing financial difficulties. The forbearance strategies involve modifications to contractual repayment terms in order to improve the
collectability of outstanding debt, to avoid default, and where relevant, to avoid repossessions. The longer-term advanced forbearance
strategies are currently in the process of being rolled out to relevant residential mortgage customers in Ireland. Forbearance strategies take
place in both retail and business portfolios, particularly, residential mortgages. Where levels of forbearance are significant, higher levels of
uncertainty with regard to judgement and estimation are involved in determining their effects on impairment provisions. Further information
on forbearance strategies is set out in the ‘Risk management’ section of this report.
Deferred taxation*
The Group’s accounting policy for deferred tax is set out in accounting policy number 13. Details of the Group’s deferred tax assets and
liabilities are set out in note 34.
Deferred tax assets are recognised for unused tax losses to the extent that it is probable (defined for this purpose as more likely than
not) that there will be sufficient future taxable profits against which the losses can be used. For a company with a history of recent
losses, there must be convincing other evidence to underpin this assessment. The recognition of the deferred tax asset relies on the
assessment of future profitability and the sufficiency of those profits to absorb losses carried forward. It requires significant judgements
to be made about the projection of long-term future profitability because of the period over which recovery extends.
In assessing the future profitability of the Group, the Board has considered a range of positive and negative evidence for this purpose.
Among this evidence, the principal positive factors include:
–
–
–
–
the financial support provided to the Irish State under the EU/IMF programme and the fact that Ireland successfully exited the
three-year bailout programme in December 2013 without a back-up credit line;
the financial support provided by the Irish Government to AIB as agreed with the EU/IMF from 2009 to 2011;
the Irish Government’s committed support to AIB and its nomination of the Group as one of two pillar banks in the smaller
reconstructed Irish banking sector;
the updated restructuring plan submitted to the European Commission in September 2012, targeting a return to profitability in 2014
and the ability to grow profits thereafter;
– Management actions during 2012 and 2013 in returning the Group to a normalised earnings path;
–
–
–
the absence of any expiry dates for Irish and UK tax losses;
the non-enduring nature of the loan impairments at levels which resulted in recent years’ losses; and
external forecasts for Ireland, the UK and eurozone economies which indicate continued economic recovery through the period of
the medium-term financial plan.This is evident in a levelling off of bad debts growth, reductions in unemployment and increased
spending.
*Forms an integral part of the audited financial statements.
51
Financial review - 5. Critical accounting policies and estimates
Deferred taxation* (continued)
The Board considered negative evidence and the inherent uncertainties in any long-term financial assumptions and projections,
including:
–
–
–
–
the absolute level of deferred tax assets compared to the Group’s equity;
the reduced size of the Group’s operations following re-structuring;
the quantum of profits required to be earned and the extended period over which it is projected that the tax losses will be utilised;
the challenge of forecasting over a long period, taking account of the level of competition, market dynamics and resultant margin
and funding pressures;
potential instability in the eurozone and global economies over an extended period; and
recent taxation changes (including Bank Levy) and the likelihood of future developments and their impact on profitability and
utilisation.
–
–
The Group’s strategy and its medium term financial plan targets a return to profitability by 2014 and growth in profitability thereafter. The
expected realisation of this objective has been reaffirmed in the annual planning exercise undertaken by the Group in the second half of
2013. Growth assumptions and profitability levels underpinning the plan are within market norms.
Taking account of all relevant factors, and in the absence of any expiry date for tax losses in Ireland, the Group further believes that it is
more likely than not that there will be future profits in the medium term and beyond, in the relevant Irish Group companies against which
to use the tax losses. In this regard, the Group has carried out an exercise to determine the likely number of years required to utilise the
deferred tax asset under the following scenario based on the financial planning outturn 2014-2016. Assuming a sustainable market
return on equity (8.5%) over the long term for future profitability levels in Ireland and a GDP growth in Ireland of 2.5%, based on this
scenario, it will take in excess of 20 years for the deferred tax asset (€ 3.36 billion) to be utilised. Furthermore, under this scenario, it is
expected that 45% of the deferred tax asset will be utilised in 15 years with 73% utilised in 20 years.
In a more stressed scenario with a return on equity of 7% and GDP growth of 1.5%, the utilisation period increases by a further 4 years.
The Group’s analysis of the results of the scenarios examined would not alter the basis of recognition or the current carrying value.
Notwithstanding the absence of any expiry date for tax losses in the UK, AIB has concluded that the recognition of deferred tax assets
in its UK subsidiary be limited to the amount projected to be realised within a time period of 15 years. This is the timescale within which
the Group believes that it can assess the likelihood of its profits arising as being more likely than not.
However, for certain other subsidiaries and branches, the Group has also concluded that it is more likely than not that there will be
insufficient profits to support recognition of deferred tax assets. The amount of recognised deferred tax assets arising from unused tax
losses amounts to € 3,871 million of which € 3,361 million relates to Irish tax losses and € 510 million relates to United Kingdom tax
losses. IAS 12 does not permit a company to apply present value discounting to its deferred tax assets or liabilities, regardless of the
estimated timescales over which those assets or liabilities are projected to be realised. AIB Group’s deferred tax assets are projected to
be realised over a long timescale, benefiting from the absence of any expiry date for Irish or UK tax losses. As a result, the carrying
value of the deferred tax assets on the statement of financial position does not reflect the economic value of those assets.
Determination of fair value of financial instruments*
The Group’s accounting policy for the determination of fair value of financial instruments is set out in accounting policy number 16.
The best evidence of fair value is quoted prices in an active market. The absence of quoted prices increases reliance on valuation
techniques and requires the use of judgement in the estimation of fair value. This judgement includes but is not limited to: evaluating
available market information; determining the cash flows for the instruments; identifying a risk free discount rate and applying an appropriate
credit spread.
Valuation techniques that rely to a greater extent on non-observable data require a higher level of management judgement to calculate a fair
value than those based wholly on observable data.
The choice of contributors, the quality of market data used for pricing, and the valuation techniques used are all subject to internal review
and approval procedures. Given the uncertainty and subjective nature of valuing financial instruments at fair value, any change in these
variables could give rise to the financial instruments being carried at a different valuation, with a consequent impact on shareholders’ equity
and, in the case of derivatives and contingent capital instruments, the income statement.
*Forms an integral part of the audited financial statements.
52
NAMA senior bonds designation and valuation*
The Group’s accounting policy for NAMA senior bonds is set out in accounting policy number 17. These bonds are separately disclosed in
the statement of financial position.
NAMA senior bonds are designated as loans and receivables as they meet the criteria to be so designated.
The bases for measurement, interest recognition and impairment for NAMA senior bonds are the same as those for loans and receivables
(see accounting policy numbers 6, 15, and 18). There is no active market for the NAMA senior bonds, accordingly, the fair value at initial
recognition was determined using a valuation technique.
The absence of quoted prices in an active market required an increased use of management judgement in the estimation of fair value. This
judgement included, but was not limited to: evaluating available market information; determining the cash flows generated by the
instruments and their expected timing; identifying a risk free discount rate and applying an appropriate credit spread.
The valuation technique and critical assumptions used were subject to internal review and approval procedures. While the Group believes its
estimates of fair value are appropriate, the use of different measurements, valuation techniques or assumptions could have given rise to the
NAMA senior bonds being measured at a different valuation at initial recognition, with a consequent impact on the income statement.
During 2013, AIB reviewed its assumptions as to the expected timing of future cash flows based on its experience of repayments to date, as
required by IAS 39, AG8. Following this review, AIB adjusted the carrying value of the bonds and reflected the difference (€ 62 million)
between the previous carrying value and new carrying value in the income statement. If the revised assumptions when reassessed prove to
be different, this will impact the carrying value and income statement in future periods.
NAMA senior bonds are subject to the same credit review processes and procedures as for loans and receivables (accounting policy
number 15).
Retirement benefit obligations*
The Group’s accounting policy for retirement benefit plans is set out in accounting policy number 11.
The Group provides a number of defined benefit and defined contribution retirement benefit schemes in various geographic locations,
the majority of which are funded. All defined benefit schemes were closed to future accrual with effect from 31 December 2013.
Scheme assets are valued at fair 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 comprehensive income.
In calculating the scheme liabilities and the charge to the income statement, the Directors have chosen a number of financial and
demographic assumptions within an acceptable range, under advice from the Group’s actuaries which include price inflation, pension
increases, earnings growth and the longevity of scheme members. The impact on the income statement and statement of financial
position could be materially different if a different set of assumptions were used. The assumptions adopted for the Group's pension
schemes are set out in note 12 to the financial statements, together with a sensitivity analysis of the scheme liabilities to changes in
those assumptions.
Basis of consolidation*
For third party acquisitions, assets acquired and liabilities assumed are measured at their acquisition date fair values.
Where these acquisitions relate to the acquisition of a business between entities under the control of the Irish Government, assets
acquired and liabilities assumed are measured at their carrying value in the books of the transferor at the date of transfer, adjusted for
any differences in accounting policies.
*Forms an integral part of the audited financial statements.
53
Financial review - 6. Deposits and short term borrowings
Customer accounts
The following table analyses average deposits by customers based on the location of the offices in which the deposits are recorded for
2013, 2012 and 2011:
Domestic offices
Current accounts
Deposits:
Demand
Time
Repurchase agreements
Foreign offices
Current accounts
Deposits:
Demand
Time
Total
2013
Total
€ m
2012
Total
€ m
2011
Total
€ m
x
x
12,177
11,251
11,179
7,029
30,281
3,808
53,295
7,311
30,986
–
5,388
31,068
–
49,548
47,635
4,442
4,326
4,144
2,276
4,633
11,351
64,646
2,368
6,646
13,340
62,888
1,920
6,759
12,823
60,458
Current accounts are both interest bearing and non-interest bearing checking accounts raised through AIB Group’s branch network in
Ireland, Northern Ireland and Great Britain.
Demand deposits attract interest rates which vary from time to time in line with movements in market rates and according to size criteria.
Such accounts are not subject to withdrawal by cheque or similar instrument and have no fixed maturity dates.
Time deposits are generally larger, attract higher rates of interest than demand deposits and have predetermined maturity dates.
Customer accounts by currency
The following table analyses customer deposits by currency as at 31 December:
2013
Total
€ m
52,788
1,143
11,631
105
65,667
2012
Total
€ m
49,755
1,145
12,567
143
63,610
2011
Total
€ m
46,376
1,197
12,974
127
60,674
Euro
US dollar
Sterling
Other currencies
Total
54
Large time deposits and certificates of deposit
The following tables show details of the Group’s large time deposits and certificates of deposit (US$ 100,000 and over or the
equivalent in other currencies) by time remaining until maturity as at 31 December 2013, 2012 and 2011.
or less
3 months After 3 months
but within
6 months
€ m
€ m
After 6 months
but within
12 months
€ m
Large time deposits
Domestic offices ..........................................
Foreign offices ..............................................
Total
......................................................................
8,505
1,737
10,242
3,123
809
3,932
4,096
621
4,717
3 months
or less
€ m
After 3 months
but within
6 months
€ m
After 6 months
but within
12 months
€ m
2013
Total
After
12 months
€ m
€ m
2,698
18,422
164
3,331
2,862
21,753
2012
Total
After
12 months
€ m
€ m
Large time deposits
Domestic offices ..........................................
Foreign offices ..............................................
Certificates of deposit
Domestic offices ..........................................
Foreign offices ..............................................
10,570
1,895
8
–
4,574
707
23
–
5,622
890
2,851
23,617
366
3,858
3
–
–
–
34
–
Total
......................................................................
12,473
5,304
6,515
3,217
27,509
Large time deposits
Domestic offices ..........................................
Foreign offices ..............................................
Certificates of deposit
Domestic offices ..........................................
Foreign offices ..............................................
3 months
or less
€ m
8,479
2,912
36
194
After 3 months
but within
6 months
€ m
After 6 months
but within
12 months
€ m
2,867
935
5
–
3,389
1,464
17
19
2011
Total
After
12 months
€ m
€ m
1,953
16,688
357
5,668
–
–
58
213
Total
......................................................................
11,621
3,807
4,889
2,310
22,627
55
Financial review - 6. Deposits and short term borrowings
Short-term borrowings
The following table shows details of short-term borrowings of AIB Group for the years ended 31 December 2013, 2012 and 2011:
Commercial Paper:
End of year outstandings
Highest month-end balance
Average balance
Average rate of interest
At end of year
During the year
Repurchase agreements:
End of year outstandings
Highest month-end balance
Average balance
Average rate of interest
At end of year
During year
Other short-term borrowings:
End of year outstandings
Highest month-end balance
Average balance
Average rate of interest
At end of year
During year
2013
Total
€ m
2012
Total
€ m
79
234
122
0.56%
0.93%
–
–
–
–
–
16,394
19,442
18,052
16,700
32,845
21,891
2011
Total
€ m
–
423
35
–
1.25%
32,878
49,088
39,646
0.19%
0.38%
0.58%
0.78%
0.98%
1.33%
1,496
3,918
1,492
4,283
8,499
7,470
6,752
11,987
7,363
3.09%
1.04%
3.30%
3.51%
2.21%
1.99%
Average interest rates during the year are computed by dividing total interest expense by the average amount borrowed. Average
interest rates at the year end are average rates for a single day and as such may reflect one-day market distortions which may not be
indicative of generally prevailing rates. ‘Other short-term borrowings’ consist principally of borrowings in the inter-bank market included
within ‘Deposits by central banks and banks’ and ‘Debt securities in issue’ in the consolidated financial statements and generally have
remaining maturities of one year or less. The maturity profiles of the above outstandings are disclosed in pages 161 and 162 of the Risk
management section of this report.
56
Financial review - 7. Financial investments available for sale
Available for sale debt securities
The following tables categorise AIB Group’s available-for-sale debt securities by contractual residual maturity and weighted average
yield at 31 December 2013, 2012 and 2011:
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and government agencies
Other asset backed securities
Euro bank securities
Non Euro bank securities
Non Euro corporate securities
Other investments
Within 1 year
€ m Yield %
After 1 but
within 5 years
€ m Yield %
After 5 but
within 10 years
€ m Yield %
–
226
81
381
–
461
34
3
–
–
1.6
2.3
2.1
–
1.3
2.9
–
–
5,513
804
250
1,942
13
2,823
–
–
12
4.8
1.7
1.2
1.2
0.4
1.9
–
–
–
4,517
805
136
761
–
387
–
–
–
4.3
2.7
3.8
1.5
–
1.4
–
–
–
2013
After 10 years
€ m Yield %
298
133
141
8
522
–
–
–
–
5.2
3.7
4.3
0.5
0.5
–
–
–
–
Total ............................................................
1,186
1.7
11,357
3.2
6,606
3.6
1,102
2.6
Within 1 year
€ m Yield %
After 1 but
within 5 years
€ m Yield %
After 5 but
within 10 years
€ m Yield %
2012
After 10 years
€ m Yield %
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and government agencies
Collateralised mortgage obligations
Other asset backed securities
Euro bank securities
Non Euro bank securities
Euro corporate securities
Non Euro corporate securities
Other investments
–
67
56
83
–
–
932
35
26
44
–
Total ............................................................
1,243
–
1.7
0.4
0.9
–
–
3.5
4.0
3.4
4.1
–
3.1
3,563
833
344
1,491
13
53
2,048
126
45
82
12
8,610
5.7
1.9
1.5
1.7
1.2
0.4
3.1
2.8
6.6
4.1
6.9
3.8
3,784
534
150
98
9
3
90
–
8
39
–
4,715
5.0
2.7
3.5
2.0
1.2
0.3
2.7
–
6.2
6.4
–
4.6
241
320
162
10
–
864
–
–
8
28
–
1,633
5.3
3.5
3.9
0.6
–
0.4
–
–
7.4
6.0
–
2.2
Within 1 year
€ m Yield %
After 1 but
within 5 years
€ m Yield %
After 5 but
within 10 years
€ m Yield %
2011
After 10 years
€ m Yield %
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and government agencies
Collateralised mortgage obligations
Other asset backed securities
Euro bank securities
Non Euro bank securities
Euro corporate securities
Non Euro corporate securities
Other investments
693
137
63
131
–
–
968
232
17
35
–
Total ............................................................
2,276
3.8
2.5
0.7
3.7
–
–
2.3
1.7
3.1
2.7
–
2.7
2,204
810
361
896
9
29
1,896
200
74
154
12
6,645
6.9
2.0
1.7
2.0
1.9
2.3
4.3
2.9
6.4
4.9
6.9
4.4
2,113
621
417
107
10
32
191
44
12
65
–
3,612
6.6
2.9
3.7
2.6
3.9
2.0
4.1
3.0
9.2
8.0
–
5.3
207
292
429
14
489
1,149
–
–
7
25
–
2,612
6.5
3.8
3.9
1.0
0.6
2.0
–
–
8.3
6.3
–
2.7
57
Financial review - 7. Financial investments available for sale
Available for sale debt securities (continued)
Financial investments available for sale unrealised gains/losses
The following table gives the fair value of financial investments available for sale by major classifications together with the gross
unrealised gains and losses at 31 December 2011. See note 29 of the financial statements for this analysis for 2013 and 2012.
Debt securities
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and government agencies
Collateralised mortgage obligations
Other asset backed securities
Euro bank securities
Non Euro bank securities
Euro corporate securities
Non Euro corporate securities
Other investments
Total debt securities
Equity securities
Equity securities – NAMA subordinated bonds
Equity securities – other
Total financial investments
available for sale
Fair value
€ m
Unrealised
gross gains
€ m
Unrealised
gross losses
€ m
Net unrealised
gains/(losses)
€ m
Tax effect
€ m
5,217
1,860
1,270
1,147
509
1,210
3,055
476
110
279
12
40
102
207
10
–
–
43
4
4
15
–
(531)
(62)
(3)
(1)
(12)
(353)
(77)
(12)
(6)
(5)
–
15,145
425
(1,062)
132
112
–
18
–
(24)
(491)
40
204
9
(12)
(353)
(34)
(8)
(2)
10
–
(637)
–
(6)
61
(5)
(40)
(1)
2
44
4
1
–
(2)
–
64
–
–
2011
Net
after tax
€ m
(430)
35
164
8
(10)
(309)
(30)
(7)
(2)
8
–
(573)
–
(6)
15,389
443
(1,086)
(643)
64
(579)
58
Financial review - 8. Contractual obligations
Financial liabilities by undiscounted contractual cash flows are set out in pages 162 and 163 of the Risk management section of this
report. The tables in this section provide details of the contractual obligations of the Group as at 31 December 2013, 2012 and 2011 in
respect of capital expenditure and operating lease commitments.
Contractual obligations
Capital expenditure commitments
Operating leases
Total
Contractual obligations
Capital expenditure commitments
Operating leases
Total
Contractual obligations
Capital expenditure commitments
Operating leases
Total
Less than
1 year
€ m
1 to
3 years
€ m
3 to
5 years
€ m
After 5
years
€ m
25
66
91
–
123
123
–
373
373
–
196
196
Less than
1 year
€ m
1 to
3 years
€ m
3 to
5 years
€ m
After 5
years
€ m
7
73
80
–
135
135
–
124
124
–
507
507
Less than
1 year
€ m
1 to
3 years
€ m
3 to
5 years
€ m
After 5
years
€ m
11
80
91
–
134
134
–
126
126
–
557
557
2013
Total
€ m
25
758
783
2012
Total
€ m
7
839
846
2011
Total
€ m
11
897
908
59
Risk management
1. Risk factors
2. Framework
2.1 Risk management framework
2.2 Risk appetite
2.3 Risk governance and risk management organisation
2.4 Risk identification and assessment process
2.5 Stress and scenario testing
2.6 Risk training
3. Individual risk types
3.1 Credit risk
Credit exposure
Credit risk management
Credit profile of the loan portfolio:
Credit profile of residential mortgages
Segmental analysis of the loan portfolio
Credit ratings of total loans and receivables to customers
Analysis of credit risk - 5 year summaries
Financial investments available for sale
3.2 Liquidity risk
3.3 Market risk
3.4 Structural foreign exchange risk
3.5 Operational risk
3.6 Regulatory compliance risk
3.7 Pension risk
3.8 Parent company risk information
Page
61
67
67
67
69
69
69
71
75
81
87
98
120
127
131
150
153
164
166
167
168
169
170
60
Risk management – 1. Risk factors
Introduction
The Group is exposed to a number of material risks and in order to minimise these risks, the Group has implemented comprehensive
risk management strategies. Although the Group invests substantial time and effort in its risk management strategies and techniques,
there is a risk that these may fail to fully mitigate the risks in some circumstances, particularly if confronted with risks that were not
identified or anticipated.
The principal risks and uncertainties facing the Group fall under the following broad categories:
– Macro-economic and geopolitical risk;
– Macro-prudential, regulatory and legal risks to the business model; and,
– Risks relating to business operations, governance and internal control systems.
The risks pertaining to each of these categories are set out in summary form below and described in more detail in subsequent pages.
This list of principal risks and uncertainties should not be considered as exhaustive and other factors, not yet identified, or not currently
considered material, may adversely affect the Group.
Macro-economic and geopolitical risk
– The Group’s access to funding and liquidity is adversely affected by the financial instability within the eurozone.
– Constraints on liquidity, and market reaction to factors affecting Ireland and the Irish economy have created a challenging
environment for the management of the Group’s liquidity.
– The Group’s business may be adversely affected by deterioration in economic and market conditions.
– Contagion risks could disrupt the markets and adversely affect the Group’s financial condition.
– The Group faces market risks, including non-trading interest rate risk.
Macro-prudential, regulatory and legal risks to the business model
– The Group is subject to Government supervision and oversight.
– The future of the Group’s business activities are subject to possible interventions by the Irish Government or the disposal of the Irish
State’s ownership interest in the Group.
– The Group may be subject to the risk of having insufficient capital to meet increased minimum regulatory requirements.
– The Group’s business activities must comply with increasing levels of regulation.
– The Group’s participation in the National Asset Management Agency (“NAMA”) Programme gives rise to certain residual financial
risks.
– The Group may be adversely affected by further austerity and budget measures introduced by the Irish Government.
– The value of certain financial instruments recorded at fair value is determined using financial models incorporating assumptions,
judgements and estimates that may change over time, or may ultimately not turn out to be accurate, and the value realised by the
Group for these assets may be materially different from their current, or estimated, fair value.
– The Group’s deferred tax assets depend substantially on the generation of future profits over an extended number of years.
Risks related to business operations, governance and internal control systems
– The Group is subject to inherent credit risks in respect of customers and counterparties which could adversely affect the Group’s
results, financial condition and future prospects.
– The Group faces elevated operational risks.
– The Group’s risk management strategies and techniques may be unsuccessful.
– There is a risk of litigation arising from the Group’s activities.
61
Risk management – 1. Risk factors
Macro-economic and geopolitical risk
The Group’s access to funding and liquidity is adversely affected by the financial instability within the eurozone
While economic, monetary and political conditions have stabilised within the eurozone in the past twelve months, there is still a risk that
certain EU/Eurozone members may not be able to support their sovereign debt burdens and meet future financial obligations, which
may result in a further downgrade of sovereign credit ratings. This could adversely affect the cost and availability of funding to EU
Member States and European banks. The Irish sovereign rating has a direct impact on the Group’s rating, which is a key factor in
attracting and retaining deposits. Any downgrade of Ireland’s sovereign rating or the Group’s rating could threaten the Group’s liquidity
and funding including the Group’s deposit base and could also impede access to wholesale funding markets.
Constraints on liquidity, and market reaction to factors affecting Ireland and the Irish economy have created a
challenging environment for the management of the Group’s liquidity
Until recently, the Group has been operating in an exceptionally challenging environment where wholesale market conditions restricted
the Group’s access to wholesale funding other than short duration and mainly secured funding. However, there has been recent
improvement in market sentiment towards Irish issuers and the Group has re-engaged in the wholesale funding market through the
issuance of long dated secured and unsecured debt. However, any renewed stress or deterioration in credit market conditions could
further restrict the Group's access to wholesale funding.
The continuing availability of customer deposits to fund the Group’s loan portfolio is subject to factors outside the Group’s control, such
as the loss of confidence of depositors in the Irish economy, the Irish financial services industry or the Group. Any loss of confidence in
the Group, or in the financial services industry generally, could lead to losses of deposits over a short period of time.
To meet its funding requirements, the Group has accessed a range of central banks liquidity facilities, including certain additional
liquidity schemes introduced by central banks for market participants during periods of dislocation in the funding markets. This included
a switch from short term ECB drawings into two 3-year longer-term refinancing operations in December 2011 and March 2012. In
accessing central bank and other secured lending facilities, the Group has relied significantly on its qualifying liquid assets. The
completion of the deleveraging programme combined with a stable customer deposits base has reduced the Group’s reliance on ECB
funding and central bank liquidity facilities. The Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 (Statutory Instrument No.
490 of 2009), as amended (the “ELG Scheme”) was closed to covering further liabilities on 28 March 2013 (AIB Group (UK) p.l.c.
announced its withdrawal from the ELG scheme in August 2012), and to date, these have had a negligible impact on deposit balances.
However, in the unlikely event that the Group exhausts its stock of available collateral for funding and unsecured funding is unavailable,
it would be necessary to seek alternative sources of funding, including continued support from the Irish Government.
The Capital Requirements Regulation (“CRR”) and the Capital Requirements Directive (“CRD”), published in the EU Official Journal on
27 June 2013, require banks to meet liquidity requirements including targets set for Basel III ratios, Net Stable Funding Ratio (“NSFR”)
and Liquidity Coverage Ratio (“LCR”). Meeting the phased implementation deadlines of these requirements could impose additional
costs on the Group.
The Group’s business may be adversely affected by deterioration in economic and market conditions
Deterioration in the performance of the Irish economy or other relevant economies has the potential to adversely affect the Group’s
overall financial condition and performance. Such deterioration could result in reductions in business activity, lower demand for the
Group’s products and services, reduced availability of credit, increased funding costs, decreased asset values and additional write
downs and impairment charges.
While there are some signs of improvement and stabilisation in the Irish economy, any renewed stress or deterioration could impact the
return of normalised markets for commercial and residential property. As the Group remains heavily exposed to the Irish property
market, a prolonged delay in the recovery of the Irish market could have a negative impact on levels of arrears, the Group’s collateral
values and consequently, have a material impact on the Group’s future performance and results.
General economic conditions continue to be very challenging for customers. A continued high level of unemployment together with any
further reduction in borrowers’ disposable income (for example current and future budgetary measures and reduction in salaries) has the
potential to negatively impact customers’ ability to repay existing loans. This could result in additional write downs and impairment
charges for the Group and negatively impact its capital and earnings position. Challenging economic conditions will also influence the
demand for credit in the economy. A declining or continuing muted demand for credit has the potential to impact the Group’s financial
position.
Contagion risks could disrupt the markets and adversely affect the Group’s financial condition
The risk of contagion in the markets in which the Group operates and dislocations caused by the interdependency of financial markets
participants is an on-going material risk to the Group’s financial condition. Any reductions in the perceived creditworthiness of one or
more corporate borrowers or financial institutions could lead to market-wide liquidity problems, losses and defaults, which could
62
adversely affect the Group’s results, financial condition and future prospects. Another source of potential contagion risk relates to the
Euro. The risk of a eurozone member withdrawing from the eurozone has significantly reduced. However, if a eurozone member exited
from the eurozone, this would have a significant adverse effect on the financial stability of the eurozone, the Irish financial system and
Irish banks. In turn, this could result in a loss of customers’ deposits, as well as creating immediate operational and business challenges
for the Group.
The Group faces market risks, including non-trading interest rate risk
Market risk is defined as the risk to the Group’s earnings and shareholder value resulting from adverse movements in the level or
volatility of market prices of debt instruments, equities and currencies. The market risk associated with the Group’s trading activities is
predominantly the result of the facilitation of client business and secondarily, the discretionary positioning activities of the Group in debt
instruments, foreign exchange and equity products.
Interest rate risk in the Banking Book (“IRRBB”) is defined as the Group’s sensitivity to earnings volatility in its non-trading activity arising
from movements in interest rates. It reflects a combination of interest rate risk arising from the retail, commercial and corporate
operations and Banking Book positions maintained by the Group’s Treasury function.
Among the most significant market risks which the Group faces are credit spread, interest rate, foreign exchange, bond and equity price
risks. Changes in credit spread affect the values of Available for Sale (“AFS”) bonds, and also the magnitude of the Credit Value
Adjustment (“CVA”) applied to the Group’s derivative positions. Changes in interest rate levels, yield curves and spreads may affect the
interest rate margin between lending and borrowing costs, the effect of which may be heightened during periods of liquidity stress, such
as those experienced in recent times.
Changes in currency rates, particularly in the euro-sterling rate, affect the value of assets and liabilities denominated in foreign currencies
and the reported earnings of the Group’s non-Irish subsidiaries and may affect income from foreign exchange dealing. The performance
of financial markets may affect bond and equity prices causing changes to the value of the Group’s investment and trading portfolios.
Macro-prudential, regulatory and legal risks to the business model
The Group is subject to Government supervision and oversight
As a result of the recapitalisation of the Group by the Irish Government, the Group is subject to a set of obligations outlined under a
number of Subscription and Placing Agreements impacting on the Group’s governance, remuneration, operations and lending activities.
These obligations are in addition to certain commitments and restrictions to the operation of the Group’s business under the Credit
Institutions (Financial Support ) Scheme 2008 (the ‘CIFS Scheme’) and NAMA programme, all of which may serve to limit the Group’s
operations and place significant demands on the reporting systems and resources of the Group.
Extensive powers continue to be conferred on the Irish Minister for Finance. The Credit Institutions (Stabilisation) Act 2010 (the
‘Stabilisation Act’) conferred extensive powers on the Irish Minister for Finance to direct the affairs of and restructure credit institutions
and reorganise their assets and liabilities. Pursuant to the Act, directors are required to act in a manner that is aligned to the interests of
the State in the performance of their duties, having regard to public interest considerations specified in the Act. The Stabilisation Act will
cease to have effect on 31 December 2014.
The future of the Group’s business activities are subject to possible interventions by the Irish Government or
the disposal of the Irish State’s ownership interest in the Group
The Group is substantially owned by an agency of the Irish State and accordingly, subject to EU state aid rules, controlled by the Irish
State. Such ownership or control may affect the Group’s operations, financial condition and future prospects.
In order to comply with contractual commitments imposed on the Group in connection with its recapitalisation by the Irish State and with
the requirements of European Union (“EU”) state aid applicable in respect of that recapitalisation, a relationship framework was entered
into between the Minister for Finance (‘the Minister’) and the Group in March 2012. This provides the framework under which the
relationship between the Minister and the Group is governed. Under this relationship framework, the authority and responsibility for
strategy and commercial policies (including business plans and budgets) and conducting the Group's day-to-day operations rest with the
Board of the Group and its management team, but the appointment or removal of the chairman or chief executive officer of the Group
are reserved to the Minister, and in respect of which the Board may only engage with the prior consent of the Minister.
Nevertheless, for so long as ownership of the Group remains within State control, there remains a risk of intervention by the Irish
Government in relation to the operations and policies of the Group. Such further interventions may have a negative impact on the
operations of the Group.
The Irish State may sell or otherwise dispose of its ownership interest in the Group to any private or public entity, including any
intergovernmental institution, such as the European Stability Mechanism. Any such sale or disposal, and any conditions attaching to it,
could materially affect the Group’s operations, financial condition and future prospects.
63
Risk management – 1. Risk factors
The Group may be subject to the risk of having insufficient capital to meet increased minimum regulatory
requirements
The Group’s target capital requirements as determined by the Central Bank of Ireland under the 2011 Prudential Capital Assessment
Review (“PCAR”) are a core tier 1 ratio of 10.5% in a base scenario and 6% in a stressed scenario, (excluding a requirement for an
additional protective buffer). As at December 2013, the Group core tier 1 ratio was 14.3%, which is above the required level. The Group
carries out extensive forward-looking stress tests on its capital position on a regular basis and, over the course of 2013, these have
confirmed that the Group does not require additional capital within the defined stress level. However, given the levels of uncertainty in
the current economic environment, there is a possibility that the economic outturn over the capital planning period may be materially
worse than the stress scenario envisages and/or that losses on the Group's credit portfolio may be above forecast levels. Were such
losses to be significantly greater than currently forecast, there is a risk that the Group's capital position could be eroded to the extent
that it would have insufficient capital to meet its regulatory requirements.
The Capital Requirements Regulation (“CRR”) and the Capital Requirements Directive (“CRD”), the EU’s implementation of the Basel III
reforms, were published in the EU Official Journal on 27 June 2013. As a result of these regulations, credit institutions may be required
to increase the quantity and quality of their regulatory capital. Full details of requirements in this regard have yet to be confirmed by the
competent authorities, and it is possible that the Group’s target regulatory capital requirements may ultimately increase as a result.
The Central Bank of Ireland conducted a balance sheet assessment of the three Irish credit institutions covered under the Eligible
Liabilities Guarantee, including AIB, during the fourth quarter of 2013. This review included an assessment of asset quality, risk weighted
assets and point in time capital as at 30 June 2013. AIB has been advised of the findings of this review and has considered them in the
preparation of the Group’s year end December 2013 impairment provisions and financial statements.
In addition, the ECB announced during October 2013 that it will undertake a comprehensive assessment of the banking system, to be
concluded in October 2014. This ECB exercise will entail a Supervisory Risk Assessment, an Asset Quality Review and a Stress Test in
order to provide a forward-looking view of banks’ shock absorption capacity under stress. The assumptions under which these
assessments take place (including use of Open Market Value or Economic Value basis for property valuations and provison
assessment) have yet to be confirmed. The outcome of these assessments may lead to a range of follow-up actions for banks, possibly
including requirements for changes in the Group’s capital requirements.
The Group’s business activities must comply with increasing levels of regulation
In 2013, a significant number of new regulations were issued by both the Central Bank of Ireland and the EU. A particular focus, in light
of the mortgage forbearance issue, has been the introduction of a revised Code of Conduct on Mortgage Arrears and new personal
insolvency legislation, which had taken full effect by December 2013. A risk arises from potential changes in customer attitude to debt
obligations given that the new legislation allows for the agreed settlement of unsecured debt, and the settlement and/or restructuring of
secured debts up to a maximum of € 3 million. The inclusion of secured debt in the non-judicial process is unprecedented, and
therefore, it is difficult to gauge its impact. The legal uncertainty with regard to the availability of certain remedies for the enforcement of
mortgages over Irish land entered into prior to 1 December 2009 has been removed by the Land and Conveyancing Law Reform Act
2013 which was enacted on 24 July 2013.
The long anticipated revision to the EU Capital Requirements Directive and Regulation (“CRD IV”) came into force on 1 January 2014
and will be gradually implemented over 5 years. This omnibus legislation will, among other measures, increase capital buffers and
introduce new liquidity and leverage ratios for greater transparency. It also provides for the introduction in November 2014 of a new
banking supervisory system (a Single Supervisory Mechanism) which will see the eurozone’s largest banks, including AIB, coming under
the direct supervision of the European Central Bank. Other measures likely to impact on the business in 2014 include the Credit
Reporting Bill, creating a new centralised credit bureau, and the revised Corporate Governance Code.
The delivery of this level of regulatory change will place strain on the organisation’s resources, particularly, during a period of significant
restructuring and consolidation. The challenge of meeting tight implementation deadlines while balancing competing resource priorities
and demands adds to the regulatory risk to the Group. These may also impact significantly on the Group’s future product range,
distribution channels, funding sources, capital requirements and consequently, reported results and financing requirements.
The Group’s participation in the NAMA Programme gives rise to certain residual financial risks
On 8 April 2009, the Minister announced that a National Assets Management Agency (“NAMA”) would be established on a statutory
basis for the purpose of strengthening the Irish financial system as a whole. Legislation was enacted (the National Asset Management
Agency Act 2009 (‘NAMA Act’)) in November 2009 which established NAMA with the Group being designated in February 2010 as a
participating institution under the NAMA Act.
64
During 2010 and 2011, the Group transferred financial assets to NAMA with a net carrying value of € 15.5 billion for which it received as
consideration NAMA senior and NAMA subordinated bonds.
Section 93 of the NAMA Act (Claw back of overpayments) provides that where a participating institution receives an amount to which it
was not entitled, that the participating institution will repay such amount to NAMA. Any payments to NAMA in relation to such "Claw
back" may have an adverse effect on the Group. Section 135 of the NAMA Act and Clause 9.2 of NAMA’s Acquisition Terms and
Conditions directs the Group to provide a series of indemnities to NAMA relating to the transferred assets. Any payment by the Group to
NAMA in respect of the indemnities may have an adverse effect on the Group
Furthermore, Section 225 of the NAMA Act provides that, on the dissolution or restructuring of NAMA, the Irish Minister for Finance may
require that a report and accounts be prepared. In the event that the NAMA report and accounts show that an aggregate loss has been
incurred during the period since its establishment, the Minister may impose a surcharge on AIB, as a participating institution (under
additional legislation which would be enacted). No surcharge will become payable until either (a) 10 years after the passing of the NAMA
Act; or (b) NAMA is dissolved or restructured, or there is a material alteration of NAMA’s functions, whichever is last to occur.
In addition, credit exposure to NAMA arises from the senior and subordinated NAMA bonds acquired by the Group in consideration for
the transfer of assets to NAMA.
Any of these events may serve to limit the Group’s operations and could have a material adverse effect on the Group’s results, financial
condition and future prospects.
The Group may be adversely affected by further austerity and budget measures introduced by the Irish
Government
The current and future budgetary and taxation policy of the Irish State and other measures adopted by the Irish Government may have
an adverse impact on borrowers’ ability to repay their loans and, as a result, the Group’s business. Furthermore, some measures may
directly impact the financial performance of the Group through the imposition of measures, such as the recently imposed bank levy.
The value of certain financial instruments recorded at fair value is determined using financial models
incorporating assumptions, judgements, and estimates that may change over time, or may ultimately not turn
out to be accurate, and the value realised by the Group for these assets may be materially different from their
current, or estimated, fair value
In accordance with IFRS, the Group recognises at fair value: (i) derivative financial instruments; (ii) financial instruments at fair value
through profit or loss; (iii) certain hedged financial assets and financial liabilities; and (iv) financial assets classified as available for sale
(“AFS”). The best evidence of fair value is quoted prices in an active market. The absence of quoted prices due to the deterioration of
the world’s financial markets increases reliance on valuation techniques and requires the use of judgement in the estimation of fair
value. This judgement includes, but is not limited to, evaluating available market information, determining the cash flows for the
instruments, identifying a risk free discount rate and applying an appropriate credit spread. Valuation techniques that rely to a greater
extent on non-observable data require a higher level of management judgement to calculate fair value than those based on wholly
observable credit spread.
The choice of contributors, the quality of market data used for pricing, and the valuation techniques used are all subject to internal
review and approval procedures. Given the uncertainty and subjective nature of valuing financial instruments at fair value, any change in
these variables could give rise to the financial instruments being carried at a different value, with a consequent impact on the Group’s
results, financial condition and future prospects..
The Group’s deferred tax assets depend substantially on the generation of future profits over an extended
number of years
The Group’s business performance may not reach the level assumed in the projections supporting the carrying value of the deferred tax
assets. Lower than anticipated profitability within Ireland and the UK would lengthen the anticipated period over which the Group’s Irish
and UK tax losses would be used. The value of the deferred tax assets relating to unused tax losses constitutes substantially all of the
deferred tax assets recognised in the Group’s statement of financial position. A significant reduction in anticipated profit, or changes in tax
legislation, regulatory requirements, accounting standards or relevant practices, could adversely affect the basis for recognition of the
value of these losses, which would adversely affect the Group’s results and financial condition, including capital and future prospects.
New capital adequacy rules, consistent with Basel III principles, are within the EU Capital Requirements Regulation (part of the Capital
Requirements Directive IV package). The new rules will, inter alia, require the Group to deduct from its common equity capital, the value
of most of the Group’s deferred tax assets, including all deferred tax assets arising from unused tax losses. The deduction from common
equity capital is to be phased in evenly over 10 years.
65
Risk management – 1. Risk factors
Risks related to business operations, governance and internal control systems
The Group is subject to inherent credit risks in respect of customers and counterparties which could adversely
affect the Group’s results, financial condition and future prospects
Risks arising from changes in credit quality and the recoverability of loans and other amounts due from customers and counterparties
are inherent in a wide range of the Group’s businesses. In addition to the credit exposures arising from loans to individuals, SMEs and
corporates, the Group also has exposure to credit risk arising from loans to financial institutions, its trading portfolio, available for sale
securities portfolio, derivatives and from off-balance sheet guarantees and commitments. The Group has been exposed to increased
counterparty risk as a result of financial institution failures during the global economic crisis. The Group is also exposed to credit risks
relating to sovereign issuers. Concerns in respect of Ireland and other sovereign issuers, including other European Union Member
States, have adversely affected and could continue to adversely affect the financial performance of the Group.
The Group faces elevated operational risks
The Group faces an elevated operational risk profile given the current economic environment and in the context of taking forward the
significant organisational changes required to support the delivery of cost savings and the impact of an on-going organisational
voluntary severance programme.
One of its key operational risks is people risk. The Group’s efforts to restore and sustain the stability of its business on a long-term basis
depend, in part, on the availability of skilled management and the continued service of key members of staff both at its head office and
at each of its business units.
Under the terms of the recapitalisation of the Group by the Irish Government, the Group is required to comply with certain executive pay
and compensation arrangements. As a result of these restrictions, the Group cannot guarantee that it will be able to attract, retain and
remunerate highly skilled and qualified personnel in a highly competitive market. Failure by the Group to staff its day-to-day operations
appropriately or failure to attract and appropriately develop, motivate and retain highly skilled and qualified personnel could have an
adverse effect on the Group’s results, financial condition and prospects.
Delivering the overall level of change has placed, and will continue to place, added risk on the organisation, including the challenge to
meet tight delivery timelines in the face of competing priorities and resource demands. Negative public or industry opinion can result
from the actual, or perceived, manner in which the Group conducts its business activities or from the restructuring of the Group. This
could adversely affect the Group’s ability to keep and attract customers, the loss of which would adversely affect the Group’s results,
financial condition and prospects. Similarly, any weakness in the Group’s risk controls or loss mitigation actions in respect of operational
risk could have a material adverse effect on the Group’s results, financial condition and operations.
The Group’s risk management strategies and techniques may be unsuccessful
The Group is exposed to a number of material risks. In order to minimise these risks, the Group has implemented a number of risk
management strategies. Although the Group invests substantial time and effort in its risk management strategies and techniques, there
is a risk that these may fail to fully mitigate the risks in some circumstances, particularly if confronted with risks that were not identified
or anticipated.
Some of the Group’s measures for managing risk are based upon observation of historical market behaviour. Where this is so, the
Group applies statistical techniques to these observations to quantify its risk exposures. If circumstances arise that the Group, in
developing its models, did not identify or anticipate, the losses could be greater than expected.
Furthermore, the Group’s quantifications of risk do not take all risks into account. If the Group’s measures to assess and mitigate risk
prove insufficient, the Group may experience material unexpected losses.
There is a risk of litigation arising from the Group’s activities
The Group operates in a legal and regulatory environment that exposes it to potentially significant litigation and regulatory risks.
Disputes and legal proceedings in which the Group may be involved are subject to many uncertainties, and their outcomes are often
difficult to predict, particularly in the early stages of a case or investigation. Adverse regulatory action or adverse judgments in litigation
could result in a monetary fine or penalty, adverse monetary judgement or settlement and/or restrictions or limitations on the Group’s
operations or result in a material adverse effect on the Group’s reputation.
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Risk management – 2. Framework
Introduction
The key risk factors to which the Group is exposed are set out in the previous section. The governance and organisation framework
through which the Group manages and seeks, where possible, to mitigate these risks, are described below.
2.1 Risk management framework
The Group assumes a variety of risks in undertaking its business activities. Risk is defined as any event that could damage the core
earnings capacity of the Group, increase earnings or cash-flow volatility, reduce capital, threaten business reputation or viability, and/or
breach regulatory or legal obligations. AIB has adopted an Enterprise Risk Management approach to identifying, assessing and
managing risks, the core elements of which are set out in a Board approved Enterprise Risk Management Framework. This framework
is in turn supported by a number of other Board approved frameworks covering the management of specific risk categories (credit risk,
operational risk, etc). The core aspects of the Group's risk management approach are described below.
2.2 Risk appetite
The Group’s risk appetite is defined as the amount of risk that the Group is prepared to accept in order to deliver on its strategic and
business objectives. The Group Risk Appetite Statement (“RAS”) is a blend of qualitative statements and quantitative limits and triggers
linked to the Group's strategic objectives, and is supported by a number of business segment level risk appetite statements.
The Group RAS and Risk Appetite Framework are Board approved and reviewed at least annually or more often if required in alignment
with the annual business and financial budgeting process. The Group RAS has recently undergone a review and update process
(previously approved in March 2013) during the period November 2013 – February 2014 in order to align with the Group’s Business and
Financial Plan 2014-2016 which was approved by the Board in December 2013. The revised Group RAS will be presented for Board
approval in March 2014.
All Group licensed subsidiaries and segments are required to document and align their own risk appetite statements with the Group
statement. This work was initiated and is being facilitated in tandem with the review and update process of the Group RAS and will be
completed in the first quarter of 2014.
While the Board reviews and approves the Group's Risk Appetite Framework and RAS, the Leadership Team is accountable for
ensuring that risks remain within appetite. The Group’s risk profile is measured against its risk appetite on a monthly basis and
exceptions to risk appetite are reported to the Executive Risk Committee (“ERC”) and Board Risk Committee (“BRC”). Material breaches
of risk appetite, should they arise, are escalated to the Central Bank.
2.3 Risk governance and risk management organisation
The Board has ultimate responsibility for the governance of all risk taking activity in the Group. The Group has adopted a ‘three lines of
defence’ framework in the delineation of accountabilities for risk governance. Under the three lines of defence model, primary
responsibility for risk management lies with business line management. The Risk Management function provides the second line of
defence, providing independent oversight and challenge to business line managers. During 2013, a new Head of Compliance was
appointed with a direct reporting line to the Group Chief Risk Officer (“CRO”). The third line of defence is the Group Internal Audit function
which provides independent assurance to the Audit Committee of the Board on the effectiveness of the system of internal control.
Risk governance - Committees
While the Board has ultimate responsibility for the governance of all risk taking activity within AIB, it has delegated a number of risk
governance responsibilities to various committees or key officers. The diagram on the following page, summarises the current risk
governance structure of the Group. The role of the Board, the Audit Committee, and the BRC is set out in the Corporate Governance
statement. The Leadership Team comprises the senior executive managers of the Group who manage the strategic business risks of the
Group. It establishes the business strategy and risk appetite within which the risk management function operates.
The ERC is the principal executive forum for the review and challenge of enterprise-wide risk management and control. The CRO chairs
the ERC. The principal duties of the ERC are to:
– Continuously review the effectiveness of the Group’s risk frameworks and policies;
– Monitor and review the Group’s risk profile, risk trends, risk concentrations and policy exceptions; and
– Review all breaches of Board and Leadership Team approved risk appetite and limits.
The ERC acts as the parent body of a number of other risk and control committees, namely, the Group Credit Committee (“GCC”), the
Strategic Credit Forum (“SCF”) and the Product and Conduct Committee (“PCC”). The GCC exercises approval authority in respect of
Board approved credit policies as well as reviewing and approving other credit related matters. The SCF is charged with responsibility
for governance of Group credit risk strategy, credit risk appetite, quality and impairment provision adequacy. The PCC approves the
launch of new products and oversees the Group’s conduct risk management. The PCC plays a key role in promoting and supporting
customer centric ethos and culture across the Group.
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Risk management – 2. Framework
Risk governance - Committees (continued)
The role of the Asset and Liability Committee (“ALCo”) is to act as the Group’s strategic balance sheet management forum that
combines a business-decisioning and risk governance mandate. It is a sub-committee of the Leadership Team, chaired by the Chief
Financial Officer (“CFO”) and tasked with decision-making in respect of the Group’s balance sheet structure, including capital, liquidity,
funding, interest rate risk in the Banking Book (“IRRBB”) from an economic value and net interest margin perspective, foreign exchange
(“FX”) hedging risks and other market risks. Group ALCo also acts as the parent body of the Product Pricing Committee (“PPC”) and
the Capital Committee (“CC”).
The PPC, as a sub-committee of ALCo, has delegated authority for the oversight and direction of balance sheet management and net
interest margin; this specifically includes the approval of product pricing. The CC is responsible for fostering sound capital management
and planning within AIB Group as well as ensuring that the quality and quantum of capital held by the Group is commensurate with its
business objectives and risk appetite. The CC has delegated authority to the Capital Model Governance Committee to review and
approve models used by the Group for calculating expected and unexpected losses and stress testing.
During 2013, both the Financial Solutions Group (“FSG”) Oversight Committee and the Deleveraging Committee were retired as
sufficient oversight of FSG exists within the Leadership Team and the Group has successfully met its deleveraging targets.
Risk Governance Structure December 2013
Board of Directors
Board Risk
Committee
Board Audit
Committee
Remuneration
Committee
Nominations
Committee
Leadership
Team
Executive Risk
Committee
Disclosure
Committee
ALCo
B
o
a
r
d
E
x
e
c
u
t
i
v
e
Strategic
Credit
Forum
Product and
Conduct
Committee
Group
Credit
Committee
Capital
Committee
Product
Pricing
Committee
68
Individuals and functions
The role of certain key officers within the Group’s risk management framework is described below.
Chief Risk Officer
The CRO has independent oversight of the Group’s enterprise-wide risk management activities across all risk types. The CRO is a
member of the Leadership Team and reports independently to the CEO and the Chairman of the Board Risk Committee. The CRO’s
responsibilities include:
– Providing second line assurance to Senior Management and the Board across all risk types;
– Developing and maintaining the Enterprise Risk Management framework;
– Providing independent reporting to the Board on all risk issues, including the risk appetite and risk profile of the Group; and
– Providing independent assurance to the CEO and Board that material risks are identified across all risk types and managed by line
management and that the Group is in compliance with enterprise risk policies, processes and limits.
Head of Internal Audit
Group Internal Audit (“GIA”) is an independent evaluation and appraisal function reporting to the Board through the Audit Committee.
GIA acts as the third line of defence in the Group’s risk governance organisation and provides assurance to the Audit Committee on the
adequacy, effectiveness and sustainability of the governance, risk management and control framework throughout the Group, including
the activities carried out by other control functions. The results of GIA audits are reported quarterly to the Audit Committee, which
monitors both the resolution of audit issues and progress in the delivery of the audit plan.
2.4 Risk identification and assessment process
Risk is identified and assessed across the Group through a combination of top-down and bottom-up risk assessment processes.
Top-down risk assessment processes seek to identify the material risks facing the Group, both in the context of the Group’s agreed risk
appetite and in the identification of new and emerging threats. Top-down risk assessments are carried out on a regular basis and are
reviewed by the ERC and the BRC. These assessments form critical inputs into the Group’s Internal Capital Adequacy Assessment
Process (“ICAAP”). Bottom-up risk assessment processes are more granular, focusing on risk events that have been identified through
specific qualitative and quantitative measurement tools. More information on the key bottom-up risk assessment techniques across
material risk types can be found in the individual risk sections below.
2.5 Stress and scenario testing
The Group’s risk identification and assessment framework described above is supported by a framework of stress testing, scenario and
sensitivity analysis and reverse stress testing that seeks to ensure that risk assessment is dynamic and forward looking and considers
not only existing risks but also potential and emerging threats. The Group undertakes a regular programme of stress testing across all
its material risks to meet internal and regulatory requirements. In addition, ad-hoc stress tests are undertaken, as required, to inform
strategic decision making.
2.6 Risk training
During 2013, a Risk Academy was established with the primary aim of providing access to all recommended learning and development
for risk professionals, as well as supporting the on-going development of risk skills across the AIB organisation. The ‘Learning Pyramid’
incorporates a core curriculum of three interlinked development streams for risk professionals: technical risk skills, business/product
specific skills and professional and personal development skills.
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Risk management – 3. Individual risk types
This section provides details of the Group’s exposure to, and risk management of the following individual risk types which have been
identified through the Group’s risk assessment process:
3.1 Credit risk(1);
3.2 Liquidity risk;
3.3 Market risk;
3.4 Structural foreign exchange risk;
3.5 Operational risk;
3.6 Regulatory compliance risk; and
3.7 Pension risk.
Parent company risk information is set out in section 3.8 below.
(1)The credit risk disclosures in this section are aligned with the Central Bank of Ireland guidelines issued in December 2011 and May 2013 respectively.
70
3.1 Credit risk
Credit risk is the risk that the Group will incur losses as a result of a customer or counterparty being unable or unwilling to meet a
commitment that they has entered into. Credit exposure arises in relation to lending activities to customers and banks, including
‘off-balance sheet’ guarantees and commitments, the trading portfolio, financial investments available for sale, and derivatives.
Concentrations in particular portfolio sectors, such as property and construction can impact the overall level of credit risk.
Credit risk management objectives are to:
– Establish and maintain a control framework to ensure credit risk taking is based on sound credit management principles;
– Control and plan credit risk taking in line with external stakeholder expectations;
–
Identify, assess and measure credit risk clearly and accurately across the Group and within each separate business, from the level
of individual facilities up to the total portfolio; and
– Monitor credit risk and adherence to agreed controls.
AIB lends to personal and retail customers, commercial entities and banks. Credit risk arises on the drawn amount of loans and
receivables, but also as a result of loan commitments, such as undrawn loans and overdrafts, and other credit related commitments,
such as guarantees, performance bonds and letters of credit. These credit related commitments are subject to the same credit
assessment and management as loans and receivables.
Credit risk organisation and structure
The Group’s credit risk management systems operate through a hierarchy of lending authorities. All customer loan requests are subject
to a credit assessment process.
The role of the Credit Risk function is to provide direction, oversight and challenge of credit risk-taking. The Group Risk Appetite
Statement sets out the credit risk appetite and framework. Credit Risk appetite is set at Board level and is described, reported and
monitored through a suite of metrics. These metrics are supported by more detailed appetite metrics at a segment level. These are also
supported by a comprehensive suite of credit risk policies, concentration limits, product and country limits to manage concentration risk
and exposures within the Group’s approved risk appetite. The Group’s risk appetite for credit risk is reviewed and approved annually.
AIB operates credit approval criteria which:
–
– Require a thorough understanding and assessment of the borrower or counterparty, as well as the purpose and structure of credit,
Includes a clear indication of the Group’s target market(s), in line with Group and Segment Risk Appetite Statements;
and the source of repayment; and
– Enforce compliance with minimum credit assessment and facility structuring standards.
Credit risk approval is undertaken by experienced credit risk professionals operating within a defined delegated authority framework.
The AIB Board is the ultimate credit approval authority and grants authority to various Credit Committees and individuals to approve
limits. Credit limits are approved in accordance with the Group’s written policies and guidelines. All exposures above certain levels
require approval by the Group Credit Committee (“GCC”). Other exposures are approved according to a system of tiered individual
authorities which reflect credit competence, proven judgement and experience. Depending on the borrower/connection, grade or
weighted average facility grade and the level of exposure, limits are sanctioned by the Relevant Credit Authority. Material lending
proposals are referred to credit units for independent assessment/approval or formulation of a recommendation and subsequent
adjudication by the applicable approval authority.
Measurement of credit risk*
One of the objectives of credit risk management is to accurately quantify the level of credit risk to which the Group is exposed. The use
of internal credit rating models is fundamental in assessing the credit quality of loan exposures, with variants of these used for the
calculation of regulatory capital.
The primary model measures used are:
– Probability of default (“PD”) – the likelihood that a borrower is unable to repay his obligations;
– Exposure at default (“EAD”) – the exposure to a borrower who is unable to repay his obligations at the point of default; and
–
Loss given default (“LGD”) – the loss associated with a defaulted loan or borrower.
To calculate PD, the Group assesses the credit quality of borrowers and other counterparties and assigns a credit grade or score to
these. This grading is fundamental to credit sanctioning and approval, and to the on-going credit risk management of loan portfolios. It is
a key factor in determining whether credit exposure limits are sanctioned for new borrowers and how any existing limits are managed for
current borrowers.
*Forms an integral part of the audited financial statements
71
Risk management – 3. Individual risk types
3.1 Credit risk
Measurement of credit risk (continued)
The ratings methodology and criteria used in assigning borrowers to grades vary across the models used for the portfolios, but models
generally use a combination of statistical analysis (using both financial and non-financial inputs) and expert judgement.
For the purposes of calculating credit risk, each probability of default model segments counterparties into a number of rating grades,
each representing a defined range of default probabilities (details of these rating scales are published in the Group’s Pillar 3
disclosures). Exposures migrate between rating grades if the assessment of the counterparty probability of default changes. These
individual rating models continue to be refined and recalibrated based on experience.
The calculation of internal ratings differs between portfolios. In the retail portfolio, which is characterised by a large number of
customers with small individual exposures, risk assessment and decisioning is largely automated through the use of statistically-based
scoring models. All counterparties are assessed using the appropriate model or scorecard prior to credit approval.
Mortgage applications are generally assessed centrally with particular reference to affordability, assisted by scoring models. However,
in Business Banking, some mortgage applications are assessed by the Relevant Credit Authority. Both application scoring for new
customers and behavioural scoring for existing customers are used to assess and measure risk as well as to facilitate the management
of these portfolios.
In the non-retail portfolio, the grading systems utilise a combination of objective information, essentially, financial data (e.g. borrowings;
earnings before interest, tax, depreciation and amortisation (“EBITDA”); interest cover; and balance sheet gearing) and qualitative
assessments of non-financial risk factors such as management quality and competitive position within the sector/industry. The
combination of expert lender judgement and statistical methodologies varies according to the size and nature of the portfolio, together
with the availability of relevant default experience applicable to the portfolio.
Credit grading and scoring systems facilitate the early identification and management of any deterioration in loan quality. Changes in
the objective information are reflected in the credit grade of the borrower with the resultant grade influencing the management of
individual loans. Special attention is paid to lower quality performing loans or ‘criticised’ loans. In AIB, criticised loans include ‘watch’,
‘vulnerable’ and ‘impaired’ loans which are defined as follows:
The credit is exhibiting weakness but with the expectation that existing debt can be fully repaid from normal cash flows;
Watch:
Vulnerable: Credit where repayment is in jeopardy from normal cash flows and may be dependent on other sources; and
Impaired:
A loan is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the
initial recognition of the asset (a ‘loss event’) and that loss event/events has an impact such that the present value of
future cash flows is less than the current carrying value of the financial asset or group of assets and requires an
impairment provision to be recognised in the income statement.
The Group’s criticised loans are subject to more intense assessment and review because of the increased risk associated with them.
Given the on-going deterioration in credit quality throughout 2012 and 2013 in the residential, retail and commercial markets, credit
management and credit risk management continued to be the key area of focus. Resourcing, structures, policy and processes are
subjected to on-going review in order to ensure that the Group is best placed to manage asset quality and assist borrowers in line with
agreed treatment strategies.
Use of PD, LGD, and EAD within regulatory capital and impairment provisioning
As at 31 December 2013, the Group uses a combination of Standardised and Internal Ratings Based (“IRB”) approaches. Under the
Standardised approach, regulatory risk weightings are determined on a fixed percentage basis, depending on the portfolios, as
specified in the relevant regulations. The Group has regulatory approval to use its internal credit models in the calculation of its capital
requirements. 37% of credit risk weighted assets were calculated using internal credit models. This approval covers the adoption of the
Foundation IRB approach for non-retail exposures and Advanced IRB for retail exposures.
For non-retail exposures, the Foundation IRB approach is used for sovereign, bank, corporate, commercial, not for profit and project
finance portfolios. The Foundation IRB approach is used where banks use their own estimate of PD and regulatory estimates of LGD
and EAD.
For retail exposures, the Advanced IRB approach is adopted for Republic of Ireland mortgages (excluding legacy EBS mortgages)
where the Group uses its own estimates of PD, LGD and EAD. PDs and LGDs are calibrated on the basis of internal data,
supplemented with benchmarking to external sources. For both non-retail and retail internal rating systems, default is defined as
exposures 90 days or more past due or where the customer is unable to repay their debt.
72
3.1 Credit risk
Measurement of credit risk (continued)
The Group has a formalised governance framework around the internal ratings process. Each rating model is subject to an annual
validation process, undertaken by an independent validation team, which includes benchmarking to externally available data, where
possible.
The table below sets out the distribution for IRB portfolios of the outstanding credit exposures to customers in terms of EAD, PD, LGD
and EL.
Residential mortgages – IRB portfolio
Non-retail – IRB portfolio
Residential mortgages – IRB portfolio
Non-retail – IRB portfolio
EAD
€ m
19,014
7,434
EAD
€ m
20,334
8,773
Average
PD
%
1.5
3.6
Average
PD
%
1.9
1.6
Average
LGD
%
28.1
45.1
Average
LGD
%
20.5
45.3
2013
EL
€ m
80
120
2012
EL
€ m
86
63
The average PD for the non-retail – IRB portfolio has increased in 2013, mainly due to a recalibration of the PD model.
The average LGD for the residential mortgages – IRB portfolio has increased in 2013, due to changes in the model to reflect current
data on loss history and portfolio development as well as incorporating additional loss parameters assessed on restructuring outcomes.
The amount of incurred credit losses provided for in the financial statements differs from the amount determined from the expected loss
models. For reporting purposes, impairment allowances are recognised only with respect to losses that have been incurred at the
balance sheet date based on objective evidence of impairment.
Credit risk principles and policy*
The Group implements and operates policies covering the identification, assessment, approval, monitoring, and control and reporting of
credit risk. The Credit Risk Framework sets out at a high level how the Group identifies, assesses, approves, monitors, reports and
controls credit risk. It contains minimum standards that are applied across the Group to provide a common and consistent approach to
the management of credit risk.
More detailed policies, standards and guidelines provide more explicit instructions for applying these minimum standards to specific
products, business lines, market segments, processes and roles. These are reviewed at least annually. Policy exceptions must be
approved and reported. Policy breaches are not permitted and must be reported to senior management and Risk. Credit Risk monitor
credit performance trends, review and challenge exceptions to planned outcomes, and track portfolio performance against agreed credit
risk indicators. This allows the Group to take early and proactive mitigating actions for any potential areas of concern. The more
significant credit policies are approved by the Board.
Credit concentration risk*
Credit concentration risk arises where any single exposure or group of exposures, based on common risk characteristics, has the
potential to produce losses large enough relative to the Group’s capital, total assets, earnings or overall risk level to threaten its health or
ability to maintain its core objectives. Credit policy is aligned to the Group’s risk appetite and restricts exposure to certain high risk
countries and more vulnerable sectors. Exposures are monitored to prevent excess concentration of risk. The Board-approved Large
Exposures and Approval Policy sets the maximum limit by grade for exposures to individual counterparties or group of connected
counterparties taking into account features such as security, default risk and term. Concentration risk to sectors and movements in such
concentrations are monitored regularly to prevent excessive concentration of risk, guide risk appetite and limit setting, identify
unwanted concentrations, and provide an early warning indicator for potential excesses. Such measures facilitate the measurement of
concentrations by balance sheet size and risk profile relative to other portfolios within the Group and in turn facilitate appropriate
management action and decision making. The Group’s large exposures are reported in accordance with regulatory reporting
requirements.
*Forms an integral part of the audited financial statements
73
Risk management – 3. Individual risk types
3.1 Credit risk
Measurement of credit risk (continued)
Country risk*
Credit risk is also influenced by country risk, where country risk is defined as the risk that circumstances arise in which customers and
other counterparties within a given country may be unable/unwilling to fulfil or are precluded from fulfilling their obligations to the Group
due to economic or political circumstances. These are managed in line with the Country Policy limits which define maximum credit risk
appetite for those countries through direct sovereign bond exposure, interbank exposure as well as corporate and equity exposures.
Exposures against limits are monitored on an on-going basis and reported in line with processes detailed in the Country Exposure
Policy.
Credit risk on derivatives*
The credit risk on derivative contracts is the risk that the Group’ 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 and also for proprietary trading purposes. Risks associated with derivatives are managed from a credit, market and operational
perspective. The total credit exposure consists partly of the current replacement cost and partly of the potential future exposure. The
potential future exposure is an estimation, which reflects possible changes in market values during the remaining life of the individual
contract. The Group uses a simulation tool to estimate possible changes in future market values and computes the credit exposure to a
high level of statistical significance. Exposures against limits are monitored on an on-going basis.
Credit risk assurance and review*
The credit management process is underpinned by an independent system of review. Assessment of the effectiveness of risk
management practices and adherence to risk controls is carried out by Credit Risk and Credit Review teams who facilitate a wide range
of audit, assurance and review work. These include cyclical credit reviews, non-standard reviews, and bespoke assignments, including
impairment adequacy reviews, as required. This provides executive and senior management with assurance and guidance on credit
quality, effectiveness of credit risk controls as well as accuracy of impairments.
Stress testing and scenario analysis*
The credit portfolio is subjected to stress testing and scenario analysis. Events are modelled at a Group wide level, at a segment and
business unit level and by rating model and portfolio.
*Forms an integral part of the audited financial statements
74
3.1 Credit risk – Credit exposure
Maximum exposure to credit risk from on balance sheet and off balance sheet financial instruments is presented before taking account
of any collateral held or other credit enhancements (unless such enhancements meet accounting offsetting requirements). For financial
assets recognised on the statement of financial position, the maximum exposure to credit risk equals their carrying amount, and for
financial guarantees and similar contracts granted, it is the maximum amount the Group would have to pay if the guarantees were called
upon. For loan commitments and other credit related commitments that are irrevocable over the life of the respective facilities, it is
generally the full amount of the committed facilities.
The following table sets out the maximum exposure to credit risk that arises within the Group and distinguishes between those assets
that are carried in the statement of financial position at amortised cost and those carried at fair value:
Maximum exposure to credit risk*
Balances at central banks(3)
Items in course of collection
Disposal groups and non-current assets held for sale(4)
Trading portfolio financial assets(6)
Derivative financial instruments
Loans and receivables to banks
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale(7)
Included elsewhere:
Sale of securities awaiting settlement
Trade receivables
Accrued interest
Financial guarantees
Loan commitments and other credit
related commitments
Amortised
cost(1)
€ m
Fair
value(2)
€ m
3,536
164
28(5)
–
–
2,048
65,713
15,598
–
–
57
502
–
–
–
1
1,629
–
–
–
20,251
–
–
–
2013
Total
€ m
3,536
164
28
1
1,629
2,048
65,713
15,598
20,251
–
57
502
Amortised
cost(1)
€ m
Fair
value(2)
€ m
3,481
192
353(5)
–
–
–
–
–
22
2,835
2,914
72,972
17,387
–
5
63
454
–
–
–
16,201
–
–
–
2012
Total
€ m
3,481
192
353
22
2,835
2,914
72,972
17,387
16,201
5
63
454
87,646
21,881
109,527
97,821
19,058
116,879
1,353
8,236
9,589
–
–
–
1,353
8,236
9,589
1,561
8,974
10,535
–
–
–
1,561
8,974
10,535
Total
97,235
21,881
119,116
108,356
19,058
127,414
(1)All amortised cost items are ‘loans and receivables’ per IAS 39 definitions.
(2)All items measured at fair value except financial investments available for sale and cash flow hedging derivatives are classified as ‘fair value through profit
or loss’.
(3)Included within cash and balances at central banks of € 4,132 million (2012: € 4,047 million).
(4)Certain non-financial assets and equity investments within disposal groups and non-current assets held for sale are not included above (note 21).
(5)Comprises loans and receivables to banks and customers measured at amortised cost (note 21).
(6)Excluding equity shares of € 1 million (2012: € 2 million).
(7)Excluding equity shares of € 117 million (2012: € 143 million).
*Forms an integral part of the audited financial statements
75
Risk management – 3. Individual risk types
3.1 Credit risk – Credit exposure
Credit risk mitigants*
The perceived strength of a borrower’s repayment capacity is the primary factor in granting a loan, however, AIB uses various
approaches to help mitigate risks relating to individual credits including: transaction structure, collateral and guarantees. Collateral or
guarantees are usually required as a secondary source of repayment in the event of the borrower’s default. The main types of collateral
for loans and receivables to customers are described below under the section on Collateral. Credit policy and credit management
standards are controlled and set centrally via the Credit risk function.
Very occasionally, credit derivatives are purchased to hedge credit risk. Current levels are minimal and their use is subject to the normal
credit approval process.
The Group enters into netting agreements for derivatives with certain counterparties, to ensure that in the event of default, all amounts
outstanding with those counterparties will be settled on a net basis. Derivative transactions with wholesale counterparties are typically
collateralised under a Credit Support Annex in conjunction with the ISDA Master Agreement.
The Group also has in place an interbank exposure policy which establishes the maximum exposure for each counterparty bank
depending on credit grade. Each bank is assessed for the appropriate exposure limit within the policy. Risk generating business units in
each segment are required to have an approved bank or country limit prior to granting any credit facility, or approving any obligation or
commitment which has the potential to create interbank or country exposure.
Collateral*
Collateral or guarantees are usually required as a secondary source of repayment in the event of the borrower’s default. Credit risk
mitigation includes the requirement to obtain collateral as set out in the Group’s policies and procedures. The Group maintains
guidelines on the acceptability of specific classes of collateral.
The principal collateral types for loans and receivables are:
– Charges over business assets such as premises, inventory and accounts receivables;
– Mortgages over residential and commercial real estate; and
– Charges over financial instruments such as debt securities and equities.
The nature and level of collateral required depends on a number of factors such as the type of the facility, the term of the facility and the
amount of exposure. Collateral held as security for financial assets other than loans and receivables is determined by the nature of the
instrument. Debt securities and treasury products are generally unsecured, with the exception of asset backed securities, which are
secured by a portfolio of financial assets.
Collateral is not usually held against loans and receivables to financial institutions, including central banks, except where securities are
held as part of reverse repurchase or securities borrowing transactions or where a collateral agreement has been entered into under a
master netting agreement. In accordance with the Group policy, collateral should always be valued by an appropriately qualified source
at the time of lending.
Methodologies for valuing collateral*
As property loans represent a significant concentration within the Group’s advances, some key principles have been applied in respect
of property collateral held by the Group. For impaired property exposures, cash flows will generally emanate from the development
and/or disposal of the assets which comprise the collateral held by the Group. The Group’s preference is to work with the obligor to
progress the realisation of the collateral although in some cases the Group will foreclose its security to protect its position. Banks
typically hold various types of collateral as security for these loans, e.g. land, developments available for sale/rent and investment
properties or a combination of these assets via cross collateralisation.
Where cash flows arising from the realisation of collateral held are included in impairment assessments, management typically rely on
valuations or business appraisals from independent external professionals. However, in accordance with the Group’s policy on
Collateral Valuation, the Group uses a number of methods to assist in reaching appropriate valuations for collateral held, given the
absence of a liquid market for non-prime property related assets in Ireland at present. These include:
– Consultations with valuers;
– Use of professional valuations;
– Use of internally developed residual value methodologies;
– The application of local knowledge in respect of the property and its location; and
– Use of internal guidelines. These are described below.
*Forms an integral part of the audited financial statements
76
3.1 Credit risk – Credit exposure
Methodologies for valuing collateral* (continued)
Consultations with valuers would represent circumstances where local external valuers are asked to give verbal ‘desk top’ updates on
their view of the assets value. This is a tactical view only and is not relied upon for risk assessment purposes. Consultation also takes
place on general market conditions to help inform the Group’s view on the particular property valuation. The valuers are external to the
Group and are familiar with the location and asset for which the valuation is being requested.
Use of professional valuations would represent circumstances where external firms are requested to provide formal written valuations in
respect of the property. Up to date external professional valuations are sought in circumstances where it is believed that sufficient
transactional evidence is available to support an expert objective view. Historic valuations are also used as benchmarks to compare
against current market conditions and assess peak to trough reductions. Available market indices for relevant assets, e.g. residential
and investment property are also used in valuation assessments.
The residual value methodology assesses the value in the land or property asset after meeting the incremental costs to complete the
development. This approach looks at the cost of developing the asset to determine the residual value for the Group, including covering
the costs to complete and additional funding costs. The key factors considered include: (i) the development potential given the location
of the asset; (ii) its current or likely near term planning status; (iii) levels of current and likely future demand; (iv) the relevant costs
associated with the completion of the project; and (v) expected market prices of completed units. If, following internal considerations
which may include consultations with valuers, it is concluded that the optimal value for the Group will be obtained through the
development/completion of the project; a residual value methodology is used. When, in the opinion of the Group, the land is not likely to
be developed or it is non-commercial to do so, agricultural/green field values may be applied. Alternative use value (subject to planning
permission) should also be considered.
Application of local market knowledge would represent circumstances where the local bank management familiar with the property
concerned and with local market conditions, and with knowledge of recent completed transactions would provide indications of the likely
realisable value and a potential timeline for realisation. In valuing investment property, yields are applied to current rentals having
considered current yields and estimated likely yields for a more normal market environment for relevant asset classes.
When assessing properties that are used for operational business or trading purposes, these are generally valued by applying a multiple
to stabilised EBITDA, e.g. hotels and nursing homes. For licensed premises, these are valued by applying a multiple to stabilised net
turnover (average over three years).
When assessing the value of residential properties, recent transactional analysis of comparable sales in the area combined with the
CSO Residential Property Price index are used.
Applying one or a combination of the above methodologies, in line with Group’s Valuation Policy, has resulted in a wide range of
discounts to original collateral valuations, influenced by the nature, status and year of purchase of the asset. The frequency, and
availability, of such up-to-date valuations remains a key factor within impairment provisions determination. Additionally, all relevant costs
likely to be associated with the realisation of the collateral are taken into account in the cash flow forecasts. The spread of discounts is
influenced by the type of collateral, e.g. land, developed land or investment property and also its location. The valuation arrived at is
therefore, a function of the nature of the asset, e.g. un-serviced land in a rural area will most likely suffer a greater reduction in value if
purchased at the height of a property boom than a fully let investment property with strong lessees. The discounts to original collateral
value, having applied the valuation methodologies to reflect current market conditions, can be as high as 95% for land assets where
values have been marked down to agricultural/green field site values.
When assessing the level of provision required for property loans, apart from the value to be realised from the collateral, other cash
flows, such as recourse to other assets or sponsor support, are also considered. The other key driver is the time it takes to receive the
funds from the realisation of collateral. While this depends on the type of collateral and the stage of its development, the period of time
to realisation is typically one to seven years but sometimes this time period is exceeded. These estimates are frequently reassessed on
a case by case basis.
In assessing the value of collateral for impaired mortgage loans in Ireland, the Group uses a peak to trough price decline of 55% as a
base. In certain circumstances, realisation costs of 10% to 20% are deducted.
*Forms an integral part of the audited financial statements
77
Risk management – 3. Individual risk types
3.1 Credit risk – Credit exposure
Collateral for the non-mortgage portfolio*
For non-mortgage lending, collateral is taken where available, and will typically include a charge over the business assets such as stock
and debtors. In some cases, a charge over property collateral or a personal guarantee supported by a lien over personal assets may
also be taken. Collateral is reviewed on a regular basis in accordance with credit policy.
The value of collateral is assessed at origination of the loan or in the case of criticised loans, when testing for impairment. However, as
the Group does not capture collateral values on its loan systems, it is not possible to quantify the fair value of collateral for non-impaired
loans on an on-going basis at portfolio level. It should be noted that when testing a loan for impairment, the present value of future cash
flows, including the value of collateral held, and the likely time taken to realise any security is estimated. A provision is raised for the
difference between this present value and the carrying value of the loan. Therefore, for non-mortgage impaired loans, the net exposure
after provision would be indicative of the fair value.
Collateral for the residential mortgage portfolio*
For residential mortgages, the Group takes collateral in support of lending transactions for the purchase of residential property.
Collateral valuations are required at the time of origination of each residential mortgage. The Group adjusts open market property
values to take account of the costs of realisation and any discount associated with the realisation of collateral. The fair value at
31 December 2013 is based on property values at origination or date of latest valuation and applying the CSO (Ireland) and Nationwide
(UK) indices to these values to take account of price movements in the interim.
Summary of risk mitigants by selected portfolios
Set out below are details of risk mitigants used by the Group in relation to financial assets detailed in the maximum exposure to credit
risk table on page 75.
Loans and receivables to customers – residential mortgages*
The following table shows the fair value of collateral held for the Group’s residential mortgage portfolio as at 31 December 2013 and
31 December 2012.
Neither past
due nor
impaired
€ m
Past due
but not
impaired
€ m
Impaired
2013
Total
€ m
€ m
Neither past
due nor
impaired
€ m
Past due
but not
impaired
€ m
Impaired
2012
Total
€ m
€ m
Fully collateralised(1)
Loan-to-value ratio:
Less than 50%
50% - 70%
71% - 80%
81% - 90%
91% - 100%
Partially collateralised
Collateral value relating to
4,630
4,176
2,786
2,708
2,752
17,052
241
239
148
163
173
964
395
514
413
465
606
5,266
4,929
3,347
3,336
3,531
4,282
4,083
2,451
2,771
2,682
2,393
20,409
16,269
204
218
133
156
160
871
316
419
320
369
505
4,802
4,720
2,904
3,296
3,347
1,929
19,069
loans over 100% loan-to-value
9,880
Total collateral value
Gross residential mortgages
26,932
29,688
779
1,743
1,993
4,774
15,433
7,167
35,842
9,083
40,764
12,011
28,280
32,318
866
4,254
17,131
1,737
2,073
6,183
36,200
8,130
42,521
Statement of financial position
specific provisions
Statement of financial position
IBNR provisions
Net residential mortgages
(3,333)
(3,333)
(2,699)
(2,699)
(619)
5,750
36,812
(507)
5,431
39,315
(1)The fair value of collateral held for residential mortgages which are fully collateralised has been capped at the carrying value of the loans outstanding at
each year end.
*Forms an integral part of the audited financial statements
78
3.1 Credit risk – Credit exposure
Derivatives*
Derivative financial instruments are shown on the statement of financial position at their fair value. Those with a positive fair value are
reported as assets which at 31 December 2013 amounted to € 1,629 million (2012: € 2,835 million) and those with negative fair value
are reported as liabilities which at 31 December 2013 amounted to € 1,960 million (2012: € 3,256 million).
The enforcement of netting agreements would potentially reduce the statement of financial position carrying amount of derivative assets
and liabilities by € 957 million (2012: € 1,539 million). The Group also has Credit Support Annexes (“CSAs”) in place which provide
collateral for derivative contracts. As at 31 December 2013, € 820 million (2012: € 1,260 million) of CSAs are included within financial
assets and € 188 million (2012: € 361 million) of CSAs are included within financial liabilities. Additionally, the Group has agreements in
place which may allow it to net the termination values of cross currency swaps upon occurrence of an event of default.
Loans and receivables to banks*
Interbank placings, including central banks, are largely carried out on an unsecured basis apart from reverse repurchase agreements. At
31 December 2013, the Group has received collateral with a fair value of € 16 million under reverse repurchase agreements with a
carrying value of € 16 million (2012: € 61 million and € 61 million respectively).
NAMA senior bonds*
NAMA senior bonds, which at 31 December 2013 have a carrying value of € 15,598 million (2012: € 17,387 million), are guaranteed by
the Irish Government as to principal and interest
Financial investments available for sale*
At 31 December 2013, government guaranteed senior bank debt which amounted to € 0.4 billion (2012: € 0.8 billion) was held within the
available for sale portfolio.
Credit risk management
Credit risk monitoring*
To manage credit risk effectively, the Group has developed and implemented processes and information systems to monitor and report
on individual credits and credit portfolios. It is the Group’s practice to ensure that adequate up to date credit management is available to
support the credit management of individual account relationships and the overall loan portfolio.
Credit risk, at a portfolio level is monitored and reported regularly to senior management and the Board Risk Committee. Credit
managers pro-actively manage the Group’s credit risk exposures at a transaction and relationship level. Monitoring is done via credit
exposure and excess management, regular review of accounts, being up to date with any developments in customer business,
obtaining updated financial information and monitoring of covenant compliance. This is reported on a monthly basis to senior
management and includes information and detailed commentary on loan book growth, quality of the loan book and loan impairment
provisions including individual large impaired exposures.
Changes in sectoral and single name concentrations are tracked on a quarterly basis highlighting changes to risk concentration in the
Group’s loan book. A report on any exceptions to credit policy is presented and reviewed on a monthly basis. The Group allocates
significant resources to ensure on-going monitoring and compliance with approved risk limits. Credit risk, including compliance with key
credit risk limits is reported monthly.
As a matter of policy, all facilities granted to corporate or wholesale customers are subject to a review on, at least, an annual basis, even
when they are performing satisfactorily. Annual review processes are supplemented by more frequent portfolio and case review
processes in addition to arrears or excess management processes. Once an account has been placed on a watch list, or early warning
list, the exposure is carefully monitored and where appropriate, exposure reductions are effected.
Criticised borrowers are tested for impairment at the time of annual review, or earlier, if there is a material adverse change or event in
their credit risk profile. In addition, assessment for impairment is required for all cases where borrowers are 90 days past due as a result
of payment arrears or on receipt of a forbearance request.
The Group operates a number of schemes to assist borrowers who are experiencing financial stress. The material elements of these
schemes through which the Group has granted a concession, whether temporarily or permanently are set out below. The Group
employs a dedicated approach to loan workout and to monitoring and proactively managing impaired loans. Specialised teams within
the Financial Solutions Group (“FSG”), focus on managing the majority of criticised loans. Specialist recovery functions deal with clients
in default, collection or insolvency. Their mandate is to maximise return on impaired debt and to support customers in difficulty. Whilst
the basic principles for monitoring weaknesses in corporate/commercial and retail exposures are broadly similar, they will reflect the
differing nature of the assets.
*Forms an integral part of the audited financial statements
79
Risk management – 3. Individual risk types
3.1 Credit risk – Credit risk management
Forbearance
The Group uses a range of tools to support customers. The Group considers requests from customers who are experiencing cash flow
difficulties on a case by case basis against their current and likely future financial circumstances and their willingness to resolve these
difficulties, taking into account legal and regulatory obligations. The Group has implemented the standards for the Codes of Conduct in
relation to customers in difficulty as set out by the Central Bank of Ireland ensuring these customers are dealt with in a professional and
timely manner.
A forbearance agreement is entered into where the customer is in financial difficulty to the extent that they are unable to repay both the
principal and interest in accordance with the original contract terms. Modifications to the original contract can be of a temporary
(e.g. interest only) or permanent (e.g. term extension) nature and a loan is considered to be no longer a forborne loan once the modified
terms and conditions have expired.
As we are still in the early stages of implementing advanced forbearance solutions, the sustainability of the individual forbearance
measures will be reviewed and assessed over time. The impact on provisioning will also be reviewed.
Mortgage portfolio
The Group has developed a Mortgage Arrears Resolution Strategy (“MARS”) for dealing with mortgage customers in difficulty or likely to
be in difficulty. This builds on and formalises the Group’s Mortgage Arrears Resolution Process.
The strategy is built on three key factors:
i) Segmentation – identifying customers in difficulty;
ii) Sustainability – customer assessment; and
iii) Suitable Treatment – identifying solutions.
The core objectives are to ensure that arrears solutions are sustainable in the long term and they comply with the spirit and the letter of
all regulatory requirements. MARS includes the following new longer-term forbearance solutions which have been devised to assist
existing Republic of Ireland primary residential mortgage customers in difficulty:
Split mortgages – a split mortgage will be considered where a customer can afford a mortgage but their income is not sufficient to fully
support their current mortgage. The existing mortgage is split into two parts: Loan A being the sustainable element, which is repaid on
the basis of principal and interest, and Loan B being the unsustainable element, which is deferred and becomes repayable at a later
date, this may also include an element of debt write-off;
Negative equity trade down – This allows a customer to sell their house and subsequently purchase a new property and transfer the
negative equity portion to a new loan secured on the new property. A negative equity trade down mortgage will be considered where a
customer will reduce monthly loan repayments and overall indebtedness by trading down to a property more appropriate to his/her
current financial and other circumstances;
Voluntary sale for loss – A voluntary sale for loss solution will be considered where the loan is deemed to be unsustainable and the
customer is agreeable to sell the property and put an appropriate agreement in place to repay any residual debt.
Non-mortgage portfolio
Business customers, following assessment of requests made, may also be provided with forbearance solutions which the Group
considers on a case by case basis. Typical types of forbearance being: the placing of the facility on an interest only basis; part
capital/interest basis for a period of time; extension of the facility term; split loans; and in some cases, a debt for equity swap or similar
structure. See accounting policy number 15 – Impairment of financial assets.
All forborne loans and those loans which have completed their period of forbearance and have returned to original terms and conditions
are managed and monitored in line with the relevant credit approval and review authorities framework.
The Group has also developed treatment strategies for customers in the non-mortgage portfolio who are experiencing financial
difficulties. The approach has been to develop strategies on an asset class basis, and to then apply those strategies at the customer
level to deliver a holistic debt management solution. This approach is based on customer affordability.
80
3.1 Credit risk – Credit risk management
Non-mortgage portfolio (continued)
The approach to dealing with customers in difficulty is based on core principles to ensure consistency in dealing with such customers.
Core principles are:
– Customers must be treated objectively and consistently;
– Customer circumstances and debt obligations must be viewed holistically; and
– Solutions will be provided where customers are cooperative, and are willing but unable to pay.
The over-arching principle is that the customer must be cooperating and fully engaging with the Group in order to be considered for
forbearance or a restructuring proposal. The approach is based on assessing the affordability level of the customer, and then applying
asset based treatment strategies to determine the long term levels of sustainable and unsustainable debt. This may result in debt
write-off where applicable.
Loan loss provisioning*
The Group’s provisioning policy requires for impairment to be recognised promptly and consistently across the different loan portfolios. A
financial asset is considered to be impaired, and therefore, its carrying amount is adjusted to reflect the effect of impairment, when there
is objective evidence that events have occurred which give rise to an adverse impact on the estimated future cash flows that can be
reliably estimated.
Impairment provisions are calculated on individual loans and receivables and on groups of loans assessed collectively. All exposures,
individually or collectively, are regularly reviewed for objective evidence of impairment. Impairment losses are recorded as charges to
the income statement. The carrying amount of impaired loans on the balance sheet is reduced through the use of impairment provision
accounts. Losses expected from future events are not recognised.
The identification of loans for assessment as impaired is facilitated by the Group’s credit rating systems. As described previously,
changes in the variables which drive the borrower’s credit rating may result in the borrower being downgraded. This in turn influences
the management of individual loans with special attention being paid to lower quality or criticised loans, i.e. in the Watch, Vulnerable or
Impaired categories. The credit rating of an exposure is one of the key factors used to determine if a case should be assessed for
impairment. Further examples of trigger events, that may lead to the initial recognition of impairment include:
Macroeconomic triggers
– National or local economic conditions that indicate a measurable decrease in estimated future cash flows of the loan asset class.
– A decrease in property prices.
– An adverse change in industry conditions.
Mortgage portfolio triggers
– A loan asset that is 90 days in arrears.
– A request for a forbearance measure from the borrower.
– Deterioration in the debt service capacity.
– A material decrease in rents received on a buy-to-let property.
Commercial real estate (“CRE”) portfolio triggers
– A loan asset that is 90 days in arrears.
– A request for a forbearance measure from the borrower.
–
–
A material decrease in the property value.
A material decrease in estimated future cash flows.
– The lack of an active market for the assets concerned.
– The absence of a market for refinancing options.
– A significant decline in the credit rating of the borrower.
Small Medium Enterprises (“SME”) portfolio triggers
– A loan asset that is 90 days in arrears.
– A request for a forbearance measure from the borrower
– Trading losses.
– Diversion of cash flows from earning assets to support non-earning assets.
– A material decrease in turnover or the loss of a major customer.
– A default or breach of contract.
– A significant decline in the credit rating of the borrower.
*Forms an integral part of the audited financial statements
81
Risk management – 3. Individual risk types
3.1 Credit risk – Credit risk management
Loan loss provisioning* (continued)
For those loans where objective evidence of impairment exists, impairment losses are determined considering the following
factors:
–
the Group’s aggregate exposure to the customer;
viability of the customer’s business model and their capacity to trade successfully out of financial difficulties and generate
sufficient cash flow to service debt obligations;
the amount and timing of expected receipts and recoveries;
likely dividend available on liquidation or bankruptcy;
the extent of other creditors’ commitments ranking ahead of, or pari passu with, the Group and the likelihood of other creditors
continuing to support the company;
the complexity of determining the aggregate amount and ranking of all creditor claims and the extent to which legal and
insurance uncertainties are evident;
the realisable value of security (or other credit mitigants) and likelihood of successful repossession;
the likely deduction of any costs involved in recovery of amounts outstanding; and
the ability of the borrower to obtain, and make payments in, the currency of the loan if not denominated in local currency.
–
–
–
–
–
–
–
–
Specific provisions
Specific impairment provisions arise when the recovery of a specific loan or group of loans is in doubt based on specific impairment
triggers as outlined above and an assessment that all the expected future cash flows either from the loan itself or from the associated
collateral will not be sufficient to repay the loan. The amount of the specific impairment provision is the difference between the present
value of expected future cash flows for the impaired loan(s) discounted at the original effective interest rate and the carrying value of the
loan(s).
When raising specific impairment provisions, AIB divides its impaired portfolio into two categories, namely Individually Significant and
Individually Insignificant.
The Individually Significant threshold is €/£ 500,000 by customer connection (threshold is € 750,000 for legacy EBS portfolio). The
calculation of an impairment charge for loans below the “significant” threshold is undertaken on a collective basis.
Individually significant (“IS”) loans and receivables
All loans that are considered individually significant are assessed on a case-by-case basis at each balance sheet date if there is any
objective evidence that a loan may be impaired. Assessment is based on ability to pay and collateral value. Collateral values are
assessed based on the AIB Group Property Valuation Guidelines as described on pages 76 to 78. Individually significant provisions are
calculated using discounted cash flows for each exposure. The cash flows are determined with reference to the individual characteristics
of each credit including an assessment of the cash flows that may arise from foreclosure less costs to sell in respect of obtaining and
selling any associated collateral. The time period likely to be required to realise the collateral and receive the cash flows is taken in
account in estimating the future cash flows and discounting these back to present value.
Individually insignificant (“II”) loans and receivables
Provisioning is assessed on a collective basis to estimate losses for homogeneous groups of loans that are considered individually
insignificant
Individually insignificant – Non mortgage portfolio
The calculation of an impairment charge for credits below the ‘significant’ threshold is undertaken on a collective basis. Loans are
grouped together in homogenous pools sharing common characteristics.
Recovery rates for non-mortgages are established for each pool by assessing the Group’s loss experience for these pools over the past
four years and by examining the amount and timing of cash flows received from the date the loan was identified as impaired. These
recovery rates are updated at a minimum on a yearly basis. Impairment provisions are then raised on new impaired loans and updated
on existing impaired loans, reflecting the Group’s updated recovery experience.
*Forms an integral part of the audited financial statements
82
3.1 Credit risk – Credit risk management
Loan loss provisioning* (continued)
Individually insignificant – Mortgage portfolio
The individually insignificant mortgage provisioning methodology applies to both owner occupier and buy-to-let exposures for customer
connections less than €/£ 500,000. In the legacy EBS portfolio, loans less than €750,000 and > 90 days past due are assessed on a
collective basis.
The Republic of Ireland Individually insignificant mortgage specific provisions are calculated using a collective mortgage provisioning
model. This methodology is based on the calculation of three possible resolution outcomes: cure; advanced forbearance with loss; and
repossession (forced and voluntary), with different loss rates associated with each. This replaces the existing two outcomes, reposses-
sion and cure. The methodology has been updated to reflect current data on loss history and portfolio development as well as
incorporating additional loss parameters assessed on restructuring outcomes. The UK mortgage portfolio continues to be calculated
based on a repossession basis.
The model parameters at 31 December 2013 for owner occupier mortgages are as follows: cure (4%); and repossession/advanced
forbearance (96%).
The corresponding buy-to-let model parameters are as follows: cure (1%); repossession/advanced forbearance (99%).
Cured loans are loans that were impaired and are no longer impaired and have performed satisfactorily for 12 months excluding any
impact from forbearance.
The modelled loss is calculated case by case by subtracting the net present value of the modelled recovery amount from the current
loan balance. The model parameters are determined from observed data where possible. Where not directly observable, related
measures are used to infer the parameter where possible; otherwise it is based on expert judgement. The relevant model parameters
include: % of forced disposals; costs and time to dispose (voluntary and forced); peak to trough price decline, loss rate on advanced
forbearance; and haircut on sale (voluntary and forced).
The model parameters are reviewed at a Group Credit Committee on a quarterly basis.
Most II and IS cases are individually assessed for impairment using information with regard to latest borrower status and all information
supporting the borrower position.
Incurred but not reported (“IBNR”) provisions
Individually assessed loans for which no evidence of loss has been specifically identified on an individual basis are grouped together
according to their credit risk characteristics for the purpose of calculating an estimated collective loss. This reflects impairment losses
that Group has incurred as a result of events occurring before the balance sheet date, which the Group is not able to identify on an
individual loan basis, and that can be reliably estimated. These losses will only be individually identified in the future. As soon as
information becomes available which identifies losses on individual loans within the group, those loans are removed from the group and
assessed on an individual basis for impairment.
IBNR provisions can only be recognised for incurred losses i.e. losses that are present in the portfolio at the reporting date and are not
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 the portfolio and to the credit environment at the reporting date.
IBNR provisions are maintained at levels that are deemed appropriate by management having considered and having taken into
account:
–
–
historical loss experience in portfolios of similar credit risk characteristics (for example, by sector, loan grade or product);
the estimated period between impairment occurring and the loss being identified and evidenced by the establishment of an
appropriate provision against the individual loan (emergence period);
– management’s experienced judgement as to whether current economic and credit conditions are such that the actual level of
inherent losses at the balance sheet date is likely to be greater or less than that suggested by historical experience; and
an assessment of higher risk portfolios, which include but are not limited to: non-impaired forborne mortgages ; loans graded with a
vulnerable credit rating; and loans > 90 days past due but not impaired.
–
*Forms an integral part of the audited financial statements
83
Risk management – 3. Individual risk types
3.1 Credit risk – Credit risk management
Loan loss provisioning* (continued)
Republic of Ireland residential mortgage portfolio – IBNR (unaudited)
The residential mortgage portfolio IBNR is calculated using the collective mortgage model as described above. The table below sets out
the parameters used in the calculation of IBNR for the mortgage portfolio:
Good upper
Good lower
Watch
Vulnerable
The above can be further analysed as follows:
Performing
Non-performing – non-impaired
The parameters for Cured and Forborne – non-impaired, are set out below.
As a result, these sub portfolios within the Republic of Ireland residential
mortgages carry a higher level of IBNR:
Cured
Forborne – non-impaired
Owner-occupier
Buy-to-let
Average
PD
%
Average
LGD
%
Average
PD
%
Average
LGD
%
2013
0.8
2.5
16.0
69.9
5.5
100.0
42.0
26.3
18.5
20.5
20.6
20.8
19.5
18.4
14.6
19.4
1.4
4.1
17.6
73.5
9.7
100.0
68.6
25.4
18.1
22.5
24.2
25.4
21.7
28.6
27.9
25.6
Average PD and LGD are based on the PDs and LGDs, weighted by the EAD for all owner-occupier and buy-to-let loans included in the
collective mortgage model. The mortgage provision model calculates individually insignificant specific provisions and IBNR run rate
provisions. Any additional IBNR as determined by management judgement is applied at a portfolio level and is not included in the
analysis above.
Non-performing, non-impaired loans in the table above, are defined as loans that are more than 90 days past due but not impaired.
*Forms an integral part of the audited financial statements
84
3.1 Credit risk – Credit risk management
Loan loss provisioning* (continued)
Emergence period
The emergence period is key to determining the level of IBNR provisions. Emergence periods are determined by assessing the time it
takes following a loss event for an unidentified impaired loan to be recognised as an impaired loan requiring a provision. Emergence
periods for each portfolio are determined by taking into account current credit management practices, historic evidence of assets
moving from ‘good’ to ‘bad’ and actual case studies.
Performing provisions assets are split into homogenous pools on the basis of similar risk characteristics. The asset pools are multiplied
by the “average annual loss rate” for that pool, suitably adjusted where appropriate for any factors currently affecting the portfolio, which
may not have been a feature in the past or vice versa. The resultant amount is then multiplied by the ‘Emergence Period’ for that pool to
arrive at the IBNR Collective Impairment Provision. Loss rates are updated half yearly and emergence periods for each pool of loans are
reviewed annually.
The range of emergence periods adopted by AIB for the non-mortgage portfolios is three to twelve months with the majority of the
portfolio having a six month emergence period applied, unchanged from 2012. For the year ended 31 December 2013, the emergence
period for the Republic of Ireland mortgage portfolio has moved from 6 months to 9 months resulting in an additional provision of
€ 168 million. The increase has been observed as more historical data has become available; particularly for the forbearance portfolio
and customer behaviour has been observed over a longer period of time.
Approval process
The Group operates an approval framework for impairment provisions which are approved, depending on amount, by various delegated
authorities and referred to Area Credit Committee level, as required. These committees are chaired by the Head of Credit in the
segments where the valuation/impairment is reviewed and challenged for appropriateness and adequacy. Impairments in excess of the
segment authorities are approved by the Group Credit Committee and Board (where applicable). Segment impairments and provisions
are ultimately reviewed by the Group Credit Committee as part of the quarterly process.
The valuation assumptions and approaches used in determining the impairment provisions required are documented and the resulting
impairment provisions are reviewed and challenged as part of the approval process by segment and Group senior management.
Write-offs
When the prospects of recovering a loan, either partially or fully, do not improve, a point will come when it will be concluded that as there
is no realistic prospect of recovery, the loan (and any related specific provision) will be written off. Where the loan is secured, the write-off
will take account of receipt of the net realisable value of security held.
Impact of changes to key assumptions and estimates on the impairment provisions
Management is required to exercise judgement in making assumptions and estimations when calculating loan impairment provisions on
both individually and collectively assessed loans and receivables. The most significant judgemental area is the calculation of collective
impairment provisions. They are subject to estimation uncertainty, in part because of the large number of individually insignificant loans
in the portfolio.
The methods involve the use of historical information which is supplemented with significant management judgement to assess whether
current economic and credit conditions are such that the actual level of inherent losses is likely to be greater or less than that suggested
by historical experience. In normal circumstances, historical experience provides the most objective and relevant information from which
to assess inherent loss within each portfolio, though sometimes it provides less relevant information about the inherent loss in a given
portfolio at the balance sheet date, for example, when there have been changes in economic, regulatory or behavioural conditions which
result in the most recent trends in portfolio risk factors not being fully reflected in the statistical models. In these circumstances, the risk
factors are taken into account by adjusting the impairment provisions derived solely from historical loss experience.
Risk factors include loan portfolio growth, product mix, unemployment rates, bankruptcy trends, geographical concentrations, loan
product features, economic conditions such as national and local trends in housing markets, the level of interest rates, portfolio
seasoning, account management policies and practices, changes in laws and regulations, and other influences on customer payment
patterns. The methodology and the assumptions used in calculating impairment losses are reviewed regularly in the light of differences
between loss estimates and actual loss experience. For example loss rates and the expected timing of future recoveries are
benchmarked against actual outcomes where available to ensure they remain appropriate.
*Forms an integral part of the audited financial statements
85
Risk management – 3. Individual risk types
3.1 Credit risk – Credit risk management
Loan loss provisioning* (continued)
Impact of changes to key assumptions and estimates on the impairment provisions (continued)
However, the exercise of judgement requires the use of assumptions which are highly subjective and very sensitive to the risk factors, in
particular to changes in economic and credit conditions across a large number of geographical areas.
Given the relative size of the Republic of Ireland mortgage portfolio, the key variables include peak to trough house price (which
determines the collateral value supporting loans in the mortgage portfolio) and cure rates (rates by which defaulted or delinquent
accounts are assumed to return to performing status).
A 1% favourable change in the cure rate used for the collective mortgage provisions would result in a reduction in provisions of 1.2%
(blended rate of buy-to-let/owner-occupier) of c. € 20 million.
The value of collateral is estimated by applying changes in house price indices to the original assessed value of the property. A 1%
change in the peak to trough assumption used for the collective mortgage provisions for December 2013 is estimated to result in
movements in provisions of c. € 40 million.
An increase in the assumed repossession rate of 1% for collective mortgage provisions will result in an increase in provisions of 0.3%
(blended rate of buy-to-let/owner-occupier) of c € 6 million.
In the Republic of Ireland mortgage portfolio, an increase of one month in the loss emergence period in respect of the loan portfolio
assessed for collective unimpaired provisions would result in an increase of € 54 million. For the United Kingdom, mortgage portfolio,
the impact would be £ 1 million.
In the Republic of Ireland non-mortgage portfolio, an increase of one month in the loss emergence period in respect of the loan portfolio
assessed for collective unimpaired provisions would result in an increase of € 45 million. For the United Kingdom the impact would be
£ 10 million.
For the € 12.4 billion or 43% of impaired loans for which automated cashflows are available, changes in cash-flow timing and interest
rate have the following impact;
–
–
If interest rates increased by 1%, this would result in an increase in provisions of € 127 million.
If anticipated cash receipt timelines moved out by 1 year, the impact on provisioning would be an increase of € 111 million.
Credit risk can also be affected by macro-economic factors such as increased interest rates, increased unemployment, lower consumer
spending, personal and corporate defaults/insolvency levels. The credit portfolio is also subjected to on-going stress testing and
scenario analysis. Events are modelled at a Group wide level, at a segment and business unit level and by rating model and portfolio.
Sensitivity analysis is the simple stressing of one risk driver to assess the Group’s sensitivity to that risk driver. A risk driver is defined as
an internal or external factor which has the potential to cause loss or damage to the Group e.g. macroeconomic risk drivers (GDP,
unemployment rate etc.) and specific credit risk drivers (shift in PDs).
*Forms an integral part of the audited financial statements
86
3.1 Credit risk – Credit profile of the loan portfolio
AIB Group’s customer loan portfolio comprises loans (including overdrafts), instalment credit and finance lease receivables. An
overdraft provides a demand credit facility combined with a current account. Borrowings occur when the customer's drawings take the
current account into debit. The balance may, therefore, fluctuate with the requirements of the customer. Although overdrafts are
contractually repayable on demand (unless a fixed term has been agreed), provided the account is deemed to be satisfactory, full
repayment is not generally demanded without notice.
The tables below show for the years ended 31 December 2013 and 31 December 2012 loans and receivables to customers by industry
sector including loans and receivables within disposal groups and non-current assets held for sale:
(i) Total loans and receivables to customers;
(ii) Impaired loans and receivables to customers; and
(iii) Provisions for impairment on loans and receivables to customers.
Total
2013
Total
Loans and
receivables
to
customers
Disposal
groups
and non-
current
assets held
for sale
€ m
–
28
–
–
–
–
–
–
–
–
–
Loans and
receivables
to
customers
€ m
1,798
259
1,503
19,710
6,870
963
648
5,657
40,764
4,291
360
82,823
(101)
74
Loans and receivables
to customers*
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal
Residential mortgages
Other
Lease financing
Gross loans and receivables
Unearned income
Deferred costs
Provisions for impairment
(17,083)
Total statement of
€ m
1,798
287
1,503
19,710
6,870
963
648
5,657
40,764
4,291
360
%
2.2
0.3
1.8
23.8
8.3
1.2
0.8
6.8
49.2
5.2
0.4
28
82,851
100.0
–
–
–
(101)
74
(17,083)
Disposal
groups
and non-
current
assets held
for sale
€ m
–
88
–
–
–
373
–
14
–
–
–
Total
2012
Total
€ m
1,781
463
1,625
%
2.0
0.5
1.8
22,251
24.8
7,790
1,174
785
6,327
42,521
4,698
457
8.7
1.3
0.9
7.0
47.3
5.2
0.5
475
89,872
100.0
–
–
(108)
89
€ m
1,781
375
1,625
22,251
7,790
801
785
6,313
42,521
4,698
457
89,397
(108)
89
(16,406)
(122)
(16,528)
financial position
65,713
28
65,741
72,972
353
73,325
Gross loans and receivables
analysed as to:
Neither past due nor impaired
50,326
Past due but not impaired
Impaired - provisions held
3,586
28,911
82,823
28
–
–
28
50,354
3,586
28,911
82,851
56,179
4,039
29,179
89,397
238
–
237
475
56,417
4,039
29,416
89,872
*Forms an integral part of the audited financial statements
87
Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
Impaired loans and receivables to customers*
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal
Residential mortgages
Other
Lease financing
Total
Provisions for impairment on
loans and receivables to customers*
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal
Residential mortgages
Other
Lease financing
Specific
IBNR
Total
Loans and
receivables
to
customers
€ m
338
66
391
13,154
3,026
156
230
917
9,083
1,423
127
28,911
Loans and
receivables
to
customers
€ m
250
35
241
8,114
1,831
109
134
634
3,333
1,092
125
15,898
1,185
17,083
Disposal
groups
and non-
current
assets held
for sale
€ m
–
–
–
–
–
–
–
–
–
–
–
–
Disposal
groups
and non-
current
assets held
for sale
€ m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2013
Total
€ m
338
66
391
13,154
3,026
156
230
917
9,083
1,423
127
Loans and
receivables
to
customers
€ m
334
36
472
13,804
3,442
120
245
1,026
8,130
1,431
139
Disposal
groups
and non-
current
assets held
for sale
€ m
–
–
–
–
–
237
–
–
–
–
–
2012
Total
€ m
334
36
472
13,804
3,442
357
245
1,026
8,130
1,431
139
28,911
29,179
237
29,416
2013
Total
€ m
250
35
241
8,114
1,831
109
134
634
3,333
1,092
125
15,898
1,185
17,083
Loans and
receivables
to
customers
€ m
233
29
300
7,681
2,013
93
168
650
2,699
1,064
133
15,063
1,343
16,406
Disposal
groups
and non-
current
assets held
for sale
€ m
–
–
–
–
–
122
–
–
–
–
–
122
–
122
2012
Total
€ m
233
29
300
7,681
2,013
215
168
650
2,699
1,064
133
15,185
1,343
16,528
The impact of the Group’s focus on working with customers to restructure the portfolio is starting to be seen, with the quantum of
impaired loans falling in 2013 by € 505 million (down 2%). The reduction reflects write offs, repayments and asset sales partly offset by
newly impaired loans.
Statement of financial position specific provisions of € 15.9 billion were held for the impaired book at 31 December 2013 and provided
cover of 55% compared to 52% at 31 December 2012. The provision cover increased due to loan repayments and top ups of existing
provisions.
Statement of financial position IBNR provisions of € 1.2 billion were held at 31 December 2013 compared to € 1.3 billion at
31 December 2012, with the decrease primarily due to improvements in credit processes and a reduction in performing loans, partly
off-set by an increase in emergence period for the Republic of Ireland mortgage portfolio.
*Forms an integral part of the audited financial statements
88
3.1 Credit risk – Credit profile of the loan portfolio
As outlined on pages 11 to 14, a new operating structure was implemented in 2013 and the Group’s operations are now reported under
the following segments: Domestic Core Bank (“DCB”); AIB UK; and Financial Solutions Group (“FSG”). Consequently, the full year to
December 2012 has been represented in the new operating structure.
The following table analyses loans and receivables to customers by segment showing asset quality and impairment provisions for the years
ended 31 December 2013 and 31 December 2012:
Gross loans and receivables
to customers*
DCB
€ m
AIB UK
€ m
FSG
€ m
2013
Total
€ m
32,966
7,798
40,764
4,291
19,710
13,779
4,307
DCB
€ m
AIB UK
€ m
FSG
€ m
31,584
3,331
34,915
2,322
2,973
4,974
3,275
2,482
324
2,806
396
2,477
3,198
–
101
4,699
4,800
1,980
16,801
7,073
1,882
2012
Total
€ m
34,167
8,354
42,521
4,698
22,251
15,245
5,157
30,714
3,817
34,531
2,318
2,772
4,637
3,268
2,252
361
2,613
432
5,208
4,302
905
–
3,620
3,620
1,541
11,730
4,840
134
47,526
13,460
21,865
82,851
48,459
8,877
32,536
89,872
Residential mortgages:
Owner-occupier
Buy-to-let
Other personal
Property and construction
SME/other commercial
Corporate
Total
Analysed as to asset quality
Satisfactory(1)
Watch(2)
Vulnerable(3)
Impaired(4)
Total criticised loans
Total loans percentage
Criticised loans/total loans
Impaired loans/total loans
Impairment provisions –
33,019
4,587
3,034
6,886
14,507
%
31
14
statement of financial position
€ m
Specific
IBNR
Total impairment provisions
Provision cover percentage
Specific provisions/impaired loans
Total provisions/impaired loans
Total provisions/total loans
Income statement – impairment
charge
Specific
IBNR
Total impairment charge
2,401
828
3,229
%
35
47
7
€ m
713
137
850
%
Impairment charge/average loans
1.74
41,040
36,871
11,588
3,097
7,048
1,481
1,251
3,680
6,412
%
48
27
€ m
2,070
132
2,202
%
56
60
16
€ m
254
(88)
166
%
1.18
973
718
1,829
18,345
20,892
%
96
84
6,786
6,114
28,911
41,811
%
50
35
€ m
€ m
11,427
225
15,898
1,185
11,652
17,083
%
62
64
53
€ m
1,091
(194)
897
%
3.97
%
55
59
21
€ m
2,058
(145)
1,913
%
2.24
4,546
1,903
5,139
%
24
11
€ m
1,564
624
2,188
%
30
43
5
€ m
655
(453)
202
%
0.39
5,780
1,282
976
839
%
35
9
€ m
385
151
536
%
46
64
6
€ m
161
(64)
97
%
4,550
1,192
3,356
23,438
27,986
%
86
72
47,201
7,020
6,235
29,416
42,671
%
47
33
€ m
€ m
13,236
568
15,185
1,343
13,804
16,528
%
56
59
42
€ m
2,940
(805)
2,135
%
%
52
56
18
€ m
3,756
(1,322)
2,434
%
2.57
1.06
6.30
(1)Satisfactory: credit which is not included in any of the criticised categories of Watch, Vulnerable and Impaired loans.
Criticised loans include:
(2)Watch: credit exhibiting weakness but with the expectation that existing debt can be fully repaid from normal cashflow.
(3)Vulnerable: credit where repayment is in jeopardy from normal cashflow and may be dependent on other sources.
(4)Impaired: a loan is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the
asset (a ‘loss event’) and that loss event (or events) has an impact such that the present value of future cash flows is less than the gross carrying value of
the financial asset or group of financial assets i.e. requiring a provision to be raised through the income statement.
*Forms an integral part of the audited financial statements
89
Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
The following summarises the key points affecting the credit profile of the loan portfolio:
– The income statement specific provision charge reduced by 45% to € 2.1 billion in 2013 due to continued signs of stabilisation in the
economic environment
– The impact of the Group’s focus on working with customers to restructure the portfolio is starting to be seen, with the quantum of
impaired loans falling in 2013 by € 505 million. The reduction reflects write-offs, repayments and asset sales partly offset by newly
impaired loans; and
– Although there have been positive indications that the Irish and Global economies are improving, challenging conditions remain in
particular the high level of existing debt within both business and households. This has resulted in both subdued demand for new
credit and has maintained the risk level in the performing portfolio at higher than normal levels.
The Group is predominantly Ireland and United Kingdom focused and most sectors continue to face challenging trading conditions as a
result of domestic economic performance, weak customer sentiment and public sector austerity measures. The Group has material
concentrations in residential mortgages, property and construction and SME with these sectors showing the most evident stress.
Loans and receivables to customers reduced by 7.8% to € 82.9 billion in 2013, due to the sale during the year of non-core assets as
well as amortisations exceeding demand for new credit from customers. Within loans and receivables, criticised loans decreased by a
smaller 2.0%, with downgrades into the criticised categories continuing in 2013, albeit at a slower rate than in 2012.
The property and construction portfolio amounted to 23.8% of total loans and receivables, or 17.1% of loans and receivables less
provisions. The portfolio is comprised of 65.9% investment loans (€ 13.0 billion), 29.9% land and development loans (€ 5.9 billion) and
4.2% other property and construction loans (€ 0.8 billion). There are signs that the investment market is recovering from very
depressed activity levels, with transactional activity in all sectors up year on year. Recovery is focussed in prime sectors at present with
lower levels of activity and illiquidity still observed in secondary locations. The weakness in secondary locations continues to impact on
the credit quality of the portfolio. Further detailed disclosures in relation to the property and construction portfolio are provided on
pages 121 to 123.
Residential mortgages amounted to 49.2% of total advances, or 56.0% of loans and receivables less provisions. The portfolio is mainly
located in the Republic of Ireland (93.6%) with most of the remainder located in Northern Ireland. The portfolio consists of 80.9%
owner-occupier loans and 19.1% buy-to-let. Decreases in household income over recent years and high levels of personal debt
continue to create stress within the portfolio. Some stabilisation of the portfolio in the Republic of Ireland has been observed in 2013,
with the rate at which customers moved into arrears slowing and the average monthly rate of impairment reduced by 40% compared to
2012. The Irish Central Statistics Office index of residential property prices provides evidence, especially in Dublin, of residential house
price increases. Overall LTVs in the Irish mortgage portfolio have improved due to price increases and amortisations. Further detailed
disclosures in relation to the Republic of Ireland mortgage portfolio are provided on pages 99 to 112 and the United Kingdom mortgage
portfolio on pages 113 to 119.
The SME/other commercial lending portfolio amounted to 16.6% of total loans and receivables, or 16.0% of loans and receivables less
provisions. The geographical split is 68.8% of advances in the Republic of Ireland and the remaining 31.2% in the United Kingdom. Key
sub-sectors within the SME portfolio are dependent on the domestic economies, in particular hotels, licensed premises, retail and other
services. There have been indications of stabilisation and modest improvements in this sector due to increased consumer confidence
and an improving employment market. However, challenging economic conditions remain and the level of indebtedness of customers in
this sector continues to impact on the financial management of these businesses. Further detailed disclosures in relation to the
SME/other commercial lending portfolio are provided on pages 124 to 125.
Gross loans and receivables to customers for the remaining portfolios consisted of € 4.3 billion in other personal loans and € 4.3 billion
to corporate borrowers. These portfolios are profiled in more detail on pages 120 and 126 respectively.
Statement of financial position specific provisions of € 15.9 billion were held for the impaired book at 31 December 2013 and provided
cover of 55% compared to 52% at 31 December 2012. The provision cover increased due to loan repayments and top ups of existing
provisions.
90
3.1 Credit risk – Credit profile of the loan portfolio
Statement of financial position IBNR provisions of € 1.2 billion were held at 31 December 2013 compared to € 1.3 billion at
31 December 2012, with the decrease primarily due to improvements in credit processes and a reduction in performing loans, partly
off-set by an increase in emergence period for the Republic of Ireland mortgage portfolio. The IBNR provision level of 2.2% of
performing loans is in line with the level at 31 December 2012. The outcomes of independent reviews of certain higher risk portfolios
helped to inform management’s view of the incurred loss remaining in the performing book. It was also influenced by the level of
arrears, requests for forbearance, levels of watch and vulnerable loans and continued improvements in credit processes.
The income statement provision charge for loans and receivables was € 1.9 billion or 2.24% of average customer loans compared with
€ 2.4 billion or 2.57% in 2012. The provision charge comprised of € 2.1 billion in specific provisions and a release of IBNR provisions of
€ 0.1 billion (31 December 2012: € 3.8 billion in specific provisions and a release of IBNR provisions of € 1.3 billion). The specific
provisions reduced by 45% in 2013 driven by significantly lower impairments during 2013.
The table on the following page profiles the asset quality of the Group’s loans and receivables as at 31 December 2013 and
31 December 2012. Profiles of past due but not impaired loans are detailed on pages 93 and 94 and impaired loans are detailed on
page 95.
91
Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
The following table profiles the asset quality of the Group’s loans and receivables as at 31 December 2013 and 31 December 2012.
Total provisions for impairment
(3,952)
(1,147)
Gross loans and receivables less provisions
36,812
3,144
11,272
10,540
4,000
65,768
Asset quality*
Neither past due nor impaired
Past due but not impaired
Impaired – provisions held
Gross loans and receivables
Specific provisions
IBNR provisions
Unearned income
Deferred costs
Net loans and receivables
Asset quality*
Neither past due nor impaired
Past due but not impaired
Impaired – provisions held
Gross loans and receivables
Specific provisions
IBNR provisions
Residential
mortgages
€ m
Other Property and
construction
€ m
personal
€ m
29,688
1,993
9,083
40,764
(3,333)
(619)
2,535
333
1,423
4,291
(1,092)
(55)
SME/other Corporate
commercial
€ m
8,442
562
4,775
€ m
3,791
40
476
13,779
4,307
2013
Total
€ m
50,354
3,586
28,911
82,851
(3,131)
(108)
(3,239)
(228)
(79)
(307)
(15,898)
(1,185)
(17,083)
5,898
658
13,154
19,710
(8,114)
(324)
(8,438)
Residential
mortgages
€ m
Other
personal
€ m
Property and
construction
€ m
SME/other Corporate
commercial
€ m
€ m
32,318
2,073
8,130
42,521
(2,699)
(507)
2,902
365
1,431
4,698
(1,064)
(75)
7,554
893
13,804
22,251
(7,681)
(423)
(8,104)
9,309
688
5,248
4,334
20
803
15,245
5,157
(3,256)
(240)
(3,496)
(485)
(98)
(583)
(101)
74
65,741
2012
Total
€ m
56,417
4,039
29,416
89,872
(15,185)
(1,343)
(16,528)
Total provisions for impairment
(3,206)
(1,139)
Gross loans and receivables less provisions
39,315
3,559
14,147
11,749
4,574
73,344
Unearned income
Deferred costs
Net loans and receivables
(108)
89
73,325
Profiles of past due but not impaired loans are detailed on page 93 and 94, impaired loans are detailed on page 95 and provisions are
detailed on pages 96 and 97.
Gross Loans and receivables to customers reduced by 7.8% to € 82.9 billion in 2013, due to the sale during the year of non-core assets
as well as amortisations exceeding demand for new credit from customers. The quantum of impaired loans and days past due but not
impaired both decreased in 2013, but because of the decrease in the total for gross loans, as a % the total of neither past due nor
impaired has decreased to 61%, down from 63% as at 31 December 2012.
*Forms an integral part of the audited financial statements
92
3.1 Credit risk – Credit profile of the loan portfolio
Aged analysis of contractually past due but not impaired gross loans and receivables to customers*
Industry sector
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal
Residential mortgages
Credit cards
Other
Segment
DCB
AIB UK
FSG
As a percentage of
total gross loans
Industry sector
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal
Residential mortgages
Credit cards
Other
Segment
DCB
AIB UK
FSG
As a percentage of
total gross loans
1–30 days
€ m
31–60 days
€ m
62
1
21
210
71
7
11
90
857
33
122
1,485
1,141
154
190
1,485
%
1.79
13
1
4
61
13
1
2
11
391
9
22
528
414
45
69
528
%
0.64
1–30 days
€ m
31–60 days
€ m
61–90 days 91–180 days 181–365 days
€ m
€ m
€ m
17
–
1
48
18
–
–
18
280
6
18
406
282
57
67
406
%
0.49
15
1
5
64
20
2
2
16
245
4
44
418
245
55
118
418
%
0.50
11
–
4
119
37
1
3
13
144
1
27
360
151
43
166
360
%
0.43
61–90 days 91–180 days 181–365 days
€ m
€ m
€ m
55
6
19
210
80
7
4
70
1,013
39
75
1,578
1,171
85
322
1,578
%
1.8
9
–
4
101
34
5
2
25
451
11
32
674
409
64
201
674
%
0.7
16
–
2
66
28
1
8
17
248
9
40
435
255
32
148
435
%
0.5
13
1
4
174
46
15
6
21
208
5
48
541
212
72
257
541
%
0.6
16
–
7
187
45
1
2
33
91
1
47
430
162
21
247
430
%
0.5
> 365 days
€ m
34
1
20
156
32
3
1
19
76
–
47
389
109
25
255
389
%
0.47
> 365 days
€ m
30
1
5
155
42
3
1
24
62
–
58
381
80
19
282
381
%
0.4
2013
Total
€ m
152
4
55
658
191
14
19
167
1,993
53
280
3,586
2,342
379
865
3,586
%
4.33
2012
Total
€ m
139
8
41
893
275
32
23
190
2,073
65
300
4,039
2,289
293
1,457
4,039
%
4.5
*Forms an integral part of the audited financial statements
93
Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
Aged analysis of contractually past due but not impaired gross loans and receivables to customers* (continued)
The figures reported are inclusive of overdrafts, bridging loans and cases with expired limits.
Loans past due but not impaired were reduced by € 0.5 billion to 4.3% of total loans and receivables to customers (31 December 2012:
€ 4.0 billion or 4.5%).
Residential mortgage loans past due but not impaired at € 2.0 billion represent 56% of the total past due but not impaired loans
(31 December 2012: € 2.1 billion represent 51%) largely driven by decreases in household income and high debt levels. The level of
residential mortgage loans in early arrears (less than 30 days) has decreased by 15% in 2013, due to active management of early
arrears cases and the improving economic environment. Property and construction loans past due but not impaired represent a further
18% or € 0.7 billion (31 December 2012: 22% or € 0.9 billion) of total loans past due but not impaired, with other personal at 9% or
€ 0.3 billion (31 December 2011: 9% or € 0.4 billion).
*Forms an integral part of the audited financial statements
94
3.1 Credit risk – Credit profile of the loan portfolio
Impaired loans for which provisions are held
The following table shows impaired loans which are assessed for impairment either individually or collectively with the relevant specific
impairment provisions:
Gross loans
and
receivables
€ m
Impaired loans
Individually Collectively
assessed
assessed
Total
% of
total loans
€ m
€ m
€ m
Retail
Residential mortgages
Other personal lending
Total retail
Commercial
Property and construction
SME/commercial
Total commercial
Corporate
Total
Specific impairment provisions
at 31 December 2013
40,764
4,291
45,055
19,710
13,779
33,489
4,307
82,851
Specific provision cover percentage
4,104
866
4,970
12,668
4,054
16,722
476
22,168
4,979
557
5,536
486
721
1,207
–
9,083
1,423
10,506
13,154
4,775
17,929
476
6,743
28,911
12,875
3,023
15,898
%
58
%
45
%
55
22
33
23
67
35
54
11
35
Gross loans
and
receivables
€ m
Impaired loans
Individually Collectively
assessed
assessed
Total
% of
total loans
€ m
€ m
€ m
Retail
Residential mortgages
Other personal lending
Total retail
Commercial
Property and construction
SME/commercial
Total commercial
Corporate
Total
Specific impairment provisions
at 31 December 2012
42,521
4,698
47,219
22,251
15,245
37,496
5,157
89,872
Specific provision cover percentage
3,888
863
4,751
13,306
4,559
17,865
803
23,419
4,242
568
4,810
498
689
1,187
–
8,130
1,431
9,561
13,804
5,248
19,052
803
5,997
29,416
12,515
2,670
15,185
%
53
%
45
%
52
19
30
20
62
34
51
16
33
2013*
Specific impairment
provisions
% of
impaired
loans
Total
€ m
3,333
1,092
4,425
8,114
3,131
11,245
228
15,898
37
77
42
62
66
63
48
55
2012*
Specific impairment
provisions
% of
impaired
loans
Total
€ m
2,699
1,064
3,763
7,681
3,256
10,937
485
15,185
33
74
39
56
62
57
60
52
Statement of financial position specific provisions of € 15.9 billion were held for the impaired book at 31 December 2013 and provided
cover of 55% compared to 52% at 31 December 2012. The provision cover increased due to top ups of existing provisions and loan
repayments.
*Forms an integral part of the audited financial statements
95
Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
Movements on impairment provisions
The following table sets out the movements on the Group impairment provisions for the years ended 31 December 2013 and
31 December 2012:
At 1 January
Exchange translation adjustments
Transfers
Charge against income statement
Amounts written off
Disposals
Recoveries of amounts written off in previous years
Provisions on loans and receivables returned by NAMA
At 31 December
Total provisions are split as follows:
Specific
IBNR
Amounts include:
Loans and receivables to banks (note 24)
Loans and receivables to customers (note 25)
Loans and receivables of disposal groups and
non-current assets held for sale (note 21)
2013*
Total
€ m
16,532
(76)
(14)
1,916
(1,134)
(136)
2
–
17,090
15,905
1,185
17,090
7
17,083
–
17,090
2012*
Total
€ m
14,945
47
34
2,434
(673)
(263)
4
4
16,532
15,189
1,343
16,532
4
16,406
122
16,532
Provisions – income statement
The following table analyses the income statement impairment provision charge/(credit) split between individually significant, individually
insignificant and IBNR for loans and receivables for the years ended 31 December 2013 and 31 December 2012:
Specific provisions – Individually significant loans and receivables
– Individually insignificant loans and receivables
IBNR
Total provisions for impairment charge on loans
and receivables to customers
Provisions for impairment charge on loans and receivables to banks
Provisions charge for liabilities and commitments
Provisions for impairment charge on financial investments available for sale
Total
Specific provisions
IBNR
Total provisions for impairment charge on loans and
receivables to customers
Provisions for impairment charge on loans and receivables to banks
Provisions charge for liabilities and commitments
Provisions for impairment charge on financial investments available for sale
Total
DCB
€ m
279
434
137
850
AIB UK
€ m
206
48
(88)
166
FSG
€ m
973
118
(194)
897
DCB
€ m
655
(453)
AIB UK
€ m
161
(64)
FSG
€ m
2,940
(805)
202
97
2,135
2013*
Total
€ m
1,458
600
(145)
1,913
3
17
(9)
1,924
2012
Total
€ m
3,756
(1,322)
2,434
–
9
86
2,529
Further details of movements in provisions for loans and receivables are set out in the 5 year summary table on page 139.
*Forms an integral part of the audited financial statements
96
3.1 Credit risk – Credit profile of the loan portfolio
Provisions – income statement
The following table analyses the income statement provision charge/(credit) for the years ended 31 December 2013 and 31 December
2012:
DCB
AIB UK
FSG
Total
Residential
mortgages
€ m
679
(9)
143
813
Residential
mortgages
€ m
Other
€ m
Other
€ m
171
175
754
2013*
Total
€ m
850
166
897
1,100
1,913
749
1,685
2012*
Total
€ m
202
97
2,135
2,434
The following table analyses by segment the impairment provision charge/(credit) as a percentage of average loans expressed as basis
points (“bps”) for the years ended 31 December 2013 and 31 December 2012:
DCB
AIB UK
FSG
Total
Residential
mortgages
bps
195
(34)
384
197
Other
2013*
Total
bps
122
154
400
249
bps
174
118
397
224
Residential
mortgages
bps
Other
bps
170
331
2012*
Total
bps
39
106
630
257
The income statement provision charge for loans and receivables was € 1.9 billion or 2.24% of average customer loans compared with
€ 2.4 billion or 2.57% in 2012. The provision charge was comprised of € 2.1 billion in specific provisions and a release of IBNR
provisions of € 145 million (31 December 2012: € 3.8 billion in specific provisions and a release of IBNR provisions of € 1.3 billion). The
specific provisions reduced by 45% in 2013 driven by significantly lower impairments during 2013.
The 2013 income statement provision charge of € 850 million in DCB comprises a specific charge of € 713 million and an IBNR charge
of € 137 million. This compares to an income statement provision charge of € 202 million for 2012 which included a release of IBNR
provision of € 453 million.
The specific provision charge increased by € 58 million in 2013, with a lower level of new impairments off-set by an increase in the
mortgage cover rate as a result of changes in assumptions to reflect current data on loss history and portfolio development as well as
incorporating additional loss parameters assessed on restructuring outcomes.
The IBNR charge of € 137 million in 2013 was mainly due to an increase in the Republic of Ireland mortgage emergence period from
6 months to 9 months. This compares to a write back of € 453 million in 2012 where IBNR provisions previously held were subsequently
provided for within specific provisions raised during 2012.
The provision charge in FSG reduced by € 1.2 billion driven by significantly lower impairments in 2013.
The provision charge in AIB UK increased by € 0.1 billion and reflects continued pressure on the property and construction sector in the
UK, and while there have been signs of improvement in prime markets, the secondary markets remain relatively illiquid.
*Forms an integral part of the audited financial statements
97
Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
Loans and receivables to customers – Residential mortgages*
Residential mortgages amounted to € 40.8 billion at 31 December 2013. This compares to € 42.5 billion at 31 December 2012. The split
of the residential mortgage book was owner-occupier € 33.0 billion (31 December 2012: € 34.2 billion) and buy-to-let € 7.8 billion
(2012: € 8.3 billion). The income statement impairment charge for 2013 was € 0.8 billion or 2.0% of average residential mortgages,
comprising € 0.7 billion specific charge and a € 0.1 billion IBNR charge (2012: € 0.7 billion or 1.70% of average residential mortgages,
comprising € 1.1 billion specific charge and a release of IBNR of € 0.4 billion). Statement of financial position provisions of € 3.9 billion
were held at 31 December 2013, split € 3.3 billion specific and € 0.6 billion IBNR (2012: € 3.2 billion, split € 2.7 billion specific and
€ 0.5 billion IBNR).
This section provides the following information in relation to residential mortgages:
Republic of Ireland residential mortgages – pages 99 to 112
– Credit profile
– Origination profile
–
Loan-to-value profile:
Actual and weighted average indexed loan-to-value ratios of residential mortgages
Loan-to-value ratios of residential mortgages (index linked) that were neither past due nor impaired
Loan-to-value ratios of residential mortgages (index linked) that were greater than 90 days past due and/or impaired
– Credit quality profile
– Residential mortgages which were past due but not impaired
– Residential mortgages which were impaired
– Residential mortgages subject to forbearance measures
– Repossessions
United Kingdom (“UK”) residential mortgages – pages 113 to 119
– Credit profile
– Origination profile
–
Loan-to-value profile:
Actual and weighted average indexed loan-to-value ratios of UK residential mortgages
Loan-to-value ratios of UK residential mortgages (index linked) that were neither past due nor impaired
Loan-to-value ratios of UK residential mortgages (index linked) that were greater than 90 days past due and/or impaired
– Credit quality profile
– UK residential mortgages which were past due but not impaired
– UK residential mortgages which were impaired
– Repossessions
*Forms an integral part of the audited financial statements
98
Risk management – 3. Individual risk types
3.1 Credit risk - Credit profile of the loan portfolio (continued)
Loans and receivables to customers – Republic of Ireland residential mortgages
The following table analyses the Republic of Ireland residential mortgage portfolio by segment showing impairment provisions for the years ended 31 December 2013 and 31 December 2012:
Owner-
occupier
€ m
30,714
DCB
Buy-to-let
€ m
3,817
5,943
5,395
5,130
1,657
443
%
32.3
€ m
440
123
563
775
729
673
266
103
%
39.4
€ m
84
32
116
Total
€ m
34,531
6,718
6,124
5,803
1,923
546
%
33.1
€ m
524
155
679
Owner-
occupier
€ m
–
–
–
–
–
–
%
–
€ m
–
–
–
FSG
Buy-to-let
€ m
3,620
3,110
3,069
2,985
Total
€ m
3,620
3,110
3,069
2,985
Owner-
occupier
€ m
30,714
5,943
5,395
5,130
Total
Buy-to-let
€ m
7,437
3,885
3,798
3,658
2013*
Total
€ m
38,151
9,828
9,193
8,788
1,281
1,281
1,657
1,547
3,204
46
46
443
149
592
%
42.9
€ m
138
5
143
%
42.9
€ m
138
5
143
%
32.3
€ m
440
123
563
%
42.3
€ m
222
37
259
%
36.5
€ m
662
160
822
Statement of financial position
Total gross residential mortgages
In arrears (>30 days past due)(1)
In arrears (>90 days past due)(1)
Of which impaired
Statement of financial position
specific provisions
Statement of financial position
IBNR provisions
Provision cover percentage
Specific provisions/impaired loans
Income statement
Income statement specific provisions
Income statement IBNR provisions
Total impairment provisions
(1)Includes all impaired loans whether past due or not.
*Forms an integral part of the audited financial statements
9
9
9
9
1
0
0
Risk management – 3. Individual risk types
3.1 Credit risk - Credit profile of the loan portfolio (continued)
Loans and receivables to customers – Republic of Ireland residential mortgages (continued)
Statement of financial position
Total gross residential mortgages
In arrears (>30 days past due)(1)
In arrears (>90 days past due)(1)
Of which impaired
Statement of financial position
specific provisions
Statement of financial position
IBNR provisions
Provision cover percentage
Specific provisions/impaired loans
Income statement
Income statement specific provisions
Income statement IBNR provisions
Total impairment provisions
(1)Includes all impaired loans whether past due or not.
Owner-
occupier
€ m
31,584
DCB
Buy-to-let
€ m
3,331
5,224
4,702
4,523
1,224
322
%
27.1
144
121
92
30
43
%
32.6
Total
€ m
34,915
5,368
4,823
4,615
1,254
365
%
27.2
Owner-
occupier
€ m
–
–
–
–
–
–
%
–
FSG
Buy-to-let
€ m
4,616
3,438
3,342
3,241
Total
€ m
4,616
3,438
3,342
3,241
Owner-
occupier
€ m
31,584
5,224
4,702
4,523
Total
Buy-to-let
€ m
7,947
3,582
3,463
3,333
2012
Total
€ m
39,531
8,806
8,165
7,856
1,335
1,335
1,224
1,365
2,589
69
69
322
112
434
%
41.2
%
41.2
%
27.1
€ m
519
(63)
456
%
41.0
€ m
551
(276)
275
%
33.0
€ m
1,070
(339)
731
3.1 Credit risk – Credit profile of the loan portfolio
Loans and receivables to customers – Republic of Ireland residential mortgages (continued)
Residential mortgages in the Republic of Ireland (managed in the DCB and FSG segments) amounted to € 38.1 billion at 31 December
2013 compared to € 39.5 billion at 31 December 2012, the decrease relating to loan repayments in the period which exceeded the
demand for credit. The split of the residential mortgage portfolio was 81% owner-occupier and 19% buy-to-let and comprised 41%
tracker rate, 51% variable rate and 8% fixed rate mortgages.
Residential mortgages continue to be impacted by the adverse economic environment which, although improved in 2013 in comparison
to previous years, continues to impact household incomes and repayment capacity. Residential mortgage arrears continued to increase
during the year; however, the rate of increase slowed significantly in the second half of the year and there was a notable decrease in
loans in early arrears (less than 90 days past due) over the same period. Total loans in arrears greater than 90 days past due at 13.0%
at 31 December 2013 have increased, but remain below the industry average of 14.0% at 31 December 2013(1). This is a continuation of
the trend observed over the last number of years, with comparative levels at 10.4% at 31 December 2012 and 11.6% at 30 June 2013.
For the owner-occupier book, loans in arrears greater than 90 days were also below industry average at 31 December 2013 at 11.1%
compared to 12.6% for the industry at 31 December 2013, whilst for the buy-to-let book, loans greater than 90 days past due at 24.0%
at 31 December 2013 exceeded the 31 December 2013 industry average of 21.1%. The total amount of repayments overdue on
residential mortgages was € 1.0 billion at the year end compared to € 0.8 billion at 31 December 2012.
Included in the residential mortgage loan portfolio is € 5.0 billion of loans which were subject to forbearance measures at 31 December
2013 (31 December 2012: € 5.8 billion), of which € 2.9 billion was impaired (31 December 2012: € 3.0 billion). The decrease in the
portfolio subject to forbearance in comparison to that at 31 December 2012 is reflective of the Group’s strategy to ensure the
forbearance solutions agreed with customers are sustainable in the long term. The immediate impact of this strategy has been a
reduction in short-term solutions which will be replaced with more sustainable solutions over time. The stock of interest only forbearance
loans has reduced by €1.7 billion or 53% during the 2013. This strategy has contributed to the increase in arrears observed during the
year.
Just over half of the total residential mortgage portfolio was in negative equity at the year end (31 December 2012: 56%) caused by the
decrease in house prices since their peak in 2007; however, the quantum of negative equity in the book reduced from € 6.0 billion at
31 December 2012 to € 4.6 billion at 31 December 2013, reflecting the increase in residential property prices in Ireland during 2013 and
loan amortisation.
Total owner-occupier and buy-to-let impaired loans increased from € 7.9 billion at 31 December 2012 to € 8.8 billion at 31 December
2013, an increase of € 0.9 billion. The pace of increase in impaired loans decreased significantly in 2013 in comparison to 2012.
Similarly, the movement of loans into impairment in the second half of 2013 was lower in comparison to the first half of the year.
Statement of financial position specific provisions of € 3.2 billion were held for the impaired portfolio at 31 December 2013 and provided
cover of 36.5% compared to 33.0% at 31 December 2012 driven by changes in mortgage model assumptions to reflect current data on
loss history and portfolio development, as well incorporating additional loss parameters assessed on restructuring outcomes. The 55%
peak-to-trough house price decline assumption used in the calculation of collective provisions remains unchanged based on the Group’s
assessment of property market conditions and liquidity, despite some evidence of increases in property prices in 2013 in certain areas.
This assumption will be reassessed in 2014. Statement of financial position IBNR provisions of € 0.6 billion were held at 31 December
2013 compared to € 0.4 billion at 31 December 2012, with the increase primarily due to a change in the emergence period in use in the
calculation of the IBNR provisions from 6 months to 9 months as discussed on page 85.
The income statement specific provision charge for 2013 was € 0.6 billion compared to € 1.1 billion for 2012, with the decrease being
driven primarily by significantly lower impairments during 2013. The income statement IBNR charge for 2013 was € 0.2 billion compared
to a release of IBNR of € 0.4 billion for 2012.
Statement of financial position specific provisions of € 1.0 billion were held against the forborne impaired portfolio of € 2.9 billion
providing cover of 35.3%. In relation to the performing forborne portfolio of € 2.1 billion, of which € 0.9 billion is on an interest only
arrangement or an arrangement to repay amounts greater than interest only, statement of financial position IBNR provisions of
€ 0.2 billion were held at 31 December 2013.
Information on the provisioning policies and methodologies employed in the identification of loans for assessment as impaired is set out
in accounting policy number 15 ‘Impairment of financial assets’.
(1)Source: Central Bank of Ireland (“CBI”) Residential Mortgage Arrears and Repossessions Statistics as at 31 December 2013, based on numbers of
accounts.
101
Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
Residential mortgages by year of origination
The following table profiles the Republic of Ireland total residential mortgage portfolio and impaired residential mortgage portfolio by year
of origination at 31 December 2013 and 31 December 2012:
Republic of Ireland
1996 and before
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Total
2013*
2012*
Total
Number
Balance
€ m
Impaired
Number Balances
€ m
7,812
3,131
3,851
5,547
6,589
7,179
11,210
15,670
21,425
29,435
37,137
35,944
34,075
23,045
15,877
4,839
6,934
5,863
189
87
144
236
357
484
945
1,575
2,576
4,080
6,307
6,334
6,066
3,578
2,419
737
1,116
921
1,083
379
534
729
902
978
1,596
2,562
3,686
5,821
8,660
8,624
6,827
2,632
821
96
18
–
37
15
26
52
72
89
183
348
612
1,117
2,003
1,965
1,580
512
153
20
4
–
Total
Impaired
Number
Balance
€ m
9,436
3,398
4,562
6,017
7,081
7,627
11,847
16,957
22,190
30,375
38,113
36,623
34,983
23,693
16,308
4,960
7,024
–
237
106
170
277
412
538
1,053
1,732
2,769
4,362
6,652
6,670
6,312
3,776
2,553
782
1,130
–
Number
1,074
367
502
670
801
882
1,426
2,309
3,204
5,148
7,529
7,435
5,824
2,104
610
74
–
–
Balance
€ m
37
15
25
48
68
82
169
322
556
1,029
1,806
1,741
1,388
432
120
18
–
–
275,563
38,151
45,948
8,788
281,194
39,531
39,959
7,856
The majority (€ 22.8 billion or 60%) of the € 38.1 billion residential mortgage book originated between 2005 and 2008, of which 29%
(€ 6.7 billion) was impaired at 31 December 2013 driven by reduced household income and increased unemployment in the last number
of years, and reflecting the decrease in property prices since their peak in 2007. 17% of the residential mortgage portfolio originated
before 2005 of which 22% was impaired at 31 December 2013, while the remaining 23% of the portfolio was originated since 2009 of
which 8% was impaired at 31 December 2013.
*Forms an integral part of the audited financial statements
102
3.1 Credit risk – Credit profile of the loan portfolio
The property values used in the completion of the following loan-to-value tables are determined with reference to the original or most
recent valuation, indexed to the Central Statistics Office (“CSO”) Residential Property Price Index. The CSO Residential Property Price
Index for November 2013 reported that national residential property prices were 46% lower than their highest level in early 2007 and
reported an annual increase in residential property prices of 6% in the year to 30 November 2013.
Actual and weighted average indexed loan-to-value ratios of residential mortgages
The following table profiles the Republic of Ireland residential mortgage portfolio by the indexed loan-to-value ratios and the weighted
average indexed loan-to-value ratios at 31 December 2013 and 31 December 2012:
Republic of Ireland
Less than 50%
50% to 70%
71% to 80%
81% to 90%
91% to 100%
101% to 120%
121% to 150%
Greater than 150%
Owner-occupier
€ m
%
4,130
3,834
2,660
2,589
2,765
5,319
5,553
3,864
13.4
12.5
8.7
8.4
9.0
17.3
18.1
12.6
Total
Weighted average indexed loan-to-value(1):
Stock of residential mortgages at year end
New residential mortgages issued during year
Impaired residential mortgages
30,714
100.0
98.9
72.2
124.6
Republic of Ireland
Less than 50%
50% to 70%
71% to 80%
81% to 90%
91% to 100%
101% to 120%
121% to 150%
Greater than 150%
Total
Weighted average indexed loan-to-value(1):
Stock of residential mortgages at year end
New residential mortgages issued during year
Impaired residential mortgages
Owner-occupier
€ m
%
3,783
3,612
2,189
2,516
2,480
5,438
6,264
5,302
12.0
11.4
6.9
8.0
7.9
17.2
19.8
16.8
31,584
100.0
Buy-to-let
2013*
Total
%
8.0
9.0
6.1
6.8
7.8
16.5
22.3
23.5
€ m
4,727
4,504
3,114
3,092
3,347
6,548
7,211
5,608
%
12.4
11.8
8.1
8.1
8.8
17.2
18.9
14.7
100.0
38,151
100.0
119.0
61.6
137.5
Buy-to-let
Total
%
6.6
8.1
5.4
6.2
7.5
15.7
21.9
28.6
€ m
4,306
4,255
2,621
3,006
3,073
6,686
8,006
7,578
102.8
71.9
130.0
2012*
%
10.9
10.8
6.6
7.6
7.8
16.9
20.2
19.2
100.0
39,531
100.0
€ m
597
670
454
503
582
1,229
1,658
1,744
7,437
€ m
523
643
432
490
593
1,248
1,742
2,276
7,947
105.8
76.8
129.7
125.6
60.2
144.9
109.8
76.5
136.1
(1)Weighted average indexed loan-to-values are the individual indexed loan-to-value calculations weighted by the mortgage balance against each property.
48% of the total owner-occupier and 62% of the total buy-to-let mortgages were in negative equity at 31 December 2013, compared to
54% and 66% respectively at 31 December 2012. The weighted average indexed loan-to-value for the total residential mortgage book
was 102.8% at 31 December 2013 compared to 109.8% at 31 December 2012, with the reduction driven primarily by the increase in
property prices in 2013, coupled with amortisation of the loan book.
*Forms an integral part of the audited financial statements
103
Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio (continued)
Loan-to-value ratios of residential mortgages (index linked) that were neither past due nor impaired
The following table profiles the Republic of Ireland residential mortgage portfolio that was neither past due nor impaired by the indexed
loan-to-value ratios at 31 December 2013 and 31 December 2012:
Republic of Ireland
Less than 50%
50% to 70%
71% to 80%
81% to 90%
91% to 100%
101% to 120%
121% to 150%
Greater than 150%
Total
Republic of Ireland
Less than 50%
50% to 70%
71% to 80%
81% to 90%
91% to 100%
101% to 120%
121% to 150%
Greater than 150%
Total
Owner-occupier
Buy-to-let
2013*
Total
€ m
3,673
3,321
2,295
2,187
2,278
4,217
3,956
2,105
%
15.3
13.8
9.5
9.1
9.5
17.5
16.5
8.8
€ m
451
469
293
315
322
586
628
394
%
13.0
13.6
8.5
9.1
9.3
16.9
18.2
11.4
€ m
4,124
3,790
2,588
2,502
2,600
4,803
4,584
2,499
%
15.0
13.8
9.4
9.1
9.4
17.5
16.7
9.1
24,032
100.0
3,458
100.0
27,490
100.0
Owner-occupier
Buy-to-let
2012*
Total
€ m
3,401
3,173
1,890
2,182
2,091
4,520
4,794
3,464
%
13.3
12.4
7.4
8.6
8.2
17.7
18.8
13.6
€ m
412
482
310
341
378
691
828
786
%
9.8
11.4
7.3
8.1
8.9
16.3
19.6
18.6
€ m
3,813
3,655
2,200
2,523
2,469
5,211
5,622
4,250
%
12.8
12.3
7.4
8.5
8.3
17.5
18.9
14.3
25,515
100.0
4,228
100.0
29,743
100.0
The proportion of residential mortgages that was neither past due nor impaired and in negative equity at 31 December 2013 decreased
in comparison to 31 December 2012, reflecting the increases in residential property prices in the period, coupled with amortisation of the
loan book. 43% of residential mortgages that were neither past due nor impaired were in negative equity at 31 December 2013
compared to 51% at 31 December 2012.
*Forms an integral part of the audited financial statements
104
3.1 Credit risk – Credit profile of the loan portfolio
Loan-to-value ratios of residential mortgages (index linked) that were greater than 90 days past due and/or impaired
The following table profiles the Republic of Ireland residential mortgage portfolio that was greater than 90 days past due and/or impaired
by the indexed loan-to-value ratios at 31 December 2013 and 31 December 2012:
Owner-occupier
Buy-to-let
Total
2013*
Total
residential
mortgage
portfolio
€ m
324
386
275
300
366
859
1,317
1,568
5,395
%
6.0
7.1
5.1
5.6
6.8
15.9
24.4
29.1
100.0
€ m
129
181
147
177
240
609
989
1,326
3,798
%
3.4
4.8
3.9
4.7
6.3
16.0
26.0
34.9
100.0
€ m
453
567
422
477
606
1,468
2,306
2,894
9,193
%
4.9
6.2
4.6
5.2
6.6
16.0
25.1
31.4
€ m
4,727
4,504
3,114
3,092
3,347
6,548
7,211
5,608
%
12.4
11.8
8.1
8.1
8.8
17.2
18.9
14.7
100.0
38,151
100.0
Owner-occupier
Buy-to-let
Total
2012*
Total
residential
mortgage
portfolio
€ m
252
301
208
237
299
684
1,153
1,567
4,701
%
5.4
6.4
4.4
5.0
6.4
14.6
24.5
33.3
100.0
€ m
93
141
105
128
193
523
851
1,430
3,464
%
2.7
4.0
3.0
3.7
5.6
15.1
24.6
41.3
100.0
€ m
345
442
313
365
492
1,207
2,004
2,997
8,165
%
4.2
5.5
3.8
4.5
6.0
14.8
24.5
36.7
€ m
4,306
4,255
2,621
3,006
3,073
6,686
8,006
7,578
%
10.9
10.8
6.6
7.6
7.8
16.9
20.2
19.2
100.0
39,531
100.0
Republic of Ireland
Less than 50%
50% to 70%
71% to 80%
81% to 90%
91% to 100%
101% to 120%
121% to 150%
Greater than 150%
Total
Republic of Ireland
Less than 50%
50% to 70%
71% to 80%
81% to 90%
91% to 100%
101% to 120%
121% to 150%
Greater than 150%
Total
The proportion of residential mortgages that was greater than 90 days past due and/or impaired and in negative equity at 31 December
2013 (73%) decreased in comparison to 31 December 2012 (76%), reflecting the increases in residential property prices in the period.
Credit quality profile of residential mortgages
The following table profiles the asset quality of the Republic of Ireland residential mortgage portfolio as at 31 December 2013 and
31 December 2012:
Republic of Ireland
Neither past due nor impaired
Past due but not impaired
Impaired - provisions held
Gross residential mortgages
Provisions for impairment
Owner-
occupier
€ m
24,032
1,552
5,130
30,714
(2,100)
28,614
Buy-to-let
€ m
3,458
321
3,658
7,437
(1,696)
5,741
2013*
Total
€ m
27,490
1,873
8,788
38,151
(3,796)
34,355
Owner-
occupier
€ m
25,515
1,546
4,523
31,584
(1,546)
30,038
Buy-to-let
€ m
4,228
386
3,333
7,947
(1,477)
6,470
2012*
Total
€ m
29,743
1,932
7,856
39,531
(3,023)
36,508
*Forms an integral part of the audited financial statements
105
Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
Residential mortgages which were past due but not impaired
Residential mortgages are assessed for impairment if they are past due, typically, for more than ninety days or if the borrower exhibits
an inability to meet its obligations to the Group based on objective evidence of loss events (“impairment triggers”) such as a request for
a forbearance measure. Loans are deemed impaired where the carrying value of the asset is shown to be in excess of the present value
of future cashflows, and an appropriate provision is raised. Where loans are not deemed to be impaired, they are collectively assessed
as part of the IBNR provision calculation.
The following table profiles the Republic of Ireland residential mortgage portfolio that was past due but not impaired at 31 December 2013
and 31 December 2012:
Republic of Ireland
1 - 30 days
31 - 60 days
61 - 90 days
91 - 180 days
181 - 365 days
Over 365 days
Total past due but not impaired
Total gross residential mortgages
Owner-
occupier
€ m
739
324
224
165
72
28
1,552
30,714
Buy-to-let
€ m
94
49
38
62
46
32
321
7,437
2013*
Total
€ m
833
373
262
227
118
60
Owner-
occupier
€ m
845
334
188
120
42
17
1,873
38,151
1,546
31,584
Buy-to-let
€ m
137
77
42
65
38
27
386
7,947
2012*
Total
€ m
982
411
230
185
80
44
1,932
39,531
The amount of loans past due but not impaired at 31 December 2013 decreased marginally in comparison to 31 December 2012, driven
by a decrease in loans in arrears for less than 90 days.
Residential mortgages which were impaired
The following table profiles the Republic of Ireland residential mortgage portfolio that was impaired at 31 December 2013 and 31 December
2012:
Republic of Ireland
Not past due
1 - 30 days
31 - 60 days
61 - 90 days
91 - 180 days
181 - 365 days
Over 365 days
Total impaired
Owner-
occupier
€ m
686
173
146
152
615
916
2,442
5,130
Total gross residential mortgages
30,714
Buy-to-let
€ m
873
165
126
125
308
494
1,567
3,658
7,437
2013*
Total
€ m
1,559
338
272
277
923
1,410
4,009
8,788
Owner-
occupier
€ m
782
193
158
145
558
815
1,872
4,523
38,151
31,584
Buy-to-let
€ m
1,025
170
153
102
292
447
1,144
3,333
7,947
2012*
Total
€ m
1,807
363
311
247
850
1,262
3,016
7,856
39,531
Impaired loans increased by € 0.9 billion in 2013. However, the pace of increase in impaired loans slowed significantly in 2013 in
comparison to 2012, driven by an improved economic environment, including an increase in private rents and increases in residential
property values. Of the residential mortgage portfolio that was impaired at 31 December 2013, € 1.6 billion or 18% was not past due
(31 December 2012: € 1.8 billion or 23%), of which € 0.8 billion (31 December 2012: € 1.1 billion) was subject to forbearance measures
at 31 December 2013 and were deemed to be impaired as part of their assessment for a forbearance solution.
*Forms an integral part of the audited financial statements
106
3.1 Credit risk – Credit profile of the loan portfolio
Forbearance – residential mortgages
The Group has developed a Mortgage Arrears Resolution Strategy (“MARS”) for dealing with mortgage customers in difficulty or likely to
be in difficulty, which builds on and formalises the Group’s Mortgage Arrears Resolution Process. The core objectives of MARS are to
ensure that arrears solutions are sustainable in the long term and that they comply with the spirit and the letter of all regulatory
requirements. MARS includes long-term forbearance solutions which have been devised to assist existing Republic of Ireland primary
residential mortgage customers in difficulty. Further details on MARS are set out on page 80.
The Group has a number of forbearance strategies in operation to assist borrowers who have difficulty in meeting repayment
commitments. These are described on page 80.
The following table analyses the movements in the stock of loans subject to forbearance by (i) owner-occupier, (ii) buy-to-let and
(iii) total residential mortgages at 31 December 2013 and 31 December 2012:
Republic of Ireland owner-occupier
At 1 January
Additions
Expired arrangements
Payments
Interest
Closed accounts(1)
Other movements
At 31 December
Republic of Ireland buy-to-let
At 1 January
Additions
Expired arrangements
Payments
Interest
Closed accounts(1)
Other movements
At 31 December
Republic of Ireland – Total
At 1 January
Additions
Expired arrangements
Payments
Interest
Closed accounts(1)
Other movements
At 31 December
Number
2013*
Balance
€ m
22,248
6,873
(8,706)
–
–
(521)
(46)
3,544
981
(1,463)
(107)
35
(35)
(3)
Number
22,611
7,810
(7,533)
–
–
(483)
(157)
2012*
Balance
€ m
3,775
1,224
(1,337)
(107)
50
(36)
(25)
19,848
2,952
22,248
3,544
Number
2013*
Balance
€ m
Number
9,655
2,845
(3,281)
–
–
(451)
157
2012*
Balance
€ m
2,355
680
(722)
(59)
22
(68)
25
2,233
459
(612)
(73)
14
(26)
3
1,998
8,925
2,233
8,925
2,061
(2,577)
–
–
(146)
46
8,309
Number
2013*
Balance
31,173
8,934
(11,283)
–
–
(667)
–
€ m
5,777
1,440
(2,075)
(180)
49
(61)
–
Number
32,266
10,655
2012*
Balance
€ m
6,130
1,904
(10,814)
(2,059)
–
–
(934)
–
(166)
72
(104)
–
28,157
4,950
31,173
5,777
(1)Accounts closed during year due primarily to customer repayments and redemptions.
The stock of loans subject to forbearance measures decreased by € 0.8 billion in 2013 (2012: decrease of € 0.4 billion) due to the expiry
of short-term forbearance arrangements (mainly periods of interest only) which were not matched by new arrangements in the period.
This reduction reflects the immediate impact of the Group’s strategy to ensure the forbearance solutions agreed with customers are
sustainable in the long term. Consequently, while the number of expired arrangements was similar for each year, fewer arrangements
were granted in 2013 compared to 2012.
*Forms an integral part of the audited financial statements
107
Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
Residential mortgages subject to forbearance measures by type of forbearance
The following table further analyses by type of forbearance, (i) owner-occupier, (ii) buy-to-let and (iii) total residential mortgages that
were subject to forbearance measures in the Republic of Ireland at 31 December 2013 and 31 December 2012:
Republic of Ireland owner-occupier
Interest only
Reduced payment (greater than interest only)
Payment moratorium
Arrears capitalisation
Term extension
Split mortgages
Other(1)
Total forbearance
Republic of Ireland buy-to-let
Interest only
Reduced payment (greater than interest only)
Payment moratorium
Arrears capitalisation
Term extension
Split mortgages
Other(1)
Total forbearance
Republic of Ireland – Total
Interest only
Reduced payment (greater than interest only)
Payment moratorium
Arrears capitalisation
Term extension
Split mortgages
Other(1)
Total forbearance
(1)Mainly comprise ‘voluntary sale for loss’ solutions.
Total
Number
Balance
€ m
Loans > 90 days
in arrears and/or
impaired
Number Balance
€ m
4,189
1,661
352
7,067
6,233
236
110
694
350
54
1,150
657
35
12
1,771
980
113
4,555
989
162
75
320
238
16
805
108
23
6
2013*
Loans neither > 90
days in arrears
nor impaired
Number
Balance
€ m
2,418
681
239
2,512
5,244
74
35
374
112
38
345
549
12
6
19,848
2,952
8,645
1,516
11,203
1,436
Total
Number
Balance
€ m
Loans > 90 days
in arrears and/or
impaired
Number Balance
€ m
3,276
1,157
110
2,926
810
–
30
844
258
23
758
112
–
3
2,196
721
80
2,606
143
–
22
620
166
17
701
23
–
3
2013*
Loans neither > 90
days in arrears
nor impaired
Number
Balance
€ m
1,080
224
436
30
320
667
–
8
92
6
57
89
–
–
8,309
1,998
5,768
1,530
2,541
468
Total
Number
Balance
€ m
7,465
2,818
462
9,993
7,043
236
140
1,538
608
77
1,908
769
35
15
Loans > 90 days
in arrears and/or
impaired
Number Balance
€ m
3,967
1,701
193
7,161
1,132
162
97
940
404
33
1,506
131
23
9
2013*
Loans neither > 90
days in arrears
nor impaired
Number
Balance
€ m
3,498
1,117
269
2,832
5,911
74
43
598
204
44
402
638
12
6
28,157
4,950
14,413
3,046
13,744
1,904
*Forms an integral part of the audited financial statements
108
3.1 Credit risk – Credit profile of the loan portfolio
Forbearance – residential mortgages (continued)
Republic of Ireland owner-occupier
Interest only
Reduced payment (greater than interest only)
Payment moratorium
Arrears capitalisation
Term extension
Other
Total forbearance
Republic of Ireland buy-to-let
Interest only
Reduced payment (greater than interest only)
Payment moratorium
Arrears capitalisation
Term extension
Other
Total forbearance
Republic of Ireland – Total
Interest only
Reduced payment (greater than interest only)
Payment moratorium
Arrears capitalisation
Term extension
Other
Total forbearance
Total
Number
Balance
€ m
10,669
1,857
1,852
838
3,139
5,735
15
387
127
571
598
4
Loans > 90 days
in arrears and/or
impaired
Number
Balance
€ m
4,368
877
350
2,071
686
8
866
229
58
408
63
2
2012*
Loans neither > 90
days in arrears
nor impaired
Number
Balance
€ m
6,301
975
488
1,068
5,049
7
991
158
69
163
535
2
22,248
3,544
8,360
1,626
13,888
1,918
Total
Number
Balance
€ m
5,371
1,396
957
79
1,800
718
–
224
19
488
106
–
Loans > 90 days
in arrears and/or
impaired
Number
Balance
€ m
3,176
518
47
1,484
91
–
939
129
12
427
17
–
2012*
Loans neither > 90
days in arrears
nor impaired
Number
Balance
€ m
2,195
457
439
32
316
627
–
95
7
61
89
–
8,925
2,233
5,316
1,524
3,609
709
2012*
Total
Loans > 90 days
in arrears and/or
impaired
Loans neither > 90
days in arrears
nor impaired
Number
Balance
€ m
16,040
3,253
2,809
917
4,939
6,453
15
611
146
1,059
704
4
Number
7,544
1,395
397
3,555
777
8
Balance
€ m
1,805
358
70
835
80
2
Number
8,496
1,414
520
1,384
5,676
7
Balance
€ m
1,448
253
76
224
624
2
31,173
5,777
13,676
3,150
17,497
2,627
As noted previously, the stock of loans subject to forbearance measures decreased by € 0.8 billion in 2013, driven by the Group’s
strategy to ensure the forbearance solutions agreed with customers are sustainable in the long term. In particular, the stock of interest
only forbearance loans reduced by 53% to € 1.5 billion in 2013.
The majority of the loans subject to forbearance measures at 31 December 2013 were loans on which arrears have been capitalised
(39% of the total forbearance stock) and loans which have been granted term extensions (16% of the total forbearance stock). These
loans remain within the stock of forbearance for a period of 5 years.
The increase in the stock of loans on arrears capitalisation in 2013 includes some customers whose interest only arrangement had
expired at 31 December 2013 but who received a capitalisation of arrears at some time over the last 5 years.
*Forms an integral part of the audited financial statements
109
Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
Forbearance – residential mortgages (continued)
Residential mortgages subject to forbearance measures – past due but not impaired
All loans that are assessed for a forbearance solution are tested for impairment either individually or collectively, irrespective of whether
such loans are past due or not. Where the loans are deemed not to be impaired, they are collectively assessed as part of the IBNR
provision calculation.
The following table profiles the Republic of Ireland residential mortgage portfolio that was subject to forbearance measures and which was
past due but not impaired at 31 December 2013 and 31 December 2012:
Republic of Ireland
1 - 30 days
31 - 60 days
61 - 90 days
91 - 180 days
181 - 365 days
Over 365 days
Total past due but not impaired
Owner-
occupier
€ m
Buy-to-let
€ m
154
70
53
55
34
14
380
22
13
11
22
14
13
95
2013*
Total
€ m
176
83
64
77
48
27
Owner-
occupier
€ m
176
96
58
53
23
9
Buy-to-let
€ m
36
20
15
25
12
13
475
415
121
2012*
Total
€ m
212
116
73
78
35
22
536
Whilst the amount of loans subject to forbearance and past due decreased in 2013 in line with the decrease in the stock of loans subject
to forbearance measures, there was a marginal increase in the proportion of the portfolio past due but not impaired from 9% at
31 December 2012 to 10% at 31 December 2013, driven by an increase in loans in arrears for more than 90 days.
Residential mortgages subject to forbearance measures – impaired
The following table profiles the Republic of Ireland residential mortgage portfolio that was subject to forbearance measures and which was
impaired at 31 December 2013 and 31 December 2012:
Republic of Ireland
Not past due
1 - 30 days
31 - 60 days
61 - 90 days
91 - 180 days
181 - 365 days
Over 365 days
Total impaired
Owner-
occupier
€ m
331
98
72
64
205
246
397
Buy-to-let
€ m
439
78
62
63
143
217
479
2013*
Total
€ m
770
176
134
127
348
463
876
Owner-
occupier
€ m
475
117
88
61
209
249
342
Buy-to-let
€ m
575
97
90
57
154
217
284
2012*
Total
€ m
1,050
214
178
118
363
466
626
1,413
1,481
2,894
1,541
1,474
3,015
Whilst the amount of impaired loans subject to forbearance decreased in 2013 in line with the decrease in the stock of loans subject to
forbearance measures, there was an increase in the proportion of the portfolio that was impaired from 52% at 31 December 2012 to
58% at 31 December 2013, driven by an increase in impaired loans in arrears for more than 90 days. The proportion of forborne
impaired loans that were not past due decreased from 35% at 31 December 2012 to 27% at 31 December 2013. Statement of financial
position specific provisions of € 1.0 billion were held against the forborne impaired book at 31 December 2013, providing cover of
35.3%, while the income statement specific provision charge was € 0.2 billion for 2013.
*Forms an integral part of the audited financial statements
110
3.1 Credit risk – Credit profile of the loan portfolio
Forbearance – residential mortgages (continued)
Residential mortgages subject to forbearance measures by indexed loan-to-value ratios
The following table profiles the Republic of Ireland residential mortgage portfolio that was subject to forbearance measures by the
indexed loan-to-value ratios at 31 December 2013 and 31 December 2012:
Republic of Ireland
Less than 50%
50% – 70%
71% - 80%
81% - 90%
91%- 100%
101% - 120%
121% - 150%
Greater than 150%
Total forbearance
Owner-
occupier
€ m
334
336
230
223
237
508
614
470
Buy-to-let
€ m
74
107
91
117
142
326
523
618
2,952
1,998
2013*
Total
€ m
408
443
321
340
379
834
1,137
1,088
4,950
Owner-
occupier
€ m
313
341
231
245
274
568
796
776
Buy-to-let
€ m
74
111
86
96
143
353
510
860
3,544
2,233
2012*
Total
€ m
387
452
317
341
417
921
1,306
1,636
5,777
The degree of negative equity in the residential mortgage portfolio in the Republic of Ireland that was subject to forbearance measures
at 31 December 2013 has reduced to 54% of the owner-occupier and 73% of the buy-to-let mortgages compared to 60% and 77%
respectively at 31 December 2012, due primarily to the increase in property prices in 2013.
*Forms an integral part of the audited financial statements
111
Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
Republic of Ireland residential mortgages – repossessions(1)
For the purpose of the following tables, a property is considered repossessed when legal title has transferred to AIB. AIB seeks to avoid
repossession through working with customers, but where agreement cannot be reached, proceeds to repossession of the property or the
appointment of a fixed asset receiver, using external agents to realise the maximum value as soon as is practicable. Where the Group
believes that the proceeds of sale of a repossessed property will comprise only part of the recoverable amount of the loan against which
it was being held as security, the customer remains liable for the outstanding balance and the remaining loan continues to be recognised
on the statement of financial position.
The number (stock) of repossessions as at 31 December 2013 and 31 December 2012 is set out below:
Owner-occupier
Buy-to-let
Total
Stock of
2013*
Balance
repossessions outstanding
€ m
28
15
104
56
160
43
Stock of
repossessions
80
53
133
2012*
Balance
outstanding
€ m
23
15
38
(1)The number of repossessed residential properties presented relates to those held as security for residential mortgages only.
The increase in the stock of repossessed properties in 2013 relates to 119 properties repossessed in the Republic of Ireland in the
period, partly offset by the disposal of 92 properties in the period and a transfer of 4 properties from the buy-to-let book to the owner-
occupier book during the period. The majority of repossessions were by way of voluntary surrender or abandonment of the property.
Republic of Ireland residential mortgages – repossessions disposed of
The following table analyses the disposals of repossessed properties for the years ended 31 December 2013 and 31 December 2012:
Number of Outstanding Gross sales
proceeds
balance at
disposals
repossession
on
disposal
date
€ m
€ m
67
25
92
19
8
27
6
3
9
Number of
disposals
Outstanding
balance at
repossession
date
€ m
Gross sales
proceeds
on
disposal
€ m
44
17
61
13
8
21
5
3
8
Costs
to
sell
€ m
1
–
1
Costs
to
sell
€ m
1
–
1
Loss on
sale(1)
2013*
Average
loan-to-
value at
sale price %
€ m
14
5
19
277
279
278
Loss on
sale(1)
2012*
Average
loan-to-
value at
sale price %
€ m
9
5
14
244
324
269
Owner-occupier
Buy-to-let
Total
Owner-occupier
Buy-to-let
Total
(1)Before specific impairment provisions.
During the year ended 31 December 2013, the disposal of 92 residential properties in the Republic of Ireland, resulted in a total loss on
sale of € 19 million compared to 2012 when 61 residential properties were disposed of, resulting in a total loss of € 14 million. Losses on
the sale of repossessed properties are recognised in the income statement as part of the specific provision charge.
*Forms an integral part of the audited financial statements
112
3.1 Credit risk – Credit profile of the loan portfolio
United Kingdom (“UK”) residential mortgages
The following table analyses the UK residential mortgage portfolio showing impairment provisions for the years ended 31 December 2013
and 31 December 2012:
Statement of financial position
Total gross residential mortgages
In arrears (>30 days past due)(1)
In arrears (>90 days past due)(1)
Of which impaired
Statement of financial position specific provisions
Statement of financial position IBNR provisions
Provision cover percentage
Specific provisions/impaired loans
Income statement
Income statement specific provisions
Income statement IBNR provisions
Total impairment provisions
(1)Includes all impaired loans whether past due or not.
Owner-
occupier
€ m
2,252
325
295
243
99
24
%
40.6
€ m
26
(8)
18
Buy-to-let
€ m
361
66
60
52
30
3
%
58.5
€ m
8
(35)
(27)
2013*
Total
€ m
2,613
391
355
295
129
27
%
43.8
€ m
34
(43)
(9)
Owner-
occupier
€ m
2,583
319
270
230
88
61
%
38.3
€ m
36
(28)
8
Buy-to-let
€ m
407
65
56
44
22
12
%
50.0
€ m
12
(2)
10
2012*
Total
€ m
2,990
384
326
274
110
73
%
40.1
€ m
48
(30)
18
The level of loans greater than 90 days in arrears and/or impaired increased to 13.6% at 31 December 2013 from 10.9% at
31 December 2012, reflecting the continued impact of the current economic climate on borrowers’ repayment capacity. Statement of
financial position specific provisions of € 129 million were held at 31 December 2013 and provided cover of 44% (31 December 2012:
€ 110 million providing cover of 40%). IBNR statement of financial position provisions of € 27 million were held at 31 December 2013,
down from € 73 million at 31 December 2012, reflecting management’s view of incurred loss in the performing book.
*Forms an integral part of the audited financial statements
113
Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
United Kingdom residential mortgages by year of origination
The following table profiles the United Kingdom total residential mortgage portfolio and impaired residential mortgage portfolio by year of
origination at 31 December 2013 and 31 December 2012:
United Kingdom
1996 and before
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Total
Total
Impaired
Total
Impaired
Number
Balance
€ m
Number
Balance
€ m
Number
Balance
€ m
Number
Balance
€ m
2013*
2012*
244
53
66
195
202
2,923
1,216
1,753
2,252
3,036
4,663
5,194
2,397
1,100
544
300
273
401
13
2
4
9
12
86
71
122
177
292
529
714
312
111
53
26
30
50
1
–
2
–
1
116
47
117
139
282
484
656
174
47
15
6
2
–
–
–
–
–
–
4
2
12
12
29
71
123
30
10
1
1
–
–
335
62
93
242
230
3,285
1,317
1,955
2,421
3,218
4,891
5,515
2,627
1,205
605
324
288
–
17
2
5
12
15
104
84
145
213
333
600
820
373
136
65
32
34
–
2
–
1
–
–
126
47
118
135
268
443
523
135
32
8
3
–
–
–
–
–
–
–
4
3
13
14
32
73
102
23
8
1
1
–
–
26,812
2,613
2,089
295
28,613
2,990
1,841
274
The majority (€ 1.8 billion or 71%) of the € 2.6 billion residential mortgage book in the UK originated between 2005 and 2008, of which
14% (€ 0.3 billion) was impaired at 31 December 2013 driven by reduced household income and increased unemployment in the last
number of years, and reflecting the decrease in property prices since their peak in 2007. 19% of the residential mortgage portfolio
originated before 2005 of which 6% was impaired at 31 December 2013, while the remaining 10% of the portfolio was originated since
2009 of which 4% was impaired at 31 December 2013.
*Forms an integral part of the audited financial statements
114
3.1 Credit risk – Credit profile of the loan portfolio
The property values used in the completion of the following loan-to-value tables are determined with reference to the original or most recent
valuation, indexed to the Nationwide House Price Index (“HPI”) in the UK. The index for Quarter 3 2013 reported that house prices across
the UK were 7% lower than their highest level in Quarter 3 2007 and reported an increase of 5% for the year to the end of Quarter 3 2013.
In Northern Ireland (which represents 73% of the UK residential mortgage portfolio), the Nationwide HPI for Quarter 3 2013 reported that
house prices were 52% lower than their highest level in Quarter 3 2007 and reported an increase of 4% for the year to the end of Quarter 3
2013.
Actual and weighted average indexed loan-to-value ratios of United Kingdom residential mortgages
The following table profiles the United Kingdom residential mortgage portfolio by the indexed loan-to-value ratios and the weighted
average indexed loan-to-value ratios at 31 December 2013 and 31 December 2012:
Buy-to-let
2013*
Total
UK
Less than 50%
50% to 70%
71% to 80%
81% to 90%
91% to 100%
101% to 120%
121% to 150%
Greater than 150%
Total
Weighted average indexed loan-to-value(1):
Stock of residential mortgages at year end
New residential mortgages issued during year
Impaired residential mortgages
UK
Less than 50%
50% to 70%
71% to 80%
81% to 90%
91% to 100%
101% to 120%
121% to 150%
Greater than 150%
Owner-occupier
€ m
%
479
378
212
219
164
238
249
313
21.2
16.8
9.4
9.7
7.3
10.6
11.1
13.9
€ m
60
47
21
25
20
34
56
98
2,252
100.0
361
89.9
73.1
118.6
Owner-occupier
€ m
%
442
406
258
261
249
293
304
370
17.1
15.7
10.0
10.1
9.6
11.4
11.8
14.3
%
16.6
13.1
5.8
6.9
5.5
9.3
15.6
27.2
100.0
105.4
60.1
151.0
€ m
54
59
25
29
25
34
62
119
407
%
13.3
14.7
6.1
7.1
6.1
8.3
15.2
29.2
100.0
111.0
–
149.3
€ m
539
425
233
244
184
272
305
411
%
20.6
16.3
8.9
9.4
7.0
10.4
11.7
15.7
2,613
100.0
92.0
73.0
123.8
2012
%
16.6
15.6
9.5
9.7
9.2
10.9
12.2
16.3
€ m
496
465
283
290
274
327
366
489
2,990
100.0
95.8
67.1
124.4
Buy-to-let
Total
Total
Weighted average indexed loan-to-value(1):
Stock of residential mortgages at year end
New residential mortgages issued during year
Impaired residential mortgages
2,583
100.0
93.5
67.1
119.9
(1)Weighted average indexed loan-to-values are the individual indexed loan-to-value calculations weighted by the mortgage balance against each property.
36% of the total owner-occupier and 52% of the total buy-to-let mortgages were in negative equity at 31 December 2013, compared to
37% and 53% respectively at 31 December 2012, driven primarily by the increase in property prices in 2013, coupled with amortisation
of the loan book. The weighted average indexed loan-to-value for the total residential mortgage book was 92.0% at 31 December 2013
compared to 95.8% at 31 December 2012, reflecting the increase in residential property prices in the period.
*Forms an integral part of the audited financial statements
115
Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
Loan-to-value ratios of United Kingdom residential mortgages (index linked) that were neither past due nor
impaired
The following table profiles the UK residential mortgage portfolio that was neither past due nor impaired by the indexed loan-to-value
ratios at 31 December 2013 and 31 December 2012:
UK
Less than 50%
50% to 70%
71% to 80%
81% to 90%
91% to 100%
101% to 120%
121% to 150%
Greater than 150%
Total
UK
Less than 50%
50% to 70%
71% to 80%
81% to 90%
91% to 100%
101% to 120%
121% to 150%
Greater than 150%
Total
Owner-occupier
Buy-to-let
€ m
448
341
180
188
136
202
205
206
%
23.5
17.9
9.4
9.9
7.2
10.6
10.7
10.8
€ m
58
45
18
18
16
30
46
61
%
19.8
15.3
6.1
6.3
5.7
10.2
15.7
20.9
2013*
Total
%
23.0
17.5
9.0
9.4
7.0
10.5
11.4
12.2
€ m
506
386
198
206
152
232
251
267
1,906
100.0
292
100.0
2,198
100.0
Owner-occupier
Buy-to-let
€ m
417
373
229
226
192
258
257
283
%
18.7
16.7
10.2
10.1
8.6
11.5
11.5
12.7
€ m
52
55
22
21
21
30
51
88
2,235
100.0
340
%
15.3
16.1
6.4
6.4
6.1
8.8
15.1
25.8
100.0
2012*
Total
%
18.2
16.6
9.7
9.6
8.3
11.2
12.0
14.4
€ m
469
428
251
247
213
288
308
371
2,575
100.0
The proportion of residential mortgages that was neither past due nor impaired and in negative equity at 31 December 2013 decreased
in comparison to 31 December 2012, reflecting the increases in residential property prices in the period. 34% of residential mortgages
that were neither past due nor impaired were in negative equity at 31 December 2013 compared to 38% at 31 December 2012.
*Forms an integral part of the audited financial statements
116
3.1 Credit risk – Credit profile of the loan portfolio
Loan-to-value ratios of United Kingdom residential mortgage portfolio (index linked) that were greater than 90
days past due and/or impaired
The following table profiles the UK residential mortgage portfolio that was greater than 90 days past due and/or impaired by the
indexed loan-to-value ratios at 31 December 2013 and 31 December 2012:
Owner-occupier
Buy-to-let
Total
€ m
23
29
24
24
26
32
39
98
%
8.0
9.8
8.3
8.2
8.7
10.7
13.1
33.2
295
100.0
€ m
1
2
3
6
2
2
9
35
60
%
2.0
3.1
4.2
9.8
4.1
4.0
15.3
57.5
100.0
€ m
24
31
27
30
28
34
48
133
355
2013*
Total
residential
mortgage
portfolio
€ m
539
425
233
244
184
272
305
411
%
20.6
16.3
8.9
9.4
7.0
10.4
11.7
15.7
%
6.9
8.7
7.6
8.5
8.0
9.5
13.4
37.4
100.0
2,613
100.0
Owner-occupier
Buy-to-let
Total
€ m
15
22
26
27
40
29
39
72
%
5.4
8.2
9.4
10.1
14.9
10.7
14.5
26.8
270
100.0
€ m
1
3
3
7
3
4
8
27
56
%
1.9
5.8
4.6
12.4
6.4
6.5
14.5
47.9
€ m
16
25
29
34
43
33
47
99
%
4.9
7.7
8.6
10.4
13.5
9.8
14.4
30.7
2012*
Total
residential
mortgage
portfolio
€ m
496
465
283
290
274
327
366
489
%
16.6
15.6
9.5
9.7
9.2
10.9
12.2
16.3
100.0
326
100.0
2,990
100.0
United Kingdom
Less than 50%
50% to 70%
71% to 80%
81% to 90%
91% to 10%
101% to 120%
121% to 150%
Greater than 150%
Total
United Kingdom
Less than 50%
50% to 70%
71% to 80%
81% to 90%
91% to 100%
101% to 120%
121% to 150%
Greater than 150%
Total
The proportion of residential mortgages that was greater than 90 days past due and/or impaired and in negative equity at 31 December
2013 increased in comparison to 31 December 2012, resulting from the inclusion of unsecured residual mortgage debt in the negative
equity figures.
*Forms an integral part of the audited financial statements
117
Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
Credit quality profile of United Kingdom residential mortgages
The following table profiles the asset quality of the UK residential mortgage portfolio as at 31 December 2013 and 31 December 2012:
United Kingdom
Neither past due nor impaired
Past due but not impaired
Impaired - provisions held
Gross residential mortgages
Provisions for impairment
Owner-
occupier
€ m
1,906
103
243
2,252
(123)
2,129
Buy-to-let
€ m
292
17
52
361
(33)
328
2013*
Total
€ m
2,198
120
295
2,613
(156)
2,457
Owner-
occupier
€ m
2,235
118
230
2,583
(149)
2,434
Buy-to-let
€ m
340
23
44
407
(34)
373
2012*
Total
€ m
2,575
141
274
2,990
(183)
2,807
United Kingdom residential mortgages which were past due but not impaired
Residential mortgages are assessed for impairment if they are past due, typically for more than ninety days, or if the borrower exhibits
an inability to meet its obligations to the Group based on objective evidence of loss events (“impairment triggers”) such as a request for
forbearance. Loans are deemed impaired where the carrying value of the asset is shown to be in excess of the present value of future
cashflows and an appropriate provision is raised. Where loans are not deemed to be impaired, they are collectively assessed as part of
the IBNR provision calculation.
The following table profiles the UK residential mortgage portfolio that was past due but not impaired at 31 December 2013 and
31 December 2012:
United Kingdom
1 - 30 days
31 - 60 days
61 - 90 days
91 - 180 days
181 - 365 days
Over 365 days
Total
Owner-
occupier
€ m
Buy-to-let
€ m
21
15
15
16
20
16
3
3
3
2
6
–
2013*
Total
€ m
24
18
18
18
26
16
103
17
120
Owner-
occupier
€ m
29
35
14
12
10
18
118
Buy-to-let
€ m
2
5
4
11
1
–
23
The amount of loans past due but not impaired at 31 December 2013 decreased in comparison to 31 December 2012, driven by a
decrease in residential mortgages that were past due for less than 90 days.
United Kingdom residential mortgages which were impaired
The following table profiles the UK residential mortgage portfolio that was impaired at 31 December 2013 and 31 December 2012:
United Kingdom
Not in arrears
1 - 30 days
31 - 60 days
61 - 90 days
91 - 180 days
181 - 365 days
Over 365 days
Total impaired
Total gross residential mortgages
Owner-
occupier
€ m
Buy-to-let
€ m
10
2
4
10
17
51
149
243
2,252
1
1
–
1
5
15
29
52
361
2013*
Total
€ m
11
3
4
11
22
66
178
295
Owner-
occupier
€ m
Buy-to-let
€ m
15
3
5
6
27
52
122
230
2
1
1
2
7
12
19
44
407
2,613
2,583
2012*
Total
€ m
31
40
18
23
11
18
141
2012*
Total
€ m
17
4
6
8
34
64
141
274
2,990
The pace of increase in impaired loans slowed significantly in 2013 in comparison to 2012 with an increase in impaired loans of
€ 21 million in 2013 compared to an increase of € 81 million in 2012, reflecting improved economic conditions and increases in
residential property values in 2013.
118
*Forms an integral part of the audited financial statements
3.1 Credit risk – Credit profile of the loan portfolio
United Kingdom residential mortgages – repossessions
For the purpose of the following tables, a property is considered repossessed when legal title has transferred to AIB. Where the Group
believes that the proceeds of sale of a repossessed property will comprise only part of the recoverable amount of the loan against which
it was being held as security, the customer remains liable for the outstanding balance and the remaining loan continues to be
recognised on the statement of financial position.
The number (stock) of repossessions as at 31 December 2013 and 31 December 2012 is set out below:
Owner-occupier
Buy-to-let
Total
Stock of
repossessions
136
76
212
2013*
Balance
outstanding
€ m
36
14
50
Stock of
repossessions
143
71
214
2012*
Balance
outstanding
€ m
33
15
48
The decrease in the stock of repossessed properties in 2013 relates to the disposal of 205 properties in the period and the removal of
8 properties from the stock following the clearance of arrears on the related mortgages, partly off-set by 211 properties repossessed.
The disposal of 205 repossessed properties in 2013 resulted in a loss on disposal of € 24 million (31 December 2012: disposal of
98 properties resulting in a loss on disposal of € 10 million). Losses on the sale of repossessed properties are recognised in the income
statement as part of the specific provision charge.
*Forms an integral part of the audited financial statements
119
Risk management - 3. Individual risk types
3.1 Credit risk – credit profile of the loan portfolio
Loans and receivables to customers – Other personal lending
The following table analyses other personal lending by segment showing asset quality and impairment provisions for the years ended
31 December 2013 and 31 December 2012:
DCB
€ m
AIB UK
€ m
DCB
€ m
AIB UK
€ m
Analysed as to asset quality
Satisfactory
Watch
Vulnerable
Impaired
Total criticised loans
1,909
169
132
108
409
Total gross loans and receivables
2,318
%
18
5
€ m
75
29
104
%
69
96
4
Total loans percentage
Criticised loans/total loans
Impaired loans/total loans
Impairment provisions –
statement of financial position
Specific
IBNR
Total impairment provisions
Provision cover percentage
Specific provisions/impaired loans
Total provisions/impaired loans
Total provisions/total loans
Income statement – impairment
charge
Specific
IBNR
Total impairment charge
259
46
50
77
173
432
%
40
18
€ m
54
3
57
%
70
74
13
€ m
€ m
41
6
47
%
3
(9)
(6)
%
4,291
2,322
2,082
191
34
15
240
%
10
1
284
36
38
38
112
396
%
28
10
€ m
€ m
15
22
37
%
100
247
2
27
11
38
%
71
100
10
FSG
€ m
57
41
205
1,238
1,484
1,541
%
96
80
€ m
963
23
986
%
78
80
64
€ m
103
(19)
84
%
2013*
Total
€ m
2,225
256
387
1,423
2,066
%
48
33
€ m
1,092
55
1,147
%
77
81
27
€ m
147
(22)
125
%
2.83
FSG
€ m
140
96
366
1,378
1,840
1,980
%
93
70
€ m
1,022
42
1,064
%
74
77
54
2012
Total
€ m
2,506
323
438
1,431
2,192
4,698
%
47
30
€ m
1,064
75
1,139
%
74
80
24
€ m
303
(84)
219
%
4.37
Impairment charge/average loans
1.99
(1.29)
5.08
The other personal lending portfolio at € 4.3 billion has reduced by € 0.4 billion in the period and comprises € 3.4 billion in loans and
overdrafts and € 0.9 billion in credit card facilities. Personal lending loans have continued to reduce, reflecting accelerated repayments
and subdued demand for new loans and other credit facilities.
Reductions in the portfolio are evident across all credit quality bands, however, the level of impaired loans have not reduced at the same
level as the entire portfolio. At 31 December 2013, € 2.1 billion or 48% of the portfolio is criticised of which impaired loans amount to
€ 1.4 billion (31 December 2012: € 2.2 billion or 47% and € 1.4 billion).
The Group has statement of financial position specific provisions of € 1.1 billion providing cover on impaired loans of 77% (31 December
2012: € 1.1 billion or 74%) and a further € 0.1 billion in IBNR provisions representing 1.9% of performing loans (31 December 2012:
€ 0.1 billion or 2.3%). IBNR levels have reduced since 2012 reflecting the reduced level of performing loans in the portfolio and
management judgement of reduced loss within the portfolio.
The income statement provision charge for the period to 31 December 2013 was € 125 million or 2.83% of average customer loans,
compared with € 219 million or 4.37% in the full year to 31 December 2012. While the provision charge has reduced since 2012,
personal borrowers continue to be impacted by reduced incomes and high levels of personal debt. The reduction in impairment charge
reflects an indication of improvement in the sector however, the sector is fragile and challenges remain.
*Forms an integral part of the audited financial statements
120
3.1 Credit risk – Credit profile of the loan portfolio
Loans and receivables to customers – Property and construction
The following table analyses property and construction lending by segment showing asset quality and impairment provisions for the years
ended 31 December 2013 and 31 December 2012:
Investment
Commercial investment
Residential investment
Land and development
Commercial development
Residential development
Contractors
Housing associations
DCB
€ m
AIB UK
€ m
2,187
281
2,468
133
105
238
66
–
2,323
781
3,104
184
1,338
1,522
155
427
FSG
€ m
6,030
1,380
7,410
1,050
3,087
4,137
183
–
2013*
Total
€ m
10,540
2,442
12,982
1,367
4,530
5,897
404
427
DCB
€ m
AIB UK
€ m
FSG
€ m
2,320
349
2,669
124
110
234
70
–
1,290
490
1,780
8,449
2,045
10,494
45
422
467
135
95
1,280
4,461
5,741
241
325
2012
Total
€ m
12,059
2,884
14,943
1,449
4,993
6,442
446
420
Total gross loans and receivables
2,772
5,208
11,730
19,710
2,973
2,477
16,801
22,251
1,714
1,398
Analysed as to asset quality
Satisfactory
Watch
Vulnerable
Impaired
Total criticised loans
Total loans percentage
Criticised loans/total loans
Impaired loans/total loans
Impairment provisions –
statement of financial position
Specific
IBNR
Total impairment provisions
Provision cover percentage
Specific provisions/impaired loans
Total provisions/impaired loans
Total provisions/total loans
Income statement – impairment
charge
Specific
IBNR
Total impairment charge
383
255
420
1,058
%
38
15
€ m
149
123
272
%
35
65
10
€ m
62
3
65
%
Impairment charge/average loans
1.93
788
534
2,488
3,810
%
73
48
€ m
1,459
80
1,539
%
59
62
30
€ m
150
(19)
131
%
2.39
470
472
542
10,246
11,260
%
96
87
€ m
6,506
121
6,627
%
63
65
56
€ m
605
(77)
528
%
4.39
3,582
1,643
1,331
13,154
16,128
%
82
67
€ m
8,114
324
8,438
%
62
64
43
€ m
817
(93)
724
%
3.47
2,131
1,220
467
93
282
842
%
28
9
€ m
121
80
201
%
43
71
7
529
400
328
1,257
%
51
13
€ m
141
45
186
%
43
57
8
1,803
642
1,162
13,194
14,998
%
89
79
€ m
7,419
298
7,717
%
56
58
46
€ m
€ m
€ m
x
x
%
x
x
x
x
%
x
x
x
x
%
x
5,154
1,638
1,655
13,804
17,097
%
77
62
€ m
7,681
423
8,104
%
56
59
36
€ m
1,440
(659)
781
%
3.30
*Forms an integral part of the audited financial statements
121
Risk management - 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
Loans and receivables to customers – Property and construction (continued)
The property and construction sector amounted to 24% of total loans and receivables, or 17% of loans and receivables less provisions.
The portfolio is comprised of 66% investment loans (€ 13.0 billion), 30% land and development loans (€ 5.9 billion) and 4% other
property and construction loans (€ 0.8 billion). It is geographically split 74% in the Republic of Ireland and 26% United Kingdom.
This sector continues to be challenging, particularly in Ireland. However, there are signs that the commercial market in Ireland is
recovering from very depressed activity levels, with transactional activity in all sectors up year-on-year. The improvement in demand is
observed particularly in prime locations with activity levels in secondary locations remaining low. This continues to have an impact on
the credit quality of the portfolio which remains regionally focussed within Ireland with real estate asset locations that are largely
secondary and tertiary in nature. Conditions in the UK have improved during 2013, however, the market has become segmented
between London delivering strong returns but with the rest of UK remaining weak.
Credit quality within the portfolio is stabilising, with the level of criticised loans reducing from € 17.1 billion at 31 December 2012 to
€ 16.1 billion at 31 December 2013 due to asset sales, write-offs and repayments. This is partly off-set by continued movement of loans
into the criticised grades, albeit at a reduced rate.
Impaired loans amounted to € 13.2 billion or 67% of the portfolio (31 December 2012: € 13.8 billion or 62%). The rate of new impairment
decreased significantly during 2013 reflecting the improved market dynamics and the fact that 67% of this portfolio is already impaired.
The specific provision cover increased from 56% to 62% in 2013, due to increased provisions for some cases in secondary locations
and debt repayments.
The specific impairment charge on the property and construction loan portfolio reduced by 43% to € 0.8 billion or 3.47% of average
customer loans for the year ended 31 December 2013. There was an IBNR release of € 0.1 billion in 2013 compared to € 0.7 billion in
2012, reflecting the higher level of credit process catch-up completed in 2012.
Investment
Property investment loans amounted to € 13.0 billion at 31 December 2013 (31 December 2012: € 14.9 billion) of which € 10.5 billion
related to commercial investment. The reduction in the portfolio was largely as a result of asset sales in the portfolio along with
amortisation and repayments of debt. € 8.6 billion of the investment property portfolio related to loans for the purchase of property in the
Republic of Ireland, € 4.1 billion in the United Kingdom, € 0.1 billion in the United States of America and € 0.2 billion in other
geographical locations.
There has been an improvement in investment and occupation rates in the office, retail and industrial sectors and some uplift in prime
rental and capital values during 2013. The majority of investment activity remains focussed on the capital and in particular Dublin city
where there has been an increase in the volume of properties becoming available for sale. Foreign direct investment has also fuelled
activity in the Dublin office sector resulting in prime headline office rents in Dublin increasing. The stabilisation of the Dublin residential
market has attracted increased interest from investors, most notably overseas investors. Outside of Dublin, investment activity has
been limited. The retail sector continues to struggle with rental values decreasing in the last 12 months. Retail landlords and investors
across the sector have faced significant decreases in rental values in the last few years. Although rents now appear stable for prime
units, further rental pressure for non-prime units is expected. These have all contributed to continued elevated impairment charges in
the investment property portfolio. In assessing impairment provisions, allowance is taken for the Group’s greater proportion of secondary
real estate assets. Consequently a steeper fall in real estate prices, compared to the general market index expectations, is used to cal-
culate impairment provisions.
€ 10.2 billion or 78% of the investment property portfolio was criticised at 31 December 2013 compared with € 10.6 billion or 71% at 31
December 2012. Included in criticised loans were € 7.6 billion of loans which were impaired (31 December 2012: € 8.0 billion) on which
the Group had € 3.9 billion in statement of financial position specific provisions, providing cover of 51% (31 December 2012: € 3.4 billion
or 42%). Total provisions as a percentage of total loans are 32%, up from 25% at December 2012 for this sector. The impairment
charge on the investment property element of the property and construction portfolio was € 465 million or 3.39% of average property
investment customer loans compared with € 420 million or 2.64% in the year to 31 December 2012, with the increase due to a reduced
writeback of IBNR provisions.
122
3.1 Credit risk – Credit profile of the loan portfolio
Loans and receivables to customers – Property and construction (continued)
Land and Development
At 31 December 2013, Group land and development loans amounted to € 5.9 billion (31 December 2012: € 6.4 billion). € 4.4 billion of
this portfolio related to loans in the Republic of Ireland and € 1.5 billion in the United Kingdom.
There is improved demand for sites in Dublin, fuelled by the imbalance between supply and demand in the Dublin housing market and
signs of growth in the Dublin office sector alongside improvements in Dublin rents. Demand for well-located sites, particularly those with
planning permission has risen significantly. There continues to be little demand for development land outside Dublin. Development land
values have reverted to agricultural values in some locations where the possibility of development in the medium term is remote.
€ 5.6 billion of the land and development portfolio was criticised at 31 December 2013 (31 December 2012: € 6.2 billion), including
€ 5.3 billion of loans which were impaired (31 December 2012: € 5.6 billion) on which the Group had € 4.1 billion in statement of
financial position specific provisions providing cover of 77% (31 December 2012: 74%). The impairment charge for the period to
31 December 2013 was € 239 million or 3.84% of average land and development customer loans compared with € 334 million or 4.9%
for the full year to December 2012.
There was also an income statement provision charge of € 18 million for other property and construction exposures, comprising a
specific charge of € 20 million for contractors and a release of IBNR provision of € 2 million relating to contractors and housing
associations.
Please note: during 2013, an internal portfolio re-allocation between FSG and UK occurred where assets were transferred which were
valued at € 2.4 billion as at December 2013. (December 2012: € 3.0 billion).
123
Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
Loans and receivables to customers – SME/other commercial lending
The following table analyses SME/other commercial lending by segment showing asset quality and impairment provisions for the years
ended 31 December 2013 and 31 December 2012:
Agriculture
Distribution:
Hotels
Licensed premises
Retail/Wholesale
Other distribution
Other services
Other
DCB
€ m
1,133
355
240
914
82
1,591
1,196
717
Total gross loans and receivables
4,637
Analysed as to asset quality
AIB UK
€ m
58
870
154
226
22
1,272
2,414
558
4,302
FSG
€ m
528
946
638
1,189
105
2,878
828
606
2013*
Total
€ m
1,719
2,171
1,032
2,329
209
5,741
4,438
1,881
4,840
13,779
Satisfactory
Watch
Vulnerable
Impaired
3,407
2,792
748
273
209
472
323
715
Total criticised loans
1,230
1,510
Total loans percentage
Criticised loans/total loans
Impaired loans/total loans
Impairment provisions –
statement of financial position
Specific
IBNR
Total impairment provisions
Provision cover percentage
Specific provisions/impaired loans
Total provisions/impaired loans
Total provisions/total loans
Income statement – impairment
charge
Specific
IBNR
Total impairment charge
%
27
5
€ m
101
51
152
%
48
73
3
€ m
74
(21)
53
%
%
35
17
€ m
375
22
397
%
52
56
9
€ m
26
(17)
9
%
Impairment charge/average loans
1.10
0.20
230
133
626
3,851
4,610
%
95
80
€ m
2,655
35
2,690
%
69
70
56
€ m
249
(90)
159
%
3.19
6,429
1,353
1,222
4,775
7,350
%
53
35
€ m
3,131
108
3,239
%
66
68
24
€ m
349
(128)
221
%
1.55
DCB
€ m
1,084
320
248
962
86
1,616
1,260
1,014
4,974
4,035
814
83
42
939
%
19
1
€ m
38
72
110
%
90
262
2
AIB UK
€ m
43
647
46
201
9
903
1,845
407
3,198
2,189
472
203
334
1,009
%
32
10
€ m
164
28
192
%
49
58
6
FSG
€ m
595
1,657
830
1,277
120
3,884
1,865
729
7,073
852
187
1,162
4,872
6,221
%
88
69
€ m
3,054
140
3,194
%
63
66
45
€ m
€ m
€ m
x
x
x
%
x
x
x
x
%
x
x
x
x
%
x
2012
Total
€ m
1,722
2,624
1,124
2,440
215
6,403
4,970
2,150
15,245
7,076
1,473
1,448
5,248
8,169
%
54
34
€ m
3,256
240
3,496
%
62
67
23
€ m
722
(205)
517
%
3.26
*Forms an integral part of the audited financial statements
124
3.1 Credit risk – credit profile of the loan portfolio
Loans and receivables to customers – SME/other commercial lending (continued)
The SME / other commercial lending portfolio amounted to 17% of total loans and receivables, or 16% of loans and receivables less
provisions. The geographical split is 69% of advances in the Republic of Ireland and the remaining 31% in the United Kingdom. Loans
and receivables in this sector reduced by € 1.5 billion from €15.2 billion as at 31 December 2012, driven by amortisation of debt, asset
sales and write-offs.
The SME portfolio in both Ireland and the United Kingdom is concentrated in sub-sectors which are reliant on the domestic economies
The improved economic environment has resulted in some sectors which had suffered major job losses in the recession now seeing job
growth, particularly in the manufacturing, hospitality and agriculture sectors. Challenging economic conditions and the level of
indebtedness in the sector has resulted in many SMEs experiencing difficulty in managing the finances of their businesses. Some of this
indebtedness in Ireland is related to property investments. Consequently, AIB is engaged in restructuring existing facilities where
necessary in order to sustain viable businesses.
The distribution sub-sector comprises 42% of the portfolio and is split between hotels, licensed premises and retail. The hotel and
licensed premises sectors are showing some improvement due to higher tourist numbers, increased consumer confidence and an
improving employment market. Many retailers continue to find trading conditions challenging, with cost pressures a key concern. The
agriculture sub-sector (12% of the portfolio) has benefited from positive prices in 2013 but has experienced challenges due to increased
costs and adverse weather. The other services sub-sector comprises 32% of the portfolio and includes businesses such as business
administration, community, social and personal services and health care.
Credit quality within the portfolio is stabilising due to the improved economic environment, with the level of criticised loans reducing from
€ 8.2 billion to € 7.4 billion due to asset sales, write-offs and repayments. This is partly off-set by continued movement of loans into the
criticised grades, albeit at a reduced rate. Within criticised loans, impaired loans amounted to € 4.8 billion, a reduction of 9% from
31 December 2012. The specific provision cover increased from 62% to 66% in 2013, due to increased provisions for some loans and
debt repayments.
The income statement provision charge for the year to 31 December 2013 was € 221 million or 1.55% of average customer loans
compared with € 517 million or 3.26% to 31 December 2012.
At 31 December 2012, the Group had IBNR provisions of € 240 million, informed by a number of factors including the level of arrears
and the levels of stress in the portfolios. Specific provisions were raised during 2013 which together with the reduction in the performing
portfolio of € 1 billion, resulted in a reduction of € 132 million in the required level of IBNR provisions to € 108 million.
125
Risk management – 3. Individual risk types
3.1 Credit risk – credit profile of the loan portfolio
Loans and receivables to customers – Corporate lending
The following table analyses corporate lending showing asset quality and impairment provisions for the years ended 31 December 2013
and 31 December 2012:
Satisfactory
Watch
Vulnerable
Impaired
Total criticised loans
DCB
€ m
2,686
99
137
346
582
Total gross loans and receivables
3,268
Total loans percentage
Criticised loans/total loans
Impaired loans/total loans
Impairment provisions –
statement of financial position
Specific
IBNR
Total impairment provisions
Provision cover percentage
Specific provisions/impaired loans
Total provisions/impaired loans
Total provisions/total loans
Income statement – impairment
charge
Specific
IBNR
Total impairment charge
AIB UK
€ m
FSG
€ m
2013*
Total
€ m
3,511
105
215
476
796
DCB
€ m
2,885
100
129
161
390
134
4,307
3,275
53
–
55
26
81
%
60
19
772
6
23
104
133
905
%
15
11
%
18
11
€ m
153
79
232
%
44
67
7
€ m
€ m
53
–
53
%
51
51
6
22
–
22
%
85
85
16
€ m
€ m
€ m
12
(6)
6
%
41
–
41
%
(4)
(13)
(17)
%
%
18
11
€ m
228
79
307
%
48
64
7
€ m
49
(19)
30
%
AIB UK
€ m
–
–
–
–
–
–
%
–
–
€ m
–
–
–
%
–
–
–
FSG
€ m
1,185
35
20
642
697
1,882
%
37
34
€ m
373
13
386
%
58
60
21
%
12
5
€ m
112
85
197
%
70
122
6
€ m
€ m
€ m
x
x
x
%
x
x
x
x
%
x
x
x
x
%
x
2012
Total
€ m
4,070
135
149
803
1,087
5,157
%
21
16
€ m
485
98
583
%
60
73
11
€ m
172
(5)
167
%
2.63
Impairment charge/average loans
0.18
3.67
(9.02)
0.63
The corporate portfolio amounted to € 4.3 billion at 31 December 2013 compared with € 5.2 billion at 31 December 2012. The reduction
largely reflects sales of assets along with accelerated scheduled repayments and amortisation.
Corporate loans and receivables continue to perform better than the remainder of the portfolio due to less reliance on the domestic
market, and on the property market.
The income statement provision charge for the period to 31 December 2013 was € 30 million or 0.63% of average customer loans
(31 December 2012: € 167 million or 2.63%). The reduced provision charge was due to a lower level of large corporate credit defaults
compared with 2012, combined with higher recoveries in 2013. The provision cover for impaired loans has decreased from 60% to 48%
due to the sale of assets with higher cover.
*Forms an integral part of the audited financial statements
126
3.1 Credit risk – credit profile of the loan portfolio
Credit ratings*
Internal credit ratings
The Group uses various rating tools in managing its credit risk. The Risk management section of this report (pages 71 and 72) highlights
the role of rating tools in identifying and managing loans including those of lower credit quality. These lower credit quality loans are
referred to as ‘Criticised loans’ and include Watch, Vulnerable and Impaired, and which are defined below.
For reporting purposes loans and receivables to customers are categorised into:
– (i) Neither past due nor impaired;
– (ii) Past due but not impaired; and
– (iii) Impaired.
Neither past due nor impaired are those loans that are neither contractually past due and/or have not been categorised as impaired by
the Group.
Past due but not impaired are those loans where a contractually due payment has not been made. ‘Past due days’ is a term used to
describe the cumulative number of days a missed payment is overdue. In the case of instalment type facilities, days past due arise once
an approved limit has been exceeded.
This category can also include an element of facilities where negotiation with the borrower on new terms and conditions has not yet
concluded to fulfilment while the original loan facility remains outside its original terms. When a facility is past due, the entire exposure is
reported as past due, not just the amount of any excess or arrears.
Impaired loans are defined as follows: A loan is impaired if there is objective evidence of impairment as a result of one or more events
that occurred after the initial recognition of the assets (a ‘loss event’) and that loss event (or events) has an impact such that the present
value of future cash flows is less than the current carrying value of the financial asset or group of assets and requires an impairment
provision to be recognised in the income statement.
Loans that are neither past due nor impaired are further classified into ‘Good Upper, Good Lower, Watch and Vulnerable’, which are
described as follows:
Good Upper: Strong credit with no weakness evident. Typically includes elements of the residential mortgages portfolio combined
with strong corporate and commercial lending.
Good Lower: Satisfactory credit with no weakness evident. Typically includes new business written and existing satisfactorily
performing exposures across all portfolios.
Watch:
The credit is exhibiting weakness but with the expectation that existing debt can be fully repaid from normal cash flows.
Vulnerable:
Credit where repayment is in jeopardy from normal cash flows and may be dependent on other sources.
*Forms an integral part of the audited financial statements
127
Risk management – 3. Individual risk types
3.1 Credit risk – credit profile of the loan portfolio
Credit ratings* (continued)
Internal credit ratings of loans and receivables to customers
The internal credit ratings profile of loans and receivables to customers by asset class at 31 December 2013 and 31 December 2012 is
as follows:
Residential
mortgages
€ m
Other Property and
construction
€ m
personal
€ m
SME/other
commercial
€ m
Neither past due nor impaired
Good upper
Good lower
Watch
Vulnerable
Total
Past due but not impaired
Good upper
Good lower
Watch
Vulnerable
Total
Total impaired
13,070
12,148
2,776
1,694
29,688
10
65
653
1,265
1,993
9,083
Total gross loans and receivables
40,764
Unearned income
Deferred costs
Impairment provisions
Total
190
1,915
207
223
2,535
2
118
49
164
333
1,423
4,291
Neither past due nor impaired
Good upper
Good lower
Watch
Vulnerable
Total
Past due but not impaired
Good upper
Good lower
Watch
Vulnerable
Total
Total impaired
Total gross loans and receivables
Unearned income
Deferred costs
Impairment provisions
Total
10,655
17,064
2,747
1,852
32,318
158
518
704
693
2,073
8,130
42,521
884
1,485
241
292
2,902
40
97
82
146
365
1,431
4,698
153
3,295
1,538
912
5,898
–
134
105
419
658
83
6,211
1,243
905
8,442
1
134
110
317
562
13,154
19,710
4,775
13,779
476
4,307
76
4,852
1,413
1,213
7,554
–
226
225
442
893
136
6,754
1,335
1,084
9,309
2
164
158
364
688
13,804
22,251
5,248
15,245
803
5,157
Corporate
€ m
696
2,793
105
197
3,791
2
20
–
18
40
Corporate
€ m
948
3,102
135
149
4,334
–
20
–
–
20
2013
Total
€ m
14,192
26,362
5,869
3,931
50,354
15
471
917
2,183
3,586
28,911
82,851
(101)
74
(17,083)
65,741
2012
Total
€ m
12,699
33,257
5,871
4,590
56,417
200
1,025
1,169
1,645
4,039
29,416
89,872
(108)
89
(16,528)
73,325
Residential
mortgages
€ m
Other
personal
€ m
Property and
construction
€ m
SME/other
commercial
€ m
There was a recalibration of one of the key residential mortgage grading models in 2013 which introduced more recent loss history and
behavioural data into its calculation. This has resulted in a shift in the grade profile, as evidenced in the table above, and which has
resulted in the upgrade of certain ‘good’ mortgages and the down grade of certain ‘weaker’ mortgages (2012 comparatives: unaudited).
*Forms an integral part of the audited financial statements
128
3.1 Credit risk – credit profile of the loan portfolio
Credit ratings* (continued)
External credit ratings of financial assets
The external credit ratings profile of loans and receivables to banks, NAMA senior bonds, trading portfolio financial assets (excluding
equity securities) and financial investments available for sale (excluding equity shares) at 31 December 2013 and 31 December 2012 is
as follows:
AAA/AA
A
BBB+/BBB/BBB-
Sub investment
Unrated
Total
AAA/AA
A
BBB+/BBB/BBB-
Sub investment
Unrated
Total
Bank
€ m
3,408
1,564
718
–
63
5,753
Bank
€ m
2,452
2,347
1,167
103
76
6,145
Corporate
€ m
Sovereign
€ m
Other
€ m
–
–
14
–
1
15
5,417
–
26,171(1)
6
–
31,594(2)
304
133
85
14
–
536
Corporate
€ m
Sovereign
€ m
Other
€ m
3
15
60
99
115
292
3,881
221
24,995(1)
26
–
29,123(2)
583
223
79
79
–
964
2013
Total
€ m
9,129
1,697
26,988
20
64
37,898
2012
Total
€ m
6,919
2,806
26,301
307
191
36,524
(1)Includes NAMA senior bonds which do not have an external credit rating and to which the Group has attributed a rating of BBB+ (31 December 2012:
BBB+) ie the external rating of the Sovereign.
(2)Includes supranational banks and government agencies.
*Forms an integral part of the audited financial statements
129
Risk management – 3. Individual risk types
3.1 Credit risk – credit profile of the loan portfolio
Leveraged debt by geographic location and industry sector
Leveraged lending (including the financing of management buy-outs, buy-ins and private equity buy-outs) is conducted primarily through
specialist lending teams. The leveraged loan book is held as part of the loans and receivables to customers portfolio. Specific impairment
provisions of € 0.5 million (31 December 2012: € 34 million) are currently held against impaired exposures of € 14 million (31 December
2012: € 72 million). The unfunded element below includes off-balance sheet facilities and the undrawn element of facility commitments.
The portfolio continues to reduce, in large part due to AIB’s deleveraging.
Leveraged debt by geographic location*
United Kingdom
Rest of Europe
United States of America
Rest of the World
Funded leveraged debt by industry sector*
Agriculture
Property and construction
Distribution
Energy
Financial
Manufacturing
Transport
Other services
Funded
€ m
2013
Unfunded
€ m
Funded
€ m
2012
Unfunded
€ m
44
20
271
–
335
3
1
21
–
25
84
39
325
31
479
2013
€ m
–
–
40
–
11
78
83
122
334
24
4
50
–
78
2012
€ m
–
–
91
29
5
158
14
182
479
Large exposures (including disposal groups and non-current assets held for sale)
AIB’s Group Large Exposure Policy sets out maximum exposure limits to, or on behalf of, a customer or a group of connected
customers.
At 31 December 2013, the Group’s top 50 exposures amounted to € 7.5 billion, and accounted for 9.1% (€ 9.3 billion and 10.4% at
31 December 2012) of the Group’s on-balance sheet total gross loans and receivables to customers. No single customer exposure
exceeded regulatory guidelines. In addition, the Group holds NAMA senior bonds amounting to € 15.6 billion (31 December 2012:
€ 17.4 billion).
*Forms an integral part of the audited financial statements.
130
Risk management – 3. Individual risk types
3.1 Credit risk – Analysis of credit risk – 5 year summaries
This section sets out 5 year summaries as required for the Securities and Exchange Commission (“SEC”) reporting as follows:
–
Loans and receivables to customers by geography and industry sector
– Percentages of loans and receivables to customers by geography and industry sector
– Risk elements in lending
–
Impaired loans and receivables to customers
– Provisions for impairment (banks and customers)
– Movements in provisions for impairments on loans and receivables (including loans and receivables held for sale to NAMA and
loans and receivables included within disposal groups and non-current assets held for sale)
– Additional information on provisions for impairment
–
Loans charged off and recoveries of previously charged off loans
– Analysis of loans and receivables to customers by contractual residual maturity and interest rate sensitivity
– Analysis of loans and receivables held for sale to NAMA by geography and industry sector
– Cross-border outstandings
131
Risk management – 3. Individual risk types
3.1 Credit risk – Analysis of credit risk – 5 year summaries
Loans and receivables to customers by geography and industry sector*
The credit portfolio is diversified within each of its geographic markets (which are principally in Ireland and the United Kingdom) by
spread of locations, industry classification and individual customer.
Other than property and construction in Ireland (17.6%) and residential mortgages in Ireland (46.1%), as at 31 December 2013, no one
industry or loan category, in any geographic market accounts for more than 10% of AIB Group’s total loan portfolio.
The following table shows the gross loan and receivables to customers portfolio by geography and industry sector at 31 December
2013, 2012, 2011, 2010 and 2009 excluding in 2010 and 2009 those held for sale to NAMA which are analysed on page 148.
2013
2012
2011
€ m
€ m
€ m
2010
2010
Continuing Discontinued
operations
operations
€ m
€ m
IRELAND
Agriculture .......................................................... 1,740
Energy ................................................................
259
Manufacturing .................................................... 1,167
Property and construction .................................. 14,589
Distribution ........................................................ 5,254
Transport............................................................
Financial..............................................................
775
470
Other services .................................................... 2,912
Personal – Residential mortgages ...................... 38,151
– Other ................................................ 3,858
Lease financing ..................................................
360
69,535
UNITED KINGDOM
Agriculture ..........................................................
Energy ................................................................
58
23
Manufacturing ....................................................
336
Property and construction .................................. 5,121
Distribution .......................................................... 1,616
Transport ............................................................
Financial..............................................................
188
174
Other services .................................................... 2,646
Personal – Residential mortgages ...................... 2,613
– Other ................................................
433
Lease financing ..................................................
–
1,727
326
1,271
15,983
5,839
538
592
3,093
39,486
4,223
457
73,535
54
118
350
6,228
1,950
614
190
3,050
3,035
475
–
1,810
431
1,563
17,222
6,391
614
1,048
3,276
41,847(1)
4,755
544
79,501
58
250
486
6,938
2,109
683
320
3,474
3,325
566
–
1,939
686
2,617
17,246
7,626
809
1,368
4,080
27,290
5,349
764
69,774
67
304
843
7,430
2,439
749
525
4,523
3,534
672
8
............................................................................ 13,208
16,064
18,209
21,094
UNITED STATES OF AMERICA
Agriculture......................................................................–
Energy ..........................................................................5
Manufacturing ................................................................–
Property and construction..............................................–
Distribution ..........................................................
–
Transport........................................................................–
Financial ........................................................................4
Other services ....................................................
99
..............................................................
108
–
19
4
40
1
22
3
184
273
–
41
12
218
14
32
–
271
588
–
201
60
732
122
73
29
751
1,968
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2009
€ m
2,015
844
3,108
15,930
8,182
979
1,403
4,700
27,818
6,242
922
72,143
120
292
1,193
7,068
2,639
601
696
4,936
3,635
861
48
22,089
3
435
161
904
162
69
54
753
2,541
(1)The significant increase in residential mortgages in Ireland in 2011 compared with 2010 reflects the EBS portfolio which was acquired by AIB in July 2011.
*Forms an integral part of the audited financial statements
132
3.1 Credit risk – Analysis of credit risk – 5 year summaries
Loans and receivables to customers portfolio by geography and industry sector* (continued)
2013
2012
2011
€ m
€ m
€ m
2010
2010
Continuing Discontinued
operations
operations
€ m
€ m
POLAND
Agriculture ..........................................................
Energy ................................................................
Manufacturing ....................................................
Property and construction ..................................
Distribution ..........................................................
Transport ............................................................
Financial..............................................................
Other services ....................................................
Personal – Residential mortgages ......................
– Other ................................................
Lease financing ..................................................
REST OF WORLD..............................................
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
389
1,042
133
70
978
2,542
837
81
125
318
1,821
1,051
685
8,641
–
2009
€ m
126
86
1,024
2,852
804
83
143
322
1,538
1,039
711
8,728
1,106
Total gross loans to customers ............................82,851(1)
89,872(1)
98,687(1)
93,878(2)
8,641
106,607
Unearned income................................................
(101)
Deferred costs ....................................................
74
(108)
89
(125)
103
Provisions for impairment .................................. (17,083)
(16,528)
(14,941)
Total loans and receivables
65,741
73,325
83,724
(167)
–
(7,299)
86,412
(67)
–
(344)
(279)
–
(2,987)
8,230
103,341
(1)Includes € 28 million (2012: € 475 million; 2011: € 1,195 million) in loans and receivables to customers that relate to ‘Disposal groups and non-current
assets held for sale’.
(2)Includes € 74 million relating to AmCredit which was held within ‘Disposal groups and non-current assets held for sale’.
*Forms an integral part of the audited financial statements
133
Risk management – 3. Individual risk types
3.1 Credit risk – Analysis of credit risk – 5 year summaries
Percentages of loans and receivables to customers by geography and industry sector
The following table shows the percentages of loans and receivables to customers by geography and industry sector at
31 December 2013, 2012, 2011, 2010 and 2009, excluding in 2010 and 2009 those held for sale to NAMA but including, in 2010,
those within disposal groups and non-currents assets held for sale, that were not classified as discontinued operations (0.1%, Rest
of World).
2013
2012
2011
2010
2010
Continuing Discontinued
operations
operations
%
%
IRELAND
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal – Residential mortgages
– Other
Lease financing
UNITED KINGDOM
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal – Residential mortgages
– Other
x
UNITED STATES OF AMERICA
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
POLAND
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal – Residential mortgages
– Other
Lease financing
REST OF WORLD
Total loans
134
%
2.1
0.3
1.4
17.6
6.3
0.9
0.6
3.5
46.1
4.7
0.4
83.9
0.1
–
0.4
6.2
2.0
0.2
0.2
3.2
3.2
0.5
16.0
–
–
–
–
–
–
0.1
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
%
1.9
0.4
1.4
17.8
6.5
0.6
0.7
3.5
43.9
4.7
0.5
81.9
0.1
0.1
x0.4
6.9
2.2
0.7
0.2
3.3
3.4
0.5
17.8
–
–
0.1
–
–
–
0.2
0.3
–
–
–
–
–
–
–
–
–
–
–
–
–
100.0
100.0
%
1.8
0.4
1.6
17.5
6.5
0.6
1.1
3.3
42.4
4.8
0.6
80.6
0.1
0.3
0.5
7.0
2.1
0.7
0.3
3.5
3.4
0.6
1.9
0.7
2.6
16.8
7.4
0.8
1.3
4.0
26.6
5.2
0.7
68.0
0.1
0.3
0.8
7.3
2.4
0.7
0.5
4.4
3.4
0.7
18.5
20.6
–
–
0.2
–
–
–
0.3
0.5
–
–
–
–
–
–
–
–
–
–
–
–
0.2
0.1
0.7
0.1
0.1
–
0.7
1.9
–
–
–
–
–
–
–
–
–
–
–
–
0.4
100.0
1.0
91.5
2009
%
1.9
0.8
2.9
14.9
7.7
0.9
1.3
4.4
26.1
5.9
0.9
67.7
0.1
0.3
1.1
6.6
2.5
0.6
0.7
4.6
3.4
0.8
20.7
0.3
0.2
0.8
0.2
0.1
0.1
0.7
2.4
0.1
0.1
1.0
2.7
0.7
0.1
0.1
0.3
1.4
1.0
0.7
8.2
1.0
100.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
0.1
1.0
2.5
0.8
0.1
0.1
0.3
1.8
1.0
0.7
8.5
–
8.5
3.1 Credit risk – Analysis of credit risk – 5 year summaries
Risk elements in lending
AIB’s loan control and review procedures generally do not include the classification of loans as non-accrual, accruing past due,
restructured and potential problem loans, as defined by the SEC. Management has, however, set out in the following table the amount
of loans, (including, in the case of 2010 and 2009, those held for sale to NAMA and in 2010 those within discontinued operations)(2), at
31 December, without giving effect to available security and before deduction of provisions, using the SEC’s classification:
Loans accounted for on non-accrual basis(1)
Ireland ..........................................................
United Kingdom ............................................
United States of America ............................
Poland(2)........................................................
Rest of World ................................................
Accruing loans which are contractually past due
90 days or more as to principal or interest
2013
€ m
25,319
3,576
16
–
–
2012
€ m
24,719
4,641
56
–
–
2011
€ m
21,047
3,725
49
–
12
2010
€ m
10,215
2,524
75
587
x68
2009
€ m
14,922
1,944
x42
x477
68
28,911
29,416
24,833
13,469
17,453
Ireland ..........................................................
United Kingdom ............................................
United States of America ............................
Poland(2)........................................................
x1,046
121
–
–
1,190
162
–
–
1,371
1,768
74
–
–
x59
29
x3
......................................................................
1,167
1,352
1,445
x1,859
Restructured loans not included above(3) ..................
Other real estate and other assets owned ................
99
–
55
–
75
17
233
12
815
83
–
4
902
140
10
(1)These figures represent AIB’s impaired loans before provisions. Total interest income that would have been recorded during the year ended
31 December 2013 had interest on gross impaired loans been included in income amounted to € 763 million (2012: € 771 million; 2011: € 528 million;
2010: € 462 million; 2009: € 235 million) - € 661 million for Ireland, € 102 million for the United Kingdom and Nil for the United States. Of the total
figure of € 763 million above, € 373 million (2012: € 392 million; 2011: € 236 million; 2010: € 296 million; 2009: € 172 million) was included in income for
the year ended 31 December 2013 for interest on impaired loans (net of provisions).
(2)For 2010, Poland is classified as a discontinued operation.
(3)In certain circumstances as part of a loan restructure, AIB will convert part of the debt to equity and if the residual loan is viable will reclassify this residual
debt as performing. The restructured loans figure above solely relates to the residual loan element of these restructures which is deemed to be performing
(i.e. non impaired) following the restructure event. The value of equity held in the statement of financial position as at 31 December 2013 from such
transactions was € 6 million (2012: € 19 million) and the amount of debt resulting from such transactions and held in performing grades was € 27 million
(2012: € 9 million ).
AIB generally expects that loans, where known information about possible credit problems causes management to have serious doubt
as to the ability of borrowers to comply with loan repayment terms, would be included under its definition of impaired loans and would
therefore have been reported in the above table.
In AIB loans are typically reported as impaired when interest thereon is 90 days or more past due or where a specific provision is raised,
except: (i) where there is sufficient evidence that repayment in full, including all interest up to the time of repayment (including costs) will
be made within a reasonable and identifiable time period, either from realisation of security, refinancing commitment or other sources; or
(ii) where there is independent evidence that the balance due, including interest, is adequately secured. Upon impairment, the accrual of
interest income based on the original terms of the claim is discontinued but the increase of the present value of impaired claims due to
the passage of time is reported as interest income.
135
Risk management – 3. Individual risk types
3.1 Credit risk – Analysis of credit risk – 5 year summaries
Impaired loans and receivables to customers by geography and industry sector*
The following table presents an analysis of AIB Group’s impaired loans and receivables to customers by geography and industry sector
at 31 December 2013, 2012, 2011, 2010 and 2009. Loans and receivables held for sale to NAMA are analysed on page 148:
IRELAND
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal – Residential mortgages
– Other
Lease financing
UNITED KINGDOM
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal – Residential mortgages
– Other
UNITED STATES OF AMERICA
Energy
Manufacturing
Property and construction
Distribution
Transport
Other services
POLAND
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services ....................................................
Personal – Residential mortgages
– Other
Lease financing
REST OF WORLD
TOTAL
2013
2012
2011
€ m
€ m
€ m
2010
2010
Continuing Discontinued
operations
operations
€ m
€ m
327
62
264
10,699
2,618
154
211
724
8,788
1,345
127
25,319
11
–
127
2,455
408
2
19
181
295
78
3,576
4
–
–
–
–
12
16
–
–
–
–
–
–
–
–
–
–
–
–
–
322
32
319
10,856
2,812
113
219
706
7,856
1,345
139
24,719
12
1
153
2,908
630
244
26
307
274
86
4,641
3
–
40
–
–
13
56
–
–
–
–
–
–
–
–
–
–
–
–
–
299
34
303
9,467
2,499
113
168
628
6,138
1,253
145
21,047
11
1
132
2,389
557
14
23
323
193
82
3,725
3
1
43
2
–
–
49
–
–
–
–
–
–
–
–
–
–
–
–
193
7
293
5,510
1,505
77
61
384
1,013
777
135
9,955
10
–
75
1,408
240
2
15
117
115
61
2,043
1
–
40
22
12
–
75
–
–
–
–
–
–
–
–
–
–
–
–
12
68
28,911
29,416
24,833
12,141
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12
1
62
264
57
15
2
23
19
97
35
587
–
587
2009
€ m
105
11
134
2,275
x846
34
x70
206
475
x556
96
4,808
4
2
66
x449
229
x2
85
168
x56
x40
1,101
x–
11
8
–
–
23
042
x10
x2
x74
194
x52
8
1
13
13
75
35
477
68
6,496
*Forms an integral part of the audited financial statements
136
3.1 Credit risk – Analysis of credit risk – 5 year summaries
Impaired loans and receivables to customers by geography and industry sector* (continued)
2013
Group impaired loans were € 28,911 million at 31 December 2013 and now represent 35% of loans and receivables down from
€ 29,416 million or 33% at 31 December 2012.
Ireland
Impaired loans in Ireland were € 25,319 million representing 36% of group loans and receivables in Ireland, up from € 24,719 million or
34% at December 2012. There were € 932 million of new impairments in residential mortgages reflecting the continued weak economic
environment in Ireland. Significant impaired loan movements in other sectors are as follows: property (down € 157 million); distribution
(hotels, licensed premises, retail) (down € 194 million).
United Kingdom
In the United Kingdom, impaired loans decreased by € 1,065 million to € 3,576 million primarily in the following sectors: property (down
€ 453 million); distribution (down € 222 million); and other services (down € 126 million).
United States of America
Impaired loans in the United States of America were € 16 million, down on the 2012 level of € 56 million and are primarily related to
borrowers in energy and other services sectors.
2012
Group impaired loans were € 29,416 million at 31 December 2012 and now represent 33% of loans and receivables up from
€ 24,833 million or 25% at 31 December 2011.
Ireland
Impaired loans in Ireland were € 24,719 million representing 34% of total group loans and receivables, up from € 21,047 million or 27%
at December 2011. 85% or € 3,107 million of this increase relates to residential mortgages and property loans and reflects the
continuing weak economic environment in Ireland with high unemployment, low level of activity in the property sector and muted
consumer spending impacting impaired loans in most sectors but particularly the following: property (up € 1,389 million); distribution
(hotels, licensed premises, retail) (up € 313 million); and residential mortgage (up € 1,718 million).
United Kingdom
In the United Kingdom, impaired loans increased by € 916 million to € 4,641 million primarily in the following sectors: property
(up € 519 million); transport (up € 230 million); and residential mortgages (up € 81 million). The increase reflects the ongoing stress in
the economic environment, particularly in the North of England and Northern Ireland.
United States of America
Impaired loans in the United States of America were € 56 million, up on the 2011 level of € 49 million and are primarily related to
borrowers in the property sector.
Rest of World
Impaired loans in the rest of world reduced to Nil from € 12 million in 2011 as a result of the sale of AmCredit during the year.
*Forms an integral part of the audited financial statements
137
Risk management – 3. Individual risk types
3.1 Credit risk – Analysis of credit risk – 5 year summaries
Provisions for impairment on loans and receivables (both to banks and customers)*
The following table presents an analysis of provisions for impairment on loans and receivables (both to banks and customers) at
31 December 2013, 2012, 2011, 2010 and 2009. Provisions for impairment on loans and receivables held for sale to NAMA are analysed
separately on page 148:
2013
2012
2011
€ m
€ m
€ m
2010
2010
Continuing Discontinued
operations
operations
€ m
€ m
IRELAND
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services ....................................................
Personal – Residential mortgages
– Other
Lease financing
242
35
189
6,671
1,622
108
130
520
3,204
1,038
125
225
26
224
6,205
1,723
91
160
486
2,589
1,006
133
192
25
184
5,332
1,442
78
137
387
1,718
854
121
13,884
12,868
10,470
UNITED KINGDOM
Agriculture
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal – Residential mortgages
– Other
UNITED STATES OF AMERICA
Energy
Manufacturing
Property and construction
Other services
Distribution
Transport
POLAND
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal – Residential mortgages
– Other
Lease financing
REST OF WORLD
TOTAL SPECIFIC PROVISIONS
TOTAL IBNR PROVISIONS
TOTAL PROVISIONS
8
52
1,443
209
1
11
105
129
54
2,012
–
–
–
9
–
–
9
–
–
–
–
–
–
–
–
–
–
–
–
–
8
76
1,469
290
124
12
158
110
58
2,305
3
–
7
6
–
–
16
–
–
–
–
–
–
–
–
–
–
–
–
–
7
66
1,130
256
12
9
180
67
50
1,777
3
1
7
–
–
–
11
–
–
–
–
–
–
–
–
–
–
–
–
3
15,905
1,185
17,090
15,189
1,343
16,532
12,261
2,684
14,945
100
5
128
2,310
678
44
49
200
212
479
109
4,314
5
30
525
121
1
3
49
30
35
799
–
–
14
–
2
6
22
–
–
–
–
–
–
–
–
–
–
–
–
23
5,158
2,145
7,303
138
*Forms an integral part of the audited financial statements
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
1
29
68
28
7
1
13
8
77
20
259
–
259
85
344
2009
€ m
44
4
58
557
286
20
53
90
81
302
67
1,562
1
29
178
88
2
35
61
16
24
434
–
–
2
4
–
–
6
7
1
24
45
23
4
1
8
6
58
11
188
24
2,214
777
2,991
3.1 Credit risk – Analysis of credit risk – 5 year summaries
Movements in provisions for impairment on loans and receivables (includes loans and receivables within disposal
groups and non-current assets held for sale)(1)
Total provisions at beginning of period ..................
Transfers (out)/in ..................................................
Acquisition of subsidiaries ....................................
Disposal of subsidiaries ........................................
Disposal of loans and receivables ........................
Transferred from/(to) NAMA ..................................
Exchange translation adjustments ........................
Recoveries of loans previously charged off ..........
2013
€ m
16,532
(14)
–
–
(136)
–
(76)
2
2012
€ m
14,945
34
–
–
(263)
4
47
4
2011
€ m
7,976
–
738
(360)
–
(570)
74
4
Years ended 31 December
2009
€ m
2010
€ m
7,156
(6)
–
–
–
(4,569)
40
48
2,294
(10)
–
–
–
–
31
6
..................................................................
16,308
14,771
7,862
2,669
2,321
Amounts charged off
Ireland ............................................................
United Kingdom ............................................
United States of America ............................
Poland............................................................
Rest of World ................................................
Net provision movement(2)
Ireland
United Kingdom
United States of America
Poland
Rest of World ................................................
Recoveries of loans previously charged off(2)
Ireland ..............................................................
United Kingdom ................................................
United States of America ..................................
Poland................................................................
(794)
(330)
(10)
–
–
(399)
(269)
(2)
–
(3)
(1,134)
(673)
1,730
186
2
–
–
1,897
541
–
–
–
(481)
(253)
(37)
(2)
(29)
(802)
6,457
1,371
25
24
12
(490)
(236)
(20)
(52)
(15)
(813)
(287)
(149)
(15)
(57)
(12)
(520)
5,312
4,671
705
30
110
11
530
10
117
33
1,918
2,438
7,889
6,168
5,361
(1)
(1)
–
–
(2)
(2)
(2)
–
–
(4)
(2)
(2)
–
–
(4)
(3)
(39)
(1)
(5)
(48)
(1)
(1)
–
(4)
(6)
Total provisions at end of period
17,090
16,532
14,945
7,976
7,156
Provisions at end of period
Specific ..........................................................
IBNR ..............................................................
..................................................................
Amounts include:
15,905
1,185
17,090
15,189
1,343
16,532
12,261
2,684
14,945
Loans and receivables to banks ....................
7
4
4
Loans and receivables to customers ..............
17,083
16,406
14,932
Loans and receivables held for sale to NAMA
Loans and receivables of discontinued operations
Loans and receivables of disposal groups and
non-current assets held for sale ..............
–
–
–
–
–
122
–
–
9
..................................................................
17,090
16,532
14,945
5,646
2,330
7,976
4
7,287
329
344
12
7,976
5,798
1,358
7,156
4
2,987
4,165
–
–
7,156
(1)Provisions for loans and receivables held for sale to NAMA are included in 2009 and 2010.
(2)The aggregate of these sets of figures represents the total provisions for impairment charged to income. Commentary on the movements is detailed on
page 137 (impaired loans), on pages 140 to142 (provisions for impairment) and page 144 (net loans charged off).
139
Risk management – 3. Individual risk types
3.1 Credit risk – Analysis of credit risk – 5 year summaries
Provisions for impairment on loans and receivables
The following table reconciles the total provisions for impairment charged to income for the years ended 31 December 2013, 2012, 2011,
2010 and 2009 as shown in (A), the table on page 139 relating to ‘Movements in provisions for impairment of loans and receivables’,
with that shown in (B), AIB Group’s ‘Consolidated statement of income’.
(A)
Net provision movement
Recoveries of loans previously charged off
Total charged to income
(B)
Provisions for impairment
2013
€ m
1,918
(2)
1,916
2012
€ m
2,438
(4)
2,434
2011
€ m
7,889
(4)
x7,885
2010
€ m
6,168
(48)
6,120
2009
€ m
5,361
(6)
5,355
1,916
2,434
x7,885
6,120
5,355
The following table sets out the provisions charged to income and net loans charged off as a percentage of average loans for the years
ended 31 December 2013, 2012, 2011, 2010 and 2009. The 2010 and 2009 figures include provisions for loans and receivables held for
sale to NAMA and loans and receivables included within discontinued operations. The 2011 figures include the provision charge for loans
and receivables held for sale to NAMA.
Total provisions charged to income ......................
Net loans charged off..............................................
2013
%
2.24
1.33
2012
%
2.57
0.71
2011
%
7.33
0.71
2010
%
4.97
0.62
2009
%
4.05
0.40
Commentary on provisions for impairment in 2013
The provision for impairment charge to income on loans and receivables to customers of € 1,913 million or 2.24% of average advances
for the year ended 31 December 2013 compared with € 2,434 million or 2.57% of average advances at 31 December 2012. The
reduction in the provision for impairment in the year of € 521 million reflects the reduction in overall impaired loans in the year of 2%
compared with an 18% increase in 2012. The provision for impairment in 2013 was also impacted by the release of IBNR provisions of
€ 145 million compared with a release of €1,322 million in 2012.
The movement in IBNR provisions of € 145 million was due to the level of specific provisions raised during 2013 which had largely been
provided in IBNR provisions at 31 December 2012, based on management’s view of the incurred loss inherent in the portfolio at that
time, as evidenced by the level of arrears, requests for forbearance and vulnerable loans. The portfolios most impacted were the
property and construction portfolio where the release was € 93 million due in particular to the level of specific provisions raised in 2013
in the property investment sub-sector, and a charge of €117 million for the residential mortgage portfolio mainly due to an increase in the
emergence period for ROI. IBNR provisions were reduced by € 128 million, € 22 million and € 19 million in the SME/other commercial,
other personal and corporate portfolios respectively.
Ireland
The impairment charge was € 1,726 million and included a specific charge of € 1,766 million and a release of IBNR of € 40 million,
compared with € 1,895 million in 2012.
Included in the overall specific provision charge of € 1,766 million was € 662 million or 37% relating to residential mortgage loans
reflecting the increased level of arrears due to pressure on borrowers caused by continued high unemployment and reduced incomes. A
further € 613 million (35%) of the specific charge related to loans in the property and construction sector, influenced by a continued low
level of activity. € 143 million or 8% of the specific charge was for consumer loans and the remaining € 348 million (20%) related to
SME/other commercial borrowers (€ 307 million) and corporate borrowers (€ 41 million), both of whom are dependent on the Irish
economy which remained weak throughout 2013.
The release of IBNR provision of € 40 million in 2013 was influenced mainly by the residential mortgage portfolio where there was an
IBNR charge of € 160 million and which was offset by releases in the other sectors. Most notably, SME/other commercial (€ 110 million
of a release) and property and construction (€ 59 million of a release).
140
3.1 Credit risk – Analysis of credit risk – 5 year summaries
Commentary on provisions for impairment in 2013 (continued)
United Kingdom
The impairment charge in the United Kingdom was € 185 million compared with € 539 million in 2012 and included a specific charge of
€ 290 million and an IBNR release of € 105 million.
€ 204 million of the specific impairment charge of € 290 million above related to borrowers in the property and construction sector
reflecting the continued pressure on this sector, in both the land and development and property investment sub-sectors and while there
have been signs of improvement in prime markets, such as London and the South East, the secondary markets still remain relatively
illiquid. In addition, there was a specific impairment charge of € 42 million related to SME/other commercial and € 34 million related to
residential mortgages.
There was a release of € 105 million IBNR provisions in the AIB Bank UK which was primarily driven by lower than anticipated loss rates
in the ‘low start’ mortgage portfolio and land and development property exposures in FTB, and interest only property and business loans
in AIB GB.
United States
The impairment charge was € 2 million compared with nil to December 2012, and related to Corporate cases.
Commentary on provisions for impairment in 2012
The provision for impairment charge to income on loans and receivables of € 2,434 million or 2.57% of average advances for the year
ended 31 December 2012 compared with € 7,885 million 7.33% of average advances at 31 December 2011. The significant reduction in
the provision for impairment in the year of € 5,451 million reflects the slowdown in the pace of cases downgraded to impaired status
requiring provision during 2012 at 18% in 2012 compared with 105% in 2011. The provision for impairment in 2012 was also impacted
by the release of IBNR provisions of € 1,322 million compared with a charge of € 179 million in 2011.
The movement in IBNR provisions of € 1,322 million was due to the level of specific provisions raised during 2012 which had largely
been provided in IBNR provisions at 31 December 2011, based on management’s view of the incurred loss inherent in the portfolio at
that time, as evidenced by the level of arrears, requests for forbearance and vulnerable loans. The portfolios most impacted were the
property and construction portfolio where the release was € 659 million due in particular to the level of specific provisions raised in 2012
in the property investment sub-sector, and € 369 million for the residential mortgage portfolio which largely resulted from specific
provisions being taken during the year, particularly for mortgages in forbearance. IBNR provisions were reduced by € 205 million, € 84
million and € 5 million in the SME/other commercial, other personal and corporate portfolios respectively.
Since all eligible loans have now transferred to NAMA there was no provision charge in 2012 compared to € 87 million in 2011.
Ireland
The impairment charge was € 1,895 million and included a specific charge of € 3,014 million and a release of IBNR of € 1,119 million.
Included in the overall specific provision charge of € 3,014 million was € 1,070 million or 36% relating to residential mortgage loans
reflecting the increased level of arrears due to pressure on borrowers caused by continued high unemployment and reduced incomes. A
further € 1,043 million (35%) of the specific charge related to loans in the property and construction sector, influenced by a continued
low level of activity. € 286 million or 9% of the specific charge was for consumer loans and the remaining € 615 million (20%) related to
SME/other commercial borrowers and corporate borrowers, both of whom are dependent on the Irish economy which remained weak
throughout 2012.
The release of IBNR provision of € 1,119 million in 2012 was influenced mainly by the residential mortgage and the property and
construction sectors. Within residential mortgages, the release of IBNR related to specific provisions that had been raised for cases,
particularly those in forbearance, and which had been allocated IBNR provisions at December 2011. IBNR provisions relating to the
property sector were released at 31 December 2012. These IBNR provisions were initially raised at year end December 2011 to take
account of continued pressure on rental cash flows and uncertainty over the timing of a recovery in this sector, and have now been
reflected in specific provisions. The remainder of the IBNR provision release was largely spread across the consumer and distribution
(includes hotels, icensed premises, retail) sectors. The IBNR stock of provisions (statement of financial position) was € 1,078 million,
€ 306 million of which has been allocated to the property portfolio, € 196 million to SME/commercial portfolios which have been
impacted by reduced consumer demand as a result of continued high unemployment and lower disposable incomes and € 77 million for
large borrower connections in the corporate portfolio with the remaining € 499 million allocated to residential mortgages and consumer
portfolios.
141
Risk management – 3. Individual risk types
3.1 Credit risk – Analysis of credit risk – 5 year summaries
Commentary on provisions for impairment in 2012
United Kingdom
The impairment charge in the United Kingdom was € 539 million compared with € 1,318 million in 2011 (excluding € 51 million relating to
NAMA).
In AIB Bank UK, the majority of the provision for impairment related to borrowers in the property and construction sector (€ 209 million)
reflecting the continued pressure on this sector, in both the land and development and property investment sub-sectors and while there
have been signs of improvement in prime markets, such as London and the South East, the secondary markets still remain relatively
illiquid. There was a release of € 193 million IBNR provisions in the AIB Bank UK which reflected lower than anticipated loss rates in the
‘low start’ mortgage and land and development property exposures in FTB and interest only property and business loans in AIB GB. The
statement of financial position IBNR provisions was € 244 million at 31 December 2012 and was allocated to the following portfolios:
€ 117 million to the property portfolio, € 73 million in relation to the residential mortgage portfolio and € 55 million to SME/other
commercial and consumer portfolios.
In addition to the AIB Bank UK charge outlined above, there was an impairment charge of € 208 million related primarily to large
corporates in the property and transport sectors. The statement of financial position IBNR provisions was € 21 million at 31 December
2012.
United States
The impairment charge was Nil compared with € 25 million to December 2011. The reduction is due to a smaller book as a result of
disposals under the deleveraging programme.
Additional information on provisions for impairment
The following table presents additional information with respect to the statement of financial position provisions as at 31 December
2013, 2012, 2011, 2010 and 2009. The 2010 and 2009 figures include provisions for impairment on loans and receivables held for sale
to NAMA and the 2010 figure also includes provisions for impairment on loans and receivables included within discontinued operations.
Provisions as a percentage of total loans,
less unearned income, at end of period
Specific provisions ....................................................
IBNR provisions ........................................................
..................................................................................
Provisions are raised as outlined on pages 81 to 86.
2013
%
2012
%
2011
%
19.19
1.43
20.62
16.90
1.49
18.39
12.42
2.72
15.14
2010
%
5.40
2.23
7.63
2009
%
4.46
1.04
5.50
The increase in provisions from 18.39% to 20.62% reflects the continuing impact of the challenging economic conditions on borrowers’
ability to repay facilities, particularly in Ireland. Specific provisions as a percentage of loans increased from 16.90% to 19.19% and are
allocated to individual impaired loans (€ 28,911 million down from € 29,416 million for 2012).
The IBNR provisions as a percentage of loans decreased from 1.49% at December 2012 to 1.43% at December 2013.
The reduction reflects a release of € 145 million in the year was due to a release of IBNR provisions raised in previous periods which
have now been reflected in specific provisions, and which was offset by an increase in IBNR in relation to the mortgage portfolio where
there was a change in the emergence period from 6 to 9 months.
The outcomes of independent reviews of certain higher risk portfolios helped inform management’s view of the incurred loss remaining
in the performing book and the appropriate level of IBNR provisions required.
142
3.1 Credit risk – Analysis of credit risk – 5 year summaries
Loans charged off and recoveries of previously charged off loans
The following table presents an analysis of loans charged off and recoveries of previously charged off loans for the years ended
31 December 2013, 2012, 2011, 2010, and 2009. This table includes loans and receivables to customers of continuing operations, loans
and receivables held for sale to NAMA, and loans and receivables included within disposal groups and non-current assets held for
sale(1).
Loans charged off
Recoveries of loans
previously charged off
2013
€ m
2012
€ m
2011
€ m
2010
€ m
2009
€ m
2013
€ m
2012
€ m
2011
€ m
2010
€ m
2009
€ m
IRELAND
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal – Residential mortgages
– Other
Lease financing
UNITED KINGDOM
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal – Residential mortgages
– Other
UNITED STATES OF AMERICA
Energy
Manufacturing
Property and construction
Distribution
Transport
Other services
POLAND(1)
REST OF WORLD
TOTAL
2.9
0.3
40.3
158.9
291.4
57.0
38.2
47.3
v66.7
91.3
–
5.2
2.2
23.3
112.2
44.7
5.6
27.2
29.9
50.1
93.4
5.6
5.2
2.4
8.2
1.3
1.7
8.1
–
–
64.9
31.7
38.3
0.1
152.3
202.2
135.6
67.9
2.7
23.1
48.0
19.4
91.4
3.8
58.0
5.2
31.0
35.5
24.2
(76.5
16.2
15.3
1.5
26.7
5.8
9.5
28.9
15.6
794.3
399.4
481.1
490.0
287.0
0.2
–
18.6
128.0
106.7
1.7
0.4
54.7
10.6
8.9
0.1
–
21.9
97.9
53.1
11.2
4.3
65.4
6.0
9.2
0.2
–
25.2
117.0
34.9
0.3
0.3
63.0
4.3
7.3
0.1
–
11.8
46.7
43.1
29.7
54.0
42.0
2.6
5.9
0.1
–
5.7
40.9
63.2
0.3
0.5
33.6
0.5
4.0
–
–
–
0.1
–
–
0.8
–
1.0
–
–
–
0.4
0.1
–
0.3
–
–
–
329.8 5269.1
7252.5
235.9
148.8
0.8
2.4
–
6.6
0.4
–
0.1
9.5
–
–
–
0.9
–
–
–
0.6
1.5
–
0.9
22.8
5.0
6.8
2.1
0.3
2.1
7.5
1.4
–
9.1
8.2
1.4
5.3
–
–
–
37.6
20.4
14.9
–
2.2
51.8
57.0
2.7
28.6
14.7
12.3
–
–
–
–
–
–
–
–
–
1,133.6
672.7
802.0
812.8
520.0
1.8
(1)For 2010, Poland is classified as a discontinued operation, all other amounts relate to continuing operations.
–
–
0.1
0.2
–
–
–
0.1
–
0.7
0.1
1.2
–
–
–
0.6
0.2
–
–
0.3
–
0.9
2.0
0.1
0.2
–
–
–
–
–
0.3
–
0.6
0.2
1.4
–
–
0.4
0.3
0.2
0.2
0.1
0.2
–
0.6
2.0
0.2
0.2
–
–
–
–
–
–
–
–
–
–
0.7
–
–
0.1
–
–
–
0.1
0.1
1.2
0.3
2.5
–
–
–
37.9
0.3
–
–
0.3
–
0.4
38.9
0.5
0.1
–
–
–
–
0.2
0.2
0.6
0.2
–
–
–
–
–
–
–
–
0.6
0.2
1.0
–
–
–
–
0.2
–
–
0.1
–
0.2
0.5
–
–
–
–
–
–
–
5.5
4.1
–
0.1
3.5
–
–
0.3
3.6
47.8
–
5.6
143
Risk management – 3. Individual risk types
3.1 Credit risk – Analysis of credit risk – 5 year summaries
Loans charged off and recoveries of previously charged off loans (continued)
Net loans charged off 2013
Group – net loans charged off at 1.3% (€ 1,132 million) of average advances for the year to December 2013 compared with 0.71% or
€ 669 million at December 2012.
Ireland – net loans charged off were € 793 million. The largest sector was distribution which accounted for € 291 million or 37%.
Property and construction was € 159 million (20%), other personal of € 91 million (11%) and residential mortgages of € 67 million (8%).
United Kingdom – net loans charged off were € 329 million of which € 128 million or 39% related to property and construction.
Distribution accounted for € 107 million or 32% and other services of € 55 million or 17%.
United States – net loans charged off were € 10 million and related to borrowers in the property and construction, energy and
distribution sectors.
Net loans charged off 2012
Group – net loans charged off at 0.71% (€ 669 million) of average advances for the year to December 2012 compared with 0.71% or
€ 798 million at December 2011.
Ireland – net loans charged off were € 398 million. The main sectors were property and construction (which accounted for € 112 million
or 28%), other personal (€ 93 million and 23%), residential mortgages (€ 50 million and 13%) and distribution (€ 45 million and 11%).
The remaining € 98 million or 25% was spread across a range of sectors.
United Kingdom – net loans charged off were € 267 million. The main sectors were property and construction at € 97 million, other
services at € 65 million, and distribution at € 53 million.
United States – net loans charged off were € 1 million and related to borrowers in the manufacturing and other services sectors.
Rest of World – net loans charged off were € 3 million relating to residential mortgages in AmCredit.
144
3.1 Credit risk – Analysis of credit risk – 5 year summaries
Analysis of loans and receivables to customers by contractual residual maturity and interest rate sensitivity
The following tables analyse gross loans and receivables to customers by contractual residual maturity and interest rate sensitivity.
Overdrafts, which in the aggregate represent approximately 3% of the portfolio at 31 December 2013, are classified as repayable within
one year. Approximately 6% of AIB Group’s loan portfolio is provided on a fixed rate basis. Fixed rate loans are defined as those loans
for which the interest rate is fixed for the full term of the loan. The interest rate risk exposure is managed within agreed policy
parameters.
The analysis of loans and receivables to customers for both NAMA and disposal groups and non-current assets held for sale are shown
separately below.
Loans and receivables to customers
Fixed
rate
€ m
Variable
rate
Total
€ m
€ m
Ireland ..........................................4,375 ..............65,133 ..............69,508
United Kingdom ..............................839 ..............12,369 ..............13,208
United States of America ....................– ..................108 ..................108
Total loans by maturity
5,214
77,610
82,824
Fixed
rate
€ m
Variable
rate
€ m
Total
€ m
Ireland ..........................................6,933 ..............66,505 ..............73,438
United Kingdom ..............................905 ..............14,781 ..............15,686
United States of America ..................16 ..................257 ..................273
Total loans by maturity
7,854
81,543
89,397
Fixed
rate
€ m
Variable
rate
€ m
Total
€ m
Ireland ..........................................8,339 ..............70,631 ..............78,970
United Kingdom ..........................1,157 ..............17,007 ..............18,164
United States of America ..................49 ..................309 ..................358
Total loans by maturity
9,545
87,947
97,492
Fixed
rate
€ m
8,136
Variable
rate
€ m
Total
€ m
61,638
69,774
Ireland
United Kingdom ..........................2,430 ..............18,664 ..............21,094
United States of America ................169 ................1,799 ................1,968
Rest of World ....................................82 ..................886 ..................968
year
Within 1 After 1 year
but within 5
years
€ m
€ m
30,579
5,468
86
36,133
Within 1
year
€ m
31,465
7,484
106
39,055
Within 1
year
€ m
24,711
7,443
73
32,227
Within 1
year
€ m
20,490
7,580
740
295
5,452
2,817
20
8,289
After 1 year
but within 5
years
€ m
5,582
2,596
141
8,319
After 1 year
but within 5
years
€ m
8,342
3,905
220
12,467
After 1 year
but within 5
years
€ m
12,732
5,604
1,058
538
19,932
Total loans by maturity
10,817
82,987
93,804
29,105
After 5
years
€ m
33,477
4,923
2
38,402
After 5
years
€ m
36,391
5,606
26
42,023
After 5
years
€ m
45,917
6,816
65
52,798
After 5
years
€ m
36,552
7,910
170
135
44,767
2013
Total
€ m
69,508
13,208
108
82,824
2012
Total
€ m
73,438
15,686
273
89,397
2011
Total
€ m
78,970
18,164
358
97,492
2010
Total
€ m
69,774
21,094
1,968
968
93,804
145
Risk management – 3. Individual risk types
3.1 Credit risk – Analysis of credit risk – 5 year summaries
Analysis of loans and receivables to customers by contractual residual maturity and interest rate sensitivity (continued)
Loans and receivables to customers
Ireland
Fixed
rate
€ m
9,463
Variable
rate
€ m
62,680
Total
€ m
72,143
United Kingdom ..............................914 ..............21,175 ..............22,089
United States of America ................147 ................2,394 ................2,541
Poland(1)
......................................1,245 ................7,483 ................8,728
Rest of World ....................................90 ................1,016 ................1,106
Within 1
year
€ m
19,143
6,391
1,125
3,150
107
After 1 year
but within 5
years
€ m
21,516
6,606
1,204
3,467
799
After 5
years
€ m
31,484
9,092
212
2,111
200
2009
Total
€ m
72,143
22,089
2,541
8,728
1,106
Total loans by maturity
11,859
94,748
106,607
29,916
33,592
43,099
106,607
(1)At 31 December 2011, AIB’s investment in BZWBK (its Polish operation) was held for sale as a discontinued operation and was sold in April 2011
(note 18).
Loans and receivables held for sale to NAMA for the years ended 31 December 2010 and 2009
Ireland
Fixed
rate
€ m
32
Variable
rate
€ m
701
Total
€ m
733
United Kingdom ................................16 ................1,499 ................1,515
United States of America ....................– ......................– ......................–
Total loans by maturity
48
2,200
2,248
Fixed
rate
€ m
Variable
rate
€ m
Total
€ m
Ireland ............................................444 ..............19,000 ..............19,444
United Kingdom ..................................– ................3,722 ................3,722
United States of America ....................– ....................29 ....................29
Total loans by maturity
444
22,751
23,195
Within 1
year
€ m
568
1,038
–
1,606
After 1 year
but within 5
years
€ m
90
348
–
438
Within 1
year
€ m
16,528
2,433
29
18,990
After 1 year
but within 5
years
€ m
1,812
679
–
2,491
After 5
years
€ m
75
129
–
204
After 5
years
€ m
1,104
610
–
1,714
2010
Total
€ m
733
1,515
–
2,248
2009
Total
€ m
19,444
3,722
29
23,195
Loans and receivables held within disposal groups and non-current assets held for sale for the years ended 31 December 2013,
2012, 2011 and 2010
Ireland
Total loans by maturity
Fixed
rate
€ m
–
–
Variable
rate
€ m
28
28
Within 1
year
After 1 year
but within 5
years
€ m
–
–
€ m
–
–
Total
€ m
28
28
After 5
years
€ m
28
28
2013
Total
€ m
28
28
146
3.1 Credit risk – Analysis of credit risk – 5 year summaries
Analysis of loans and receivables to customers by contractual residual maturity and interest rate sensitivity (continued)
Ireland
United Kingdom
Total loans by maturity
Ireland
United Kingdom
United States of America
Fixed
rate
€ m
_
–
–
Fixed
rate
€ m
–
–
39
Variable
rate
€ m
97
378
475
Variable
rate
€ m
531
45
191
Total
€ m
97
378
475
Total
€ m
531
45
230
Rest of World ....................................80 ..................309 ..................389
Total loans by maturity
119
1,076
1,195
Fixed
rate
€ m
Variable
rate
€ m
Total
€ m
Poland ..........................................1,209 ................7,432 ................8,641
Rest of World ......................................– ....................74 ....................74
Total loans by maturity
1,209
7,506
8,715
Within 1
year
After 1 year
but within 5
years
€ m
14
240
254
€ m
8
18
26
Within 1
year
€ m
After 1 year
but within 5
years
€ m
79
–
78
141
298
426
11
115
119
671
Within 1
year
€ m
3,155
–
3,155
After 1 year
but within 5
years
€ m
3,334
–
3,334
After 5
years
€ m
75
120
195
After 5
years
€ m
26
34
37
129
226
After 5
years
€ m
2,152
74
2,226
2012
Total
€ m
97
378
475
2011
Total
€ m
531
45
230
389
1,195
2010
Total
€ m
8,641
74
8,715
147
Risk management – 3. Individual risk types
3.1 Credit risk – Analysis of credit risk – 5 year summaries
Analysis of loans and receivables held for sale to NAMA by geography and industry sector
The following table analyses loans and receivables held for sale to NAMA by geography and industry sector at 31 December 2010 and
31 December 2009 showing: (i) gross loans; (ii) specific provisions for impairment; and (iii) impaired loans. There were no loans held for
sale to NAMA at 31 December 2013, 2012 or 2011.
IRELAND
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal – Residential mortgages
– Other
UNITED KINGDOM
Agriculture
Energy
Manufacturing
Loans and
receivables
€ m
–
–
–
567
43
1
–
27
86
8
–
3
15
Specific
provisions for
impairment
€ m
–
–
–
38
8
–
–
3
1
2
–
–
–
Property and construction
1,351
176
Distribution
Financial
Other services
Personal – Residential mortgages
– Other
UNITED STATES
Property and construction
92
27
17
–
11
–
–
–
1
–
–
–
2010
Impaired
Loans
Loans and
receivables
Specific
provisions for
impairment
€ m
5
8
3
€ m
24
64
37
18,055
3,245
602
19
16
200
138
289
1
4
16
79
–
–
11
6
35
–
–
–
3,523
189
85
20
57
6
10
29
–
2
1
–
–
–
2009
Impaired
loans
€ m
15
23
10
9,684
228
–
1
33
17
103
–
–
–
833
–
3
6
–
1
–
€ m
–
–
–
167
36
–
–
15
37
5
–
–
–
450
13
–
15
–
3
–
Total
2,248(1)
229(2)
741
23,195(1)
3,584(2)
10,957
(1)€ 1,919 million net of provisions of € 329 million (2009: € 19,030 million net of provisions of € 4,165 million).
(2)Total provisions of € 329 million including IBNR provisions of € 100 million (2009: total provisions of € 4,165 million including IBNR provisions of € 581 million).
148
3.1 Credit risk – Analysis of credit risk – 5 year summaries
Cross-border outstandings
Cross-border outstandings, which exclude finance provided within AIB Group, are based on the country of domicile of the borrower and
comprise placings with banks and money at call and short notice, loans to customers (including those classified as held for sale to
NAMA in 2009 and 2010 and those held within discontinued operations in 2010), finance lease receivables and installment credit,
acceptances and other monetary assets, including non-local currency claims of overseas offices on local residents. AIB Group monitors
geographic breakdown based on the country of the borrower and the guarantor of ultimate risk. The more significant cross border
outstandings are shown in the following table:
31 December 2013
France ....................................................
United Kingdom......................................
United States of America........................
Netherlands ............................................
Spain ......................................................
Germany ................................................
Italy ........................................................
Portugal ..................................................
Greece ..................................................
31 December 2012
United Kingdom......................................
United States of America........................
France ....................................................
Spain ......................................................
Germany ................................................
Italy ........................................................
Portugal ..................................................
Greece ..................................................
31 December 2011
United Kingdom......................................
United States of America........................
France ....................................................
Spain ......................................................
Germany ................................................
Italy ........................................................
Portugal ..................................................
Greece ..................................................
31 December 2010
United Kingdom......................................
United States of America........................
Spain ......................................................
France ....................................................
Germany ................................................
Italy ........................................................
Portugal ..................................................
Greece ..................................................
31 December 2009
United States of America........................
United Kingdom......................................
Spain ......................................................
France ....................................................
Germany ................................................
Italy ........................................................
Portugal ..................................................
Greece ..................................................
As % of
total
assets(1)
2.4
1.4
1.3
1.2
0.8
0.8
0.2
0.1
–
1.5
1.2
1.6
1.3
0.6
0.2
0.1
–
1.8
1.6
1.4
1.3
0.8
0.2
0.2
0.1
5.7
3.7
2.0
1.7
1.2
1.0
0.4
0.1
4.7
2.9
2.1
1.7
1.2
0.9
0.3
0.1
Total
€ m
2,798
1,602
1,499
1,364
946
980
263
89
–
1,877
1,447
1,950
1,616
781
230
149
–
2,492
2,199
1,925
1,824
1,118
287
250
52
8,313
5,329
2,941
2,527
1,760
1,428
530
119
8,193
5,093
3,610
3,013
2,065
1,643
469
158
other
financial
institutions
Banks and Government Commercial,
industrial
and other
private
sector
€ m
and
official
institutions
€ m
€ m
1,061
511
191
783
270
314
21
–
–
589
93
485
474
294
–
21
–
684
50
447
575
630
–
54
–
730
403
900
705
892
405
206
67
1,127
1,186
1,585
1,974
1,300
665
138
–
784
519
–
505
–
568
228
6
–
575
28
715
–
306
221
25
–
572
307
731
30
277
175
98
16
870
658
340
989
361
824
246
41
1,303
695
117
480
294
625
201
42
953
572
1,308
76
676
98
14
83
–
713
1,326
750
1,142
181
9
103
–
1,236
1,842
747
1,219
211
112
98
36
6,713
4,268
1,701
833
507
199
78
11
5,763
3,212
1,908
559
471
353
130
116
(1)Assets, consisting of total assets as reported in the consolidated statement of financial position, totalled € 117,734 million at 31 December 2013 (2012:
€ 122,501 million restated, 2011: € 136,651 million; 2010: € 145,222 million; 2009: € 174,314 million).
149
Risk management – 3. Individual risk types
3.1 Credit risk - Financial investments available for sale
The following table analyses the carrying value (fair value) of financial investments available for sale by major classifications together
with the unrealised gains and losses at 31 December 2013 and 31 December 2012:
Debt securities*
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and government agencies
Collateralised mortgage obligations
Other asset backed securities
Euro bank securities
Non Euro bank securities
Euro corporate securities
Non Euro corporate securities
Other investments
Total debt securities
Equity securities
Equity securities – NAMA subordinated bonds
Equity securities – other
Total equity securities
Total financial investments
available for sale
Unrealised
gross gains
€ m
2012
Unrealised
gross losses
€ m
Fair
value
€ m
10,328
1,968
608
3,092
–
535
3,671
34
–
3
12
20,251
73
44
117
2013
Unrealised
Unrealised
gross gains gross losses
€ m
€ m
910
110
54
29
–
1
59
–
–
–
–
1,163
26
12
38
–
(1)
–
(6)
–
(54)
(7)
–
–
–
–
(68)
–
(7)
(7)
Fair
value
€ m
7,588
1,754
712
1,682
22
920
3,070
161
87
193
12
608
153
95
55
–
1
176
3
6
17
–
16,201
1,114
47
96
143
–
16
16
(1)
(4)
–
–
(6)
(140)
(11)
(5)
(3)
–
–
(170)
–
(10)
(10)
20,368
1,201
(75)
16,344
1,130
(180)
The following tables analyse the available for sale portfolio by geography at 31 December 2013 and 31 December 2012:
Government securities*
Republic of Ireland
United Kingdom
Italy
Austria
France
Germany
Portugal
Netherlands
Rest of World
2013
Non Euro
Government governments governments
€ m
Euro
Irish
€ m
€ m
Irish
Euro
Government governments
€ m
€ m
10,328
–
–
–
–
–
–
–
–
–
–
228
155
753
271
6
505
50
10,328
1,968
–
519
–
–
–
–
–
–
89
608
7,588
–
–
–
–
–
–
–
–
–
–
221
160
683
281
25
358
26
7,588
1,754
2012
Non Euro
governments
€ m
–
621
–
–
–
–
–
–
91
712
*Forms an integral part of the audited financial statements
150
3.1 Credit risk - Financial investments available for sale (continued)
Asset backed securities*
Republic of Ireland
United Kingdom
United States of America
Spain
Rest of World
Bank securities*
Republic of Ireland
United Kingdom
United States of America
Australia
Austria
France
Germany
Portugal
Netherlands
Spain
Sweden
Belgium
Denmark
Rest of World
2013
Total
€ m
–
69
74
322
70
535
Euro
€ m
903
425
35
–
21
464
75
20
344
441
24
52
35
231
3,070
2012
Total
€ m
37
95
84
545
181
942
2012
Non Euro
€ m
35
10
–
–
–
–
6
–
–
–
110
–
–
–
161
Euro
€ m
2013
Non Euro
€ m
484
486
–
221
–
741
77
–
486
437
192
53
75
419
3,671
–
–
–
–
–
–
–
–
–
–
34
–
–
–
34
The cumulative credit to available for sale securities reserves relating to bank securities is € 52 million (2012: credit of € 163 million)
which is gross of hedging and taxation.
*Forms an integral part of the audited financial statements
151
Risk management - 3. Individual risk types
3.1 Credit risk - Financial investments available for sale (continued)
Debt securities
Debt securities Available for sale (“AFS”) debt securities have increased from a fair value of € 16.2 billion at 31 Dec 2012 to € 20.3 billion
at 31 December 2013. Sales and maturities of € 2.9 billion were offset by purchases of € 6.6 billion and an increase in fair value of
€ 0.2 billion.
The overall increase in the portfolio was driven by a decision to increase holdings of fixed rate instruments for the purposes of reducing
volatility in earnings from interest free liabilities.
Purchases have been concentrated in assets which assist the group in achievement of the Basel III Liquidity Coverage Ratio (“LCR”)
and Net Stable Funding Ratio (“NSFR”). Increases in holdings have been mainly in Irish Sovereign Debt (up € 2.7 billion), European
Government Agencies (up € 1.4 billion) and highly rated European Covered Bonds (up € 0.6 billion).
Sales in the period included Asset Backed Securities (down € 0.4 billion), and the Corporate Bond Portfolio (down € 0.3 billion).
The external ratings profile of the portfolio improved in 2013 with all except € 20.5 million of holdings being rated investment grade. The
breakdown by rating was AAA - 23% (2012 26%), AA - 19% (2012 11%), A - 2% (2012 7%), BBB – 55% (2012 54%), and
sub-investment grade 0% (2012 2%). There are no credit provisions, specific or IBNR against the AFS portfolio as at 31 December 2013
(2012 € 60 million IBNR).
Equity securities
NAMA subordinated bonds are included within available for sale equity securities. The fair value of these bonds at 31 December 2013
increased to € 73 million as the fair value price estimate was increased from 10 (2012) to 15.5.
Asset backed securities
The Asset Backed Securities portfolio was reduced during the year with sales of Spanish residential mortgage backed securities
(€ 0.3 billion) and smaller holdings of Irish and Portuguese (€ 0.1 billion combined). The sales included a sub portfolio of assets which
were subject to close credit monitoring and against which an IBNR provision of € 50 million had been held as at 31 December 2012.
Bank securities by geography and currency
At 31 December 2013, the bank bond fair value of € 3.7 billion (31 Dec 2012: € 3.2 billion) included € 2.8 billion of covered bonds
(31 December 2012: € 1.7 billion); € 0.4 billion of government guaranteed senior bank debt (31 December 2012: € 0.8 billion); and
€ 0.5 billion of senior unsecured bank debt (31 December 2012: € 0.6 billion). All subordinated bank debt holdings € 0.1 billion) were
sold during 2013 and the IBNR of € 10 million held as at 31 December 2012 was released.
Republic of Ireland
The fair value of Irish debt securities in the AFS category amounted to € 10.8 billion at 31 December 2013 (31 December 2012:
€ 8.6 billion) and consisted of sovereign debt € 10.3 billion (31 December 2012: € 7.6 billion); government guaranteed senior bank debt
of € 0.4 billion (31 December 2012: € 0.7 billion); covered bonds of € 0.1 billion (31 December 2012: € 0.2 billion).
In addition to Irish Government securities outlined above, NAMA senior debt amounting to € 15.8 billion nominal (31 December 2012:
€ 17.7 billion), which is guaranteed by the Irish Government (note 28).
Spain
The fair value of Spanish debt securities at 31 December 2013 was € 0.7 billion (31 December 2012 € 1 billion) and included asset
backed securities of € 0.3 billion (2012 € 0.5 billion) and covered bonds of € 0.4 billion (2012 € 0.5 billion).
The Spanish asset backed securities at 30 December 2013 were all residential mortgage backed securities which had been rated AAA
at origination. The weighted average market bid price for this portfolio was 88.02 (31 December 2012: 78.19).In addition, Spanish debt
of € 0.12 billion (31 December 2012: € 0.5 billion) is included within loans and receivables to customers (note 25).
Italy
The fair value of Italian debt securities of € 0.2 billion at 31 December 2013 comprised solely of sovereign debt (2012 € 0.2 billion
sovereign, € 2 million corporate).
Portugal
The fair value of Portuguese debt securities at 31 December 2013 was € 59 million (31 December 2012: € 131 million). It comprised
sovereign debt of € 6 million (31 December 2012: € 25 million); asset backed securities of € 53 million (31 December 2012: € 83 million).
In 2012, the Group also had holdings of senior bank debt of € 20 million and corporate debt of € 3 million.
152
3.2 Liquidity risk*
Liquidity Risk is the risk that the Group will not be able to fund its assets and meet its payment obligations as they come due, without
incurring unacceptable costs or losses. 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.
Risk identification and assessment
Liquidity risk is assessed by modelling cashflows of the Group over a series of maturity bands. Behavioural assumptions are applied to
those assets and liabilities whose contractual repayment dates are not reflective of their inherent stability. Both contractual and
behaviourally adjusted cashflows are compared against the Group’s stock of unencumbered liquid assets to determine, by maturity
bands, the adequacy of the Group’s liquidity position. In addition, the Group monitors and manages the funding support provided by its
deposit base to its loan book through a series of measures including the Basel III liquidity ratios i.e. the Liquidity Coverage Ratio
(“LCR”) and Net Stable Funding Ratio (“NSFR”) as required by the 2013 Capital Requirements Regulation (“CRR”) and the Capital
Requirements Directive (“CRD”).
Risk management and mitigation
AIB has a comprehensive Funding and Liquidity Framework for managing the Group’s liquidity risk. The Funding and Liquidity
Framework is designed to comply with evolving regulatory standards and ensure that the Group maintains sufficient financial resources
of appropriate quality for the Group’s funding profile. The Funding and Liquidity Framework is delivered through a combination of policy
formation, review and governance, analysis, stress testing and limit setting and monitoring.
The Group’s liquidity management policy seeks to ensure AIB’s compliance with “Principles for the Sound Liquidity Risk
Management and Supervision” as set out by the Basel Committee on Banking Supervision (September 2008) and the Central Bank of
Ireland’s “Requirements for the Management of Liquidity Risk” – June 2009 and in doing so ensures that it has sufficient liquidity to
meet its current requirements. AIB is required to comply with the liquidity requirements of the Central Bank of Ireland (“CBI”) and also
with the requirements of local regulators overseas which include regulatory restrictions on the transfer of liquidity within the Group. In
addition, it operates a funding strategy designed to anticipate additional funding requirements based upon projected balance sheet
movements and to maintain a diversified funding base with an emphasis on high quality, stable customer deposit funding whilst
maintaining an appropriate balance between short term and long term funding sources at an appropriate cost.
The liquidity and funding requirements of the Group are managed by the Treasury function. Euro and sterling are the most important
currencies to the Group from a liquidity and funding perspective. The Group manages its liquidity in a number of ways:
– Firstly, through the active management of its liability maturity profile, it aims to ensure a balanced spread of repayment obligations
with a key focus on 0 – 8 day and 9 day – 1 month time periods. Monitoring ratios also apply to longer periods for long term funding
stability;
– Secondly, the Group aims to maintain a stock of high quality liquid assets to meet its obligations as they fall due. Discounts are
applied to these assets based upon their cash-equivalence and price sensitivity; and
– Finally, net inflows and outflows are monitored on a daily basis.
Risk monitoring and reporting
In common with other areas of risk management, the Group operates a “three lines of defence” model. Liquidity risk management is
undertaken in Treasury which reports to the Director of Products with reporting and monitoring carried out by Treasury ALM which
reports to the Chief Financial Officer (“CFO)”). These areas comprise the first line. Second line control and assurance is provided by
Financial Risk reporting to the Chief Risk Officer (“CRO”), and Group Internal Audit comprises the third line. The Group liquidity and
funding position is reported regularly to the Group Asset and Liability Committee (“ALCo”), the Executive Risk Committee (“ERC”) and
the Board Risk Committe (“BRC”). In addition, the Leadership Team and the Board are briefed on liquidity and funding on an on-going
basis.
*Forms an integral part of the audited financial statements
153
Risk management - 3. Individual risk types
3.2 Liquidity risk*
At 31 December 2013, the Group held € 42 billion in qualifying liquid assets/contingent funding (excluding liquid assets in AIB Group
(UK) p.l.c. that are subject to transfer restrictions) of which approximately € 28 billion was used in repurchase or secured loan
agreements. The available Group liquidity pool comprises the remainder and is held to cover contractual and stress outflows. As at
31 December 2013, the Group liquidity pool was € 14 billion (2012: € 13 billion). During 2013, the month-end liquidity pool ranged from
€ 11 billion to € 14 billion and the month-end average balance was € 13 billion.
Composition of the Group liquidity pool as at 31 December 2013
Cash and deposits with central banks
Total Government bonds
Other:
Agencies and agency mortgage-backed securities
Other including NAMA senior bonds
Total other
Total
Liquidity pool
€ bn
Liquidity pool
available
(ECB eligible)
€ bn
2013
Liquidity pool of which
Basel III LCR eligible
Level 1
€ bn
Level 2
€ bn
0.3
3.4
0.3
9.7
10.0
13.7
–
3.4
0.3
9.7
10.0
13.4
2.0
3.5
–
4.1
4.1
9.6
–
–
0.1
–
0.1
0.1
Level 1 High Quality Liquidity Assets (“HQLA”) include amongst others: domestic currency (euro) denominated bonds issued or
guaranteed by EEA sovereigns; other very highly rated sovereign bonds; certain very highly rated covered bonds; and unencumbered
cash at central banks.
Level 2 HQLA include highly rated sovereign bonds, very highly rated covered bonds and certain other strongly rated securities.
The CRD rules for HQLA are not yet finalised, however, the above is based on recent European Banking Authority (“EBA”)
recommendations.
Management of the Group liquidity pool
AIB manages the liquidity pool on a centralised basis. The composition of the liquidity pool is subject to limits set by the Board and the
independent Risk functions. These assets primarily comprise government guaranteed bonds. AIB improved its liquidity buffer during the
course of 2013 by € 1 billion.
*Forms an integral part of the audited financial statements.
154
3.2 Liquidity risk*
Other contingent liquidity
The Group has access to other unencumbered assets which provide a source of contingent liquidity. These are not in the Group’s
liquidity pool, however, these assets may be monetised in a stress scenario to generate liquidity through use as collateral for secured
funding or outright sale.
Liquidity regulation
The Group is required to comply with the liquidity requirements of the CBI and also with the requirements of local regulation overseas.
The Group also monitors its current and forecast position against anticipated BaseI III liquidity metrics – the LCR and the NSFR. The
LCR is designed to promote short term resilience of a bank’s liquidity risk profile by ensuring that it has sufficient high quality liquid
resources to survive an acute stress scenario lasting for 30 days. The NSFR has a time horizon of one year and has been developed to
promote a sustainable maturity structure of assets and liabilities.
The minimum LCR requirement is to be introduced in January 2015 at 60%, rising to 100% by January 2018. The minimum NSFR
requirement is expected to be introduced in January 2018 at 100%. Based on the current Basel standards, as at 31 December 2013,
the Group had an estimated Basel III LCR of c.105% and an estimated NSFR of c.95%.
Based on revised Basel standards and their EU implementation through the Capital Requirements Directives and Regulations of June
2013, the Group is on a clear path of compliance with these ratios.
Liquidity risk stress testing
Stress testing is a key component of the liquidity risk management framework. The Group undertakes liquidity stress testing and has
established the Liquidity Contingency Plan (“LCP”) which is designed to ensure that the Group can manage its business in stressed
liquidity conditions and emerge from a temporary liquidity crisis as a creditworthy institution.The LCP is determined with reference to net
contractual and contingent outflows under a variety of stress scenarios and is used to size liquidity pool requirements.
Stress tests include both “firm” specific and systemic risk events and a combination of both. Stressed assumptions are applied to the
Group’s liquidity buffer and liquidity risk drivers. These scenario events are reviewed in the context of the Group’s LCP, which details
corrective action options under various levels of stress events. EBA prescribed stress scenarios are also measured. A stress scenario
for one month of stress is measured which assumes outflows consistent with a firm-specific stress for the first two weeks of the stress
period, followed by relatively lower outflows consistent with a market-wide stress for the remainder of the stress period. Survival periods
of various durations are measured as part of Liquidity Stress testing.
The purpose of these actions is to ensure the continued stability of the Group’s liquidity position, within the Group’s pre-defined liquidity
risk tolerance levels. These results are reported to ALCo, the Leadership Team and Board, and to other committees. Once Board
approved survival limits are breached, the LCP will be activated. The LCP can also be activated by management decision independently
of the stress tests.
Under normal market conditions, the liquidity pool is managed to be at least 100% of anticipated net outflows under each of the stress
scenarios.
*Forms an integral part of the audited financial statements.
155
Risk management - 3. Individual risk types
3.2 Liquidity risk*
Internal and regulatory liquidity stress tests comparison (unaudited)
The LCP stress scenarios, including the EBA prescribed stress scenarios and Basel III LCR are all broadly comparable short term stress
scenarios in which the adequacy of defined liquidity resources are assessed against contractual and contingent stress outflows. The
EBA stress scenarios and the Basel III ratios provide an independent assessment of the Group’s liquidity risk profile.
Stress test
Time horizon
Calculation
EBA Liquidity
Stress
Basel III
Liquidity
Coverage Ratio
(LCR)
Basel III
Net Stable
Funding Ratio
(NSFR)
1 month
30 days
1 year
Liquid assets to
net cash outflows
Liquid assets to
net cash outflows
Stable funding
resources to
stable funding
requirements
As at December 2013, the Group held liquid assets in excess of minimum required levels for EBA stress measurement purposes and
the Basel III LCR requirement. Internal stress testing also considers stress periods of between 1 month and 1 year, breaches of which
will trigger the LCP.
Compliance with internal regulatory stress tests as at 31 December 2013
Liquidity pool as a percentage of anticipated net cash flows
1 month EBA
liquidity stress
requirement
€ bn
137%
Basel III
LCR
€ bn
105%
The Basel III LCR is an estimate. Financial institutions employ a wide range of interpretations and assumptions to calculate the Basel III
Liquidity ratios. These interpretations and assumptions are subject to change prior to the implementing of the January 2015 LCR
minimum requirement.
Funding structure
The Group’s funding strategy is to deliver a sustainable, diversified and robust customer deposit base at economic pricing and to rebuild
a strong wholesale funding franchise with appropriate access to term markets to support core lending activities. The strategy aims to
deliver a solid funding structure that complies with internal and regulatory policy requirements and reduces the probability of a liquidity
stress, i.e. an inability to meet funding obligations as they fall due.
Sources of funds
Customer accounts
Deposits by central banks and banks - secured
- unsecured
Certificates of deposit and commercial paper
Covered bonds
Securitisation
Senior debt
Capital
Total source of funds
Other
31 December 2013
%
€ bn
31 December 2012
%
€ bn
31 December 2011
%
€ bn
65.7
22.6
0.5
0.1
3.3
1.0
4.3
11.8
109.3
8.1
117.4
60
21
–
–
3
1
4
11
100
63.6
28.1
0.3
–
3.2
1.1
6.3
12.5
115.1
7.3
122.4
55
24
–
–
3
1
6
11
100
60.7
35.9
1.0
0.3
3.8
0.9
10.7
15.0
128.3
7.8
136.1
47
28
1
–
3
1
8
12
100
145
*Forms an integral part of the audited financial statements.
156
3.2 Liquidity risk*
The Group maintains access to a variety of sources of wholesale funds, including those available from money markets, repo markets
and term investors.
Customer deposits represent the largest source of funding for the Group, and the core retail franchises and accompanying deposit base
in both Ireland and the UK provide a stable and reasonably predictable source of funds. During the year, AIB completed its withdrawal
from the offshore locations of Isle of Man and the Channel Islands. Although the deposit base in these locations has been wound down,
the loss of liquidity for AIB has been minimal as the majority of the liquidity had been previously ‘trapped’ offshore as a result of local
regulations. Customer accounts have increased by € 2 billion in the full year 2013, with increases in current account balances and repos
with customers being partially offset by outflows of rate sensitive funds as margins were managed downwards as planned.
The Irish Government Eligible Liabilities Guarantee (“ELG”) scheme, which played an important role in underpinning the funding position
of the Group, terminated for new liabilities as of 28 March 2013. This withdrawal of the ELG scheme has had a negligible overall effect
on deposit balances. (Details of the ELG scheme are included in note 54 to the financial statements).
Wholesale funding markets saw significant improvement in sentiment towards Ireland and towards AIB in 2013. During 2013, the Group
issued € 2 billion of term funding, comprising:
€ 0.5 billion senior unsecured debt+;
–
€ 1 billion covered bond (ACS) issuance++; and
–
€ 0.5 billion credit card issuance++.
–
+Improved market sentiment towards AIB facilitated the issuance in November 2013 of AIB’s first unguaranteed unsecured issuance for
almost 5 years, a € 500 million Medium Term Note (“MTN”) with a 3 year maturity.
++The Group continues to engage with the markets in a measured and consistent manner extending the duration of funding
transactions. It also continues to develop the capability to create collateral pools from its loan assets aimed at market investors with a
€ 500 million credit card funding deal in October 2013 (the first by an Irish bank) and further ACS issuances in January and September
2013, with € 500 million in each tranche.
Senior debt funding of € 4 billion at 31 December 2013, decreased from € 6 billion at 31 December 2012, due to maturing bonds. The
performance of the economy will drive credit demand and the retention and gathering of stable customer accounts in a challenging and
increasingly competitive market environment, plus continued access to unsecured wholesale term markets will be the key factors
influencing the Group’s capacity for asset growth and the future shape of the Group. Coupled with actions to be undertaken for the
purpose of restructuring stressed assets, this is paramount to increasing the Group’s pool of available liquid assets and to the Group’s
overall funding/liquidity strategy.
While the Group continues to have significant dependence on Central Bank/ECB support, 2013 saw a reduction of € 9 billion in ECB
funding. Central Bank/ECB support amounted to € 13 billion at 31 December 2013, down from € 22 billion at 31 December 2012.
Central Bank drawings include €11 billion in the ECB’s 3 year Long-Term Refinancing Operations (“LTRO”) which are due to mature in
Quarter 1 2015. Reducing the reliance on ECB funding will continue to be a key objective of the Group. The strong deposit growth and
lower customer loan balances contributed to an improved Group loan to deposit ratio. The Group’s loan to deposit ratio decreased from
115% at 31 December 2012 to 100% at 31 December 2013.
*Forms an integral part of the audited financial statements.
157
Risk management - 3. Individual risk types
3.2 Liquidity risk*
Composition of wholesale funding
As at 31 December 2013, total wholesale funding outstanding was € 33 billion (2012: € 40 billion). € 12 billion of wholesale funding matures
in less than one year (2012: € 20 billion) and € 21 billion of wholesale funding had a residual maturity of over one year, including € 11 billion
of LTRO drawings (2012: € 20 billion).
As at 31 December 2013, outstanding wholesale funding comprised € 27 billion of secured funding (2012: € 32 billion) and € 6 billion of
unsecured funding (2012: € 8 billion).
Not more
than 1
month
€ bn
7.9
0.1
–
–
–
8.0
7.4
0.6
8.0
13.5
0.3
13.8
Deposits from banks
Certificate of deposits and
commercial paper
Senior unsecured
Covered bonds/ABS
Subordinated liabilities
Total 31 December 2013
Of which:
Secured
Unsecured
Secured
Unsecured
Total 31 December 2012
Over 1
month
but not
Over 3
months
but not
Over 6
months
but not
more than more than more than
1 year
6 months
3 months
€ bn
€ bn
€ bn
3.2
–
–
–
–
3.2
3.2
–
3.2
3.1
2.4
5.5
–
–
–
–
–
–
–
–
–
1.0
–
1.0
0.1
–
0.8
–
–
0.9
0.1
0.8
0.9
0.1
–
0.1
Total
less than
1 year
Total
over
1 year
€ bn
11.2
0.1
0.8
–
–
€ bn
11.9
–
3.5
4.3
1.4
2013
Total
€ bn
23.1
0.1
4.3
4.3
1.4
12.1
21.1
33.2
10.7
1.4
12.1
17.7
2.7
20.4
16.2
4.9
21.1
14.6
5.4
20.0
26.9
6.3
33.2
2012
32.3
8.1
40.4
Currency composition of wholesale debt
As at 31 December 2013, 97% of wholesale funding was in euro. A negligible balance is held in other currencies, mainly GBP and USD.
AIB manages cross-currency refinancing risk to foreign-exchange cash-flow limits.
*Forms an integral part of the audited financial statements.
158
3.2 Liquidity risk*
Encumbrance
An asset is defined as encumbered if it has been pledged as collateral against an existing liability, and as a result is no longer available
to the Group to secure funding,satisfy collateral needs or be sold to reduce the funding requirement. In addition, for the purposes of
liquidity management, AIB regards liquidity unavailable to the Group because of overseas regulatory restrictions as encumbered. AIB
funds a portion of portfolio assets and other securities through repurchase agreements and other similar secured borrowings and
pledges a portion of customer loans and receivables as collateral in securitisation, covered bond and other similar secured structures.
AIB monitors the mix of secured and unsecured funding sources within the Group’s funding plan and seeks to efficiently utilise available
collateral to raise secured funding and meet other collateralised obligations.
Over the past 18 months, the proportion of term funding requirements satisfied through secured funding has increased, increasing the
encumbrance of loans and receivables to customers. Encumbrance of loans and receivables to customers is expected to moderately
increase through additional term secured funding, however, this is not expected to materially impact the overall proportion of assets that
are encumbered. Economic improvements coupled with sovereign and bank credit rating upgrades will in time reduce the collateral the
Group requires to raise funding.
As at 31 December 2013, € 42.5 billion of the Group’s assets on the statement of financial position were encumbered (excluding reverse
repurchase agreements), which primarily related to Group financing of available for sale assets, NAMA senior bonds and funding
secured against loans and receivables to customers.
Cash and balances at central banks
Derivative financial instruments
Loans and receivables to banks
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale
Property plant and equipment
Other assets
Total
2013
Unencumbered assets
Assets Encumbered
assets
€ bn
€ bn
Readily
available
€ bn
4.1
1.6
2.0
65.7
15.6
20.4
0.3
8.0
117.7
2.1
–
1.9
11.0
11.4
16.1
–
–
42.5
2.0
–
–
14.4
4.2
4.3
–
–
24.9
Other
€ bn
–
1.6
0.1
40.3
–
–
0.3
8.0
50.3
Of the unencumbered assets, € 24.9 billion are classified as readily available for use as collateral to generate liquidity. In addition to the
Group liquidity pool this includes unencumbered assets which provide a source of contingent liquidity. Though the additional assets are
not relied on in the event of a stress, a portion of these assets may be monetised in a stress scenario to generate liquidity through use
as collateral for secured funding or through outright sale.
Loans and receivables to customers are only classified as readily available if they are already in a form such that they can be used to
raise funding without further management actions. This includes excess collateral already in secured funding vehicles and collateral
pre-positioned at central banks and available for use in secured financing transactions. All other loans and receivables are
conservatively classified as not readily available, however, a proportion would be suitable for use in secured funding structures, this
portion increasing as economic conditions improve and as the Group restructures its stressed loan assets.
*Forms an integral part of the audited financial statements.
159
Risk management - 3. Individual risk types
3.2 Liquidity risk*
Asset encumbrance of loans and receivables to customers
The following table analyses the asset encumbrance of loans and receivables to customer as at 31 December 2013:
Mortgages (residential mortgage backed securities)
Retail and SME (credit card issuance)
Total
Assets
€ bn
24.7
0.7
25.4
Externally
issued
notes
€ bn
Other
secured
funding
€ bn
4.3
–
4.3
2.5
0.5
3.0
2013
Retained
€ bn
6.8
–
6.8
AIB issues asset backed securities (“ABS”), covered bonds and other similar secured instruments that are secured primarily over customer
loans and receivables. Notes issued under these programmes are also used in repurchase agreements with market counterparts and in
central bank facilities.
As at 31 December 2013, € 25.4 billion of customer loans and receivables were transferred to these and other asset backed funding
programmes or utilised to secure funding from central bank facilities. These assets were used to support € 4.3 billion of externally issued
notes and a further € 2.5 billion of retained notes and non-securitised loan collateral were used in repurchase agreements with market
counterparts and at central bank facilities.
In addition, as at 31 December 2013, the Group had excess collateral within its asset backed funding programmes that can readily be
used to issue additional retained bonds of € 2.1 billion. Retained notes are also available to raise secured funding.
Firm financing repurchase agreements
The following table analyses the firm financing repurchase agreements as at 31 December 2013:
Maturity profile
Less than
1 month
€ bn
1 month to
3 months
€ bn
Over
3 months
€ bn
10
6
12
2013
Total
€ bn
28
Credit ratings
The Group’s debt ratings as at 4 March 2014 for all debt/deposits not covered by the ELG scheme are as follows:
– S&P long-term "BB" and short-term "B";
– Fitch long-term "BBB" and short-term "F2"; and
– Moody's long-term "Ba3" for deposits and "B1" for senior unsecured debt and short-term "Not Prime" for deposits and senior
unsecured debt.
Bank and sovereign rating downgrades have the potential to adversely affect the Group’s liquidity position and this has been factored
into the Group’s stress tests.
*Forms an integral part of the audited financial statements.
160
3.2 Liquidity risk*
Financial assets and financial liabilities by contractual residual maturity
Repayable 3 months or less 1 year or less
but over
on demand but not repayable
3 months
on demand
€ m
€ m
€ m
5 years or less
but over
1 year
€ m
2013
Total
Over
5 years
€ m
€ m
Financial assets
Financial assets of disposal groups(1)(2)(4)
Trading portfolio financial assets(2)
Derivative financial instruments(3)
Loans and receivables to banks(4)
Loans and receivables to customers(4)
NAMA senior bonds(5)
Financial investments available for sale(2)
Other financial assets
Financial liabilities
Deposits by central banks and banks
Customer accounts
Derivative financial instruments(3)
Debt securities in issue
Subordinated liabilities and other
capital instruments
Other financial liabilities
Financial assets
Financial assets of disposal groups(1)(2)(4)
Trading portfolio financial assets(2)
Derivative financial instruments(3)
Loans and receivables to banks(4)
Loans and receivables to customers(4)
NAMA senior bonds(5)
Financial investments available for sale(2)
Other financial assets
Financial liabilities
Deposits by central banks and banks
Customer accounts
Derivative financial instruments(3)
Debt securities in issue
Subordinated liabilities and other
capital instruments
Other financial liabilities
–
–
–
1,680
31,854
–
3
–
33,537
218
27,646
–
–
–
526
28,390
Repayable
on demand
€ m
237
–
–
2,083
32,619
–
4
5
34,948
337
25,896
–
–
–
534
26,767
–
–
33
373
871
15,598
246
559
17,680
10,860
21,929
80
139
–
2
–
–
210
2
3,408
–
937
–
4,557
143
11,654
143
828
–
–
–
–
900
–
28
1
486
–
8,289
38,402
–
–
11,357
7,708
–
–
28
1
1,629
2,055
82,824
15,598
20,251
559
20,546
46,625
122,945
11,900
4,438
666
6,918
1,316
–
–
–
1,071
874
23,121
65,667
1,960
8,759
36
–
1,352
528
33,010
12,768
25,238
1,981
101,387
3 months or less
but not repayable
on demand
€ m
1 year or less
but over
3 months
€ m
5 years or less
but over
1 year
€ m
2012
Total
Over
5 years
€ m
€ m
–
2
248
748
1,675
17,387
283
517
20,860
16,605
19,009
223
2,350
–
3
17
–
263
87
4,761
–
956
–
6,084
–
12,522
205
984
–
–
26
15
1,364
–
195
5
960
–
8,319
42,023
–
–
8,610
6,348
–
–
475
22
2,835
2,918
89,397
17,387
16,201
522
18,334
49,531
129,757
11,500
5,194
962
6,413
1,237
–
–
989
1,866
28,442
63,610
3,256
919
10,666
34
–
1,271
537
38,190
13,711
25,306
3,808
107,782
(1)Only disposal groups that contain financial assets and financial liabilities have been included.
(2)Excluding equity shares.
(3)Shown by maturity date of contract.
(4)Shown gross of provisions for impairment, unearned income and deferred costs.
(5)New notes will be issued at each maturity date, with the next maturity date being 1 March 2014. Upon maturity, the issuer has the option to settle in cash or
issue new notes and to date has issued new notes.
*Forms an integral part of the audited financial statements.
161
Risk management - 3. Individual risk types
3.2 Liquidity risk*
Financial liabilities by undiscounted contractual maturity
The balances in the table below include the undiscounted cash flows relating to principal and interest on financial liabilities and as such
will not agree directly with the balances on the consolidated statement of financial position. All derivative financial instruments with the
exception of interest rate swaps have been included in the ‘3 months or less but not repayable on demand’ category at their mark to
market value. Interest rate swaps have been analysed based on their contractual maturity undiscounted cash flows.
In the daily management of liquidity risk, the Group adjusts the contractual outflows on customer deposits to reflect inherent stability of
these deposits. Offsetting the liability outflows are cash inflows from the assets on the statement of financial position. Additionally, the
Group holds a stock of high quality liquid assets, which are held for the purpose of covering unexpected cash outflows.
The following table analyses, on an undiscounted basis, financial liabilities by remaining contractual maturity:
1 year or less
but over
3 months
5 years
or less but
over 1 year
Over
5 years
2013
Total
Financial liabilities
Derivative financial instruments
Deposits by central banks and banks
Customer accounts
Debt securities in issue
Subordinated liabilities and other
capital instruments
Other financial liabilities
Financial liabilities
Derivative financial instruments
Deposits by central banks and banks
Customer accounts
Debt securities in issue
Subordinated liabilities and other
capital instruments
Other financial liabilities
Repayable
on demand
€ m
–
218
27,653
–
–
526
28,397
Repayable
on demand
€ m
–
337
25,921
–
–
534
26,792
3 months
or less but
not repayable
on demand
€ m
406
10,865
22,138
258
–
2
3 months
or less but
not repayable
on demand
€ m
572
16,614
19,299
2,539
–
3
33,669
13,549
1 year or less
but over
3 months
5 years
or less but
over 1 year
Over
5 years
2012
Total
€ m
323
146
11,897
1,023
160
–
€ m
480
2
12,918
1,177
160
–
€ m
€ m
€ m
884
12,079
4,846
7,399
1,920
–
27,128
977
–
–
892
121
–
2,590
23,308
66,534
9,572
2,201
528
1,990
104,733
€ m
€ m
€ m
1,584
11,763
5,674
7,005
2,080
–
28,106
1,722
–
1,048
942
123
–
4,358
28,716
64,860
11,663
2,363
537
3,835
112,497
39,027
14,737
*Forms an integral part of the audited financial statements.
162
3.2 Liquidity risk*
Financial liabilities by undiscounted contractual maturity (continued)
The undiscounted cash flows potentially payable under guarantees and similar contracts, included below within contingent liabilities, are
classified on the basis of the earliest date the facilities can be called. The Group is only called upon to satisfy a guarantee when the
guaranteed party fails to meet its obligations. The Group expects that most guarantees it provides will expire unused.
The Group has given commitments to provide funds to customers under undrawn facilities. The undiscounted cash flows have been
classified on the basis of the earliest date that the facility can be drawn. The Group does not expect all facilities to be drawn, and some
may lapse before drawdown.
Contingent liabilities
Commitments
Contingent liabilities
Commitments
Payable on
demand
€ m
1,353
8,236
9,589
Payable on
demand
€ m
1,561
8,974
10,535
3 months
or less but
not repayable
on demand
€ m
1 year or less
but over
3 months
5 years
or less but
over 1 year
Over
5 years
€ m
€ m
€ m
–
–
–
–
–
–
–
–
–
–
–
–
3 months
or less but
not repayable
on demand
€ m
1 year or less
but over
3 months
5 years
or less but
over 1 year
Over
5 years
€ m
€ m
€ m
–
–
–
–
–
–
–
–
–
–
–
–
2013
Total
€ m
1,353
8,236
9,589
2012
Total
€ m
1,561
8,974
10,535
*Forms an integral part of the audited financial statements.
163
Risk management - 3. Individual risk types
3.3 Market risk*
Market risk is the risk relating to the uncertainty of returns attributable to fluctuations in market factors. Where the uncertainty is
expressed as a potential loss in earnings or value, it represents a risk to the income and capital position of the Group. The Group is
primarily exposed to market risk through interest rate and credit spread risk factors and to a lesser extent through foreign exchange,
equity and inflation rate risk factors.
The Group assumes market risk as a result of its banking book and trading book activities.
Interest rate risk in the banking book (IRRBB) is the current or prospective risk to both the earnings and capital of the Group as a result
of adverse movements in interest rates being applied to positions held in the banking book.
Credit spread risk is the exposure of the Group’s financial position to adverse movements in the credit spreads of bonds held in the trad-
ing or available for sale (“AFS”) securities portfolio. Credit spreads are defined as the difference between bond yields and interest rate
swap rates of equivalent maturity. The AFS bond portfolio is the principal source of credit spread risk.
The Group also assumes market risk through its trading book activities which relate to all positions in financial instruments (principally
derivatives) that are held with trading intent or in order to hedge positions held with trading intent. The Group’s Treasury function is
responsible for managing all market risk in the Group. This includes a mandate to trade on its own account in selected wholesale
markets.
Risk identification and assessment
Market risk is identified and assessed using portfolio sensitivities, Value at Risk (“VaR”) and stress testing. Interest rate gaps and
sensitivities to various risk factors are measured and reported on a daily basis. In addition, market risk is measured using the VaR
technique. VaR is calculated to a 95% confidence level using a one day holding period and is based on one year of historic data.
VaR is augmented using stress testing where various portfolios are revalued using a range of severe but plausible market rate
scenarios.
The Group Asset and Liability Management function (“ALM”) reporting to the Chief Financial Officer (“CFO”), is responsible for
identifying, measuring and reporting the Group’s aggregate market risk profile and managing the Group’s financial instruments
valuation processes.
The Financial Risk function, reporting to the Chief Risk Officer (“CRO”), is responsible, for exercising independent risk oversight and
control over the Group’s total market risk. It provides assurance that the risk dimensions of the business activity are understood and
escalates any limit excesses as they arise. It proposes and maintains the Market Risk Management Framework and Policies as the
basis of the Group’s control architecture for market risk activities, including the annual agreement of market risk limits (subject to the
Board approved Risk Appetite Statement).
Risk management and mitigation
All market risk in the Group is transferred to and managed by Treasury, subject to Asset and Liability Committee (“ALCo”) oversight.
Treasury proactively manages the market risk on the Group’s balance sheet as well as providing risk management solutions to the core
customers of the Group. Within Treasury, AFS credit spread risk, IRRBB and trading risk are managed by distinct business units.
The ALCo is the primary governance committee for market risk and is supported by the Group’s Market Risk Committee (“MRC”). The
MRC is a subcommittee of ALCo and is chaired by the Head of Products. Its membership includes representatives from Treasury,
Financial Risk and ALM.
Market risk is managed against a range of limits approved at ALCo, both forward looking, such as VaR limits and stress test limits, and
financial, such as ‘stop loss’ limits. These limits align with the Group’s business strategy through the articulation of an annual financial
plan and Risk Appetite Statement.
Market risk is managed subject to the Market Risk Management Framework and its associated policies. Credit risk issues inherent in the
market risk portfolios are also subject to the credit risk framework that was described in the previous section.
*Forms an integral part of the audited financial statements
164
3.3 Market risk* (continued)
Risk monitoring and reporting
Quantitative and qualitative information is used at all levels of the organisation, up to and including the Board, to identify, assess and
respond to market risk. The actual format and frequency of risk reporting depends on the audience and purpose and ranges from
transaction-level control and activity reporting to enterprise level risk profiles. For example, front office and risk functions receive the full
range of daily control and activity, valuation, sensitivity and risk measurement reports, while committees such as MRC and ALCo
receive a monthly market risk commentary and summary risk profile.
Market risk exposures are reported to the Executive Risk Committee (“ERC”) and Board Risk Committee (“BRC”) on a monthly basis
through the CRO Report.
Market risk profile
The table below shows the sensitivity of the Group’s banking book to a hypothetical immediate and sustained 100 basis point (“bp”)
movement in interest rates on 31 December 2013 and 31 December 2012 and the impact on net interest income over a twelve month
period.
Sensitivity of projected net interest income to interest rate movements
+ 100 basis point parallel move in all interest rates
– 100 basis point parallel move in all interest rates
31 December
2013
€ m
(50)
8
2012
€ m
(19)
(3)
The above analysis is subject to certain simplifying assumptions such as all interest rate movements occur simultaneously and in a
parallel manner, additionally is it assumed that that no management action is taken in response to the rate movements.
The following table summarises Treasury’s VaR profile for the years ended 31 December 2013 and 2012, measured in terms of Value at
Risk. For interest rate risk positions, the table also differentiates between Treasury’s banking book (arising principally from its holdings
of AFS securities) and trading book positions. For VaR measurement, AIB employs a 95% confidence interval, a 1-day holding period
and a 1-year sample period.
Interest rate risk
1 day holding period:
Average
High
Low
31 December
VaR (trading book)
VaR (banking book)
Total VaR
2013
€ m
2012
€ m
2013
€ m
2012
€ m
2013
€ m
2012
€ m
0.1
0.6
–
0.2
0.2
0.4
0.1
0.2
1.5
3.9
1.0
2.9
4.6
7.7
2.0
2.2
1.5
3.9
0.9
2.7
4.6
7.7
2.0
2.2
The lower VaR on average in 2013 is explained by smaller interest rate positions and also by a smaller rate shift being applied in the
VaR measurement. The smaller rate shifts reflect the fact that interest rates were very stable throughout 2013.
The following table sets out the VaR for foreign exchange rate and equity risk for the years ended 31 December 2013 and 2012:
1 day holding period:
Average
High
Low
31 December
Foreign exchange
rate risk
VaR (trading book)
2012
€ m
2013
€ m
Equity risk
VaR (trading book)
2013
€ m
2012
€ m
–
0.1
–
0.1
0.1
0.1
–
–
0.4
0.7
–
–
0.5
0.7
0.4
0.4
In terms of foreign exchange and equity VaR, the level of overall exposure remains low with very little open position risk being run.
*Forms an integral part of the audited financial statements
165
Risk management - 3. Individual risk types
3.4 Structural foreign exchange risk*
Structural foreign exchange risk is the exposure of the Group’s consolidated ratios to changes in exchange rates and results from net
investment in subsidiaries, associates and branches, the functional currencies of which are currencies other than euro. The Group is
exposed to foreign exchange risk as it translates foreign currencies into euro at each reporting period and the currency profile of the
Group’s capital may not necessarily match that of its assets and risk-weighted assets.
Exchange differences on structural exposures are recognised in ‘other income’ in the financial statements. The Hedging Committee
monitors structural foreign exchange risk and reports to Group ALCo on the foreign exchange sensitivity of consolidated capital ratios.
This impact is measured in terms of basis points sensitivities using scenario analysis. The amount of structural foreign exchange risk is
not material to the Group.
*Forms an integral part of the audited financial statements.
166
3.5 Operational risk*
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. It
includes legal risk, but excludes strategic and business risk. In essence, operational risk is a broad canvas of individual risk types which
include information technology, business continuity, health and safety risks, and legal risk.
Operational risk operating model
AIB’s operating model for operational risk is designed to ensure the framework outlined below is embedded and executed robustly
across the Group. The key principles of the model are:
– A strong operational risk function, appropriately staffed and clearly independent of the first line of defence;
– Technology in place to support assessment and mitigation of operational risks; and
– Greater control effectiveness testing by operational risk.
Risk identification and assessment
Risk and Control Self-Assessment (‘self-assessment’) is a core process in the identification and assessment of operational risk across
the enterprise. The process serves to ensure that key operational risks are proactively identified, evaluated, monitored and reported,
and that appropriate action is taken. Self-assessment of risks is completed at business unit level and these are incorporated into the
Operational Risk Self Assessment Risk template (“SART”) for the business unit. SARTs are regularly reviewed and updated by business
unit management. A matrix is in place to enable the scaling of risks and plans must be developed to introduce mitigants for the more
significant risks. Monitoring processes are in place at business and support level and a central Operational Risk Team undertakes risk
based reviews to ensure the completeness and robustness of each business unit’s self-assessment, and that appropriate attention is
given to the more significant risks.
Risk management and mitigation
Each business area is primarily responsible for managing its own operational risks. An overarching Operational Risk Management
(“ORM”) framework is in place, designed to establish an effective and consistent approach to operational risk management across the
enterprise. The ORM framework is also supported by a range of specific policies addressing issues such as information security and
business continuity management.
An important element of the Group’s operational risk management framework is the on-going monitoring through self-assessment of
risks, control deficiencies and weaknesses, including the tracking of incidents and loss events. The role of Operational Risk is to review
and coordinate operational risk management activities across the Group including setting policy and promoting best practice disciplines,
augmented by an independent assurance process.
The Group requires all business areas to undertake risk assessments and establish appropriate internal controls in order to ensure that
all components, taken together, deliver the control objectives of key risk management processes. In addition, an insurance programme
is in place, including a self insured retention, to cover a number of risk events which would fall under the operational risk umbrella.
These include financial lines policies (comprehensive crime/computer crime; professional indemnity/civil liability; employment practices
liability; directors and officers liability) and a suite of general insurance policies to cover such things as property and business
interruption, terrorism, combined liability and personal accident.
Risk monitoring and reporting
The primary objective of the operational risk management reporting and control process within the Group is to provide timely, pertinent
operational risk information to the appropriate management level so as to enable appropriate corrective action to be taken and to
resolve material incidents which have already occurred. A secondary objective is to provide a trend analysis on operational risk and
incident data for the Group. The reporting of operational incidents and trend data, as required, at the Executive Risk and Board Risk
Committees supports these two objectives. In addition, the Board, Group Audit Committee and the Executive Risk Committee receive
summary information on significant operational incidents on a regular basis.
Business units are required to review and update their assessment of their operational risks on a regular basis. Operational risk teams
undertake review and challenge assessments of the business unit risk assessments. In addition, quality assurance teams, which are
independent of the business, undertake reviews of the operational controls in the retail branch networks as part of a combined
regulatory/compliance/operational risk programme.
*Forms an integral part of the audited financial statements.
167
Risk management - 3. Individual risk types
3.6 Regulatory compliance risk*
Regulatory compliance risk is defined as the risk of regulatory sanctions, material financial loss or loss to reputation which the Group
may suffer as a result of failure to comply with all applicable laws, regulations, rules, standards and codes of conduct applicable to its
activities.
Regulatory Compliance is an enterprise-wide function which operates independently of the business. The function is responsible for
identifying compliance obligations arising in each of the Group’s operating markets. Regulatory Compliance work closely with
management in assessing compliance risks and provide advice and guidance on addressing these risks. Risk-based monitoring of
compliance by the business with regulatory obligations is undertaken.
Risk identification and assessment
The Regulatory Compliance function is specifically responsible for independently identifying and assessing current and forward looking
‘conduct of business’ compliance obligations, as well as Financial Crime regulation and regulation on privacy and data protection. The
identification, interpretation and communication roles relating to other legal and regulatory obligations have been assigned to functions
with specialist knowledge in those areas. For example, employment law is assigned to Human Resources, taxation law to Group
Taxation and prudential regulation to the Finance and Risk functions, with input and advice from a prudential regulatory unit. Regulatory
Compliance undertakes a periodic detailed assessment of the key conduct of business and prudential compliance risks and associated
mitigants. The Regulatory Compliance function operates a risk framework approach that is used in collaboration with business units to
identify, assess and manage key compliance risks at business unit level. These risks are incorporated into the SARTs for the relevant
business unit.
Risk management and mitigation
The Board, operating through the Audit Committee, approves the Group’s compliance policy and the mandate for the Regulatory
Compliance function.
Management is responsible for ensuring that the Group complies with its regulatory responsibilities. The Leadership Team’s
responsibilities in respect of compliance include the establishment and maintenance of the framework for internal controls and the
control environment in which compliance policy operates. They ensure that Regulatory Compliance is suitably independent from
business activities and that it is adequately resourced.
The primary role of the Regulatory Compliance function is to provide direction and advice to enable management to discharge its
responsibility for managing the Group’s compliance risks. The principal compliance risk mitigants are risk identification, assessment,
measurement and the establishment of suitable controls at business level. In addition, the Group has insurance policies that cover a
number of risk events which fall under the regulatory compliance umbrella.
Risk monitoring and reporting
Regulatory Compliance undertakes risk-based monitoring of compliance with relevant policies, procedures and regulatory obligations.
Monitoring can be undertaken by either dedicated compliance monitoring teams, or in collaboration with other control functions such as
Group Internal Audit or Operational risk.
Risk prioritised annual compliance monitoring plans are prepared based on the risk assessment process. Monitoring is undertaken both
on a business unit and a process basis. The annual monitoring plan is reviewed regularly, and updated to reflect changes in the risk
profile from emerging risks, changes in risk assessments and new regulatory ‘hotspots’. Issues emerging from compliance monitoring
are escalated for management attention, and action plans and implementation dates are agreed. The implementation of these action
plans is monitored by Regulatory Compliance.
Regulatory Compliance report to the Chief Risk Officer, business unit management teams and independently to the Board of Directors,
through the Audit Committee, on the effectiveness of the processes established to ensure compliance with laws and regulations within
its scope.
*Forms an integral part of the audited financial statements.
168
3.7 Pension risk*
Pension risk is the risk that the funding position of the Group’s defined benefit schemes would deteriorate to such an extent that the
Group would be required to make additional contributions to cover its pension obligations towards current and former employees.
Furthermore, IAS pension deficits as reported are now a deduction from capital under CRD IV which came into force on 1 January 2014
(see “The Group’s business activities must comply with increasing levels of regulation” within Risk factors on page 60).
The Group maintains a number of defined benefit pension schemes for current and former employees, further details of which are
included in note 12 to the financial statements. These defined benefit schemes were closed to future accrual from the 31 December
2013. Approval was received from the Pensions Board in 2013 in relation to a funding plan up to January 2018 with regard to regulatory
Minimum Funding Standard requirements of the AIB Group Irish Pension Scheme. In the UK the Group has provided an asset backed
funding vehicle to provide the required regulatory funding to the UK Scheme.
While the Group has taken certain risk mitigating actions, a level of volatility associated with pension funding remains due to financial
market fluctuations and changes to pension and accounting regulations. This volatility can be classified as market risk and actuarial
risk. Market risk arises because the estimated market value of the pension scheme assets may decline or their investment returns may
reduce due to market movements. Actuarial risk arises due to the risk that the estimated value of the pension scheme liabilities may
increase due to changes in actuarial assumptions. The ability of the pension schemes to meet the projected pension payments is
managed by the Trustees through the dynamic diversification of the investment portfolios across geographies and asset classes. As the
schemes are closed to future accrual, each Trustee Board has commenced a process of de-risking their investment strategy to reduce
market risk.
*Forms an integral part of the audited financial statements.
169
Risk management - 3. Individual risk types
3.8 Parent company risk information
Credit risk
– Maximum exposure to credit risk
– Collateral
– Loans and receivables to customers by geographic location and industry sector
– Internal credit ratings
– Impaired loans by geographic location and industry sector
– Aged analysis of contractually past due but not impaired gross loans
– Provisions for impairment by geographic location and industry sector
– External credit ratings of financial assets
– Leveraged debt by geographic location and industry sector
Liquidity risk
– Financial assets and financial liabilities by contractual residual maturity
– Financial liabilities by undiscounted contractual residual maturity – contingent liabilities and commitments
Market risk profile
170
3.8 Parent company risk information – Credit risk
The following table sets out the maximum exposure to credit risk that arises within Allied Irish Banks, p.l.c. and distinguishes between
those assets that are carried in the statement of financial position at amortised cost and those carried at fair value at 31 December
2013 and 31 December 2012:
Maximum exposure to credit risk*
Balances at central banks(1)
Items in course of collection
Disposal groups and non-current assets held for sale(2)
Trading portfolio financial assets(4)
Derivative financial instruments(5)
Loans and receivables to banks(6)
Loans and receivables to customers(7)
NAMA senior bonds
Financial investments available for sale(8)
Other assets:
Trade receivables
Accrued interest(7)
Financial guarantees
Loan commitments and other credit
related commitments
Amortised
cost(9)
€ m
Fair
value(10)
€ m
659
79
28(3)
–
–
23,856
31,603
15,598
–
–
–
1
1,653
–
–
–
–
20,049
2013
Total
€ m
659
79
28
1
1,653
23,856
31,603
15,598
20,049
Amortised
cost(9)
€ m
Fair
value(10)
€ m
558
95
353
–
–
31,284
37,234
17,082
–
–
–
22
2,768
–
–
–
–
14,829
2012
Total
€ m
558
95
353
22
2,768
31,284
37,234
17,082
14,829
23
450
–
–
23
450
28
391
–
–
28
391
72,296
21,703
93,999
87,025
17,619
104,644
924
7,154
8,078
–
–
–
924
1,095
7,154
8,078
7,690
8,785
–
–
–
1,095
7,690
8,785
Total
80,374
21,703
102,077
95,810
17,619
113,429
(1)Included within cash and balances at central banks of € 1,215 million (2012: € 1,076 million).
(2)Non-financial assets and equity investments within disposal groups and non-current assets held for sale are not included above (note c).
(3)Comprises loans and receivables to banks and customers measured at amortised cost (note c).
(4)Excluding equity shares of € 1 million (2012: € 2 million).
(5)Exposures to subsidiary undertakings of € 163 million (2012: € 293 million) have been included.
(6)Exposures to subsidiary undertakings of € 22,848 million (2012: € 29,709 million) have been included.
(7)Exposures to subsidiary undertakings of € 10,175 million (2012: € 11,891 million) have been included.
(8)Excluding equity shares of € 80 million (2012: € 101 million).
(9)Exposures to subsidiary undertakings of € 8 million (2012: € 12 million) have been included.
(10)All amortised cost items are ‘loans and receivables’ per IAS 39 Financial Instruments: Recognition and Measurement definitions.
(11)All items measured at fair value except financial investments available for sale and cash flow hedging derivatives are classified as ‘fair value through profit
or loss’.
*Forms an integral part of the audited financial statements
171
Risk management - 3. Individual risk types
3.8 Parent company risk information – Credit risk (continued)
Collateral
Allied Irish Banks, p.l.c. takes collateral as a secondary source of repayment in the event of a borrower’s default. The nature of collateral
taken is set out on page 76.
Set out below is the fair value of collateral accepted by Allied Irish Banks p.l.c. at 31 December 2013 and 31 December 2012 in relation
to financial assets detailed in the maximum exposure to credit risk table on page 171:
Loans and receivables to banks
Interbank placings, including central banks, are largely carried out on an unsecured basis apart from reverse repurchase agreements. At
31 December 2013, Allied Irish Banks p.l.c. had received collateral with a fair value of € 16 million on loans with a carrying value of
€ 16 million (2012: € 61 million and € 61 million respectively).
Loans and receivables to customers
The following table shows the fair value of collateral held for residential mortgages at 31 December 2013 and 31 December 2012:
Neither past
due nor
impaired
€ m
Past due
but not
impaired
€ m
Impaired
2013
Total
€ m
€ m
Neither past
due nor
impaired
€ m
Past due
but not
impaired
€ m
Impaired
2012
Total
€ m
€ m
Fully collateralised(1)
Loan-to-value ratio:
Less than 50%
50% - 70%
71% - 80%
81% - 90%
91% - 100%
Partially collateralised
Collateral value relating to loans
over 100% loan-to-value
Total collateral value
Gross residential mortgages
Statement of financial position
specific provisions
Statement of financial position
IBNR provisions
Net residential mortgages
132
122
85
88
109
536
688
1,224
1,455
4
6
3
2
7
9
14
13
13
69
22
118
145
142
101
103
185
676
20
42
50
247
365
447
955
1,631
1,952
118
134
81
89
126
548
794
1,342
1,653
3
5
2
4
6
20
23
43
50
7
10
9
8
51
85
235
320
407
128
149
92
101
183
653
1,052
1,705
2,110
(194)
(194)
(125)
(125)
(28)
253
1,730
(22)
282
1,963
(1)The fair value of collateral held for residential mortgages which are fully collateralised has been capped at the carrying value of the loans outstanding at
each year end.
For residential mortgages, the Group takes collateral in support of lending transactions for the purchase of residential property.
Collateral valuations are required at the time of origination of each residential mortgage. The Group adjusts open market property
values to take account of the costs of realisation and any discount associated with the realisation of collateral. The fair value at
31 December 2013 is based on property values at origination or date of latest valuation and applying the CSO (Ireland) index to these
values to take account of price movements in the interim.
Non-mortgage portfolios
Details of collateral in relation to the non mortgage portfolio are set out on pages 77 to 88.
NAMA senior bonds
Allied Irish Banks p.l.c. holds a guarantee from the Irish Government in respect of NAMA senior bonds which at 31 December 2013 have a
carrying value of € 15,598 million (2012: € 17,082 million)
Financial investments available for sale
At 31 December 2013, government guaranteed senior bank debt amounting to € 381 million (2012: € 495 million) was held within the
available for sale portfolio.
172
3.8 Parent company risk information – Credit risk (continued)
The information contained in this note relates only to third party exposures arising within Allied Irish Banks, p.l.c.
Loans and receivables to customers by geographic location and industry sector at 31 December 2013 and
31 December 2012*
2013
Of which
Republic
of Ireland
United United States
of America
Kingdom
Rest of the
World
Total
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal
Residential mortgages
Other
Unearned income
Deferred costs
Provisions
Total
€ m
1,739
236
859
14,325
5,068
645
432
2,483
1,952
3,858
31,597
(68)
2
(11,111)
20,420
€ m
–
18
61
359
344
64
21
222
–
–
1,089
(7)
–
(143)
939
€ m
€ m
–
5
–
–
–
–
4
99
–
–
108
(1)
–
(10)
97
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Republic
of Ireland
United United States
of America
Kingdom
Rest of the
World
Total
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal
Residential mortgages
Other
Unearned income
Deferred costs
Provisions
Total
€ m
1,722
298
1,074
15,673
5,633
502
582
2,849
2,110
4,211
€ m
–
113
58
599
409
528
19
247
–
–
34,654
1,973
(74)
2
(10,825)
23,757
(5)
–
(285)
1,683
€ m
€ m
–
19
4
40
1
22
2
186
–
–
274
(1)
–
(17)
256
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1) Excludes intercompany balances of € 10,175 million (2012: € 11,891 million).
*Forms an integral part of the audited financial statements
Loans and
receivables
to
customers
€ m
1,739
231
920
14,684
5,412
709
457
2,804
1,952
3,858
€ m
1,739
259
920
14,684
5,412
709
457
2,804
1,952
3,858
32,794
32,766
(76)
2
(76)
2
(11,264)
(11,264)
21,456
21,428(1)
Disposal
groups and
non-current
assets held
for sale
€ m
–
28
–
–
–
–
–
–
–
–
28
–
–
–
28
2012
Of which
Loans and
receivables
to
customers
€ m
1,722
342
1,136
16,312
6,043
679
603
3,268
2,110
4,211
€ m
1,722
430
1,136
16,312
6,043
1,052
603
3,282
2,110
4,211
36,901
36,426
(80)
2
(80)
2
(11,127)
(11,005)
25,696
25,343(1)
Disposal
groups and
non-current
assets held
for sale
€ m
–
88
–
–
–
373
–
14
–
–
475
–
–
(122)
353
173
Risk management - 3. Individual risk types
3.8 Parent company risk information – Credit risk (continued)
Internal credit ratings
Internal credit ratings of loans and receivables to customers*
The internal credit ratings profile of loans and receivables to customers by asset class at 31 December 2013 and 31 December 2012 is
as follows:
Neither past due nor impaired
Good upper
Good lower
Watch
Vulnerable
Total
Past due but not impaired
Good upper
Good lower
Watch
Vulnerable
Total
Total impaired
Total gross loans and receivables
Unearned income
Deferred costs
Impairment provisions
Total
Neither past due nor impaired
Good upper
Good lower
Watch
Vulnerable
Total
Past due but not impaired
Good upper
Good lower
Watch
Vulnerable
Total
Total impaired
Total gross loans and receivables
Unearned income
Deferred costs
Impairment provisions
Total
Residential
mortgages
€ m
Other Property and
construction
€ m
personal
€ m
SME/other
commercial
€ m
582
582
147
144
1,455
1
3
10
36
50
447
1,952
190
1,667
165
190
2,212
2
106
45
148
301
1,345
3,858
82
2,072
767
449
3,370
–
92
71
319
482
10,832
14,684
83
3,127
749
600
4,559
1
116
87
281
485
3,923
8,967
Residential
mortgages
€ m
Other
personal
€ m
Property and
construction
€ m
SME/other
commercial
€ m
390
941
161
163
1,655
2
6
10
30
48
407
2,110
881
1,234
200
206
2,521
40
91
78
136
345
1,345
4,211
29
3,116
750
572
4,467
–
202
164
332
698
11,147
16,312
130
3,362
765
648
4,905
2
177
140
297
616
4,044
9,565
Corporate
€ m
579
1,954
87
197
2013
Total
€ m
1,516
9,402
1,915
1,580
2,817
14,413
2
20
–
18
40
476
3,333
6
337
213
802
1,358
17,023
32,794
(76)
2
(11,264)
21,456
2012 (unaudited)
Total
Corporate
€ m
€ m
938
2,673
131
149
2,368
11,326
2,007
1,738
3,891
17,439
–
20
–
–
20
792
4,703
44
496
392
795
1,727
17,735
36,901
(80)
2
(11,127)
25,696
Details of the rating profiles and lending classifications are set out on page 127.
*Forms an integral part of the audited financial statements
174
3.8 Parent company risk information – Credit risk (continued)
Impaired loans by geographic location and industry sector*
The following table presents an analysis of impaired loans and receivables to customers for Allied Irish Banks, p.l.c. at 31 December
2013 and 31 December 2012.
2013
Of which
Republic
of Ireland
United United States
of America
Kingdom
Rest of the
World
Total
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal:
Residential mortgages
Other
Total
€ m
327
62
261
10,577
2,611
154
211
722
447
1,345
16,717
€ m
–
–
2
255
6
–
–
27
–
–
290
€ m
€ m
–
4
–
–
–
–
–
12
–
–
16
–
–
–
–
–
–
–
–
–
–
–
Republic
of Ireland
United United States
of America
Kingdom
Rest of the
World
Total
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal:
Residential mortgages
Other
Total
€ m
322
32
313
10,732
2,807
104
219
703
407
1,345
16,984
€ m
–
–
–
375
54
237
–
29
–
–
695
€ m
€ m
–
3
–
40
–
–
–
13
–
–
56
–
–
–
–
–
–
–
–
–
–
–
17,023
17,023
Loans and
receivables
to
customers
€ m
327
66
263
10,832
2,617
154
211
761
447
1,345
Disposal
groups and
non-current
assets held
for sale
€ m
–
–
–
–
–
–
–
–
–
–
–
2012
Of which
Loans and
receivables
to
customers
€ m
322
35
313
11,147
2,861
104
219
745
407
1,345
Disposal
groups and
non-current
assets held
for sale
€ m
–
–
–
–
–
237
–
–
–
–
€ m
327
66
263
10,832
2,617
154
211
761
447
1,345
€ m
322
35
313
11,147
2,861
341
219
745
407
1,345
17,735
17,498
237
*Forms an integral part of the audited financial statements
175
Risk management - 3. Individual risk types
3.8 Parent company risk information – Credit risk (continued)
Aged analysis of contractually past due but not impaired gross loans*
The following table presents by industry sector an aged analysis of contractually past due but not impaired loans and receivables to
customers for Allied Irish Banks, p.l.c. at 31 December 2013 and 31 December 2012.
2013
Of which
1 – 30
days
31 – 60
days
61 – 90
days
91 +
days
Total
Loans and
receivables
to
customers
€ m
61
1
18
133
58
6
1
69
19
32
109
507
€ m
13
1
4
37
11
1
1
10
7
9
21
115
€ m
17
–
1
21
12
–
–
11
6
6
17
91
€ m
58
2
29
291
87
6
2
45
18
5
102
645
€ m
149
4
52
482
168
13
4
135
50
52
249
€ m
149
4
52
482
168
13
4
135
50
52
249
1,358
1,358
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal:
Residential mortgages
Credit cards
Other
Total
As a percentage of total loans(1)
1.55%
0.35%
0.28%
1.97%
4.14%
4.14%
Disposal
groups and
non-current
assets held
for sale
€ m
–
–
–
–
–
–
–
–
–
–
–
–
–
2012
Of which
1 – 30
days
31 – 60
days
61 – 90
days
91 +
days
Total
Loans and
receivables
to
customers
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal:
Residential mortgages
Credit cards
Other
Total
€ m
53
6
17
159
68
6
1
61
17
37
71
496
As a percentage of total loans(1)
1.3%
€ m
8
–
3
74
30
5
1
19
9
11
28
€ m
15
–
2
58
16
1
6
13
4
9
38
188
0.5%
162
0.4%
€ m
59
2
16
407
127
19
8
74
18
6
145
881
€ m
135
8
38
698
241
31
16
167
48
63
282
€ m
135
8
38
698
241
31
16
167
48
63
282
1,727
1,727
2.4%
4.7%
4.7%
(1)Total loans (excluding intercompany) are gross of impairment provisions and unearned income.
Disposal
groups and
non-current
assets held
for sale
€ m
–
–
–
–
–
–
–
–
–
–
–
–
–
*Forms an integral part of the audited financial statements
176
3.8 Parent company risk information – Credit risk (continued)
Provisions for impairment by geographic location and industry sector*
The following table presents an analysis of provisions for impairment on loans and receivables to customers for Allied Irish Banks, p.l.c.
at 31 December 2013 and 31 December 2012.
Republic
of Ireland
United United States
of America
Kingdom
Rest of the
World
Total
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal:
Residential mortgages
Other
Specific
IBNR
Total
€ m
241
35
189
6,640
1,614
108
123
518
194
1,038
10,700
411
11,111
€ m
–
–
–
111
6
–
–
5
–
–
122
21
143
€ m
€ m
–
–
–
–
–
–
–
9
–
–
9
1
10
–
–
–
–
–
–
–
–
–
–
–
–
–
€ m
241
35
189
6,751
1,620
108
123
532
194
1,038
10,831
433
11,264
Republic
of Ireland
United United States
of America
Kingdom
Rest of the
World
Total
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal:
Residential mortgages
Other
Specific
IBNR
Total
€ m
225
26
221
6,163
1,717
88
157
482
125
1,004
10,208
617
10,825
€ m
–
–
–
99
37
122
–
6
–
–
264
21
285
€ m
€ m
–
3
–
7
–
–
–
6
–
–
16
1
17
–
–
–
–
–
–
–
–
–
–
–
–
–
€ m
225
29
221
6,269
1,754
210
157
494
125
1,004
10,488
639
11,127
2013
Of which
Loans and
receivables
to
customers
€ m
241
35
189
6,751
1,620
108
123
532
194
1,038
10,831
433
11,264
Disposal
groups and
non-current
assets held
for sale
€ m
–
–
–
–
–
–
–
–
–
–
–
–
–
2012
Of which
Loans and
receivables
to
customers
€ m
225
29
221
6,269
1,754
88
157
494
125
1,004
10,366
639
11,005
Disposal
groups and
non-current
assets held
for sale
€ m
–
–
–
–
–
122
–
–
–
–
122
–
122
*Forms an integral part of the audited financial statements
177
Risk management - 3. Individual risk types
3.8 Parent company risk information – Credit risk (continued)
External credit ratings of financial assets*
The external credit ratings profile of loans and receivables to banks, NAMA senior bonds, trading portfolio financial assets (excluding
equity securities) and financial investments available for sale (excluding equity shares) for Allied Irish Banks, p.l.c. at 31 December 2013
and 31 December 2012 is as follows:
AAA/AA
A
BBB+/BBB/BBB-
Sub investment
Unrated
Total
AAA/AA
A
BBB+/BBB/BBB-
Sub investment
Unrated
Total
Bank(1)
€ m
Corporate
€ m
Sovereign
€ m
Other
€ m
2,861
1,091
710
–
63
4,725
–
–
14
–
1
15
5,417
–
25,957(2)
6
–
31,380(3)
Bank(1)
€ m
Corporate
€ m
Sovereign
€ m
1,535
1,476
723
86
76
3,896
3
15
60
99
115
292
3,835
221
24,274(2)
26
–
28,356(3)
304
133
85
14
–
536
Other
€ m
583
223
79
79
–
964
2013
Total
€ m
8,582
1,224
26,766
20
64
36,656
2012
Total
€ m
5,956
1,935
25,136
290
191
33,508
(1)Excludes loans to subsidiaries of € 22,848 million (2012: € 29,709 million).
(2)Includes NAMA senior bonds which do not have an external credit rating and to which the Group has attributed a rating of BBB+ (2012 :BBB+) i.e. the
external rating of the Sovereign.
(3)Includes supranational banks and government agencies.
*Forms an integral part of the audited financial statements
178
3.8 Parent company risk information – Credit risk (continued)
Leveraged debt by geographic location and industy sector*
Leveraged lending (including the financing of management buy-outs, buy-ins and private equity buy-outs) is conducted primarily through
specialist lending teams. The leveraged loan book is held as part of the loans and receivables to customers portfolio. Specific impairment
provisions of € 0.5 million (2012: € 29 million) are currently held against impaired exposures of € 14 million (2012: € 60 million). The
unfunded element below includes off-balance sheet facilities and the undrawn element of facility commitments. The portfolio continues to
reduce, in large part due to AIB’s deleveraging activities.
Leveraged debt by geographic location
United Kingdom
Rest of Europe
United States of America
Rest of World
Funded leveraged debt by industry sector*
Agriculture
Property and construction
Distribution
Energy
Financial
Manufacturing
Transport
Other services
Funded
€ m
2013
Unfunded
€ m
Funded
€ m
2012
Unfunded
€ m
44
20
52
–
116
3
1
20
–
24
84
39
154
31
308
2013
€ m
–
–
22
_
–
38
26
30
116
24
4
50
–
78
2012
€ m
–
–
62
28
5
117
6
90
308
*Forms an integral part of the audited financial statements
179
Risk management - 3. Individual risk types
3.8 Parent company risk information – Liquidity risk (continued)
Financial assets and financial liabilities by contractual residual maturity*
Repayable
on demand but not repayable
on demand
€ m
3 months or less 1 year or less 5 years or less
but over
1 year
€ m
but over
3 months
€ m
€ m
2013
Total
Over
5 years
€ m
€ m
Financial assets
Financial assets of disposal groups(1)(3)
Trading portfolio financial assets(1)
Derivative financial instruments(2)
Loans and receivables to banks(3)
Loans and receivables to customers(3)
NAMA senior bonds(4)
Financial investments available for sale(1)
Other financial assets
Financial liabilities
Deposits by central banks and banks
Customer accounts
Derivative financial instruments(2)
Debt securities in issue(5)
Subordinated liabilities and other
capital instruments
Other financial liabilities
–
–
–
23,841
29,126
–
3
–
52,970
7,683
25,593
–
–
–
279
–
–
63
20
531
15,598
246
473
16,931
10,486
18,870
139
75
–
–
–
–
155
2
2,590
–
937
–
3,684
143
6,157
148
753
–
–
–
–
945
–
4,818
–
11,357
–
28
1
490
–
5,876
–
7,506
–
28
1
1,653
23,863
42,941
15,598
20,049
473
17,120
13,901
104,606
10,800
2,490
1,031
2,443
1,316
–
–
2
1,086
–
36
–
29,112
53,112
2,404
3,271
1,352
279
33,555
29,570
7,201
18,080
1,124
89,530
Financial assets
Financial assets of disposal groups(1)(3)
Trading portfolio financial assets(1)
Derivative financial instruments(2)
Loans and receivables to banks(3)
Loans and receivables to customers(3)
NAMA senior bonds(4)
Financial investments available for sale(1)
Other financial assets
Financial liabilities
Deposits by central banks and banks
Customer accounts
Derivative financial instruments(2)
Debt securities in issue(5)
Subordinated liabilities and other
capital instruments
Other financial liabilities
Repayable
on demand
€ m
237
–
–
16,794
24,195
–
4
–
41,230
7,179
21,653
–
–
–
330
29,162
3 months or less
but not repayable
on demand
€ m
1 year or less 5 years or less
but over
1 year
€ m
but over
3 months
€ m
2012
Total
Over
5 years
€ m
€ m
–
2
202
5,373
5,326
17,082
157
418
28,560
17,973
16,326
171
2,368
–
–
17
–
261
1,140
3,540
–
637
–
5,595
2,219
8,343
223
–
–
–
26
15
1,270
7,734
5,224
–
7,912
–
195
5
1,035
247
10,031
–
6,119
–
475
22
2,768
31,288
48,316
17,082
14,829
418
22,181
17,632
115,198
11,948
2,412
1,266
2,774
1,237
–
70
17
1,881
–
34
–
39,389
48,751
3,541
5,142
1,271
330
36,838
10,785
19,637
2,002
98,424
(1)Excluding equity shares.
(2)Shown by maturity date of contract.
(3)Shown gross of provisions for impairment and unearned income.
(4))New notes will be issued at each maturity date, with the next maturity date being 1 March 2014. Upon maturity, the issuer has the option to settle in cash or
issue new notes and to date has issued new notes.
(5)Includes Nil securities issued to subsidiary companies in 2013 and € 46 million issued to subsidiary companies in both 2012 and 2011.
The balances shown above for Allied Irish Banks, p.l.c. include exposures to subsidiary undertakings.
*Forms an integral part of the audited financial statements
180
3.8 Parent company risk information – Liquidity risk (continued)
Financial liabilities by undiscounted contractual maturity – contingent liabilities and commitments*
The undiscounted cash flows potentially payable under guarantees and similar contracts, included below within contingent liabilities, are
classified on the basis of the earliest date they can be called. The Company is only called upon to satisfy a guarantee when the
guaranteed party fails to meet its obligations. The Company expects that most guarantees it provides will expire unused.
The Company has given commitments to provide funds to customers under undrawn facilities. The undiscounted cash flows have been
classified on the basis of the earliest date that the facility can be drawn. The Company does not expect all facilities to be drawn, and
some may lapse before drawdown.
Contingent liabilities(1)
Commitments
Contingent liabilities(1)
Commitments
Payable on
demand
€ m
924
7,154
8,078
Payable on
demand
€ m
1,095
7,690
8,785
3 months or less
but not repayable
on demand
€ m
1 year or less
but over
3 months
€ m
5 years or less
but over
1 year
€ m
Over
5 years
€ m
–
–
–
–
–
–
–
–
–
–
–
–
3 months or less
but not repayable
on demand
€ m
1 year or less
but over
3 months
€ m
5 years or less
but over
1 year
€ m
Over
5 years
€ m
–
–
–
–
–
–
–
–
–
–
–
–
2013
Total
€ m
924
7,154
8,078
2012
Total
€ m
1,095
7,690
8,785
(1)Included in exposure are amounts relating to Group subsidiaries of Nil (2012: € 27 million).
*Forms an integral part of the audited financial statements
181
Risk management - 3. Individual risk types
3.8 Parent company risk information – Market risk profile
Market risk profile*
The following table sets out the VaR for Allied Irish Banks, p.l.c. at 31 December 2013 and 31 December 2012:
Interest rate risk
1 day holding period:
Average
High
Low
31 December
VaR (trading book)
VaR (banking book)
Total VaR
2013
€ m
2012
€ m
2013
€ m
2012
€ m
2013
€ m
2012
€ m
0.1
0.6
–
0.2
0.2
0.4
0.1
0.2
1.4
3.8
1.0
2.9
4.5
7.7
2.0
2.2
1.4
3.8
0.9
2.7
4.6
7.7
2.0
2.2
The following table sets out the VaR for foreign exchange rate and equity risk for the years ended 31 December 2013 and 31 December
2012:
1 day holding period:
Average
High
Low
31 December
Foreign exchange
rate risk
VaR (trading book)
2012
€ m
2013
€ m
Equity risk
VaR (trading book)
2013
€ m
2012
€ m
–
0.3
–
–
0.1
0.3
–
–
0.4
0.7
–
–
0.5
0.7
0.4
0.4
*Forms an integral part of the audited financial statements
182
Governance and oversight
1. The Board and Executive Officers
2. Report of the Directors
3. Corporate Governance statement
4. Supervision and Regulation
4.1 Current climate of regulatory change
4.2 Ireland
4.3 United Kingdom
4.4 United States
4.5 Other locations
Page
184
187
189
201
201
205
207
208
183
Governance and oversight –
1. The Board and Executive Officers
Certain information in respect of the Directors and Executive Officers is set out below.
David Hodgkinson – Chairman - Non-Executive Director
Mr Hodgkinson was Group Chief Operating Officer for HSBC Holdings plc from May 2006 until his retirement from the company in
December 2008. During his career with HSBC, he held a number of senior management positions in the Middle and Far East, and
Europe, including as Managing Director of The Saudi British Bank, and CEO of HSBC Bank Middle East. Mr Hodgkinson, who joined
HSBC in 1969, has also served as Chairman of HSBC Bank Middle East Limited, HSBC Bank A S Turkey, Arabian Gulf Investments
(Far East) Limited and HSBC Global Resourcing (UK) Ltd. He was a Director of HSBC Bank Egypt SAE, The Saudi British Bank, Bank
of Bermuda Limited, HSBC Trinkaus Burkhardt and British Arab Commercial Bank.
Mr Hodgkinson joined the Board as Executive Chairman on 27 October 2010 and became Non-Executive Chairman with effect from
12 December 2011. He has been a member of the Remuneration Committee and Nomination and Corporate Governance Committee
since January 2011. (Age 63)
Simon Ball BSc (Economics), FCA – Non-Executive Director and Nomination and Corporate Governance Committee Chairman
Mr Ball is currently the Non-Executive Deputy Chairman and Senior Independent Director of Cable & Wireless Communications plc, a
Non-Executive Director of Tribal Group plc, and a Non-Executive Director of Commonwealth Games England. Prior to this, Mr Ball
served as Group Finance Director of 3i Group plc and the Robert Fleming Group, held a series of senior finance and operational roles at
Dresdner Kleinwort Benson, and was Director General, Finance for the HMG Department for Constitutional Affairs. Mr Ball joined the
Board in October 2011 and has been a member of the Board Risk Committee since November 2011 and a member of the Nomination
and Corporate Governance Committee since February 2013. He was appointed Chairman of the Nomination and Corporate
Governance Committee in June 2013. (Age 53)
Bernard Byrne* FCA – Director Personal, Business and Corporate Banking
Mr Byrne joined AIB in May 2010 as Group Chief Financial Officer and member of the Leadership Team. He took up the role of Director
of Personal & Business Banking in May 2011. He was appointed to his current post in July 2012 when responsibility for corporate clients
was added to the role. He began his career as a Chartered Accountant with PricewaterhouseCoopers (PwC) in 1988 and joined ESB
International in 1994, where he was the Commercial Director for International Investments. In 1998, he took up the post of Finance
Director with IWP International plc. He moved to ESB in 2004 where he held the post of Group Finance and Commercial Director until
he left to join AIB. Mr Byrne joined the Board in June 2011. He was appointed Non-Executive Director of EBS Limited in July 2011.
(Age 45)
David Duffy* B.B.S., MA – Chief Executive Officer
Mr Duffy joined AIB in December 2011 as Chief Executive Officer and Chair of the Leadership Team. He has held a number of senior
roles in the international banking industry including, most recently, the position of Chief Executive Officer at Standard Bank International
covering Asia, Latin America, the UK and Europe. He was previously Head of Global Wholesale Banking Network of ING Group and
President and Chief Executive Officer of the ING franchises in the US and Latin America. He worked with Goldman Sachs International
in various senior positions including Head of Human Resources Europe. Mr Duffy joined the Board in December 2011. (Age 52)
Peter Hagan BSc, Dip BA – Non-Executive Director
Mr Hagan is former Chairman and CEO of Merrill Lynch’s US commercial banking subsidiaries, he was also a director of Merrill Lynch
International Bank (London), Merrill Lynch Bank (Swiss), ML Business Financial Services and FDS Inc. Over a period of 35 years he has
held senior positions in the international banking industry, including as Vice Chairman and Representative Director of the Aozora Bank
(Tokyo, Japan). During 2011 and until Sept 2012, he was a director of each of the US subsidiaries of IBRC. He is presently a consultant
in the fields of financial service litigation and regulatory change. He is currently a Director and Treasurer of 170 East 70th Corp. and a
Director of the Thomas Edison State College Foundation. Mr Hagan joined the Board in July 2012 and is a member of the Board Risk
Committee, Nomination and Corporate Governance Committee and the Remuneration Committee. (Age 65)
Tom Foley BComm, FCA – Non-Executive Director
Mr Foley is a former Executive Director of KBC Bank Ireland and has held a variety of senior management and board positions with
KBC, including in Corporate Finance, Treasury, Business Banking, Private and Mortgage Banking as well as KBC's UK Division. He was
a member of the Nyberg Commission of Investigation into the Banking Sector during 2010 and 2011 and the Department of Finance
(Cooney) Expert Group on Mortgage Arrears and Personal Debt during 2010. He qualified as a Chartered Accountant with
PricewaterhouseCoopers (PwC) and is a former senior executive with Ulster Investment Bank and is a Non-Executive Director of BPV
Finance (International) plc, and IntesaSanPaolo Life Limited. Mr Foley joined the Board in September 2012 and is a member of the
Audit Committee and Remuneration Committee. He was appointed Non-Executive Director of EBS Limited in November 2012. (Age 60)
184
Governance and oversight –
1. The Board and Executive Officers
Jim O’Hara – Non-Executive Director and Remuneration Committee Chairman
Mr O'Hara is a former Vice President of Intel Corporation and General Manager of Intel Ireland, where he was responsible for Intel’s
technology and manufacturing group in Ireland. He is a Non-Executive Director of Fyffes plc, a board member of Enterprise Ireland, and
Chairman of a number of indigenous technology start up companies. He is a past President of the American Chamber of Commerce in
Ireland. Mr O’Hara joined the Board in October 2010 and has been a member of the Audit Committee, Remuneration Committee and
Nomination and Corporate Governance Committee since January 2011, and was appointed Chairman of the Remuneration Committee
in July 2012. He was appointed Non-Executive Director of EBS Limited in June 2012. (Age 62)
Dr Michael Somers BComm, M.Econ.Sc, Ph.D – Non-Executive Director, Deputy Chairman and Board Risk Committee Chairman
Dr Somers is former Chief Executive of the National Treasury Management Agency. He is Chairman of Goodbody Stockbrokers, a
Non- Executive Director of Fexco Holdings Limited, Willis Group Holdings plc, Hewlett-Packard International Bank plc, the Institute of
Directors, St. Vincent's Healthcare Group Ltd, and President of the Ireland Chapter of the Ireland-US Council. He has previously held
the posts of Secretary, National Debt Management, in the Department of Finance, and Secretary, Department of Defence. He is a
former Chairman of the Audit Committee of the European Investment Bank and Director of the European Investment Bank and former
Member of the EC Monetary Committee. Dr Somers was Chairman of the group that drafted the National Development Plan 1989-1993
and of the European Community group that established the European Bank for Reconstruction and Development. He was formerly a
member of the Council of the Dublin Chamber of Commerce. He joined the Board in January 2010 as a nominee of the Minister for
Finance under the Government's National Pensions Reserve Fund Act 2000 (as amended) and has been Chairman of the Board Risk
Committee since November 2010. (Age 71)
Dick Spring BA, BL – Non-Executive Director
Mr Spring is a former Tánaiste (Deputy Prime Minister) of the Republic of Ireland, Minister for Foreign Affairs and leader of the Labour
Party. He is a Non-Executive Director of Fexco Holdings Ltd., Repak Ltd, The Realta Global Aids Foundation Ltd and Chairman of the
Diversification Strategy Fund p.l.c.. He is Chairman of International Development Ireland Ltd., Altobridge Ltd. and Alder Capital Ltd.
Mr Spring joined the Board in January 2009 as a nominee of the Minister for Finance under the CIFS Scheme. He has been a member
of the Nomination and Corporate Governance Committee since April 2009 and the Board Risk Committee since November 2010. (Age
63)
Thomas Wacker MBA (International Business and Finance) - Non-Executive Director
Mr Wacker was a Non-Executive Director of the USA Rugby Board and is the former Chief Executive Officer of the International Rugby
Board. He was a Non-Executive Director and former Chief Executive Officer of Belmont Advisors (UK) Limited and was a former Chief
Executive of IFG Group plc's offshore business and Non-Executive Director of the parent company. Prior to this, Mr Wacker held senior
management roles with Royal Trust Company of Canada, Bank of Montreal, Citibank, and Citigroup Investment Banking Group.
Mr Wacker joined the Board in October 2011 and has been a member of the Audit Committee since November 2011. (Age 70)
Catherine Woods BA, Mod (Econ) – Non-Executive Director and Audit Committee Chairman
Ms Woods is a Non-Executive Director of AIB Mortgage Bank, and Chairman of EBS Limited (from 12 February 2013). She is the
Finance Expert on the adjudication panel established by the Government to oversee the rollout of the National Broadband scheme and
is a former Vice President and Head of the European Banks Equity Research Team, JP Morgan, where her mandates included the
recapitalisation of Lloyds’ of London and the re-privatisation of Scandinavian banks. Ms Woods is a former director of An Post, and a
former member of the Electronic Communications Appeals Panel. She joined the Board in October 2010, has been a member of the
Audit Committee and Board Risk Committee since January 2011, and was appointed Chairman of the Audit Committee in July 2011.
(Age 51)
* Executive Directors
Board Committees
Information concerning membership of the Board’s Audit, Risk, Nomination and Corporate Governance, and Remuneration Committees
is given in the Corporate Governance statement on pages 189 to 200.
Executive Officers (in addition to Executive Directors above)
Helen Dooley LLB – Group General Counsel
Ms Dooley was appointed to her current role and the Leadership Team in October 2012, having previously held the role of Head of
Legal in EBS Limited. Prior to this, she held a number of other senior roles in EBS including Head of Regulatory Compliance and
Company Secretary. Ms Dooley began her career in 1992 working principally as a banking and restructuring lawyer with Wilde Sapte
solicitors in London, moving to Hong Kong in 1998 to work for Johnson Stokes & Master solicitors and returning to Ireland in 2001 to
work for A&L Goodbody solicitors. (Age 45)
185
Governance and oversight –
1. The Board and Executive Officers
Enda Johnson – Head of Corporate Affairs and Strategy
Mr Johnson joined AIB as Head of Strategy in May 2012 and was appointed to his current role and the Leadership Team in July 2012.
He worked previously as a senior analyst with the National Treasury Management Agency, including a secondment at the Department of
Finance. Before joining the National Treasury Management Agency in 2010, he worked with Merrill Lynch for seven years in New York,
London and California, in their investment banking and equity capital markets divisions. Mr Johnson has a Bachelor of Arts degree in
Economics and Bachelor of Science degree in Engineering from Brown University. (Age 34)
Orlagh Hunt BA, FCIPD – Group HR Director
Ms Hunt was appointed to her current role and the Leadership Team in September 2012. She joined AIB from RSA (formerly
Royal & Sun Alliance) where she was Group HR and Customer Director, based in London with responsibility for driving the HR agenda
in 28 countries across the UK, Asia, Middle East, Latin America and Canada. Ms Hunt began her career in HR with Tesco and moved
subsequently to Walker Snack Foods. She was appointed Head of Human Resources at AXA Life Assurance in 2000 prior to joining
RSA in 2003. (Age 41)
Fergus Murphy BSc (Mgt), MA, DABS, AMCT, FIBI – Director of Products
Mr Murphy was appointed to the Leadership Team in July 2011, in his former role as Managing Director of EBS Limited, following the
acquisition of EBS by AIB, and was subsequently appointed Group Services and Transformation Director in December 2011. He was
appointed to his current role in July 2012. Before joining EBS Building Society as Chief Executive in January 2008, he held a number of
senior positions including Chief Executive of ACC Bank plc, Chief Executive of Rabobank Asia, Global Treasurer and Global Head
Investment Book Rabobank International and Managing Director of Rabobank Ireland plc. He is former Chairman of Financial
Services Ireland. (Age 49)
Brendan O’Connor BA, MBA – Head of Financial Solutions Group
Mr O’Connor was appointed to his current role and the Leadership Team in February 2013. He joined AIB in 1984. From 1988 to 2009
he worked in AIB Group Treasury in New York and Dublin before moving to AIB Corporate Banking in 2009. He has held a number of
senior roles throughout the organisation including Head of AIB Global Treasury Services and Head of Corporate Banking International.
Prior to his most recent appointment he was Head of AIB Business Banking. (Age 48)
Peter Rossiter BBS, FCA – Chief Risk Officer
Mr Rossiter was appointed to his current role and the Leadership Team in May 2012. He joined AIB from Irish Bank Resolution
Corporation Ltd (IBRC) where he was Chief Risk Officer since November 2009. Previously, he spent 27 years with Citigroup in a range
of roles, including senior risk positions in Warsaw, Moscow, Istanbul, London and Brussels. (Age 57)
Steve Reid FCIOBS, MSFA - Managing Director, AIB Group (UK) plc
Mr Reid was appointed to his current role and the Leadership Team in July 2013. Prior to this he worked with National Australia Group
Europe where he held a number of senior roles including Retail Banking Director. He also held a number of senior roles in Barclays and
Woolwich banks during a career spent exclusively in financial services. (Age 50)
Myles O'Grady FCCA - Acting Chief Financial Officer
Mr O'Grady joined AIB in June 2006 and was appointed to his current role in August 2013. Prior to his current role he held positions in
AIB as Group Financial Controller and Head of Financial Strategy and Planning. Before joining AIB, he held a number of senior finance
and business restructuring positions in Bord Gais Energy and Citibank. In the early part of his career, Mr O'Grady worked for Dresdner
Kleinwort Benson and AIB in a range of financial control roles. (Age 44)
186
Governance and oversight - 2. Report of the Directors
for the year ended 31 December 2013
The Directors of Allied Irish Banks, p.l.c. (‘the Company’) present their report and the audited financial statements for the year ended
31 December 2013. A Statement of the Directors’ responsibilities in relation to the financial statements is shown on page 403.
Results
The Group’s loss attributable to the ordinary shareholders of the Company amounted to € 1,597 million and was arrived at as shown in
the consolidated income statement on page 236.
Dividend
There was no dividend paid to ordinary shareholders in 2013.
Going concern
The financial statements for the year ended 31 December 2013 have been prepared on a going concern basis as the Directors are
satisfied, having considered the risks and uncertainties impacting the Group, that it has the ability to continue in business for the period
of assessment.
In making its assessment, the Directors have considered a wide range of information relating to present and future conditions. These
have included financial plans prepared in November 2013 covering the period 2014 to 2016, the restructuring plan submitted to the
European Commission in September 2012, liquidity and funding forecasts, and capital resources projections, all of which have been
prepared under base and stress scenarios. In addition, the Directors have considered the commitment of support provided to AIB by
the Irish Government. Furthermore, the Directors have considered the outlook for the Irish, the eurozone and UK economies.
Credit Institutions (Stabilisation) Act 2010
The Directors have a duty to have regard to the matters set out in the Credit Institutions (Stabilisation) Act 2010 (‘the Act’). This duty is
owed by the Directors to the Minister for Finance of Ireland (‘the Minister’) on behalf of the State and, to the extent of any inconsistency,
takes priority over any other duties of the Directors. Under the terms of the Act, the Minister may, in certain circumstances, direct the
Company to undertake actions, which may impact on the pre-existing legal and contractual rights of shareholders. Such directions may
include the dis-application of shareholder pre-emption rights, an increase in the Company’s authorised share capital, the issue of shares
to the Minister or to another person nominated by the Minister, or amendments to the Company’s Memorandum and Articles of
Association.
Capital
Information on the structure of the Company’s share capital, including the rights and obligations attaching to each class of shares, is set
out in note 41 and in the Schedule on pages 407 and 411 to 413.
On 13 May 2013, arising from the non-payment of a dividend amounting to € 280 million on the 2009 Preference Shares, the NPRFC
became entitled to bonus shares in lieu and the Company issued 4,144,055,254 new ordinary shares by way of a bonus issue to the
NPRFC.
As at 31 December 2013, some 35.7 million shares (0.007% of issued ordinary shares), purchased in previous years were held as
Treasury Shares; see note 42.
Accounting policies
The principal accounting policies, together with the basis of preparation of the financial statements, are set out on pages 209 to 235.
Review of activities
The Statement by the Chairman on page 4 to 5 and the review by the Chief Executive Officer on pages 6 to 8 and the Management
Report on pages 23 to 46 contain a review of the development of the business of the Company during the year, of recent events, and of
likely future developments.
Directors
There were no changes to the Board during 2013.
The names of the Directors, together with a short biographical note on each Director, are shown on pages 184 to 185.
The appointment and replacement of Directors, and their powers, are governed by law and the Articles of Association, and
information on these is set out on pages 408 to 409.
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Governance and oversight – 2. Report of the Directors
for the year ended 31 December 2013
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 53.
Directors’ Remuneration
The Company’s policy with respect to Directors’ remuneration is included in the Corporate Governance Statement on page 196. Details
of the total remuneration of the Directors in office during 2013 and 2012 are shown in note 53.
Substantial Interests in the Share Capital
The following substantial interests in the Ordinary Share Capital (excluding shares held as Treasury Shares) had been notified to the
Company at 13 May 2013:
– National Pensions Reserve Fund Commission 99.8%
Corporate Governance
The Directors’ Corporate Governance Statement appears on pages 189 to 200 and forms part of this Report. Additional information is
included in the Schedule to the Report of the Directors on pages 407 to 409.
Political Donations
The Directors have satisfied themselves that there were no political contributions during the year, which require disclosure under the
Electoral Act 1997.
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 198 and 199, 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 page 432; 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, as required under the terms of the European Accounts
Modernisation Directive (2003/51/EEC) (implemented in Ireland by the European Communities (International Financial Reporting
Standards and Miscellaneous Amendments) Regulations 2005), is set out in the Risk Management section on pages 61 to 66.
Branches outside the State
The Company has established branches, within the meaning of EU Council Directive 89/666/EEC (implemented in Ireland by the
European Communities (Branch Disclosures) Regulations 1993), in the United Kingdom and the United States of America.
Auditor
The Auditor, Deloitte & Touche, has signified willingness to continue in office in accordance with Section 160(2) of the Companies Act
1963.
Following the completion of the tender process to appoint an Auditor in 2013, the Board recommended that Deloitte & Touche be
appointed as Auditor of the Group. This recommendation was approved by the Shareholders at the 2013 Annual General Meeting on
20 June 2013 and Deloitte & Touche took office effective from that date.
David Hodgkinson
Chairman
David Duffy
Chief Executive Officer
4 March 2014
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Governance and oversight –
3. Corporate Governance statement
Corporate Governance practices
Allied Irish Banks, p.l.c. (“AIB”) is subject to the provisions of the Central Bank of Ireland’s Corporate Governance Code for Credit
Institutions and Insurance Undertakings (‘the Central Bank Code’)(the Central Bank Code is available on www.centralbank.ie), including
compliance with requirements which specifically relate to ‘major/high impact institutions’, which imposes minimum core standards upon all
credit institutions and insurance undertakings licensed or authorised by the Central Bank of Ireland.
AIB believes it has robust governance arrangements, which include a clear organisational structure with well defined, transparent and
consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks to which it is or might be exposed,
and adequate internal controls, including sound administrative and accounting procedures, IT systems and controls. The system of
governance is subject to regular internal review.
AIB’s corporate governance practices also reflect Irish company law and, in relation to the UK businesses, UK company law, the Listing
Rules of the Enterprise Securities Market of the Irish Stock Exchange, and certain provisions of the US Sarbanes Oxley Act of 2002.
The Board of Directors
The Board is responsible for corporate governance, encompassing leadership, direction and control of AIB and its subsidiaries
(collectively referred to as ‘AIB’ or 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 these include:
– appointing the Chairman, Chief Executive Officer, and Senior Executives, and addressing related succession planning;
– determining the Group’s strategic objectives;
– monitoring progress towards achievement of the Group’s objectives, and overseeing the management of the business, including
control systems and risk management; and
– approving annual operating and capital budgets, major acquisitions and disposals, and monitoring and reviewing financial
performance.
The Board is responsible for approving high level policy and strategic direction in relation to the nature and scale of risk that AIB is
prepared to assume in order to achieve its strategic objectives. The Board ensures that an appropriate system of internal controls is
maintained and reviews its effectiveness. Specifically the Board:
– sets the Group’s Risk Appetite, incorporating risk limits;
– approves Risk Frameworks, incorporating risk strategies, policies, and principles;
– approves stress testing and capital plans under the Group’s Internal Capital Adequacy Assessment Process (“ICAAP”); and
– approves other high-level risk limits as required by Credit, Capital, Liquidity and Market policies.
The Board receives regular updates on the Group’s risk profile through the Chief Executive Officer’s monthly report, and relevant updates
from the Chairman of the Board Risk Committee. An overview of the Committee’s activities is detailed on pages 194 and 195.
The Board is also responsible for endorsing the appointment of individuals who may have a material impact on the risk profile of the
Group and monitoring on an ongoing basis their appropriateness for the role. The removal from office of the head of a ’Control Function’,
as defined in the Central Bank Code, is also subject to Board approval.
AIB has received significant support from the Irish State (‘the State’) in the context of the financial crisis because of its systemic
importance to the Irish financial system. As a result of the State support measures, the State holds c. 99.8% of the ordinary shares of the
Company. The relationship between AIB and the State as shareholder is governed by a relationship framework (‘the Framework’). Within
the Framework, the Board retains full responsibility and authority for all of the operations and business of the Group in accordance with its
legal and fiduciary duties and retains responsibility and authority for ensuring compliance with the regulatory and legal obligations of the
Group.
Chairman
The Chairman’s 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, the ongoing training and development of all directors, and reviewing the performance of individual
directors.
Mr David Hodgkinson was appointed Executive Chairman on 27 October 2010 and Non-Executive Chairman with effect from
12 December 2011, following the appointment of Mr David Duffy as Chief Executive Officer.
The role of the Chairman is separate from the role of the Chief Executive Officer, with clearly-defined responsibilities attaching to each;
these are set out in writing and agreed by the Board.
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Governance and oversight -
3. Corporate Governance statement
Chief Executive Officer
The Chief Executive Officer is responsible for the day-to-day running of the Group, ensuring an effective organisation structure,
the appointment, motivation and direction of senior executive management, and for the operational management of all the Group’s
businesses. Mr David Duffy was appointed Chief Executive Officer on 12 December 2011.
Company Secretary
The Directors have access to the advice and services of the Company Secretary, Mr David O’Callaghan, who is responsible for ensuring
that Board procedures are followed and that applicable rules and regulations are complied with.
Board meetings
The Chairman sets the agenda for each Board meeting. The Directors are provided with relevant papers in advance of the meetings 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 held eleven scheduled meetings during 2013, and four additional out-of-course meetings or briefings. Attendance at Board
meetings and meetings of Committees of the Board is reported on below. During a number of Board 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 and Committee meetings, Non-Executive Directors attended Board meetings of AIB Group (UK) p.l.c., AIB Mortgage Bank and
EBS Limited and held consultative meetings with the Chairman.
Board membership
It is the policy of the Board that a majority of the Directors should be Non-Executive. At 31 December 2013, there were 9 Non-Executive
Directors and 2 Executive Directors. The Board deems the appropriate number of Directors to meet the requirements of the business to
be between 10 and 14. 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 appropriate
challenge to executive management.
The names of the Directors, with brief biographical notes, are shown on pages 184 and 185.
In the performance of their functions, the Directors have a duty to have regard to the matters mentioned in section 4 of the Credit
Institutions (Stabilisation) Act 2010 (‘the Act’). The duty imposed by the Act is owed by the Directors to the Minister for Finance on behalf
of the Irish State, and takes priority over any other duty of the Directors to the extent of any inconsistency. Thereafter, all Directors are
required to act in the best interests of the Group, and to bring independent judgement to bear in discharging their duties as Directors.
There is a procedure in place to enable the Directors to take independent professional advice, at the Group’s expense. The Group holds
insurance cover to protect Directors and Officers against liability arising from legal actions brought against them in the course of their
duties.
Performance evaluation
During 2013, the Board undertook an internal evaluation of its performance, which involved completion of questionnaires by Directors,
one-to-one discussions between the Chairman and each Director, presentation of the overall findings to the Board for its consideration
and action, and development of objectives for the Board for the following year. The evaluation covers areas such as strategy setting and
oversight of execution, stewardship, Board process and performance against objectives, Board composition and professional
development.
In accordance with corporate governance best practice, the Board has commissioned an external service provider to undertake an
independent review of the performance of the Board during the first half of 2014.
The Chairman meets annually with each Director individually to review their performance. These reviews include discussion of, inter alia,
the Directors’ individual contributions and performance at the Board and relevant Board Committees, the conduct of Board meetings, the
performance of the Board as a whole and its committees, compliance with the Director-specific provisions of the Central Bank Code, the
requirements of the Central Bank of Ireland’s Fitness and Probity Regulations, and other specific matters which the Chairman and/or
Directors may wish to raise. Attendance at Board and Committee meetings is one of a number of important factors considered in
evaluating Directors’ performance, and a table showing each Board Member’s attendance at such meetings is shown below and
separately within the commentary on each of the Board Committees on the following pages.
190
Attendance at scheduled Board and Board Committee Meetings
Name
Directors
Simon Ball
Bernard Byrne
David Duffy
Tom Foley
Peter Hagan
David Hodgkinson
Jim O’Hara
Dr Michael Somers
Dick Spring
Tom Wacker
Catherine Woods
Board
B
11
11
10
11
11
11
11
11
11
11
11
A
11
11
11
11
11
11
11
11
11
11
11
Audit
Committee
A
B
Board Risk
Committee
Remuneration
Committee
A
11
B
11
A
B
11
11
11
11
11
11
11
11
11
11
11
11
11
11
11
11
8
8
8
8
8
8
8
8
Nomination
and Corporate
Governance
Committee
A
6
10
10
10
6
10
B
6
10
10
10
5
9
Column A indicates the number of scheduled meetings held during 2013 which the Director was eligible to attend; Column B indicates the number
of meetings attended by each Director during 2013. The Board held eleven scheduled meetings during 2013, and four additional out-of-course
meetings or briefings.
Terms of appointment
Non-Executive Directors are generally appointed for a three-year term, with the possibility of renewal for a further three years; the term
may be further extended, in exceptional circumstances, on the recommendation of the Nomination and Corporate Governance
Committee.
Mr Dick Spring was appointed Non-Executive Director in 2009 as a nominee of the Minister for Finance under the Irish Government’s
Credit Institutions (Financial Support) Scheme 2008 (S.I. No. 411 of 2008). Dr Michael Somers was appointed Non-Executive Director in
2010 as a nominee of the Minister for Finance under the Irish Government’s National Pensions Reserve Fund Act 2000 (as amended)
for a three year term to 31 December 2012. Dr Somers was reappointed a Non-Executive Director, under the same regime, for a further
period of one year with effect from 1 January 2013, and for a further two years with effect from 1 January 2014.
Following appointment, in accordance with the requirements of the Articles of Association, Directors are required to retire at the next
Annual General Meeting (“AGM”), and may go forward for reappointment, and are subsequently required to make themselves available
for re-appointment at intervals of not more than three years. Since 2005, all Directors have retired from office at the AGM and have
offered themselves for reappointment with the exception of Messrs Somers and Spring. Under the terms of the Government’s
preference share investment, Messrs Somers and Spring are not required to stand for election or regular re-election by shareholders.
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 on request from the
Company Secretary.
The Board has determined that all Non-Executive Directors in office in December 2013, namely Mr Simon Ball, Mr Tom Foley,
Mr Peter Hagan, Mr David Hodgkinson, Mr Jim O’Hara, Dr Michael Somers, Mr Dick Spring, Mr Tom Wacker and Ms Catherine Woods
are independent in character and judgement and free from any business or other relationship with the Company or the Group that could
affect their judgement. In 2011, the Central Bank of Ireland confirmed that Messrs Somers and Spring should be considered
independent for the purposes of the Central Bank Code.
Induction and professional development
There is an induction process for new directors. Its content varies between Executive and 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 Group’s strategic and operational plans, and a programme of meetings with the Chief
Executive Officer and the Senior Management of businesses and support and control functions. A programme of targeted and
continuous professional development is in place for Non-Executive Directors.
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Governance and oversight -
3. Corporate Governance statement
Board Committees
The Board is assisted in the discharge of its duties by a number of Board Committees, whose purpose it 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 later in this section. 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 Board Risk Committee, the Nomination and Corporate Governance Committee and the
Remuneration Committee are available on AIB’s website: www.aibgroup.com. In carrying out their duties, the Board Committees are
entitled to take independent professional advice, at the Group’s expense, where deemed necessary or desirable by the Committee
Members.
Audit Committee
Current Members: Ms Catherine Woods, Chairman; Mr Tom Foley; Mr Jim O’Hara; Mr Tom Wacker.
Member attendance during 2013:
Tom Foley
Jim O’Hara
Tom Wacker
Catherine Woods
Current Member
Current Member
Current Member
Current Member
A
11
11
11
11
B
11
11
11
11
Column A indicates the number of Committee meetings held during 2013; Column B indicates the number of meetings attended by each
Member during 2013.
The Audit Committee comprises four Non-Executive Directors whom the Board has determined have the collective skills and relevant
financial experience to enable the Committee to discharge its responsibilities. The Audit Committee has oversight responsibility for:
–
–
–
–
the quality and integrity of the Group’s accounting policies, financial statements and disclosure practices;
compliance with relevant laws, regulations, codes of conduct and “conduct of business” rules;
the independence and performance of the External Auditor (“the Auditor”) and the Group Internal Auditor; and
the adequacy and performance of systems of internal control and the management of financial and non-financial risks.
These responsibilities are discharged through its meetings with and receipt of reports from management, the Auditor, the Chief Financial
Officer, the Group Internal Auditor, the Chief Risk Officer and the Head of Compliance.
The following attend the Committee’s meetings by invitation: the Auditor, the Acting Chief Financial Officer, the Chief Risk Officer, the
Group Internal Auditor, and the Head of Compliance. Other senior executives also attend by invitation where appropriate.
The Sarbanes-Oxley Act requires that the Audit Committee membership includes an “audit committee finance expert”, as defined in
related SEC rules. The Board has determined that Ms Catherine Woods is an “independent audit committee financial expert” for these
purposes. Ms Woods has accepted this determination on the understanding that she has not thereby agreed to undertake additional
responsibilities beyond those of a member and Chairman of the Audit Committee.
During 2013, the Audit Committee met on eleven occasions. The following, whilst not intended to be exhaustive, is a summary of the
activities undertaken by the Committee in the discharge of its responsibilities.
The Committee:
–
reviewed the Group’s annual and interim financial statements prior to approval by the Board, including: the Group’s accounting
policies and practices; the minutes of the Group Disclosure Committee (an Executive Committee whose role is to ensure the
compliance of AIB Group financial information with legal and regulatory requirements prior to external publication); reports on
compliance; effectiveness of internal controls; and the findings, conclusions and recommendations of the Auditor and Group
Internal Auditor;
in the context of reviewing the financial statements, the Committee engaged with management in respect of accounting matters,
the most significant of which related to:
–
–
the assessment that the preparation of the financial statements on a going concern basis remained appropriate;
the level of provisions for impairment of loans and receivables as at 31 December 2013 represented management’s best
estimates of the losses incurred at that date;
the basis of recognition of Deferred Tax Assets in Ireland and the UK; and
the adoption of new accounting standards during 2013, including International Accounting Standard 19 Employee Benefits
(Revised).
–
–
–
A detailed analysis of the significant matters is provided in the critical accounting policies and estimates (on pages 50 to 53). In
addition, the following matters were also considered: the enhancement of an accounting policy with regard to the acquisition of a
subsidiary exclusively with a view to resale, the impact of new operating segments, other areas where management judgement was
192
important to the results and financial position of the Group. Following review of reports from, and discussions with, management the
Committee satisfied itself that the estimates, judgements and disclosures were appropriate and in compliance with financial reporting
standards. The Committee also:
–
–
received reports from the Auditor on their work;
provided advice to the Board in respect of the Annual Financial Report, confirming that the Committee is satisfied that the annual
report and accounts for the year ended 31 December 2013, taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company’s performance, business model and strategy;
reviewed the scope of the independent audit, and the findings, conclusions and recommendations of the Auditor;
satisfied itself through regular reports from the Group Internal Auditor, the Acting Chief Financial Officer, the Chief Risk Officer, the
Auditor and the Head of Compliance that the system of internal controls over financial reporting was effective;
received regular updates from Group Internal Audit, including monthly reports detailing Internal Audit reports issued during the
previous month, control issues identified and related remediating actions, and rolling quarterly updates on related progress;
received rolling updates from the Chief Risk Officer and the Head of Compliance to satisfy itself that the Group was in compliance
with all regulatory and compliance obligations and considered key developments and emerging issues, the operation of the
Speak-Up process and key interactions with regulators in the various jurisdictions;
reviewed the minutes of all meetings of subsidiary companies’ Audit Committees, requesting and receiving further clarification on
issues when required, and met with, and received annual reports from, the subsidiary Audit Committee chairmen; and
held formal confidential consultations during the year separately with the Auditor, the Acting Chief Financial Officer, the Chief Risk
Officer and the Group Internal Auditor, in each case with only Non-Executive Directors present.
–
–
–
–
–
–
Internal Audit
The Committee provided assurance regarding the independence and performance of the Group Internal Audit function, and considered
and approved the Internal Audit annual audit plan and the adequacy of resources allocated to the function. The Committee is
responsible for making recommendations in relation to the Group Internal Auditor, including appointment, replacement, and
remuneration, in conjunction with the Remuneration Committee, and confirming the Group Internal Auditor’s independence. The
Committee met with the Group Internal Auditor in confidential session once during 2013, in the absence of management. The Chairman
of the Committee, Ms Catherine Woods, met with the Group Internal Auditor between scheduled meetings of the Committee throughout
the year to discuss forthcoming agendas for Committee meetings and material issues arising. The Group Internal Auditor has
unrestricted access to the Chairman of the Audit Committee.
External Audit
The Committee provided oversight in relation to the Auditor’s effectiveness and relationship with the Group, including agreeing the
Auditor’s terms of engagement, remuneration, and considering audit plans, and monitoring the independence and objectivity of the
Auditor, including approving, within pre-determined limits approved by the Board, the range and nature of non-audit services provided
and related fees (see note 16 on page 263).
The Committee considered and agreed the detailed audit plan in respect of the annual and interim financial statements, and the
Auditor’s findings, conclusions and recommendations arising from the interim review and annual audit. The Committee, through
consideration of the work undertaken, and based on feedback received from management in respect of the audit process, satisfied itself
with regard to the Auditor’s effectiveness.
The Committee met with the Auditor in confidential session twice during 2013, in the absence of management, and the Chairman of the
Committee, Ms Catherine Woods, met with the Auditor between scheduled meetings of the Committee to discuss material issues
arising.
External Audit Tender
At the request of the Board, the Committee undertook an external audit tender for the 2013 Audit. Notifications seeking expressions of
interest from suitably qualified accounting firms were placed in the press during the second half of 2012, and the Committee established
an Audit Tender Selection Committee, which comprised Ms Catherine Woods, Non-Executive Director and Chairman of the Audit
Committee, Mr Tom Foley, Non-Executive Director and Member of the Audit Committee, Mr Bernard Byrne, Executive Director, the
Acting Chief Financial Officer, the Chief Risk Officer, the Chief Operating Officer, the Group Internal Auditor and the Head of Finance,
AIB Group (UK) p.l.c.
The Audit Tender Selection Committee, with the technical support of Finance and Procurement, received and evaluated proposals and
presentations from firms which had submitted tenders. In March 2013, the Committee and Board considered the deliberations of the
Audit Tender Selection Committee, including, inter alia, the tenure of the incumbent Auditor, KPMG, and concluded that a change of
Auditor was appropriate. Accordingly, the approval of shareholders was received at the 2013 Annual General Meeting to appoint Deloitte
& Touche as Auditor to the Company.
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Governance and oversight -
3. Corporate Governance statement
Board Risk Committee
Current Members: Dr Michael Somers, Chairman; Mr Simon Ball; Mr Peter Hagan, Mr Dick Spring; and Ms Catherine Woods.
Member attendance during 2013:
Simon Ball
Peter Hagan
Dr Michael Somers
Dick Spring
Catherine Woods
Current member
Current member
Current member
Current member
Current member
A
11
11
11
11
11
B
11
11
11
11
11
Column A indicates the number of Committee meetings held during 2013 which the Member was eligible to attend; Column B indicates
the number of meetings attended by each Member during 2013.
The Board Risk Committee assists the Board in proactively fostering sound risk governance within the Group through ensuring that risks
are appropriately identified and managed, and that the Group’s strategy is informed by, and aligned with, the Board approved risk
appetite.
The Board Risk Committee comprises five Non-Executive Directors whom the Board has determined have the collective skills and
relevant experience to enable the Committee to discharge its responsibilities. To ensure co-ordination of the work of the Board Risk
Committee with the risk related considerations of the Audit Committee, the Chairman of the Audit Committee is also a member of the
Board Risk Committee.
The Board Risk Committee has responsibility for:
–
providing oversight and advice to the Board in relation to current and potential future risks facing the Group and risk strategy in that
regard, including the Group’s risk appetite and tolerance;
the effectiveness of the Group’s risk management infrastructure;
–
– monitoring and reviewing the Group’s risk profile, risk trends, risk concentrations and risk policies;
–
considering and acting upon the implications of reviews of risk management undertaken by Group Internal Audit and/or external
third parties.
The responsibilities of the Committee are discharged through its meetings, receiving, commissioning and considering reports from the
Chief Risk Officer, the Chief Credit Officer, the Acting Chief Financial Officer, the Group Internal Auditor and other members of
management.
The following attend the Committee’s meetings by invitation: the Auditor, the Chief Executive Officer, the Acting Chief Financial Officer,
the Chief Risk Officer, the Chief Credit Officer, and the Group Internal Auditor. Other senior executives also attend where appropriate.
During 2013, the Board Risk Committee met on eleven occasions. The following, while not intended to be exhaustive, is a summary of
the key items considered, reviewed and/or approved or recommended by the Committee during the year:
− monthly reports from the Chief Risk Officer which provided an overview of key risks including liquidity and funding, capital adequacy,
credit risk, market risk, regulatory risk, business risk, and related mitigants;
− periodic reports and presentations from management and the Chief Credit Officer regarding the credit quality, performance,
provision levels and outlook of key credit portfolios within the Group;
− items of a risk related nature, including:
(a) the governance, organisational and delegated authority framework;
(b) the risk appetite framework and risk appetite statement;
(c) the funding and liquidity strategy and related stress tests;
(d) risk frameworks and policies, including those relating to (i) credit risk, (ii) operational risk, (iii) financial risk, including market and
pension risk, and (iv) compliance;
(e) the code of conduct and conflict of interest policy for employees; and
(f) capital planning, including consideration of the Group ICAAP reports and related firm wide stress test scenarios;
− reports from management on a number of specific areas in order to ensure that appropriate management oversight and control was
evident, including:
(a) arrangements for dealing with customers in difficulty, including customer forbearance policies and debt settlement strategies;
(b) significant operational risk events, potential risks, and the Group’s business continuity planning arrangements;
(c) credit risk performance and trends, including days past due and monthly overview of significant credit transactions; and
(d) regulatory developments and business preparedness for changes to regulatory codes and directives, including Consumer
Protection Code, Code of Conduct on Mortgage Arrears, Single Euro Payment Area (SEPA), European Market Infrastructure
Regulation, and Anti-Money Laundering/Financial Sanctions;
194
− presentations from the individual businesses on their high level risks and related mitigants;
− management’s plans and progress in meeting the actions required in the Central Bank of Ireland’s Risk Mitigation Programme; and
− the Group’s Risk Management infrastructure including actions taken to strengthen the Group’s risk management governance,
people skills and system capabilities, and to address the risk management related recommendations arising from the Central Bank
of Ireland’s Supervisory Review and Evaluation Process.
The Committee is also responsible for making recommendations in relation to the Chief Risk Officer, including appointment,
replacement, and remuneration, in conjunction with the Remuneration Committee, and confirming the Chief Risk Officer’s
independence; the Committee meets with the Chief Risk Officer in confidential session, in the absence of management. The Chief Risk
Officer has unrestricted access to the Chairman of the Board Risk Committee.
Nomination and Corporate Governance Committee
Current Members: Mr Simon Ball, Chairman, (from 13 June 2013); Mr David Hodgkinson; Mr Jim O’Hara, Mr Peter Hagan;
Dr Michael Somers (from 30 May 2013) and Mr Dick Spring.
Member attendance during 2013:
Simon Ball
Peter Hagan
David Hodgkinson
Jim O’Hara
Dr Michael Somers
Dick Spring
Current member
Current member
Current member
Current member
Current member
Current member
A
6
10
10
10
6
10
B
6
10
10
10
5
9
Column A indicates the number of Committee meetings held during 2013 which the Member was eligible to attend; Column B indicates
the number of meetings attended by each Member during 2013.
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 the Board Committees, reviewing succession
planning, and monitoring the Group’s responsibilities and activities concerning staff, the marketplace (including customers, products and
suppliers), the environment and the community.
The search for suitable candidates for the Board is a continuous process, and recommendations for appointment are made, based on
merit and objective criteria, following an appraisal process and interviews. The Committee is also responsible for approving
corporate-giving budgets and any substantial philanthropic donations, and reviewing the Group’s corporate governance policies and
practices. The Committee met ten times during 2013.
Remuneration Committee
Members: Mr Jim O’Hara (Chairman); Mr Tom Foley; Mr Peter Hagan; and Mr David Hodgkinson.
Member attendance during 2013:
Tom Foley
Peter Hagan
David Hodgkinson
Jim O’Hara
Current member
Current member
Current member
Current member
A
8
8
8
8
B
8
8
8
8
Column A indicates the number of Committee meetings held during 2013 which the Member was eligible to attend; Column B indicates
the number of meetings attended by each Member during 2013.
AIB’s remuneration policies are set and governed by the Remuneration Committee whose purpose, duties and membership are set by
its Terms of Reference which may be viewed on the website www.aibgroup.com. The scope of the Committee’s activities is broad
based, ranging from setting pay policy to determining appropriate pension arrangements.
The Remuneration Committee’s responsibilities include recommending to the Board: Group remuneration policies and practices; the
remuneration of the Chairman of the Board (which matter is considered in his absence); and, performance-related and share-based
incentive schemes when appropriate.
The Committee also determines the remuneration of the Chief Executive Officer, and, in consultation with the Chief Executive Officer,
the remuneration of other Executive Directors, when in office, and the other members of the Leadership Team, under advice to the
Board. Details of the total remuneration of the Directors in office during 2013 and 2012 are shown in note 53. The Remuneration
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3. Corporate Governance statement
Committee is also required to review the remuneration components of Identified Staff who are individuals classified by AIB as ‘material
risk takers’ in accordance with the Remuneration Guidelines of the European Banking Authority (“EBA”). Remuneration matters of a
significant nature are also considered by the Board.
The Committee met eight times during 2013.
Remuneration Policy and Governance
A key objective of AIB’s remuneration policies and practices is to provide employees with fair and competitive remuneration which
supports the long term performance and strategic objectives of the Group. The Board recognises the need to ensure that remuneration
policies provide a clear link between performance and reward in attracting and retaining the right people and skills to support the Group’s
future success and growth.
The Board also recognises the need to ensure that remuneration policies and practices do not encourage excessive risk taking and
support the capital and liquidity of the Group. AIB’s Remuneration Policy is governed by the Remuneration Committee on behalf of the
Board and encompasses all financial benefits available to employees across the Group. The Remuneration Policy was reviewed by the
Remuneration Committee in February 2013 and updated to incorporate the roles and responsibilities of AIB’s control functions in the
design and implementation of the Policy. The Policy will be further updated in 2014 to incorporate the provisions of the Capital
Requirements Directive (CRD IV) which came into effect on 1 January 2014.
AIB published its Remuneration Disclosure Report 2012 in June 2013 as part of its Pillar 3 Disclosures. The Disclosure Report
summarised AIB’s principal remuneration policies and practices and included the aggregate remuneration of Identified Staff for 2012,
being those individuals whose professional activities were considered to have a material impact on AIB’s risk profile. In doing so,
consideration was given to the extent of individuals’ reporting lines and the degree to which individuals’ decision making was subject to
control and approval through credit committees or trading limits. The Remuneration Disclosure Report 2013 will be published during
2014 and will be available on AIB’s website.
Remuneration policy, in general, is strongly influenced by the Group’s significant reliance on State support and the commitments
provided by AIB under the Subscription and Placing Agreements. There was, therefore, no scope in practice during 2013 to implement
the design requirements of incentive schemes contained in AIB’s Remuneration Policy. AIB did not operate any incentive schemes during
2013.
Mercer Review
In March 2013, The Mercer Report, prepared on behalf of the Department of Finance, was published. Key findings of the report in
respect of AIB included a significant reduction in total remuneration costs between 2008 and 2012, including that of the Chief Executive
Officer, Senior Executives and employees in continued employment by the Group since 2008. These reductions arose through reduced
manpower numbers, the elimination of incentive based compensation and reductions applied to pay and benefits under the Pay and
Benefits Review implemented on 1 September 2012. The report also noted the comparison of salaries between covered institutions and
the external market.
Changes to Terms and Conditions of Employment
On 1 July 2013, the Labour Court and Labour Relations Commission issued a number of recommendations on pay, pensions and future
working hours. These recommendations brought to a conclusion long standing negotiations with staff representatives on these issues.
The recommendations entailed changes to the terms and conditions of employment for all AIB staff and were subsequently accepted by
both AIB and the staff representatives.
Under the terms of the recommendations, previously existing fixed performance related pay and salary increments ceased to facilitate
the introduction of future pay arrangements. It is intended that new pay arrangements will be aligned to the future financial performance
of the Group, cost of living, market movements and individual performance.
In addition, with effect from 31 December 2013, the Group’s defined benefit pension schemes closed to future accrual, all current
members were transferred to a defined contribution scheme while working hours were increased on a phased basis to 36 hours per
week from 1 October 2013 and will increase to 37 hours per week from 1 April 2014.
In recognition of these changes, AIB agreed to make a single payment, equal to 4% of annual salary, to all AIB Republic of Ireland
employees below manager grade. In addition, legacy increments and fixed merit pay increases due in respect of the period from 2010 to
2013 were paid to UK based staff.
196
Severance schemes
Following the introduction of a Voluntary Severance Programme in 2012, which included both an early retirement scheme and a
voluntary severance scheme, AIB continued to manage staff exits in a structured and controlled manner to minimise exit risk to the
organisation. During the year to 31 December 2013, total exits under the programme and exits associated with the closure of off-shore
locations amounted to 1,370 (FTE), comprising 168 through early retirement and 1,202 through voluntary severance. This brought total
exits under the programme since its introduction in quarter 3 2012 and from the closure of off-shore locations to 3,002.
Remuneration review
AIB’s remuneration levels in 2013 continued to be closely managed in line with the Group’s financial performance. There were no
general salary increases awarded. Out of course salary increases were managed within tight budgetary parameters, the increases being
primarily restricted to retaining key staff and skills or to instances where staff stepped up to expanded roles in light of restructuring or
staff departures. Under the terms of the Pay and Benefits Review, introduced in 2012, reductions of up to 7.5% in salaries and benefits,
relative to market benchmarks, were applied to managers with effect from 1 January 2013.
The salaries of senior executives within the Group were managed by the Remuneration Committee in accordance with the obligations of
the Subscription and Placing Agreements.
The prohibition on bonus and share incentive schemes continued through 2013.
Directors’ remuneration
Details of the total remuneration of the Directors in office during 2013 and 2012 are shown in note 53.
Relations with shareholders
The Group has a number of procedures in place to allow its shareholders and other stakeholders to stay informed about matters
affecting their interests. In addition to this Annual Financial Report, which is only sent to those shareholders who request it, the following
communication tools are used by the Group:
Shareholders’ Report
The Shareholders Report (“the Report”) is a summary version of AIB’s Annual Financial Report. This Report, which covers AIB’s
performance in the previous year, is sent to shareholders who have opted to receive it instead of the full Annual Financial Report. This
summary report does not form part of the Annual Financial Report or Form 20-F and is referred to for reference purposes only.
Website
The website, www.aibgroup.com, contains, for the previous five years, the Annual Financial Report, the Interim Report/Half-yearly
Financial Report, and the Annual Financial Report on Form 20-F. The Group’s presentation to fund managers and analysts of annual
and interim financial results are available on the internet, and may be accessed on the Company’s website: www.aibgroup.com. Since
2009, the Annual Financial Report and the Annual Report on Form 20-F have been combined in the form of this Annual Financial
Report. None of the information on the website is incorporated in, or otherwise forms part of, this Annual Financial Report.
Annual General Meeting (“AGM”)
All shareholders are invited to attend the AGM and to participate in the proceedings. At the AGM, it is practice to give a brief update on
the Group’s performance and developments of interest for the year to date. Separate resolutions are proposed on each separate issue
and voting is conducted by way of poll. The votes for, against, and withheld, on each resolution, including proxies lodged, are
subsequently published on AIB’s website. Proxy forms provide the option for shareholders to direct their proxies to withhold their vote. It
is usual for all Directors to attend the AGM and to be available to meet shareholders before and after the meeting. The Chairmen of the
Board Committees are available to answer questions about the Committees’ activities. A help desk facility is available to shareholders
attending. The Company’s 2014 AGM is scheduled to be held on 19 June 2014, at the Company’s Head Office at Bankcentre,
Ballsbridge, Dublin 4, and it is intended that the Notice of the Meeting will be posted to shareholders at least 21 clear days before the
meeting, in line with the requirements of Irish Company law.
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Governance and oversight -
3. Corporate Governance statement
Accountability and Audit
Accounts and Directors’ Responsibilities
The Statement concerning the responsibilities of the Directors in relation to the financial statements appears on page 403.
Going Concern
The Group’s activities are subject to risk factors and uncertainties as set out on pages 61 to 66.
Nothwithstanding these risk factors and uncertainties, the Directors have prepared the financial statements on a going concern basis. In
making its assessment, the Directors have considered a wide range of information relating to present and future conditions. These have
included financial plans prepared in November 2013 covering the period 2014 to 2016, the restructuring plan submitted to the European
Commission in September 2012, liquidity and funding forecasts, and capital resources projections, all of which have been prepared
under base and stress scenarios. In addition, the Directors have considered the commitment of support provided to AIB by the Irish
Government. Furthermore, the Directors have considered the outlook for the Irish, the eurozone and UK economies.
Internal Controls
The Directors acknowledge that they are responsible for the Group’s system of internal control. They acknowledge 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 mis-statement or loss.
The Group’s system of internal control is based on the following:
Governance and oversight
– AIB Board has ultimate responsibility for the governance of all risk taking activity across the Group. The Board is supported by a
number of sub-committees including a Board Risk Committee (“BRC”), an Audit Committee, a Remuneration Committee and a
Nomination and Corporate Governance Committee.
– The BRC evaluates material risks and risk management across the Group and risk disclosures made by the Group.
– At the executive level, a Leadership Team is in place with responsibility for establishing business strategy, risk appetite, enterprise
risk management and control.
– The Executive Risk Committee (“ERC”) which is a sub-committee of the Leadership Team reviews the effectiveness and application
of the Group’s risk frameworks and policies, risk profile, risk concentrations and all breaches of Board approved risk appetite and
limits.
– The Group Audit Committee of the Board reviews various aspects of internal control, including the design and operating
effectiveness of the financial reporting framework in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, the
Group’s statutory accounts and other published financial statements and information. It also ensures that no restrictions are placed
on the scope of the statutory audit or the independence of the Internal Audit and Regulatory Compliance functions.
– The Chief Financial Officer, the Chief Risk Officer (“CRO”) and the Group Internal Auditor are involved in all meetings of the Audit
Committee and BRC.
– The Group operates a three lines of defence framework in the delineation of accountabilities for risk governance.
– AIB’s remuneration policies are set and governed by the Remuneration Committee whose purpose, duties and membership are to
ensure that remuneration policies and practices are consistent with and promote effective risk management.
– There is an independent Group Internal Audit (“GIA”) function which is responsible for independently assessing the effectiveness of
the Group’s corporate governance, risk management and internal controls and which reports directly to the Chair of the Audit
Committee.
– Risk management committees are in place with approved terms of reference (“ToR”) that operate under delegated authority from the
Board and Executive level.
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Risk Management
– A Board approved Risk Appetite Statement (“RAS”) sets the limits of risk appetite associated with the Group’s strategic objectives.
The RAS is reviewed at least annually by the Board and more frequently if required. Risk policies and procedures are updated,
where appropriate, to reflect the limits of the risk appetite.
– AIB’s approach to managing risk and compliance matters is set out in a suite of policy documents that forms part of the AIB policy
framework which are aligned with the RAS and are Board approved.
– AIB has adopted an Enterprise Risk Management approach to identifying, assessing and managing risks which builds on the three
lines of defence governance framework and is supported by a comprehensive risk management framework and policy architecture.
– The Group’s risk management framework is also supported by the underlying Group Risk committees, comprising Executive Risk
Committee (“ERC”), Asset and Liability Committee (“ALCo”) (and its sub-committees Capital Committee and Product Pricing
Committee), Strategic Credit Forum (“SCF”), Group Credit Committee (“GCC”) and Products and Conducts Committee (“PCC”).
– A comprehensive annual budgeting and financial reporting system is in place, which incorporates clearly-defined and communicated
common accounting policies and financial control procedures, including those relating to authorisation limits, capital expenditure and
investment procedures.
– Roles and responsibilities for management and staff are outlined via a clearly-defined organisational management structure, with
defined lines of authority and accountability.
– AIB’s Internal Capital Adequacy Assessment Process (“ICAAP”) determines the adequacy and appropriateness of capital levels
based on the Group’s identification and assessment of the material risks to which it is exposed.
Risk identification
– Key internal and external risks are identified and assessed throughout AIB through a combination of top-down and bottom-up risk
assessment processes. The key risks to the organisation are defined within the AIB risk universe and are periodically updated
reflecting the current operating and risk environment.
– The Group’s risk identification and assessment framework is supported by a framework of stress testing, scenario analysis and
sensitivity analysis. The Group undertakes a regular program of stress testing across all of the material risks to meet internal and
regulatory requirements.
Risk control and monitoring
– There is a centralised risk control function which incorporates the Compliance function, headed by the CRO who is responsible for
ensuring that risks are identified, measured, monitored and reported on, and for reporting on risk mitigation actions.
– The Risk function is responsible for establishing and embedding risk management frameworks, ensuring that material risk policies
are reviewed, and reporting on adherence to risk limits as set by the Board of Directors.
– The Group’s risk profile is measured against its risk appetite on a monthly basis and exceptions are reported to the ERC and BRC
via the monthly CRO report. Material breaches of risk appetite are escalated to the Board and the Central Bank of Ireland (‘the
Central Bank’).
– The centralised Credit function is headed by a Chief Credit Officer who reports to the CRO.
– There is an independent Compliance function which provides advisory services to the Group and which monitors and reports on
prudential, conduct of business and financial crime compliance and forthcoming regulations across the Group, and on
management’s focus on compliance matters.
– AIB staff who perform Pre-Approved Controlled functions/Controlled functions meet the required standards as outlined in AIB’s
Fitness and Probity programme.
Taking the above into account, the Directors are satisfied that:
–
–
–
–
–
–
there is a clear organisational structure in place with well defined, transparent and consistent lines of responsibility;
effective processes are in place to identify, manage, monitor and report on risks;
adequate internal control mechanisms, including sound administrative and accounting procedures, IT systems and controls are in
place;
the remuneration policies and practices are consistent with and promote sound and effective risk management both on an individual
and Group level;
the system of governance promotes and communicates an appropriate risk and compliance culture at all levels of the Group; and
the system of governance is subject to regular internal review.
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Governance and oversight -
3. Corporate Governance statement
Additional requirements in the United States
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule
13a-15(f) under the US Exchange Act). Management has assessed the effectiveness of the Group’s internal control over financial
reporting as at 31 December 2013, based on the criteria set forth by the US Committee of Sponsoring Organisations of the Treadway
Commission in their publication ‘Internal Control - Integrated Framework (1992)’. Based on this assessment, management believes that,
as at 31 December 2013, the Group’s internal control over financial reporting is effective. There have been no changes in the Group’s
internal control over financial reporting during 2013 that has materially affected or is reasonably likely to materially affect the Group’s
internal control over financial reporting.
In addition to the need for such internal controls over financial reporting, the SEC has adopted somewhat broader requirements
designed to ensure that reporting companies, such as AIB, have adequate ‘disclosure controls and procedures’ in place. As at
31 December 2013, the Group carried out an evaluation, under the supervision of and with the participation of the Group’s
management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of
the Group’s disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls
and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly,
even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based
upon, and as at the date of the Group’s evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure
controls and procedures are effective in all material respects to ensure that information required to be disclosed in the reports which the
Group files and submits under the US Exchange Act is recorded, processed, summarised and reported within the time frame specified in
the SEC’s rules and forms.
Code of Conduct
In June 2012, the Group adopted a Code of Conduct that applies to all employees. This replaced the previous code of business ethics.
A copy of the Code is available on the Group website at www.aibgroup.com/investorrelations. (The information on this website is not
incorporated by reference into this document). The Code of Conduct sets out the key standards for behaviour and conduct that apply to
all employees, and includes particular requirements regarding responsibilities of management for ensuring that business and support
activities are carried out to the highest standards of behaviour. The application of the Code of Conduct is underpinned by policies,
practices and training which are designed to ensure that the Code is understood and that all employees act in accordance with it.
As part of the Code implementation, AIB encourages its employees to raise any concerns of wrongdoing through a number of channels,
both internal and external. One such channel includes a confidential external helpline. Employees are assured that if they raise a
concern in good faith, AIB will not tolerate any victimisation or unfair treatment of the employee as a result.
The Code of Conduct and supporting policies are subject to annual review and update to the Board.
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Governance and oversight - 4. Supervision and Regulation
4.1 Current climate of regulatory change
There has been significant change in the structure, focus and modus operandi of regulators globally in recent years. Many reforms
proposed as a result of the financial crisis have now been finalised and are being implemented. In the banking sector, the focus has
been on supporting the stability of the banking system and ensuring appropriate resolution and recovery mechanisms are in place. In
particular, in the EU, Heads of State and Governments committed to a banking union in 2012. One of the main pillars of the banking
union is the Single Supervisory Mechanism (“SSM”) which was agreed in 2013. Under the SSM, the ECB will become the lead
supervisor of significant banks in the EU, including AIB. This is expected to take place during 2014.
4.2 Ireland
Overview of financial services legislation
The Central Bank Reform Act 2010 (as amended) was brought into operation by the Irish Minister for Finance (‘the Minister’) on
1 October 2010. The Central Bank Reform Act 2010 (as amended) created a single, fully-integrated Central Bank of Ireland (‘Central
Bank’) with a unitary board, the Central Bank Commission, chaired by the Governor of the Central Bank. The Central Bank (Supervision
and Enforcement) Act was enacted in July 2013. The main purposes of the Act are to (a) provide enhanced powers to the Central Bank
for the supervision of regulated financial service providers and (b) provide enhanced powers to the Central Bank for the enforcement of
financial services legislation.
The Central Bank is responsible for the:
–
prudential supervision and regulation of a range of banking and financial services entities in Ireland, including credit institutions,
investment firms, stockbroking firms, payment institutions, insurance companies and credit unions;
conduct of business of such financial services entities, including the protection of consumer interests; and
overall stability of the financial system.
–
–
The Central Bank and Financial Services Authority of Ireland Act 2004 established the Financial Services Ombudsman’s Bureau to deal
with certain complaints about financial institutions.
The Credit Institutions (Stabilisation) Act 2010 was signed into law on 21 December 2010.The Act provides the legislative basis for the
reorganisation and restructuring of the Irish banking system as agreed in the joint EU/IMF Programme for Ireland. The Act empowers
the Minister, following consultation with the Governor of the Central Bank of Ireland, to propose any of a number of Stabilisation Orders
that the Minister believes is necessary to stabilise a particular relevant institution (including its group companies). A proposed
Stabilisation Order must be confirmed by the Irish High Court. The Act also imposes new duties on the directors of an institution and
sets out matters to which directors must have regard in the performance of their functions. These include protecting the interests of the
taxpayers, restoring confidence in the banking sector and facilitating the availability of credit in the economy of the State. The provisions
of the Act were to cease to have effect on 31 December 2012 unless otherwise extended. The Act was extended and remains in effect
until the end of 2014, unless further extended in due course.
The Central Bank and Credit Institutions (Resolution) Act came into force in 2011. It provides a framework for the resolution of Irish banks
and other Irish credit institutions encountering financial difficulties and not covered under the Credit Institutions (Stabilisation) Act, 2010.
The Central Bank of Ireland (‘the Central Bank’)
The Central Bank has a wide range of statutory powers to enable it to effectively regulate and supervise the activities of financial
institutions in Ireland including the power to carry out inspections. Features of the regulatory regime include prudential regulation and
codes of conduct, each of which is addressed in more detail below. The Central Bank also has wide-ranging powers of inspection:
inspectors appointed by the Central Bank may enter the relevant premises, take documents or copies, require persons employed in the
business to provide information and order the production of documents. In cases of extreme concern, the Central Bank may direct a
licence-holder to suspend its business activity for a specified period and may also intervene in the management or operation of an
entity.
The Central Bank Reform Act 2010 contains a number of provisions which impact the regulation of credit institutions, including powers
for the Central Bank to regulate sensitive or influential appointments in financial institutions. This includes the power to prevent the
appointment of a person from performing a ‘controlled function’ (as defined) or to remove or suspend a person from the performance of
a controlled function, where the Central Bank is satisfied that the person is not a fit and proper person to perform such a function. The
Fitness and Probity Regime is currently regulated by the Fitness and Probity Standards 2011 (Code issued under Section 50 of the
Central Bank Reform Act 2010) which apply to all persons occupying Controlled Functions in credit institutions and insurance
undertakings from 1 December 2012, including Allied Irish Banks p.l.c. and a number of its subsidiary companies.
A revised and updated Corporate Governance Code for Credit Institutions and Insurance Undertakings was published in December
2013. This revised Code applies to relevant institutions with effect from 1 January 2015. Institutions will continue to be subject to the
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Governance and oversight - 4. Supervision and Regulation
existing Corporate Governance Code requirements until 1 January 2015.
The Central Bank has extensive enforcement powers including the ability to impose administrative sanctions directly on financial
institutions for failure to comply with regulatory requirements (including codes of conduct and practice), subject to a right of appeal to the
Irish Financial Services Appeals Tribunal by the affected institution and a further appeal to the Irish High Court. Such administrative
sanctions may include a caution or reprimand, financial penalties (not exceeding € 10 million in the case of a firm or € 1 million in the
case of an individual) and a direction disqualifying a person from being concerned in the management of a regulated financial service
provider.
Banking legislation
The banking regulatory code in Ireland is comprised principally of the Central Bank Acts; regulations made under the European
Communities Act 1972 (as amended); and regulatory notices and codes of conduct issued by the Central Bank. Various Statutory
Instruments and regulations made by the relevant Government minister and regulatory notices made by the Central Bank implement in
Ireland the substantial range of European Union directives relating to banking supervision and regulation, including the Capital
Requirements Directive (“CRD”). To the extent that areas of banking activity in Ireland are the subject of EU regulations or directives, the
provisions of Irish banking law reflect the requirements of those EU instruments.
The Central Bank Acts regulate the conduct of banking business in Ireland and provide that banking business may only be carried on by
the holder of a banking licence or an EU/European Economic Area entity which exercises ‘passport rights’ to carry on business in
Ireland. Every Irish licensed bank is obliged to draw up and publish its annual financial statements in accordance with the European
Communities (Credit Institutions: Accounts) Regulations 1992 (as amended by the European Communities (Credit Institutions) (Fair
Value Accounting)) Regulations 2004). As a listed entity, Allied Irish Banks, p.l.c. is required to prepare its financial statements in
accordance with IFRS endorsed by the European Union (as applied by the European Communities (International Financial Reporting
Standards and Miscellaneous Amendments) Regulations 2005 and European Union (International Financial Reporting Standards)
Regulations 2012) and with those parts of the Companies Acts 1963 to 2013 that are applicable to companies reporting under IFRS;
and with article 4 of the EU Council Regulation 1606/2002 of 19 July 2002.
Allied Irish Banks, p.l.c. holds a banking licence and is authorised as a credit institution. AIB Mortgage Bank holds a banking licence and
is registered as a designated mortgage credit institution. There are no conditions attached to AIB’s licences or authorisations that are not
market standard conditions.
EBS Limited (“EBS”) became a wholly owned subsidiary of Allied Irish Banks, p.l.c. on 1 July 2011. EBS holds a banking licence and is
authorised as a credit institution. EBS Mortgage Finance, a wholly owned subsidiary of EBS, holds a banking licence and is registered
as a designated mortgage credit institution. There are no conditions attached to EBS’ licences or authorisations that are not market
standard conditions.
Capital requirements
The Group is subject to applicable European Union (“EU”) directives, including those that relate to capital adequacy. The most recent of
these is the new Capital Requirements Directive (“CRD IV”), which implements Basel III rules in the EU. These proposed rules focus on
enhancing capital adequacy and addressing solvency and governance issues. Their initial elements came into force on 1 January 2014.
Full implementation will be achieved by 1 January 2019.
CRD IV consists of two components - a Directive and a Regulation. The Directive provides the overall approach to the implementation of
the capital requirements, allowing Member States, through their local competent authorities, to exercise certain discretions in the
implementation of its provisions.
The Regulation contains the detailed prudential implementation requirements for credit institutions and investment firms. The principal
change relates to enhancing capital adequacy through the introduction of new buffers to protect against both short and long term
financial stresses. Other changes are designed to reduce, control and make more transparent the underlying risks in individual financial
institutions and across the financial services sector. These address areas such as liquidity standards, leverage ratios, corporate
governance, remuneration, sanctions, transparency, regulatory reporting and the role of credit rating agencies.
The introduction of a SSM in 2014, which will act with and through national competent authorities such as the Central Bank, will see the
progressive migration of prudential supervision towards a single EU authority. The Central Bank has powers to enforce the CRD
Regulations and to agree specific derogations and discretions in relation to its implementation on behalf of the SSM and the Irish
Government.
AIB is undertaking a full implementation process to ensure the timely alignment with the new requirements.
202
Markets in Financial Instruments Directive (“MiFID”)
MiFID was transposed into Irish law by the Markets in Financial Instruments and Miscellaneous Provisions Act 2007 and the European
Communities (Markets in Financial Instruments) Regulations 2007, (as amended) (together the MiFID Regulations).The MiFID
Regulations regulate the provision of MiFID Services in respect of financial instruments and apply both to credit institutions and to
investment firms.
MiFID Services include the provision of investment advice, portfolio management, execution of client orders and others. A number of
financial services that do not come within the definition of MiFID Services (such as the administration of collective investment schemes)
are subject to the requirements of the Investment Intermediaries Act 1995 (“IIA”). Each relevant Group company ensures that it fulfils its
obligations under MiFID, the MiFID Regulations and the IIA, as appropriate, on an on-going basis and ensures that it holds the
appropriate authorisation for its business at all times. AIB Corporate Finance Ltd is authorised as an investment firm under the MiFID
Regulations. Allied Irish Banks, p.l.c. also complies with the MiFID Regulations where it provides MiFID Services.
A revised MiFID Directive is expected to be agreed at European level in 2014.
Other financial services companies
In addition to the companies listed above, the Group includes a number of other financial services companies regulated by the Central
Bank. AIB Mortgage Bank is a designated mortgage credit institution under the Asset Covered Securities Acts, 2001 and 2007 (as
amended), and is permitted to issue mortgage covered securities which are secured by a statutory preference over covered assets
(principally, residential mortgage loans) comprised in a cover-assets pool. In addition to the role of the Central Bank, the activities of a
credit institution that is designated for the purposes of the Asset Covered Securities Act, 2001 (as amended) are subject to close
oversight by an independent cover-assets monitor appointed by the credit institution and approved by the Central Bank. The principal
role of the cover-assets monitor is to ensure that the assets maintained in the covered assets pool are sufficient to provide adequate
security to the holders of the asset covered securities.
AIB Leasing Ltd. is authorised as a retail credit firm under the Central Bank Act, 1997. AIB Insurance Services Ltd. is authorised as an
insurance intermediary under the Investment Intermediaries Act, 1995.
On 1 July 2011, AIB acquired EBS Limited including EBS Mortgage Finance and Haven Mortgages Limited, both of which are 100%
owned subsidiaries of EBS. EBS Limited is authorised as a credit institution. EBS Mortgage Finance is a designated mortgage credit
institution under the Asset Covered Securities Act, 2001 (as amended). Haven Mortgages Limited is authorised as a retail credit firm
under the Central Bank Act, 1997.
AIB held a 24.99% interest in Aviva Life Holdings Limited (“ALH”) which it disposed of in March 2013. AIB then acquired a 100%
interest in Ark Life Assurance Company Limited (“Ark Life”) which is now held for sale. It is expected that Ark Life will be sold in 2014. In
addition, Allied Irish Banks, p.l.c. indirectly owns 30% of Aviva Health Insurance Ireland Ltd., a regulated non-life insurance undertaking.
These undertakings must comply with the provisions of legislation including the Insurance Acts 1909 to 2009 and the European
Communities (Life Assurance) Framework Regulations 1994 (as amended) or European Communities (Non-Life Assurance) Framework
Regulations 1994 (as amended), as relevant. Further, the European Communities (Insurance Mediation) Regulations 2005 (as
amended) have implemented the EU Directive on Insurance Mediation and lay down rules for undertaking insurance and reinsurance
mediation, as well as prescribing registration requirements for persons who wish to carry out insurance mediation business or act as an
insurance intermediary or as a reinsurance intermediary.
Codes of conduct including Consumer Protection Code
The Central Bank has issued a number of codes of conduct, codes of practice and other requirements applicable to credit institutions
and other regulated financial services entities (including investment firms, insurance undertakings and intermediaries). These codes
address a substantial range of requirements including supervisory and reporting, corporate governance, conduct of business,
advertising, disclosure and record retention requirements. The Central Bank introduced a revised Consumer Protection Code, effective
1 January 2012. This Code imposes detailed rules on regulated financial services entities operating in Ireland in relation to non-MiFID
investment, insurance and banking services provided. In addition, the Central Bank has imposed statutory Codes of Conduct in relation
to business lending to small and medium-sized enterprises, dealing with residential mortgage arrears and lending to related parties.
Consumer legislation
The provision of credit to consumers is regulated in Ireland by the Consumer Credit Regulations and the Consumer Credit Act 1995 (the
“1995 Act”).The Consumer Credit Regulations and the 1995 Act are relevant to the Group to the extent that any of its Group companies
provide credit to consumers. The 1995 Act is also relevant to the Group to the extent that any of its Group companies provide credit in
the form of housing loans. The Consumer Credit Regulations, which transposed into Irish law the provisions of the Consumer Credit
Directive (Directive 2008/48/EC), prescribe a range of detailed requirements to be included in pre-contractual information and consumer
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Governance and oversight - 4. Supervision and Regulation
credit agreements to be provided to consumers and impose a number of obligations on the provider of such credit. Where the provision
of a particular type of credit does not fall within the scope of the Consumer Credit Regulations, it may fall within the scope of the 1995
Act. The 1995 Act prescribes a range of detailed requirements to be included in consumer credit agreements to be provided to
consumers and imposes a number of obligations on the provider of such credit. The 1995 Act also imposes a requirement on all credit
institutions to notify the Central Bank in advance of imposing on a customer any new charge in relation to the provision of certain
specified services; increasing any charge previously notified; or imposing any charge that does not comply with a direction from the
Central Bank. Irish law contains a wide range of consumer protection provisions, such as the European Communities (Unfair Terms in
Consumer Contracts) Regulations 1995 (as amended), the Consumer Protection Act 2007 and other measures regulating the content of
face-to-face and distance marketing contracts made with a consumer.
Deposit protection and investor compensation
Under the European Communities (Deposit Guarantee Schemes) Regulations 1995 (as amended) which implement in Ireland the
Deposit Guarantee Schemes Directive (Directive 94/19/EC), the Central Bank operates a deposit protection scheme under which each
licensed bank must contribute to the deposit protection account held by the Central Bank. Currently, the level of contribution required is
0.2 per cent of deposits (in whatever currency) held at all branches of the licensed bank in the EEA, including deposits on current
accounts but excluding certain funds and commitments such as interbank deposits, negotiable certificates of deposit, debt securities
issued by the same institution and promissory notes. The maximum amount of deposit protected is € 100,000 per depositor per
institution. The Investor Compensation Act 1998 (the ‘1998 Act’) (as amended) provided for the establishment of the Investor
Compensation Company Limited (the “ICCL”) to administer and supervise an investor compensation scheme. The 1998 Act requires
authorised investment firms to pay the ICCL such contribution to the fund maintained by the ICCL as the ICCL may from time to time
specify. The maximum amount payable under the investor compensation scheme is 90% of the amount lost by an eligible investor
subject to a maximum compensation payment of € 20,000.
European Markets Infrastructure Regulation (“EMIR”)
EMIR is intended to increase the stability and transparency of derivative markets and is being introduced in a phased manner over
2013-2015. It imposes requirements on all undertakings which transact derivatives, including clearing and margining, reporting to trade
repositories, and risk mitigation techniques.
In 2013, AIB introduced processes to comply with regulatory obligations concerning timely confirmations and portfolio reconciliation and
dispute resolution, and also took appropriate steps to comply with clearing and reporting requirements due in 2014. AIB is working with
affected customers to assist them in recognising, and achieving compliance with, their obligations under the regulation in 2014.
Anti-money laundering and sanctions
Anti-money laundering (“AML”)
The third EU Anti-Money Laundering Directive (2005/60/EC) was transposed into Irish Law by the Criminal Justice (Money Laundering
and Terrorist Financing) Act 2010 (the “2010 Act”). Persons designated under the 2010 Act (including credit institutions, financial
institutions, investment firms, IIA firms and life assurance companies) are obliged to take the necessary measures to effectively
counteract money laundering and terrorist financing in accordance with the provisions of the 2010 Act. Core guidelines were published
by the Department of Finance in February 2012 and the Central Bank will have regard to these guidelines in assessing compliance by
designated persons with the Act. Further amendments were made to the 2010 Act in 2013. The 2013 CJA (Money Laundering and
Terrorist Financing) Bill was signed into law as the Criminal Justice Act 2013 (Act No. 19 of 2013) on 12 June 2013 (the ’2013 Act’). Part
2 of the 2013 Act sets out the amendments to the 2010 Act and the majority of the provisions of Part 2 took effect from 14 June 2013.
The 2010 Act introduced, inter alia, an obligation on designated persons to (i) apply customer due diligence procedures to their
customers; (ii) identify and take risk based and adequate measures to verify beneficial ownership; and (iii) identify and apply enhanced
customer due diligence requirements to non-resident politically exposed persons. The 2010 Act amended reporting requirements where
a suspicious transaction report is necessitated. The 2010 Act also introduced a requirement for the authorisation of trust or company
service providers. Analogously, Ireland, by means including the Criminal Justice (Terrorist Offences) Act 2005, applies EU and United
Nations mandated restrictions on financial transfers with designated individuals and regimes and imposes criminal penalties for
participating in the financing of terrorism.
The key provisions introduced by the 2013 Act which impact on financial and credit institutions cover enhanced requirements in respect
of:
– Politically Exposed Persons (“PEPs”) and other higher risk situations;
–
–
amendment to the record-keeping provisions under the 2010 Act to allow for records to be stored outside Ireland; and
additional requirements in respect of matters that must be included in a designated person’s policies and procedures to detect and
prevent money laundering.
In addition further clarification was provided in respect of the application of Simplified Customer Due Diligence.
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Sanctions
The Central Bank is the regulatory authority in respect of compliance with sanctions regulations.
Sanctions take the form of restrictive/coercive measures against targeted individuals, entities, countries, governments and industries
that are imposed by bodies such as the United Nations (“UN”) through UN Security Council Resolutions, the European Union (“EU”)
through EU Regulations, the US Office of Foreign Assets Control (“OFAC”) through orders issued by the US Treasury Department,
and/or legislation passed by individual countries (together the ‘Sanctions Regulations’). Sanctions Regulations can include financial
restrictions or asset freezes, arms or trade embargoes, specific or general trade restrictions (import and export bans) or travel bans
which seek to change the behaviour of a targeted country or regime or deprive terrorists/ criminals from access to funds.
AIB has implemented Anti-Money Laundering and Counter-Terrorism Financing (“AML/CTF “) and Sanctions Frameworks which aim to
ensure that AIB Group and its employees adhere to the applicable AML/CTF and Sanctions obligations.
Data protection
The main laws dealing with data protection are the Data Protection Acts 1988 and Data Protection (Amendment) Act 2003 (“DPAs”).
These DPAs regulate the processing, disclosure and use of personal data relating to individual customers. They also require that certain
categories of “data controllers” and “data processors”, including financial institutions and insurance companies which process personal
data, are required to register with the Office of the Data Protection Commissioner in Ireland (“ODPC”). The European Communities
(Electronic Communications Networks and Services) (Data Protection and Privacy) Regulations 2003 (as amended) transpose the EU
Electronic Privacy Directive (2002/58/EC) into law and regulate marketing by electronic and other means. The ePrivacy Regulations
2011 (S.I. 336) deal with data protection for phone, email, SME and internet use. A Personal Data Security Breach Code of Practice is-
sued by the ODCP sets out the requirements relating to the reporting of data security breaches and addresses situations where per-
sonal data has been put at risk of unauthorised disclosure, loss, destruction or alteration. Each relevant Group company has
implemented and monitors appropriate policies and procedures to ensure compliance with its obligations under the DPAs.
4.3 United Kingdom
Regulation of AIB Group (UK) p.l.c.
AIB Group (UK) p.l.c. is a company incorporated in Northern Ireland and is authorised by the Prudential Regulation Authority (“PRA”)
and regulated by the Financial Conduct Authority (“FCA”) and the PRA under the Financial Services and Markets Act 2000 (“FSMA”) to
carry on a wide range of regulated activities (including accepting deposits). It carries on business under the trading names ‘Allied Irish
Bank (GB)’, ‘Allied Irish Bank (GB) Savings Direct’ and ‘First Trust Bank’ in Great Britain and Northern Ireland, respectively.
The FSMA is the principal piece of legislation governing the establishment, supervision and regulation of financial services and markets
in the United Kingdom. The PRA is responsible for prudential regulation, including rules relating to capital adequacy, limits on large ex-
posures and liquidity. The FCA is responsible for conduct of business regulation, market conduct (including market abuse), financial
crime and enhancing competition. On 1 April 2014, regulatory responsibility for Consumer Credit, which is currently regulated by the
Office of Fair Trading (the “OFT”), will transfer to the FCA making it, in effect, the single UK regulator on conduct of business issues.
AIB Group (UK) p.l.c. has the statutory power to issue bank notes as local currency in Northern Ireland (it does this under the name
‘First Trust Bank’). In this connection, it is subject to the provisions of the Bank Charter Act 1844, the Bankers (Northern Ireland) Acts
1845 and 1928, the Currency and Bank Notes Act 1928, the Allied Irish Banks Act 1981, the Allied Irish Banks Act 1993 and the Allied
Irish Banks Act 1996.
AIB Group (UK) p.l.c. subscribes to the Lending Code of the Lending Standards Board which is a self-regulatory code setting minimum
standards of good practice in relation to lending, including loans, credit cards and current account overdrafts.
First Trust Financial Services Ltd (formerly known as First Trust Independent Financial Advisers Limited) (a company incorporated in
Northern Ireland) is authorised by the FCA to advise on and arrange certain investments, including pensions, life policies, securities and
non-investment insurance contracts. The FCA is responsible both for the prudential supervision and for the general supervision of First
Trust Financial Services Ltd’s business in the United Kingdom. First Trust Financial Services Ltd. ceased providing financial advice in
December 2012. First Trust Bank has entered into an arrangement with Legal and General whereby financial advice will be provided to
the bank’s customers under an appointed representative arrangement.
Regulation of AIB Branches in the UK
Allied Irish Banks, p.l.c. is incorporated and has its head office in Ireland, and is licensed as a credit institution in Ireland by the Central
Bank of Ireland. Pursuant to the Banking Consolidation Directive (Directive 2006/48/EC (the “BCD”)), Allied Irish Banks, p.l.c. has
exercised its EU ‘passport’ rights to provide banking, treasury and corporate treasury services in the United Kingdom on a cross-border
basis and through the establishment of branches (in the name of AIB).
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Governance and oversight - 4. Supervision and Regulation
In accordance with the BCD, the ‘Home State’ regulator (here, the Central Bank of Ireland) has primary responsibility for the prudential
supervision of credit institutions incorporated in Ireland. However, credit institutions exercising their ‘passport’ rights must comply with
certain requirements (in particular, conduct of business rules) set by the ‘Host State’ regulator (here, the FCA). In addition, the PRA has
a responsibility to co-operate with the Central Bank of Ireland in ensuring that branches of Irish credit institutions in the United Kingdom
maintain adequate liquidity and take sufficient steps to cover risks arising from their open positions on financial markets in the United
Kingdom.
Regulation of other AIB Group entities
Certain other AIB Group entities are authorised to carry on regulated activities by way of the right to provide cross-border services into
the United Kingdom under the EU passport; however, they carry on an insignificant amount of business in the United Kingdom at
present.
Market in Financial Instruments Directive (“MiFID”)
MiFID was implemented in the United Kingdom on 1 November 2007.The requirements of MiFID apply to all regulated AIB Group
entities in the European Union that carry out a MiFID investment service or activity, for example, arranging deals in financial instruments,
dealing as agent or principal in financial instruments, providing investment advice and conducting portfolio management activities.
A revised MiFID Directive is expected to be agreed at European level in 2014.
Insurance mediation
Dealing as agent, arranging deals in, making arrangements with a view to transactions in, assisting in the administration and
performance of, advising on non-investment insurance contracts and agreeing to carry on any of these activities (‘Insurance Mediation
Activities’) are (subject to applicable exemptions) regulated activities under the FSMA. These insurance mediation activities have been
implemented in the UK pursuant to the Insurance Mediation Directive (2002/92/EC). Each of AIB Group (UK) p.l.c. and First Trust
Financial Services Ltd is authorised by the FCA to carry on all insurance mediation activities. In July 2012, the European Commission
published a proposal for a recast Insurance Mediation Directive which, if adopted, will enhance the regulation of insurance
intermediaries in the EU.
Mortgage regulation
Entering into as lender, arranging, advising on and administering regulated mortgage contracts, and agreeing to carry on any of these
activities, are (subject to applicable exemptions) regulated activities under the FSMA. AIB Group (UK) p.l.c. is authorised by the FCA to
enter into as lender, arrange and administer (but not advise on) regulated mortgage contracts. In preparation for the implementation of
the Mortgage Market Review in April 2014, an application for permission to advise on regulated mortgage contracts has been made.
Deposit protection and investor compensation
The Financial Services Compensation Scheme (“FSCS”) is the UK’s compensation fund of last resort for customers of authorised
financial services firms and protects claims in respect of deposits, insurance policies, insurance broking (for business on or after
14 January 2005), investment business and home finance (e.g. mortgage advising and arranging) (for business on or after 31 October
2004). FSCS may pay compensation, subject to its rules, if a firm is unable or likely to be unable to meet its financial obligations.
However, there are limits to the protection available under the FSCS. The deposit compensation limit is Stg£ 85,000 per eligible
claimant, per firm. Eligible investment business and home finance mediation claimants against firms declared in default on or after
1 January 2010 are entitled to receive 100 per cent. compensation for financial loss up to Stg£ 50,000 per person, per firm.
Compensation under the FSCS in respect of claims against insurance mediation firms is calculated on the basis of (i) claims in respect
of liabilities subject to compulsory insurance, 100 per cent. of the claim and (ii) other insurance claims, 100 per cent. of the first
Stg£ 2,000 and 90 per cent. of the remainder of the claim against firms declared in default before 1 January 2010 and the maximum
level of compensation for claims against firms declared in default on or after 1 January 2010 is 90 per cent. of the claim with no upper
limit. Both AIB Group (UK) p.l.c. and First Trust Financial Services Ltd are covered by the FSCS. Allied Irish Banks, p.l.c., as a bank
operating in the United Kingdom under its EU passport, is not covered by the FSCS but, in accordance with the Deposit Guarantee
Schemes Directive (Directive 94/19/EC), is covered by its home state (Ireland) deposit protection scheme.
Consumer credit
The Consumer Credit Act 1974, as amended (“CCA”) regulates unsecured and certain secured consumer loan businesses, consumer
hire and ancillary credit businesses such as credit brokerage and debt collecting. A credit agreement is regulated by the CCA where
(a) the borrower is or includes an ‘individual’ as defined in the CCA; (b) if the agreement was made before the removal of the CCA
financial limit, the amount of credit provided is Stg£ 25,000 or less and (c) the credit agreement is not an exempt agreement under the
CCA, for example, it is a regulated mortgage contract (as defined by the Financial Services and Markets Act 2000 (Regulated Activities)
Order 2001). At present, the OFT is responsible for the issue of licences under, and the superintendence of the working and the
enforcement of, the CCA and other consumer protection legislation, although regulatory responsibility will transfer to the FCA in April
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2014. Both Allied Irish Banks, p.l.c. and AIB Group (UK) p.l.c. hold current CCA licences. The EU Consumer Credit Directive
(2008/48/EC) was implemented into UK legislation via, inter alia; the Consumer Credit (EC Directive) Regulations 2010
(SI 2010/1010).The majority of the provisions came into force on 1 February 2011, with a small number having come into force on
30 April 2010.
The Unfair Terms in Consumer Contracts Regulations 1999 (the ‘Unfair Terms Regulations’) apply to certain contracts for goods and
services entered into with consumers, including mortgages and related products and services. The main effect of the Unfair Terms
Regulations is that a non-negotiated contractual term covered by the Unfair Terms Regulations which is ‘unfair’ will not be enforceable
against a consumer. The Unfair Terms Regulations will not generally affect terms which set out the subject matter of the contract, or
concern the adequacy of price or remuneration for its goods and services sold, provided they are written in plain and intelligible
language and are adequately drawn to the consumer’s attention.
Anti-money laundering
The third EU Anti-Money Laundering Directive (2005/60/EC) adopted by the European Union in October 2005 was implemented in the
UK on 15 December 2007 via the Money Laundering Regulations 2007.Practical assistance in the interpretation and application of the
UK Money Laundering Regulations is provided by the guidance published by the Joint Money Laundering Steering Group (“JMLSG”)
which comprises several major trade bodies from within the financial services industry. The Money Laundering Regulations 2007
provide detailed obligations for designated persons, which includes credit institutions, financial institutions, legal professionals and
estate agents. For example, in relation to customer due diligence there is an explicit requirement for firms to undertake ongoing
monitoring of business relationships and for firms to identify not just their customer but also the ultimate beneficial owner of the
customer(s) on a risk sensitive basis. Enhanced due diligence is expected to be carried out where a customer poses a higher risk of
money laundering or terrorist financing. In addition to the Money Laundering Regulations 2007, other acts of the UK Parliament such as
the Proceeds of Crime Act 2002, Terrorism Act 2000 and the Counter-Terrorism Act 2008 are designed to combat money laundering/
counter terrorist financing in the UK. On 5 February 2013, the European Commission adopted a legislative proposal for a new Money
Laundering Directive, which once passed into law will replace the current Money Laundering Directive (2005/60/EC).
Data protection
The Data Protection Act 1998 (“UKDPA”) is the primary legislation regarding the collection, use and disclosure of personal data relating
to individuals in the United Kingdom. The UKDPA imposes a number of obligations on ‘data controllers’, including a requirement to notify
the UK Information Commissioner’s Office that it is a ‘data controller’ processing personal information in an automated form and comply
with eight data protection principles. Each relevant AIB Group company has implemented and monitored appropriate procedures to
ensure compliance with its obligations under the UKDPA. Civil and criminal sanctions apply for contraventions of the UKDPA. These
include the issuance of monetary penalty notices to a maximum of Stg£ 500,000 by the UK Information Commissioner for serious
contraventions of the UKDPA.
The UKDPA and the Privacy and Electronic Communications (EC Directive) Regulations 2003 are the main laws which regulate the use
of personal data for marketing purposes by electronic means and automated calling system in the United Kingdom. However, on
25 January 2012, the European Commission published a proposal for a new data protection regulation, which, if adopted, would provide
the basis for a new EU wide date protection regulatory framework.
4.4 United States
Nature of the AIB Group’s activities
AIB is subject to federal and state banking and securities law supervision and regulation in the United States as a result of the banking
activities conducted by its branch in New York and AIB's ongoing U.S. Securities and Exchange Commission (“SEC”) reporting
obligations under the Exchange Act.
Applicable federal and state banking laws and regulations
Under the US International Banking Act of 1978, as amended (the “IBA”), AIB is a foreign banking organisation and is treated as a bank
holding company, as such terms are defined in the statute, and, as such, is subject to regulation by the Federal Reserve Board (“FRB”).
As a bank holding company that has not elected to be a ‘financial holding company’, AIB is generally required to limit its direct and
indirect activities in the United States to banking activities and activities that the FRB has determined to be ‘so closely related to banking
as to be a proper incident thereto’.
AIB continues to conduct limited corporate lending, treasury and other operations through its New York branch. AIB’s New York branch
is supervised by the FRB and the New York State Department of Financial Services. Under the IBA, the FRB may terminate the
activities of any US branch or agency in certain specified circumstances. Also, under the New York Banking Law, the New York State
Department of Financial Services may take possession of the business and property of a New York state-licensed branch under
circumstances generally including violations of law, unsafe or unsound practices or insolvency.
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Governance and oversight - 4. Supervision and Regulation
Under US federal banking laws, state-licensed branches (such as AIB’s New York branch) may not, as a general matter, engage as a
principal in any type of activity not permissible for their federally licensed counterparts, unless the FRB determines that the additional
activity is consistent with sound banking practices. US federal and state banking laws also generally subject state branches to the same
single-borrower lending limits that apply to federal branches or agencies, which are substantially similar to the lending limits applicable
to national banks. These single-borrower lending limits are based on the worldwide capital of the entire foreign bank.
Anti-money laundering, anti-terrorism and economic sanctions regulations have become a major focus of US government policy relating
to financial institutions and are rigorously enforced. Regulations applicable to AIB and its affiliates impose obligations to maintain
appropriate policies, procedures and controls to detect, prevent and report money laundering. In particular, Title III of the USA PATRIOT
Act, as amended, requires financial institutions operating in the United States to (i) give special attention to correspondent and
payable-through bank accounts, (ii) implement enhanced due diligence and ‘know your customer’ standards for private banking and
correspondent banking relationships, (iii) scrutinise the beneficial ownership and activity of certain non-US and private banking
customers (especially for so-called politically exposed persons) and (iv) develop new anti-money laundering programmes, due diligence
policies and controls to ensure the detection and reporting of money laundering. Such required compliance programmes are intended to
supplement any existing compliance programmes under the Bank Secrecy Act and Office of Foreign Assets Control (“OFAC”)
regulations.
OFAC administers and enforces economic and trade sanctions against targeted foreign countries, terrorists and international narcotics
traffickers to carry out US foreign policy and national security objectives. Generally, the regulations require blocking of accounts and
other property of specified countries, entities and individuals, and the prohibition of certain types of transactions (unless OFAC issues a
licence) with specified countries, entities and individuals. Banks, including US branches of foreign banks, are expected to establish and
maintain appropriate OFAC compliance programmes to ensure compliance with OFAC regulations.
Failure of a financial institution to maintain and implement adequate programmes to combat money laundering and terrorist financing
could have serious legal and reputational consequences for the institution.
Applicable federal and state securities laws and regulations
Although AIB delisted its ordinary shares from the New York Stock Exchange in August 2011, it continues to be subject to regulation and
supervision by the SEC. Like other registrants, AIB files reports and other information required under the Exchange Act with the SEC,
including Annual Reports on Form 20-F and Current Reports on Form 6-K. The Sarbanes-Oxley Act imposes significant requirements on
AIB and other SEC registrants. These include requirements with respect to the composition of AIB’s Audit Committee, the supervision of
AIB’s auditors (and the services that may be provided by such auditors) and the need for personal certification by the chief executive
officer and chief (principal) financial officer of Annual Reports on Form 20-F, as well as the financial statements included in such reports
and related matters.
Although subject to such requirements, the Exchange Act and related SEC rules and regulations afford foreign private issuers, including
AIB, relief from a number of requirements applicable to US registrants and, in certain respects, defers to the home country requirements
of the company in question. AIB’s Annual Reports on Form 20-F include disclosure of executive compensation and other disclosures
applicable to AIB under Irish law, but these disclosures are not fully comparable with disclosure requirements applicable to US
registrants. In addition, the SEC’s rules under the Sarbanes-Oxley Act are, in some respects, less burdensome on AIB and other foreign
private issuers than they are on similarly situated US registrants. AIB’s Annual Reports on Form 20-F also reflect compliance with the
internal control and auditor attestation requirements applicable to AIB by virtue of Section 404 of the Sarbanes-Oxley Act.
Other more recent federal laws and regulations, including the Dodd Frank Act of 2010, include provisions that place potentially
significant limitations on non-US banks operating in the United States, and also impact on activity conducted outside the US. AIB has
complied with requirements under Title VII of the Dodd-Frank Act 2010 (Dodd-Frank) with respect to OTC Derivatives Reform and is
monitoring ongoing business activities to ensure continued compliance. AIB’s swap trading activity as at 31 December 2013 was below
the thresholds required for registration as a Swap Dealer or Major Swap Participant. In addition, the New York branch has submitted its
initial Resolution Plan under Section 165(d) of Dodd-Frank. Final Rules for implementing Section 619 of Dodd-Frank (the "Volcker
Rule") which implements restrictions on both (i) proprietary trading and (ii) private equity and hedge fund activity by financial institutions
were issued in December 2013 by regulatory authorities. AIB is considering the implications of this rule for the bank and its subsidiaries.
Banking organizations covered by Section 619 will be required to fully confirm their activities and investments by 21 July 2015.
4.5 Other locations
Smaller operations are undertaken in other locations that are also subject to the regulatory environment in those jurisdictions. In
addition, discontinued operations are subject to the regulatory environment in which they operate.
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Accounting policies*
1 Reporting entity
2 Statement of compliance
3 Basis of preparation
4 Basis of consolidation
5
6
7
Foreign currency translation
Interest income and expense recognition
Fee and commission income
8 Net trading income
9 Dividend income
10 Operating leases
11 Employee benefits
12 Non-credit risk provisions
13 Income tax, including deferred income tax
14 Impairment of property, plant and equipment,
goodwill and intangible assets
15 Impairment of financial assets
16 Determination of fair value of financial instruments
17 Valuation of NAMA senior bonds
18 Financial assets
19 Financial liabilities
20 Property, plant and equipment
21 Intangible assets
22 Derivatives and hedge accounting
23 Non-current assets held for sale
and discontinued operations
24 Collateral and netting
25 Financial guarantees
26 Sale and repurchase agreements (including
stock borrowing and lending)
27 Leases
28 Shareholders’ equity
29 Insurance and investment contracts
30 Segment reporting
31 Cash and cash equivalents
32 Prospective accounting changes
*Forms an integral part of the audited financial statements.
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Accounting policies (continued)
The significant accounting policies that the Group applied in the preparation of the financial statements are set out in this section.
1 Reporting entity
Allied Irish Banks, p.l.c. (‘the parent company’ or ‘the Company’) is a company domiciled in Ireland. The address of the Company’s
registered office is Bankcentre, Ballsbridge, Dublin 4, Ireland. The consolidated financial statements include the financial statements of
Allied Irish Banks, p.l.c. (the parent company) and its subsidiary undertakings, collectively referred to as the ‘Group’, where appropriate,
including certain special purpose entities and are prepared to the end of the financial year. The Group is and has been primarily involved in
retail and corporate banking.
2 Statement of compliance
The consolidated financial statements have been prepared in accordance with International Accounting Standards and International
Financial Reporting Standards (collectively “IFRSs”) as issued by the International Accounting Standards Board (“IASB”) and
International Financial Reporting Standards as adopted by the European Union (“EU”) and applicable for the year ended
31 December 2013. The accounting policies have been consistently applied by Group entities and are consistent with the previous year,
unless otherwise described. The financial statements also comply with the Companies Acts 1963 to 2013 and the European
Communities (Credit Institutions: Accounts) Regulations, 1992 (as amended) and the Asset Covered Securities Acts 2001 and 2007.
The parent company financial statements have been prepared in accordance with International Financial Reporting Standards as issued
by the IASB and International Financial Reporting Standards as adopted by the EU as applicable for the year ended 31 December 2013
and with Irish Statute. In publishing the parent company financial statements together with the Group financial statements, AIB has
taken advantage of the exemption in paragraph 2 of Regulation 5 of the European Communities (Credit Institutions: Accounts)
Regulations, 1992 not to present its parent company income statement, statement of comprehensive income and related notes that form
part of these approved financial statements.
3 Basis of preparation
Functional and presentation currency
The financial statements are presented in euro, which is the functional currency of the parent company and a significant number of its
subsidiaries, rounded to the nearest million.
Basis of measurement
The financial statements have been prepared under the historical cost basis, with the exception of the following assets and
liabilities 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 and financial assets classified as available-for-sale.
The financial statements comprise the consolidated income statement, the consolidated statement of comprehensive income, the
consolidated and parent company statements of financial position, the consolidated and parent company statements of cash flows, and
the consolidated and parent company statements of changes in equity together with the related notes. These notes also include
financial instrument related disclosures which are required by IFRS 7 and revised IAS 1, contained in the Financial review and the Risk
management sections of this Annual Financial Report. The relevant information on those pages is identified as forming an integral part
of the audited financial statements.
Use of estimates and judgements
The preparation of financial statements requires management to make judgements, 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 and underlying assumptions are reviewed on an on-going
basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future period affected.
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 loan impairment and impairment of other financial instruments; the recoverability of deferred tax;
determination of the fair value of certain financial assets and financial liabilities; and retirement benefit obligations. In addition, the
designation of financial assets and financial liabilities has a significant impact on their income statement treatment and could have a
significant impact on reported income.
A description of these estimates and judgements is set out within Financial review - Critical accounting policies and estimates. This
section is identified as forming an integral part of the audited financial statements.
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3 Basis of preparation (continued)
Going concern
The financial statements for the year ended 31 December 2013 have been prepared on a going concern basis as the Directors are
satisfied, having considered the risks and uncertainties impacting the Group, that it has the ability to continue in business for the period
of assessment. The period of assessment used by the Directors is twelve months from the date of approval of these annual financial
statements.
In making its assessment, the Directors have considered a wide range of information relating to present and future conditions. These
have included financial plans covering the period 2014 to 2016 approved by the Board in December 2013, the restructuring plan
submitted to the European Commission in September 2012, liquidity and funding forecasts, and capital resources projections, all of
which have been prepared under base and stress scenarios. In addition, the Directors have considered the commitment of support
provided to AIB by the Irish Government. The Directors have also considered the risk factors which could materially affect the Group’s
future business performance and profitability and which are outlined on pages 61 to 66.
Furthermore, the Directors have considered the outlook for the Irish economy, taking into account such factors as the successful exit by
the Irish Government from the three-year bailout programme in December 2013 without a back-up credit line, the forecast expansion of
the economy and the forecast fall in unemployment rates, in 2014. The forecast turnaround in the economy is supported by various
economic indicators such as a modest growth in economic output and reduced unemployment levels together with increasing consumer
confidence and a stabilisation of house prices, particularly in Dublin, during 2013.
The Directors have also considered the outlook for the eurozone and UK economies which are slowly emerging from recession. In the
EU, following the sovereign and bank debt crises, the actions taken at an EU level lead to a marked easing of the crises and
improvement of conditions in eurozone financial markets since the second half of 2012. The various support measures adopted for the
euro since the beginning of 2011 and the pronouncements of the ECB demonstrate the strong commitment of EU institutions and the
euro area Member States to do whatever is necessary to preserve the euro. In addition, the UK economy in which the Group has
significant interests has returned to growth following a period of stagnation similar to the eurozone.
The Irish Government, as AIB’s principal shareholder, has confirmed its recognition of AIB as a ‘Pillar Bank’, given its key role in
supporting the Irish economy. In support of this role, it has ensured that AIB has been sufficiently capitalised to meet the capital targets
set by the Central Bank through its 2011 PCAR and PLAR assessment. The Directors have reviewed the capital and financial plans for
the period of assessment, and believe that the capital resources are sufficient to ensure that the Group is adequately capitalised both in
a base and stress scenario. The Group’s regulatory capital resources are detailed on pages 47 to 49.
In relation to liquidity and funding, the Directors are satisfied, based on AIB’s position as one of the two ‘Pillar Banks’ that in all
reasonable circumstances, the required liquidity and funding from the Central Bank/ECB will be available to the Group during the period
of assessment.The Group’s funding and liquidity profile are outlined on pages 153 to 163.
Conclusion
On the basis of the above, the Directors believe that it is appropriate to prepare the financial statements on a going concern basis
having concluded that there are no material uncertainties related to events or conditions that may cast significant doubt on the Group’s
ability to continue as a going concern over the period of assessment.
Adoption of new accounting standards
The following standards/amendments to standards have been adopted by the Group and the Company during the year ended
31 December 2013. The impact of these amendments on the financial statements are set out in note 60.
Amendments to IAS 1 Presentation of Items in Other Comprehensive Income
These amendments are effective from 1 July 2012. The amendments require companies preparing financial statements in
accordance with IFRSs to group together items within other comprehensive income that may be reclassified to the profit or loss section
of the income statement. The amendments also reaffirm existing requirements that items in other comprehensive income and profit or
loss should be presented as either a single statement or two consecutive statements. The adoption of these amendments has resulted
in a change in the presentation of other comprehensive income.
211
Accounting policies (continued)
3 Basis of preparation (continued)
IAS 19 Employee Benefits
This revised standard is effective from 1 January 2013. The amendments result in significant changes to accounting for defined benefit
pension plans. The revised standard eliminates the option to defer recognition of gains and losses (this option had not been adopted by
AIB in the past). Actuarial gains and losses are now required to be recognised in other comprehensive income and are excluded
permanently from profit or loss. The expected returns on plan assets will no longer be recognised in profit or loss. The expected return
and the interest cost are replaced by recording net interest in profit or loss. Net interest is calculated using the discount rate used to
measure the pension obligation. Unvested past service costs can no longer be deferred and recognised over the future vesting period.
Instead, all past service costs will be recognised at the earlier of when the amendment/curtailment occurs and when the entity recognises
related restructuring or termination costs.
Consolidation standards
IFRS 10 Consolidated Financial Statements
This standard which is effective from 1 January 2013 replaces the consolidation guidance in IAS 27 Consolidated and Separate
Financial Statements and SIC-12 Consolidation – Special Purpose Entities. It introduces a single consolidation model for all entities
based on control, irrespective of the nature of the investee. IFRS 10 builds on the existing principles by identifying the concept of
control as the determining factor in which an entity should be included within the consolidated financial statements of the parent
company. The adoption of this standard did not have a significant impact on the financial position or performance of the Group.
IFRS 11 Joint Arrangements
This standard is effective from 1 January 2013. IFRS 11 introduces new accounting requirements for joint arrangements, replacing
IAS 31 Interests in Joint Ventures, by focusing on the rights and obligations of the arrangement, rather than its legal form. The option
to apply the proportional consolidation method when accounting for jointly controlled entities is removed. The adoption of this
standard did not have any impact on the financial position or performance of the Group.
IFRS 12 Disclosure of Interests in Other Entities
This standard which is effective from 1 January 2013 sets out the required disclosures for entities reporting under the two new
standards, IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements; it also replaces the disclosure requirements
in IAS 28 Investments in Associates and Joint Ventures. The required disclosures aim to provide information to enable users to
evaluate the nature of, and risks associated with, an entity’s interests in other entities and the effects of those interests on the entity’s
financial position, financial performance and cash flows. This basic principle is further supported by more detailed disclosure
objectives and requirements. This new standard impacts the disclosures required for the Group’s subsidiaries and associates as well
as unconsolidated structured entities.
IAS 27 Separate Financial Statements (revised 2011)
The revised standard is effective from 1 January 2013. The requirements relating to separate financial statements are unchanged and
are included in the revised IAS 27. The other sections of IAS 27 are replaced by IFRS 10 Consolidated Financial Statements. IAS 27
is renamed ‘Separate Financial Statements’ and is now a standard dealing solely with separate financial statements. The existing
guidance and disclosure requirements for separate financial statements are unchanged. The adoption of this standard has not had an
impact on Group reporting.
IAS 28 Investments in Associates and Joint Ventures (revised 2011)
This standard which is effective from 1 January 2013 prescribes the accounting for investments in associates and sets out the
requirements for the application of the equity method when accounting for investments in associates and joint ventures. IAS 28
(revised 2011) does not include any disclosure requirements; these are now included in IFRS 12 Disclosure of Interests in Other
Entities. The adoption of this standard did not have any impact on the financial position or performance of the Group.
IFRS 13 Fair Value Measurement
This standard which is effective from 1 January 2013 establishes a single source of guidance for fair value measurements under IFRSs.
IFRS 13 defines fair value, provides guidance on its determination and introduces consistent requirements for disclosures on fair value
measurements. The standard requires entities to disclose information about the valuation techniques and inputs used to measure fair
value, as well as information about the uncertainty inherent in fair value measurements. This information is required for both financial and
non-financial assets and liabilities. The adoption of this standard has resulted in additional disclosures.
212
3 Basis of preparation (continued)
IFRS 7 Financial Instruments: Disclosures on Offsetting Financial Assets and Financial Liabilities
These amendments to IFRS 7 are effective from 1 January 2013. The amendments introduce new disclosure requirements for offsetting
financial instruments that aim to improve the comparability of financial statements prepared in accordance with IFRS and US GAAP. The
amendments require more extensive disclosures at the year end which focus on quantitative information about recognised financial
instruments that are offset in the statement of financial position, as well as those recognised financial instruments that are subject to
master netting or similar arrangements, irrespective of whether they are offset. The adoption of this standard has resulted in additional
disclosures.
Other amendments, resulting from improvements to IFRSs which the Group adopted in 2013, did not have any impact on the accounting
policies, financial position or performance of the Group.
Changes to accounting policies
Arising from the adoption of the IFRSs set out above, the following accounting policies were revised effective from 1 January 2013:
– Basis of consolidation
– Employee benefits
– Determination of fair value of financial instruments
– Non-current assets held for sale and discontinued operations
4 Basis of consolidation
Subsidiary undertakings
A subsidiary undertaking is an investee controlled by the Group. The Group controls an investee when it has power over the investee, is
exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its
power over the investee. Subsidiaries are consolidated in the Group’s financial statements from the date on which control commences
until the date that control ceases.
The Group reassesses whether it controls a subsidiary when facts and circumstances indicate that there are changes to one or more
elements of control.
Loss of control
If the Group loses control of a subsidiary, the Group:
(i) derecognises the assets (including any goodwill) and liabilities of the former subsidiary at their carrying amounts at the date control
is lost;
(ii) derecognises the carrying amount of any non-controlling interests in the former subsidiary at the date control is lost (including any
attributable amounts in other comprehensive income);
(iii) recognises the fair value of any consideration received and any distribution of shares of the subsidiary;
(iv) recognises any investment retained in the former subsidiary at its fair value at the date when control is lost; and
(v) recognises any resulting difference of the above items as a gain or loss in the income statement.
The Group subsequently accounts for any investment retained in the former subsidiary in accordance with IAS 39 Financial Instruments:
Recognition and Measurement, or when appropriate, IAS 28 Investments in Associates and Joint Ventures.
Structured entities
A structured entity is an entity designed so that its activities are not governed by way of voting rights. The Group assesses whether it
has control over such an entity by considering factors such as the purpose and design of the entity; the nature of its relationship with the
entity; and the size of its exposure to the variability of returns of the entity.
Business combinations
The Group accounts for the acquisition of businesses using the acquisition method except for those businesses under common control.
Under the acquisition method, the consideration transferred in a business combination is measured at fair value, which is calculated as
the sum of:
–
–
–
the acquisition date fair value of assets transferred by the Group;
liabilities incurred by the Group to the former owners of the acquiree; and
the equity interests issued by the Group in exchange for control of the acquiree.
Acquisition related costs are recognised in the income statement as incurred.
213
Accounting policies (continued)
4 Basis of consolidation (continued)
Business combinations
Goodwill is measured as the excess of the sum of:
–
–
–
–
the fair value of the consideration transferred;
the amount of any non-controlling interests in the acquiree; and
the fair value of the acquirer’s previously held equity interest in the acquiree, if any; less
the net of the acquisition date fair value of the identifiable assets acquired and liabilities assumed.
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.
Non-controlling interests
For each business combination, the Group recognises any non-controlling interest in the acquiree either:
–
–
at fair value; or
at their proportionate share of the acquiree’s identifiable net assets.
For changes in the Group’s interest in a subsidiary that do not result in a loss of control, the Group adjusts the carrying amounts of the
controlling and non-controlling interests to reflect the changes in their relative interests in the subsidiary. The difference between the
change in value of the non-controlling interest and the fair value of the consideration paid or received is recognised directly in equity and
attributed to the equity holders of the parent.
Common control transactions
The Group accounts for the acquisition of businesses or investments in subsidiary undertakings between members of the Group at
carrying value at the date of the transaction unless prohibited by company law or IFRS. This policy also applies to the acquisition of
businesses by the Group of other entities under the common control of the Irish Government. Where the carrying value of the acquired
net assets exceeds the fair value of the consideration paid, the excess is accounted for as a capital contribution (accounting policy
number 28 Shareholders’ equity - capital contributions in the Annual Financial Report 2013). On impairment of the subsidiary in the
parent company’s separate financial statements, an amount equal to the impairment charge net of tax in the income statement is
transferred from capital contribution reserves to revenue reserves. The entire capital contribution is transferred to revenue reserves on
final sale of the subsidiary.
For acquisitions under common control, comparative data is not restated. The consolidation of the acquired entity is effective from the
acquisition date with intercompany balances eliminated at a Group level on this date.
Associated undertakings
An associated undertaking is an entity over which the Group has significant influence, but not control, over the entity’s operating and
financial policy decisions. If the Group holds 20% or more of the voting power of an entity, it is presumed that the Group has significant
influence, unless it is clearly demonstratable that this is not the case.
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 other comprehensive income of the associated
undertaking.
Goodwill arising on the acquisition of an associated undertaking is included in the carrying amount of the investment. 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 associate.
Where the Group continues to hold more than 20% of the voting power in an investment but ceases to have significant influence, the
investment is no longer accounted for as an associate. On the loss of significant influence, the Group measures the investment at fair
value and recognises any difference between the carrying value and fair value in profit or loss and accounts for the investment in
accordance with IAS 39 Financial Instruments: Recognition and Measurement.
The Group’s share of the results of associated undertakings after tax reflects the Group’s proportionate interest in the associated
undertaking and is based on financial statements made up to a date not earlier than three months before the period end reporting date,
adjusted to conform with the accounting policies of the Group.
214
4 Basis of consolidation (continued)
Associated undertakings
Since goodwill that forms part of the carrying amount of the investment in an associate is not recognised separately, it is, therefore, not
tested for impairment separately. Instead, the entire amount of the investment in an associate is tested for impairment as a single asset
when there is objective evidence that the investment in an associate may be impaired.
Transactions eliminated on consolidation
Intra-group balances and any unrealised income and expenses, arising from intra-group transactions are eliminated on consolidation.
Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
Unrealised gains and losses on transactions with associated undertakings are eliminated to the extent of the Group’s interest in the
investees.
Consistent accounting policies are applied throughout the Group for the purposes of consolidation.
5 Foreign currency translation
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 re-translated at the rate prevailing at the
period end. Foreign exchange gains and losses resulting from the settlement of such transactions and from the re-translation at period
end exchange rates of the amortised cost of monetary assets and liabilities denominated in foreign currencies are recognised in the
income statement. 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. Exchange differences on equities classified as available for sale financial assets, together with
exchange differences on a financial liability designated as a hedge of the net investment in a foreign operation are reported in other
comprehensive income.
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;
foreign currency translation differences are recognised in other comprehensive income; and
since 1 January 2004, the Group’s date of transition to IFRS, all such exchange differences are included in the foreign currency
translation reserve within shareholders’ equity. When a foreign operation is disposed of in full, the relevant amount of the
foreign currency translation reserve is transferred to the income statement. When a subsidiary is partly disposed of, the foreign
currency translation reserve is re-attributed to the non-controlling interest.
–
–
–
6 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
financial assets or financial 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 estimated future cash payments or receipts through the expected life of the financial
instrument to the net carrying amount of the financial asset or financial liability. The application of the method has the effect of
recognising income receivable and expense 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 any expected 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 rate 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.
215
Accounting policies (continued)
6 Interest income and expense recognition (continued)
Interest income and expense presented in the consolidated income statement includes:-
Interest on financial assets and financial liabilities at amortised cost on an effective interest method;
Interest on financial investments available for sale on an effective interest method;
–
–
– Net interest income and expense on qualifying hedge derivatives designated as cash flow hedges or fair value hedges which
are recognised in interest income or interest expense; and
Interest income and funding costs of trading portfolio financial assets, excluding dividends on equity shares.
–
7 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 relating 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 drawdown is probable are deferred and recognised as an
adjustment to the effective interest rate on the loan once drawn. Commitment fees in relation to facilities where drawdown is not
probable are recognised over the term of the commitment on a straight line basis. Other credit related fees are recognised as the
service is provided except for arrangement fees where it is likely that the facility will be drawn down and which are included in the
effective interest rate calculation.
8 Net trading income
Net trading income comprises gains less losses relating to trading assets and trading liabilities and includes all realised and unrealised
fair value changes.
9 Dividend income
Dividend income is recognised when the right to receive dividend income is established. Usually this is the ex-dividend date for
equity securities.
10 Operating leases
Payments made under operating leases are recognised in the income statement on a straight line basis over the term of the lease.
Lease incentives received and premiums paid at inception of the lease are recognised as an integral part of the total lease expense over
the term of the lease.
11 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 retirement benefit schemes including defined benefit and defined contribution as well as a hybrid
scheme that has both defined benefit and defined contribution elements. In addition, the Group contributes, according to local law in the
various countries in which it operates, to governmental and other schemes which have the characteristics of defined contribution
schemes. 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 year-end reporting date. Scheme assets are measured at fair value determined by using current bid prices. Scheme liabilities are
measured on an actuarial basis by estimating the amount of future benefit that employees have earned for their service in current and
prior periods and discounting that benefit at the market yield on a high quality corporate bond of equivalent term and currency to the
liability. The calculation is performed by a qualified actuary using the projected unit credit method. The difference between the fair value
of the scheme assets and the present value of the defined benefit obligation at the year-end reporting date is recognised in the
statement of financial position. 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 other comprehensive income.
Changes with regard to benefits payable to retirees which represent a constructive obligation under IAS 37 Provisions, Contingent
Liabilities and Contingent Assets are accounted for as a negative past service cost. These are recognised in the income statement.
216
11 Employee benefits (continued)
The cost of providing defined benefit pension schemes to employees, comprising the service cost and net interest on the net defined
benefit liability (asset), calculated by applying the discount rate to the net defined benefit liability (asset), is charged to the income
statement within personnel expenses. Remeasurements of the net defined benefit liability (asset), comprising actuarial gains and losses
and the return on scheme assets are recognised in other comprehensive income. Amounts recognised in other comprehensive income
in relation to remeasurements of the net defined benefit liability (asset) will not be reclassified to profit or loss in a subsequent period.
The Group recognises the effect of an amendment to a defined benefit scheme when the plan amendment occurs, which is when the
Group introduces or withdraws a defined benefit scheme, or changes the benefits payable under existing defined benefit schemes. A
curtailment is recognised when a significant reduction in the number of employees covered by a defined benefit scheme occurs. Gains
or losses on plan amendments and curtailments are recognised in the income statement as a past service cost.
The costs of managing the defined benefit scheme assets are deducted from the return on scheme assets. All costs of running the
defined benefit schemes are recognised in profit or loss when they are incurred.
The cost of the Group’s defined contribution schemes is charged to the income statement in the accounting period in which it is
incurred. Any contributions unpaid at the year-end reporting date are included as a liability. The Group has no further obligation under
these schemes 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 legal or constructive obligation to its
employees that can be measured reliably. The cost of providing subsidised staff loans is charged within personnel expenses.
Termination benefits
Termination benefits are recognised as an expense at the earlier of when the Group can no longer withdraw the offer of those benefits
and when the Group recognises costs for a restructuring under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, which
includes the payment of termination benefits.
For termination benefits payable as a result of an employee’s decision to accept an offer of voluntary redundancy, which is not within the
scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the Group recognises the expense at the earlier of when the
employee accepts the offer and when a restriction on the Group’s ability to withdraw the offer takes effect.
12 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 rate, is charged annually to interest expense using the
effective interest method. 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 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. Before the provision is established, the Group recognises any impairment loss on the assets
associated with the lease contract.
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 present legal or constructive obligations 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 reliably estimated.
217
Accounting policies (continued)
12 Non-credit risk provisions (continued)
Contingent liabilities are possible obligations whose existence will be confirmed only by the occurrence of uncertain future events or
present obligations where the transfer of economic benefit is uncertain or cannot be reliably estimated. Contingent liabilities are not
recognised but are disclosed in the notes to the financial statements unless the possibility of the transfer of economic benefit is remote.
A provision is recognised for a constructive obligation where a past event has led to an obligating event. This obligating event has left
the Group with little realistic alternative but to settle the obligation and the Group has created a valid expectation in other parties that it
will discharge the obligation.
13 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 in other comprehensive income, in which case it is recognised in other comprehensive income. Income tax relating to
items in equity is recognised directly in equity.
Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantively enacted at the
reporting date and any adjustment to tax payable in respect of previous years.
Deferred income tax is provided, using the financial statement liability method, on temporary differences 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 substantively enacted at the reporting date and expected to apply when the deferred tax asset is realised or the
deferred tax liability is settled. Deferred income tax assets are recognised when it is probable that future taxable profits will be available
against which the temporary differences will be utilised. The deferred tax asset is reviewed at the end of each reporting period and the
carrying amount is reduced to the extent that sufficient taxable profits will be available to allow all of the asset to be recovered.
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 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 the current tax assets and liabilities on a net basis or to realise the asset and settle the
liability simultaneously.
The principal temporary differences arise from depreciation of property, plant and equipment, revaluation of certain financial assets and
financial liabilities including derivative contracts, provisions for pensions and other post retirement benefits, 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, the amortisation of which is not
deductible for tax purposes, and assets and liabilities the initial recognition of which, in a transaction that is not a business combination,
affects 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.
14 Impairment of property, plant and equipment, goodwill and intangible assets
Annually, 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 and
intangible assets not yet available for use are subject to an annual impairment review.
The impairment review comprises a comparison of the carrying amount of the asset or cash generating unit with its recoverable amount.
Cash-generating units are the lowest level at which management monitors the return on investment in assets. The recoverable amount
is determined as the higher of fair value less costs to sell of the asset or cash generating unit and its value in use. Fair value less costs
to sell 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. For intangible assets not yet available for use, the impairment review takes into account the cash flows required to
bring the asset into use.
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 may be reversed in
part or in full when there 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.
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15 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 reporting date.
Impairment
The Group assesses at each reporting 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
reporting 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)
d)
e)
f)
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;
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
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; and
ii national or local economic conditions that correlate with defaults on the assets in the portfolio.
Incurred but not reported
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.
Collective evaluation of impairment
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.
Impairment loss
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 is included in the income statement.
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 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
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Accounting policies (continued)
15 Impairment of financial assets (continued)
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.
Collateralised financial assets – Repossessions
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 settling the collateral, and whether or not foreclosure is probable.
For loans which are impaired, the Group may repossess collateral previously pledged as security in order to achieve an orderly
realisation of the loan. AIB will then offer this repossessed collateral for sale. However, if the Group believes the proceeds of the sale will
comprise only part of the recoverable amount of the loan with the customer remaining liable for any outstanding balance, the loan
continues to be recognised and the repossessed asset is not recognised. However, if the Group believes that the sale proceeds of the
asset will comprise all or substantially all of the recoverable amount of the loan, the loan is derecognised and the acquired asset is
accounted for in accordance with the applicable accounting standard. Any further impairment of the repossessed asset is treated as an
impairment of the relevant asset and not as an impairment of the original loan.
Past due loans
When a borrower fails to make a contractually due payment, a loan is deemed to be past due. ‘Past due days’ is a term used to describe
the cumulative numbers of days that a missed payment is overdue. Past due days commence from the close of business on the day on
which a payment is due but not received. In the case of overdrafts, past due days are counted once a borrower:
–
–
–
has breached an advised limit;
has been advised of a limit lower than the then current outstandings; or
has drawn credit without authorisation.
When a borrower is past due, the entire exposure is reported as past due, rather than the amount of any excess or arrears.
Financial investments available for sale
In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its
cost is considered in determining whether impairment exists. Where such evidence exists, the cumulative net loss that had previously
been recognised in other comprehensive income is recognised in the income statement as a reclassification adjustment. Reversals of
impairment of equity securities are not recognised in the income statement and increases in the fair value of equity securities after
impairment are recognised in other comprehensive income.
In the case of debt securities classified as available for sale, impairment is assessed on the same criteria as for all other debt financial
assets. Impairment is recognised by transferring the cumulative loss that has been recognised directly in other comprehensive income
to the income statement. Any subsequent increase in the fair value of an available for sale debt security is included in other
comprehensive income unless the increase in fair value can be objectively related to an event that occurred after the impairment was
recognised in the income statement, in which case the impairment loss or part thereof is reversed.
Loans renegotiated and forbearance
From time to time, the Group will modify the original terms of a customer’s loan either as part of the on-going relationship with the
customer or arising from changes in the customer’s circumstances such as when that customer is unable to make the agreed original
contractual repayments.
Forbearance
A forbearance agreement is entered into where the customer is in financial difficulty to the extent that they are unable to repay both the
principal and interest on their loan in accordance with their original contract. Following an assessment of the customer’s repayment
capacity, a potential solution will be determined from the options available. There are a number of different types of forbearance
options including interest and/or arrears capitalisation, interest rate adjustments, payment holidays, term extensions and equity swaps.
These are detailed in the Credit Risk section 3.1. A request for a forbearance solution acts as a trigger for an impairment test.
All loans that are assessed for a forbearance solution are tested for impairment under IAS 39 and where a loan is deemed impaired, an
appropriate provision is raised to cover the difference between the loan’s carrying value and the present value of estimated future
cashflows discounted at the loan’s original effective interest rate. Where, having assessed the loan for impairment and the loan is not
deemed to be impaired, it is included within the collective assessment as part of the IBNR provision calculation.
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15 Impairment of financial assets (continued)
Forbearance mortgage loans, classified as impaired, may be upgraded from impaired status, subject to a satisfactory assessment by
the appropriate credit authority as to the borrower’s continuing ability and willingness to repay and confirmation that the relevant security
held by the Group continues to be enforceable. In this regard, the borrower is required to display a satisfactory performance following
the restructuring of the loan in accordance with new agreed terms, comprising typically, a period of twelve months of consecutive
payments of full principal and interest and, the upgrade would initially be to Watch/Vulnerable grades. In some non-mortgage cases,
based on assessment by the relevant credit authority, the upgrade out of impaired to performing status may be earlier than twelve
months, as the debt may have been reduced to a sustainable level. Where upgraded out of impaired, loans are included in the Group’s
collective assessment for IBNR provisions
Where the terms on a renegotiated loan which has been subject to an impairment provision differ substantially from the original loan
terms either in a quantitative or qualitative analysis, the original loan is derecognised and a new loan is recognised at fair value. Any
difference between the carrying amount of the loan and the fair value of the new renegotiated loan terms is recognised in the income
statement. Interest accrues on the new loan based on the current market rates in place at the time of the renegotiation.
Where a loan has been subject to an impairment provision and the renegotiation leads to a customer granting equity to the Group in
exchange for any loan balance outstanding, the new instrument is recognised at fair value with any difference to the loan carrying
amount recognised in the income statement.
Non-forbearance renegotiation
Occasionally, the Group may temporarily amend the contractual repayments terms on a loan (e.g. payment moratorium) for a short
period of time due to a temporary change in the life circumstances of the borrower. Because such events are not directly linked to
repayment capacity, these amendments are not considered forbearance. The changes in expected cash flows are accounted for under
IAS 39 paragraph AG8 i.e. the carrying amount of the loan is adjusted to reflect the revised estimated cash flows which are discounted
at the original effective interest rate. Any adjustment to the carrying amount of the loan is reflected in the income statement.
However, where the terms on a renegotiated loan differ substantially from the original loan terms either in a quantitative or qualitative
analysis, the original loan is derecognised and a new loan is recognised at fair value. Any difference arising between the derecognised
loan and the new loan is recognised in the income statement.
Where a customer’s request for a modification to the original loan agreement is deemed not to be a forbearance request (i.e. the
customer is not in financial difficulty to the extent that they are unable to repay both the principal and interest), these loans are not
disaggregated for monitoring/reporting or IBNR assessment purposes.
16 Determination of fair value of financial instruments
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date in the principal, or in its absence, the most advantageous market to
which the Group has access at that date. The Group considers the impact of non-performance risk when valuing its financial liabilities.
Financial instruments are initially recognised at fair value and, with the exception of financial assets at fair value through profit or loss,
the initial carrying amount is adjusted for direct and incremental transaction costs. In the normal course of business, the fair value on
initial recognition is the transaction price (fair value of consideration given or received). If the Group determines that the fair value at
initial recognition differs from the transaction price and the fair value is determined by a quoted price in an active market for the same
financial instrument, or by a valuation technique which uses only observable market inputs, the difference between the fair value at
initial recognition and the transaction price is recognised as a gain or loss. If the fair value is calculated by a valuation technique that
features significant market inputs that are not observable, the difference between the fair value at initial recognition and the transaction
price is deferred. Subsequently, the difference is recognised in the income statement on an appropriate basis over the life of the financial
instrument, but no later than when the valuation is supported by wholly observable inputs; the transaction matures; or is closed out.
Subsequent to initial recognition, the methods used to determine the fair value of financial instruments include quoted prices in active
markets where those prices are considered to represent actual and regularly occurring market transactions. Where quoted prices are
not available or are unreliable because of market inactivity, fair values are determined using valuation techniques. These valuation
techniques maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The valuation techniques used
incorporate the factors that market participants would take into account in pricing a transaction. Valuation techniques include the use of
recent orderly transactions between market participants, reference to other similar instruments, option pricing models, discounted cash
flow analysis and other valuation techniques commonly used by market participants.
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Accounting policies (continued)
16 Determination of fair value of financial instruments (continued)
Quoted prices in active markets
Quoted market prices are used where those prices are considered to represent actual and regularly occurring market transactions for
financial instruments in active markets.
Valuations for negotiable instruments such as debt and equity securities are determined using bid prices for asset positions and offer
prices for liability positions.
Where securities are traded on an exchange, the fair value is based on prices from the exchange. The market for debt securities largely
operates on an ‘over the counter’ basis which means that there is not an official clearing or exchange price for these security
instruments. Therefore, market makers and/or investment banks (‘contributors’) publish bid and offer levels which reflect an indicative
price that they are prepared to buy and sell a particular security. The Group’s valuation policy requires that the prices used in
determining the fair value of securities quoted in active markets must be sourced from established market makers and/or investment
banks.
Valuation techniques
In the absence of quoted market prices, and in the case of over-the-counter derivatives, fair value is calculated using valuation
techniques. Fair value may be estimated using quoted market prices for similar instruments, adjusted for differences between the
quoted instrument and the instrument being valued. Where the fair value is calculated using discounted cash flow analysis, the
methodology is to use, to the extent possible, market data that is either directly observable or is implied from instrument prices, such as
interest rate yield curves, equities and commodities prices, credit spreads, option volatilities and currency rates. In addition, the Group
considers the impact of own credit risk and counterparty risk when valuing its derivative liabilities.
The valuation 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. The assumptions involved in these valuation techniques include:
– The likelihood and expected timing of future cash flows of the instrument. These cash flows are generally governed by the terms of
the instrument, although management judgement may be required when the ability of the counterparty to service the instrument in
accordance with the contractual terms is in doubt. In addition, future cash flows may also be sensitive to the occurrence of future
events, including changes in market rates; and
– Selecting an appropriate discount rate for the instrument, based on the interest rate yield curves including the determination of an
appropriate spread for the instrument over the risk-free rate. The spread is adjusted to take into account the specific credit risk
profile of the exposure.
All adjustments in the calculation of the present value of future cash flows are based on factors market participants would take into
account in pricing the financial instrument.
Certain financial instruments (both assets and liabilities) may be valued on the basis of valuation techniques that feature one or more
significant market inputs that are not observable. When applying a valuation technique with unobservable data, estimates are made to
reflect uncertainties in fair values resulting from a lack of market data, for example, as a result of illiquidity in the market. For these
instruments, the fair value measurement is less reliable. Inputs into valuations based on non-observable data are inherently uncertain
because there is little or no current market data available from which to determine the price at which an orderly transaction between
market participants would occur under current market conditions. However, in most cases there is some market data available on which
to base a determination of fair value, for example historical data, and the fair values of most financial instruments will be based on some
market observable inputs even where the non-observable inputs are significant. All unobservable inputs used in valuation techniques
reflect the assumptions market participants would use when fair valuing the financial instrument.
The Group tests the outputs of the valuation model to ensure that it reflects current market conditions. The calculation of fair value for
any financial instrument may require adjustment of the quoted price or the valuation technique output to reflect the cost of credit risk and
the liquidity of the market, if market participants would include one, where these are not embedded in underlying valuation techniques or
prices used.
The choice of contributors, the quality of market data used for pricing, and the valuation techniques used are all subject to internal
review and approval procedures.
Transfers between levels of the fair value hierarchy
The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change
occurred.
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17 Valuation of NAMA senior bonds
NAMA senior bonds were received as consideration for financial assets transferred to NAMA and also as part of the ‘Anglo’ and ‘EBS’
transactions. These bonds are designated as loans and receivables and are separately disclosed in the statement of financial position as
‘NAMA senior bonds’.
The bases for measurement, interest recognition and impairment are the same as those for loans and receivables (see accounting
policy numbers 6, 15 and 18).
At initial recognition, the bonds were measured at fair value. The bonds carry a guarantee of the Irish Government, however, they are not
marketable instruments. The only secondary market activity in the instruments is their sale and repurchase (‘repo’) to the European Central
Bank (“ECB”) within the regular Eurosystem open market operations. The bonds are not traded in the market and there are no comparable
bonds trading in the market.
The fair value on initial recognition was determined using a valuation technique. The absence of quoted prices in an active market required
increased use of management judgement in the estimation of fair value. This judgement included but was not limited to: evaluating
available market information; evaluating relevant features of the instruments which market participants would factor into an appropriate
valuation technique; determining the cash flows generated by the instruments including cash flows from assumed repo transactions;
identifying a risk free discount rate; and applying an appropriate credit spread.
18 Financial assets
The Group classifies its financial assets into the following categories: - financial assets at fair value through profit or loss; loans and
receivables; 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.
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 the amortised cost of 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 can have 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 acquired principally for the purpose of selling in the near term; part of a
portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of
short-term profit taking; or if it is so designated at initial recognition 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 net trading income.
Derivatives are also classified in this category unless they have been designated as hedges or qualify as financial guarantee contracts.
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 adjusted for direct and incremental
transaction costs and are subsequently carried on an amortised cost basis.
Available for sale
Available for sale financial assets 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 financial assets 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 financial assets are initially recognised at fair value adjusted for direct and incremental transaction costs. They
are subsequently held at fair value. Gains and losses arising from changes in fair value are included in other comprehensive income
until sale or impairment when the cumulative gain or loss is transferred to the income statement as a recycling adjustment. Assets
reclassified from the held for trading category are recognised at fair value.
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Accounting policies (continued)
Parent Company financial statements: 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.
Dividends from a subsidiary or an associated undertaking are recognised in the income statement, when the Company’s right to receive
the dividend is established.
19 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, with any difference between the proceeds
net of transaction costs and the redemption value recognised in the income statement using the effective interest method.
Where financial liabilities are classified as trading they are also initially recognised at fair value with the related transaction costs taken
directly to the income statement. Gains and losses arising from changes in fair value are recognised directly in the income statement
within net trading income.
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.
The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired. Any gain or loss on
the extinguishment or remeasurement of a financial liability is recognised in profit or loss.
20 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 lives.
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
up to 10 years(1)
up to 15 years(1)
3 – 7 years
5 – 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 was already of the age and condition expected at the end of its useful life.
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.
(1)Subject to the maximum remaining life of the lease.
21 Intangible assets
Goodwill
Goodwill may arise on the acquisition of subsidiary and associated undertakings. The excess arising on the fair value of the consideration
paid in a business combination over the acquired interests in the fair value of the identifiable assets, liabilities and contingent liabilities at
the date of acquisition is capitalised as goodwill. 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 performed either using market rates or by using risk-free rates and risk adjusted expected future cash flows.
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21 Intangible assets (continued)
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.
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 and other intangible assets
Computer software and other intangible assets are 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 7 years. Other intangible assets are amortised over the life of the asset. Computer software and other
intangible assets are reviewed for impairment when there is an indication that the asset may be impaired. Intangible assets not yet
available for use are reviewed for impairment on an annual basis.
22 Derivatives and hedge accounting
Derivatives, such as interest rate swaps, options and forward rate agreements, currency swaps and options, and equity index options
are used for trading purposes while interest rate swaps, currency swaps, cross currency interest rate swaps and credit derivatives are
used 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 and cash flows.
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 from
valuation techniques using discounted cash flow models and option pricing models as appropriate. Derivatives are included in assets
when their fair value is positive, and in liabilities when their fair value is negative, unless there is the legal ability and intention to settle
an asset and liability on a net basis.
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.
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.
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.
Hedging
All derivatives are carried at fair value 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 where transactions meet the criteria specified in IAS 39 ‘Financial Instruments: Recognition and
Measurement’, the Group designates certain derivatives as either:
–
–
–
hedges of the fair value of recognised assets or liabilities or firm commitments (‘fair value hedge’); or
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
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 the hedged items.
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Accounting policies (continued)
22 Derivatives and hedge accounting (continued)
The Group discontinues hedge accounting when:
it is determined that a derivative is not, or has ceased to be, highly effective as a hedge;
the derivative expires, or is sold, terminated, or exercised;
the hedged item matures or is sold or repaid; or
a)
b)
c)
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 financial assets, the fair value adjustment for hedged items is recognised in the income statement
using the effective interest method. 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 other comprehensive income and included in the cash flow hedging reserve in the statement of changes in equity.
The amount recognised in other comprehensive income is reclassed to profit or loss as a reclassification adjustment in the same period
as the hedged cash flows affect profit or loss, and in the same line item in the statement of comprehensive income. 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 recognised in other comprehensive income from the time when the hedge was effective remains in equity and is reclassified to
the income statement as a reclassification adjustment as the forecast transaction affects profit or loss. When a forecast transaction is no
longer expected to occur, the cumulative gain or loss that was recognised in other comprehensive income from the period when the
hedge was effective is reclassified 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 in other
comprehensive income and the ineffective portion is recognised immediately in the income statement. The cumulative gain or loss
previously recognised in other comprehensive income 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.
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 these
derivative instruments are recognised immediately in the income statement.
23 Non-current assets held for sale and discontinued operations
Discontinued operations
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 in the income statement (including comparatives) as a separate amount, comprising the 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 of relevant assets to fair value less costs to sell, or on disposal of the assets/disposal groups constituting discontinued
operations. In presenting interest income and interest expense and various expenses relating to discontinued operations, account is
taken of the continuance or otherwise of these income statement items post disposal of the discontinued operation. Corporate
226
23 Non-current assets held for sale and discontinued operations (continued)
overhead, which was previously allocated to the business being disposed of, is considered to be part of continuing operations. In the
statement of financial position, the assets and liabilities of discontinued operations are shown within the caption ‘Disposal groups and
non-current assets/(liabilities) held for sale’ separate from other assets and liabilities. On reclassification as discontinued operations,
there is no restatement in the statement of financial position of prior periods for assets and liabilities held for sale.
Disposal groups and non-current assets held for sale
A non-current asset or a disposal group comprising assets and liabilities is classified as held for sale if it is expected that 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. For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell
the asset or disposal group.
On initial classification as held for sale, generally, 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 the income statement. The same applies to gains and
losses on subsequent remeasurement. However, financial assets within the scope of IAS 39 continue to be measured in accordance
with that standard.
Impairment losses subsequent to classification of assets as held for sale are recognised in the income statement. Subsequent increases
in fair value less costs to sell of assets that have been classified as held for sale are recognised in the income statement to the extent
that the increase is not in excess of any cumulative impairment loss previously recognised in respect of the asset. Assets classified as
held for sale are not depreciated.
Gains and losses on remeasurement and impairment losses subsequent to classification as disposal groups and non-current assets
held for sale are shown within continuing operations in the income statement, unless they qualify as discontinued operations.
Disposal groups and non-current assets held for sale which are not classified as discontinued operations are presented separately from
other assets and liabilities on the statement of financial position. Prior periods are not reclassified.
Acquisition of a subsidiary acquired exclusively with a view to its resale
A subsidiary that is acquired and held exclusively for disposal and meets the definition of an asset held for sale is not excluded from
consolidation. However, it is measured and accounted for under IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations,
initially at fair value less costs to sell. It is consolidated but the results of the subsidiary are treated as a discontinued operation.
AIB acquired its investment in Ark Life in March 2013 with a view to its resale. Accordingly, AIB has adopted the approach set out in
IFRS 5 implementation guidance, example 13, in accounting for its investment in Ark Life at the acquisition date and at subsequent
reporting dates. This requires the entity being disposed of to be valued at the lower of its carrying value and its fair value less costs to
sell at each reporting date. Individual assets and liabilities of the entity acquired with a view to resale are not fair valued. For
presentation purposes in the statement of financial position, the entity’s identifiable liabilities are measured at fair value and this amount
is added to the fair value less costs to sell figure to ascertain the value of the assets to be disclosed. Separate analysis of individual
assets and liabilities is not required in the notes to the financial statements.
Inter-company assets and liabilities are eliminated against the carrying amount of the disposal group where applicable. Inter-company
interest income/expense of the continuing group is recorded in the consolidated income statement. Hedge accounting for deposits
accepted by AIB from Ark Life was discontinued with effect from the acquisition date of Ark Life.
24 Collateral and netting
The Group enters into master netting 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 receivables 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 customer liabilities.
The collateral is, in general, not recorded on the statement of financial position.
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
statement of financial position. Collateral received in the form of cash is recorded on the statement of financial position with a
corresponding liability. Therefore, in the case of cash collateral, these amounts are assigned to deposits received from banks or other
counterparties . Any interest payable or receivable arising is recorded as interest expense or interest income respectively.
227
Accounting policies (continued)
24 Collateral and netting (continued)
In certain circumstances, the Group will pledge collateral in respect of its own liabilities or borrowings. Collateral pledged in the form of
securities or loans and receivables continues to be recorded on the statement of financial position. Collateral paid away in the form of
cash is recorded in loans and receivables 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 statement of financial position 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 the
asset and settle the liability simultaneously. This is not generally the case with master netting agreements, therefore, the related assets
and liabilities are presented gross on the statement of financial position.
25 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
relating to contracts, advance payments made by other parties, tenders, retentions and the payment of import duties. In its normal
course of business, Allied Irish Banks, p.l.c. (the parent company) issues financial guarantees to other Group entities. 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 Group’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 year-end reporting date. Any increase in the liability
relating to guarantees is taken to the income statement in provisions for undrawn contractually committed facilities and guarantees.
26 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
statement of financial position when substantially all the risks and rewards of ownership remain with the Group. The liability to the
counterparty is included separately on the statement of financial position. 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 usually included in the statement of financial position. 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. The exception to this is where 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.
27 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 statement of financial position 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.
28 Shareholders’ equity
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.
On extinguishment of equity instruments, gains or losses arising are recognised net of tax directly in the statement of changes in equity.
228
28 Shareholders’ equity (continued)
Share capital
Share capital represents funds raised by issuing shares in return for cash or other consideration. Share capital comprises ordinary shares,
deferred shares and preference shares of the entity.
Share premium
When shares are issued at a premium whether for cash or otherwise, the excess of the amount received over the par value of the shares is
transferred to share premium.
Share issue costs
Incremental costs directly attributable to the issue of new shares or options are charged, net of tax, to the share premium account.
Dividends and distributions
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 for payment by the Board of Directors. Dividends declared after the
year-end reporting date are disclosed in note 62.
Dividends on preference shares accounted for as equity are recognised in equity when approved for payment by the Board of Directors.
Capital reserves
Capital reserves represent transfers from retained earnings in accordance with relevant legislation.
Revaluation reserves
Revaluation reserves represent the unrealised surplus, net of tax, which arose on revaluation of properties prior to the implementation of
IFRS at 1 January 2004.
Capital redemption reserves
These reserves arose from the renominalisation of the ordinary shares of the company. Each ordinary share was subdivided into one
ordinary share of € 0.01 each and thirty one deferred shares of € 0.01 each. The deferred shares were acquired by AIB and immediately
cancelled. Following cancellation, the amount standing to the credit of the deferred shares account was transferred to a capital
redemption reserves account.
Available for sale securities reserves
Available for sale securities reserves represent the net unrealised gain or loss, net of tax, arising from the recognition in the statement of
financial position of available for sale financial investments at fair value.
Cash flow hedging reserves
Cash flow hedging reserves represent the net gains or losses, net of tax, on effective cash flow hedging instruments that will be
reclassified to the income statement when the hedged transaction affects profit or loss.
Capital contributions
Capital contributions represent the receipt of non-refundable considerations arising from transactions with the Irish Government
(note 54). These contributions comprise both financial and non-financial net assets. The contributions are classified as equity and may
be either distributable or non-distributable. Capital contributions are distributable if the assets received are in the form of cash or another
asset that is readily convertible to cash, otherwise, they are treated as non-distributable. Capital contributions arose during 2011 from (a)
EBS transaction; (b) Anglo transaction; (c) issue of contingent capital notes; and (d) non-refundable receipts from the Irish Government
and the NPRFC.
The capital contribution from the EBS transaction is treated as non-distributable as the related net assets received are largely non-cash
in nature. In the case of the Anglo transaction the excess of the assets over the liabilities comprised of NAMA senior bonds. On initial
recognition, this excess was accounted for as a non-distributable capital contribution. However, according as NAMA repays these
bonds, the proceeds received will be deemed to be distributable and the relevant amount will be transferred from the capital contribution
account to revenue reserves.
AIB issued contingent convertible capital notes to the Irish Government (note 40) where the proceeds of issue amounting to
€1.6 billion exceeded the fair value of the instruments issued. This excess has been accounted for as a capital contribution and will be
treated as distributable according as the fair value adjustment on the notes amortises to the income statement.
229
Accounting policies (continued)
28 Shareholders’ equity (continued)
The non-refundable receipts of € 6,054 million from the Irish Government and the NPRFC are distributable. These are included in
revenue reserves.
Revenue reserves
Revenue reserves represent retained earnings of the parent company, subsidiaries and associated undertakings. It is shown net of the
cumulative deficit within the defined benefit pension schemes and other appropriate adjustments.
Foreign currency translation reserves
The foreign currency translation reserves represent the cumulative gains and losses on the retranslation of the Group’s net investment
in foreign operations, at the rate of exchange at the year-end reporting date net of the cumulative gain or loss on instruments designated
as net investment hedges.
Treasury shares
Where the Company or other members of the consolidated Group purchase 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
re-issued, any consideration received is included in shareholders’ equity.
Share based payments reserves
The share based payment expense charged to the income statement is credited to the share based payment reserve over the vesting
period of the shares and options. Upon grant of shares and exercise and lapsing of options, the amount in respect of the award credited
to the share based payment reserves is transferred to revenue reserves.
Non-controlling interests
Non-controlling interests comprise both equity and other equity interests. Equity interests relate to the interests of outside shareholders
in consolidated subsidiaries. Other equity interests relate to non-cumulative perpetual preferred securities issued by a subsidiary.
29 Insurance and investment contracts
The Group accounted for its Long Term business in Aviva Life Holdings Ireland Limited (“ALH”) in accordance with IFRS 4 ‘Insurance
Contracts’ up to the date on which it was classified as held for sale (accounting policy 23). Insurance contracts are those contracts
containing significant insurance risk. In the case of life contracts, 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 year-end reporting 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.
Insurance contracts
The Group accounts for its insurance contracts using the Market Consistent Embedded Value Principles (“MCEV”), published by the
CFO Forum. 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 year-end reporting date, using
assumptions that reflect experience and a long-term outlook for the economy and then discounting at an appropriate risk free yield curve
rate.
Insurance contract liabilities are calculated on a 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.
Investment contracts
Investment contracts are primarily unit-linked. Unit linked liabilities are deemed equal to the value of units attaching to contracts at the
year-end reporting date. The liability is measured at fair value, which is the bid value of the assets held to match the liability. 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 statement of financial position as adjustments
to the investment contract liability.
230
30 Segment reporting
An operating segment is a component of the Group that engages in business activities from which it earns revenues and incurs expenses.
The Group has identified reportable segments on the basis of internal reports about components of the Group that are regularly reviewed
by the Chief Operating Decision Maker (“CODM”) in order to allocate resources to the segment and assess its performance. Based on this
identification, the reportable segments are the operating segments within the Group, the head of each being a member of the Leadership
Team. The Leadership Team is the CODM and it relies primarily on the management accounts to assess performance of the reportable
segments and when making resource allocation decisions.
Transactions between operating segments are on normal commercial terms and conditions, with internal charges and transfer pricing
adjustments reflected in the performance of each operating segment. Revenue sharing agreements are used to allocate external
customer revenues to an operating segment on a reasonable basis.
Geographical segments provide products and services within a particular economic environment that is subject to risks and rewards that
are different to those components operating in other economic environments. The geographical distribution of profit before taxation is
based primarily on the location of the office recording the transaction. In addition, geographic distribution of loans and related
impairment is also based on the location of the office recording the transaction.
31 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.
231
Accounting policies (continued)
32 Prospective accounting changes
The following new accounting standards and amendments to existing standards approved by the IASB, but not early adopted by the Group,
will impact the Group’s financial reporting in future periods. The Group is currently considering the impacts of these amendments. The new
accounting standards and amendments which are more relevant to the Group are detailed below.
Pronouncement
Nature of change
Amendments to IAS 32
Financial instruments:
Presentation on Offsetting Financial
Assets and Financial Liabilities
The amendments to IAS 32 Financial Instruments: Presentation
clarify that the right of set-off must be currently available and
legally enforceable for all counterparties in the normal course of
business, as well as in the event of default, insolvency or bankruptcy.
Amendments to IFRS 10
Consolidated Financial Statements,
IFRS 12 Disclosure of Interests in
Other Entities and IAS 27 Separate
Financial Statements on Investment
Entities
In October 2012, the IASB issued Investment Entities
(Amendments to IFRS 10, IFRS 12 and IAS 27). The amendments
provide an exception for investment entities to consolidate particular
subsidiaries. These subsidiaries should be measured at fair value
through profit and loss. The amendments also set out the disclosure
requirements for investment entities.
IASB effective date
IAS 32: Annual periods
beginning on or after
1 January 2014
Annual periods
beginning on or after
1 January 2014
Amendments to IAS 36 Impairment
of Assets on Recoverable Amount
Disclosures for Non-Financial
As part of the development of IFRS 13 Fair Value Measurement,
the IASB amended IAS 36 to require disclosures about the
Annual periods
beginning on or after
recoverable amount of impaired assets. The amendments published
1 January 2014
Assets
in May 2013 clarify that the scope of these disclosures is limited to
the recoverable amount of impaired assets that is based on fair
value less costs of disposal. The amendments require an entity to
disclose:
– the level of the fair value hierarchy within which the fair value of
the asset is categorised;
– a description of the valuation technique(s) used to measure the fair
value less costs of disposal, where the fair value measurement is
categorised within Level 2 or Level 3 of the fair value hierarchy;
– the key assumptions which management has based its
determination of fair value less costs of disposal, where the fair
value measurement is categorised within Level 2 or Level 3 of the
fair value hierarchy; and
– the discount rates used to determine current and previous
impairments where the recoverable amount of impaired assets,
based on fair value less costs of disposal, was measured using a
present value technique.
The amendment is still subject to EU endorsement.
Amendments to IAS 39 Financial
Instruments: Recognition and
Measurement on Novation of
Derivatives and Continuation of
The amendment to IAS 39 Financial Instruments: Recognition and
Measurement provides an exception to the requirement to discontinue
hedge accounting where a hedging derivative is novated, provided
Annual periods
beginning on or after
1 January 2014
certain criteria are met. The amendment applies to novations:
Hedge Accounting
– which arise due to laws or regulations, or the introduction of
laws or regulations;
– where the parties to the hedging instrument agree that one or
more clearing counterparties replace their original counterparty to
become the new counterparty to each of the parties; and
– that did not result in changes to the terms of the original derivative
except the changes directly attributable to the change in
counterparty to achieve clearing.
All of the above criteria must be met to continue hedge accounting
under this exception.
The amendment is still subject to EU endorsement.
232
32 Prospective accounting changes (continued)
Pronouncement
Nature of change
IASB effective date
Annual improvements to IFRSs
2010–2012 cycle
In December 2013, the IASB issued Annual Improvements to IFRSs
2010 – 2012 Cycle. The amendments to standards under the annual
improvements process are primarily to remove inconsistencies and
clarify wording.
Annual periods
beginning on or after
1 July 2014
The amendments are to seven International Financial Reporting
Standards. The more relevant amendments are:
IFRS 2 Share-based payments
The amendment clarifies the definition of ‘vesting conditions’ by
defining a ‘performance condition’ and a ‘service condition’.
IFRS 3 Business Combinations
The amendments clarify that:
– a contingent consideration is assessed as either a liability or an
equity instrument only on the basis of IAS 32 Financial Instruments:
Presentation;
– contingent consideration that is within the scope of IAS 39 Financial
Instruments: Recognition and Measurement is measured at fair
value at each reporting date and changes in fair value are
recognised in profit or loss in accordance with IAS 39; and
– contingent consideration that is not within the scope of IAS 39
Financial Instruments: Recognition and Measurement is measured
at fair value at each reporting date and changes in fair value are
recognised in profit or loss.
IFRS 8 Operating Segments
The amendment requires an entity to disclose the judgements made
by management to identify the entity’s reportable segments when
operating segments are aggregated.
The amendment clarifies that a reconciliation of the total of the
reportable segments’ assets to the entity’s assets should be disclosed,
if that amount is regularly provided to the chief operating decision maker.
IFRS 13 Fair Value Measurement
The amendment clarifies that amendments to IFRS 9 Financial
Instruments and IAS 39 Financial Instruments: Recognition and
Measurement by IFRS 13 did not remove the ability to measure short
-term receivables and payables with no stated interest rate at invoice
amounts without discounting, when the effect of not discounting is
immaterial.
None of the above amendments is expected to have a significant
impact on reported results or disclosures.
The amendments are still subject to EU endorsement.
233
Accounting policies (continued)
2 Prospective accounting changes (continued)
Pronouncement
Nature of change
IASB effective date
Annual improvements to IFRSs
2011-2013 Cycle
In December 2013, the IASB issued Annual Improvements to IFRSs
2011– 2013 Cycle. The amendments to standards under the annual
improvements process are primarily to remove inconsistencies and
clarify wording. The more relevant amendments to AIB Group are:
Annual periods
beginning on or after
1 July 2014
IFRS 3 Business Combinations
The amendment clarifies that the accounting for the formation of a joint
arrangement in the financial statements of the joint arrangement itself
is not within the scope of IFRS 3.
IFRS 13 Fair Value Measurement
The amendment clarifies that the scope of the portfolio exception
defined in paragraph 52 of IFRS 13 includes all contracts accounted
for within the scope of IAS 39 Financial Instruments: Recognition and
Measurement or IFRS 9 Financial Instruments, irrespective of whether
they meet the definition of financial assets or financial liabilities as
defined in IAS 32 Financial Instruments: Presentation.
None of the above amendments is expected to have a significant impact
on reported results or disclosures.
The amendments are still subject to EU endorsement.
IFRS 9 Financial Instruments
IFRS 9 will ultimately replace IAS 39 Financial Instruments:
Recognition and Measurement. This project consists of three
main phases:
Annual periods
beginning 1 January
2018
Phase 1: Classification and measurement
In November 2009, the IASB issued IFRS 9 Financial Instruments
covering classification and measurement of financial assets. The
new standard aims to enhance the ability of investors and other
users of financial information to understand the accounting for
financial assets and to reduce complexity. IFRS 9 uses a single
approach to determine whether a financial asset is measured at
amortised cost or fair value. The basis of classification depends on
how an entity manages its financial instruments (its business model)
and the contractual cash flow characteristics of the financial assets.
The IASB reissued IFRS 9 in October 2010. The revised standard
incorporated new requirements on accounting for financial liabilities,
and carried over the requirements for derecognition of financial assets
and liabilities from IAS 39.
Phase 2: Impairment methodology
The IASB published the Exposure Draft Financial Instruments:
Expected Credit Losses in March 2013. The comment period
closed on 5 July 2013 and redeliberations are on-going.
Phase 3: Hedge accounting
In November 2013, the IASB issued an update to IFRS 9 Financial
Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7
and IAS 39). This includes new hedge accounting requirements and
some related amendments to IAS 39 Financial Instruments: Recognition
and Measurement and IFRS 7 Financial Instruments: Disclosures.
234
32 Prospective accounting changes (continued)
Pronouncement
Nature of change
IASB effective date
IFRS 9 Financial Instruments
(continued)
This phase replaces the rule-based hedge accounting requirements in
IAS 39 Financial Instruments: Recognition and Measurement to more
closely align the accounting with risk management activities. The
objective of this phase is to improve the ability of investors to
understand risk management activities and to assess the amounts,
timing and uncertainty of future cash flows. This update to IFRS 9
does not deal with macro hedging which is scheduled for a Discussion
Paper in 2014.
The main areas of change to hedge accounting are as follows:
– Risk component – this may be designated as the hedged item,
for both financial and non-financial items, if the risk component is
separately identifiable and reliably measurable;
– Hedge effectiveness testing – the 80-125% range is replaced by
an objectives-based test which focuses on the economic
relationship between the hedged item and the hedging instrument
and the effect of credit risk on the economic relationship;
– Costs of hedging – the time value of an option, the forward element
of a forward contract and any foreign currency basis spread may
be excluded from the designation of a financial instrument as the
hedging instrument and accounted for as costs of hedging;
– Groups of items – more designations of groups of items as the
hedged item are possible;
– Disclosures – more extensive disclosures are required.
IFRS 9 (2013) also includes a change resulting from other phases
of the IASB’s financial instruments project:
– IFRS 9 requires that changes in the fair value of an entity’s own
debt caused by changes in its own credit quality to be recognised
in other comprehensive income rather than in profit or loss. Under
a ‘fast-track’ option, entities can apply these requirements of
IFRS 9 early without applying the other IFRS 9 requirements at
the same time.
Since some significant aspects of the standard have yet to be finalised,
namely, impairment and macro hedging, it is impracticable for the
Group to quantify the impact of IFRS 9 at this stage. However, the
implementation and the impact of the standard are likely to be
significant.
The new standard is subject to EU endorsement.
Amendments to IAS 19
Employee Benefits
In November 2013, the IASB issued amendments to IAS 19 dealing
Annual periods
with ‘Defined Benefit Plans – Employee Contributions’. These
beginning on or after
amendments will not impact AIB Group as all the defined benefit
1 July 2014
schemes were closed to future accrual with effect from 31 December
2013.
235
Consolidated income statement
for the year ended 31 December 2013
Continuing operations
Interest and similar income
Interest expense and similar charges
Net interest income
Dividend income
Fee and commission income
Fee and commission expense
Net trading income/(loss)
Gain on redemption/remeasurement of subordinated liabilities
and other capital instruments
Loss on disposal/transfer of loans and receivables
Other operating income
Other income/(loss)
Total operating income
Administrative expenses
Impairment and amortisation of intangible assets
Impairment and depreciation of property, plant and equipment
Total operating expenses
Operating profit/(loss) before provisions
(Provisions) for impairment on loans and receivables
(Provisions)/writeback of provisions for liabilities and commitments
Notes
2
3
4
5
5
6
7
8
9
10
32
33
27
39
Writeback/(provisions) for impairment on financial investments available for sale 13
2013
€ m
3,321
(1,973)
1,348
4
414
(36)
102
–
(226)
104
362
1,710
(1,359)
(73)
(51)
(1,483)
227
(1,916)
(17)
9
Operating loss
Associated undertakings
Profit/(loss) on disposal of property
Profit on disposal of businesses
Loss before taxation from continuing operations
Income tax credit from continuing operations
Loss after taxation from continuing operations
Discontinued operations
Profit after taxation from discontinued operations
Loss for the year
Attributable to:
Owners of the parent:
Loss from continuing operations
Profit from discontinued operations
Loss for the year attributable to owners of the parent
Non-controlling interests:
Profit from discontinued operations
Profit for the year attributable to non-controlling interests
Basic (loss)/earnings per share
Continuing operations
Discontinued operations
Diluted (loss)/earnings per share
Continuing operations
Discontinued operations
30
14
15
17
18
19(a)
19(a)
19(b)
19(b)
Restated*
2012
€ m
Restated*
2011
€ m
3,916
(2,810)
1,106
1
396
(29)
(100)
–
(803)
50
(485)
621
4,429
(3,079)
1,350
4
470
(29)
(113)
3,277
(686)
67
2,990
4,340
(1,716)
(1,636)
(60)
(60)
(1,836)
(1,215)
(2,434)
(9)
(86)
(1,697)
(3,744)
7
2
1
(1,687)
90
(1,597)
10
2
3
(3,729)
172
(3,557)
–
–
(1,597)
(3,557)
(1,597)
(3,557)
–
–
(1,597)
(3,557)
–
–
–
–
(66)
(49)
(1,751)
2,589
(7,861)
416
(283)
(5,139)
(37)
(1)
38
(5,139)
1,193
(3,946)
1,628
(2,318)
(3,946)
1,608
(2,338)
20
20
(1,597)
(3,557)
(2,318)
(0.3c)
–
(0.3c)
(0.3c)
–
(0.3c)
(0.7c)
–
(0.7c)
(0.7c)
–
(0.7c)
(1.6c)
0.7c
(0.9c)
(1.6c)
0.7c
(0.9c)
*Restated due to change in accounting policy for employee benefits (note 60).
David Hodgkinson, Chairman; David Duffy, Chief Executive Officer; Catherine Woods, Director; David O’Callaghan, Company Secretary.
236
Consolidated statement of comprehensive income
for the year ended 31 December 2013
Loss for the year
Other comprehensive income – continuing operations
Items that will not be reclassified to profit or loss:
Net change in property revaluation reserves
Net actuarial losses in retirement benefit schemes, net of tax
Total items that will not be reclassified to profit or loss:
Items that may be reclassified subsequently to profit or loss:
Net change in foreign currency translation reserves
Net change in cash flow hedges, net of tax
Net change in fair value of available for sale securities, net of tax
Share of other comprehensive income of associates, net of tax
Notes
17
17
17
Total items that may be reclassified subsequently to profit or loss:
Other comprehensive income for the year, net of tax from continuing operations
Other comprehensive income – discontinued operations
Items that may be reclassified subsequently to profit or loss:
Net change in foreign currency translation reserves
Net change in cash flow hedges, net of tax
Net change in fair value of available for sale securities, net of tax
Total items that may be reclassified subsequently to profit or loss:
Other comprehensive income for the year, net of tax,
from discontinued operations
Total other comprehensive income for the year, net of tax
Total comprehensive income for the year
Attributable to:
Owners of the parent:
Continuing operations
Discontinued operations
Non-controlling interests:
Discontinued operations
Total comprehensive income for the year
*Restated due to change in accounting policy for employee benefits (note 60).
2013
€ m
Restated*
2012
€ m
Restated*
2011
€ m
(1,597)
(3,557)
(2,318)
(1)
251
250
(9)
(18)
513
–
486
736
–
–
–
–
–
736
(861)
(861)
–
(861)
–
(861)
(2)
(716)
(718)
34
(162)
1,295
–
1,167
449
–
–
–
–
–
449
–
(438)
(438)
(11)
(209)
112
4
(104)
(542)
(134)
1
(74)
(207)
(207)
(749)
(3,108)
(3,067)
(3,108)
–
(3,108)
(4,488)
1,409
(3,079)
–
12
(3,108)
(3,067)
David Hodgkinson, Chairman; David Duffy, Chief Executive Officer; Catherine Woods, Director; David O’Callaghan, Company Secretary.
237
Consolidated statement of financial position
as at 31 December 2013
Assets
Cash and balances at central banks
Items in course of collection
Disposal groups and non-current assets held for sale
Trading portfolio financial assets
Derivative financial instruments
Loans and receivables to banks
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale
Interests in associated undertakings
Intangible assets
Property, plant and equipment
Other assets
Current taxation
Deferred taxation
Prepayments and accrued income
Retirement benefit assets
Total assets
Liabilities
Deposits by central banks and banks
Customer accounts
Disposal groups held for sale
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
Reserves
Notes
52
21
22
23
24
25
28
29
30
32
33
34
12
35
36
21
23
37
38
12
39
40
41
41
Total shareholders’ equity
Total liabilities and shareholders’ equity
*Restated due to change in accounting policy for employee benefits (note 60).
2013
€ m
4,132
164
2,782
2
1,629
2,048
65,713
15,598
20,368
58
176
301
242
1
3,828
609
83
Restated*
2012
€ m
4,047
192
562
24
2,835
2,914
72,972
17,387
16,344
52
187
333
239
9
3,845
559
–
117,734
122,501
23,121
65,667
3,593
1,960
8,759
48
1,321
943
177
299
1,352
28,442
63,610
–
3,256
10,666
2
1,627
1,260
762
250
1,271
107,240
111,146
5,248
2,848
2,398
5,206
2,890
3,259
10,494
11,355
117,734
122,501
David Hodgkinson, Chairman; David Duffy, Chief Executive Officer; Catherine Woods, Director; David O’Callaghan, Company Secretary.
238
Consolidated statement of cash flows
for the year ended 31 December 2013
Reconciliation of loss before taxation to net
cash inflow/(outflow) from operating activities
Loss for the year from continuing operations before taxation
(1,687)
(3,729)
(5,139)
Notes
2013
€ m
Restated*
2012
€ m
Restated*
2011
€ m
Adjustments for:
Gain on redemption/remeasurement of subordinated liabilities
and other capital instruments
Profit on disposal of businesses
(Profit)/loss on disposal of property, plant and equipment
Loss on disposal/transfer of loans and receivables
Dividend income
Associated undertakings
Impairment of associated undertakings
Loss on disposal of associated undertaking
Provisions for impairment on loans and receivables
Provisions/(writeback of provisions) for liabilities and commitments
15
14
8
30
30
30
27
39
(Writeback)/provisions for impairment on financial investments available for sale 13
Change in other provisions
Retirement benefits – defined benefit (credit)/expense
Termination benefits
Contributions to defined benefit pension schemes
Depreciation, amortisation and impairment
Interest on subordinated liabilities and other capital instruments
(Profit)/loss on disposal of financial investments available for sale
Remeasurement of NAMA senior bonds
Amortisation of premiums and discounts
Change in prepayments and accrued income
Change in accruals and deferred income
12
12
32 & 33
3
9
28
–
(1)
(2)
226
(3)
(16)
8
1
–
(3)
(2)
803
(14)
(15)
5
–
1,916
2,434
17
(9)
84
(131)
(3)
(234)
124
241
(41)
(62)
(57)
(51)
(316)
9
86
175
(123)
132
(236)
120
223
(31)
–
(128)
114
153
(3,277)
(38)
1
686
(5)
1
36
–
7,861
(416)
283
80
60
–
(216)
115
168
28
–
(60)
(11)
71
Net cash inflow/(outflow) from operating activities before changes
in operating assets and liabilities
4
(27)
228
Change in deposits by central banks and banks
Change in customer accounts(1)
Change in loans and receivables to customers(2)
Change in NAMA senior bonds
Change in loans and receivables to banks
Change in trading portfolio financial assets/liabilities
Change in derivative financial instruments
Change in items in course of collection
Change in debt securities in issue
Change in notes in circulation
Change in other assets
Change in other liabilities
Effect of exchange translation and other adjustments
Net cash inflow/(outflow) from operating assets and liabilities
Net cash inflow/(outflow) from operating activities before taxation
Taxation refund
Net cash inflow/(outflow) from operating activities
Investing activities (note a)
Financing activities (note b)
Change in cash and cash equivalents
Opening cash and cash equivalents
Effect of exchange translation adjustments
Closing cash and cash equivalents
(5,309)
(8,456)
3,397
5,078
1,916
567
21
259
26
2,654
6,798
2,438
265
33
(769)
13
(17,696)
(9,796)
11,617
891
1,869
(63)
385
76
(1,875)
(4,996)
(3,174)
(50)
(5)
(264)
78
3,839
3,843
40
3,883
(3,827)
(160)
(104)
5,926
(92)
5,730
9
254
(102)
(31)
(1,890)
(1,917)
42
1
(212)
(87)
(405)
(16,594)
(16,366)
15
(1,875)
(16,351)
546
(160)
(1,489)
7,373
42
5,926
6,684
11,302
1,635
5,712
26
7,373
*Restated due to change in accounting policy for employee benefits (note 60).
239
Consolidated statement of cash flows (continued)
for the year ended 31 December 2013
(a) Investing activities
Net cash outflow on acquisition of business combinations
Purchase of financial investments available for sale
Proceeds from sales and maturity of financial investments
available for sale
Additions to property, plant and equipment
Disposal of property, plant and equipment
Additions to intangible assets
Proceeds of disposal of investment in associated undertaking
Proceeds of disposal of investment in businesses and subsidiaries
Dividends received from associated undertakings
Cash flows from investing activities
(b) financing activities
Proceeds of issue of CCNs
Proceeds of issue of share capital to NPRFC
Capital contributions from the Minister for Finance and the NPRFC
Redemption of subordinated liabilities and other capital instruments
Cost of redemption of capital instruments
Interest paid on subordinated liabilities and other capital instruments
Cash flows from financing activities
Notes
18 & 31
29
9 &29
33
14 & 33
32
30
40
44
7
2013
€ m
Restated*
2012
€ m
Restated*
2011
€ m
(325)(3)
(6,666)
–
(5,059)
(3,420)
(1,760)
3,040
5,685
8,738
(32)
15
(62)
10
190(4)
3
(3,827)
–
–
–
–
–
(37)
3
(71)
–
11
14
546
–
–
–
–
–
(160)
(160)
(160)
(160)
(17)
2
(33)
–
3,169(5)
5
6,684
1,600
5,000
6,054
(1,120)
(9)
(223)
11,302
(1)Includes deposits placed by the NTMA € 6,683 million (2012: € 1,127 million; 2011: € 27 million).
(2)Also includes loans and receivables to customers within disposal groups and non-current assets held for sale.
(3)Acquisition of Ark Life Assurance Company Limited.
(4)Disposal of Aviva Life Holdings Ireland Limited.
(5)Includes net proceeds on the disposal of BZWBK (note 18) and proceeds on the disposal of businesses (note 15).
*Restated due to change in accounting policy for employee benefits (note 60).
240
Consolidated statement of changes in equity
for the year ended 31 December 2013
At 1 January 2013 as reported
Change in accounting policy
As restated
Total comprehensive income for the year
Loss for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners,
recorded directly in equity
Contributions by and distributions
to owners of the Group
Capital contributions (note 43)
Ordinary shares issued in lieu
of dividend (note 41)
Share based payments
Other movements
Total contributions by and distributions
to owners of the Group
At 31 December 2013
Share
capital
Share
premium
Capital Revaluation
reserves
reserves
€ m
5,206
–
5,206
–
–
–
–
42
–
–
42
€ m
2,890
–
2,890
–
–
–
€ m
2,638
–
2,638
–
–
–
–
(219)
(42)
–
–
–
–
178
(42)
(41)
5,248
2,848
2,597
€ m
24
–
24
–
(1)
(1)
–
–
–
(5)
(5)
18
2
4
1
Attributable to equity holders of parent
Available
for sale
securities
reserves
€ m
Cash flow
hedging
reserves
Revenue
reserves
€ m
€ m
Foreign
currency
translation
reserves
€ m
292
–
292
–
513
513
–
–
–
67
–
67
–
(18)
(18)
–
–
–
(164)
(14)
(164)
641
(14)
35
996
114
1,110
(1,597)
251
(1,346)
219
–
10
5
234
(2)
Treasury
shares
€ m
(462)
–
(462)
–
–
–
–
–
–
–
–
Share
based
payments
reserves
€ m
23
–
23
–
–
–
–
–
(10)
–
(10)
13
Total
€ m
11,241
114
11,355
(1,597)
736
(861)
–
–
–
–
–
10,494
(433)
–
(433)
–
(9)
(9)
–
–
–
–
–
(442)
(462)
2
4
2
Consolidated statement of changes in equity
for the year ended 31 December 2012
Attributable to equity holders of parent
Share
capital
Share
premium
Capital
reserves
Capital Revaluation
reserves
redemption
reserves
€ m
€ m
5,170
4,926
€ m
2,885
€ m
3,958
Available Cash flow
hedging
reserves
for sale
securities
reserves
€ m
At 1 January 2012
Total comprehensive income for the year
Loss for the year
Other comprehensive income*
Total comprehensive income for the year
Transactions with owners,
recorded directly in equity
Contributions by and distributions
to owners of the Group
Capital contributions (note 43)
Reduction of capital (notes 41and 43)
Ordinary shares issued in lieu
of dividend (note 41)
Share based payments
Total contributions by and distributions
–
–
–
–
–
36
–
–
–
–
–
–
–
–
–
–
–
(2,000)
(36)
–
(247)
–
–
–
(247)
2,638
–
(3,958)
–
–
(3,958)
to owners of the Group
36
(2,036)
At 31 December 2012 - restated
5,206
2,890
*Restated due to change in accounting policy for employee benefits (note 60).
–
24
292
67
Revenue
reserves
€ m
(822)
(3,557)
(716)
(4,273)
247
5,958
–
–
6,205
1,110
Foreign
currency
translation
reserves
€ m
(467)
Treasury
shares
€ m
(462)
Share
based
payments
reserves
€ m
Restated*
Total
€ m
23
14,463
–
34
34
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(3,557)
449
(3,108)
–
–
–
–
–
(433)
(462)
23
11,355
€ m
229
–
(162)
(162)
–
–
–
–
–
€ m
26
–
(2)
(2)
–
–
–
–
–
(1,003)
–
1,295
1,295
–
–
–
–
–
Notes to the financial statements
Interest expense and similar charges
35 Deposits by central banks and banks
Note
Segmental information
Interest and similar income
Dividend income
Net fee and commission income
Net trading income/(loss)
Gain on redemption/remeasurement of
subordinated liabilities and other capital
instruments
8
Loss on disposal/transfer of loans
and receivables
Other operating income
Administrative expenses
1
2
3
4
5
6
7
9
10
11
Note
33
Property, plant and equipment
34 Deferred taxation
36 Customer accounts
37 Debt securities in issue
38 Other liabilities
39
40
Provisions for liabilities and commitments
Subordinated liabilities and other capital
instruments
41
Share capital
42 Own shares
43 Capital reserves and capital redemption
reserves
Share-based compensation schemes
44 Contributions from the Minister for Finance
12 Retirement benefits
and the NPRFC
13 Writeback/(provisions) for impairment on
45 Offsetting financial assets and financial
financial investments available for sale
liabilities
14
15
16
17
Profit/(loss) on disposal of property
Profit on disposal of businesses
Auditor’s fees
Taxation
18 Discontinued operations
19
Earnings per share
20 Distributions on equity shares
21 Disposal groups and non-current assets
46 Memorandum items: contingent liabilities
and commitments, and contingent assets
47 Off-balance sheet arrangements
48
49
50
51
52
Subsidiaries and consolidated structured entities
Transfer of financial assets
Fair value of financial instruments
Interest rate sensitivity
Statement of cash flows
held for sale
53 Report on directors’ remuneration and
22
Trading portfolio financial assets
23 Derivative financial instruments
Loans and receivables to banks
Loans and receivables to customers
24
25
26
interests
54 Related party transactions
55 Commitments
56
Employees
Amounts receivable under finance leases
57 Regulatory compliance
and hire purchase contracts
27 Provisions for impairment on loans and
receivables
28 NAMA senior bonds
58
59
60
Financial and other information
Average balance sheets and interest rates
Impact of adopting new accounting standards
61 Non-adjusting events after the reporting
29
30
31
32
Financial investments available for sale
Interests in associated undertakings
period
62 Dividends
Interest in Aviva Life Holdings Ireland Limited
63
Approval of financial statements
Intangible assets
243
Notes to the financial statements
1 Segmental information
Following a review of the organisation’s structure, a new operating structure was implemented in 2013 and the Group’s operations are
now reported under the following segments:
– Domestic Core Bank (“DCB”);
– AIB UK;
– Financial Solutions Group (“FSG”); and
– Group.
Consequently, the restated full year to December 2012 has been presented in the new operating structure. These segments reflect the
internal reporting structure which is used by management to assess performance and allocate resources. A comprehensive description
of each segment is available on pages 11 to 14 within the business overview section.
244
1 Segmental information (continued)
Operations by business segment
Net interest income
Other income
Total operating income
Personnel expenses
General and administrative expenses
Depreciation, impairment and amortisation
Total operating expenses
Operating profit/(loss) before provisions
Provisions for impairment on loans and receivables
Writeback/(provisions) for liabilities and commitments
Writeback/(provisions) for impairment on financial
investments available for sale
Total provisions
Operating loss
Associated undertakings
Profit on disposal of property
Profit on disposal of business
DCB
€ m
AIB UK
€ m
FSG
€ m
Group
€ m
973
460
1,433
(452)
(244)
(54)
(750)
683
(853)
–
10
(843)
(160)
8
1
–
177
68
245
(109)
(56)
(6)
(171)
74
(166)
10
–
(156)
(82)
2
–
–
190
25
215
(128)
(32)
(1)
(161)
54
(897)
(8)
(1)
(906)
(852)
(3)
–
–
5
17
22
(162)
(187)
(39)
(388)
(366)
–
1
–
1
–
–
1
(365)
(1,459)
Loss from continuing operations before exceptional items
(151)
(80)
(855)
(364)
Loss on disposal of loans
Profit/(loss) on transfer of financial instruments to NAMA
Termination benefits
Retirement benefit curtailment
Restructuring and restitution expenses
Interest rate hedge volatility
Gain on disposal of ALH
Total exceptional items
Loss before taxation
2013
Total
€ m
1,345
570
1,915
(851)
(519)
(100)
(1,470)
445
(1,916)
3
9
(1,904)
7
1
1
(1,450)
(201)
(25)
(86)
240
(184)
9
10
(237)
(1,687)
245
Notes to the financial statements
1 Segmental information (continued)
DCB
€ m
AIB UK
€ m
FSG
€ m
Group
€ m
Restated*
2012
Total
€ m
1,106
318
1,424
(1,041)
(589)
(118)
(1,748)
(324)
(2,434)
(9)
(86)
(2,529)
27
(50)
(23)
(246)
(196)
(47)
(489)
(512)
–
–
–
–
(512)
(2,853)
–
2
–
10
2
3
102
67
169
(110)
(86)
(11)
(207)
(38)
(97)
–
–
(97)
(135)
2
–
–
230
(45)
185
(168)
(69)
(6)
(243)
(58)
(2,135)
(5)
(2)
(2,142)
(2,200)
(5)
–
2
(133)
(2,203)
(510)
(2,838)
(962)
159
(164)
204
(128)
–
(891)
(3,729)
747
346
1,093
(517)
(238)
(54)
(809)
284
(202)
(4)
(84)
(290)
(6)
13
–
1
8
Operations by business segment
Net interest income
Other income
Total operating income
Personnel expenses
General and administrative expenses
Depreciation, impairment and amortisation
Total operating expenses
Operating profit/(loss) before provisions
Provisions for impairment on loans and receivables
Provisions for liabilities and commitments
Provisions for impairment on financial investments
available for sale
Total provisions
Operating profit/(loss)
Associated undertakings
Profit on disposal of property
Profit on disposal of business
Profit/(loss) from continuing operations before exceptional items
Loss on disposal of loans
Profit on transfer of financial instruments to NAMA
Termination benefits
Retirement benefit curtailment
Restructuring and restitution expenses
Interest rate hedge volatility
Total exceptional items
Total
*Restated due to change in accounting policy for employee benefits (note 60).
246
1 Segmental information (continued)
Other amounts – statement of financial position
Loans and receivables to customers
Loans and receivables held for sale
Interests in associated undertakings
Total assets
Customer accounts
Total liabilities(2)
Capital expenditure
Loans and receivables to customers
Loans and receivables held for sale
Interests in associated undertakings
Interests in associated undertakings
held for sale
Total assets
Customer accounts
Total liabilities(2)
Capital expenditure
DCB
€ m
44,251
–
44
89,080
53,605
90,083
89
AIB UK
€ m
11,225
–
14
15,636
10,918
12,420
3
FSG
€ m
10,237
28
–
13,018(1)
1,144
4,737(1)
2
Group
€ m
–
–
–
–
–
–
–
2013
Total
€ m
65,713
28
58
117,734
65,667
107,240
94
Restated*
31 December 2012
DCB
€ m
AIB UK
€ m
FSG
€ m
46,021
8,341
18,407
Group
€ m
203
–
40
–
90,363
51,188
97,331
97
–
12
–
13,174
10,864
12,257
4
353
–
12
18,761
1,289
1,289
7
–
–
–
203
269
269
–
Total
€ m
72,972
353
52
12
122,501
63,610
111,146
108
(1)Includes total disposal groups and non-current assets and liabilities held for sale (note 21).
(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 liabilities.
*Restated due to change in accounting policy for employee benefits (note 60).
247
Notes to the financial statements
1 Segmental information (continued)
Geographic information - continuing operations(1)(2)
Net interest income
Other income/(loss)(3)
Republic of
Ireland
€ m
United
Kingdom
€ m
North
America
€ m
Rest of the
World
€ m
1,130
369
220
2
(2)
(9)
–
–
Geographic information - continuing operations(1)
Net interest income
Other income/(loss)(3)
Republic of
Ireland
€ m
934
(716)
United
Kingdom
€ m
174
309
North
America
€ m
Rest of the
World
€ m
(2)
(70)
–
(8)
Geographic information - continuing operations(1)
Net interest income
Other income/(loss)(3)
Republic of
Ireland
€ m
1,131
3,347
United
Kingdom
€ m
199
(315)
North
America
€ m
Rest of the
World
€ m
18
(17)
2
(25)
Geographic information
Non-current assets(4)
Geographic information
Non-current assets(4)
Geographic information
Non-current assets(4)
Republic of
Ireland
€ m
United
Kingdom
€ m
North
America
€ m
Rest of the
World
€ m
454
22
1
–
Republic of
Ireland
€ m
489
United
Kingdom
€ m
30
North
America
€ m
1
Rest of the
World
€ m
–
Republic of
Ireland
€ m
493
United
Kingdom
€ m
41
North
America
€ m
2
Rest of the
World
€ m
–
2013
Total
€ m
1,348
362
2012
Total
€ m
1,106
(485)
2011
Total
€ m
1,350
2,990
2013
Total
€ m
477
2012
Total
€ m
520
2011
Total
€ m
536
Revenue from external customers comprises interest and similar income (note 2) which is included within ‘Net interest income’ above
and all other items of income (notes 4 to 9) which are included within ‘Other income/(loss)’ above.
(1)The geographical distribution of net interest income and other income/(loss) is based primarily on the location of the office recording the transaction.
(2)For details of significant geographic concentrations, see the Risk management section.
(3)Loss on disposal of financial assets to NAMA is recorded within the Republic of Ireland and United Kingdom.
(4)Non-current assets comprise intangible assets, and property, plant and equipment.
248
2 Interest and similar income
Interest on loans and receivables to customers
Interest on loans and receivables to banks
Interest on trading portfolio financial assets
Interest on NAMA senior bonds
Interest on financial investments available for sale
2013
€ m
2,520
19
–
130
652
2012
€ m
2,976
31
1
329
579
2011
€ m
3,418
69
2
348
592
3,321
3,916
4,429
Interest income includes a credit of € 138 million (2012: credit of € 217 million; 2011: credit of € 199 million) removed from other
comprehensive income in respect of cash flow hedges.
Total interest income calculated using the effective interest method reported above that relates to financial assets not carried at fair
value through profit or loss is € 3,321 million (2012: € 3,915 million; 2011: € 4,427 million).
Interest income recognised on impaired loans amounts to € 373 million (2012: € 392 million; 2011: € 236 million).
3 Interest expense and similar charges
Interest on deposits by central banks and banks
Interest on customer accounts
Interest on debt securities in issue
Interest on subordinated liabilities and other capital instruments
2013
€ m
123
1,265
344
241
1,973
2012
€ m
252
1,823
512
223
2,810
2011
€ m
600
1,700
611
168
3,079
Interest expense includes a charge of € 133 million (2012: charge of € 128 million; 2011: charge of € 66 million) removed from other
comprehensive income in respect of cash flow hedges.
Included within interest expense is € 173 million (2012: € 388 million; 2011: € 488 million) in respect of the Irish Government’s
Eligible Liabilities Guarantee (“ELG”) Scheme.
Total interest expense calculated using the effective interest method reported above that relates to financial liabilities not carried at fair
value through profit or loss is € 1,973 million (2012: € 2,810 million; 2011: € 3,079 million).
4 Dividend income
Dividend income relates to income from equity shares held as financial investments available for sale and amounts to € 4 million
(2012: € 1 million; 2011: € 4 million).
5 Net fee and commission income
Retail banking customer fees
Credit related fees
Asset management and investment banking fees
Insurance commissions
Fee and commission income
Fee and commission expense(1)
2013
€ m
348
31
5
30
414
(36)
378
2012
€ m
321
33
14
28
396
(29)
367
2011
€ m
336
50
58
26
470
(29)
441
(1)Fee and commission expense includes ATM expenses of € 5 million (2012: € 8 million; 2011: € 12 million) and credit card commissions of
€ 23 million (2012: € 12 million; 2011: € 11 million).
249
Notes to the financial statements
6 Net trading income/(loss)
Foreign exchange contracts
Debt securities and interest rate contracts
Credit derivative contracts
Equity securities and index contracts
2013
€ m
37
53
–
12(1)
2012
€ m
45
(75)
(38)
(32)(2)
102
(100)
2011
€ m
52
(91)
(71)
(3)(2)
(113)
(1)Includes a gain of € 10 million arising on disposal of ALH (note 31).
(2)The mark to market loss on put options, held by AIB and Aviva for the sales of ALH and Ark Life respectively, amounted to € 32 million in 2012 and
€ 8 million in 2011 (note 18).
The total hedging ineffectiveness on cash flow hedges reflected in the income statement amounted to a credit of € 7 million
(2012: charge of € 7 million; 2011: charge of € 3 million) and is included in net trading income.
7 Gain on redemption/remeasurement of subordinated liabilities and other capital instruments
2013 and 2012
There were no redemptions of subordinated liabilities or other capital instruments in either 2013 or 2012.
2011
The Group was involved in a number of initiatives to increase its core tier 1 capital from 2009 onwards. In this regard, in January and
June 2011, the Group completed offers to purchase for cash certain capital instruments. In addition, the date for settlement of three
further instruments was 22 July 2011. These offers to purchase for cash, accounted for under IAS 39, met the requirements to be
treated as an extinguishment of the original instruments.
January
This transaction comprised a tender offer by AIB for cash for certain of its tier 2 capital instruments denominated in various
currencies. These instruments were purchased at 30% of their face value. It resulted in a total gain of € 1,534 million (€ 1,534 million
after taxation) all of which was recorded in the income statement.
June
On 14 April 2011, the High Court issued a Subordinated Liabilities Order under section 29 of the Credit Institutions (Stabilisation) Act
2010 (the “SLO”), with the consent of AIB. The SLO changed the terms of all outstanding instruments resulting in a gain for AIB.
On 13 May 2011, AIB launched a tender offer for cash for all its outstanding subordinated liabilities and other capital instruments. Under
this offer, AIB agreed to purchase the instruments at 10% to 25% of their face value. Following completion of the offer and where a
certain percentage (a quorum) of the holders agreed to accept the offer, AIB had an option to redeem or purchase all of the remaining
outstanding instruments at an option price of 0.001% of the nominal amount, which it exercised.
In relation to instruments settled on or before 30 June 2011 a gain amounting to € 1,343 million (€ 1,312 million after taxation) was
recognised in the income statement and a gain amounting to € 387 million (€ 344 million after taxation) was recognised directly in equity.
At 30 June 2011, balances remained outstanding on six instruments. Since the terms of these instruments changed arising from the
SLO which was effective from 22 April 2011, the original liabilities were derecognised and new liabilities recognised, with their
remeasurement based on fair value. A gain of € 396 million arising on derecognition of the original liabilities/initial recognition of the new
liabilities was recognised in the income statement. Three of the remaining instruments were settled on 22 July 2011.
The subordinated liabilities and other capital instruments of the Group are set out in note 40.
250
7 Gain on redemption/remeasurement of subordinated liabilities and other capital instruments (continued)
The table below sets out the gain on redemption/remeasurement of subordinated liabilities and other capital instruments in the year to
31 December 2011.
Carrying value of subordinated liabilities and other
capital instruments at redemption/remeasurement
Carrying value of other equity interests
and non-controlling interests at redemption
Consideration paid on redemption of subordinated
liabilities and other capital instruments
Consideration paid on redemption of other equity
interests and non-controlling interests
Costs
Fair value on remeasurement of subordinated liabilities
and other capital instruments
Gain on redemption/remeasurement
Of which recognised in:
Income statement
Equity
(1) € 3,246 million after taxation.
(2) € 344 million after taxation.
Redemption
€ m
Remeasurement
€ m
4,286
428
4,714
(1,079)
(41)
(9)
–
(1,129)
3,585
108
–
108
–
–
–
(29)
(29)
79
2011
Total
€ m
4,394
428
4,822
(1,079)
(41)
(9)
(29)
(1,158)
3,664
3,277(1)
387(2)
3,664
8 Loss on disposal/transfer of loans and receivables
The following table sets out details of the (loss)/profit on disposal/transfer of loans and receivables:
(Loss) on disposal of loans and receivables to customers
(Loss)/profit on transfer of loans and receivables to NAMA
Total
2013
€ m
(201)
(25)
(226)
2012
€ m
(962)
159
(803)
2011
€ m
(322)
(364)
(686)
Loss on disposal of loans and receivables to customers includes the impact of deleveraging non-core assets of € 193 million
(2012: loss € 962 million; 2011: loss € 322 million).
In February 2010, AIB was designated a participating institution under the NAMA Act and following the enactment of legislation in
November 2009, financial instruments transferred to NAMA during 2010 and 2011. Whilst these transfers were practically complete at
31 December 2011, a provision was made in respect of adjustments to transfers which had not settled at that date (note 39).
Subsequently, NAMA resolved certain issues in relation to loans and receivables which had transferred in 2010 and 2011. This resulted
in the profit/(loss) set out above.
The following table analyses the overall impact of financial instruments, both transferred and held for sale to NAMA(1) in the
consolidated income statement:
Included within
(Loss)/profit on disposal/transfer of loans and receivables
Administrative expenses (note 10)
Provisions for impairment on loans and receivables
Release of surplus provision
2013
€ m
2012
€ m
(25)
–
–
–
(25)
159
(3)
–
–
156
(1)Excludes amounts relating to interest income, related funding and other income on the underlying financial instruments.
2011
€ m
(364)
(28)
(87)
433
(46)
251
Notes to the financial statements
9 Other operating income
Profit/(loss) on disposal of available for sale debt securities
Profit on disposal of available for sale equity securities
Effect of re-estimating the timing of cash flows on NAMA senior bonds
Miscellaneous operating income(1)
(1)Miscellaneous operating income includes:
– Foreign exchange gains € 1 million (2012: Nil; 2011: credit of € 40 million).
2013
€ m
30
11
62
1
104
2012
€ m
25
6
–
19
50
2011
€ m
(36)
8
–
95
67
– Legal proceedings Nil (2012: Nil; 2011: credit of € 61 million).
– Nil charge relating to terminated cash flow hedges which has been removed from equity (2012: charge of € 2 million; 2011: charge of € 18 million).
10 Administrative expenses
Personnel expenses:
Wages and salaries
Termination benefits(1)
Retirement benefits(2) (note 12)
Social security costs
Other personnel expenses
Total personnel expenses
General and administrative expenses(3)
2013
€ m
653
86
(112)
77
–
704
655
1,359
Restated*
2012
€ m
Restated*
2011
€ m
786
171
(102)
85
68
1,008
708
1,716
757
–
79
80
50
966
670
1,636
(1)On 21 May 2012, AIB announced the specific terms of a voluntary severance programme which includes both an early retirement scheme and a
voluntary severance scheme. At 31 December 2013, a charge of € 86 million (2012: € 164 million*) has been made to the income statement in respect of
termination benefits arising from the voluntary severance programme. This amount comprises € 23 million (2012: € 140 million*) in respect of past service
costs relating to the early retirement scheme and € 92 million (2012: € 38 million*) relating to the voluntary severance scheme (note 12) and a credit of
€ 29 million (2012: € 14 million*) in respect of a pension curtailment gain for voluntary severance employees. In addition, a provision of Nil
(2012: € 7 million) has been made in respect of other termination benefits, principally, in the Isle of Man/Channel Islands.
(2)Comprises a credit of € 131 million relating to defined benefit expense (2012: credit of € 123 million*; 2011: charge of € 60 million*), a defined contribution
expense charge of € 13 million (2012: € 13 million; 2011: € 12 million) and a long term disability payments expense charge of € 6 million
(2012: € 8 million; 2011: € 7 million) (note 12).
(3)Includes external costs relating to the transfer of financial instruments to NAMA that amounted to Nil (2012: € 3 million; 2011: € 28 million) (note 8).
Employee numbers by segment are set out in note 56.
*Restated due to change in accounting policy for employee benefits (note 60).
252
11 Share-based compensation schemes
The Group operates a number of share-based compensation schemes as outlined in this note on terms approved by the shareholders.
The share-based compensation schemes which AIB Group operates in respect of ordinary shares in Allied Irish Banks, p.l.c., are:
(i) The AIB Group Share Option Scheme;
(ii) Employees’ Profit Sharing Schemes;
(iii) AIB Save As You Earn (SAYE) Share Option Scheme UK; and
(iv) AIB Group Performance Share Plan 2005.
At 31 December 2013, the ordinary shares of Allied Irish Banks, p.l.c. were trading at € 0.11 per share, accordingly, there is no
expectation that outstanding options will be exercised.
(i) AIB Group Share Option Scheme
The following disclosures regarding the ‘AIB Group Share Option Scheme’ (the ‘2000 Scheme’) relate to both AIB Group and to
Allied Irish Banks, p.l.c.. Options were last granted under this scheme in 2005, and these options vested in 2008 based on the 2007
earnings per share out-turn, and are exercisable up to 2015, however, as these options are deeply out of the money, there is no
expectation that they will be exercised.
The following table summarises the share option scheme activity over each of the years ended 31 December 2013, 2012 and 2011.
Number
of
options
’000
5,746.50
–
(2,255.80)
3,490.70
3,490.70
2013
Weighted
average
exercise
price
€
Number
of
options
’000
2012
Weighted
average
exercise
price
€
Number
of
options
’000
13.64
8,353.7
13.62
10,910.0
–
13.30
13.85
13.85
–
(2,607.2)
5,746.5
5,746.5
–
13.58
13.64
13.64
–
(2,556.3)
8,353.7
8,353.7
2011
Weighted
average
exercise
price
€
13.27
–
12.13
13.62
13.62
Outstanding at 1 January
Exercised
Forfeited/lapsed
Outstanding at 31 December
Exercisable at 31 December
(ii) Employees’ Profit Sharing Schemes
The Company operates the ‘AIB Approved Employees’ Profit Sharing Scheme 1998’ (‘the Scheme’) on terms approved by the
shareholders at the 1998 Annual General Meeting. All employees, including executive directors of the Company and certain subsidiaries
are eligible to participate, subject to minimum service periods and being in employment on the date on which an invitation to participate is
issued. The Directors, at their discretion, may set aside each year, for distribution under the Scheme, a sum not exceeding 5% of eligible
profits of participating companies. No shares have been awarded under this Scheme since 2008.
A Share Ownership Plan (‘the Plan’) operates in the UK in place of a profit sharing scheme whereby employees may be awarded free
shares. When the Plan was set up in 2002, it was on the basis that it would operate for a maximum period of 10 years. As this 10 year
period has now come to an end, no further share awards or purchases can be made under the Plan. No shares have been awarded
since 2008 under the Free Share category.
253
Notes to the financial statements
11 Share-based compensation schemes (continued)
The following table summarises activity in the Free Share category during 2013, 2012 and 2011.
Outstanding at 1 January
Granted
Forfeited
Vested
Outstanding at 31 December
2013
Number
of shares
’000
195.1
–
–
2012
Number
of shares
’000
464.1
–
–
(195.1)
(269.0)
–
195.1
2011
Number
of shares
’000
725.1
–
(1.6)
(259.4)
464.1
(iii) AIB Save As You Earn (SAYE) Share Option Scheme UK
The Company operated a Save As You Earn Share Option Scheme (‘the Scheme’) in the UK. The Scheme was open to all
employees of AIB Group in the UK who had completed six months continuous service at the date of grant. Options were last granted
under this scheme in 2008. All outstanding options under the scheme were either forfeited or lapsed during 2011 and 2012. There were
no options outstanding at 31 December 2012.
(iv) AIB Group Performance Share Plan 2005
This Plan was approved by the shareholders at the 2005 AGM. Conditional grants of awards of ordinary shares are made to employees.
There were no conditional grants outstanding at the end of December 2012 and there were no awards of performance shares in 2013.
Income statement expense
The total expense arising from share-based payment transactions amounted to Nil for the year ended 31 December 2013 (2012: Nil; 2011: Nil).
Limitations on share-based payment schemes
The Company complies with guidelines issued by the Irish Association of Investment Managers in relation to shares of Allied Irish
Banks, p.l.c. issued under the above schemes.
254
12 Retirement benefits
The Group operates a number of pension and retirement benefit schemes for employees. These include both defined benefit and defined
contribution schemes. A hybrid scheme in operation includes elements of a defined benefit scheme and a defined contribution scheme.
Defined benefit schemes
All defined benefit schemes operated by the Group closed to future accrual with effect from 31 December 2013 and staff transferred to
defined contribution schemes.
Of the defined benefit schemes operated by the Group, the most significant are the AIB Group Irish Pension Scheme (‘the Irish scheme’)
and the AIB Group UK Pension Scheme (‘the UK scheme’). The Irish scheme and the UK scheme were closed to new members from
December 1997.
Staff joining the Group in the Republic of Ireland between December 1997 and December 2007 became members of the Irish Defined
Contribution (“DC”) scheme. A hybrid pension arrangement was introduced in Ireland in December 2007 and members of the Irish DC
scheme had the option at that time to switch to the hybrid pension arrangement. Staff joining the Group in the Republic of Ireland between
1 December 2007 and 31 December 2013 automatically joined the hybrid pension arrangement. Members of the hybrid arrangement
became members of the Irish scheme in respect of their basic annual salary up to a certain limit. Those members whose salaries
exceeded the limit also became members of the DC scheme in respect of that part of their basic annual salary above the limit.
Retirement benefits for the defined benefit schemes are calculated by reference to service and Final Pensionable Salary at 31 December
2013. The Final Pensionable Salary used in the calculation of this benefit for staff is based on their average pensionable salary in the
period between 30 June 2009 and 31 December 2013. This calculation of benefit for each staff member will revalue between 1 January
2014 and retirement date in line with the statutory requirement to revalue deferred benefits. There is no link to any future changes in
salaries.
Voluntary Severance Programme
On 21 May 2012, the Group announced the specific terms of a voluntary severance programme which included an early retirement
scheme. During 2013, 180 employees left AIB under the Group’s early retirement scheme. The Group has recognised a past service cost
in the income statement and an increase in the benefit obligation of € 23 million (31 December 2012: € 140 million*) for the Group’s early
retirement scheme. The amount recognised relates to employees who accepted the offer of early retirement during 2013. During 2013, a
curtailment gain of € 29 million (31 December 2012: € 14 million*) was recognised in the income statement in relation to employees who
left under the voluntary severance scheme and who were members of Group defined benefit pension schemes.
Pay and Benefits Review
The Group announced a Pay and Benefits Review on 14 June 2012. The main proposed change as outlined above was the closure of all
defined benefit pension schemes to future accrual and the transfer of all employees who are currently members of a defined benefit
pension scheme (including hybrid arrangements) to a DC scheme. This change would have no impact on the benefits accrued up to the
date of the transfer.
Negotiations between AIB and the staff union, the IBOA regarding proposals to alter terms and conditions of employment of staff as part
of a restructuring programme, including the closure of all defined benefit pension schemes to future accrual, were protracted and as a
result the matter was referred to the Labour Relations Commission (“LRC”) for review and recommendation. Final agreement could not be
reached on certain issues and these were referred to the Labour Court for investigation and recommendation. On 8 July 2013, the Labour
Court and the LRC issued their recommendations as a proposed compromise solution. These recommendations included:
–
–
the closure of the defined benefit pension schemes across the Group to future accrual from 31 December 2013; and
the introduction of a new DC scheme for all staff from 1 January 2014.
These recommendations were subsequently accepted by both AIB and the IBOA.
*Restated due to change in accounting policy for employee benefits (note 60).
255
Notes to the financial statements
12 Retirement benefits (continued)
Pay and Benefits Review (continued)
At 31 December 2013, all defined benefit pension schemes operated by the Group closed to future accrual. This led to a reduction of
€ 231 million in the defined benefit obligation and a credit to the income statement as a curtailment.
In addition, under the Pay and Benefits Review, the payment of retirees’ club subscriptions and the provision of a preferential interest rate
on retirees’ and future retirees’ deposit accounts ceased. A liability of € 24 million previously recognised for these benefits was released to
the income statement in 2012.
In 2012, the Group affirmed its approach to the funding of the Irish pension scheme. This led to a reduction in the defined benefit
obligation of € 204 million and a credit to the income statement as a negative past service cost.
Contributions
The Irish scheme was funded by a normal contribution rate of 16.0 per cent. of pensionable salaries in 2013. As the scheme closed to
future accrual on 31 December 2013, no further normal contributions are due. Furthermore, payments totalling € 122 million, were made
to the scheme in 2013 as required by regulation as part of the Scheme’s Minimum Funding Standard regulatory funding plan.
During 2013, AIB transferred € 22 million into the Irish scheme to fund the Irish early retirement scheme as part of AIB’s voluntary
severance programme cost saving initiative. In addition, AIB also transferred € 4 million into the UK scheme to fund the UK early
retirement scheme.
The UK scheme was funded by a normal contribution rate of 30.8 per cent. of pensionable salaries in 2013. As the scheme closed to
future accrual on 31 December 2013 no further normal contributions are due.The Group agreed with the Trustee of the UK scheme in
2013, as part of the UK regulatory funding plan, that it will fund the UK deficit through an asset backed special purpose vehicle
(note 49).
A payment of £18 million was made to the defined benefit schemes operated in offshore companies on the cessation of operations in
these locations.
The total contributions to all the defined benefit pension schemes operated by the Group in 2014 is estimated to be € 85 million.
Pension Levy
The Irish Finance (No 2) Act 2011 which was signed into law in June 2011, introduced a stamp duty levy of 0.6% on the market value of
assets under management in Irish pension schemes, for the years 2011 to 2014 (inclusive). The levy is based on the market value of the
assets at the 30 June in each relevant year.
In 2013, a levy of € 21 million was paid in respect of the Irish defined benefit scheme and a levy of € 2 million was paid in respect of the
Irish DC scheme. The payment of the levy in respect of the Irish defined benefit scheme was incorporated into the return on pension
scheme assets.
Valuations
Independent actuarial valuations for the main Irish and UK schemes are carried out on a triennial basis by the Schemes’ actuary,
Mercer. The last such valuations of the Irish and UK schemes were carried out as at 30 June 2012 and 31 December 2011 respectively
using Projected Unit Methods. The next actuarial valuations in respect of the Irish and UK schemes are due no later than 30 June 2015
and 31 December 2014 respectively. Actuarial valuations are available for inspection by the members of the schemes.
Regulatory framework
In Ireland, the Pensions Act provisions set out the requirement for a defined benefit scheme that fails the Minimum Funding Standard
(“MFS”) to have a funding plan in place and approved by the Pensions Board. The objective of an MFS funding plan is to set out the
necessary corrective action to restore the funding of the scheme over a reasonable time period and enable the scheme to meet the
MFS standard at a future date.
The AIB MFS funding proposal, which was agreed in 2013 under these legal requirements with the Pensions Board and Trustees of the
Irish Scheme, has remaining average contributions of € 57 million per annum over the next five years. As noted previously, the Irish
Scheme along with all other defined benefit schemes in the Group closed to future accrual which generated a credit to the Group’s
income statement of € 231 million.
256
12 Retirement benefits (continued)
Responsibilities for governance
The Trustees of each Group pension scheme are ultimately responsible for the governance of the schemes.
Risks
Details of the Pension risk to which the Group is exposed are set out in the Risk section on page 169 of this report.
Maturity of the defined benefit obligation
The weighted average duration of the Irish scheme at 31 December 2013 is 19 years and of the UK scheme at 31 December 2013 is 20
years.
Asset liability matching strategies
The Irish Scheme has commenced a review of its investment strategies which includes a consideration of the nature and duration of its
liabilities. The current Minimum Funding Standard regulatory funding plan requires that the scheme’s investment strategy takes account
of the liabilities by the completion of the plan in 2018. It is expected that this will result in approximately 65% of the assets being
invested in liability matching investments by 2018.
The UK Scheme has implemented an investment strategy that includes the elimination of equity investments and approximately 35% of
the assets invested in liability matching investments. It is expected that this percentage of assets invested in liability matching
investments will increase over time.
Funding arrangements and policy
In addition to the funding arrangement set out in the Regulatory framework section, AIB executed a series of agreements on 22 October
2013 to give effect to an asset backed funding plan for the UK scheme which replaced the previous funding plan. Based on the results
of the 31 December 2011 valuation, the asset backed funding plan grants the scheme a regular income of £22.4 million per annum,
which will be payable quarterly from 1 January 2016 to 31 December 2032. In addition, if the 31 December 2032 actuarial valuation of
the scheme reveals a deficit, the scheme will receive a termination payment equal to the lower of that deficit or £60 million (note 49).
Change in estimate
During the year, the Group, with input from its actuary, refined its estimate of the discount rate used for the computation of the UK
scheme. The discount rate for the UK scheme for 2012 would have been 4.7% under the refined methodology, an increase of 0.2%.
This change in discount rate at 31 December 2012, would have resulted in a decrease in the present value of the UK scheme’s liabilities
of € 50 million.
IAS 19 Employee Benefits (revised)
On 16 June 2011, the IASB published an amended IAS 19 Employee Benefits. The changes are effective from 1 January 2013. The
application of this amended standard is retrospective. The impact of adopting IAS 19 Employee Benefits (revised) is set out in note 60.
The main changes are as follows:
–
Introduction of enhanced disclosures about defined benefit plans;
– Disaggregation of defined benefit costs into various components;
– Changes as regards the recognition of curtailments, past service costs and termination costs;
– Replacement of interest cost and expected return on assets with a net interest cost on the net defined benefit liability (asset); and
– Recognition of all administration expenses, with the exception of costs associated with management of scheme assets, in profit or
loss.
257
Notes to the financial statements
12 Retirement benefits (continued)
Financial assumptions
The following table summarises the financial assumptions adopted in the preparation of these financial statements in respect of the main
schemes at 31 December 2013 and 2012. The assumptions have been set based upon the advice of the Group’s actuary.
Financial assumptions
Irish scheme
Rate of increase in salaries(1)
Rate of increase of pensions in payment
Discount rate
Inflation assumptions
UK scheme
Rate of increase in salaries(1)
Rate of increase of pensions in payment
Discount rate
Inflation assumptions (RPI)
Other schemes
Rate of increase in salaries(1)
Rate of increase of pensions in payment
Discount rate
Inflation assumptions
2013
%
–
1.70(2)
3.90
2.00
–
3.30
4.70
3.30
2012
%
3.00
1.60
4.00
2.00
2.90
2.90
4.50
2.90
–
3.00 – 3.50
0.00 – 3.10
0.00 – 3.00
3.90 – 5.00
4.00 – 4.50
2.00 – 3.40
2.00 – 2.90
(1)The rate of increase in salaries is not applicable in 2013, due to the closure of defined benefit schemes to future accrual. In 2012, the rate of increase in
salaries included the impact of salary scale improvements.
(2)Nil for the next 4 years and 2% per annum thereafter.
Mortality assumptions
The life expectancies underlying the value of the scheme liabilities for the Irish and UK schemes at 31 December 2013 and 2012 are
shown in the following table:
Retiring today age 63
Retiring in 10 years at age 63
Males
Females
Males
Females
Life expectancy - years
Irish scheme
UK scheme
2013
2012
2013
2012
24.7
26.0
26.0
27.2
25.2
26.7
26.6
27.8
26.3
28.5
27.4
29.7
26.2
28.4
27.3
29.6
The mortality assumptions for the Irish scheme were updated in 2013 to reflect emerging market experience following a review of
mortality undertaken by the Society of Actuaries in 2013. The table shows that a member of the Irish scheme retiring at age 63 on
31 December 2013 is assumed to live on average for 24.7 years for a male (26.3 years for the UK scheme) and 26.0 years for a female
(28.5 years for the UK scheme). There will be variation between members but these assumptions are expected to be appropriate for all
members. The table also shows the life expectancy for members aged 53 on 31 December 2013 who will retire in ten years. Younger
members are expected to live longer in retirement than those retiring now, reflecting a decrease in mortality rates in future years due to
advances in medical science and improvements in standards of living.
258
12 Retirement benefits (continued)
Movement in defined benefit obligation and scheme assets
The following table sets out the movement in the defined benefit obligation and scheme assets during 2013 and 2012:
Defined Fair value
benefit of scheme
obligation
€ m
2013
Net defined
benefit
assets liability (asset)
€ m
€ m
Restated*
2012
Net defined
benefit
assets liability (asset)
€ m
€ m
Defined Fair value
benefit of scheme
obligation
€ m
5,536
(4,774)
762
4,562
(3,799)
At 1 January
Included in profit or loss
Current service cost
Past service cost:
– Termination benefits
– Other
Interest cost (income)
Curtailment
– Termination
– Other
Administration costs
Included in other comprehensive income
Remeasurements loss (gain):
Actuarial loss (gain) arising from:
Experience adjustments
Changes in demographic assumptions
Changes in financial assumptions
Return on scheme assets excluding interest income(1)
Translation adjustment on non-euro schemes
Other
Contributions by employer
Contributions by employees
Benefits paid
78
23
2
221
(29)
(240)
–
55
8
(130)
101
–
(27)
(48)
–
16
(223)
(207)
–
–
–
(195)
–
–
3
(192)
–
–
–
(271)
23
(248)
(234)
(16)
222
(28)
At 31 December
5,336
(5,242)
Recognised on the statement of financial position as:
Retirement benefit assets
– UK scheme
– Other schemes
Total retirement benefit assets
Retirement benefit liabilities
–
Irish scheme
– UK scheme
– EBS scheme
– Other schemes
Total retirement benefit liabilities
Net pension deficit
(1)Includes payment of pension levy.
*Restated due to change in accounting policy for employee benefits (note 60).
78
140
(218)
223
(14)
(8)
–
201
36
224
751
–
22
1,033
–
20
(280)
(260)
–
–
–
(200)
–
–
2
(198)
–
–
–
(181)
(25)
(206)
(830)
(20)
279
(571)
5,536
(4,774)
78
23
2
26
(29)
(240)
3
(137)
8
(130)
101
(271)
(4)
(296)
(234)
–
(1)
(235)
94
69
14
83
129
–
37
11
177
94
763
78
140
(218)
23
(14)
(8)
2
3
36
224
751
(181)
(3)
827
(830)
–
(1)
(831)
762
–
–
–
650
26
62
24
762
762
259
Notes to the financial statements
12 Retirement benefits (continued)
Scheme assets
The following table sets out an analysis of the schemes assets at 31 December 2013 and 2012:
Cash and cash equivalents
Equity instruments
Quoted equity instruments:
Basic materials
Consumer goods
Consumer services
Energy
Financials
Healthcare
Industrials
Technology
Telecoms
Utilities
Other
Total quoted equity instruments
Unquoted equity instruments
Total equity instruments
Debt instruments
Quoted debt instruments
Corporate bonds
Government bonds
Total quoted debt instruments
Unquoted debt instruments
Corporate bonds
Government bonds
Total unquoted debt instruments
Total debt instruments
Real estate(1)
Derivatives(2)
Investment funds
Quoted investment funds
Alternatives
Bonds
Cash
Equity
Fixed interest
Forestry
Liability driven
Multi-asset
Property
Total quoted investment funds
Unquoted investment funds
Total investment funds
Mortgage backed securities(3)
Fair value of schemes assets at 31 December
(1)Located in Europe.
(2)Amount relates to foreign exchange derivatives.
(3)A quoted market price in an active market is not available for mortgage backed securities.
260
2013
€ m
278
81
181
144
125
306
128
172
134
55
44
–
1,370
6
1,376
685
542
1,227
49
28
77
2012
€ m
81
91
169
124
127
277
107
150
119
52
44
250
1,510
6
1,516
541
779
1,320
42
29
71
1,304
1,391
187
7
13
316
22
241
64
33
547
320
1
1,557
5
1,562
528
5,242
186
7
11
89
1
645
51
32
–
169
18
1,016
5
1,021
572
4,774
12 Retirement benefits (continued)
Sensitivity analysis for principal assumptions used to measure scheme liabilities
There are inherent uncertainties surrounding the financial assumptions adopted in calculating the actuarial valuation of the pension schemes.
Set out in the table below is a sensitivity analysis of the key assumptions for the Irish scheme and the UK scheme.
Note that the changes in assumptions are independent of each other i.e. the effect of the reflected change in the discount rate assumes
that there has been no change in the rate of mortality assumption and vice versa.
Discount rate (0.25% movement)
Inflation (0.25% movement)
Future mortality (1 year movement)
Irish scheme
defined benefit obligation
Decrease
€ m
Increase
€ m
UK scheme
defined benefit obligation
Decrease
€ m
Increase
€ m
(181)
169
110
194
(158)
(110)
(49)
50
25
52
(47)
(25)
Defined contribution schemes
The Group operates a number of defined contribution schemes. From 1 January 2014, all staff transferred to a new defined
contribution arrangement with a standard employer contribution of 10% plus an additional matched employer contribution, subject to
limits based on age bands, of 12%, 15% or 18%. In 2014 and 2015, the employer contribution will be 12%, 15% or 18% for each
employee irrespective of whether the staff member makes a contribution.
Members of the DC scheme in Ireland were offered the option to join the hybrid arrangement when it was introduced in December 2007.
Employees joining in Ireland after December 2007 joined on a hybrid basis. The standard contribution rate to the Irish DC scheme was
8% during 2013 and 10% in respect of the defined contribution element of the hybrid arrangement.
In 2013, the UK DC scheme had employer contributions ranging from 5%. to 20%, increasing as the employee gets older. The member
contribution rate also increases with age. All members of the UK DC scheme also accrued benefits under S2P (the UK State Second
Pension).
The total cost in respect of the Irish DC scheme, the EBS DC schemes and the UK DC schemes for 2013 was € 13 million
(2012: € 13 million; 2011: € 12 million). The cost in respect of defined contributions is included in administrative expenses (note 10).
Long-term disability payments
AIB provides an additional benefit to employees who suffer prolonged periods of sickness. It provides for the partial replacement of
income in event of illness or injury resulting in the employee’s long term absence from work. In 2013, the Group contributed € 6 million
(2012: € 8 million; 2011: € 7 million) towards insuring this benefit. This amount is included in administrative expenses (note 10).
261
Notes to the financial statements
13 Writeback/(provisions) for impairment on financial
investments available for sale
Debt securities (note 29)
Equity securities (note 29)
(1)Of which Nil (2012: € 82 million; 2011: € 106 million) relates to NAMA subordinated bonds.
2013
€ m
18
(9)(1)
9
2012
€ m
–
(86)(1)
(86)
2011
€ m
(164)
(119)
(283)
14 Profit/(loss) on disposal of property
2013
The sale of properties surplus to requirements and cessation of business gave rise to profit on disposal of € 2 million.
2012
Release of deferred profit on sale of property € 2 million.
2011
The sale of properties which were surplus to business requirements gave rise to a loss on disposal of € 1 million.
15 Profit on disposal of businesses
2013
The Group received an additional consideration of € 1 million which had been deferred in 2012 following the disposal of an offshore
subsidiary.
2012
In November 2011, AIB entered into an agreement to sell its investment in AIB Asset Management Holdings (Ireland) Limited and
related companies. AIB's investment was derecognised in May 2012, following regulatory approval for the disposal. This resulted in a
profit of € 2 million before tax (tax charge: Nil). The sale of an offshore subsidiary also gave rise to a profit of € 1 million (tax charge Nil).
2011
On 30 June 2011, AIB announced that it had signed an agreement to sell its investment in AIB International Financial Services Limited
and related companies. AIB’s investment was derecognised at 30 November 2011, following regulatory approval for the disposal. This
resulted in a profit of € 27 million before tax (tax charge: Nil). The Group also completed the disposal of an offshore subsidiary, AIB
Jerseytrust Limited, on 30 September 2011. This disposal resulted in a profit before tax of € 10 million (tax charge: Nil). The Group
received an additional € 1 million consideration which had been deferred in 2010 on the disposal of Goodbody Holdings Limited.
262
16 Auditor’s fees
On 7 June 2013, KPMG Ireland resigned as Auditor of the Group, and on 20 June 2013, Deloitte and Touche was appointed.
The disclosure of Auditor’s fees are in accordance with (SI 220)(1) which mandates the disclosure of fees in particular categories and that
fees paid to the Group Auditor only (Deloitte & Touche Ireland) for services to the parent company and Group be disclosed in this
format. All years presented are on that basis.
Current Auditor
Auditor’s fees (excluding VAT):
Audit
Other assurance services
Taxation advisory services
Other non-audit services
2013
€ m
1.9
0.3
–
0.1
2.3
Included in the above are amounts paid to the Group Auditor, Deloitte & Touche Ireland from date of appointment, for services provided
to other Group companies:
–
–
–
–
audit € 100,000;
other assurance services Nil;
taxation advisory services € 13,150; and
other non–audit services Nil.
Other assurance services include fees for additional assurance issued by the firm outside of the audit of the statutory financial
statements of the Group and subsidiaries. These fees include assignments where the Auditor, in Ireland, provides assurance to third
parties.
The Group policy on the provision of non-audit services to the parent 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 Auditor 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
Auditor. It is Group policy to subject all large consultancy assignments to competitive tender, where appropriate.
The following table shows fees paid to overseas auditors (excluding Deloitte & Touche Ireland)
Auditor’s fees excluding Deloitte & Touche Ireland (excluding VAT):
2013
€ m
3.2(1)
(1)In conjunction with the Prudential Regulatory Authority in the UK, Deloitte LLP were appointed to undertake a Section 166 Review in AIB Group (UK) plc
in 2012. Since 20 June 2013, the date Deloitte & Touche were appointed Group Auditor, €2.8 million has been paid to Deloitte LLP as this review has
continued throughout 2013.
Former Auditor
Auditor’s fees (excluding VAT):
Audit
Other assurance services
Taxation advisory services
Other non-audit services
2013
€ m
2012
€ m
–
1.0
0.1
–
1.1
2.1
1.5
0.2
–
3.8
2011
€ m
2.3
1.0
0.3
–
3.6
Included in the above are amounts paid to the former Group Auditor, KPMG Ireland up to date of resignation, for services provided to
other Group companies:
–
–
–
–
audit Nil (2012: € 90,000; 2011: € 100,000);
other assurance services Nil (2012: € 187,500; 2011: € 113,510);
taxation advisory services Nil (2012: € 17,835; 2011: € 10,750); and
other non–audit services Nil (2012: Nil; 2011: Nil).
The following table shows fees paid to overseas auditors (excluding KPMG Ireland)
Auditor’s fees excluding KPMG Ireland (excluding VAT):
(1)SI 220 is titled the European Communities (Statutory Audits) (Directive 2006/43/EC) Regulations 2010.
2013
€ m
–
2012
€ m
0.8
2011
€ m
1.0
263
Notes to the financial statements
17 Taxation
Allied Irish Banks, p.l.c. and subsidiaries
Corporation tax in Republic of Ireland
Current tax on income for the year
Adjustments in respect of prior years
Double taxation relief
Foreign tax
Current tax on income for the year
Adjustments in respect of prior years
Deferred taxation
Origination and reversal of temporary differences
Adjustments in respect of prior years
Total tax credit for the year
Effective tax rate
2013
€ m
Restated*
2012
€ m
Restated*
2011
€ m
–
17
17
–
17
(32)
1
(31)
(14)
88
16
104
90
–
(2)
(2)
–
(2)
14
(12)
2
–
159
13
172
172
4
(1)
3
–
3
24
13
37
40
1,172
(19)
1,153
1,193
5.3%
4.6%
23.2%
Factors affecting the effective tax rate
The effective income tax rate for 2013 is 5.3% (2012: 4.6%; 2011: 23.2%). The following table explains the differences between the
Group’s weighted average statutory corporation tax rates across its geographic locations and its effective income tax rate:
Weighted average corporation tax rate
Effects of:
Expenses not deductible for tax purposes
Exempted income, income at reduced rates and tax credits
Income taxed at higher rates
Deferred tax assets not recognised/reversal of amounts previously not recognised
Other differences
Change in tax rates(3)
Tax on associated undertakings
Adjustments to tax charge in respect of previous years
Effective income tax rate
2013
%
14.2
(1.8)
0.8
(1.6)
(2.8)
0.3
(4.5)
–
0.7
5.3
Restated*
2012
%
Restated*
2011
%
14.3(1)
16.7
(0.3)
0.1
–
(7.2)
(0.4)
(1.8)
–
(0.1)
4.6
(0.3)
7.9(2)
(0.7)
0.3
0.8
(1.4)
–
(0.1)
23.2
(1)The change in the weighted average corporation tax rate in 2012* was primarily driven by reduced tax losses in the UK tax jurisdiction as a proportion of
the overall loss compared to the previous year.
(2)Exempted income substantially relates to the gain on redemption of subordinated liabilities and other capital instruments (note 7).
(3)Change in the UK tax rate.
*Restated due to change in accounting policy for employee benefits (note 60).
`
264
17 Taxation (continued)
Analysis of selected other comprehensive income
Continuing operations
Foreign currency translation reserves
Change in foreign currency translation
reserves
Total
Cash flow hedging reserves
Fair value (gains) transferred
to income statement
Fair value (losses) taken to other
comprehensive income
Total
Available for sale securities reserves
Fair value (gains)/losses transferred
Gross
€ m
Tax
€ m
2013
Net
€ m
Gross
€ m
Tax
€ m
2012
Net
€ m
Gross
€ m
Tax
€ m
2011
Net
€ m
(9)
(9)
(5)
(15)
(20)
–
–
–
2
2
(9)
(9)
34
34
(5)
(87)
(13)
(18)
(98)
(185)
–
–
10
13
23
34
34
(11)
(11)
–
–
(11)
(11)
(77)
(115)
14
(101)
(85)
(162)
(127)
(242)
19
33
(108)
(209)
to income statement
(51)
10
(41)
55
7
62
443
(54)
389
Fair value gains/(losses) taken to other
comprehensive income
Total
631
580
(77)
(67)
554
513
1,412
1,467
(179)
1,233
(298)
(172)
1,295
145
21
(33)
(277)
112
Discontinued operations
Foreign currency translation reserves
Transferred to income statement on
disposal of foreign operation
Change in foreign currency translation
reserves
Total
Cash flow hedging reserves
Fair value losses transferred
to income statement
Fair value (losses) taken to other
comprehensive income
Total
Available for sale securities reserves
Fair value (gains) transferred
to income statement
Fair value (losses) taken to other
comprehensive income
Total
Gross
€ m
Tax
€ m
2013
Net
€ m
Gross
€ m
Tax
€ m
2012
Net
€ m
Gross
€ m
Tax
€ m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(106)
(28)
(134)
4
(3)
1
(82)
(17)
(99)
–
–
–
(1)
1
–
16
9
25
2011
Net
€ m
(106)
(28)
(134)
3
(2)
1
(66)
(8)
(74)
Items that will not be reclassified to profit or loss are analysed in notes 12 and 34.
265
Notes to the financial statements
18 Discontinued operations
2013
Disposal of Aviva Life Holdings Ireland Limited and acquisition of Ark Life Assurance Company Limited
Following the exercise of put options in January 2012, AIB’s investment in Aviva Life Holdings Ireland Limited (“ALH”) was held for sale
within ‘Disposal groups and non-current assets held for sale’ at 31 December 2012. This was designated as an equity investment at fair
value through profit or loss (notes 21, 30, and 31). The sale was completed on 8 March 2013, resulting in a gain on disposal of
€ 10 million and a tax charge of nil. This gain is reported in ‘Net trading income/(loss)’ (note 6).
AIB then acquired a 100% interest in Ark Life Assurance Company Limited (‘Ark Life’) for a consideration of € 325 million. The put
option which required AIB to acquire Ark Life had a negative valuation of € 23 million at the date of acquisition (note 48).
2012
There were no discontinued operations in the year to 31 December 2012.
2011
Arising from the Prudential Capital Assessment Review (“PCAR”) 2010 requirement to raise additional capital, the Group announced that
its investments in BZWBK, M&T Bank Corporation and Bulgarian American Credit Bank AD (“BACB”) were to be disposed of.
The disposal of M&T Bank Corporation was completed on 4 November 2010. The sale of BZWBK was agreed on 10 September 2010
subject to regulatory approval and completed on 1 April 2011 and the sale of BACB completed on 17 June 2011.
The following tables set out income statement analysis of discontinued operations:
Profit after taxation from discontinued operations
BZWBK
Bulgarian American Credit Bank AD
Total
Notes
(A)
(B)
2011
€ m
1,628
–
1,628
266
18 Discontinued operations (continued)
(A) - BZWBK
On 1 April 2011, AIB completed the sale of its entire shareholding in BZWBK and in BZWBK Asset Management. The proceeds of the
sale amounted to € 3.1 billion giving rise to a profit on disposal of € 1.5 billion which was recorded in the income statement.
BZWBK had been accounted for as a discontinued business, the results of which are set out below to the disposal date 1 April 2011.
Prior to classification as held for sale, BZWBK was accounted for as a subsidiary undertaking.
Profit from discontinued operations
Net interest income
Net fee and commission income
Net trading income
Other operating income
Other income
Total operating income
Total operating expenses
Operating profit before provisions
Provisions for impairment on loans and receivables
and other financial instruments
Operating profit
Profit before taxation from discontinued operations
Income tax expense from discontinued operations
Profit after taxation from discontinued operations
Profit on disposal(1)
Profit for the period after taxation from discontinued operations
.
Profit on disposal
Gross proceeds from sale
Less: costs of disposal
Net proceeds
Carrying value at date of disposal(1)
Reclassification of currency translation reserves to the income statement
Reclassification of available for sale and cash flow hedging reserves to the
income statement (net of deferred tax)
Profit on disposal(3)
To date
of disposal
1 April 2011
€ m
126
86
9
5
100
226
(103)
123
(24)
99
99
(17)
82
1,546
1,628(2)
1 April 2011
€ m
3,112
(13)
3,099
1,722
1,377
106
63
1,546
(1)The carrying value of € 1,722 million at the date of disposal reflects third party assets of € 2,293 million (adjusted for intercompany liabilities due by
BZWBK amounting to € 58 million) and non-controlling interests of € 513 million.
(2)€ 1,608 million of the profit from discontinued operations of € 1,628 million was attributable to the owners of the parent with € 20 million attributable to
non-controlling interests.
(3)No tax charge arises on this disposal.
267
Notes to the financial statements
18 Discontinued operations (continued)
Gross assets and liabilities of BZWBK at disposal date
At the date of disposal on 1 April 2011, gross assets amounted to € 13,774 million and gross liabilities (excluding intercompany balances)
amounted to € 11,481 million.
Effect of disposal on cash flows of the Group
Consideration received satisfied in cash
less: costs of disposal
Cash and cash equivalents disposed of (note 52)
Net cash inflow
The following cash flows relate to the discontinued operations of BZWBK:
Profit after taxation
Income tax
Profit before taxation
Net movement in non cash items from operating activities
Net cash outflow from operating assets and liabilities
Taxation paid
Net cash flows from operating activities
Net cash flows from investing activities
Net cash flows from financing activities
Decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents disposed of
Effect of exchange rates on cash and cash equivalents
Cash and cash equivalents at date of disposal
2011
€ m
3,112
(13)
(673)
2,426
Period to
1 April
2011
€ m
1,628
17
1,645
(1,573)
(87)
(34)
(49)
(38)
–
(87)
767
(673)
(7)
–
(B) - Bulgarian American Credit Bank AD
On 16 May 2011, the Group announced that it had signed an agreement to sell its 49.99% shareholding in Bulgarian American Credit
Bank AD. The sale completed on 17 June 2011 resulting in a gain of € 0.1 million.
268
19 Earnings per share
The calculation of basic earnings per unit of ordinary/convertible non-voting (“CNV”) shares is based on the profit/(loss) attributable to
ordinary/CNV shareholders divided by the weighted average of ordinary/CNV shares in issue, excluding treasury shares and own shares
held.
The diluted earnings per share is based on the profit/(loss) attributable to ordinary/CNV shareholders divided by the weighted average
ordinary/CNV shares in issue excluding treasury shares and own shares held, adjusted for the effect of dilutive potential ordinary
shares.
(a) Basic
Loss attributable to equity holders of the parent from continuing operations
Gain on redemption of RCI and LPI recognised in equity (note 7)
Loss attributable to ordinary/CNV shareholders
2013
€ m
(1,597)
–
Restated*
2012
€ m
(3,557)
–
Restated*
2011
€ m
(3,946)
344
from continuing operations
(1,597)
(3,557)
(3,602)
Profit attributable to ordinary/CNV shareholders
from discontinued operations
–
–
1,608
Number of shares (millions)
Weighted average number of ordinary shares in issue during the year
519,761.0
515,789.0
226,533.5
Weighted average number of CNV shares in issue during the year
Contingently issuable shares
Weighted average number of shares
–
–(2)
–
–(2)
2,787.7
599.9(1)
519,761.0
515,789.0
229,921.1
Loss per share from continuing operations – basic
EUR (0.3c)
EUR (0.7c)
EUR (1.6c)
Earnings per share from discontinued operations – basic
–
–
EUR 0.7c
*Restated due to change in accounting policy for employee benefits (note 60).
269
Notes to the financial statements
19 Earnings per share (continued)
(b) Diluted
Loss attributable to ordinary/CNV shareholders
from continuing operations (note 19 (a))
Dilutive effect of CCNs’ interest charge
Profit attributable to ordinary/CNV shareholders
from discontinued operations
2013
€ m
Restated*
2012
€ m
Restated*
2011
€ m
(1,597)
(3,557)
(3,602)
–
–
–
–
(1,597)
(3,557)
–
1,608
(1,994)
Adjusted loss attributable to ordinary/CNV shareholders
from continuing operations
(1,597)
(3,557)
(3,602)
Adjusted profit attributable to ordinary/CNV shareholders
from discontinued operations
–
–
1,608
Number of shares (millions)
Weighted average number of ordinary shares in issue during the year
519,761.0
515,789.0
226,533.5
Weighted average number of CNV shares in issue during the year
Dilutive effect of options outstanding
Dilutive effect of CCNs
Contingently issuable shares
–
–
–
–(2)
–
–
–
–(2)
2,787.7
–
–
599.9(1)
Potential weighted average number of shares
519,761.0
515,789.0
229,921.1
Loss per share from continuing operations – diluted
EUR (0.3c)
EUR (0.7c)
EUR (1.6c)
Earnings per share from discontinued operations – diluted
–
–
EUR 0.7c
(1)Arising from the ‘dividend stopper’ which came into effect in 2009 and remained effective until April 2011, AIB was required to issue ordinary shares in lieu
of dividend on the 2009 Preference Shares. The contingently issuable shares relate to the number of shares (on a time apportioned basis) that would issue
to the National Pension Reserve Fund Commission (“NPRFC”), if the annual coupon on the € 3.5 billion Preference Shares was not paid in cash.
(2)The SLO, which came into effect on 14 April 2011, superseded the ‘dividend stopper’, with distributions now being payable by AIB in its sole discretion.
Accordingly, there were no contingently issuable shares during 2012 or 2013.
*Restated due to change in accounting policy for employee benefits (note 60).
– On 27 July 2011, AIB issued 500 billion ordinary shares to the NPRFC.
– Bonus shares in lieu of the dividend on the 2009 Preference Shares were issued to the NPRFC in 2013, 2012 and 2011
amounting to: 4,144,055,254; 3,623,969,972; and 1,247,273,565 shares respectively. These bonus shares have been included in
the weighted average number of shares in issue prospectively from the date of issue as they represent a dilution of earnings per
share from that date.
– The incremental shares from assumed conversion of options are not included in calculating the diluted per share amounts
because they are anti-dilutive.
–
In July 2011, AIB issued € 1.6 billion in convertible capital notes (“CCNs”). These notes are mandatorily redeemable and will
convert to AIB ordinary shares at a conversion price of € 0.01 per share (note 40) if the Core Tier 1 capital ratio breaches 8.25%.
These incremental shares have not been included in calculating the diluted per share amounts because they are anti-dilutive.
Both the ordinary and CNV shares are included in the weighted average number of shares on a time apportioned basis.
270
20 Distributions on equity shares
No dividends were paid on equity shares in 2013, 2012 or 2011.
21 Disposal groups and non-current assets held for sale
At 31 December 2013, disposal groups and non-current assets held for sale include loans and receivables, and the Group’s subsidiary,
Ark Life Assurance Company Limited (‘Ark Life’) which is held as a subsidiary acquired exclusively for resale. Details of Ark Life are set
out in note 48.
Disposal groups and non-current assets/liabilities are shown as single line items in the statement of financial position with no
re-presentation of comparatives. An analysis of the components of these single line items is set out below:
2013
2012
Assets
€ m
Liabilities
€ m
Assets
€ m
Liabilities
€ m
Loans and receivables(1):
Customers
Associated undertakings(2) (note 30)
Other:
Equity investment at fair value through profit or loss(3)
Other
Discontinued operations:
Ark Life(4)
28
–
–
7
7
–
–
–
–
–
2,747
3,593
Total disposal groups and non-current assets and
liabilities held for sale
2,782
3,593
353
12
196
1
197
–
562
–
–
–
–
–
–
–
(1)Loans and receivables held for sale are net of provisions of Nil (31 December 2012: € 122 million) (note 27).
(2)Associated undertakings include LaGuardia Hotel € 12 million at 31 December 2012. This investment was disposed of during 2013.
(3)On 1 July 2012, AIB designated its investment in ALH as an equity investment at fair value through profit or loss. The sale of this investment completed on
8 March 2013 (note 31).
(4)Intercompany balances of € 1,148 million between AIB and Ark Life (which includes deposits of € 1,011 million) have been eliminated on consolidation
Further details of loans and receivables held for sale are set out in the Risk management section of this report.
271
Notes to the financial statements
22 Trading portfolio financial assets
Debt securities
Equity securities
Of which listed:
Debt securities
Equity securities
Of which unlisted:
Equity securities
2013
€ m
1
1
2
2013
€ m
1
–
1
2
2012
€ m
22
2
24
2012
€ m
22
1
1
24
During 2008, trading portfolio financial assets reclassified to financial investments available for sale, in accordance with the amended
IAS 39 Financial Instruments: Recognition and Measurement, amounted to € 6,104 million. The fair value of reclassified assets at
31 December 2013 was € 467 million (2012: € 1,025 million; 2011: € 1,410 million; 2010: € 2,538 million; 2009: € 4,104 million;
2008: € 5,674 million).
As of the reclassification date, effective variable interest rates on reclassified trading portfolio financial assets ranged from 4% to 10%
with expected gross recoverable cash flows of € 7,105 million. If the reclassification had not been made, the Group’s income statement
for the year ended 31 December 2013 would have included unrealised fair value gains on reclassified trading portfolio financial assets
of € 112 million (2012: gains € 136 million; 2011: gains € 91 million).
After reclassification, the reclassified assets contributed the following amounts to the income statement:
Interest on financial investments available for sale
Provisions for impairment of financial investments available for sale
2013
€ m
11
–
2012
€ m
32
–
2011
€ m
58
(27)
Up to the date of reclassification in 2008, € 55 million of unrealised losses on the reclassified trading portfolio financial assets were
recognised in the income statement (year ended December 2007: € 111 million).
272
23 Derivative financial instruments
Derivatives are used to service customer requirements, to manage the Group’s interest rate, exchange rate, equity and credit 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 (Allied Irish Banks, p.l.c.) and the following discussion applies equally to the parent company and Group.
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 in derivative 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 (i.e. contracts with a positive fair value). The Group would then have to replace
the contract at the current market rate, which may result in a loss. 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.
The following table presents the total notional principal amount of interest rate, exchange rate, equity and credit derivative contracts for
2013 and 2012 together with the positive fair value attaching to those contracts where relevant:
Interest rate contracts(1)
Notional principal amount
Positive fair value
Exchange rate contracts(1)
Notional principal amount
Positive fair value
Equity contracts(1)
Notional principal amount
Positive fair value
Credit derivatives(1)
Notional principal amount
Positive fair value
Total notional principal amount
Positive fair value(2)
2013
€ m
2012
€ m
104,072
1,443
104,431
2,643
4,314
35
2,390
151
–
–
7,485
71
3,848
121
114
–
110,776
115,878
1,629
2,835
(1)Interest rate, exchange rate and credit derivative contracts are entered into for both hedging and trading purposes. Equity contracts are entered into
for trading purposes only.
(2)72% of fair value relates to exposures to banks (2012: 65%).
273
Notes to the financial statements
23 Derivative financial instruments (continued)
The Group uses the same credit control and risk management policies in undertaking all off-balance sheet commitments as it does for
on balance sheet lending including counterparty credit approval, limit setting and monitoring procedures. In addition, derivative
instruments are subject to the market risk policy and control framework as described in the Risk Management section.
The following table analyses the total notional principal amount of interest rate, exchange rate, equity and credit derivative contracts
together with the positive fair value attaching to these contracts where relevant by residual maturity:
< 1 year 1 < 5 years
€ m
€ m
5 years +
€ m
2013
Total
€ m
< 1 year
€ m
1 < 5 years
€ m
5 years +
€ m
2012
Total
€ m
Residual maturity
Notional principal amount
53,863
44,558
12,355
110,776
67,989
Positive fair value
243
900
486
1,629
511
34,955
1,364
12,934
115,878
960
2,835
AIB Group has the following concentration of exposures in respect of notional principal amount and positive fair value of interest rate,
exchange rate, equity and credit derivative contracts. The concentrations are based primarily on the location of the office recording the
transaction.
Republic of Ireland
United Kingdom
United States of America
Notional principal amount
2012
€ m
2013
€ m
Positive fair value
2012
€ m
2013
€ m
107,557
111,194
2,833
386
4,080
604
110,776
115,878
1,253
358
18
1,629
2,205
595
35
2,835
274
23 Derivative financial instruments (continued)
Trading activities
The Group maintains trading positions in a variety of financial instruments including derivatives. These derivative financial
instruments include interest rate, foreign exchange, equity and credit derivatives. Most of these positions arise as a result of activity
generated by corporate customers while the remainder represent trading decisions of the Group’s derivative and foreign exchange
traders with a view to generating incremental income.
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 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 and by the use of Credit Support Annexes and ISDA
Master Netting Agreements. 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, future,
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.
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
derivatives can be used to hedge the Group’s exposure to foreign exchange risk.
Derivative prices fluctuate in value as the underlying interest rate or foreign exchange rates change. If the derivatives are purchased or
sold as hedges of statement of final position items, the appreciation or depreciation of the derivatives will generally be offset by the
unrealised depreciation or appreciation of the hedged items.
To achieve its risk management objectives, the Group uses a combination of derivative financial instruments, particularly interest rate
swaps, cross currency interest rate swaps, forward rate agreements, futures, options and currency swaps, as well as other contracts.
The notional principal and fair value amounts for instruments held for risk management purposes entered into by the Group at
31 December 2013 and 2012, are presented within this note.
275
Notes to the financial statements
23 Derivative financial instruments (continued)
The following table shows the notional principal amount and the fair value of derivative financial instruments analysed by product and
purpose as at 31 December 2013 and 31 December 2012. A description of how the fair values of derivatives are determined is set out in
note 50.
Notional
principal
amount
€ m
2013
Fair values
Assets
Liabilities
€ m
€ m
Notional
principal
amount
€ m
2012
Fair values
Assets
Liabilities
€ m
€ m
Derivatives held for trading
Interest rate derivatives – over the counter (“OTC”)
Interest rate swaps
Cross-currency interest rate swaps
Interest rate options
Total interest rate derivatives – OTC
Interest rate derivatives – exchange traded
Interest rate futures
Total interest rate derivatives – exchange traded
14,748
720
794
16,262
121
121
762
47
6
815
–
–
(761)
(43)
(6)
(810)
–
–
27,040
1,435
(1,691)
1,826
1,013
80
9
(68)
(9)
29,879
1,524
(1,768)
124
124
–
–
–
–
Total interest rate derivatives
16,383
815
(810)
30,003
1,524
(1,768)
Foreign exchange derivatives – OTC
Foreign exchange contracts
Currency options bought and sold
Total foreign exchange derivatives
Equity derivatives – OTC
Equity index options
Total equity derivatives
Credit derivatives – OTC
Credit derivatives
Total credit derivatives
4,130
185
4,315
2,390
2,390
–
–
32
3
35
151
151
–
–
(32)
(2)
(34)
(79)
(79)
–
–
7,266
219
7,485
3,848
3,848
69
69
69
2
71
121
121
–
–
(19)
(2)
(21)
(124)
(124)
(20)
(20)
Total derivatives held for trading
23,088
1,001
(923)
41,405
1,716
(1,933)
Derivatives held for hedging
Derivatives designated as fair value hedges – OTC
Interest rate swaps
Cross currency interest rate swaps
16,433
–
Total derivatives designated as fair value hedges
16,433
Derivatives designated as cash flow hedges – OTC
Interest rate swaps
Cross currency interest rate swaps
Credit default swaps
68,100
3,155
–
Total derivatives designated as cash flow hedges
71,255
532
–
532
81
15
–
96
(590)
–
(590)
(367)
(80)
–
(447)
Total derivatives held for hedging
Total derivative financial instruments
87,688
110,776
628
1,629
(1,037)
(1,960)
15,399
38
15,437
56,621
2,370
45
59,036
74,473
115,878
788
–
788
308
23
–
331
(792)
(3)
(795)
(433)
(94)
(1)
(528)
1,119
2,835
(1,323)
(3,256)
276
23 Derivative financial instruments (continued)
Cash flow hedges
The table below sets out the hedged cash flows which are expected to occur in the following periods:
Forecast receivable cash flows
Forecast payable cash flows
Forecast receivable cash flows
Forecast payable cash flows
Within 1 year
€ m
91
31
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
73
38
232
95
240
111
Within 1 year
€ m
65
15
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
6
10
24
35
25
32
2013
Total
€ m
636
275
2012
Total
€ m
120
92
The table below sets out the hedged cash flows, including amortisation of terminated cashflow hedges, which are expected to impact
the income statement in the following periods:
Forecast receivable cash flows
Forecast payable cash flows
Forecast receivable cash flows
Forecast payable cash flows
Within 1 year
€ m
91
72
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
73
72
232
179
240
117
Within 1 year
€ m
65
64
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
6
57
24
128
25
67
2013
Total
€ m
636
440
2012
Total
€ m
120
316
For AIB Group, the ineffectiveness reflected in the income statement that arose from cash flow hedges is a credit of € 7 million
(2012: a charge of € 7 million).
The pay fixed cash flow hedges are used to hedge the cash flows on variable rate liabilities, primarily floating rate notes. The receive
fixed cash flow hedges are used to hedge the cash flows on variable rate assets, primarily the variable rate loan portfolio.
The total amount recognised in other comprehensive income net of tax during the year in respect of cash flow hedges was a charge of
€ 18 million (2012: a charge of € 162 million).
Fair value hedges
Fair value hedges are entered into to hedge the exposure to changes in the fair value of recognised assets or liabilities arising from
changes in interest rates, primarily available for sale securities and fixed rate liabilities. The fair values of financial instruments are set out
in note 50. The net mark to market on fair value hedging derivatives, excluding accrual and risk adjustments is negative € 56 million
(2012: negative € 37 million) and the net mark to market on the related hedged items is positive € 54 million (2012: positive € 37 million).
Netting financial assets and financial liabilities
Derivative financial instruments are shown on the statement of financial position 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.
Details on offsetting financial assets and financial liabilities are set out in note 45.
277
Notes to the financial statements
24 Loans and receivables to banks
Funds placed with central banks
Funds placed with other banks
Provision for impairment
Amounts include:
Reverse repurchase agreements
Loans and receivables to banks by geographical area(1)
Republic of Ireland
United Kingdom
United States of America
2013
€ m
656
1,399
(7)
2012
€ m
692
2,226
(4)
2,048
2,914
16
61
2013
€ m
478
1,566
4
2,048
2012
€ m
699
2,210
5
2,914
(1)The classification of loans and receivables to banks by geographical area is based primarily on the location of the office recording the transaction.
Loans and receivables to banks include cash collateral of € 798 million placed with derivative counterparties in relation to net derivative
positions and placed with repurchase agreement counterparties (2012: € 1,208 million) (notes 23 and 45).
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 € 16 million (2012: € 61 million). The collateral
received consisted of government securities of Nil (2012: € 61 million) and non-government available for sale securities (bank bonds)
with a fair value of € 16 million (31 December 2012: Nil). The fair value of collateral sold or repledged amounted to Nil (2012: Nil). These
transactions were conducted under terms that are usual and customary to standard reverse repurchase agreements.
25 Loans and receivables to customers
Loans and receivables to customers
Amounts receivable under finance leases and hire purchase contracts (note 26)
Unquoted debt securities
Provisions for impairment (note 27)
Of which repayable on demand or at short notice
Amounts include:
Due from associated undertakings
2013
€ m
81,680
965
151
2012
€ m
88,123
1,017
238
(17,083)
(16,406)
65,713
31,853
72,972
32,619
–
–
The unwind of the discount on the carrying amount of impaired loans amounted to € 373 million (2012: € 392 million) and is included in
the carrying value of loans and receivables to customers. This has been credited to interest income.
Loans and receivables to customers include € 27 million (2012: € 23 million) cash collateral placed with derivative counterparties and
placed with repurchase agreement counterparties.
278
26 Amounts receivable under finance leases and hire purchase contracts
The following balances principally comprise of leasing arrangements involving vehicles, plant, machinery and equipment.
Gross receivables
Not later than 1 year
Later than one year and not later than 5 years
Later than 5 years
Unearned future finance income
Deferred costs incurred on origination
Total
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(1)
Unguaranteed residual values accruing to the benefit of the Group
Net investment in new business
(1)Included in the provisions for impairment on loans and receivables to customers (note 27).
2013
€ m
361
627
24
1,012
(50)
3
965
361
583
21
965
223
–
329
2012
€ m
362
691
15
1,068
(53)
2
1,017
362
643
12
1,017
231
1
267
279
Notes to the financial statements
27 Provisions for impairment on loans and receivables
The following table shows provisions for impairment on loans and receivables (both to banks and customers) and also includes
provision on loans and receivables within disposal groups and non-current assets held for sale. The classification of loans and
receivables below aligns to the asset classes disclosed in the ‘Risk management’ section.
Residential
mortgages
€ m
Other Property and
construction
€ m
personal
€ m
SME/Other
commercial
€ m
3,206
–
20
813
(87)
–
1,139
(4)
–
125
(114)
–
–
1
3,952
1,147
3,333
619
3,952
1,092
55
1,147
8,104
(44)
(34)
724
(296)
(16)
–
8,438
8,114
324
8,438
3,500
(23)
–
224
(456)
–
1
3,246
3,138
108
3,246
Corporate
€ m
583
(5)
–
30
(181)
(120)
–
307
228
79
307
At 1 January 2013
Exchange translation adjustments
Other(1)
Charge against income statement
Amounts written off
Disposals
Recoveries of amounts written off
in previous years
At 31 December 2013
Total provisions are split as follows:
Specific
IBNR
Amounts include:
Loans and receivables to banks (note 24)
Loans and receivables to customers (note 25)
At 1 January 2012
Exchange translation adjustments
Other(1)
Charge against income statement
Amounts written off
Disposals
Recoveries of amounts written off
in previous years
Provisions on loans and receivables
returned by NAMA
At 31 December 2012
Total provisions are split as follows:
Specific
IBNR
Residential
mortgages
€ m
Other
personal
€ m
Property and
construction
€ m
SME/Other
commercial
€ m
2,681
5
14
749
(59)
(184)
–
–
1,063
3
–
219
(103)
(44)
1
–
7,568
26
–
781
(237)
(34)
–
–
3,097
11
20
518
(152)
(1)
3
4
Corporate
€ m
536
2
–
167
(122)
–
–
–
3,206
1,139
8,104
3,500
583
16,532
2,699
507
3,206
1,064
75
1,139
7,681
423
8,104
3,260
240
3,500
485
98
583
2013
Total
€ m
16,532
(76)
(14)
1,916
(1,134)
(136)
2
17,090
15,905
1,185
17,090
7
17,083
17,090
2012
Total
€ m
14,945
47
34
2,434
(673)
(263)
4
4
15,189
1,343
16,532
4
16,406
122
16,532
Amounts include:
Loans and receivables to banks (note 24)
Loans and receivables to customers (note 25)
Loans and receivables of disposal groups and
non-current assets held for sale (note 21)
(1)Includes transfers (to)/from provisions for liabilities and commitments.
280
28 NAMA senior bonds
During 2010 and 2011, AIB received NAMA senior bonds and NAMA subordinated bonds as consideration for loans and receivables
transferred to NAMA.
The senior bonds carry a guarantee of the Irish Government with interest payable semi-annually each March and September at a rate of
six month Euribor. The interest reset date is the second business day prior to the start of each interest period. The bonds were issued
from 1 March 2010 and all bonds issued on or after 1 March in any year will mature on or prior to 1 March in the following year. NAMA
may, with the consent of the Group, settle the bonds by issuing new bonds with the same terms and conditions and a maturity date of up
to 364 days.
The following table provides a movement analysis of the NAMA senior bonds:
At 1 January
Net returns
Amortisation of discount
Repayments
Effect of re-estimating the timing of cash flows
At 31 December
2013
€ m
2012
€ m
17,387
19,856
–
65
(136)
105
(1,916)
(2,438)
62
–
15,598
17,387
On initial recognition of the NAMA senior bonds, AIB made certain assumptions as to the timing of expected repayments. Arising from
the subsequent pattern of repayments, AIB reviewed its initial assumptions and revised its expectations during 2013. Based on the
revised estimated timing of cash flows, AIB has adjusted the carrying amount of the bonds by discounting the revised timing of expected
cash flows at the original effective interest rate. The adjustment to the carrying amount has resulted in the recognition of a gain of
€ 62 million in note 9 ‘Other operating income’.
The estimated fair value of the bonds at 31 December 2013 is € 15,767 million (31 December 2012: € 17,446 million). The nominal value
of the bonds is € 15,820 million (31 December 2012: € 17,737 million). Whilst these bonds do not have an external credit rating, the
Group has attributed to them a rating of BBB+ (31 December 2012: BBB+) i.e. the external rating of the Sovereign.
At 31 December 2013, € 12,435 million (31 December 2012: € 14,911 million) of NAMA senior bonds have been pledged to central banks and
banks (note 35).
281
Notes to the financial statements
29 Financial investments available for sale
The following table sets out at 31 December 2013 and 31 December 2012, the carrying value (fair value) of financial investments
available for sale by major classifications together with the unrealised gains and losses.
Fair
value
€ m
Unrealised
gross
gains
€ m
Unrealised
gross
losses
€ m
Net unrealised
gains/
(losses)
€ m
10,328
1,968
608
3,092
535
3,671
34
3
12
910
110
54
29
1
59
–
–
–
–
(1)
–
(6)
(54)
(7)
–
–
–
910
109
54
23
(53)
52
–
–
–
Tax
effect
€ m
(113)
(14)
(6)
(3)
7
(4)
–
–
–
2013
Net
ater
tax
€ m
797
95
48
20
(46)
48
–
–
–
20,251
1,163
(68)
1,095
(133)
962
73
44
117
26
12
38
–
(7)
(7)
26
5
31
(3)
–
(3)
23
5
28
20,368
1,201
(75)
1,126
(136)
990
Unrealised
gross
gains
€ m
Unrealised
gross
losses
€ m
Net unrealised
gains/
(losses)
€ m
Tax
effect
€ m
Fair
value
€ m
7,588
1,754
712
1,682
22
920
3,070
161
87
193
12
608
153
95
55
–
1
176
3
6
17
–
(1)
(4)
–
–
(6)
(140)
(11)
(5)
(3)
–
–
16,201
1,114
(170)
47
96
143
–
16
16
–
(10)
(10)
2012
Net
after
tax
€ m
531
131
83
48
(5)
(122)
144
(2)
2
13
–
(76)
(18)
(12)
(7)
1
17
(21)
–
(1)
(4)
–
(121)
823
–
(1)
(1)
–
5
5
607
149
95
55
(6)
(139)
165
(2)
3
17
–
944
–
6
6
16,344
1,130
(180)
950
(122)
828
Debt securities
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and government
agencies
Other asset backed securities
Euro bank securities
Non Euro bank securities
Non Euro corporate securities
Other investments
Total debt securities
Equity securities
Equity securities – NAMA subordinated bonds
Equity securities – other
Total equity securities
Total financial investments
available for sale
Debt securities
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and government
agencies
Collateralised mortgage obligations
Other asset backed securities
Euro bank securities
Non Euro bank securities
Euro corporate securities
Non Euro corporate securities
Other investments
Total debt securities
Equity securities
Equity securities – NAMA subordinated bonds
Equity securities – other
Total equity securities
Total financial investments
available for sale
282
29 Financial investments available for sale (continued)
Analysis of movements in financial
investments available for sale
Debt
securities
€ m
Equity
securities
€ m
2013
Total
€ m
Debt
securities
€ m
Equity
securities
€ m
2012
Total
€ m
At 1 January
16,201
143
16,344
15,145
244
15,389
Reclassification to disposal groups and
non-current assets held for sale (note 21)
Exchange translation adjustments
Purchases
Return of NAMA subordinated bonds
Sales
Maturities
Writeback/(provisions) for impairment
Amortisation of discounts net of premiums
Movement in unrealised gains
At 31 December
Of which:
Listed
Unlisted
–
(45)
6,639
–
(1,795)
(1,122)
18
(8)
363
20,251
20,239
12
20,251
–
–
27
–
(79)
–
(9)
–
35
117
12
105
117
–
(45)
6,666
–
(1,874)
(1,122)
9
(8)
398
20,368
20,251
117
20,368
–
17
5,045
–
(2,981)
(2,654)
–
23
1,606
16,201
16,189
12
16,201
Debt securities analysed by remaining contractual maturity
Due within one year
After one year, but within five years
After five years, but within ten years
After ten years
(18)
–
14
(3)
(28)
–
(86)
–
20
(18)
17
5,059
(3)
(3,009)
(2,654)
(86)
23
1,626
143
16,344
58
85
143
16,247
97
16,344
2013
€ m
1,186
11,357
6,606
1,102
20,251
2012
€ m
1,243
8,610
4,715
1,633
16,201
283
Notes to the financial statements
29 Financial investments available for sale (continued)
The following table sets out at 31 December 2013 and 31 December 2012, an analysis of the securities portfolio with unrealised losses,
distinguishing between securities with continuous unrealised loss positions of less than 12 months and those with continuous unrealised
loss positions for periods in excess of 12 months.
Investments
with
Investments
with
unrealised losses unrealised losses
of more than
12 months
€ m
of less than
12 months
€ m
2013
Debt securities
Euro government securities
Supranational banks and
government agencies
Other asset backed securities
Euro bank securities
Total debt securities
Equity securities
Equity securities – other
Total
–
909
–
1,293
2,202
2
2,204
62
50
513
160
785
–
785
Investments
with
unrealised losses
of less than
12 months
€ m
Investments
with
unrealised losses
of more than
12 months
€ m
2012
Debt securities
Irish Government securities
Euro government securities
Collateralised mortgage obligations
Other asset backed securities
Euro bank securities
Non Euro bank securities
Euro corporate securities
Non Euro corporate securities
Total debt securities
Equity securities
Equity securities – other
Total
25
–
–
1
148
–
7
11
192
4
196
Fair value
Total
€ m
62
959
513
1,453
2,987
2
2,989
Fair value
Total
€ m
274
188
22
910
442
42
37
19
249
188
22
909
294
42
30
8
1,742
1,934
37
1,779
41
1,975
Unrealised
losses
of less
than
12 months
€ m
–
(6)
–
(5)
(11)
–
(11)
Unrealised
losses
of less
than
12 months
€ m
–
–
–
–
–
–
–
–
–
(8)
(8)
Unrealised losses
Total
Unrealised
losses
of more
than
12 months
€ m
€ m
(1)
(1)
–
(54)
(2)
(57)
(7)
(64)
(6)
(54)
(7)
(68)
(7)
(75)
Unrealised losses
Total
Unrealised
losses
of more
than
12 months
€ m
€ m
(1)
(4)
(6)
(140)
(11)
(5)
(3)
–
(1)
(4)
(6)
(140)
(11)
(5)
(3)
–
(170)
(170)
(2)
(172)
(10)
(180)
Available for sale financial investments with unrealised losses have been assessed for impairment based on the credit risk profile of the
counterparties involved. Impairment losses on debt securities of Nil (2012: Nil) and € 9 million (2012: € 86 million) on equity securities
have been recognised as set out in note 13.
284
30 Interests in associated undertakings
Included in the income statement is the contribution from investments in associated undertakings as follows:
Income statement
Share of results of associated undertakings(1)
Impairment of associated undertakings
Loss on disposal of investment in associated undertakings
Loss recognised on the remeasurement to fair value less costs to sell
of disposal groups and non-current assets held for sale
Share of net assets including goodwill
At 1 January
Exchange translation adjustments
Additions
Disposals(3)
Designation of associate as an equity investment at fair value
through profit or loss(4)
Income for the year – Continuing operations
Dividends received from associates
Impairment on associated undertakings – Continuing operations
At 31 December(5)
Disclosed in the statement of financial position within:
Interests in associated undertakings
Disposal groups and non-current assets held for sale (note 21)
Of which listed on a recognised stock exchange
2013
€ m
2012
€ m
16
(8)
(1)
–
7
15
–
–
(5)
10
2013
€ m
64
(1)
–
(10)
–
16
(3)
(8)
58
58
–
58
–
2011
€ m
(1)
(36)
–
–
(37)
2012
€ m
246
–
18(2)
–
(196)
15
(14)
(5)
64
52
12
64
–
(1)Includes AIB Merchant Services € 10 million profit (2012: € 14 million profit; 2011: € 13 million profit), Aviva Health Insurance Ireland Limited € 6 million
(2012: Nil; 2011:Nil), Aviva Life Holdings Ireland Limited Nil (2012: Nil; 2011: €17 million loss) and Other associates Nil (2012: € 1 million profit; 2011:
€ 3 million profit).
(2)Additions (LaGuardia Hotel) relate to transfers from financial investments available for sale arising from debt/equity restructuring.
(3)LaGuardia Hotel was disposed of during 2013 with € 1 million loss on disposal.
(4)Aviva Life Holdings Ireland Limited was designated as an equity investment at fair value through profit or loss with effect from 1 July 2012. No profit or
loss arose on designation as it had been held at fair value (note 31).
(5)Includes the Group’s investments in AIB Merchant Services and Aviva Health Insurance Ireland Limited (31 December 2012: AIB Merchant Services,
Aviva Health Insurance Ireland Limited and LaGuardia Hotel).
285
Notes to the financial statements
30 Interests in associated undertakings (continued)
The following are the principal associates of the Group at 31 December 2013:
Name of associate
Principal activity
Place of incorporation
and operation
Proportion of ownership
interest and voting power
held by the Group at
31 December
2013
%
2012
%
(A) Aviva Health Insurance
Transaction of health
1 Park Place
Ireland Limited
insurance business within
Hatch Street, Dublin 2
the Republic of Ireland
Ireland
30
30
(B) Zoltar Services Limited
Provider of merchant
Registered Office: Unit 6,
trading as AIB Merchant Services
payment solutions
Belfield Business Park
Clonskeagh, Dublin 4
Ireland
49.9
49.9
(C)Aviva Life Holdings Ireland
Manufacturer and
1 Park Place
Limited(1)
distributor of life and
Hatch Street, Dublin 2
pension products
Ireland
–
24.99
(1) AIB’s investment in Aviva Life Holdings Ireland Limited was designated as an equity investment at fair value through profit or loss with effect from
1July 2012. Prior to this, it had been accounted for as an associate undertaking. It was held within ‘disposal groups and non–current assets held for sale’
at 31 December 2012 and until its disposal on 8 March 2013 (notes 18 and 31).
All of the associates, apart from Aviva Life Holdings Ireland Limited as outlined above, are accounted for using the equity method in
these consolidated financial statements.
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.
There was no unrecognised share of losses of associates in 2013 or 2012.
Change in the Group’s ownership interest in associates
There was no change in the ownership interest in associates, apart from the disposal of Aviva Life Holdings Ireland Limited as outlined above.
Significant restrictions
There is no significant restriction on the ability of associates to transfer funds to the Group in the form of cash or dividends, or to repay loans
or advances made by the Group.
286
31 Interest in Aviva Life Holdings Ireland Limited
At 31 December 2011, AIB considered that it was highly probable that its investment in Aviva Life Holdings Ireland Limited (“ALH”), an
associated undertaking, would be disposed of within twelve months following the cancellation in December 2011 of the distribution
agreement between AIB and ALH and the conditions that existed in the shareholder agreement. Accordingly, ALH was classified as held
for sale and included within ‘Disposal Groups and non-current assets held for sale’ (note 21). An impairment loss of € 36 million on
remeasurement of the disposal group to the lower of its carrying amount and its fair value less costs to sell was recognised in
associated undertakings in the consolidated income statement in 2011.
Arising from the exercise, in January 2012, of put options held by AIB and Aviva and the subsequent protracted negotiations between
the parties to finalise the sales process of ALH and Ark Life respectively, it became increasingly obvious that AIB was no longer in the
position to exercise significant influence over its investment in ALH. Accordingly, AIB designated this investment in ALH as an equity
investment at fair value through profit or loss with effect from 1 July 2012. There was no profit or loss recognised on the date of
designation as the investment had been held at fair value. There was nil contribution from ALH in the six months to 30 June 2012.
The sales process was completed on 8 March 2013, resulting in a gain on disposal of € 10 million and a tax charge of Nil. This gain is
reported in net trading income/(loss) (note 6).
In 2012, the mark to market of the related put options was negative € 40 million (2011: negative € 8 million) (note 6).
The contribution of ALH for the year ended 31 December 2011 is included within share of results of associated undertakings as follows:
Share of loss of ALH
Impairment
Amortisation of intangible assets
Share of loss before taxation
Taxation attributable to policyholder returns
Loss attributable to shareholders before taxation
Taxation
Included within associated undertakings
2011
€ m
(12)
(36)
(4)
(52)
(1)
(53)
–
(53)
In addition to the amounts included within share of results of associated undertakings, the Group recognised fee income on the sale of
ALH life insurance and investment products through its distribution channels, amounting to Nil up to the date of disposal
(2012: € 11 million, 2011: € 23 million).
On 8 March 2013, following disposal of ALH, AIB acquired a 100% interest in Ark Life Assurance Company Limited (‘Ark Life’) (note 48).
287
Notes to the financial statements
32 Intangible assets
Cost
At 1 January
Additions – internally generated
– externally purchased
Amounts written off(1)
At 31 December
Amortisation/impairment
At 1 January
Amortisation for the year
Impairment for the year
Amounts written off(1)
At 31 December
Net book value at 31 December
Software
€ m
Other
€ m
689
52
10
(43)
708
502
58
15
(43)
532
176
3
–
–
–
3
3
–
–
–
3
–
2013
Total
€ m
692
52
10
(43)
711
505
58
15
(43)
535
176
Software
€ m
Other
€ m
631
62
9
(13)
689
455
58
2
(13)
502
187
3
–
–
–
3
3
–
–
–
3
–
2012
Total
€ m
634
62
9
(13)
692
458
58
2
(13)
505
187
(1)Relates to assets which are no longer in use with a nil carrying value.
Internally generated intangible assets under construction amounted to: € 35 million (2012: € 45 million).
Internally generated software amounted to: € 398 million (2012: € 375 million).
288
33 Property, plant and equipment
Freehold
Long
leasehold
Property
Leasehold
under 50
years
€ m
Equipment
Total
€ m
€ m
Cost
At 1 January 2013
Additions
Disposals
Amounts written off(1)
Exchange translation adjustments
At 31 December 2013
Depreciation/impairment
At 1 January 2013
Depreciation charge for the year
Impairment charge for the year
Disposals
Amounts written off(1)
Exchange translation adjustments
At 31 December 2013
Net book value at 31 December 2013
Cost
At 1 January 2012
Reclassification to disposal groups and
non-current assets held for sale
Other reclassifications
Additions
Disposals
Amounts written off(1)
Exchange translation adjustments
At 31 December 2012
Depreciation/impairment
At 1 January 2012
Reclassification to disposal groups and
non-current assets held for sale
Depreciation charge for the year
Impairment for the year
Disposals
Amounts written off(1)
Exchange translation adjustments
At 31 December 2012
Net book value at 31 December 2012
€ m
191
1
(17)
(1)
(1)
173
68
5
6
(9)
(1)
(1)
68
105
€ m
102
1
(4)
–
–
99
30
2
2
(2)
–
–
32
67
(2)
1
2
(1)
–
1
191
53
(1)
6
9
–
–
1
68
123
–
(1)
–
–
–
–
102
27
–
3
–
–
–
–
30
72
141
13
(6)
(5)
(1)
142
93
8
3
(5)
(5)
(1)
93
49
–
–
9
(20)
(2)
1
141
486
17
(19)
(13)
(2)
469
396
25
–
(17)
(13)
(2)
389
80
484
–
–
26
(23)
(2)
1
486
101
389
–
13
–
(20)
(2)
1
93
48
–
29
–
(21)
(2)
1
396
90
920
32
(46)
(19)
(4)
883
587
40
11
(33)
(19)
(4)
582
301
930
(2)
–
37
(44)
(4)
3
920
570
(1)
51
9
(41)
(4)
3
587
333
190
103
153
(1)Relates to assets which are no longer in use with a Nil carrying value.
The net book value of property occupied by the Group for its own activities was € 216 million (2012: € 240 million), excluding those held
as disposal groups and non-current assets held for sale. Property leased to others by AIB Group had a book value of € 2 million
(2012: € 2 million).
Property and equipment includes € 10 million for items in the course of construction (2012: € 2 million).
289
Notes to the financial statements
34 Deferred taxation
Deferred tax assets:
Provision for impairment of loans and receivables
Retirement benefits
Assets leased to customers
Unutilised tax losses
Amortised income
Other
Total gross deferred tax assets
Deferred tax liabilities:
Cash flow hedges
Amortised income on loans
Assets used in business
Available for sale securities
Total gross deferred tax liabilities
Net deferred tax assets
Represented on the balance sheet as follows:
Deferred tax assets
2013
€ m
11
12
17
Restated*
2012
€ m
3
91
17
3,871
3,904
2
76
–
32
3,989
4,047
(3)
(45)
(23)
(90)
(161)
3,828
(5)
(149)
(24)
(24)
(202)
3,845
3,828
3,845
For each of the years ended 31 December 2013 and 2012, full provision has been made for capital allowances and other temporary
differences.
Analysis of movements in deferred taxation
At 1 January
Exchange translation and other adjustments
Deferred tax through other comprehensive income
Income statement (note 17)
At 31 December
2013
€ m
3,845
(15)
(106)
104
Restated*
2012
€ m
3,692
18
(37)
172
3,828
3,845
Comments on the basis of recognition of deferred tax assets on unused tax losses are included in ‘Critical accounting policies and
estimates’ on pages 50 to 53 Comments on the prospective regulatory capital treatment of deferred tax assets are included in ‘Risk
factors’ on page 65.
At 31 December 2013, recognised deferred tax assets on tax losses and other temporary differences, net of deferred tax liabilities,
totalled € 3,828 million (2012: € 3,845 million*). The most significant tax losses arise in the Irish tax jurisdiction and their utilisation is
dependent on future taxable profits.
Temporary differences recognised in other comprehensive income consist of deferred tax on available for sale securities, cash flow
hedges and actuarial gains/losses on retirement benefit schemes. Temporary differences recognised in the income statement consist of
provision for impairment on loans and receivables, amortised income, assets leased to customers, and assets used in the course of
business.
Net deferred tax assets of € 3,773 million (2012: € 3,845 million*) are expected to be recovered after more than 12 months.
For AIB’s principal UK subsidiary, the Group has concluded that the recognition of deferred tax assets be limited to the amount
projected to be realised within a time period of 15 years. This is the timescale within which the Group believes that it can asses the
likelihood of its profits arising as being more likely than not. For certain other subsidiaries and branches, the Group has concluded that it
is more likely than not that there will be insufficient profits to support full recognition of deferred tax assets.
*Restated due to change in accounting policy for employee benefits (note 60).
290
34 Deferred taxation (continued)
As a result, the Group has not recognised deferred tax assets in respect of Irish tax on unused tax losses of € 269 million (2012:
€ 309 million) and overseas tax (UK and USA) on unused tax losses of € 1,675 million (2012: € 1,539 million), and foreign tax credits,
for Irish tax purposes, of € 5 million (2012: € 4 million). Of these tax losses totalling € 1,944 million for which no deferred tax is
recognised, € 46 million expires in 2031, € 62 million in 2032 and € 24 million in 2033.
The aggregate amount of temporary differences associated with investments in subsidiaries, branches and associates for which deferred
tax liabilities have not been recognised amounted to Nil (2012: Nil).
The net deferred tax asset on items recognised directly in other comprehensive income amounted to € 86 million (2012: € 64 million*).
Analysis of income tax relating to other comprehensive income
Loss for the year
Exchange translation adjustments
Net change in cash flow hedge reserves
Net change in fair value of available for sale securities
Net actuarial gains in retirement benefit schemes
Net change in property revaluation reserves
Total comprehensive income for the year
Attributable to:
Owners of the parent
€ m
(1,687)
(9)
(20)
580
292
(1)
(845)
(845)
Gross
Tax
Net of tax
2013
Net amount
attributable
to owners of
the parent
€ m
€ m
€ m
90
–
2
(67)
(41)
–
(16)
(16)
(1,597)
(1,597)
(9)
(18)
513
251
(1)
(861)
(9)
(18)
513
251
(1)
(861)
(861)
(861)
Loss for the year
Exchange translation adjustments
Net change in cash flow hedge reserves
Net change in fair value of available for sale securities
Net actuarial gains in retirement benefit schemes
Net change in property revaluation reserves
Total comprehensive income for the year
Attributable to:
Owners of the parent
*Restated due to change in accounting policy for employee benefits (note 60).
Gross
Tax
Net of tax
€ m
(3,729)
34
(185)
1,467
(830)
–
(3,243)
€ m
172
–
23
(172)
114
(2)
135
Restated*
2012
Net amount
attributable
to owners of
the parent
€ m
€ m
(3,557)
(3,557)
34
(162)
1,295
(716)
(2)
34
(162)
1,295
(716)
(2)
(3,108)
(3,108)
(3,243)
135
(3,108)
(3,108)
291
Notes to the financial statements
34 Deferred taxation (continued)
Analysis of income tax relating to other comprehensive income
Gross
Tax
Net of tax
Continuing operations
Loss for the year
Exchange translation adjustments
Net change in cash flow hedge reserves
Net change in fair value of available for sale securities
Net actuarial losses in retirement benefit schemes
Recognised gains in associated undertakings
€ m
(5,139)
(11)
(242)
145
(503)
4
€ m
1,193
–
33
(33)
65
–
€ m
(3,946)
(11)
(209)
112
(438)
4
Total comprehensive income for the year
(5,746)
1,258
(4,488)
Attributable to:
Owners of the parent
(5,746)
1,258
(4,488)
Discontinued operations
Profit for the year
Exchange translation adjustments
Net change in cash flow hedge reserves
Net change in fair value of available for sale securities
Total comprehensive income for the year
Attributable to:
Owners of the parent
Non-controlling interests
1,645
(134)
1
(99)
1,413
1,401
12
1,413
(17)
–
–
25
8
8
–
8
1,628
(134)
1
(74)
1,421
1,409
12
1,421
Restated*
2011
Net amount
attributable
to owners of
the parent
€ m
Non-
controlling
interests
net of tax
€ m
–
–
–
–
–
–
–
–
20
(5)
–
(3)
12
–
12
12
(3,946)
(11)
(209)
112
(438)
4
(4,488)
(4,488)
1,608
(129)
1
(71)
1,409
1,409
–
1,409
292
35 Deposits by central banks and banks
Central banks
Securities sold under agreements to repurchase
Other borrowings
Banks
Securities sold under agreements to repurchase
Other borrowings
Of which:
Domestic offices
Foreign offices
Amounts include:
Due to associated undertakings
2013
€ m
2012
€ m
12,725
22,220
–
–
12,725
22,220
9,136
1,260
10,396
23,121
22,915
206
23,121
5,636
586
6,222
28,442
28,113
329
28,442
–
–
Securities sold under agreements to repurchase (note 49), (with the exception of € 11.25 billion (2012: € 11.25 billion) funded through
the ECB three year Long Term Refinancing Operation (“LTRO”)) mature within six months and are secured by Irish Government bonds,
NAMA senior bonds, other marketable securities and eligible assets. The Group has securitised certain of its mortgage and loan
portfolios as outlined below in relation to AIB Mortgage Bank and EBS Mortgage Finance. These securities, other than issued to
external investors, have been pledged as collateral in addition to other securities held by the Group.
Allied Irish Banks, p.l.c. has granted a floating charge over certain residential mortgage pools, the drawings against which were
Nil at 31 December 2013 (2012: € 90 million).
A subsidiary of Allied Irish Banks, p.l.c. has also granted a floating charge over certain residential mortgage pools, the drawings against
which were Nil at 31 December 2013 (2012: Nil).
Deposits by central banks and banks include cash collateral of € 200 million (2012: € 321 million) received from derivative
counterparties in relation to net derivative positions (note 23) and also from repurchase agreement counterparties.
Financial assets pledged under existing agreements to repurchase, and providing access to future funding facilities with central banks
and banks are detailed in the following table:
Central
banks
€ m
Total carrying value of financial assets pledged
14,662
Of which:
Government securities(1)
Other securities
(1)Includes NAMA senior bonds.
12,048
2,614
Banks
€ m
9,938
6,441
3,497
2013
Total
€ m
24,600
18,489
6,111
Central
banks
€ m
25,720
14,887
10,833
Banks
€ m
6,295
4,152
2,143
2012
Total
€ m
32,015
19,039
12,976
293
Notes to the financial statements
36 Customer accounts
Current accounts
Demand deposits
Time deposits(1)
Securities sold under agreements to repurchase(2)
Of which:
Non-interest bearing current accounts
Domestic offices
Foreign offices
Interest bearing deposits, current accounts and short-term borrowings
Domestic offices
Foreign offices
Amounts include:
Due to related party
2013
€ m
18,274
9,372
32,238
5,783
65,667
13,147
2,237
41,238
9,045
65,667
2012
€ m
16,366
9,460
37,690
94
63,610
11,633
2,053
39,889
10,035
63,610
150
1,270(3)
(1)Following the acquisition of Ark Life in March 2013, deposits amounting to € 1,011 million placed by Ark Life with AIB have been eliminated on
consolidation at 31 December 2013. At 31 December 2012, these deposits amounted to € 1,257 million and are included above.
(2)The Group pledged government available for sale securities with a fair value of € 5,814 million (31 December 2012: Nil) and non-government available for
sale securities with a fair value of € 284 million (31 December 2012: € 105 million) as collateral for these facilities (see note 45 for further information).
(3)These amounts were substantially due to a subsidiary of ALH (Ark Life as noted above), and whilst the investment in ALH amounted to 24.99% of the
ordinary share capital, it was accounted for as an equity investment at fair value through profit or loss with effect from 1 July 2012. The investment in ALH
was disposed of in March 2013 (note 31).
At 31 December 2013, the Group’s 5 largest customer deposits amounted to 5% of total customer accounts.
37 Debt securities in issue
Bonds and medium term notes:
European medium term note programme
Bonds and other medium term notes
Other debt securities in issue:
Commercial paper
Commercial certificates of deposit
2013
€ m
4,346
4,334
8,680
79
–
79
2012
€ m
6,268
4,363
10,631
–
35
35
8,759
10,666
Debt securities issued during the year amounted to € 3,510 million (31 December 2012: € 851 million) of which € 1,000 million relates to
a covered bond issuance, a € 500 million EMTN bond issuance with the balance relating to issuances under the short-term commercial
paper programme. Debt securities matured amounted to € 5,421 million (31 December 2012: € 5,871 million).
38 Other liabilities
Notes in circulation
Items in transit
Creditors
Fair value of hedged liability positions
Other
294
2013
€ m
417
213
12
330
349
2012
€ m
467
157
8
565
430
1,321
1,627
39 Provisions for liabilities and commitments
NAMA(1)
provisions
Onerous(2)
contracts
Legal
claims
Liabilities
and
charges
€ m
21
34
–
–
At 1 January
Transfers in
Transfers out
Exchange translation adjustments
Amounts charged to income
€ m
31
–
–
–
statement
28(4)
18(1)
Amounts released to income
statement
Provisions utilised
At 31 December
(11)(4)
–
72
(14)(1)
–
35
provisions
Other(3) Voluntary
severance
scheme
€ m
€ m
156
1
(4)
(4)
89
(29)
(70)
139
6
–
–
–
3
–
(6)
3
€ m
€ m
27
–
(2)
–
20
(1)
(8)
36
9
4
–
–
4
(2)
(1)
14
At 1 January
Transfers out
Exchange translation adjustments
Amounts charged to income
statement
Amounts released to income
statement
Provisions utilised
At 31 December
Liabilities
and
charges
€ m
24
(8)
–
10(4)
(1)(4)
(4)
21
NAMA(1)
provisions
Onerous(2)
contracts
Legal
claims
Other(3)
provisions
€ m
407
–
2
19(1)
(155)(1)
(242)
31
€ m
13
–
–
16
(1)
(1)
27
€ m
10
–
–
4
(4)
(1)
9
€ m
60
–
1
121
(7)
(19)
156
Voluntary
severance
scheme*
€ m
–
–
–
45
–
(39)
6
2013
Total
€ m
250
39
(6)
(4)
162
(57)
(85)
299
Restated*
2012
Total
€ m
514
(8)
3
215
(168)
(306)
250
The total provisions for liabilities and commitments expected to be settled within one year amount to € 110 million (2012: € 187 million*).
(1)NAMA provisions represent amounts due to NAMA in respect of adjustments to transfers which had not been settled at 31 December 2011. At
31 December 2013, € 14 million (2012: € 155 million) of this provision was released to the income statement. This followed the resolution with NAMA of
certain issues relating to transfers which had taken place in earlier periods. In addition, € 18 million (2012: € 19 million) was charged to the income
statement in respect of Section 93 claims i.e. new claims under the NAMA Act.
(2)Provisions for the unavoidable costs expected to arise from branch closures.
(3)Includes € 6 million (2012: € 52 million) provisions for refunds to customers in respect of payment protection insurance in both Ireland and the UK,
provisions of € 96 million (2012: € 49 million) in respect of interest rate hedge products in the UK and provisions for restructuring and reorganisation
costs.
(4)Included in charge/(writeback) of provisions for liabilities and commitments in income statement.
*Restated due to change in accounting policy for employee benefits (note 60).
295
Notes to the financial statements
40 Subordinated liabilities and other capital instruments
Notes
2013
€ m
2012
€ m
Allied Irish Banks, p.l.c.
€ 1.6bn Contingent Capital Tier 2 Notes due 2016
Proceeds of issue
Fair value adjustment on initial recognition
Amortisation to date
Dated loan capital – European Medium Term Note Programme:
€ 500m Callable Step-up Floating Rate Notes due October 2017 (maturity extended
to 2035 as a result of the SLO)
Stg£ 368m 12.5% Subordinated Notes due June 2019 (maturity extended
to 2035 as a result of the SLO)
Stg£ 500m Callable Fixed/Floating Rate Notes due March 2025 (maturity extended
to 2035 as a result of the SLO)
(a)
(b)
(c)
(d)
Maturity of dated loan capital
Dated loan capital outstanding is repayable as follows:
5 years or more
1,600
(447)
163
1,316
1,600
(447)
84
1,237
8
28
–
36
7
27
–
34
1,352
1,271
2013
€ m
2012
€ m
36
34
Following on the liability management exercises in 2011 and the SLO in April 2011, residual balances remained outstanding on the
dated loan capital instruments above. The SLO, which was effective from 22 April 2011, changed the terms of all outstanding
instruments. The original liabilities were derecognised and new liabilities were recognised, with their initial measurement based on the
fair value at the SLO effective date. The contractual maturity date changed to 2035 as a result of the SLO, with coupons to be payable at
the option of AIB (note 7).
€ 1.6bn Contingent Capital Tier 2 Notes due 2016
(a) On 26 July 2011, AIB issued € 1.6 billion in nominal value of Contingent Capital Tier 2 Notes (‘CCNs’) to the Minister for
Finance of Ireland (‘the Minister’) for cash consideration of € 1.6 billion. The fair value of these notes at initial recognition was
€ 1,153 million with € 447 million being accounted for as a capital contribution from the Minister (note 44). Interest is payable
annually in arrears on the nominal value of the notes at a fixed rate of 10% per annum. The interest rate may increase up to 18%
at the behest of the Minister but with effect only from the date that the CCNs are sold to a third party external to a State entity.
The notes are due to mature on 28 July 2016. The CCNs are unsecured and subordinated obligations of AIB. They rank:
(i) junior to the claims of all holders of unsubordinated obligations of AIB;
(ii) pari passu with the claims of holders of all other subordinated obligations of AIB which qualify as consolidated Tier 2
capital of the Group for regulatory capital purposes or which rank, or are expressed to rank, pari passu with the CCNs; and
(iii) senior to the claims of holders of all other subordinated obligations of AIB which rank junior to the CCNs including any
subordinated obligations of AIB which qualify as Tier 1 capital of the Group for regulatory purposes.
While the CCNs are outstanding, if the Core Tier 1 capital ratio (the CET Ratio after the CRD IV implementation date) falls below the
Trigger ratio of 8.25%, the CCNs are immediately and mandatorily redeemable and will convert to ordinary shares of AIB at a conversion
price of € 0.01 per share.
Dated loan capital
The dated loan capital in this section issued under the European Medium Term Note Programme is subordinated in right of payment to
the ordinary creditors, including depositors, of the Group.
During 2010, the Group redeemed certain of these capital instruments, and in 2011, all outstanding amounts were either purchased for
cash or derecognised following a Subordinated Liabilities Order (“SLO”), details of which are set out in note 54(g).
296
40 Subordinated liabilities and other capital instruments (continued)
Dated loan capital
Residual balances remained outstanding on the instruments set out below following redemption/derecognition as follows:
(b) In relation to the € 500 million Callable Subordinated Step-Up Floating Rate Notes, the Group redeemed € 332.5 million of these
in March 2010, leaving € 167.5 million outstanding. Of this outstanding amount, € 142 million was purchased for cash during
2011 with the remainder being derecognised following the introduction of the SLO. A new instrument was subsequently
recognised and measured at a fair value of € 7 million (note 7).
(c) Of the Stg£ 368 million Subordinated Notes, Stg£ 289 million was purchased for cash during 2011 with the remainder,
amounting to Stg£ 79 million, being derecognised following the introduction of the SLO. A new instrument was subsequently
recognised and measured at a fair value of Stg£ 20 million (note 7).
(d) The Stg£ 500 million Subordinated Callable Fixed/Floating Rate Notes were partially redeemed (Stg£ 481 million) in March
2010, leaving Stg£ 19 million outstanding. Of this outstanding amount, Stg£ 18 million was purchased for cash during 2011,
with the remainder amounting to Stg£ 1 million being derecognised following the introduction of the SLO. A new instrument was
subsequently recognised and measured at a fair value of Stg£ 0.3 million (note 7).
297
Notes to the financial statements
41 Share capital
Ordinary share capital
Ordinary shares of € 0.01 each
Preference share capital
Authorised
2012
m
2013
m
2013
m
Issued
2012
m
702,000.0
702,000.0
521,296.8
517,152.8
2009 Non cumulative preference shares of € 0.01 each
3,500.0
3,500.0
3,500.0
3,500.0
Deferred share capital
Deferred shares of € 0.01 each
403,775.2
403,775.2
–
–
Ordinary share capital/share premium
2013
On 13 May 2013, arising from the non-payment of dividend amounting to € 280 million on the 2009 Preference Shares, the National
Pensions Reserve Fund Commission (“NPRFC”) became entitled to bonus shares in lieu and the Company issued 4,144,055,254
ordinary shares of € 0.01 each by way of a bonus issue to the NPRFC. This number of shares is equal to the aggregate cash amount of
the annual dividend of € 280 million on the NPRFC’s holding of € 3.5 billion 2009 Non Cumulative Preference Shares, divided by the
average price per share in the 30 trading days prior to 13 May 2013. In accordance with the Company’s Articles of Association, an
amount of € 42 million, equal to the nominal value of shares issued, was transferred from share premium to ordinary shares.
2012
(i) On 1 May 2012, the Irish High Court confirmed an application by AIB for a reduction of the share premium account by
€ 2,000 million in addition to a reduction of € 3,958 million of its capital redemption reserves (note 43). This resulted in a
transfer from these reserve accounts to revenue reserves.
(ii) On 14 May 2012, arising from the non-payment of dividend amounting to € 280 million on the 2009 Preference Shares, the
National Pensions Reserve Fund Commission (“NPRFC”) became entitled to bonus shares in lieu and the Company issued
3,623,969,972 new ordinary shares of € 0.01 each by way of a bonus issue to the NPRFC in settlement of the dividend. In
accordance with the Company’s Articles of Association, an amount of € 36 million, equal to the nominal value of the shares
issued, was transferred from share premium to ordinary share capital.
Preference share capital - 2009 Preference Shares
On 13 May 2009, in implementing the Government’s recapitalisation of AIB, the Company issued: (i) € 3.5 billion of core tier 1
securities in the form of non-cumulative redeemable preference shares (the ‘2009 Preference Shares’) and (ii) 294,251,819 warrants
over ordinary shares (the ‘2009 Warrants’), to the NPRFC for an aggregate subscription price of € 3.5 billion. The Government’s national
pensions reserve fund, is controlled by the NPRFC and managed by the National Treasury Management Agency (“NTMA”).
The 2009 Preference Shares carry a fixed non cumulative dividend at a rate of 8% per annum, payable annually in arrears at the
discretion of AIB. If a cash dividend is not paid, AIB must issue bonus ordinary shares to the holders of the 2009 Preference Shares by
capitalising its reserves. The issue of bonus shares can be deferred by AIB, but the holders of 2009 Preference Shares will acquire
voting rights at general meetings of AIB equivalent to the voting rights that would have attached to the bonus shares if they had been
issued. The dividend may not be deferred beyond the date on which AIB (a) pays a cash dividend on the 2009 Preference Shares or on
the ordinary shares; or (b) redeems or purchases any of the 2009 Preference Shares, or ordinary shares. Arising from this provision,
AIB issued ordinary shares in lieu of dividend due to the NPRFC in 2010, in 2011, in 2012 and on 13 May 2013. In accordance with the
Company’s Articles of Association, an amount of € 42 million (2012: € 36 million), equal to the nominal value of the shares issued, was
transferred from the share premium to the ordinary share capital account (see below).
The 2009 Preference Shares may be purchased or redeemed at the option of AIB, in whole or in part, from distributable profits and/or
the proceeds of an issue of shares constituting core tier 1 capital, for the first five years after the date of issue for the subscription price
of € 1.00 per share and thereafter at redemption or purchase price of 125 per cent. of the subscription price, subject at all times to the
consent of the Central Bank of Ireland.
298
41 Share capital (continued)
Preference share capital - 2009 Preference Shares
The 2009 Preference Shares give the Minister the right, while any such preference shares are outstanding, to appoint directly 25 per
cent. of the directors of AIB and has voting rights equal to 25 per cent. of all votes capable of being cast by shareholders on a poll at a
general meeting of the Company on shareholder resolutions relating to:
(i)
the appointment, reappointment or removal of Directors; and
(ii) a change of control of AIB or a sale of all or substantially all of its business. In relation to item (i) above, the 25 per cent. voting
rights entitlement is inclusive of the voting rights of all Government entities in respect of any ordinary shares they may hold.
To the extent that the NPRFC holds ordinary shares, it is not restricted from exercising its voting rights in respect of such ordinary
shares at a general meeting of the Company.
The 2009 Preference Shares are freely transferable in minimum lots of 50,000 shares. However, the voting rights attaching to the 2009
Preference Shares, the right to appoint directors to the board of AIB and the veto over certain share capital-related resolutions are not
transferable, as those rights are exercisable only by a Government Preference Shareholder.
The following tables show the movements in share capital in the statement of financial position during the year:
Issued share capital
At 1 January
Ordinary shares in lieu of dividend on 2009 Preference Shares
At 31 December
Of which:
Ordinary shares
2009 Preference shares
Share premium
At 1 January
Transfer to ordinary share capital in respect of ordinary shares issued
in lieu of dividend on 2009 Preference Shares
Reduction and transfer to revenue reserves
At 31 December
Structure of the Company’s share capital as at 31 December 2013
Class of share
Ordinary share capital
2009 Preference Shares
Deferred shares
The following table shows the Group’s capital resources at 31 December 2013 and 31 December 2012:
Capital resources
Shareholders’ equity
Contingent capital notes (note 40)
Dated capital notes (note 40)
Total capital resources
*Restated due to change in accounting policy for employee benefits (note 60).
2013
€ m
5,206
42
5,248
5,213
35
5,248
2013
€ m
2,890
(42)
–
2,848
2012
€ m
5,170
36
5,206
5,171
35
5,206
2012
€ m
4,926
(36)
(2,000)
2,890
Authorised
Issued
share capital share capital
%
%
63.3
0.3
36.4
99.3
0.7
–
2013
€ m
10,494
1,316
36
11,846
Restated*
2012
€ m
11,355
1,237
34
12,626
299
Notes to the financial statements
42 Own shares
The details of ordinary shares previously purchased under shareholder authority and held as Treasury Shares are as follows:
Treasury shares
At 31 December
2013
2012
35,680,114
35,680,114
Since 2008, the company has not reissued any ordinary shares from its pool of Treasury 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 2013, 1.5 million shares (2012: 1.5 million) were held by trustees with a book value of € 23 million (2012: € 23 million), and
a market value of € 0.1 million (2012: € 0.1 million). The book value is deducted from revenue reserves 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 cost of providing these shares
is charged to the income statement on a systematic basis over the period that the employees are expected to benefit. At 31 December
2013, 1.5 million shares (2012: 1.5 million) were held by the trustees with a book value of € 22.4 million (2012: € 22.9 million) and a
market value of € 0.1 million (2012: € 0.1 million). The book value is deducted from revenue reserves.
In 2001, the AIB Group Employee Share Trust was established to satisfy commitments arising under the AIB Group Long-Term Incentive
Plan (“LTIP”). Funds were 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 2013, 0.01 million shares (2012: 0.01 million shares)
were held by the trustees with a book value of € 0.1 million (2012: € 0.1 million) and a market value of € 0.001 million
(2012: € 0.001 million).
300
43 Capital reserves and capital redemption reserves
Capital reserves
At 1 January
Transfer to revenue reserves:
Anglo business transfer
CCNs issuance (note 40)
Other movement(1)
At 31 December
Capital
contribution
reserves
€ m
Other
capital
reserves
€ m
2,385
253
(140)
(79)
(219)
178
–
–
–
–
2013
Total
€ m
2,638
(140)
(79)
(219)
178
2,344
253
2,597
Capital
contribution
reserves
€ m
Other
capital
reserves
€ m
2012
Total
€ m
2,632
253
2,885
(187)
(60)
(247)
–
2,385
–
–
–
–
(187)
(60)
(247)
–
253
2,638
(1)The capital contribution recognised at a Group level with regard to the EBS acquisition on 1 July 2011 amounted to € 777 million. This reflected, in part,
negative available for sale securities reserves and cash flow hedge reserves of € 178 million at the date of acquisition. Given that the underlying portfolio
has since largely matured or has been sold at fair value to Allied Irish Banks p.l.c., a transfer of € 178 million, being the original negative reserves, has
taken place at Group level from capital contribution reserves to available for sale securities reserves/cash flow hedging reserves.
The capital contribution reserves which arose from the acquisition of Anglo deposit business and EBS and the issue of the CCNs were
non-distributable on initial recognition but may become distributable as outlined in accounting policy number 28 in the Annual Financial
Report 2013. The transfers to revenue reserves relate to the capital contributions being deemed distributable.
Capital redemption reserves
On 26 July 2011, the ordinary shares of Allied Irish Banks, p.l.c. were renominalised which resulted in the creation of ordinary shares of
€ 0.01 each, totalling € 127 million and deferred shares of € 0.01 each, totalling € 3,958 million. The deferred shares were acquired by
AIB for Nil consideration and immediately cancelled which resulted in € 3,958 million transferring from share capital to capital
redemption reserves (note 41).
On 1 May 2012, the Irish High Court confirmed an application by AIB for a reduction of its capital redemption reserve fund, accordingly,
€ 3,958 million was transferred to revenue reserves from this account.
44 Contributions from the Minister for Finance and the NPRFC
On 28 July 2011, the Minister for Finance (‘the Minister’) and the NPRFC agreed to contribute € 2,283 million and € 3,771 million
respectively (total € 6,054 million) as capital contributions to AIB for Nil consideration. These capital contributions constitute core tier 1
capital for regulatory purposes and are included within ‘Revenue reserves’. Neither the Minister nor the NPRFC has an entitlement to
seek repayment of these capital contributions.
301
Notes to the financial statements
45 Offsetting financial assets and financial liabilities
The disclosures set out in the tables below include financial assets and financial liabilities that:
–
–
of whether they are offset in the statement of financial position.
are offset in the Group’s statement of financial position; or
are subject to an enforceable master netting arrangement or similar agreement that covers similar financial instruments, irrespective
The similar agreements include derivative clearing agreements, global master repurchase agreements and global master securities
lending agreements. Similar financial instruments include derivatives, sales and repurchase agreements, reverse sale and repurchase
agreements, and securities borrowing and lending agreements. Financial instruments such as loans and receivables and customer
accounts are not included in the tables below unless they are offset in the statement of financial position.
The Group has a number of ISDA Master Agreements (netting agreements) in place which allow it to net the termination values of
derivative contracts upon the occurrence of an event of default with respect to its counterparties. The enforcement of netting agreements
would potentially reduce the statement of financial position carrying amount of derivative assets and liabilities by € 957 million
(2012: € 1,539 million).
The Group’s sale and repurchase and reverse sale and repurchase transactions and securities borrowing and lending are covered by
netting agreements with terms similar to those of ISDA Master Agreements. Additionally, the Group has agreements in place which may
allow it to net the termination values of cross currency swaps upon the occurrence of an event of default.
The ISDA Master Agreements and similar master netting arrangements do not meet the criteria for offsetting in the statement of financial
position as they create a right of set-off of recognised amounts that become enforceable only following an event of default, insolvency or
bankruptcy of the Group or the counterparties. In addition, the Group and its counterparties do not intend to settle on a net basis or to
realise the assets and settle the liabilities simultaneously.
The Group provides and accepts collateral in the form of cash and marketable securities in respect of the following transactions:
–
–
–
–
derivatives
sale and repurchase agreements
reverse sale and repurchase agreements
securities lending and borrowing
Collateral is subject to the standard industry terms of Credit Support Annexes (‘CSAs’), which enable the Group to pledge or sell
securities received during the term of the transaction. The collateral must be returned on the maturity of the transaction. The terms also
give each counterparty the right to terminate the related transactions where the counterparty fails to post collateral. The Credit Support
Annexes (“CSAs”) in place provide collateral for derivative contracts. At 31 December 2013, € 820 million (2012: € 1,260 million) of CSAs
are included within financial assets and € 188 million (2012: € 361 million) of CSAs are included within financial liabilities.
Additionally, the Group has agreements in place which may allow it to net the termination values of cross currency swaps upon the
occurrence of an event of default.
302
45 Offsetting financial assets and financial liabilities (continued)
The disclosures set out in the tables below include financial assets and financial liabilities that:
–
–
are offset in AIB Group’s statement of financial position; or
are subject to an enforceable master netting arrangement or similar agreement that covers similar financial instruments, irrespective
of whether they are offset in the statement of financial position.
The following tables show financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and
similar agreements at 31 December 2013:
Gross
Net
amounts of amounts of
financial
recognised
financial
assets
presented
liabilities
amounts of offset in the
in the
statement
statement
recognised
financial of financial of financial
position
€ m
assets
€ m
Gross
Related amounts not
offset in the statement
of financial position
Financial
collateral
(including
cash
collateral)
received
€ m
Financial
position instruments
€ m
€ m
1,177
16
1,193
–
–
–
1,177
(957)
(188)
16
1,193
(16)
(973)
–
(188)
Gross
Net
amounts of amounts of
financial
recognised
financial
liabilities
presented
assets
amounts of offset in the
in the
statement
statement
recognised
financial of financial of financial
position
liabilities
€ m
€ m
Gross
Related amounts not
offset in the statement
of financial position
Financial
collateral
(including
cash
collateral)
received
€ m
Financial
position instruments
€ m
€ m
2013
Net
amount
€ m
32
–
32
2013
Net
amount
€ m
Financial assets
Derivative financial instruments
Loans and receivables to banks –
Note
23
Reverse repurchase agreements
24
Total
Financial liabilities
Note
Deposits by central banks and banks –
Securities sold under agreements
to repurchase
Customer accounts –
35
21,861
Securities sold under agreements
to repurchase
Derivative financial instruments
36
23
Total
5,783
1,819
29,463
–
–
–
–
21,861
(22,782)
8
(913)
5,783
1,819
(6,098)
(957)
29,463
(29,837)
(1)
(820)
(813)
(316)
42
(1,187)
303
Notes to the financial statements
45 Offsetting financial assets and financial liabilities (continued)
The following tables show financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and
similar agreements at 31 December 2012:
Gross
amounts of
recognised
financial
liabilities
offset in the
statement
of financial
position
€ m
–
–
–
Net
amounts of
financial
assets
presented
in the
statement
of financial
position
€ m
Related amounts not
offset in the statement
of financial position
Financial
collateral
(including
cash
collateral)
received
€ m
Financial
instruments
€ m
2,105
(1,539)
(361)
61
(61)
2,166
(1,600)
–
(361)
Gross
amounts of
recognised
financial
assets
€ m
2,105
61
2,166
Gross
amounts of
recognised
financial
assets
offset in the
statement
of financial
position
€ m
Net
amounts of
financial
liabilities
presented
in the
statement
of financial
position
€ m
Related amounts not
offset in the statement
of financial position
Financial
collateral
(including
cash
collateral)
received
€ m
Financial
instruments
€ m
Gross
amounts of
recognised
financial
liabilities
€ m
2012
Net
amount
€ m
205
–
205
2012
Net
amount
€ m
Financial assets
Derivative financial instruments
Loans and receivables to banks –
Note
23
Reverse repurchase agreements
24
Total
Financial liabilities
Note
Deposits by central banks and banks –
Securities sold under agreements
to repurchase
Customer accounts –
35
27,856
Securities sold under agreements
to repurchase
Derivative financial instruments
36
23
Total
94
2,973
30,923
–
–
–
–
27,856
(30,087)
33
(2,198)
94
2,973
(105)
(1,539)
30,923
(31,731)
–
(1,260)
(1,227)
(11)
174
(2,035)
The gross amounts of financial assets and financial liabilities and their net amounts as presented in the statement of financial position
that are disclosed in the above tables are measured on the following bases:
–
–
–
–
derivative assets and liabilities – fair value;
loans and receivables to banks – amortised cost;
deposits by central banks and banks – amortised cost; and
customer accounts – amortised cost
The amounts in the above tables that are offset in the statement of financial position are measured on the same basis.
304
45 Offsetting financial assets and financial liabilities (continued)
The following tables reconcile the ‘Net amounts of financial assets and financial liabilities presented in the statement of financial
position’, as set out in the previous pages, to the line items presented in the statement of financial position at 31 December 2013 and
31 December 2012:
Net amounts
of financial
assets presented
in the statement
of financial position
€ m
Line item in
statement of
financial position
1,177
Derivative financial instruments
Financial assets
Derivative financial instruments
Loans and receivables to banks –
Reverse repurchase agreements
16
Loans and receivables to banks
Net amounts
of financial
liabilities presented
in the statement
of financial position
€ m
Line item in
statement of
financial position
Financial liabilities
Deposits by central banks and banks –
Securities sold under agreements
to repurchase
Customer accounts –
Securities sold under agreements
to repurchase
Derivative financial instruments
21,861
Deposits by central banks and banks
23,121
1,260
5,783
1,819
Customer accounts
Derivative financial instruments
65,667
1,960
59,884
141
Net amounts
of financial
assets presented
in the statement
of financial position
€ m
Line item in
statement of
financial position
2,105
Derivative financial instruments
Financial assets
Derivative financial instruments
Loans and receivables to banks –
Reverse repurchase agreements
61
Loans and receivables to banks
Net amounts
of financial
liabilities presented
in the statement
of financial position
€ m
Line item in
statement of
financial position
Financial liabilities
Deposits by central banks and banks –
Securities sold under agreements
to repurchase
Customer accounts –
Securities sold under agreements
to repurchase
Derivative financial instruments
2,973
Derivative financial instruments
94
Customer accounts
27,856
Deposits by central banks and banks
28,442
586
Carrying
amount in
statement
of financial
position
€ m
1,629
2,048
2013
Financial
assets not
in scope of
offsetting
disclosures
€ m
452
2,032
Carrying
amount in
statement
of financial
position
€ m
2013
Financial
liabilities not
in scope of
offsetting
disclosures
€ m
Carrying
amount in
statement
of financial
position
€ m
2,835
2,914
Carrying
amount in
statement
of financial
position
€ m
2012
Financial
assets not
in scope of
offsetting
disclosures
€ m
730
2,853
2012
Financial
liabilities not
in scope of
offsetting
disclosures
€ m
63,610
3,256
63,516
283
305
Notes to the financial statements
46 Memorandum items: contingent liabilities and commitments, and contingent assets
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 statement of
financial position. 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 Group uses the same credit control and risk management policies in undertaking off-balance sheet commitments as it does for on
balance sheet lending.
The following tables give the nominal or contract amounts of contingent liabilities and commitments:
Contingent liabilities(1) – credit related
Guarantees and assets pledged as collateral security:
Guarantees and irrevocable letters of credit
Other contingent liabilities
Commitments(2)
Documentary credits and short-term trade-related transactions
Undrawn formal standby facilities, credit lines and other commitments to lend:
Less than 1 year(3)
1 year and over(4)
Contract amount
2012
€ m
2013
€ m
796
557
1,353
980
581
1,561
17
27
6,552
1,667
8,236
9,589
6,977
1,970
8,974
10,535
(1)Contingent liabilities are off-balance sheet products and include guarantees, standby letters of credit and other contingent liability products such as
performance bonds.
(2)A commitment is an off-balance sheet product, where there is an agreement to provide an undrawn credit facility. The contract may or may not be cancelled
unconditionally at any time without notice depending on the terms of the contract.
(3)An original maturity of up to and including 1 year or which may be cancelled at any time without notice.
(4)With an original maturity of more than 1 year.
Contingent liabilities
Commitments
2013
€ m
745
429
179
2012
€ m
822
492
247
1,353
1,561
2013
€ m
7,164
1,045
27
8,236
2012
€ m
7,784
1,149
41
8,974
Concentration of exposure
Republic of Ireland
United Kingdom
United States of America
Total
306
46 Memorandum items: contingent liabilities and commitments, and contingent assets (continued)
The credit ratings of contingent liabilities and commitments as at 31 December 2013 and 2012 are set out in the following table. Details
of the Group’s rating profiles are set out in the ‘Risk management’ section of this report.
Good upper
Good lower
Watch
Vulnerable
Impaired
Unrated
Total
2013
€ m
2,491
3,937
381
255
669
1,856
9,589
2012
€ m
3,681
2,895
556
182
1,138
2,083
10,535
Legal proceedings
AIB Group in the course of its business is frequently involved in litigation cases. However, it 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, including
governmental proceedings, which may have, or have had during the previous twelve months, a material effect on the financial
position, profitability or cashflows of AIB Group.
Contingent liability/contingent asset - NAMA
(a) Transfers of financial assets to NAMA are complete. However, NAMA continues to finalise certain value to transfer adjustments
and the final consideration payable on tranches which have already transferred. Accordingly, the Group has maintained a
provision for the amount of the expected outflow in respect of various adjustments. If the actual amounts provided prove to be
lower or higher than the provision, an inflow or outflow of economic benefits may result to the Group (note 49).
(b) The Group has provided NAMA with a series of indemnities relating to transferred assets. Any indemnity payment would result
in an outflow of economic benefit for the Group.
(c) On dissolution or restructuring of NAMA, the Minister may require that a report and accounts be prepared. If NAMA shows that
an aggregate loss has been incurred since its establishment which is unlikely to be made good, the Minister may impose a
surcharge on the participating institution. This will involve apportioning the loss on the participating institution, subject to certain
restrictions, on the basis of the book value of the assets acquired from that institution in relation to the total book value of assets
acquired from all participating institutions.
Participation in TARGET 2 - Ireland
AIB migrated to the TARGET 2 system during 2008. TARGET 2, being the wholesale payment infrastructure for credit institutions across
Europe, is a real time gross settlement system for large volume interbank payments in euro. The following disclosures relate to the
charges arising as a result of the migration to TARGET 2:
By Deeds of Charge made on 15 February 2008, AIB created first floating charges in favour of the Central Bank of Ireland (‘Central
Bank’) over all of AIB’s right, title, interest and benefit, present and future, in and to:
(i)
(ii)
the balances then or at any time standing to the credit of Payment Module accounts held by AIB with a Eurosystem central
bank; and
each of the eligible securities included from time to time in the Eligible Securities Schedule furnished by AIB to the Central
Bank
in each case, a ‘Charged Property’, for the purpose of securing all present and future liabilities of AIB in respect of AIB’s participation
in TARGET 2, arising from the Deeds of Charge and the Terms and Conditions for participation in TARGET 2 – Ireland (adopted from
time to time by the Central Bank), including, without limitation, liabilities to the Central Bank, the European Central Bank, or any
national central bank of a Member State that has adopted the euro.
The Deeds of Charge contain a provision whereby during the subsistence of the security, otherwise than with the prior written
consent of the Central Bank, AIB shall not:
(a) create or attempt to create or permit to arise or subsist any encumbrance on or over the Charged Property or any part thereof; or
(b) otherwise than in the ordinary course of business, sell, transfer, lend or otherwise dispose of the Charged Property or any part
thereof or attempt or agree to do so whether by means of one or a number of transactions related or not and whether at one time
or over a period of time.
307
Notes to the financial statements
47 Off-balance sheet arrangements
Under IFRS, transactions and events are accounted for and presented in accordance with their substance and economic reality and not
merely their legal form. As a result, the substance of transactions with a special purpose entity (“SPE”) forms the basis for their
treatment in the Group’s financial statements. An SPE is consolidated in the financial statements when the substance of the relationship
between the Group and the SPE indicates that the SPE is controlled by the entity and meets the criteria set out in IFRS 10 Consolidated
Financial Statements. The primary form of SPE utilised by the Group are securitisations and employee compensation trusts.
Securitisations
The Group utilises securitisations primarily to support the following business objectives:
as an investor, the Group has used securitisation as part of the management of its interest rate and liquidity risks through Treasury;
–
– as an investor, securitisations have been utilised by the Group to invest in transactions that offered an appropriate risk-adjusted
return opportunity;
–
as an originator of securitisations, to meet customer demand to offer a full range of investment opportunities by making available
opportunities to invest in AIB-managed Collateralised Debt Obligations (“CDOs”) and Collateralised Bond Obligations (“CBOs”); and
– as an originator of securitisations to support the funding activities of the Group.
AIB has primarily been an investor in securitisations issued by other credit institutions. The most significant investment in securitisations
has been through Treasury’s purchases of senior tranches of predominantly AAA-rated Covered Bond holdings. This portfolio is held as
part of Treasury’s primary interest rate and liquidity management objective, subject to qualifying criteria, including loan-to-value (“LTV”),
seasoning, location and quality of originator.
At 31 December 2013, the Group also has a small residual portfolio of investments in securitisations which are classified as non-core.
The portfolio consists of both cash and synthetic structures across a variety of asset classes, including Residential Mortgage Backed
Securities (“RMBS”), Commercial Mortgage Backed Securities (“CMBS”) and CDOs.
AIB controls certain special purpose vehicles which were set-up to support the funding activities of the Group. Details of these special
purpose vehicles are set out in note 49 ‘Transfer of financial assets’ under the heading ‘Securitisations’. AIB also controls two special
purpose vehicles set up in relation to the funding of the Group Pension Schemes which are also detailed in note 12.
Stock borrowing and lending 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.
Employee compensation trusts
AIB and some of its subsidiary companies use trust structures to benefit employees and to facilitate the ownership of the Group’s equity
by employees. The Group consolidates these trust structures where the risks and rewards of the underlying shares have not been
transferred to the employees. Details of these schemes are provided in note 11 ‘Share-based compensation schemes’ to the
consolidated financial statements.
.
308
Notes to the financial statements
48 Subsidiaries and consolidated structured entities
Subsidiaries
The following are the material companies of AIB Group at 31 December 2013 and 31 December 2012:
Name of subsidiary
Principal activity
Place of incorporation
Allied Irish Banks, p.l.c.
The parent company of the majority
Republic of Ireland
of the subsidiaries within the Group.
Its activities include banking and
financial services – a licensed bank
Proportion of ownership
interest and voting power
held by the Group
31 December
2013
100%
2012
100%
AIB Mortgage Bank
Issue of mortgage covered securities
Republic of Ireland
100%
100%
Tier 1
– a licensed bank
Total Capital
EBS Limited
Mortgages and savings
Republic of Ireland
100%
100%
Tier 1
AIB Group (UK) p.l.c. trading
Banking and financial services
Northern Ireland
100%
100%
– a licensed bank
as Allied Irish Bank (GB) in
– a licensed bank
Great Britain and First Trust
Bank in Northern Ireland
Total Capital
Tier 1
Total Capital(1)
Minimum capital requirements
31 December
2013
2012
Tier 1
Total Capital
4%
8%
4%
8%
4%
8%
4%
8%
4%
8%
4%
8%
4%
8%
4%
8%
(1)Additional capital requirements are imposed by the Prudential Regulation Authority in excess of the 8% minimum total capital requirement.
In addition, as outlined below, AIB acquired a 100% interest in Ark Life Assurance Company Limited (“Ark Life”) following the disposal in March 2013 of its 24.99% interest in Aviva Life
Holdings Ireland Limited (note 31). Ark Life is accounted for as a discontinued operation as it was acquired exclusively with a view to its subsequent disposal (note 21).
All subsidiaries of AIB are wholly owned and there are no non-controlling interests in these subsidiaries. Practically all subsidiaries of AIB Group are involved in the provision of financial
services or ancillary services.
Significant restrictions
Each of the subsidiaries listed above which is a licensed bank is required by their respective financial regulator to maintain capital ratios above a certain minimum level as detailed. These
minimum ratios restrict the payment of dividend by the subsidiary and, where the ratios fall below the minimum requirement, will require the parent company to inject capital to make up the
shortfall.
Guarantees
Allied Irish Banks p.l.c. (the parent company) has guaranteed a number of its subsidiary companies. These companies are listed in note L to the parent company’s financial statements.
3
0
9
Notes to the financial statements
48 Subsidiaries and consolidated structured entities (continued)
Consolidated structured entities
The Group has acted as sponsor and invested in a number of special purpose vehicles in order to generate funding for the Group’s
lending activities (with the exception of AIB PFP Scottish Limited Partnership). The Group considers itself a sponsor of a structured entity
when it facilitates the establishment of the structured entity.
The following special purpose vehicles are consolidated by the Group:
– Emerald Mortgages No. 4 Public Limited Company;
– Emerald Mortgages No. 5 Limited;
– Mespil 1 RMBS Limited;
– Tenterden Funding p.l.c.;
– Goldcrest Funding No. 1 Limited ; and
– AIB PFP Scottish Limited Partnership.
Further details on these special purpose vehicles are set out in note 49.
There are no contractual arrangements that could require Allied Irish Banks, p.l.c. or its subsidiaries to provide financial support to the
consolidated structured entities listed above. During the year, neither Allied Irish Banks, p.l.c. nor any of its subsidiaries provided financial
support to a consolidated structured entity and there is no current intention to provide financial support.
The Group has no interest in unconsolidated structured entities.
Acquisition of Ark Life Assurance Company Limited
Arising from the exercise in January 2012 of put options held by AIB and Aviva and the subsequent negotiations between the parties for
the disposal of ALH and the acquisition of Ark Life Assurance Company Limited (‘Ark Life’) (note 31), AIB acquired a 100% interest in
Ark Life for a consideration of € 325 million. The put option which required AIB to acquire Ark Life had a negative valuation of
€ 23 million at the date of acquisition.
The investment in Ark Life was initially measured at a fair value less costs to sell of € 302 million being a market related valuation of Ark
Life, primarily taking account of Ark Life’s market consistent embedded value (“MCEV”) of € 447 million. The fair value of the liabilities
acquired amounted to € 3.8 billion, while the fair value of the assets acquired amounted to € 4.1 billion. Acquisition related costs for Ark
Life amounted to € 3 million and are included in ‘Administrative expenses’ (note 10).
Since Ark Life was acquired exclusively with a view to its subsequent disposal, it was classified on acquisition date as a discontinued
operation in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Management’s plans to dispose of
Ark Life are well advanced and a sale is expected to complete in early 2014.
The investment is accounted for in accordance with the accounting policy set out on pages 226 and 227. Accordingly, the disposal
group is reported at the lower of its carrying amount and fair value less costs to sell at each reporting date. The fair value is equal to or
greater than the carrying value at 31 December 2013. However, no income has been recognised in the period in accordance with the
accounting policy for a subsidiary acquired exclusively for resale.
Further details on AIB’s principal subsidiaries are set out in note L to the parent company’s financial statements.
310
49 Transfer of financial assets
The Group enters into transactions in the normal course of business in which it transfers previously recognised financial assets.
Transferred financial assets may, in accordance with IAS 39 Financial Instruments: Recognition and Measurement:
(i) continue to be recognised in their entirety; or
(ii) be derecognised in their entirety but the Group retains some continuing involvement.
The most common transactions where the transferred assets are not derecognised in their entirety are sale and repurchase
agreements, issuance of covered bonds and securitisations.
(i) Transferred financial assets not derecognised in their entirety
Sale and repurchase agreements
Sale and repurchase agreements are transactions in which the Group sells a financial asset to another party, with an obligation to
repurchase it at a fixed price on a certain later date. The Group continues to recognise the financial assets in full in the statement of
financial position as it retains substantially all the risks and rewards of ownership. The Group’s sale and repurchase agreements are
both with central banks, banks and customers. The obligation to pay the repurchase price is recognised within ‘Deposits by central
banks and banks’ (note 35) and ‘Customer accounts’ (note 36). As the Group sells the contractual rights to the cash flows of the
financial assets, it does not have the ability to use or pledge the transferred assets during the term of the sale and repurchase
agreement. The Group remains exposed to credit risk and interest rate risk on the financial assets sold. Details of sale and repurchase
activity are set out in notes 35 and 36. The obligation arising as a result of sale and repurchase agreements together with the carrying
value of the financial assets pledged are set out in the table below.
Issuance of covered bonds
Covered bonds, which the Group issues, are debt securities backed by cash flows from mortgages for the purpose of financing loans
secured on residential property through its wholly owned subsidiaries, AIB Mortgage Bank and EBS Mortgage Finance. The Group
retains all the risks and rewards of these mortgage loans and therefore, the loans continue to be recognised on the Group’s
statement of financial position with the related covered bonds included within ‘Debt securities in issue’ (note 37). The Group remains
exposed to credit risk and interest rate risk on the financial assets sold. As the Group sells the contractual rights to the cash flows of the
financial assets it does not have the ability to use the transferred assets during the term of the arrangement. However, of the total debt
securities issued amounting to € 10.8 billion, internal Group companies hold € 7.6 billion which are eliminated on consolidation. These
internally issued bonds are used by AIB Group as part of sale and repurchase agreements with the Central Bank of Ireland as outlined
above.
Securitisations
Securitisations are transactions in which the Group sells loans and receivables to customers (mainly mortgages and credit card
receivables), to special purpose entities (“SPEs”), which, in turn, issue notes or deposits to external investors. The notes or deposits
issued by the SPEs are on terms which result in the Group retaining the majority of ownership risks and rewards and therefore, the
loans continue to be recognised on the Group’s statement of financial position. The Group remains exposed to credit risk, interest rate
risk and foreign exchange risk on the loans sold. The liability in respect of the cash received from the external investors is included
within ‘Debt securities in issue’ (note 37) or in ‘Deposits by central banks and banks’ (note 35). Under the terms of the securitisations,
the rights of the investors are limited to the assets in the securitised portfolios and any related income generated by the portfolios,
without recourse to the Group. The Group does not have the ability to use the assets transferred as part of securitisation transactions
during the term of the arrangement.
In 2012, the Group securitised € 533 million of its residential mortgage portfolio held in the AIB UK segment. These mortgages were
transferred to a securitisation vehicle, Tenterden Funding p.l.c. (‘Tenterden’). In order to fund the acquired mortgages, Tenterden issued
class A notes to external investors and class B notes to an AIB subsidiary. The transferred mortgages have not been derecognised as
the Group retains substantially all the risks and rewards of ownership and continue to be reported in the Group’s statement of financial
position. Tenterden is consolidated into the Group’s financial statements with the class B notes being eliminated on consolidation. The
liability in respect of cash received by Tenterden from the external investors is included within ‘Debt securities in issue’ (note 37) on the
statement of financial position. At 31 December 2013, the carrying amount of the assets which the Group continues to recognise is
€ 380 million (2012: € 467 million) and the carrying amount of the associated liabilities is € 237 million (2012: € 316 million).
311
Notes to the financial statements
49 Transfer of financial assets (continued)
In 2013, the Group securitised € 675 million of its credit card receivables held in the Domestic Core Bank segment. These credit card
receivables were transferred to a securitisation vehicle, Goldcrest Funding No.1 Limited (‘Goldcrest’). In order to fund the acquired
receivables, Goldcrest received senior loan facility proceeds from external investors secured on these and future credit card receivables
and junior loan facility proceeds from AIB p.l.c.. The transferred receivables have not been derecognised as the Group retains
substantially all the risks and rewards of ownership and the credit card receivables continue to be reported in the Group’s statement of
financial position. Goldcrest is consolidated into the Group’s financial statements with the junior loan facility being eliminated on
consolidation. The liability in respect of cash received by Goldcrest from external investors is included within ‘Deposits by central banks
and banks’ (note 35) on the statement of financial position.
Arising from the acquisition of EBS on 1 July 2011, the Group controls three special purpose entities which had previously been set up
by EBS: Emerald Mortgages No. 4 Public Limited Company; Emerald Mortgages No. 5 Limited; and Mespil 1 RMBS Limited.
Emerald Mortgages No. 4 Public Limited Company
The total carrying value of the original residential mortgages transferred by EBS Limited to Emerald Mortgages No. 4 Public Limited
Company (‘Emerald 4’) as part of the securitisation amounts to € 1,500 million. The amount of transferred secured loans that the Group
has recognised at 31 December 2013 is € 823 million (2012: € 868 million). The carrying amount of the bonds issued by Emerald 4 to
third party investors amounts to € 815 million (2012: € 846 million) and is included within ‘Debt securities in issue’ (note 37).
Emerald Mortgages No. 5 Limited
The total carrying amount of original residential mortgages transferred by EBS Limited to Emerald Mortgages No.5 Limited (‘Emerald 5’)
as part of the securitisation amounted to € 2,500 million. The amount of transferred secured loans that the Group has recognised at
31 December 2013 is € 1,708 million (2012: € 1,716 million). Bonds were issued by Emerald 5 to EBS but these are not shown in the
Group’s financial statements, as these bonds are eliminated on consolidation.
Mespil 1 RMBS Limited
The total carrying amount of secured loans that the Group has recognised as at 31 December 2013 is € 903 million (2012: € 955 million)
in relation to the transfers from EBS Limited and Haven Mortgages Limited to Mespil 1 RMBS Limited. The bonds issued by Mespil 1
RMBS Limited to EBS are not shown in the Group’s financial statements, as these bonds are eliminated on consolidation.
312
49 Transfer of financial assets (continued)
The following table summarises at the 31 December 2013 and 31 December 2012, the carrying value and fair value of financial assets
which did not qualify for derecognition together with their associated financial liabilities:
Carrying
amount of
transferred
assets
Carrying
amount of
associated
liabilities held
by third parties
€ m
€ m
Carrying
amount of
associated
liabilities held
by Group
companies
€ m
Sale and repurchase agreements
30,698(1)
27,644(2)
Covered bond programmes
Residential mortgage backed
Securitisations
6,478
1,886
3,315
1,557
–
–
321
Carrying
amount of
transferred
assets
Carrying
amount of
associated
liabilities held
by third parties
€ m
€ m
Carrying
amount of
associated
liabilities held
by Group
companies
€ m
Sale and repurchase agreements
32,120(1)
27,950(2)
Covered bond programmes
Residential mortgage backed
Securitisations
(1)Includes NAMA senior bonds.
(2)See notes 35 and 36.
5,584
1,335
3,315
1,162
–
–
151
Fair
value of
transferred
assets
Fair value
of associated
liabilities
held by third
parties
€ m
30,833
5,551
1,801
€ m
27,644
3,537
1,394
Fair value
of associated
liabilities
held by
Group
companies
€ m
–
–
321
Fair
value of
transferred
assets
Fair value
of associated
liabilities
held by third
parties
€ m
32,166
4,635
1,206
€ m
27,950
3,434
709
Fair value
of associated
liabilities
held by
Group
companies
€ m
–
–
151
2013
Net
fair value
position
€ m
3,189
2,014
86
2012
Net
fair value
position
€ m
4,216
1,201
346
AIB Group (UK) p.l.c. Pension Scheme interest in the AIB PFP Scottish Limited Partnership
In December 2013, the Group agreed with the Trustee of the AIB UK Defined Benefit Pension Scheme (“the UK scheme”) a restructure
of the funding of the deficit in the UK scheme. The future funding period has been extended from 8 to 16 years, commencing in 2016
with the implementation of an asset backed funding arrangement.
The Group established a pension funding partnership, AIB PFP Scottish Limited Partnership (“SLP”) under which a portfolio of loans
were transferred to the SLP from another Group entity, AIB UK Loan Management Limited (“UKLM”) for the purpose of ring-fencing the
repayments on these loans to fund future deficit payments of the UK scheme.
Assets ring fenced for this purpose entitles the UK Defined Benefit Pension Scheme to expected annual payments of Stg£ 22.4 million
(range of Stg£ 15 million to Stg£ 35 million) from 2016 until 2033, with a potential termination payment in 2032 of up to Stg£ 60 million.
The general partner in the partnership, AIB PFP (General Partner) Limited, which is an indirect subsidiary of Allied Irish Banks p.l.c. has
controlling power over the partnership. In addition, the majority of the risks and rewards will be borne by AIB Group as the pension
scheme has a priority right to the cash flows from the partnership, such that the variability in recoveries is expected to be borne by AIB
Group through UKLM’s junior partnership interest. As UKLM continues to bear substantially all the risks and rewards of the loans, the
loans are not derecognised from UKLM’s balance sheet and accordingly, the Group has determined that the SLP should be
consolidated into AIB Group.
313
Notes to the financial statements
49 Transfer of financial assets (continued)
(ii) Transferred financial assets derecognised in their entirety but the Group retains some continuing involvement
AIB has a continuing involvement in transferred financial assets where it retains any of the risks and rewards of ownership of the
transferred financial assets. Set out below are transactions in which AIB has a continuing involvement in assets transferred.
Pension scheme
On 31 July 2012, AIB entered into a Contribution Deed with the Trustee of the AIB Group Irish Pension Scheme (‘the Irish scheme’),
whereby it agreed to make contributions to the scheme to enable the Trustee ensure that the regulatory Minimum Funding Standard
position of non-pensioner members of the pension scheme was not affected by the agreed early retirement scheme. These contributions
amounting to € 594 million were settled through the transfer to the Irish scheme of interests in a Special Purpose Vehicle (“SPV”)
owning loans and receivables previously transferred at fair value from the Group. The loans and receivables were derecognised in the
Group’s financial statements as all of the risks and rewards of ownership had transferred.
A subsidiary company of the Group was appointed as a service provider for the loans and receivables transferred. Under the servicing
agreement, the Group subsidiary company collects the cash flows on the transferred loans and receivables on behalf of the pension
scheme in return for a fee. The fee is based on an annual rate of 0.125% of the principal balance outstanding of all transferred loans
and receivables on the last day of each calendar month. The Group has not recognised a servicing asset/liability in relation to this
servicing arrangement, as the fee is considered to be a market rate. Under the servicing agreement, the Irish scheme has the right to
replace the Group subsidiary company as the service provider with an external third party. In 2013, the Group recognised € 1.5 million
(cumulative € 2 million) (2012: € 0.5 million (cumulative € 0.5 million)) in the income statement for the servicing of the loans and
receivables transferred.
NAMA
During 2010 and 2011, AIB transferred financial assets with a net carrying value of € 15,428 million to NAMA. All assets transferred were
derecognised in entirety.
As part of this transaction, the Group has provided NAMA with a series of indemnities relating to the transferred assets. Also, on the
dissolution or restructuring of NAMA, the Irish Minister for Finance (‘the Minister’) may require a report and accounts to be prepared. If
NAMA reports an aggregate loss since its establishment and this is unlikely to be made good, the Minister may impose a surcharge on
the participating institution. This will involve apportioning the loss on the participating institution, subject to certain restrictions, on the
basis of the book value of the assets transferred by the institution in relation to the total book value of assets transferred by all
participating institutions. At this stage, it is not possible to quantify the maximum exposure to loss which may arise on the dissolution or
restructuring of NAMA.
In addition, the Group has been appointed by NAMA as a service provider for the loans and receivables transferred, for which it receives
a fee. The fee is based on the lower of actual costs incurred or 0.1% of the value of the financial assets transferred. The Group has not
recognised a servicing asset/liability in relation to this servicing arrangement. In 2013, the Group recognised € 16 million (cumulative
€ 53 million) (2012: € 16 million (cumulative € 37 million)) in the income statement for the servicing of financial assets transferred to NAMA.
314
50 Fair value of financial instruments
The term ‘financial instruments’ includes both financial assets and financial liabilities. The fair value of a financial instrument is the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date in the principal, or in its absence, the most advantageous market to which the Group has access at that date. The
Group’s accounting policy for the determination of fair value of financial instruments is set out in accounting policy number 16. This
accounting policy has changed with effect from 1 January 2013 to reflect the requirements of IFRS 13 Fair Value Measurement.
Readers of these financial statements are advised to use caution when using the data in the following table to evaluate the Group’s
financial position or to make comparisons with other institutions. Fair value information is not provided for items that do not meet the
definition of a financial instrument. These items include 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 2013.
The valuation of financial instruments, including loans and receivables, involves the application of judgement and estimation. Market
and credit risks are key assumptions in the estimation of the fair value of loans and receivables. During the year, AIB has continued to
observe adverse changes in the credit quality of its borrowers, with increasing delinquencies and defaults across a range of sectors.
The volatility in financial markets and the illiquidity that is evident in these markets has reduced the demand for many financial
instruments and this creates a difficulty in estimating the fair value for loans to customers. AIB has estimated the fair value of its loans to
customers taking into account market risk and the changes in credit quality of its borrowers.
Fair values are based on observable market prices where available, and on valuation models or techniques where the lack of market
liquidity means that observable prices are unavailable. The fair values of financial instruments are measured according to the following
fair value hierarchy:
Level 1 – financial assets and liabilities measured using quoted market prices from an active market (unadjusted).
Level 2 – financial assets and liabilities measured using valuation techniques which use quoted market prices from an active market or
measured using quoted market prices unadjusted from an inactive market.
Level 3 – financial assets and liabilities measured using valuation techniques which use unobservable market data.
All financial instruments are initially recognised at fair value. Financial instruments held for trading and financial instruments in fair value
hedge relationships are subsequently measured at fair value through profit or loss. Available for sale securities and cash flow hedge
derivatives are subsequently measured at fair value through other comprehensive income.
All valuations are carried out within the Finance function of the Group and valuation methodologies are validated by the independent
Risk function within the Group.
The methods used for calculation of fair value in 2013 are as follows:
Financial instruments measured at fair value in the financial statements
Trading portfolio financial instruments
The fair value of trading debt securities, together with quoted equity shares is based on quoted prices or bid/offer quotations sourced
from external securities dealers, where these are available on an active market. Where securities and equities are traded on an
exchange, the fair value is based on prices from the exchange.
Derivative financial instruments
Where derivatives are traded on an exchange, the fair value is based on prices from the exchange. The fair value of over the counter
derivative financial instruments is estimated based on standard market discounting and valuation methodologies which use reliable
observable inputs including yield curves and market rates. These methodologies are implemented by the Finance function and validated
by the Risk function. Where there is uncertainty around the inputs to a derivatives’ valuation model, the fair value is estimated using
inputs which provide the Group’s view of the most likely outcome in a disposal transaction between willing counterparties in a
functioning market. Where an unobservable input is material to the outcome of the valuation, a range of potential outcomes from
favourable to unfavourable is estimated.
Counterparty credit is an input into the valuation of uncollateralised customer derivatives. Own credit is also an input into the valuation of
uncollateralised customer derivatives.
315
Notes to the financial statements
50 Fair value of financial instruments (continued)
Counterparty credit or credit valuation adjustment (“CVA”)
An adjustment, known as a CVA, is made to the valuation of uncollateralised customer derivatives to reflect the credit worthiness of the
counterparty. The CVA applied is based on the estimated replacement cost of the derivative, the estimated probability of default of the
counterparty and the estimated loss given default of the counterparty. Where there are no Credit Default Swaps (“CDS”) quoted in the
market for the counterparty to the derivative, a CDS index for a similar credit grade and industry is used to estimate the probability of
default.
Debit valuation adjustment (“DVA”)
In valuing OTC derivative liabilities, an adjustment, known as a DVA, is made by the Group to the valuation to reflect, within fair value,
the entity’s own credit risk. The DVA applied is a similar calculation to the CVA using a BB rated financial CDS index to calculate
probability of default. Where the DVA calculation is larger than the CVA calculation for a derivative, the Group has applied a DVA equal
to the CVA due to a view that this is the most likely price which would be achieved in the sale or transfer of the derivative.
Financial investments available for sale
The fair value of available for sale debt securities and equities has been estimated based on expected sale proceeds. The expected
sale proceeds are based on screen bid prices which have been analysed and compared across multiple sources for reliability. Where
screen prices are unavailable, fair values are estimated using valuation techniques using observable market data for similar
instruments. Where there is no market data for a directly comparable instrument, management judgement, on an appropriate credit
spread to similar or related instruments with market data available, is used within the valuation technique. This is supported by cross
referencing other similar or related instruments.
Financial instruments not measured at fair value but with fair value information presented separately in the
notes to the financial statements
Disposal groups and non-current assets held for sale
The fair value of loans and receivables held for sale has been estimated based on expected sale proceeds. Available for sale equity
securities and equity securities designated as at fair value through profit or loss have been included at their carrying value. The fair
value of certain other assets within disposal groups and non-current assets held for sale has not been included, as these are not
financial assets.
Loans and receivables to banks
The fair value of loans and receivables to banks is estimated using discounted cash flows applying either market rates, where
practicable, or rates currently offered by other financial institutions for placings with similar characteristics.
Loans and receivables to customers
The Group provides lending facilities of varying rates and maturities to corporate and personal customers. Valuation techniques are
used in estimating the fair value of loans, primarily using discounted cash flows and applying market rates where practicable.
In addition to the assumptions set out above under valuation techniques regarding cash flows and discount rates, a key assumption for
loans and receivables is that the carrying amount of variable rate loans (excluding mortgage products) approximates to market value
where there is no significant credit risk of the borrower. The fair value of variable rate mortgage products including tracker mortgages is
calculated by discounting expected cash flows using discount rates that reflect the interest rate risk in the portfolio. For fixed rate loans,
the fair value is calculated by discounting expected cash flows using discount rates that reflect the interest rate risk in that portfolio.
For the overall loan portfolio, an adjustment is made for credit risk which at 31 December 2013 took account of the Group’s expectations
on credit losses over the life of the loans.
NAMA senior bonds
The Group’s holding of NAMA Senior Bonds is classified as loans and receivables measured at amortised cost. For disclosure
purposes, the fair value of the NAMA senior bonds has been estimated using a valuation technique since there in no active market for
these bonds. The valuation technique requires an increased use of management judgement which includes, but is not limited to,
evaluating available market information, determining the amount and timing of cash flows generated by the instruments, identifying a
risk free discount rate and applying an appropriate credit spread.
Deposits by central banks and banks and customer accounts
The fair value of current accounts and deposit liabilities which are repayable on demand, or which re-price frequently, approximates 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.
316
50 Fair value of financial instruments (continued)
Debt securities in issue
The estimated fair value of subordinated liabilities and other capital instruments, and debt securities in issue, is based on quoted prices
where available, or where these are unavailable, are estimated using valuation techniques using observable market data for similar
instruments. Where there is no market data for a directly comparable instrument, management judgement, on an appropriate credit
spread to similar or related instruments with market data available, is used within the valuation technique. This is supported by cross
referencing other similar or related instruments.
Other financial assets and other financial liabilities
This caption includes accrued interest receivable and payable and the carrying amount is considered representative of fair value.
Commitments pertaining to credit-related instruments
Details of the various credit-related commitments and other off-balance sheet financial guarantees entered into by the Group are
included in note 46. 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.
Financial instruments measured at fair value in the financial statements at 31 December 2012
The term ‘financial instruments’ includes both financial assets and financial liabilities. At December 2012, financial instruments were
measured in accordance with IAS 39 Financial Instruments: Recognition and Measurement. Under IAS 39, 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. This standard was superseded in 2013 by IFRS 13 Fair Value Measurement as outlined above and for the
purpose of December 2013 financial statements, AIB Group’s accounting policy has now been changed to reflect this (pages 221 and
222). There has been no restatement of comparative data for 2012 under the new policy.
The following table sets out the carrying amount and fair value of financial instruments across the three levels of the fair value hierarchy
at 31 December 2013:
317
3
1
8
50 Fair value of financial instruments (continued)
At fair value through
profit and loss
Held for
trading
€ m
Fair value
hedge
derivatives
€ m
Carrying amount in statement of financial position
At fair value through
At amortised cost
equity
Total
Fair value hierarchy
2013
Cashflow
hedge
derivatives
€ m
Available
for sale
securities
€ m
Loans and
receivables
Other
Level 1
Level 2
Level 3
Total
€ m
€ m
€ m
Financial assets measured at fair value
Trading portfolio financial assets
Debt securities
Equity securities
Derivative financial instruments
Interest rate derivatives
Exchange rate derivatives
Equity derivatives
Financial investments available for sate
1
1
815
35
151
Government securities
Supranational banks and
government agencies
Asset backed securities
Bank securities
Corporate securities
Other investments
Equity securities
532
–
–
96
–
–
12,904
3,092
535
3,705
3
12
117
1,003
532
96
20,368
21,999
20,035
1,429
Financial assets not measured at fair value
Cash and balances at central banks
Items in the course of collection
Disposal groups and non-current
assets held for sale
Loans and receivables
Loans and receivables to banks
Loans and receivables to customers
Mortgages(2)
Non-mortgages
NAMA senior bonds
Other financial assets
(1)Comprises cash on hand.
(2)Includes residential and commercial mortgages.
3,536
164
28
2,048
37,144
28,569
15,598
–
87,087
596(1)
559
1,155
4,132
164
28
2,048
37,144
28,569
15,598
559
88,242
596
3,536
656
596
4,192
1
1
1,443
35
151
1
–
–
–
–
–
1
1,024
35
151
–
–
419
–
–
1
1
1,443
35
151
12,904
12,690
214
–
12,904
3,092
535
3,705
3
12
117
3,092
535
3,705
–
–
12
–
–
–
3
–
1
–
–
–
–
12
104
535
–
164
28
1,392
31,976
28,114
15,767
559
78,000
3,092
535
3,705
3
12
117
21,999
4,132
164
28
2,048
31,976
28,114
15,767
559
82,788
At fair value through profit
and loss
Carrying amount in statement of financial position
At amortised cost
At fair value through
equity
Cashflow
hedge
derivatives
€ m
Other
€ m
447
–
–
–
447
50 Fair value of financial instruments (continued)
Held for
trading
€ m
Fair value
hedge
derivatives
€ m
810
34
79
–
923
590
–
–
–
590
Financial liabilities measured at fair value
Derivative financial instruments
Interest rate derivatives
Exchange rate derivatives
Equity derivatives
Credit derivatives
Financial liabilities not measured at fair value
Deposits by central banks and banks
Other borrowings
Securities sold under agreements
to reepurchase
Customer accounts
Current accounts
Demand deposits
Time deposits
Securities sold under agreements
to repurchase
Debt securities in issue
Bonds and medium term notes
Other debt securities in issue
Subordinated liabilities and other
capital instruments
Other financial liabilities
3
1
9
Total
€ m
1,847
34
79
–
1,960
1,260
1,260
21,861
21,861
18,274
9,372
32,238
5,783
8,680
79
1,352
528
99,427
18,274
9,372
32,238
5,783
8,680
79
1,352
528
99,427
Fair value hierarchy
2013
Level 1
Level 2
Level 3
Total
–
–
–
–
–
–
–
–
8,571
79
1,722
34
79
–
1,835
125
–
–
–
125
1,847
34
79
–
1,960
1,260
1,260
12,725
9,136
21,861
–
–
–
74
–
18,274
9,372
32,878
18,274
9,372
32,878
5,783
5,783
269
–
–
528
8,914
79
1,775
528
–
1,775
8,650
14,574
77,500
100,724
3
2
0
Notes to the financial statements
50 Fair value of financial instruments (continued)
The following table analyses the carrying amounts of the financial assets and liabilities by category as defined in IAS 39 Financial Instruments: Recognition and Measurement and by
statement of financial position heading together with the related fair value.
At fair value through
profit and loss
Carrying amount
At fair value
through equity
At amortised
cost
At fair value
through profit
and loss
€ m
Fair value
hedge
derivatives
€ m
Cashflow
hedge
derivatives
€ m
Available
for sale
securities
€ m
Loans
and
receivables
€ m
–
–
196(2)
24
1,716
–
–
–
–
1,936
–
–
1,933
–
–
–
–
–
–
–
–
–
–
–
788
331
–
–
–
–
788
–
–
795
–
–
–
–
–
–
–
331
–
–
528
–
–
–
1,933
795
528
–
–
–
–
–
–
–
–
16,344
16,344
–
–
–
–
–
–
–
3,481
192
353
–
–
2,914
72,972
17,387
–
97,299
–
–
–
–
–
–
–
Other
€ m
566(1)
–
–
–
–
–
–
–
–
Total
carrying
amount
€ m
4,047
192
549
24
2,835
2,914
72,972
17,387
16,344
566
117,264
28,442
63,610
–
10,666
1,271
565
28,442
63,610
3,256
10,666
1,271
565
104,554
107,810
2012
Total
fair
value
€ m
4,047
192
435
24
2,835
2,914
64,138
17,446
16,344
28,442
64,435
3,256
11,019
1,650
–
Financial assets
Cash and balances at central banks
Items in the course of collection
Disposal groups and non-current
assets held for sale
Trading portfolio financial assets
Derivative financial instruments
Loans and receivables to banks
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale
Financial liabilities
Deposits by central banks and banks
Customer accounts
Derivative financial instruments
Debt securities in issue
Subordinated liabilities and
other capital instruments
Fair value of hedged liability positions
(1)Comprises cash on hand.
(2)Designated on initial recognition as at fair value through profit or loss. All other financial assets/financial liabilities in this column are held for trading.
50 Fair value of financial instruments (continued)
The following table sets out the carrying value of financial instruments measured at fair value across the three levels of the fair value
hierarchy at 31 December 2012:
Financial assets
Disposal groups and non-current assets held for sale
Trading portfolio financial assets
Derivative financial instruments
Financial investments available for sale – debt securities
– equity securities
Financial liabilities
Derivative financial instruments
Level 1
€ m
Level 2
€ m
Level 3
€ m
–
23
–
16,128
58
16,209
_
–
–
1
2,835
61
1
2,898
3,236
3,236
196
–
–
12
84
292
20
20
2012
Total
€ m
196
24
2,835
16,201
143
19,399
3,256
3,256
Significant transfers between Level 1 and Level 2 of the fair value hierarchy
The following table shows significant transfers between Level 1 and Level 2 of the fair value hierarchy for the years ended 31 December
2013 and 31 December 2012:
Group
Transfer into Level 1 from Level 2
Transfer into Level 2 from Level 1
Financial assets
Trading
portfolio
€ m
Debt
securities
€ m
–
–
13
3
2013
Total
€ m
13
3
Financial assets
Trading
portfolio
€ m
Debt
securities
€ m
–
–
908
–
2012
Total
€ m
908
–
Transfers into Level 1 from Level 2 occurred due to increased availability of reliable quoted market prices which were not previously
available.
Reconciliation of balances in Level 3 of the fair value hierarchy
The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements in Level 3 of
the fair value hierarchy for 2013 and 2012:
Financial assets
Financial liabilities
2013
Available for sale
Total Derivatives
Total
Group
Disposal groups Derivatives
and non-current
assets held for sale
€ m
€ m
Debt
securities
€ m
Equity
securities
€ m
At 1 January 2013
Transfers into Level 3(1)
Total gains or (losses) in:
Profit or loss
– Net trading loss
– Provisions for impairment on
financial investments
available for sale
– Other operating loss
Other comprehensive income
– Net change in fair value of
financial investments
available for sale
Purchases
Sales
At 31 December 2013
196
–
(6)
(6)
–
–
–
–
–
(190)
–
–
630
(211)
(211)
–
–
–
–
–
–
12
–
–
–
–
–
–
–
–
–
419
12
84
–
(9)
–
(9)
–
27
27
6
(4)
104
€ m
292
630
(226)
(217)
(9)
–
27
27
6
(194)
535
€ m
20
161
(36)
(36)
–
–
–
–
–
(20)
125
€ m
20
161
(36)
(36)
–
–
–
–
–
(20)
125
321
Notes to the financial statements
50 Fair value of financial instruments (continued)
Financial assets
Disposal groups
and non-current
assets held for sale
€ m
Derivatives
€ m
At 1 January 2012
Designated to fair value through
profit or loss
Transfers out of level 3(1)
Total gains or losses in:
Profit or loss
– Net trading loss
– Provisions for impairment on
financial investments
available for sale
– Other operating loss
Other comprehensive income
– Net change in fair value of
financial investments
available for sale
Net NAMA subordinated bonds
Purchases
Sales
Settlements
At 31 December 2012
22
196
–
(2)
–
–
(2)
(7)
(7)
–
–
(13)
–
196
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Available for sale
Debt
securities
€ m
Equity
securities
€ m
12
180
–
–
–
–
–
–
–
–
–
–
–
–
12
–
(18)
(86)
–
(86)
–
5
5
(3)
8
(2)
–
84
Financial liabilities
Total
Derivatives
Total
2012
€ m
214
196
(18)
(88)
–
(86)
(2)
(2)
(2)
(3)
8
(15)
–
292
€ m
109
–
–
39
39
–
–
–
–
–
–
–
€ m
109
–
–
39
39
–
–
–
–
–
–
–
(128)
20
(128)
20
(1)Transfers between levels of the fair value hierarchy are recognised at the end of the reporting period during which the change occurred.
Transfers out of Level 3 occurred because of increased observability in the market prices of these instruments.
Reconciliation of balances in Level 3 of the fair value hierarchy
Total gains or losses included in profit or loss that is attributable to the change in unrealised gains or losses relating to those
assets and liabilities held at 31 December 2013 and 31 December 2012:
Net trading loss
Provisions for impairment on financial investments available for sale
Total
2013
€ m
(34)
(9)
(43)
2012
€ m
(6)
(85)
(91)
322
50 Fair value of financial instruments (continued)
Significant unobservable inputs
The table below sets out information about significant unobservable inputs used at the year ended 31 December 2013 in measuring financial instruments categorised as Level 3 in the fair value
hierarchy:
Type of financial
instrument
Fair value at
31 December 2013
Valuation
technique
Significant
unobservable inputs
Range of estimates
Fair value measurement
sensitivity to unobservable
inputs
Uncollateralised
Assets: € 419 million
Counterparty valuation
1. Loss given default (“LGD”)
1. 44.8% to 79.5% (Base 58.7%)
1. Negative € 13 million to
customer
derivatives
Liabilities: € 125 million
adjustment (“CVA”);
2. Customer probability of
2. 0.815% - 1.96% (Base 1.52% 1 yr PD)
positive € 9 million
Total CVA negative
default (“PD”)
3. As above with greater impact due to
2. Negative € 11 million to
€ 36 million
3. Combination LGD and
combination of PD and LGD
positive € 17 million
PD change
changes
3. Negative € 27 million to
positive € 21 million
Uncollateralised
Assets: € 419 million
Debit valuation
Own credit i.e. PD
The PD is shifted from 2.13% to 0.38% 1. Negative € 5 million to
customer
derivatives
Liabilities: € 125 million
adjustment (“DVA”);
in the unfavourable scenario. In the
positive € 4 million
Total DVA positive
€ 11 million
favourable scenario, the capping of
DVA at CVA level is removed
NAMA subordinated
Asset: € 73 million
Discounted cash flows
NAMA profitability i.e.
The estimates range from NAMA
Negative € 48 million i.e. 5.26%
bonds
ability to generate cash
making a single payment only under
of nominal only to positive € 111
flow for repayment.
the bonds i.e. 5.26% of nominal to a full million i.e. 39% being full repayment
repayment of the bonds at maturity.
discounted at 15%.
Counterparty Valuation Adjustment ("CVA") and Debit Valuation Adjustment ("DVA") are applied to all uncollateralised over the counter derivatives. CVA and DVA are calculated as: (Option
replacement cost x PD x LGD). PDs are derived from market based Credit Default Swap ("CDS") information. As most counterparts do not have a quoted CDS, PDs are derived by mapping
each counterparty to an index CDS by industry sector and credit grade. For DVA, a BB Financial CDS curve is used to derive own PD. LGDs are based on the specific circumstances of the
counterparty and take into account valuation of offsetting security where applicable. For unsecured counterparts, an LGD of 60% is applied. The DVA is capped at the CVA level for all
derivatives i.e. where DVA (always a positive adjustment) is higher than CVA (always a negative adjustment), the net adjustment made is zero. This is due to an internal management view that
a net positive adjustment is unlikely to be achieved in an external transaction to exit the derivative position. In the favourable scenario, the cap is removed creating a more positive DVA.
Within the range of estimates and fair value sensitivity measurements, an adverse and a favourable scenario have been selected for PDs and LGDs for CVA. The adverse scenario for
customer PDs is a single rating downgrade. The favourable scenario for customer PDs is based on internal models which analyse historical default levels by credit grade. Customer LGDs are
shifted according to estimates of improvement in value of security compared with potential derivatives’ market values. Within the combination of LGD and PD, both are shifted together. An A
rated Financial CDS curve is used to derive own PD in the adverse DVA scenario. The favourable scenario for DVA is the removal of the cap at CVA level. As it is common market practice to
apply 60% as the LGD for financial institutions in CDS calculations, no range is applied to LGD for DVA.
A number of other derivatives are subject to valuation methodologies which use unobservable inputs. As the variability of the valuation is not greater than € 1 million in any individual case or
collectively, the detail is not disclosed here.
3
2
3
Notes to the financial statements
50 Fair value of financial instruments (continued)
Sensitivity of Level 3 measurements
The implementation of valuation techniques involves a considerable degree of judgement. While the Group believes its estimates of fair
value are appropriate, the use of different measurements or assumptions could lead to different fair values. The following table sets out
the impact of using reasonably possible alternative assumptions in the valuation methodology:
Classes of financial assets
Derivative financial instruments
Financial investments available for sale – equity securities
Total
Classes of financial liabilities
Derivative financial instruments
Total
Classes of financial assets
Financial investments available for sale – equity securities
Total
Classes of financial liabilities
Derivative financial instruments
Total
Level 3
2013
Effect on income
statement
Favourable Unfavourable
€ m
€ m
Effect on other
comprehensive income
Favourable Unfavourable
€ m
€ m
23
–
23
17
17
(39)
(48)
(87)
(9)
(9)
–
111
111
–
–
–
–
–
–
–
2012
Level 3
Effect on income
statement
Favourable Unfavourable
€ m
€ m
Effect on other
comprehensive income
Favourable Unfavourable
€ m
€ m
–
–
3
3
(47)
(47)
(3)
(3)
146
146
–
–
–
–
–
–
In relation to the investment in ALH which was designated as an equity investment at fair value through profit or loss (and categorised
as held for sale) this sale was concluded in March 2013 (note 31).
Day 1 gain or loss:
No difference existed between the fair value at initial recognition of financial instruments and the amount that was determined at that
date using a valuation technique incorporating significant unobservable data.
51 Interest rate sensitivity
The net interest rate sensitivity of the Group at 31 December 2013, 2012, 2011, 2010 and 2009 is illustrated in the following tables. The
tables set out details of those assets and liabilities whose values are subject to change as interest rates change within each
contractual repricing time period. Details regarding assets and liabilities which are not sensitive to interest rate movements are
included within non-interest bearing or trading captions. The tables show the sensitivity of the statement of financial position 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.
The fair value of derivative financial instruments is included within other assets and other liabilities as interest rate insensitive. However,
some derivative instruments are derived from interest sensitive financial instruments, and are shown separately below each year’s table.
For 2010, assets and liabilities of ‘Disposal groups and non-current assets held for sale’ have been shown as interest rate insensitive
since the sale of a substantial element of these, (BZWBK), had been agreed.
Non-interest bearing amounts relating to financial assets held for sale to NAMA, loans and receivables to banks and loans and
receivables to customers include provisions for impairment.
324
51 Interest rate sensitivity (continued)
2013
0<1
Month
€ m
1<3
Months
€ m
3<12
Months
€ m
1<2
Years
€ m
2<3
Years
€ m
3<4
Years
€ m
4<5
Years
€ m
5 years + Non-interest
bearing
€ m
€ m
Trading
Total
€ m
€ m
Assets
Disposal groups and non-current assets
held for sale
Trading portfolio financial assets
Loans and receivables to banks
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale
Other assets
Total assets
Liabilities
Deposits by central banks and banks
Customer accounts
Debt securities in issue
Subordinated liabilities
and other capital instruments
Other liabilities
Shareholders’ equity
–
–
1,616
68,166
–
986
3,469
74,237
19,182
28,122
908
–
–
–
–
–
5
6,716
15,598
947
–
23,266
3,390
8,406
406
–
–
–
28
–
2
1,877
–
798
–
2,705
43
9,498
774
–
–
–
–
–
–
1,150
–
2,749
–
3,899
–
1,676
3,406
–
–
–
–
–
–
890
–
2,611
–
3,501
500
1,236
1,000
1,316
–
–
–
–
–
367
–
2,797
–
3,164
–
1,052
1,675
–
–
–
–
–
–
279
–
2,462
–
2,741
–
291
500
–
–
–
Total liabilities and shareholders’ equity
48,212
12,202
10,315
5,082
4,052
2,727
791
Derivatives affecting interest rate sensitivity
6,122
7,731
(12,040)
(2,901)
(1,157)
313
1,262
Interest sensitivity gap
Cumulative interest sensitivity gap
(Euro currency amounts)
Interest sensitivity gap
Cumulative interest sensitivity gap
19,903
19,903
€ m
19,582
19,582
3,333
23,236
€ m
1,694
21,276
4,430
27,666
€ m
3,097
24,373
1,718
29,384
€ m
1,365
25,738
606
29,990
€ m
484
26,222
124
30,114
688
30,802
€ m
€ m
32
26,254
623
26,877
(US$ in euro equivalents)
US$ m
US$ m
US$ m
US$ m
US$ m
US$ m
US$ m
Interest sensitivity gap
Cumulative interest sensitivity gap
408
408
432
840
(51)
789
–
789
–
789
–
789
–
789
–
–
–
3,351
–
6,911
–
2,754
–
425
(17,083)
–
107
6,753
–
2
–
–
–
–
1,001
2,782
2
2,048
65,713
15,598
20,368
11,223
10,262
(7,044)
1,003 117,734
–
2
90
36
–
–
128
670
9,464
40,266
€ m
7,215
34,092
US$ m
–
789
6
15,384
–
–
7,418
10,494
33,302
–
(40,346)
(80)
€ m
(29,387)
4,705
–
–
–
–
923
–
23,121
65,667
8,759
1,352
8,341
10,494
923 117,734
–
–
80
–
€ m
61
4,766
US$ m
US$ m
(521)
268
2
270
(Stg£ in euro equivalents)
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Interest sensitivity gap
Cumulative interest sensitivity gap
(24)
(24)
1,207
1,183
1,327
2,510
353
2,863
122
2,985
92
3,077
65
3,142
2,249
5,391
(10,973)
(5,582)
17
(5,565)
(Other currencies in euro equivalents)
Other m
Other m
Other m
Other m
Other m
Other m Other m
Other m
Other m Other m
Interest sensitivity gap
Cumulative interest sensitivity gap
(63)
(63)
–
(63)
57
(6)
–
(6)
–
(6)
–
(6)
–
(6)
–
(6)
535
529
–
529
3
2
5
3<4
Years
€ m
4<5
Years
€ m
5 years + Non-interest
bearing
€ m
€ m
Trading
Total
€ m
€ m
2012
3
2
6
51 Interest rate sensitivity (continued)
Assets
Disposal groups and non-current assets
held for sale
Trading portfolio financial assets
Loans and receivables to banks
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale
Other assets
Total assets
Liabilities
Deposits by central banks and banks
Customer accounts
Debt securities in issue
Subordinated liabilities
and other capital instruments
Other liabilities
Shareholders’ equity
0<1
Month
€ m
1<3
Months
€ m
3<12
Months
€ m
323
–
2,367
75,011
–
943
3,285
81,929
25,906
27,035
–
7
–
–
100
–
15
7,485
17,387
1,123
–
26,110
2,528
5,759
2,461
–
–
–
52
–
–
2,591
–
785
–
3,428
–
13,174
1,031
–
–
–
1<2
Years
€ m
–
–
–
1,332
–
1,478
–
2,810
–
1,733
849
–
–
–
2<3
Years
€ m
–
–
–
967
–
2,913
–
3,880
–
709
3,658
–
–
–
–
–
–
574
–
2,148
–
2,722
–
955
–
1,237
–
–
–
–
–
260
–
1,550
–
1,810
–
521
1,675
–
–
–
Total liabilities and shareholders’ equity
52,948
10,748
14,205
2,582
4,367
2,192
2,196
Derivatives affecting interest rate sensitivity
1,318
13,152
(14,277)
(927)
(243)
(147)
(2,053)
Interest sensitivity gap
Cumulative interest sensitivity gap
27,663
27,663
2,210
29,873
3,500
33,373
1,155
34,528
(244)
34,284
677
34,961
1,667
36,628
(Euro currency amounts)
Interest sensitivity gap
Cumulative interest sensitivity gap
(US$ in euro equivalents)
Interest sensitivity gap
Cumulative interest sensitivity gap
€ m
17,843
17,843
US$ m
1,143
1,143
€ m
2,027
19,870
US$ m
(572)
571
€ m
3,660
23,530
US$ m
(23)
548
€ m
1,250
24,780
US$ m
3
551
€ m
(310)
24,470
US$ m
–
551
€ m
144
24,614
€ m
1,575
26,189
US$ m
US$ m
(5)
546
9
555
–
–
–
1,158
–
5,257
–
6,415
–
38
992
27
–
–
1,057
3,177
2,181
38,809
€ m
1,919
28,108
US$ m
14
569
87
–
532
(16,406)
–
147
7,297
–
24
–
–
–
–
1,716
562
24
2,914
72,972
17,387
16,344
12,298
(8,343)
1,740 122,501
8
13,686
–
–
5,224
11,355
30,273
–
(38,616)
193
€ m
(29,323)
(1,215)
–
–
–
28,442
63,610
10,666
–
1,933
1,271
7,157
–
11,355
1,933 122,501
–
–
(193)
–
€ m
249
(966)
US$ m
US$ m
(809)
(240)
(7)
(247)
(Stg£ in euro equivalents)
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Interest sensitivity gap
Cumulative interest sensitivity gap
8,470
8,470
654
9,124
(201)
8,923
(114)
8,809
46
8,855
538
9,393
76
9,469
248
9,717
(8,533)
1,184
(425)
759
(Other currencies in euro equivalents)
Other m
Other m
Other m
Other m
Other m
Other m
Other m
Other m
Other m
Other m
Interest sensitivity gap
Cumulative interest sensitivity gap
207
207
101
308
64
372
16
388
20
408
–
408
7
415
–
415
49
464
(10)
454
N
o
t
e
s
t
o
t
h
e
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
51 Interest rate sensitivity (continued)
Assets
Disposal groups and non-current assets
held for sale
Trading portfolio financial assets
Loans and receivables to banks
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale
Other assets
Total assets
Liabilities
Disposal groups held for sale
Deposits by central banks and banks
Customer accounts
Debt securities in issue
Subordinated liabilities
and other capital instruments
Other liabilities
Shareholders’ equity
0<1
Month
€ m
1<3
Months
€ m
3<12
Months
€ m
428
–
5,284
79,457
–
1,761
2,344
89,274
–
34,243
27,232
2,451
–
–
–
585
–
50
6,691
19,856
2,259
–
29,441
–
2,647
5,974
2,695
–
–
–
41
–
12
3,199
–
593
–
3,845
–
–
8,406
2,081
–
–
–
1<2
Years
€ m
64
–
–
2,957
–
1,093
–
4,114
–
–
4,392
2,870
–
–
–
Total liabilities and shareholders’ equity
63,926
11,316
10,487
7,262
Derivatives affecting interest rate sensitivity
(9,358)
21,089
(9,724)
(2,944)
Interest sensitivity gap
Cumulative interest sensitivity gap
34,706
34,706
(2,964)
31,742
3,082
34,824
(204)
34,620
(Euro currency amounts)
Interest sensitivity gap
Cumulative interest sensitivity gap
(US$ in euro equivalents)
Interest sensitivity gap
Cumulative interest sensitivity gap
€ m
29,008
29,008
US$ m
(272)
(272)
€ m
(2,957)
26,051
US$ m
(128)
(400)
€ m
3,053
29,104
US$ m
55
(345)
€ m
(369)
28,735
US$ m
87
(258)
2<3
Years
€ m
–
–
–
1,457
–
2,430
–
3,887
–
–
1,421
750
–
–
–
2,171
1,126
590
35,210
€ m
487
29,222
US$ m
3<4
Years
€ m
4<5
Years
€ m
5 years + Non-interest
bearing
€ m
€ m
Trading
€ m
2011
Total
€ m
22
–
–
846
–
1,257
–
2,125
–
–
553
3,017
–
–
–
3,570
(1,886)
441
35,651
–
–
–
629
–
1,410
–
2,039
–
–
743
–
1,177
–
–
1,920
(17)
136
35,787
€ m
€ m
137
29,359
43
29,402
US$ m
US$ m
–
–
–
2,236
–
4,342
–
6,578
–
–
41
1,790
32
–
–
1,863
1,714
3,001
38,788
€ m
1,278
30,680
US$ m
282
–
372
(14,932)
–
244
7,396
–
56
–
–
–
–
1,930
1,422
56
5,718
82,540
19,856
15,389
11,670
(6,638)
1,986 136,651
3
–
11,912
–
–
5,328
14,463
31,706
–
(38,344)
444
€ m
(26,565)
4,115
–
–
–
–
–
2,430
–
3
36,890
60,674
15,654
1,209
7,758
14,463
2,430 136,651
–
–
(444)
–
€ m
947
5,062
US$ m
US$ m
13
(245)
1
(244)
14
(230)
28
(202)
(2,570)
(2,772)
(56)
(2,828)
(Stg£ in euro equivalents)
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Interest sensitivity gap
Cumulative interest sensitivity gap
5,794
5,794
32
5,826
(111)
5,715
49
5,764
68
5,832
279
6,111
76
6,187
1,689
7,876
(8,796)
(920)
(1,400)
(2,320)
(Other currencies in euro equivalents)
Other m
Other m
Other m
Other m
Other m
Other m
Other m
Other m
Other m
Other m
Interest sensitivity gap
Cumulative interest sensitivity gap
3
2
7
176
176
89
265
85
350
29
379
22
401
24
425
3
428
6
434
(413)
21
65
86
3
2
8
51 Interest rate sensitivity (continued)
0<1
Month
€ m
1<3
Months
€ m
3<12
Months
€ m
1<2
Years
€ m
2<3
Years
€ m
3<4
Years
€ m
4<5
Years
€ m
1,233
950
36
1
20
7
Assets
Financial assets held for sale to NAMA
Disposal groups and non-current assets
held for sale
Trading portfolio financial assets
Loans and receivables to banks
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale
Other assets
Total assets
Liabilities
Disposal groups held for sale
Deposits by central banks and banks
Customer accounts
Debt securities in issue
Subordinated liabilities & capital instruments
Other liabilities
Shareholders’ equity
–
–
2,558
66,825
–
3,585
3,086
77,287
–
40,578
31,851
1,973
376
–
–
–
–
2
10,620
7,869
4,260
–
23,701
–
9,143
5,783
4,249
242
–
–
–
–
1
3,811
–
2,041
–
5,889
–
148
6,273
835
–
–
–
–
–
–
2,230
–
1,944
–
4,175
–
–
789
1,272
–
–
–
–
–
–
1,822
–
1,013
–
2,855
–
–
396
2,820
–
–
–
Total liabilities and shareholders’ equity
74,778
19,417
7,256
2,061
3,216
Derivatives affecting interest rate sensitivity
5,934
9,758
(10,553)
(661)
(2,563)
Interest sensitivity gap
Cumulative interest sensitivity gap
(3,425)
(3,425)
(5,474)
(8,899)
9,186
287
2,775
3,062
(Euro currency amounts)
Interest sensitivity gap
Cumulative interest sensitivity gap
€ m
€ m
€ m
€ m
(10,413)
(10,413)
(5,143)
(15,556)
7,716
(7,840)
2,326
(5,514)
2,202
5,264
€ m
1,863
(3,651)
(2,738)
(2,591)
1,663
10,975
13,424
1,925 145,222
5 years + Non-interest
Trading
Total
2010
€ m
1
–
–
–
6,488
–
4,486
–
bearing
€ m
€ m
€ m
(326)
15
1,937
13,911
–
382
(7,248)
–
314
6,391
–
33
–
–
–
–
1,877
13,911
33
2,943
86,350
7,869
20,825
11,354
–
–
316
1,765
3,645
–
–
5,726
(2,152)
7,401
13,884
€ m
5,693
3,102
11,548
–
6,264
–
–
5,523
3,659
–
–
–
–
–
2,239
–
11,548
49,869
52,389
15,664
4,331
7,762
3,659
26,994
2,239 145,222
–
(13,570)
314
–
(314)
–
–
€ m
€ m
(5,041)
(227)
(1,939)
(2,166)
–
–
–
–
850
–
813
–
–
–
343
2,000
68
–
–
2,411
(919)
171
6,483
€ m
147
–
–
–
952
–
2,369
–
3,328
–
–
374
750
–
–
–
1,124
1,156
1,048
6,312
€ m
913
(US$ in euro equivalents)
US$ m
US$ m
US$ m
US$ m
US$ m
US$ m
US$ m
US$ m
US$ m
US$ m
Interest sensitivity gap
Cumulative interest sensitivity gap
972
972
(479)
493
255
748
(244)
504
78
582
24
606
6
612
64
676
(875)
(199)
(89)
(288)
(Stg£ in euro equivalents)
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m Stg£ m
Interest sensitivity gap
Cumulative interest sensitivity gap
5,845
5,845
(71)
5,774
1,011
6,785
665
7,450
229
7,679
92
7,771
2
7,773
1,617
9,390
(8,649)
741
26
767
(Other currencies in euro equivalents)
PLN m
PLN m
PLN m
PLN m
PLN m
PLN m
PLN m
PLN m
PLN m
PLN m
Interest sensitivity gap
Cumulative interest sensitivity gap
16
16
–
16
–
16
–
16
–
16
–
16
–
16
–
16
586
602
(158)
444
N
o
t
e
s
t
o
t
h
e
f
i
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
51 Interest rate sensitivity (continued)
0<1
Month
€ m
1<3
Months
€ m
3<12
Months
€ m
Assets
Financial assets held for sale to NAMA
Trading portfolio financial assets
Loans and receivables to banks
Loans and receivables to customers
Financial investments available for sale
Financial investments held to maturity
Other assets
Total assets
Liabilities
Financial liabilities held for sale to NAMA
Deposits by central banks and banks
Customer accounts
Trading portfolio financial liabilities
Debt securities in issue
Subordinated liabilities & capital instruments
Other liabilities
Shareholders’ equity
12,969
–
8,218
73,705
5,423
–
3,569
103,884
–
13,522
52,322
–
9,047
846
–
–
9,669
–
508
16,520
6,485
77
–
33,259
–
11,813
12,865
–
9,891
454
–
–
133
–
2
4,430
1,980
1,509
–
8,054
–
7,990
9,263
–
7,191
–
–
–
Total liabilities and shareholders’ equity
75,737
35,023
24,444
Derivatives affecting interest rate sensitivity
11,917
9,771
(16,873)
1<2
Years
€ m
129
–
–
2,594
3,153
–
–
5,876
–
8
548
–
39
–
–
–
595
309
2<3
Years
€ m
41
–
–
2,114
1,932
–
–
4,087
–
–
429
–
3<4
Years
€ m
47
–
–
1,435
534
–
–
2,016
–
–
339
–
1,000
1,000
–
–
–
–
–
–
4<5
Years
€ m
44
–
–
903
1,104
–
–
2,051
–
–
341
–
746
–
–
–
5 years + Non-interest
bearing
€ m
€ m
Trading
2009
Total
€ m
€ m
163
–
–
4,627
4,398
–
–
9,188
–
–
163
–
1,740
3,286
–
–
(4,108)
–
365
(2,987)
327
–
7,247
125
19,212
296
296
–
9,093
– 103,341
25,336
–
1,586
–
15,450
4,634
844
5,055 174,314
–
–
7,683
–
–
–
3
–
–
23
–
–
6,193
10,709
4,860
–
3
33,333
83,953
23
30,654
4,586
11,053
10,709
1,429
1,339
1,087
5,189
24,585
4,886 174,314
(744)
(1,660)
(34)
(2,686)
–
–
–
169
–
Interest sensitivity gap
Cumulative interest sensitivity gap
16,230
16,230
(11,535)
4,695
483
5,178
4,972
10,150
3,402
13,552
2,337
15,889
998
16,887
6,685
23,572
(23,741)
(169)
(Euro currency amounts)
Interest sensitivity gap
Cumulative interest sensitivity gap
(US$ in euro equivalents)
Interest sensitivity gap
Cumulative interest sensitivity gap
€ m
16,672
16,672
US$ m
(5,051)
(5,051)
€ m
€ m
(12,369)
4,303
(1,066)
3,237
€ m
4,110
7,347
US$ m
US$ m
US$ m
(2,258)
(7,309)
(10)
(7,319)
235
(7,084)
€ m
2,779
10,126
US$ m
33
(7,051)
€ m
€ m
1,962
12,088
872
12,960
US$ m
US$ m
75
(6,976)
43
(6,933)
(Stg£ in euro equivalents)
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Stg£ m
Interest sensitivity gap
Cumulative interest sensitivity gap
(Other currencies in euro equivalents)
Interest sensitivity gap
Cumulative interest sensitivity gap
6,283
6,283
PLN m
(2,039)
(2,039)
3,746
10,029
PLN m
(906)
(2,945)
445
10,474
PLN m
1,426
(1,519)
325
10,799
PLN m
241
(1,278)
289
11,088
144
11,232
(3)
11,229
PLN m
PLN m
PLN m
250
(1,028)
102
(926)
70
(856)
€ m
5,729
18,689
US$ m
80
(6,853)
Stg£ m
819
12,048
PLN m
23
(833)
€ m
€ m
(17,356)
1,333
(1,251)
82
US$ m
US$ m
(734)
(7,587)
(88)
(7,675)
Stg£ m Stg£ m
(5,398)
6,650
55
6,705
PLN m
PLN m
(363)
(1,196)
991
(205)
3
2
9
Notes to the financial statements
52 Statement of cash flows
Analysis of cash and cash equivalents
For the purpose of the statement of cash flows, cash equivalents comprise the following balances with less than three months maturity
from the date of acquisition:
Cash and balances at central banks
Loans and receivables to banks
2013
€ m
4,132
1,598
5,730
2012
€ m
4,047
1,879
5,926
2011
€ m
2,934
4,439
7,373
The Group is required to maintain balances with the Central Bank of Ireland which at 31 December 2013 amounted to € 115 million
(2012: € 107 million; 2011: € 142 million).
The Group is required by law to maintain reserve balances with the Bank of England and during 2011 was also required to maintain
balances with central banks in Latvia, Lithuania and Estonia. At 31 December 2013, these amounted to € 542 million (2012:
€ 586 million; 2011: € 1,676 million).
There are certain regulatory restrictions on the ability of subsidiaries to transfer funds to the parent company in the form of cash
dividends, loans or advances. The impact of such restrictions is not expected to have a material effect on the Group’s ability to meet its
cash obligations.
Cash flows in respect of acquisitions
The aggregate net outflow of cash arising from the acquisition of Anglo deposit business and EBS in 2011 is as follows:
Cash consideration paid on acquisition of Anglo business
Cash and cash equivalent acquired on acquisition of EBS
Net cash outflow on acquisitions
2011
€ m
(3,779)
359
(3,420)
330
53 Report on directors’ remuneration and interests
Commentary on the Company’s policy with respect to directors’ remuneration is included in the corporate governance statement on
pages 195 to 197.
Directors’ remuneration
The following tables detail the total remuneration of the Directors in office during 2013 and 2012:
Remuneration
Executive Directors
Bernard Byrne
David Duffy
Non-Executive Directors
Simon Ball
Tom Foley
Peter Hagan
David Hodgkinson(1(a))
(Chairman)
Jim O’Hara
Dr Michael Somers(1(b))
(Deputy Chairman)
Dick Spring
Tom Wacker
Catherine Woods
Former Directors
Declan Collier(5)
Kieran Crowley(6)
Stephen L Kingon(6)
Anne Maher(7)
David Pritchard(6)
Other(8)
Total
Directors’
fees
Parent and Irish
subsidiary
companies(1)
Directors’
fees
Non-Irish
subsidiary
companies(2)
Salary
Annual
taxable contribution(4)
benefits(3)
Pension
2013
Total
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
361
425
786
30
–
30
99
64
163
85
104
87
275
127
150
77
63
159
1,127
31
35
35
35
47
58
94
490
489
979
85
104
87
275
127
150
77
98
159
1,162
35
47
58
31
94
41
2,447
331
Notes to the financial statements
53 Report on directors’ remuneration and interests (continued)
Remuneration
Executive Directors
Bernard Byrne*
David Duffy*
Non-Executive Directors
Simon Ball
Declan Collier
(resigned as Director on 28 June 2012)
Tom Foley
(appointed 13 September 2012)
Peter Hagan
(appointed 26 July 2012)
David Hodgkinson
(Chairman)
Jim O’Hara
Dr Michael Somers
(Deputy Chairman)
Dick Spring
Tom Wacker
Catherine Woods
Former Directors
Kieran Crowley
Stephen L Kingon
Anne Maher
David Pritchard
Other
Total
Directors’
fees
Parent and Irish
subsidiary
companies
€ 000
Directors’
fees
Non-Irish
subsidiary
companies
€ 000
Salary
Annual
taxable
benefits
Pension
contribution
2012
Total
€ 000
€ 000
€ 000
€ 000
399
475
874
44
–
44
110
71
553
546
181
1,099
61
40
21
27
275
92
150
66
83
173
988
50
25
25
49
46
99
61
40
21
27
275
92
150
66
108
173
1,013
49
46
50
99
104
2,460
*A reduction of 15% in total remuneration was applied to Bernard Byrne and David Duffy with effect from 1 September 2012.
332
53 Report on directors’ remuneration and interests (continued)
(1) Fees paid to Non-Executive Directors in 2013 were as follows:
(a) Mr David Hodgkinson, Non-Executive Chairman, was paid a non-pensionable flat fee of €275,000 which includes remuneration for all services as a
director of Allied Irish Banks, p.l.c.;
(b) Dr Michael Somers, Deputy Chairman and Chairman of the Board Risk Committee, was paid a non-pensionable flat fee of €150,000 which includes
remuneration for all services as a director of Allied Irish Banks, p.l.c.; and
(c) All other Non-Executive Directors were paid a basic, non-pensionable fee in respect of service as a Director, of €27,375 (voluntarily reduced from
€36,500 between December 2008 and February 2009), and additional non-pensionable remuneration (subject also to an equivalent reduction) paid to
any Non-Executive Director who: is the Chairman of the Audit Committee, the Nomination and Corporate Governance Committee or the
Remuneration Committee; is the Senior Independent Director, or performs additional services, such as through membership of Board Committees or
the board of a subsidiary company;
(2) Current or former Non-Executive Directors of Allied Irish Banks, p.l.c. who also serve as Directors of AIB Group (UK) p.l.c. (“AIB UK”) are separately paid
non-pensionable flat fee, which is independently agreed and paid by AIB UK, in respect of their service as a Director of that company;
a
(3) ‘Annual taxable benefits’ represents a reduced non-pensionable cash allowance in lieu of company car, medical insurance and other contractual benefits
following the internal review of Pay and Benefits in 2012 (see Remuneration Review, Corporate Governance Statement, page 197);
(4) ’Pension contribution’ represents agreed payments to a defined contribution scheme to provide post-retirement pension benefits for Executive
Directors from normal retirement date. The fees of the Chairman, Deputy Chairman and Non-Executive Directors are non-pensionable;
(5) Mr Declan Collier a former Government appointed Non-Executive Director of Allied Irish Banks, p.l.c., was appointed a Non-Executive Director of AIB UK
on 13 March 2013, in respect of which he earns fees as outlined at (2) above. The fees received by Mr Collier during 2013 include an amount of € 11,776
in respect of services to the company prior to his formal appointment as a director;
(6) Mr Kieran Crowley, Mr Stephen L. Kingon and Mr David Pritchard are former Non-Executive Directors of Allied Irish Banks, p.l.c. who have, since
their resignations, continued as Non-Executive Directors of AIB UK, of which Mr Pritchard is Chairman; they continue to earn fees as outlined at (2)
above;
(7) Ms Anne Maher is a former Non-Executive Director of Allied Irish Banks, p.l.c. who has, since her resignation, continued as a Director of the
Corporate Trustee of the AIB Irish Pension Scheme and of the AIB Defined Contribution Scheme, in respect of which she earned fees as quoted;
(8) ’Other’ represents the payment of pensions to former Directors or their dependants granted on an ex-gratia basis and are fully provided for in the
Statement of Financial Position.
(9) As a result of the internal review of pay and benefits in 2012 (see Remuneration Review, Corporate Governance Statement, page 197) and following
consultation with the Department of Finance, a revised fee structure for Non-Executive Directors was implemented from 1 Jan 2014, the effect of which is
a further reduction in the fees payable from that date.
333
Notes to the financial statements
53 Report on directors’ remuneration and interests (continued)
Interests in shares
The beneficial interests of the Directors and the Secretary in office at 31 December 2013, and of their spouses and minor children, in the
Company’s ordinary shares are as follows:
Ordinary shares
Directors:
Simon Ball
Bernard Byrne
David Duffy
Tom Foley
Peter Hagan
David Hodgkinson
Jim O’Hara
Dr Michael Somers
Dick Spring
Tom Wacker
Catherine Woods
Secretary:
David O’Callaghan
*or date of appointment, if later
31 December
2013
1 January
2013*
–
–
–
–
–
–
100
100
–
–
–
–
–
–
13,437
13,437
–
–
–
–
–
–
7,490
7,490
Throughout 2013, the Directors were prohibited from trading in the Company’s shares due to significant ongoing corporate activity and
close periods in advance of public disclosures.
The following table sets forth the beneficial interests of the Directors and Leadership Team members of AIB as a group (including their
spouses and minor children) at 31 December 2013.
Title of class
Identity of
person or group
Ordinary shares
Directors and Leadership Team
members of AIB as a group
Number
owned
Percent
of class
18,368 *
* The total shares in issue at 31 December 2013, excluding 35,680,114 treasury shares, was 521,261,151,503.
334
53 Report on directors’ remuneration and interests (continued)
Share options
There were no options to subscribe for ordinary shares outstanding in favour of the Executive Directors at 31 December 2013. Details of
the Secretary’s options to subscribe for ordinary shares are given below. Information on the Share Option Schemes is given in note 11.
The vesting of these options is dependent on Earnings Per Share (“EPS”) targets being met. Subject thereto, the options outstanding at
31 December 2013 are exercisable up to April 2014. Details are shown in the Register of Directors’ and Secretary’s Interests, which may
be inspected by shareholders at the Company’s Registered Office.
Secretary:
David O’Callaghan
Date
of grant
Number Option Price
€
of shares
Vested/
unvested
Exercise
period
28.04.2004
2,500
12.60
Vested
28.04.2007 - 2014
No share options were granted or exercised during 2013.
The Chairman and the Non-Executive Directors do not participate in the share options plans. The aggregate number of share options
outstanding at 31 December 2013 in the names of Executive Directors and members of the Leadership Team (‘Senior Executive
Officers’), was 7,000 as follows:
Outstanding as at 31 December 2012:
Add: Options held by Senior Executive Officers appointed during 2013
Add: Options granted during 2013
Less: Options exercised during 2013
Less: Options lapsed during 2013
Less: Options held by Senior Executive Officers who left office during 2013
Options outstanding as at 31 December 2013
40,000
10,500
–
–
(3,500)
(40,000)
7,000
Performance shares
There were no conditional grants of awards of ordinary shares outstanding to Executive Directors or the Secretary at 31 December
2013.
Apart from the interests set out above, the Directors and Secretary in office at year-end, and their spouses and minor children, have no
other interests in the shares of the Company.
There were no changes in the Directors’ and Secretary’s interests shown above between 31 December 2013 and 4 March 2014.
The year-end closing price, on the Enterprise Securities Market of the Irish Stock Exchange, of the Company’s ordinary shares was
€ 0.11 per share; during the year, the price ranged from € 0.05 to € 0.15.
Service contracts
There are no service contracts in force for any Director with the Company or any of its subsidiaries.
335
Notes to the financial statements
54 Related party transactions
Related parties of the Group and Allied Irish Banks, p.l.c. (“AIB”) include subsidiary undertakings, associate undertakings and joint
arrangements post-employment benefits, Key Management Personnel and connected parties. The Irish Government is also considered
a related party by virtue of its effective control of AIB.
(a) Transactions with subsidiary undertakings
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, provision of derivative contracts, foreign currency transactions and the provision of
guarantees on an ‘arms length’ basis. Balances between AIB and its subsidiaries are detailed in notes g, j, l, p and q to the parent
company financial statements. In accordance with IFRS10 Consolidated Financial Statements, transactions with subsidiaries have been
eliminated on consolidation.
(b) Associated undertakings and joint arrangements
From time to time, the Group provides certain banking and financial services for associated undertakings. These transactions are made
in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons and do not involve more than the normal risk of collectability or present other
unfavourable features. Details of loans to associates are set out in note g to the parent company financial statements, while deposits
from associates are set out in note q.
(c) Sale and leaseback of Blocks E, F, G and H Bankcentre to Aviva Life and Pensions Ireland Limited (“ALP”)
Following the disposal of the Group’s 24.99% share in Aviva Life Holdings Ireland Limited in March 2013, the transaction involving the
sale and leaseback of the above properties is no longer a related party transaction.
(d) Provision of banking and related services and funding to Group Pension schemes
The Group provides certain banking and financial services including money transmission services for the AIB Group Pension schemes.
Such services are provided in the ordinary course of business, on substantially the same terms, including interest rates, as those
prevailing at the time for comparable transactions with other persons.
During 2013, the Group established a pension funding partnership, AIB PFP Scottish Limited Partnership (“SLP”) in the UK. Following
this, a subsidiary of AIB transferred loans to the SLP for the purpose of ring-fencing the repayments of these loans to fund future deficit
payments of the AIB UK Defined Benefit Pension Scheme (note 49).
During 2012, AIB agreed to make certain contributions to the pension scheme which were settled through the transfer to the AIB Group
Irish Pension Scheme of interests in a Special Purpose Vehicle (“SPV”) owning loans and receivables previously transferred at fair value
from the Group. A subsidiary of AIB was appointed as a service provider for the loans and receivables transferred in return for a
servicing fee at a market rate (note 49).
(e) 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 Executive and
Non-Executive Directors together with Senior Executive Officers, namely, the members of the Leadership Team (see pages 184 to 186).
The figures shown below include the figures separately reported in respect of Directors’ remuneration in the ‘Report on Directors’
Remuneration and Interests’ in note 53:
Short-term compensation(1)
Post-employment benefits(2)
Termination benefits
Total
2013
€ m
5.8
0.5
0.4
6.7
Group
2012
€ m
Allied Irish Banks, p.l.c.
2012
€ m
2013
€ m
6.2
0.7
0.5
7.4
5.5
0.5
0.4
6.4
5.3
0.5
0.5
6.3
(1)Comprises (a) in the case of Executive Directors and Senior Executive Officers: salary and a non-pensionable cash allowance in lieu of company car,
medical insurance and other contractual benefits following the internal review of pay and benefits in 2012 (see Remuneration Review, Corporate
Governance Statement, page 197); and (b) in the case of Non-Executive Directors: Directors’ fees and travel and subsistence expenses incurred in the
performance of the duties of their office, which are paid by the Company.
(2)Comprises payments to defined benefit or defined contribution pension schemes, in accordance with actuarial advice, to provide post-retirement
pensions. The defined benefit scheme closed for future accruals with effect from 31 December 2013 and all future employee pension benefits will accrue
under the defined contribution scheme.
336
54 Related party transactions (continued)
(f) Transactions with Key Management Personnel
At 31 December 2013, deposit and other credit balances held by Key Management Personnel, namely Executive and Non-Executive
Directors and Senior Executive Officers, in office during the year amounted to € 5.04 million (2012: € 10.0 million).
Loans to Key Management Personnel are made in the ordinary course of business on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable transactions with other persons of similar standing not connected
with the Group, and do not involve more than the normal risk of collectability or present other unfavourable features. Loans to Executive
Directors and Senior Executive Officers are also made in the ordinary course of business, on terms available to other employees in the
Group generally, in accordance with established policy, within limits set on a case by case basis.
Details of transactions with Key Management Personnel, and connected parties where indicated, for the years ended 31 December
2013 and 2012 are as follows:
(i) Current Directors
David Duffy:
Loans
Overdraft/Credit card*
Total
Interest charged during 2013
Maximum debit balance during 2013
Tom Foley:
Loans
Overdraft/Credit card*
Total
Interest charged during 2013
Maximum debit balance during 2013
Jim O’Hara:
Loans
Overdraft/Credit card*
Total
Interest charged during 2013
Maximum debit balance during 2013
Dr Michael Somers:
Loans
Overdraft/Credit card*
Total
Interest charged during 2013
Maximum debit balance during 2013
Dick Spring:
Loans
Overdraft/Credit card*
Total
Interest charged during 2013
Maximum debit balance during 2013
Balance at
31 December
2012
€ 000
Amounts
advanced
during 2013
€ 000
Amounts
repaid
during 2013
€ 000
Currency
movements
€ 000
1,348
3
1,351
–
–
–
–
–
–
–
1
1
–
9
9
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
87
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
2013
Balance at
31 December
2013
€ 000
1,261
12
1,273
16
1,382
–
–
–
–
6
–
–
–
–
12
–
–
–
–
4
–
4
4
–
17
*Amounts advanced and repaid are not shown for overdraft/credit card facilities as such facilities are revolving in nature (i.e. they may
be drawn, repaid and redrawn up to their limit over the course of the year).
337
Notes to the financial statements
54 Related party transactions (continued)
(i) Current Directors
Catherine Woods:
Loans
Overdraft/Credit card*
Total
Interest charged during 2013
Maximum debit balance during 2013
Balance at
31 December
2012
€ 000
Amounts
advanced
during 2013
€ 000
Amounts
repaid
during 2013
€ 000
Currency
movements
€ 000
2013
Balance at
31 December
2013
€ 000
97
–
97
–
n/a
n/a
9
n/a
n/a
–
n/a
n/a
88
–
88
1
97
As at 31 December 2013, guarantees entered into by Catherine Woods in favour of the Group amounted to € 0.1 million.
Simon Ball, Bernard Byrne, Peter Hagan, David Hodgkinson and Tom Wacker had no facilities with the Group during 2013.
(ii) Former Directors who were in office during the year
There were no changes to the Board during the year
(iii) Senior Executive Officers in office during the year
(Aggregate of 7 persons (2012: 14)):
Loans
Overdraft/Credit card*
Total
Interest charged during 2013
Maximum debit balance during 2013
Balance at
31 December
2012
€ 000
Amounts
advanced
during 2013
€ 000
Amounts
repaid
during 2013
€ 000
1,841
17
1,858
–
n/a
n/a
237
n/a
n/a
Currency
movements
€ 000
–
n/a
n/a
2013
Balance at
31 December
2013
€ 000
1,604
27
1,631
51
1,885
(iv) Aggregate amounts outstanding at year-end
Directors (2013: 6 persons; 2012: 6 persons)
Senior Executive Officers (2013: 7 persons; 2012: 9 persons)
Loans, overdrafts/credit cards
31 December 2013
€ 000
31 December 2012
€ 000
1,365
1,631
2,996
1,458
1,858
3,316
As at 31 December 2013, guarantees entered into by 1 Director and 1 Senior Executive Officers in favour of the Group amounted to
€ 0.72 million in aggregate (2012: € 1.4 million by 1 Director and 2 Senior Executive Officers).
(v) Connected persons
The aggregate of loans to connected persons of Directors in office as at 31 December 2013, as defined in Section 26 of the Companies
Act 1990, are as follows (aggregate of 18 persons; 2012: 18 persons):
Loans
Overdraft/Credit card*
Total
Interest charged during 2013
Maximum debit balance during 2013
Balance at
31 December
2012
€ 000
Amounts
advanced
during 2013
€ 000
Amounts
repaid
during 2013
€ 000
831
22
853
56
n/a
n/a
51
n/a
n/a
Currency
movements
€ 000
–
n/a
n/a
2013
Balance at
31 December
2013
€ 000
836
62
898
33
981
No impairment charges or provisions have been recognised in respect of any of the above loans or facilities detailed in (i) to (v) and all
interest that has fallen due on all of these loans or facilities has been paid.
*Amounts advanced and repaid are not shown for overdraft/credit card facilities as such facilities are revolving in nature (i.e. they may
be drawn, repaid and redrawn up to their limit over the course of the year).
338
54 Related party transactions (continued)
(i) Directors in office during 2012
Balance at
31 December
2011
€ 000
Amounts
advanced
during 2012
€ 000
Amounts
repaid
during 2012
€ 000
Currency
movements
€ 000
David Duffy:
Loans
Overdraft/Credit card*
Total
Interest charged during 2012
Maximum debit balance during 2012
Tom Foley:
Loans
Overdraft/Credit card*
Total
Interest charged during 2012
Maximum debit balance during 2012
Jim O’Hara:
Loans
Overdraft/Credit card*
Total
Interest charged during 2012
Maximum debit balance during 2012
Dr Michael Somers:
Loans
Overdraft/Credit card*
Total
Interest charged during 2012
Maximum debit balance during 2012
Dick Spring:
Loans
Overdraft/Credit card*
Total
Interest charged during 2012
Maximum debit balance during 2012
Catherine Woods:
Loans
Overdraft/Credit card*
Total
Interest charged during 2012
Maximum debit balance during 2012
1,432
1
1,433
–
5
5
–
–
–
–
2
2
–
7
7
106
–
106
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
84
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
9
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
2012
Balance at
31 December
2012
€ 000
1,348
3
1,351
21
1,468
–
–
–
–
6
–
–
–
1
36
–
1
1
–
3
–
9
9
–
17
97
–
97
2
106
As at 31 December 2012, guarantees entered into by Catherine Woods in favour of the Group amounted to € 0.1 million.
Simon Ball, Bernard Byrne, Peter Hagan, David Hodgkinson and Tom Wacker had no facilities with the Group during 2012.
*Amounts advanced and repaid are not shown for overdraft/credit card facilities as such facilities are revolving in nature (i.e. they may
be drawn, repaid and redrawn up to their limit over the course of the year).
339
Notes to the financial statements
54 Related party transactions (continued)
(ii) Former Directors who were in office during 2012
Declan Collier had no facilities with the Group during 2012.
(iii) Senior Executive Officers in office during 2012
(Aggregate of 14 persons (2011: 9)):
Loans
Overdraft/Credit card*
Total
Interest charged during 2012
Maximum debit balance during 2012
Balance at
31 December
2011
€ 000
Amounts
advanced
during 2012
€ 000
Amounts
repaid
during 2012
€ 000
1,739
74
1,813
51
n/a
n/a
234
n/a
n/a
Currency
movements
€ 000
–
n/a
n/a
2012
Balance at
31 December
2012
€ 000
1,556
39
1,595
56
1,905
(iv) Aggregate amounts outstanding at year-end
Directors (2012: 6 persons; 2011: 5 persons)
Senior Executive Officers (2012: 9 persons; 2011: 9 persons)
Loans, overdrafts/credit cards
31 December 2012
€ 000
31 December 2011
€ 000
1,458
1,595
3,053
1,563
2,377
3,940
As at 31 December 2012, guarantees entered into by 1 Director and 2 Senior Executive Officers in favour of the Group amounted to
€ 1.4 million in aggregate (2011: € 1.9 million by 1 Director and 3 Senior Executive Officers). As at 31 December 2012, one Senior
Executive Officer had entered into a foreign exchange forward contract for £120,000.
(v) Connected persons
The aggregate of loans to connected persons of Directors in office as at 31 December 2012, as defined in Section 26 of the Companies
Act 1990, are as follows (aggregate of 18 persons; 2011: 17 persons):
Loans
Overdraft/Credit card*
Total
Interest charged during 2012
Maximum debit balance during 2012
Balance at
31 December
2011
€ 000
Amounts
advanced
during 2012
€ 000
Amounts
repaid
during 2012
€ 000
1,055
107
1,162
–
n/a
n/a
224
n/a
n/a
Currency
movements
€ 000
–
n/a
n/a
2012
Balance at
31 December
2012
€ 000
831
22
853
34
1,183
No impairment charges or provisions have been recognised in respect of any of the above loans or facilities detailed in (i) to (v) and all
interest that has fallen due on all of these loans or facilities has been paid.
*Amounts advanced and repaid are not shown for overdraft/credit card facilities as such facilities are revolving in nature (i.e. they may
be drawn, repaid and redrawn up to their limit over the course of the year).
340
54 Related party transactions (continued)
(g) Summary of relationship with the Irish Government
The Irish Government, as a result of both its investment in AIB’s 2009 Preference shares and AIB’s participation in Government
guarantee schemes, became a related party of AIB in 2009. Following the various ordinary/CNV share issues to the NPRFC during
2010 and 2011, AIB is under the control of the Irish Government.
AIB enters into normal banking transactions with the Irish Government and many of its controlled bodies on an arm’s length basis. In
addition, other transactions include the payment of taxes, pay related social insurance, local authority rates, and the payment of
regulatory fees as appropriate.
Following the crisis in the Irish banking sector and the stabilisation measures adopted since 2008, the involvement of the Irish
Government in AIB and in other Irish banks has been and continues to be considerable. This involvement is outlined below.
Rights and powers of the Irish Government and the Central Bank of Ireland
The Irish Minister for Finance (‘the Minister’) and the Central Bank of Ireland (“the Central Bank”) have significant rights and powers
over the operations of AIB (and other financial institutions) arising from the various stabilisation measures. These rights and powers
relate to, inter alia:
– The acquisition of shares in other institutions;
– Maintenance of solvency ratios and compliance with any liquidity and capital ratios that the Central Bank, following consultation
with the Minister, may direct;
– The appointment of non-executive directors and board changes;
– The appointment of persons to attend meetings of various committees;
– Restructuring of executive management responsibilities, strengthening of management capacity and improvement of governance;
– Declaration and payment of dividends;
– Restrictions on various types of remuneration;
– Buy-backs or redemptions by the Group of its shares;
– The manner in which the Group extends credit to certain customer groups; and
– Conditions regulating the commercial conduct of AIB, having regard to capital ratios, market share and the Group’s balance sheet
growth.
In addition, various other initiatives such as strategies/codes of conduct for dealing with mortgage and other consumer/business loan
arrears are set out in the Risk section of this report.
The relationship of the Irish Government with AIB is outlined under the following headings:
– Capital investments;
– Guarantee schemes;
– NAMA;
– Funding support;
– PCAR/PLAR;
– Credit Institutions (Stabilisation) Act 2010:
(i) Direction Order;
(ii) Transfer Order;
(iii) Subordinated Liabilities Order;
– Central Bank and Credit Institutions (Resolution) Act 2011; and
– Relationship framework which was signed in March 2012
Since 31 December 2012, there have been no significant changes to the various aspects of this relationship.
341
Notes to the financial statements
54 Related party transactions (continued)
(g) Summary of relationship with the Irish Government
– Capital investments
Ordinary shares
At 31 December 2013, the Irish Government, through the NPRFC, held 99.8% of the ordinary share capital in AIB (2012: 99.8%).
However, the number of shares held increased by 4.1 billion since 2012 through the non-payment of the dividend of € 280 million
on the preference share capital as noted below. The NPRFC now holds 520.4 billion ordinary shares (31 December 2012:
516.2 billion shares). See note 41 for details of the Government’s investment in the ordinary shares of AIB.
2009 Preference Shares
At 31 December 2013, the Irish Government, through the NPRFC, held € 3.5 billion capital (2012: €3.5 billion) in the form of
non-cumulative preference shares (“2009 Preference Shares”). The annual cash dividend amounting to € 280 million was not paid in
either 2013 or 2012, however, the dividend entitlement was satisfied by way of a Bonus issue of 4.1 billion ordinary shares (2012:
3.624 billion). The terms and conditions attaching to the 2009 Preference Shares are outlined in note 41.
Contingent capital notes
On 27 July 2011, AIB issued € 1.6 billion of contingent capital notes at par to the Minister. Details of this transaction are set out in
note 40.
Capital contributions
On 28 July 2011, the Minister and the NPRFC made capital contributions totalling € 6.054 billion to AIB for nil consideration.
For further details, see note 44.
– Guarantee schemes
The European Communities (Deposit Guarantee Schemes) Regulations 1995 have been in operation since 1995. These regulations
guarantee certain retail deposits up to a maximum of € 100,000. In addition, since September 2008, the Irish Government has
guaranteed relevant deposits and debt securities of AIB through the Credit Institutions (Financial Support) Scheme 2008 (“the CIFS
scheme”) which expired in September 2010 and the Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 (“ELG
Scheme”) which expired on 28 March 2013 for all new liabilities and is outlined below.
ELG Scheme
The ELG Scheme was a temporary measure which was introduced in response to the financial crisis.
On 21 January 2010, Allied Irish Banks, p.l.c., including its international branches and subsidiaries, AIB Group (UK) p.l.c.,
AIB Bank (CI) Limited and Allied Irish Banks North America Inc., became participating institutions for the purposes of the ELG
Scheme. The Minister stands as guarantor of all guaranteed liabilities of a participating institution. The ELG Scheme was intended
to facilitate the ability of participating credit institutions in Ireland to issue certain debt securities and take deposits with a maturity of
up to five years for pre-defined periods. On 28 March 2013, the ELG Scheme ended for all new liabilities. After this date, no new
liabilities are guaranteed under this scheme.
Eligible liabilities under the ELG Scheme comprised the following:
–
all deposits to the extent not covered by deposit protection schemes in Ireland or in any other jurisdiction;
–
–
–
–
senior unsecured certificates of deposit;
senior unsecured commercial paper;
other senior unsecured bonds and notes; and
other forms of senior unsecured debt which may be specified by the Minister consistent with European Union State aid rules
and the European Commission’s Banking Communication (2008/C 270/02) and subject to prior consultation with the European
Commission.
Dated subordinated debt and asset-covered securities issued after a covered institution joined the ELG Scheme were not
guaranteed under the ELG Scheme.The total liabilities guaranteed under the ELG Scheme at 31 December 2013 amounted to
€ 7.8 billion (€ 34 billion at 31 December 2012).
Participating institutions must pay a fee to the Minister in respect of each liability guaranteed under the ELG Scheme. Details of the
total charge for 2013, 2012 and 2011 are set out in note 3. Participating institutions are also required to indemnify the Minister for
any costs and expenses of the Minister and for any payments made by the Minister under the ELG Scheme which relate to the
participating institution’s guarantee under the ELG Scheme.
AIB Group (UK) p.l.c. and AIB Offshore commenced withdrawal from the ELG Scheme effective 18 August 2012 and 30 August,
2012, respectively. However, deposits opened before these dates have been guaranteed for the remainder of their maturity.
342
54 Related party transactions (continued)
(g) Summary of relationship with the Irish Government
– NAMA
AIB was designated a participating institution under the NAMA Act in February 2010. Under this Act, AIB transferred financial assets
to NAMA for which it received consideration from NAMA in the form of NAMA senior bonds and subordinated NAMA bonds which
are detailed in notes 8, 28 and 29. In addition, AIB acquired NAMA senior bonds in 2011 as part of the Anglo transaction (€ 11,854
million fair value at acquisition date) and the EBS transaction (€ 301 million carrying value at acquisition date). AIB also acquired
€ 6 million in subordinated NAMA bonds, as part of the EBS transaction. The NAMA senior bonds are guaranteed by the Irish
Government.
Following on the transfer of financial assets to NAMA, a contingent liability/contingent asset arises in relation to:
–
–
–
Details of the contingent liability/asset are set out in note 46.
final settlement amounts with NAMA on assets transferred;
a series of indemnities which AIB has provided to NAMA on transferred assets;
a possible requirement for AIB to share NAMA losses on dissolution of NAMA.
Investment in National Asset Management Agency Investment Ltd (“NAMAIL”)
In March 2010, a then subsidiary of Allied Irish Banks, p.l.c. made an equity investment in 17 million “B” shares of NAMAIL, a
special purpose entity established by NAMA. The total investment amounted to € 17 million, of which € 12 million was invested on
behalf of the AIB Group pension scheme (fair value at 31 December 2013 of € 6 million), with the remainder invested on behalf of
clients.
– Funding support
Throughout the financial crisis, the Irish Government has provided guarantees under the CIFS (expired September 2010) and ELG
schemes as outlined above. In addition, through the Central Bank, the Irish Government has provided direct funding as follows:
– AIB has borrowings from the Central Bank as part of Eurosystem. These borrowings are under ECB Monetary Policy Operation
Sale and Repurchase Agreements and amount to € 12.7 billion (2012: € 22.2 billion). At 31 December 2013, AIB had no
borrowings from the Central Bank under non-standard liquidity facilities (2012: Nil).
The interest rate on these facilities is set by the Central Bank and advised to AIB on each rollover date and at 31 December 2013
was 0.25%, being the current ECB refinancing rate. The facilities were for maturities of between 7 days and 3 months, apart
from the € 11.25 billion (2012: € 11.25 billion) in the three year LTRO (note 35) which will mature in January and February 2015.
At 31 December 2013, the amounts outstanding, totalling € 12.7 billion (2012: € 22.2 billion) are included within Deposits by central
banks and banks in the table below. See note 35 for details of collateral.
These facilities, together with other assets and liabilities with Irish Government entity counterparties, are set out below.
– PCAR/PLAR
On 31 March 2011, the Central Bank published the ‘Financial Measures Programme Report’ which detailed the outcome
of its review of the capital (PCAR) and funding requirements (PLAR) of the domestic Irish banks. The PCAR/PLAR assessments
followed the announcement of the EU-IMF Programme for Ireland in November 2010, in which the provision of an overall amount of
€ 85 billion in financial support for the sovereign was agreed in principle. Up to € 35 billion of this support was earmarked for the
banking system, € 10 billion of which was for immediate recapitalisation of the banks with the remaining € 25 billion to be provided
on a contingency basis. Arising from the 2011 PCAR and PLAR assessments, AIB, including EBS, was required to raise
€ 14.8 billion in total capital (including €1.6 billion in contingent capital), all of which was subsequently raised.
– Credit Institutions (Stabilisation) Act 2010
The Credit Institutions (Stabilisation) Act 2010 was passed into Irish law on 21 December 2010. The Act provides the legislative
basis for the reorganisation and restructuring of the Irish banking system agreed in the joint EU/IMF Programme for Ireland (‘the
Programme’). This allows the Minister to take the actions required to bring about a domestic retail banking system that is
proportionate to and focused on the Irish economy.
The Act provides broad powers to the Minister (in consultation with the Governor of the Central Bank) to act on financial stability
grounds to effect the restructuring actions and recapitalisation measures envisaged in the Programme. The Act applies to banks
which have received financial support from the State, building societies and credit unions. Given the exceptional nature of the
powers contained in the Act, the powers are time-limited and were scheduled to expire on 31 December 2012. However, in January
2013, the Minister extended the period of effectiveness of the Act for a further period of two years until 31 December 2014.
The powers provided in the Act allow the Minister to implement key aspects of the agreed Programme for bank restructuring and
include the issue of direction orders, special management orders, subordinated liabilities orders and transfer of assets and liabilities
orders. In addition, the Act gives the Minister broad powers in relation to directors and officers and their appointment/removal/duties.
Various other terms are also imposed on relevant financial institutions as a condition for financial support.
343
Notes to the financial statements
54 Related party transactions (continued)
(g) Summary of relationship with the Irish Government
– Credit Institutions (Stabilisation) Act 2010
Since the enactment of this legislation, the Minister has invoked certain of his powers under the Act in relation to AIB as follows:
(i) Direction Order
On 23 December 2010, the Irish High Court, on application from the Minister, directed AIB, inter alia, to increase its
authorised share capital; to issue ordinary and CNV shares to the NPRFC; to cancel its listing on the Main Securities Market
and to apply for listing on the Enterprise Securities Market (“ESM”) of the Irish Stock Exchange; and to complete the sale of
its Polish interests to Banco Santander. Arising from this Order, on 23 December 2010, AIB issued ordinary and CNV shares
to the NPRFC for net proceeds of € 3.7 billion.
(ii) Transfer Order
On 24 February 2011, following an application by the Minister, the Irish High Court issued a transfer order for the
immediate transfer of certain deposits and corresponding assets from Anglo Irish Bank Corporation to AIB.
(iii) Subordinated Liabilities Order
On 14 April 2011, following an application by the Minister under section 29 of the Credit Institutions (Stabilisation) Act 2010,
the Irish High Court issued a Subordinated Liabilities Order (the “SLO”) in relation to all outstanding subordinated liabilities
and other capital instruments (including certain tier 1 capital instruments), with the consent of AIB. The Irish High Court
declared the SLO effective as of 22 April 2011. The effect of the SLO was to amend the terms of certain subordinated
liabilities and other capital instruments (note 40).
Acquisition of EBS Limited (“EBS”)
On 31 March 2011, the Minister proposed the combination of AIB and EBS (formerly EBS Building Society) to form one of the two
Pillar banks. On 26 May 2011, AIB entered into an agreement with EBS, the Minister and the NTMA to acquire EBS for a
consideration of € 1 (one euro). The acquisition was effective from 1 July 2011.
– Central Bank and Credit Institutions (Resolution) Act 2011
The Central Bank and Credit Institutions (Resolution) Act 2011 was signed into law on 20 October 2011 and became effective on
28 October 2011. This legislation provides the Central Bank with additional powers to achieve an effective and efficient resolution
regime for credit institutions that are failing or likely to fail and that is effective in protecting the Exchequer and the stability of the
financial system and the economy.
The Act gives the Central Bank power to take control of banks, appoint managers to run them and remove directors, staff and
consultants, and to move their deposits and loans to other banks. On 28 September 2012, the Minister made the Credit institutions
Resolution Fund Levy Regulations, 2012 providing for contributions, by authorised credit institutions, to a Credit Institutions Resolution
Fund pursuant to Section 15 of the Central Bank and Credit Institutions (Resolution) Act 2011. This Resolution Fund has been designed
to provide a source of funding for the resolution of financial instability in, or of an imminent serious threat to the financial stability of an
authorised credit institution.
The Act provides for the establishment of “Bridge-Banks” for the purpose of holding assets or liabilities which have been transferred
under a transfer order. Bridge-Banks are only intended to hold such assets or liabilities on a temporary basis pending onward
transfer as soon as possible.
The Central Bank is empowered to make special management orders in relation to an authorised credit institution, or in relation to a
subsidiary or holding company of the authorised credit institution in certain circumstances. The Act also provides powers to the
Central Bank regarding the liquidation of authorised credit institutions. Authorised credit institutions may also be directed to prepare
a recovery plan setting out actions that could be taken to facilitate the continuation or secure the business or part of the business
of that institution.
The legislation which provides for a permanent statutory regime under which the Central Bank may exercise intervention powers
when a relevant credit institution is in difficulty is expected, in due course, to replace the temporary emergency provisions of the
Credit Institutions (Stabilisation) Act 2010 outlined above.
– Relationship framework
In order to comply with contractual commitments imposed on AIB in connection with its recapitalisation by the Irish State and with
the requirements of EU state aid applicable in respect of that recapitalisation, a relationship framework was entered into between
the Minister and AIB in March 2012. This provides the framework under which the relationship between the Minister and AIB is
governed. Under the relationship framework, the authority and responsibility for strategy and commercial policies (including
business plans and budgets) and conducting AIB's day-to-day operations rest with the Board of AIB and its management team.
However, the Board is required to obtain the prior written consent of the Minister, or to consult with the Minister, in respect of certain
material matters, such as material disposals.
344
54 Related party transactions (continued)
(g) Summary of relationship with the Irish Government
Balances held with the Irish Government and related entities
The following table outlines the balances held with Irish Government entities(1) at 31 December 2013 and 31 December 2012,
together with the highest balances held at any point during the year.
Assets
Cash and balances at central banks
Derivative financial instruments
Loans and receivables to banks
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale
Total assets
Liabilities
Deposits by central banks and banks
Customer accounts
Derivative financial instruments
Subordinated liabilities and other capital instruments
Total liabilities
a
b
c
d
e
f
g
Balance
2013
Highest(2)
Balance
Note
balance held
€ m
€ m
2012
Highest(2)
balance held
€ m
4,250
112
5,019
4
19,860
7,697
€ m
118
107
107
4
17,387
7,635
25,358
258
10
115
29
15,598
10,401
26,411
2,143
111
116
31
17,406
10,660
Balance
2013
Highest(2)
Balance
2012
Highest(2)
balance held
€ m
€ m
balance held
€ m
€ m
12,725
6,818
34
1,316
20,893
23,230
6,884
34
1,316
22,220
1,220
53
1,237
24,730
37,836
1,493
80
1,237
(1)Includes all departments of the Irish Government located in the State and embassies, consulates and other institutions of the Irish Government located
outside the State. The Post Office Savings Bank (“POSB”) and the National Treasury Management Agency (“NTMA”) are included.
(2)The highest balance during the year, together with the outstanding balance at the end of each year, is considered the most meaningful way of
representing the amount of transactions that have occurred between AIB and the Irish Government.
Substantially all of the above balances relate to Allied Irish Banks, p.l.c..
a Cash and balances at the central banks represent the minimum reserve requirements which AIB is required to hold with the Central
Bank. Balances on this account can fluctuate significantly due to the reserve requirement being determined on the basis of the
institution’s average daily reserve holdings over a one month maintenance period. The Group is required to maintain a monthly
average Primary Liquidity balance which at 31 December 2013 was € 515 million (31 December 2012: € 552 million).
b The balances on loans and receivables to banks include statutory balances with the Central Bank as well as overnight funds placed.
c NAMA senior bonds were received as consideration for loans transferred to NAMA and as part of the Anglo and EBS transactions.
d Financial investments available for sale comprise € 10,328 million (2012: € 7,588 million) in Irish Government securities held in the
normal course of business and NAMA subordinated bonds which have a fair value at 31 December 2013 of € 73 million
(31 December 2012: € 47 million) detailed above under ‘NAMA’.
This relates to funding received from the Central Bank which is detailed under ‘Funding Support’ above.
Includes € 5,117 million received from an Irish Government body under a repurchase agreement (note 36). The Group has pledged
e
f
Irish Government securities with a fair value of € 5,405 million for this borrowing.
g On 27 July 2011, AIB issued € 1.6 billion of contingent capital notes at par to the Minister for Finance, the fair value of these
notes at initial recognition was € 1,153 million (note 40).
All other balances, both assets and liabilities are carried out in the ordinary course of banking business on normal terms and
conditions.
345
Notes to the financial statements
54 Related party transactions (continued)
(g) Summary of relationship with the Irish Government
Local government(1)
During 2013 and 2012, AIB entered into banking transactions in the normal course of business with local government bodies. These
transactions include the granting of loans and the acceptance of deposits, and clearing transactions.
Commercial semi-state bodies(2)
During 2013 and 2012, AIB entered into banking transactions in the normal course of business with semi-state bodies. These
transactions principally include the granting of loans and the acceptance of deposits as well as derivative transactions and clearing
transactions.
(1)This category includes local authorities, borough corporations, county borough councils, county councils, boards of town commissioners, urban
district councils, non-commercial public sector entities, public voluntary hospitals and schools.
(2)Semi-state bodies is the name given to organisations within the public sector operating with some autonomy. They include commercial organisations
or companies in which the State is the sole or main shareholder.
Financial institutions under Irish Government control/significant influence
Certain financial institutions are related parties to AIB by virtue of the Government either controlling or having a significant influence over
these institutions. The following institution is controlled by the Irish Government:
– Permanent tsb plc
The Government controlled entity, Irish Bank Resolution Corporation Limited (In Special Liquidation) which went into special liquidation
during 2013, remains a related party for the purpose of this disclosure. Irish Life Group was a related party to AIB until its disposal in
July 2013.
In addition, the Irish Government is deemed to have significant influence over Bank of Ireland.
Transactions with these institutions are normal banking transactions entered into in the ordinary course of cash management
business under normal business terms. The transactions constitute the short-term placing and acceptance of deposits, derivative
transactions, investment in available for sale debt securities and repurchase agreements.
At 31 December 2013 and 31 December 2012, the following balances were outstanding in total to these financial institutions:
Assets
Derivative financial instruments
Loans and receivables to banks(1)
Financial investments available for sale(2)
Liabilities
Deposits by central banks and banks(3)
Derivative financial instruments
Customer deposits(4)
2013
Balance
€ m
2012
Balance
€ m
48
–
413
172
23
39
78
80
845
58
47
114
(1)The highest balance in loans and receivables to banks amounted to € 77 million in respect of funds placed during the year (2012: € 616 million).
(2)Includes equity securities issued in lieu of debt of Nil (2012: € 37 million).
(3)The highest balance in deposits by central banks and banks amounted to € 872 million in respect of funds received during the year (2012: € 842 million).
(4)The highest balance in customer deposits amounted to € 331 million in respect of funds received during the year (2012: € 121 million).
In connection with the acquisition by AIB Group of certain assets and liabilities of the former Anglo Irish Bank Corporation Limited (now
Irish Bank Resolution Corporation Limited (in Special Liquidation)) “IBRC”, IBRC had indemnified AIB Group for certain liabilities
pursuant to a Transfer Support Agreement dated 23 February 2011. AIB Group had made a number of claims on IBRC pursuant to the
indemnity prior to IBRC’s Special Liquidation on 7 February 2013.
AIB Group has since served notice of claim and set-off on the Joint Special Liquidators of IBRC in relation to the amounts claimed
pursuant to the indemnity and certain other amounts that were owing to AIB by IBRC as at the date of the Special Liquidation
(c. € 81.3 million in aggregate). Given AIB’s aggregate liability to IBRC at the date of Special Liquidation exceeded these claims, no
financial loss is expected to occur.
346
54 Related party transactions (continued)
(h) Indemnities
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 pension scheme and defined contribution pension scheme,
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.
(i) ALH investment
AIB disposed of its 24.99% interest in ALH in March 2013 and acquired a 100% interest in Ark Life which is now consolidated as a
subsidiary acquired exclusively for resale. Accordingly, ALH is no longer a related party of AIB Group (note 31).
55 Commitments
Capital expenditure
Estimated outstanding commitments for capital expenditure
not provided for in the financial statements
Capital expenditure authorised but not yet contracted for
2013
€ m
25
26
Operating lease rentals
The total of future minimum lease payments under non-cancellable operating leases are set out in the following table.
One year
One to two years
Two to three years
Three to four years
Four to five years
Over five years
Total
2013
€ m
66
62
61
58
315
196
758
2012
€ m
7
29
2012
€ m
73
68
67
64
60
507
839
Following a programme of sale and leaseback transactions, the Group holds a number of significant operating lease arrangements in
respect of branches and the headquarter locations. AIB Group leases the Bankcentre campus in Ballsbridge, Dublin 4 under three
separate lease arrangements.
The minimum lease terms remaining on the most significant leases vary from 1 years to 17 years. The average lease length
outstanding until a break clause in the lease arrangements is approximately 8 years with the final contractual remaining terms ranging
from 3 years to 34 years.
There are no contingent rents payable and all lease payments are at market rates.
The total of future minimum sublease payments expected to be received under non-cancellable subleases at the reporting date were
€ 3 million (2012: € 8 million).
Operating lease payments recognised as an expense for the year were € 80 million (2012: € 94 million). Sublease income amounted to
€ 4 million (2012: € 6 million).
347
Notes to the financial statements
56 Employees
The following table shows the geographical analysis of average employees for 2013 and 2012 as follows:
Republic of Ireland
United Kingdom
United States of America
Rest of World
Total
See also page 424 in Additional information.
2013
10,559
2,034
55
–
12,648
2012
12,094
2,523
66
25
14,708
A new operating structure was implemented in 2013, with staff numbers reported under the new segments. Prior period numbers have
not been restated under the new segments as significant restructuring has taken place following the departure of staff under the
voluntary severance programme.
The average number of employees by segment for 2013 is set out below (excluding employees on career breaks and other unpaid long
term leaves). The figures for Group segment include the following centralised functions: Chief Financial Office; Chief Risk Office;
Corporate Affairs and Marketing; Office of Law Agent; and Office of Group Internal Audit.
Continuing operations
DCB
AIB UK
FSG
Group
Total
2013
6,085
1,490
1,512
3,561
12,648
Continuing operations
PBB
CICB
AIB UK
EBS
Group
Discontinued operations
BZWBK
2012
2011
6,285
1,620
2,234
604
3,965
6,017
1,752
2,282
288
3,943
14,708
14,282
–
14,708
2,434
16,716
Employee numbers as at 31 December 2013, for Ark Life total 146. This subsidiary was acquired in March 2013, and is held for sale as
a discontinued operation (note 18). The employee numbers above, do not include Ark Life employees.
The 12 month average of 12,648 employees is lower than the average figure for December 2012 of 14,708 due to the high level of
voluntary severance and early retirements in the period. Actual FTEs fell to the 31 December 2013 level of 11,431 from 13,429 at
31 December 2012, also reflecting the high level of voluntary severance and early retirements in the period.
348
57 Regulatory compliance
During 2012, Allied Irish Banks, p.l.c. was in breach of the 25% limit for ECB repo funding. These breaches were due to the difficult
funding environment and the Central Bank was advised as appropriate. In January 2013, no breaches of this limit occurred.
Allied Irish Banks p.l.c. ("AIB") received a fine of €490,000 and a reprimand from the Central Bank of Ireland (‘the Central Bank’) on
entering a settlement agreement with the Central Bank in relation to four contraventions of the Central Bank's Requirements for the
Management of Liquidity Risk. The contraventions took place at various times between 2007 and 2013. The contraventions related to
liquidity reporting and documentation. They did not cause AIB to breach the liquidity ratios imposed by the Central Bank. AIB has taken
appropriate remedial steps to rectify the contraventions and the matter is now closed.
58 Financial and other information
Operating ratios
Operating expenses/operating income
Operating expenses/operating income before exceptional items
Other income/operating income
Other income/operating income before exceptional items
2013
Restated*
2012
Restated*
2011
86.7%
76.8%
21.2%
29.8%
295.7%
122.8%
(78.1%)
22.3%
40.3%
96.1%
68.9%
24.5%
Rates of exchange
€ /US$
Closing
Average
€ /Stg£
Closing
Average
Currency information
Euro
Other
*Restated due to change in accounting policy for employee benefits (note 60).
1.3791
1.3282
0.8337
0.8494
Assets
2012
€ m
99,095
23,406
1.3194
1.2850
0.8161
0.8110
1.2939
1.3924
0.8353
0.8682
Liabilities and equity
2013
€ m
99,597
18,137
2012
€ m
102,753
19,748
2013
€ m
97,292
20,442
117,734
122,501
117,734
122,501
349
Notes to the financial statements
59 Average balance sheets and interest rates(1)
The following table shows interest rates prevailing at 31 December 2013 together with average prevailing interest rates, gross yields,
spreads and margins for the years ended 31 December 2013, 2012 and 2011.
Interest rates
Ireland
AIB Group’s prime lending rate
European inter-bank offered rate
One month euro
Three month euro
United Kingdom
AIB Group’s base lending rate
London inter-bank offered rate
One month sterling
Three month sterling
United States
Prime rate
Gross yields, spreads and margins(2)
Gross yield(3)
Group
Domestic
Foreign
Interest rate spread(4)
Group
Domestic
Foreign
Net interest margin(5)
Group
Domestic
Foreign
Average interest earning assets
Group
Domestic
Foreign
As at
31 December
2013
%
Average interest rates for
Years ended 31 December
2012
%
2011
%
2013
%
0.75
0.23
0.29
0.50
0.49
0.53
3.25
0.63
0.13
0.22
0.50
0.49
0.51
3.25
2.82
2.88
2.48
0.75
0.73
1.04
1.21
1.14
1.62
0.85
0.33
0.58
0.50
0.62
0.83
3.25
2.98
3.07
2.58
0.25
0.24
0.57
0.91
0.78
1.47
1.69
1.18
1.12
0.50
0.65
0.88
3.25
3.22
3.16
2.97
0.66
0.49
1.25
1.03
0.73
2.17
2013
€ m
111,120
94,071
17,049
2012
€ m
122,200
99,580
22,620
2011
€ m
131,038
103,539
27,499
(1)The average balance sheet and gross yields, spreads and margins are presented on a continuing operations basis.
(2)The gross yields, spreads and margins presented in this table are extracted from the average balance sheets and interest rates on the following pages
and this breakdown into domestic and foreign has been compiled on the basis of location of office.
(3)Gross yield represents the average interest rate earned on interest earning assets.
(4)Interest rate spread represents the difference between the average interest rate earned on interest earning assets and the average interest rate paid on
interest bearing liabilities.
(5)Net interest margin represents net interest income as a percentage of average interest earning assets.
350
59 Average balance sheets and interest rates (continued)
The following tables show the average balances and interest rates of interest earning assets and interest bearing liabilities for the years
ended 31 December 2013, 2012 and 2011. 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
Trading portfolio financial assets
Domestic offices
Foreign offices
Loans and receivables to banks
Domestic offices
Foreign offices
Loans and receivables to customers
Domestic offices
Foreign offices
NAMA senior bonds
Domestic offices
Financial investments available for sale
Domestic offices
Foreign offices
Average interest earning assets
Domestic offices
Foreign offices
Net interest on swaps
Year ended
31 December 2013
Average Interest Average
rate
balance
%
€ m
€ m
Year ended
31 December 2012
Average Interest Average
rate
balance
%
€ m
€m
Year ended
31 December 2011
Average Interest Average
rate
balance
%
€ m
€ m
–
14
1,054
4,670
–
–
4
15
57,829
12,189
1,930
399
–
2.9
0.4
0.3
3.3
3.3
14
23
1,349
6,344
–
1
7
24
65,268
2,161
15,735
540
2.5
3.7
0.5
0.4
3.3
3.4
28
24
2,712
5,123
1
1
33
36
68,015
2,380
20,555
697
2.5
4.4
1.2
0.7
3.5
3.4
16,743
130
0.8
18,957
329
1.7
17,980
348
1.9
18,445
176
644
8
94,071
17,049
2,708
422
36
3.5
4.4
2.9
2.5
13,992
518
560
19
99,580
3,057
22,620
584
130
4.0
3.7
3.1
2.6
14,804
1,797
508
84
103,539
3,270
27,499
818
137
3.4
4.7
3.2
3.0
Total average interest earning assets
111,120
3,166
2.9
122,200
3,771
3.1
131,038
4,225
3.2
Non-interest earning assets
9,635
9,767
6,723
Total average assets
120,755
3,166
2.6
131,967
3,771
2.9
137,761
4,225
3.1
Percentage of assets applicable to
foreign activities
15.5
18.5
21.2
351
Notes to the financial statements
59 Average balance sheets and interest rates (continued)
Liabilities and shareholders’ equity
Due to central banks and banks
Domestic offices
Foreign offices
Due to customers
Domestic offices
Foreign offices
Other debt issued
Domestic offices
Foreign offices
Subordinated liabilities
Domestic offices
Foreign offices
Average interest earning liabilities
Domestic offices
Foreign offices
Total average interest earning liabilities
Non-interest earning liabilities
Total average liabilities
Shareholders’ equity
Total average liabilities and
Average
balance
€ m
25,987
255
42,420
9,308
8,347
276
1,311
–
78,065
9,839
87,904
22,031
2013
2012
Interest Average Average Interest Average
rate
%
balance
€ m
rate
%
€ m
€ m
2011
Average Interest Average
rate
balance
%
€ m
€ m
123
–
978
132
334
10
241
–
1,676
142
1,818
0.5
0.1
2.3
1.4
4.0
3.5
–
2.1
1.4
2.1
33,060
462
251
1
39,110
1,445
11,524
233
12,027
267
500
12
223
–
0.8
0.2
3.7
2.0
4.2
4.5
42,121
870
593
7
40,421
1,296
11,173
200
15,342
296
597
14
172
(4)
18.4
1,240
–
18.0
–
1,810
295
85,437
2,419
12,253
246
97,690
2,665
20,899
2.8
2.0
2.7
99,694
2,658
12,634
217
112,328
2,875
15,248
1.4
0.8
3.2
1.8
3.9
4.8
9.5
(1.4)
2.7
1.7
2.6
109,935
1,818
1.7
118,589
2,665
2.2
127,576
2,875
2.3
10,820
13,378
10,185
shareholders’ equity
120,755
1,818
1.5
131,967
2,665
2.0
137,761
2,875
2.1
Percentage of liabilities applicable to
foreign operations
11.9
13.1
12.6
352
59 Average balance sheets and interest rates (continued)
The following table allocates changes in net interest income between volume and rate for the year ended 31 December 2013
compared with the year ended 31 December 2012 and the year ended 31 December 2012 compared with the year ended
31 December 2011. Volume and rate variances have been calculated based on the movements in average balances over the year and
changes in interest rates on average interest earning assets and average interest bearing liabilities respectively. Changes due to a
combination of volume and rate are allocated ratably to volume and rate.
December 2013 over December 2012
increase/(decrease) due to changes in
Net
Change
€ m
Average
Rate
€ m
Average
Volume
€ m
December 2012 over December 2011
increase/(decrease) due to changes in
Net
Change
€ m
Average
Rate
€ m
Average
Volume
€ m
Interest earning assets
Trading portfolio financial assets
Domestic offices ....................................
Foreign offices ......................................
Loans and receivables to banks
Domestic offices .................................
Foreign offices .....................................
Loans and receivables to customers
Domestic offices ...................................
Foreign offices ......................................
NAMA senior bonds
–
(1)
(1)
(6)
(246)
(122)
–
–
(2)
(3)
15
(19)
–
(1)
(3)
(9)
(231)
(141)
(1)
–
(17)
10
(96)
(162)
–
–
(9)
(22)
(123)
5
(1)
–
(26)
(12)
(219)
(157)
Domestic offices ..............................
(38)
(161)
(199)
19
(38)
(19)
(94)
1
84
(11)
(24)
(60)
76
(5)
52
(65)
(263)
(511)
(331)
(116)
(447)
Financial investments available for sale
Domestic offices ....................................
Foreign offices ......................................
Total interest income ..................................
Interest bearing liabilities
Due to central banks and banks ..................
Domestic offices ....................................
Foreign offices ......................................
Due to customers
Domestic offices ....................................
Foreign offices ......................................
Other debt issued
178
(12)
(248)
(54)
(1)
122
(45)
Domestic offices ....................................
(153)
Foreign offices ......................................
Subordinated liabilities
Domestic offices ....................................
Foreign offices ......................................
–
13
–
(74)
–
(589)
(56)
(13)
(2)
5
–
(128)
(1)
(467)
(101)
(166)
(2)
18
–
Total interest expense................................
(118)
(729)
(847)
Net interest income
Domestic offices ....................................
Foreign offices ......................................
Net interest income (interest earning assets
and interest bearing liabilities) ....
(35)
(95)
....
(130)
429
37
466
Net interest on swaps
Net interest income
394
(58)
336
(94)
242
(127)
(4)
(41)
6
(128)
–
(53)
4
(343)
230
(218)
(215)
(2)
190
27
31
(2)
104
–
133
(204)
(45)
(342)
(6)
149
33
(97)
(2)
51
4
(210)
26
(263)
12
(249)
(237)
(7)
(244)
353
Notes to the financial statements
60 Impact of adopting new accounting standards
As outlined in the Basis of preparation on page 212, from 1 January 2013, the Group adopted ‘IAS 19 Employee Benefits (Revised). This
standard is required to be applied retrospectively, and accordingly, the Group has restated previously published comparative periods as
set out below:
Published
€ m
IAS 19R
€ m
2012
Restated
€ m
(1,716)
(3,729)
172
(3,557)
(3,557)
(0.68c)
(0.68c)
Published
€ m
IAS 19R
€ m
(1,605)
(5,108)
1,188
(3,920)
(2,292)
(1.6c)
(1.6c)
(31)
(31)
5
(26)
(26)
–
–
2011
Restated
€ m
(1,636)
(5,139)
1,193
(3,946)
(2,318)
(1.6c)
(1.6c)
(3,557)
(2,292)
(26)
(2,318)
Consolidated income statement (selected lines)
Administrative expenses
Loss before taxation from continuing operations
Income tax credit from continuing operations
Loss after taxation from continuing operations
Loss for the year
Basic loss per share
Diluted loss per share
Consolidated statement of comprehensive
income (selected lines)
Loss for the year
Net actuarial losses in retirement benefit schemes,
net of tax
Total items that will not be reclassified to profit or loss
Other comprehensive income for the year, net of tax
from continuing operations
Total other comprehensive income for the year,
net of tax
Total comprehensive income for the year
Consolidated statement of financial position
(selected lines)
Assets
Deferred taxation
Total assets
Liabilities
Retirement benefit liabilities
Provisions for liabilities and commitments
Total liabilities
Shareholders’ equity
Reserves
Total shareholders’ equity
Total liabilities and shareholders’ equity
Consolidated statement of cash flows
(selected lines)
Loss from continuing operations before taxation
Retirement benefits - defined benefit expense
Termination benefits
Closing cash and cash equivalents
Consolidated statement of changes in equity
(selected lines)
At 1 January
Loss for the year
Other comprehensive income
Total comprehensive income for the year
At 31 December
(1,817)
(3,830)
183
(3,647)
(3,647)
(0.7c)
(0.7c)
(3,647)
(740)
(742)
425
425
(3,222)
3,860
122,516
789
352
111,275
3,145
11,241
122,516
(3,830)
(151)
261
5,926
14,463
(3,647)
425
(3,222)
11,241
354
101
101
(11)
90
90
0.02c
0.02c
90
24
24
24
24
114
(716)
(718)
(464)
(464)
449
(568)
449
(3,108)
(775)
(3,067)
(15)
(15)
3,845
122,501
3,692
136,651
(27)
(102)
(129)
114
114
(15)
101
28
(129)
–
–
90
24
114
114
762
250
763
514
111,146
122,188
3,259
11,355
4,367
14,463
122,501
136,651
(3,729)
(123)
132
5,926
14,463
(3,557)
449
(3,108)
11,355
(5,108)
29
–
7,373
4,349
(2,292)
(775)
(3,067)
14,463
26
26
26
26
–
–
–
–
–
–
–
–
–
(31)
31
–
–
–
(26)
26
–
–
(438)
(438)
(542)
(749)
(3,067)
3,692
136,651
763
514
122,188
4,367
14,463
136,651
(5,139)
60
–
7,373
4,349
(2,318)
(749)
(3,067)
14,463
60 Impact of adopting new accounting standards (continued)
The adoption of IAS 19 (Revised) increased the retirement benefit charge in the consolidated income statement for 2012 by € 28 million
and for 2011 by € 31 million. The termination benefit charge recognised in 2012 decreased by € 129 million due to a change in the
recognition criteria for termination benefits.
The change to the recognition criteria for termination benefits under IAS 19 (Revised) required the restatement by € 42 million of a past
service cost recognised in 2012 in relation to employees expected to leave under the early retirement scheme in 2013 and a curtailment
gain restatement of € 15 million recognised in 2012 in relation to employees expected to leave in 2013 under the voluntary severance
scheme. This has resulted in a net reduction of € 27 million in retirement benefit liabilities for 2012.
In addition, a provision of € 108 million, recognised in 2012, in relation to employees expected to leave in 2013 under the voluntary
severance scheme has been restated and this has resulted in a reduction in the provision for liabilities and commitments by
€ 102 million.
There was no impact in 2011 on the statement of financial position.
61 Non-adjusting events after the reporting period
No significant non-adjusting events have taken place since 31 December 2013.
62 Dividends
No final dividend will be paid in respect of the year ended 31 December 2013.
63 Approval of financial statements
The financial statements were approved by the Board of Directors on 4 March 2014.
355
Allied Irish Banks, p.l.c.
Parent company financial statements and notes
Statement of financial position
Statement of cash flows
Statement of changes in equity
Accounting policies
Note
a
b
c
d
e
f
g
h
i
j
k
l
Administrative expenses
Retirements benefits
Disposal groups and non-current assets held for sale
Trading portfolio financial assets
Derivative financial instruments
Loans and receivables to banks
Loans and receivables to customers
Amounts receivable under finance leases and hire purchase contracts
Provisions for impairment on loans and receivables
NAMA senior bonds
Financial investments available for sale
Investments in Group undertakings
m Intangible assets
n
o
p
q
r
s
t
u
v
w
x
y
z
aa
ab
ac
Property, plant and equipment
Deferred taxation
Deposits by central banks and banks
Customer accounts
Debt securities in issue
Other liabilities
Provisions for liabilities and commitments
Subordinated liabilities and other capital instruments
Share capital
Capital reserves and capital redemption reserves
Contributions from the Minister for Finance and the NPRFC
Offsetting financial assets and financial liabilities
Memorandum items: Contingent liabilities and commitments, and contingent assets
Transfer of financial assets
Fair value of financial instruments
Statement of cash flows
ad Related party transactions
ae Commitments
af
Impact of adopting new accounting standards
356
Statement of financial position – Allied Irish Banks, p.l.c.
as at 31 December 2013
Assets
Cash and balances at central banks
Items in course of collection
Disposal groups and non-current assets held for sale
Trading portfolio financial assets
Derivative financial instruments
Loans and receivables to banks
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale
Interests in associated undertakings
Investments in Group undertakings
Intangible assets
Property, plant and equipment
Other assets
Current taxation
Deferred taxation
Prepayments and accrued income
Total assets
Liabilities
Deposits by central banks and banks
Customer accounts
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
Reserves
Total shareholders’ equity
Total liabilities and shareholders’ equity
*Restated due to change in accounting policy for employee benefits (note af).
Notes
ac
c
d
e
f
g
j
k
l
m
n
o
p
q
e
r
s
b
t
u
v
v
2013
€ m
Restated*
2012
€ m
1,215
1,076
79
336
2
1,653
23,856
31,603
15,598
20,129
3
4,859
159
252
145
1
2,839
533
95
561
24
2,768
31,284
37,234
17,082
14,930
3
2,735
168
267
110
6
2,919
469
103,262
111,731
29,112
53,112
2,404
3,271
17
380
635
141
215
1,352
90,639
5,248
2,848
4,527
39,389
48,751
3,541
5,142
14
520
826
667
199
1,271
100,320
5,206
2,890
3,315
12,623
11,411
103,262
111,731
David Hodgkinson, Chairman; David Duffy, Chief Executive Officer; Catherine Woods, Director; David O’Callaghan, Company Secretary.
357
Statement of cash flows – Allied Irish Banks, p.l.c.
for the year ended 31 December 2013
Reconciliation of profit/(loss) before taxation to net
cash outflow from operating activities
Profit/(loss) for the year from continuing operations before taxation
Adjustments for:
Gain on redemption/remeasurement of subordinated liabilities
and other capital instruments
(Profit) on disposal of businesses
(Profit)/loss on disposal of property, plant and equipment
Loss on disposal/transfer of loans and receivables
Dividend income
Impairment of associated undertakings
(Writeback)/impairment of subsidary undertakings
Gain on designation of associate as an equity investment at
fair value through profit or loss
Provisions for impairment on loans and receivables
Provisions/(writeback of provisions) for liabilities and commitments
(Writeback)/provisions for impairment on financial investments available for sale
Change in other provisions
Retirement benefits – defined benefit (credit)/expense
Termination benefits
Contributions to defined benefit pension schemes
Depreciation, amortisation and impairment
Interest on subordinated liabilities and other capital instruments
(Profit)/loss on disposal of financial investments available for sale
Remeasurement of NAMA senior bonds
Amortisation of premiums and discounts
Change in prepayments and accrued income
Change in accruals and deferred income
Net cash (outflow)/inflow from operating activities before changes
in operating assets and liabilities
Change in deposits by central banks and banks
Change in customer accounts(1)
Change in loans and receivables to customers(2)
Change in NAMA senior bonds
Change in loans and receivables to banks
Change in trading portfolio financial assets/liabilities
Change in derivative financial instruments
Change in items in course of collection
Change in debt securities in issue
Change in other assets
Change in other liabilities
Effect of exchange translation and other adjustments
Net cash inflow/(outflow) from operating assets and liabilities
Net cash inflow/(outflow) from operating activities before taxation
Taxation refund
Net cash inflow/(outflow) from operating activities
Investing activities (note a)
Financing activities (note b)
Change in cash and cash equivalents
Opening cash and cash equivalents
Effect of exchange translation adjustments
Closing cash and cash equivalents
*Restated due to change in accounting policy for employee benefits (note af).
358
Notes
2013
€ m
Restated*
2012
€ m
Restated*
2011
€ m
497
(1,590)
(4,539)
l
i
b
b
b
–
–
(1)
197
(9)
2
(1,351)
–
1,005
17
(18)
5
(98)
(2)
(194)
104
241
(38)
(62)
(48)
(65)
(192)
(10)
(10,067)
4,547
4,450
1,611
6,740
21
257
16
–
(1)
(2)
209
(280)
5
(136)
(184)
1,353
9
79
88
(137)
94
(187)
95
223
74
–
(125)
103
81
(229)
(6,993)
1,871
4,224
2,395
4,707
33
(655)
4
(3,154)
–
1
689
(2,205)
–
3,813
–
5,306
(129)
275
35
45
–
(73)
101
172
42
–
(65)
(18)
37
333
(27,895)
(9,784)
15,781
886
9,747
(22)
593
34
(1,846)
(4,765)
(2,783)
(35)
(186)
71
5,579
5,569
21
5,590
(5,773)
(160)
(343)
2,434
(25)
2,066
186
(49)
(651)
307
78
42
120
(617)
(160)
(657)
3,092
(1)
2,434
(139)
(36)
(221)
(13,839)
(13,506)
15
(13,491)
1,601
11,333
(557)
3,618
31
3,092
Statement of cash flows – Allied Irish Banks, p.l.c. (continued)
for the year ended 31 December 2013
(a) Investing activities
Net cash outflow on acquisition of business combinations
Purchase of financial investments available for sale
Proceeds from sales and maturity of financial investments
available for sale
Additions to property, plant and equipment
Disposal of property, plant and equipment
Additions to intangible assets
Disposal of investment in associated undertakings
Investment in Group undertakings(3)
Dividends received from subsidiary companies
Disposal/redemption of investment in businesses and subsidiaries
Dividends received from associated undertakings
Cash flows from investing activities
(b) Financing activities
Proceeds of issue of CCNs
Proceeds of issue of share capital to NPRFC
Capital contributions from the Minister for Finance and the NPRFC
Redemption of subordinated liabilities and other capital instruments
Cost of redemption of capital instruments
Interest paid on subordinated liabilities and other capital instruments
Cash flows from financing activities
Notes
k
k
n
m
l
u
x
2013
€ m
(325)
(7,367)
Restated*
2012
€ m
Restated*
2011
€ m
–
(4,522)
(3,779)
(2,378)
2,556
4,320
8,251
(30)
15
(57)
10
(773)
6
190
2
(32)
2
(68)
–
(600)
264
10
9
(16)
2
(31)
–
(2,660)
2,205(4)
7
–
(5,773)
(617)
1,601
–
–
–
–
–
–
–
–
–
–
(160)
(160)
(160)
(160)
1,600
5,000
6,054
(1,089)
(9)
(223)
11,333
(1)Includes deposits placed by the NTMA € 6,683 million (2012: € 1,127 million; 2011: € 27 million).
(2)Includes loans and receivables to customers within disposal groups and non-current assets held for sale and in 2011, loans and receivables held for sale
to NAMA.
(3)Additions to investment in Group undertakings of € 773 million (2012: € 600 million ; 2011: € 3,637 million) (note l) include non-cash transactions of Nil
(2012: Nil; 2011: € 977 million in relation to investments in EBS Limited and Anglo Irish Bank Corporation (International) plc.)
(4)Dividends include € 2,180 million from AIB European Investments Limited, which was the holding company of BZWBK. The proceeds of sale of
BZWBK were remitted by AIB European Investments Limited to Allied Irish Banks, p.l.c. by way of dividend.
*Restated due to change in accounting policy for employee benefits (note af).
359
3
6
0
Statement of changes in equity – Allied Irish Banks, p.l.c.
for the year ended 31 December 2013
Share
capital
Share
premium
Capital Revaluation
reserves
reserves
Cash flow
hedging
reserves
Revenue
reserves
At 1 January 2013 as reported
Change in accounting policy
As restated
Total comprehensive income for the year
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners,
recorded directly in equity
Contributions by and distributions to owners
Capital contributions (note w)
Ordinary shares issued in lieu
of dividend (note v)
Share based payments
Total contributions by and
distributions to owners
At 31 December 2013
€ m
5,206
–
€ m
2,890
–
5,206
2,890
–
–
–
–
42
–
42
–
–
–
–
(42)
–
(42)
5,248
2,848
€ m
1,764
–
1,764
–
–
–
(219)
–
–
(219)
1,545
Available
for sale
securities
reserves
€ m
269
–
269
–
485
485
–
–
–
–
€ m
13
–
13
–
(1)
(1)
–
–
–
–
Foreign
currency
translation
reserves
€ m
(70)
–
(70)
–
(3)
(3)
–
–
–
–
Treasury
shares
€ m
(549)
–
(549)
–
–
–
–
–
–
–
(73)
(549)
Share
based
payments
reserves
€ m
36
–
36
–
–
–
–
–
(10)
(10)
26
Total
€ m
11,323
88
11,411
529
683
1,212
–
–
–
–
12,623
€ m
1,799
88
1,887
529
198
727
219
–
10
229
2,843
€ m
(35)
–
(35)
–
4
4
–
–
–
–
12
754
(31)
Statement of changes in equity – Allied Irish Banks, p.l.c.
for the year ended 31 December 2012
Share
capital
Share
premium
Capital
reserves
Capital Revaluation
reserves
redemption
reserves
Available Cash flow
hedging
reserves
for sale
securities
reserves
Revenue
reserves
Foreign
currency
translation
reserves
Treasury
shares
Share
based
payments
reserves
Restated*
Total
At 1 January 2012
Total comprehensive income for the year
Loss for the year*
Other comprehensive income*
Total comprehensive income for the year
Transactions with owners,
recorded directly in equity
Contributions by and distributions to owners
Capital contributions (note w)
Reduction of capital (notes v and w)
Ordinary shares issued in lieu
of dividend (note v)
Total contributions by and
distributions to owners
€ m
5,170
€ m
4,926
€ m
2,011
€ m
3,958
–
–
–
–
–
36
36
–
–
–
–
(2,000)
(36)
–
–
–
(247)
–
–
–
–
–
–
(3,958)
–
(2,036)
(247)
(3,958)
€ m
15
–
(2)
(2)
–
–
–
–
€ m
(948)
–
1,217
1,217
–
–
–
–
€ m
122
–
(157)
(157)
–
–
–
–
At 31 December 2012 – restated
5,206
2,890
1,764
–
13
269
(35)
€ m
(2,355)
(1,350)
(613)
(1,963)
247
5,958
–
6,205
1,887
€ m
(68)
–
(2)
(2)
–
–
–
–
€ m
(549)
€ m
36
€ m
12,318
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,350)
443
(907)
–
–
–
–
(70)
(549)
36
11,411
*Restated due to change in accounting policy for employee benefits (note af).
3
6
1
Notes to the financial statements – Allied Irish Banks, p.l.c.
Accounting policies
Where applicable, the accounting policies adopted by Allied Irish Banks, p.l.c. are the same as those of AIB Group as set out on
pages 209 to 239.
a Administrative expenses
Personnel expenses:
Wages and salaries
Termination benefits(1)
Retirement benefits(2)
Social security costs
Other personnel expenses
General and administrative expenses(3)
2013
€ m
Restated*
2012
€ m
Restated*
2011
€ m
535
65
(85)
58
(57)
516
381
897
630
129
(123)
68
7
711
424
1,135
610
–
58
64
(5)
727
471
1,198
(1)On 21 May 2012, AIB announced the specific terms of a voluntary severance programme which included both an early retirement scheme and a
voluntary severance scheme. At 31 December 2013, a charge of € 65 million (2012: € 128 million*) has been recognised in the income statement in
respect of termination benefits arising from the voluntary severance programme. This amount comprises € 20 million (2012: € 107 million*) in respect of
past service costs relating to the early retirement scheme and € 69 million (2012: € 35 million*) relating to the voluntary severance scheme (notes b and
t) and a credit of € 24 million (2012: € 14 million*) in respect of a pension curtailment gain. In addition, a provision of Nil (2012: € 1 million) has
been made in respect of termination benefits in Allied Irish America.
(2)Comprises a credit of € 98 million relating to defined benefit expense (2012: a credit of € 137 million*; 2011: charge of € 45 million*), a defined
contribution expense of € 7 million (2012: € 7 million; 2011: € 6 million) and a long term disability payments expense of € 6 million (2012: € 7 million;
2011: € 7 million) (see note b).
(3)Includes external costs relating to the transfer of financial instruments to NAMA that amounted to Nil (2012: € 3 million; 2011: € 28 million).
*Restated due to change in accounting policy for employee benefits (note af).
362
b Retirement benefits
Allied Irish Banks, p.l.c. operates a number of pension and retirement benefit schemes for employees. These include both defined
benefit and defined contribution schemes. A hybrid scheme includes elements of a defined benefit scheme and a defined contribution
scheme.
All defined benefit schemes operated by Allied Irish Banks, p.l.c. closed to future accrual with effect from 31 December 2013 and all staff
transferred to defined contribution schemes. This led to a reduction of € 186 million in the defined benefit obligation and a credit to the
income statement as a curtailment.
Defined benefit schemes
Of the defined benefit schemes operated by Allied Irish Banks, p.l.c., the most significant is the AIB Group Irish Pension Scheme (‘the
Irish scheme’), further details of which are provided in the Group’s retirement benefits note (note 12).
Financial and mortality assumptions
The financial and mortality assumptions adopted in the preparation of these financial statements are the same as those adopted in the
preparation of the Group’s financial statements. See note 12 for further details.
Sensitivity analysis for principal assumptions used to measure scheme liabilities
There are inherent uncertainties surrounding the financial assumptions adopted in calculating the actuarial valuation of the Allied Irish
Banks, p.l.c. pension schemes. A sensitivity analysis of the key assumptions for the Irish scheme is set out in the Group’s retirement
benefits note (note 12).
Movement in defined benefit obligation and scheme assets
The following table sets out the movement in the defined benefit obligation and scheme assets during 2013 and 2012:
Defined
Fair value
benefit of scheme
obligation
€ m
2013
Net defined
benefit
assets liability (asset)
€ m
€ m
Restated*
2012
Net defined
benefit
assets liability (asset)
€ m
€ m
Defined Fair value
benefit of scheme
obligation
€ m
4,179
(3,512)
667
3,422
(2,628)
At 1 January
Included in profit or loss
Current service cost
Past service cost:
– Termination benefits
– Other
Interest cost (income)
Curtailment
– Termination
– Other
Included in other comprehensive income
Remeasurements loss (gain):
– Actuarial loss (gain) arising from:
– Experience adjustments
– Changes in demographic assumptions
– Changes in financial assumptions
– Return on scheme assets excluding interest income(1)
Translation adjustment on non-euro schemes
Other
Contributions by employer
Contributions by employees
Benefits paid
64
20
2
164
(24)
(186)
40
54
(115)
79
–
(1)
17
–
14
(179)
(165)
–
–
–
(142)
–
–
(142)
–
–
–
(247)
1
(246)
(194)
(14)
178
(30)
At 31 December
4,071
(3,930)
(1)Includes payment of pension levy.
*Restated due to change in accounting policy for employee benefits (note af).
64
20
2
22
(24)
(186)
(102)
54
(115)
79
(247)
–
(229)
(194)
–
(1)
(195)
141
62
108
(218)
169
(14)
(8)
99
10
125
716
–
(1)
850
–
17
(209)
(192)
–
–
–
(143)
–
–
(143)
–
–
–
(151)
–
(151)
(781)
(17)
208
(590)
4,179
(3,512)
794
62
108
(218)
26
(14)
(8)
(44)
10
125
716
(151)
(1)
699
(781)
–
(1)
(782)
667
363
Notes to the financial statements – Allied Irish Banks, p.l.c.
b Retirement benefits (continued)
Scheme assets
The following table sets out an analysis of the schemes assets at 31 December 2013 and 2012:
Cash and cash equivalents
Equity instruments
Quoted equity instruments:
Basic materials
Consumer goods
Consumer services
Energy
Financials
Healthcare
Industrials
Technology
Telecoms
Utilities
Total quoted equity instruments
Unquoted equity instruments
Total equity instruments
Debt instruments
Quoted debt instruments
Corporate bonds
Government bonds
Total quoted debt instruments
Unquoted debt instruments
Corporate bonds
Government bonds
Total unquoted debt instruments
Total debt instruments
Real estate(1)
Derivatives(2)
Investment funds
Quoted investment funds
Bonds
Equity
Forestry
Multi asset
Total quoted investment funds
Unquoted investment funds
Total investment funds
Mortgage backed securities(3)
2013
€ m
257
81
181
144
125
306
128
172
134
55
44
1,370
6
1,376
152
541
693
49
28
77
770
187
7
288
159
33
320
800
5
805
528
2012
€ m
56
91
169
124
127
277
107
150
119
52
44
1,260
6
1,266
104
681
785
42
27
69
854
186
7
29
336
32
169
566
5
571
572
Fair value of schemes assets at 31 December
3,930
3,512
(1)Located in Europe.
(2)Amount relates to foreign exchange derivatives.
(3)A quoted market price in an active market is not available for mortgage backed securities.
364
b Retirement benefits (continued)
Defined contribution schemes
Allied Irish Banks, p.l.c. operates a defined contribution (“DC”) scheme, further details of which are provided in the Group’s retirement
benefits note (note 12). The total cost in respect of the DC scheme for 2013 was € 7 million (2012: € 7 million; 2011: € 6 million). The
cost in respect of defined contributions is included in administrative expenses (note a).
Long-term disability payments
Allied Irish Banks, p.l.c. provides an additional benefit to employees who suffer prolonged periods of sickness. It provides for the partial
replacement of income in event of illness or injury resulting in the employee’s long term absence from work. In 2013, Allied Irish Banks,
p.l.c. contributed € 6 million (2012: € 7 million; 2011: € 7 million) towards insuring this benefit. This amount is included in administrative
expenses (note a).
.
365
Notes to the financial statements – Allied Irish Banks, p.l.c.
c Disposal groups and non-current assets held for sale
At 31 December 2013, disposal groups and non-current assets held for sale include loans and receivables, and Ark Life Assurance
Company Limited (‘Ark Life’) which is held as a subsidiary acquired exclusively for resale.
Disposal groups and non-current assets/liabilities are shown as single line items in the statement of financial position with no
re-presentation of comparatives. An analysis of the components of these single line items is set out below:
Loans and receivables(1):
Customers
Associated undertakings(2)(3)
Other:
Equity investment at fair value through profit or loss(3)
Other
Discontinued operations:
Ark Life
Total disposal groups and non-current assets held for sale
Assets
€ m
2013
Liabilities
€ m
Assets
€ m
2012
Liabilities
€ m
28
–
–
6
6
302(4)
336
–
–
–
–
–
–
–
353
12
196
–
196
–
561
–
–
–
–
–
–
–
(1)Loans and receivables held for sale are net of provisions of Nil (31 December 2012: € 122 million) (note i).
(2)Associated undertakings include LaGuardia Hotel € 12 million at 31 December 2012.
(3)On 1 July 2012, AIB designated its investment in ALH as an equity investment at fair value through profit or loss.The sale of this investment completed on
8 March 2013 (note 31 to the consolidated financial statements).
(4)Following the disposal of ALH, AIB acquired a 100% interest in Ark Life Assurance Company Limited. This subsidiary was acquired exclusively with a view to
its subsequent disposal, accordingly, it was classified on acquisition date as a discontinued operation in accordance with IFRS 5 Non-current Assets Held for
Sale and Discontinued Operations (note 21 to the consolidated financial statements).
Further details of loans and receivables held for sale are set out in the Risk management section of this report.
d Trading portfolio financial assets
Debt securities
Equity securities
Of which listed:
Debt securities
Equity securities
Of which unlisted:
Equity securities
366
2013
€ m
1
1
2
2013
€ m
1
–
1
2
2012
€ m
22
2
24
2012
€ m
22
1
1
24
e Derivative financial instruments
Details of derivative transactions entered into and their purpose are described in note 23 to the consolidated financial statements.
The following table presents the notional principal amount together with the positive fair value of interest rate, exchange rate, equity and
credit derivative contracts for 2013 and 2012.
Interest rate contracts(1)
Notional principal amount
Positive fair value
Exchange rate contracts(1)
Notional principal amount
Positive fair value
Equity contracts(1)
Notional principal amount
Positive fair value
Credit derivatives(1)
Notional principal amount
Positive fair value
Total notional principal amount
Positive fair value
2013
€ m
2012
€ m
137,851
1,447
132,053
2,576
4,328
35
3,611
171
–
–
7,539
71
3,833
121
114
–
145,790
143,539
1,653
2,768
(1)Interest rate, exchange rate and credit derivative contracts are entered into for both hedging and trading purposes. Equity contracts are entered into
for trading purposes only.
The following table analyses the notional principal amount and positive fair value of interest rate, exchange rate, equity and credit
derivative contracts by residual maturity:
< 1 year 1 < 5 years
€ m
€ m
5 years +
€ m
2013
Total
€ m
< 1 year
€ m
1 < 5 years
€ m
5 years +
€ m
2012
Total
€ m
Residual maturity
Notional principal amount
57,300
52,679
35,811
145,790
71,897
Positive fair value
218
945
490
1,653
463
36,529
1,270
35,113
143,539
1,035
2,768
Allied Irish Banks, p.l.c. has the following concentration of exposures in respect of notional principal amount and positive fair value of
interest rate, exchange rate, equity and credit derivative contracts. The concentrations are based primarily on the location of the office
recording the transaction.
Republic of Ireland
United Kingdom
United States of America
Notional principal amount
Positive fair value
2013
€ m
2012
€ m
143,795
140,364
1,609
386
2,571
604
145,790
143,539
2013
€ m
1,399
236
18
1,653
2012
€ m
2,356
377
35
2,768
367
Notes to the financial statements – Allied Irish Banks, p.l.c.
e Derivative financial instruments (continued)
The following table shows the notional principal amount and the fair value of derivative financial instruments analysed by product and
purpose as at 31 December 2013 and 31 December 2012. A description of how the fair values of derivatives are determined is set out
in note 23 to the consolidated financial statements.
Notional
principal
amount
€ m
2013
Fair values
Assets
Liabilities
€ m
€ m
Notional
principal
amount
€ m
2012
Fair values
Assets
Liabilities
€ m
€ m
Derivatives held for trading
Interest rate derivatives – over the counter (“OTC”)
Interest rate swaps
Cross-currency interest rate swaps
Interest rate options
44,194
1,047
(1,089)
24,987
1,383
(1,623)
720
800
47
6
(43)
(6)
1,826
1,015
80
9
(68)
(9)
Total interest rate derivatives – OTC
45,714
1,100
(1,138)
27,828
1,472
(1,700)
Interest rate derivatives – exchange traded
Interest rate futures
Total interest rate derivatives -exchange traded
121
121
–
–
–
–
124
124
–
–
–
–
Total interest rate derivatives
45,835
1,100
(1,138)
27,952
1,472
(1,700)
Foreign exchange derivatives – OTC
Foreign exchange contracts
Currency options bought and sold
Total foreign exchange derivatives
Equity derivatives – OTC
Equity index options
Total equity derivatives
Credit derivatives – OTC
Credit derivatives
Total credit derivatives
4,143
185
4,328
3,611
3,611
–
–
32
3
35
171
171
–
–
(33)
(2)
(35)
(174)
(174)
–
–
7,320
219
7,539
3,833
3,833
69
69
69
2
71
121
121
–
–
(19)
(2)
(21)
(123)
(123)
(20)
(20)
Total derivatives held for trading
53,774
1,306
(1,347)
39,393
1,664
(1,864)
Derivatives held for hedging
Derivatives designated as fair value hedges – OTC
Interest rate swaps
13,110
Total derivatives designated as fair value hedges
13,110
Derivatives designated as cash flow hedges – OTC
Interest rate swaps
Cross currency interest rate swaps
Credit default swaps
75,751
3,155
–
Total derivatives designated as cash flow hedges
78,906
Total derivatives held for hedging
92,016
222
222
110
15
–
125
347
(588)
(588)
(389)
(80)
–
(469)
34,110
34,110
67,621
2,370
45
70,036
352
352
729
23
–
752
(732)
(732)
(850)
(94)
(1)
(945)
(1,057)
104,146
1,104
(1,677)
Total derivative financial instruments
145,790
1,653(1)
(2,404)(2)
143,539
2,768(1)
(3,541)(2)
(1)Includes exposure to subsidiary undertakings of € 163 million (2012: € 293 million).
(2)Includes amounts due to subsidiary undertakings of € 403 million (2012: € 485 million)
.
368
e Derivative financial instruments (continued)
Cash flow hedges
The table below sets out the hedged cash flows which are expected to occur in the following periods:
Forecast receivable cash flows
Forecast payable cash flows
Forecast receivable cash flows
Forecast payable cash flows
Within 1 year
€ m
91
31
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
73
38
232
95
240
111
Within 1 year
€ m
82
18
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
25
16
71
78
36
41
2013
Total
€ m
636
275
2012
Total
€ m
214
153
The table below sets out the hedged cash flows, including amortisation of terminated cashflow hedges, which are expected to impact
the income statement in the following periods:
Forecast receivable cash flows
Forecast payable cash flows
Forecast receivable cash flows
Forecast payable cash flows
Within 1 year
€ m
91
56
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
73
56
232
134
240
116
Within 1 year
€ m
82
48
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
25
45
71
126
36
57
2013
Total
€ m
636
362
2012
Total
€ m
214
276
369
Notes to the financial statements – Allied Irish Banks, p.l.c.
f Loans and receivables to banks
Funds placed with central banks
Funds placed with other banks
Provision for impairment (note i)
Of which:
Due from third parties
Due from subsidiary undertakings(1)
Amounts include:
Reverse repurchase agreements
Loans and receivables to banks by geographical area(2)
Republic of Ireland
United Kingdom
United States of America
2013
€ m
95
2012
€ m
89
23,768
31,199
(7)
(4)
23,856
31,284
1,008
22,848
23,856
1,575
29,709
31,284
16
61
2013
€ m
22,949
903
4
2012
€ m
29,530
1,750
4
23,856
31,284
(1)Amounts due from subsidiary undertakings may include repurchase agreements.
(2)The classification of loans and receivables to banks by geographical area is based primarily on the location of the office recording the transaction.
Loans and receivables to banks include cash collateral of € 795 million (2012: € 1,186 million) placed with derivative counterparties in
relation to net derivative positions (note e).
g Loans and receivables to customers
Loans and receivables to customers
Amounts receivable under finance leases and
hire purchase contracts (note h)
Unquoted debt securities
Provisions for impairment (note i)
Of which:
Due from third parties
Due from subsidiary undertakings(1)
Of which repayable on demand or at short notice
Amounts include:
Due from associated undertakings
(1)Amounts due from subsidiary undertakings may include repurchase agreements.
2013
€ m
2012
€ m
42,292
47,559
438
137
456
224
(11,264)
(11,005)
31,603
37,234
21,428
10,175
31,603
29,126
25,343
11,891
37,234
24,195
–
–
370
h Amounts receivable under finance leases and hire purchase contracts
The following balances principally comprise of leasing arrangements involving vehicles, plant, machinery and equipment.
Gross receivables
Not later than 1 year
Later than one year and not later than 5 years
Later than 5 years
Unearned future finance income
Deferred costs incurred on origination
Total
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(1)
Net investment in new business
(1)Included in the provisions for impairment on loans and receivables to customers (note i).
2013
€ m
2012
€ m
133
336
11
480
(45)
3
438
133
296
9
438
98
199
131
362
11
504
(50)
2
456
130
317
9
456
104
155
371
Notes to the financial statements – Allied Irish Banks, p.l.c.
i Provisions for impairment on loans and receivables
The following table shows provisions for impairment on loans and receivables (both to banks and customers) and also includes loans
and receivables within disposal groups and non-current assets held for sale. The classification of loans and receivables below aligns to
the asset classes disclosed in the ‘Risk management’ section.
Residential
mortgages
€ m
Other Property and
construction
€ m
personal
€ m
SME/Other
commercial
€ m
146
–
–
84
(9)
–
–
221
194
27
221
1,066
(3)
–
134
(109)
–
1
1,089
1,038
51
1,089
6,534
(4)
(33)
545
(92)
(7)
–
6,943
6,751
192
6,943
2,811
(12)
–
212
(300)
–
–
2,711
2,626
85
2,711
At 1 January 2013
Exchange translation adjustments
Transfers(1)
Charge against income statement
Amounts written off
Disposals
Recoveries of amounts written off
in previous years
At 31 December 2013
Total provisions are split as follows:
Specific
IBNR
Amounts include:
Loans and receivables to banks (note f)
Loans and receivables to customers (note g)
Residential
mortgages
€ m
Other
personal
€ m
Property and
construction
€ m
SME/Other
commercial
€ m
6,049
2,475
At 1 January 2012
Exchange translation adjustments
Transfers(1)
Charge against income statement
Amounts written off
Disposals
Recoveries of amounts written off
in previous years
At 31 December 2012
Total provisions are split as follows:
Specific
IBNR
174
–
(17)
(7)
(4)
–
–
985
–
–
191
(110)
–
–
(2)
29
557
(99)
–
–
146
1,066
6,534
125
21
146
1,004
62
1,066
6,269
265
6,534
(4)
–
450
(105)
(6)
1
2,811
2,618
193
2,811
Amounts include:
Loans and receivables to banks (note f)
Loans and receivables to customers (note g)
Loans and receivables of disposal groups and non-current
assets held for sale (note c)
(1)Includes transfers (to)/from provisions for liabilities and commitments.
372
Corporate
€ m
574
(5)
–
30
(172)
(120)
–
307
228
79
307
Corporate
€ m
527
2
–
162
(117)
–
–
2013
Total
€ m
11,131
(24)
(33)
1,005
(682)
(127)
1
11,271
10,837
434
11,271
7
11,264
11,271
2012
Total
€ m
10,210
(4)
12
1,353
(435)
(6)
1
574
11,131
476
98
574
10,492
639
11,131
4
11,005
122
11,131
j NAMA senior bonds
During 2010 and 2011, AIB received NAMA senior bonds and NAMA subordinated bonds as consideration for loans and receivables
transferred to NAMA.
The following table provides a movement analysis of the NAMA senior bonds:
At 1 January
Additions(1)
Net returns
Amortisation of discount
Repayments
Effect of re-estimating the timing of cash flows
At 31 December
(1)Acquired from a subsidiary company.
2013
€ m
17,082
279
–
65
2012
€ m
19,509
–
(136)
104
(1,890)
(2,395)
62
–
15,598
17,082
k Financial investments available for sale
The following table sets out at 31 December 2013 and 31 December 2012, the carrying value (fair value) of financial investments
available for sale by major classifications together with the unrealised gains and losses:
Debt securities
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and government agencies
Other asset backed securities
Euro bank securities
Non Euro bank securities
Non Euro corporate securities
Other investments
Total debt securities
Equity securities
Equity securities – NAMA subordinated bonds
Equity securities – other
Total equity securities
Total financial investments
available for sale
Fair value
€ m
10,114
1,968
608
3,092
535
3,683
34
3
12
Unrealised
gross gains
€ m
Unrealised Net unrealised
gains/(losses)
€ m
gross losses
€ m
902
110
54
29
1
42
–
–
–
–
(1)
–
(6)
(54)
(10)
–
–
–
902
109
54
23
(53)
32
–
–
–
Tax effect
€ m
(113)
(14)
(6)
(3)
7
(4)
–
–
–
2013
Net
after tax
€ m
789
95
48
20
(46)
28
–
–
–
20,049
1,138
(71)
1,067
(133)
934
70
10
80
25
1
26
–
(7)
(7)
25
(6)
19
(3)
2
(1)
22
(4)
18
20,129
1,164
(78)
1,086
(134)
952
373
Notes to the financial statements – Allied Irish Banks, p.l.c.
k Financial investments available for sale (continued)
Debt securities
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and government agencies
Collateralised mortgage obligations
Other asset backed securities
Euro bank securities
Non Euro bank securities
Euro corporate securities
Non Euro corporate securities
Other investments
Total debt securities
Equity securities
Equity securities - NAMA subordinated bonds
Equity securities - other
Total equity securities
Total financial investments
available for sale
Fair value
€ m
7,172
1,754
666
1,682
22
920
2,195
126
87
193
12
Unrealised
gross gains
€ m
Unrealised
gross losses
€ m
Net unrealised
gains/(losses)
€ m
Tax effect
€ m
496
153
95
55
–
1
50
3
6
17
–
(1)
(4)
–
–
(6)
(140)
(11)
–
(3)
–
–
495
149
95
55
(6)
(139)
39
3
3
17
–
(62)
(18)
(12)
(7)
1
17
(5)
–
(1)
(4)
–
2012
Net
after tax
€ m
433
131
83
48
(5)
(122)
34
3
2
13
–
14,829
876
(165)
711
(91)
620
45
56
101
–
4
4
–
(8)
(8)
–
(4)
(4)
–
1
1
–
(3)
(3)
14,930
880
(173)
707
(90)
617
Available for sale financial investments with unrealised losses have been assessed for impairment based on the credit risk profile of the
counterparties involved. Impairment losses on debt securities of Nil (2012: Nil) and Nil (2012: € 79 million) on equity securities have been
recognised.
Analysis of movements in financial investments available for sale
Debt
securities
€ m
Equity
securities
€ m
2013
Total
€ m
Debt
securities
€ m
Equity
securities
€ m
2012
Total
€ m
At 1 January
14,829
101
14,930
13,132
204
13,336
Reclassification to disposal groups and non-
current assets held for sale
Exchange translation adjustments
Purchases
Return of NAMA subordinated bonds
Sales
Maturities
Writeback/(provisions) for impairment
Amortisation of discounts net of premiums
Movement in unrealised gains
At 31 December
Of which:
Listed
Unlisted
–
(44)
7,346
–
(1,758)
(681)
18
(17)
356
20,049
20,037
12
20,049
–
(1)
21
–
(75)
–
–
–
34
80
7
73
80
–
(45)
7,367
–
(1,833)
(681)
18
(17)
390
20,129
20,044
85
20,129
–
–
4,516
–
(2,249)
(2,047)
–
21
1,456
14,829
14,817
12
14,829
(18)
–
6
(3)
(24)
–
(79)
–
15
(18)
–
4,522
(3)
(2,273)
(2,047)
(79)
21
1,471
101
14,930
53
48
14,870
60
101
14,930
374
k Financial investments available for sale (continued)
Debt securities analysed by remaining contractual maturity
Due within one year
After one year, but within five years
After five years, but within ten years
After ten years
l
Investments in Group undertakings
Equity
At 1 January
Additions(1)
Liquidations
Reversal of impairment/(impairment)
At 31 December
Subordinated debt
At 1 January
Redeemed
At 31 December
Total
Of which:
Credit institutions
Other
Total – all unquoted
2013
€ m
1,186
11,357
6,606
900
20,049
2013
€ m
2,435
773
–
1,351
4,559
300
–
300
2012
€ m
798
7,912
4,715
1,404
14,829
2012
€ m
1,691
600
(6)
150
2,435
670
(370)
300
4,859
2,735
4,229
630
4,859
2.348
387
2,735
(1)Additions include € 330 million investment in EBS Limited (2012: € 400 million); € 200 million investment in AIB Mortgage Bank (2012: € 200 million);
and € 243 million investment in AIB Holdings (N.I.) Limited. Allied Irish Banks, p.l.c. also acquired a 100% investment in Ark Life Assurance Company
Limited exclusively with a view to its subsequent resale. This investment is held within ‘Disposal groups and non-current assets held for sale’ (note c).
The investments in Group undertakings are included in the financial statements on an historical cost basis.
Principal subsidiary undertakings incorporated in the Republic of Ireland
AIB Mortgage Bank*
EBS Limited*
*Group interest is held directly by Allied Irish Banks, p.l.c.
Nature of business
Issue of Mortgage Covered Securities
Mortgages and savings
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.
All regulated banking entities are subject to regulations which require them to maintain capital ratios at agreed levels and so govern the
availability of funds available for distribution.
AIB Mortgage Bank
AIB Mortgage Bank is a wholly owned subsidiary of Allied Irish Banks, p.l.c. regulated by the Central Bank of Ireland. Its principal
purpose is to issue mortgage covered securities for the purpose of financing loans secured on residential property in accordance with
the Asset Covered Securities Acts, 2001 and 2007.
On 13 February 2006, Allied Irish Banks, p.l.c. transferred to AIB Mortgage Bank its Irish branch originated residential mortgage
business, amounting to € 13.6 billion in mortgage loans.
In March 2006, AIB Mortgage Bank launched a € 15 billion Mortgage Covered Securities Programme. The Programme was
subsequently increased to € 20 billion in 2009.
375
Notes to the financial statements – Allied Irish Banks, p.l.c.
Investments in Group undertakings (continued)
l
Principal subsidiary undertakings incorporated in the Republic of Ireland (continued)
On 25 February 2011, Allied Irish Banks, p.l.c. transferred substantially all of its mortgage intermediary originated Irish residential loans,
related security and related business of approximately € 4.2 billion to AIB Mortgage Bank. The transfer was effected pursuant to the
statutory transfer mechanism provided for in the Asset Covered Securities Acts.
Under an Outsourcing and Agency Agreement dated 8 February 2006, Allied Irish Banks, p.l.c., as Service Agent for AIB Mortgage
Bank, originates residential mortgage loans through its retail branch network and intermediary channels in the Republic of Ireland,
services the mortgage loans and provides treasury services in connection with financing, as well as a range of other support services.
As at 31 December 2013, the total amount of principal outstanding in respect of mortgage covered securities issued was € 8.0 billion
(2012: € 10.3 billion) of which € 3.3 billion was held by debt investors (2012: € 3.3 billion), Nil by Allied Irish Banks, p.l.c.
(2012: € 1 billion) and € 4.8 billion was self issued to AIB Mortgage Bank (2012: € 6 billion). The bonds issued to Allied Irish Banks, p.l.c.
and to AIB Mortgage Bank were held by the Central Bank of Ireland under sale and repurchase agreements. The total amount of
principal outstanding in the covered assets pool including mortgage loans and cash was € 15.7 billion (2012: € 17.3 billion).
EBS Limited (“EBS”)
EBS, which is regulated by the Central Bank of Ireland, became a wholly owned subsidiary of Allied Irish Banks, p.l.c. on 1 July 2011.
Prior to becoming part of AIB Group, EBS had traded as a building society for over 75 years. In May 2010, EBS was recapitalised by
the Minister for Finance (‘the Minister’) in an amount of € 875 million, and, in March 2011, the Minister announced that EBS Building
Society was to be merged with AIB Group to form one of the two ‘pillar banks’ in Ireland. Accordingly, on 1 July 2011, EBS Building
Society underwent a demutualisation pursuant to an acquisition conversion scheme under the Building Societies Act 1989 (as
amended), the effect of which was that the building society became a limited company and obtained a banking licence. The special
investment shares that had been invested in EBS Building Society by the Irish Government converted into € 625 million of ordinary
shares held by the Minister, who transferred the entire issued share capital (€ 625 million ordinary shares) in EBS to AIB on 1 July
2011. Under and in accordance with the Building Societies Act 1989 (as amended), on the conversion of EBS Building Society to EBS
Limited, the business, property, rights and liabilities of EBS Building Society vested in EBS Limited. AIB operates EBS as a
standalone, separately branded subsidiary of AIB with its own branch network. EBS will continue to operate as a mortgage and
savings business.
EBS Group had consolidated total assets of € 14 billion as at 31 December 2013. EBS operates in the Republic of Ireland and has a
countrywide network of 54 tied branch agents, 20 agents and a direct telephone based distribution division, EBS Direct. EBS offers
residential mortgages and savings products, together with life and property insurance on an agency basis. EBS also distributes
mortgages through Haven Mortgages Limited, a wholly owned subsidiary, to independent mortgage intermediaries. It had an 11%.
share of outstanding retail mortgage balances. At 31 December 2013, the tier 1 and total capital ratios for EBS were 9.48%. and
10.67%, respectively.
In December 2007, EBS established Haven Mortgages Limited (‘Haven’), a wholly owned subsidiary focused on mortgage distribution
through the intermediary market which, prior to 2005, had not been part of its target market. Haven is authorised by the Central Bank
of Ireland as a retail credit firm under Part V of the Central Bank Act 1997 (as amended). Haven has its own board of directors and the
autonomy to grow and establish its business around the needs of its customer (the intermediary). Haven offers a full range of prime
mortgages.
In December 2008, EBS established EBS Mortgage Finance, a wholly owned subsidiary which is regulated by the Central Bank of
Ireland. EBS Mortgage Finance is a designated mortgage credit institution for the purposes of the Asset Covered Securities Acts 2001
and 2007 (as amended) and also holds a banking licence. Its purpose is to issue Mortgage Covered Securities for the financing of
loans secured on residential property in accordance with the Asset Covered Securities legislation. Such loans may be made directly by
EBS Mortgage Finance or may be purchased from EBS and other members of the EBS Group or third parties. On 1 December 2008,
1 June 2009, 1 May 2010 and 1 November 2011, EBS transferred to EBS Mortgage Finance certain Irish residential loans and
related security held by it and certain of its Irish residential loan business related to such loans and security. The aggregate book value
of the Irish residential loans transferred was approximately € 3.41 billion in respect of the transfer on 1 December 2008; € 1.74 billion
in respect of the transfer on 1 June 2009; € 803 million in respect of the transfer on 1 May 2010; and € 2.49 billion in respect of the
transfer on 1 November 2011. As at 31 December 2013, the total amount of principal outstanding in the covered assets pool, including
mortgage loans and cash, was € 5.4 billion (2012: € 5.8 billion).
In December 2008, EBS Mortgage Finance launched a € 6 billion Mortgage Covered Securities Programme. As at 31 December 2013,
the total amount of principal outstanding in respect of the mortgage covered securities issued was € 2.8 billion (2012: € 3.15 billion) of
which € 0.05 billion (2012: € 0.05 billion) was held by debt investors. The remaining € 2.75 billion (2012: € 3.1 billion) was issued to
EBS.
376
Investments in Group undertakings (continued)
l
Principal subsidiary undertakings incorporated in the Republic of Ireland (continued)
EBS had set up a number of special purpose entities (“SPEs”) prior to its acquisition by AIB, namely, Emerald Mortgages No. 4 Public
Limited Company; Emerald Mortgages No. 5 Limited; and Mespil 1 RMBS Limited. Loans and receivables which were transferred to
these securitisation entities are included in the Group’s consolidated loans and receivables and amount to € 3,434 million
(2012: € 3,539 million). For further details on these SPEs, see note 49 to the consolidated financial statements.
Principal subsidiary undertaking 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
The above subsidiary undertaking is a wholly-owned subsidiary of Allied Irish Banks, p.l.c.. The registered office is located in the principal
country of operation. The issued share capital 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
AIB Corporate Banking Limited
AIB Corporate Finance Limited
AIB Holdings (Ireland) Limited
AIB Finance Limited
Allied Irish Leasing Limited
AIB International Leasing Limited
AIB Leasing Limited
AIB Services Limited
AIB Venture Capital Limited
Allied Combined Trust Limited
Allied Irish Banks (Holdings & Investments) Limited
Allied Irish Finance Limited
Allied Irish Nominees Limited
Eyke Limited
First Venture Fund Limited
Hengram Limited
The Hire Purchase Company of Ireland Limited
Blogram Limited
Sanditon Limited
S. & M. (Limerick) Limited
AIB International Finance
AIB Investment Company
General Estates and Trust Company Limited
AIB Limited
Commdec Limited
Dohcar Limited
Dohhen Limited
Kavwall Limited
Traprop Limited
Jonent Downs Limited
Skonac
Skobar
Skodell
Skovale
Skopek
Skobio
Wallkav Limited
Marro Properties Limited
Ammonite Limited
AIB Capital Exchange Offering 2009 Limited
AIB European Investments Limited
P B Nominees Limited
Alibank Nominees Limited
AIB Combined Leasing Limited
Radstock Limited
Rushwood Holdings Limited
The Royal Bank of Ireland Limited
The Munster and Leinster Bank Limited
Mezzanine Management Limited
Fullplex Management Company Limited
AIB Investment Services Limited
AIB Financial Services Limited
AIB Insurance Services Limited
AIB 24 Hour Services Limited
AIB Telephone Services Limited
AIB Commercial Finance Limited
AIB Debt Management Limited
377
Notes to the financial statements – Allied Irish Banks, p.l.c.
Investments in Group undertakings (continued)
l
Letters of financial support given to subsidiaries by Allied Irish Banks, p.l.c.
Allied Irish Banks, p.l.c. has provided letters of financial support to the Board of Directors of the following subsidiaries:
AIB Mortgage Bank;
AIB Group (UK) plc;
AIB UK Loan Management Limited.
EBS Limited;
AIB Holdings (NI) Limited and
Impairment losses reversed/recognised in Group undertakings
Allied Irish Banks p.l.c.’s (‘the parent company’) investments in Group undertakings are reviewed for impairment at the end of each
reporting period if there are indications that impairment may have occurred. In addition, an assessment is carried out where there are
indications that impairment losses recognised in prior periods may no longer exist or may have decreased.
The impairment testing for possible impairment involves comparing the recoverable amount of the individual investments with their
carrying amount. Where the recoverable amount is less than the carrying amount, the difference is recognised as an impairment charge
in the parent company’s financial statements.
For previously impaired investments, where the assessment indicates an increase in the recoverable amount, the impairment loss
recognised in earlier periods is reversed. The carrying amount will only be increased up to the amount that it would have been had the
original impairment not been recognised.
At 31 December 2013, the carrying value of investments in the following subsidiary undertakings of the parent company were reviewed
for impairment/reversal of impairment:
– AIB Mortgage Bank;
– EBS Limited;
– AIB Holdings (N. I.) Limited; and
– AIB UK Loan Management Limited.
In respect of each of the subsidiaries, an impairment reversal/impairment loss was calculated by comparing its carrying value to the
recoverable amount based on value-in-use calculations. Each subsidiary was determined to be a cash generating unit. In determining
value-in-use, the expected pre-tax cash flows are discounted at an appropriate risk adjusted interest rate, both of which require the
exercise of judgement. The discounted cash flows model calculates the present value of estimated future earnings attributable to Allied
Irish Banks, p.l.c. as the shareholder. The estimation of pre-tax cash flows is sensitive to the periods for which forecasts are available
and to assumptions as to long term growth rates.
During 2012 and 2013, AIB Group undertook a number of initiatives to improve its funding costs which had a direct impact on the profit
projections of certain subsidiaries. In addition, the cost of retail deposits in Ireland reduced significantly in the past year. Furthermore,
the expectations as regards future loan impairments in these subsidiaries also improved. Following the recent planning exercise
approved by the Board in December 2013, forecasts for both AIB Mortgage Bank and EBS Limited indicated higher levels of profitability.
Given that there were indications that the previous impairment provisions may have reversed, a review was undertaken at 31 December
2013 of the assumptions underpinning the previous impairment and to determine the recoverable amount of these subsidiaries.
The key assumptions used for determining value-in-use for each subsidiary are as follows:
AIB Mortgage Bank
The carrying value of AIB Mortgage Bank (“AIBMB”) prior to the 2013 impairment review was € 1,331 million, AIB having invested a
further € 200 million during 2013. In 2011, an impairment provision of € 994 million was made against the carrying value.
Arising from the initiatives outlined above to improve profitability across the Group and the financial and economic environment that the
business now operates in and the outturn of the recent planning exercise, AIB reviewed its investment given that there were strong
indications that the previous impairment had reversed.
The recoverable amount of the investment was determined using cash flow projections based on financial plans approved by the Board
and covering the period 2014 to 2017 and a growth rate of 2% from 2017 into perpetuity. The forecast cash flows were discounted at a
rate of 10%. Based on these assumptions, the net present value of the investment was determined to be considerably in excess of the
carrying value of € 1,331 million.
However, in accordance with IAS 36 Impairment of Assets, the impairment reversal was limited to the previous impairment amount of
€ 994 million. The resultant carrying value at € 2,325 million is approximately 20% lower than the value-in-use valuation above.
378
Investments in Group undertakings (continued)
l
Impairment losses reversed/recognised in Group undertakings
AIB Mortgage Bank (continued)
The results of this value-in-use valuation are sensitive to changes in the growth and discount rates. Increasing the discount rate to 12%
and reducing the growth rate to 1% from 2017 into perpetuity would reduce the impairment reversal by € 191 million. Reductions to the
discount rate combined with an increase in growth rates from 2017 would have no impact on the impairment reversal.
EBS Limited (“EBS”)
AIB carried out an impairment reversal assessment of its investment in EBS at 31 December 2013. Prior to this assessment, the
investment was carried at € 880 million following a capital injection of € 330 million in 2013. At 31 December 2012, this investment was
carried at € 550 million (investment of € 1,442 million net of impairment losses of € 892 million).
The recoverable amount of the investment was determined using the same methodology as for AIBMB and using the same parameters.
Based on these, the net present value of the investment was determined to be € 977 million higher than the carrying value of
€ 880 million. However, Management introduced an extra layer of conservatism and applied an adjustment factor of 20% to take
account of model uncertainty used to derive the recoverable amount. Accordingly, the impairment reversal was limited to € 600 million.
The results of this value-in-use valuation are sensitive to changes in the growth and discount rates. Increasing the discount rate to 12%
and reducing the growth rate to 1% from 2017 into perpetuity and excluding the layer of conservatism applied above, would reduce the
value-in-use to € 1,452 million and would reduce the impairment reversal by € 28 million. However, by including the layer of
conservatism, the impairment reversal would reduce by € 318 million. A reduction of 1% in the discount rate combined with a 1%
increase in the growth rate from 2017 would result in a full reversal of the previous impairment.
AIB Holdings (N.I.) Limited
The investment by Allied Irish Banks, p.l.c. in AIB Holdings (N.I.) Limited amounting to € 767 million was written down to Nil in 2011,
driven by the negative asset value in this subsidiary. There was no change to the carrying value arising from the impairment review in
2012. In 2013, AIB provided a further capital injection of € 243 million (Stg£ 205 million) to AIB Holdings (N.I.) Limited and at
31 December 2013 this was fully impaired following an impairment assessment as there remains significant negative shareholder
reserves in this company.
AIB UK Loan Management Limited
The carrying value of the investment in AIB UK Loan Management Limited was written down to Nil in 2011 as it was expected that all
assets would be disposed of at a loss and the business would cease, with no residual value. However, the full planned deleveraging did
not transpire and while the remaining assets are now being run down in line with their repayment profile, they may still be considered for
deleveraging.
Arising from an impairment reversal review at 31 December 2013, it was considered that there was uncertainty with regard to sufficient
indicators that the impairment loss previously recognised may no longer exist. Accordingly, this investment continues to be carried at Nil
value.
379
Notes to the financial statements – Allied Irish Banks, p.l.c.
m Intangible assets
Cost
At 1 January
Additions – internally generated
– externally purchased
Amounts written off(1)
At 31 December
Amortisation/impairment
At 1 January
Amortisation for the year
Impairment for the year
Amounts written off(1)
At 31 December
Net book value at 31 December
Software
€ m
Other
€ m
2013
Total
€ m
Software
€ m
Other
€ m
600
47
10
(1)
656
432
51
15
(1)
497
159
3
–
–
–
3
3
–
–
–
3
–
603
47
10
(1)
659
435
51
15
(1)
500
159
532
59
9
–
600
378
52
2
–
432
168
3
–
–
–
3
3
–
–
–
3
–
2012
Total
€ m
535
59
9
–
603
381
52
2
–
435
168
(1)Relates to assets which are no longer in use with a nil carrying value.
Internally generated intangible assets under construction amounted to: € 32 million (31 December 2012: € 44 million).
Internally generated software amounted to: € 357 million (31 December 2012: € 300 million).
380
n Property, plant and equipment
Cost
At 1 January 2013
Additions
Disposals
At 31 December 2013
Depreciation/impairment
At 1 January 2013
Depreciation charge for the year
Impairment charge for the year
Disposals
At 31 December 2013
Net book value at 31 December 2013
Cost
At 1 January 2012
Reclassifications
Additions
Disposals
Amounts written off(1)
At 31 December 2012
Depreciation/impairment
At 1 January 2012
Depreciation charge for the year
Impairment for the year
Disposals
Amounts written off(1)
At 31 December 2012
Net book value at 31 December 2012
(1)Relates to assets which are no longer in use with a Nil carrying value.
Freehold
Long
leasehold
€ m
126
1
(13)
114
37
3
1
(5)
36
78
€ m
84
–
(3)
81
22
1
1
(1)
23
58
Freehold
Long
leasehold
€ m
125
1
1
(1)
–
126
31
4
2
–
–
37
89
€ m
85
(1)
–
–
–
84
20
2
–
–
–
22
62
Property
Leasehold
under 50
years
€ m
81
13
(1)
93
46
3
2
(1)
50
43
Property
Leasehold
under 50
years
€ m
84
–
7
(9)
(1)
81
48
8
–
(9)
(1)
46
35
Equipment
Total
€ m
415
16
(10)
421
334
20
–
(6)
348
73
€ m
706
30
(27)
709
439
27
4
(13)
457
252
Equipment
Total
€ m
407
–
24
(14)
(2)
415
324
25
–
(13)
(2)
334
81
€ m
701
–
32
(24)
(3)
706
423
39
2
(22)
(3)
439
267
The net book value of property occupied by Allied Irish Banks, p.l.c. for its own activities was € 166 million (2012: € 185 million).
Property and equipment includes € 10 million for items in the course of construction (2012:€ 2 million).
381
Notes to the financial statements – Allied Irish Banks, p.l.c.
o Deferred taxation
Deferred tax assets:
Provision for impairment of loans and receivables
Available for sale securities
Retirement benefits
Cash flow hedges
Unutilised tax losses
Assessed leased to customers
Other
Total gross deferred tax assets
Deferred tax liabilities:
Cash flow hedges
Assets used in business
Available for sale securities
Total gross deferred tax liabilities
Net deferred tax assets
Represented on the balance sheet as follows:
Deferred tax assets
2013
€ m
Restated*
2012
€ m
1
–
21
6
–
–
80
8
2,848
2,800
2
81
–
87
2,959
2,975
–
(15)
(105)
(120)
–
(15)
(41)
(56)
2,839
2,919
2,839
2,919
For each of the years ended 31 December 2013 and 2012, full provision has been made for capital allowances and other temporary
differences.
*Restated due to change in accounting policy for employee benefits (note af).
Analysis of movements in deferred taxation
At 1 January
Deferred tax through other comprehensive income
Income statement
At 31 December
2013
€ m
2,919
(96)
16
2012
€ m
2,738
(69)
250
2,839
2,919
Comments on the basis of recognition of deferred tax assets on unused tax losses are included in ‘Critical accounting policies and
estimates’ on pages 50 to 53. Comments on the prospective regulatory capital treatment of deferred tax assets are included in ‘Risk
factors’ on page 65.
At 31 December 2013, recognised deferred tax assets on tax losses and other temporary differences, net of deferred tax liabilities,
totalled € 2,839 million (2012: € 2,919 million). The most significant tax losses arise in the Irish tax jurisdiction and their utilisation is
dependent on future taxable profits.
Temporary differences recognised in other comprehensive income consist of deferred tax on available for sale securities, cash flow
hedges and actuarial gains/losses on retirement benefit schemes. Temporary differences recognised in the income statement consist of
provision for impairment on loans and receivables, amortised income, assets leased to customers, and assets used in the course of
business.
382
p Deposits by central banks and banks
Central banks
Securities sold under agreements to repurchase
Other borrowings
Banks
Securities sold under agreements to repurchase
Other borrowings
Of which:
Due to third parties
Due to subsidiary undertakings(1)
Amounts include:
Due to related party
2013
€ m
2012
€ m
11,750
19,760
–
–
11,750
19,760
9,136
8,226
17,362
29,112
21,640
7,472
29,112
5,414
14,215
19,629
39,389
25,752
13,637
39,389
–
–
(1)Amounts due to subsidiary undertakings may include repurchase agreements.
Details of AIB’s sale and repurchase activity are set out in note 49 to the consolidated financial statements.
Allied Irish Banks, p.l.c. has granted a floating charge over certain residential mortgage pools, the drawings against which were
Nil at 31 December 2013 (2012: € 90 million).
Financial assets pledged under existing agreements to repurchase, and providing access to future funding facilities with central banks
and banks are detailed in the following table:
Total carrying value of financial assets pledged
13,523
9,938
23,461
22,984
6,807
29,791
Central
banks
€ m
Banks
€ m
2013
Total
€ m
Central
banks
€ m
Banks
€ m
2012
Total
€ m
Of which:
Government securities(1)
Other securities
(1)Includes NAMA senior bonds.
11,980
1,543
6,441
3,497
18,421
14,795
5,040
8,189
4,835
1,972
19,630
10,161
383
Notes to the financial statements – Allied Irish Banks, p.l.c.
q Customer accounts
Current accounts
Demand deposits
Time deposits
Securities sold under agreements to repurchase(1)
Of which:
Non-interest bearing current accounts
Domestic offices
Foreign offices
Interest bearing deposits, current accounts and short-term borrowings
Domestic offices
Foreign offices
Of which:
Due to third parties
Due to subsidiary undertakings(2)
Amounts include:
Due to associated undertakings
2013
€ m
13,674
6,230
27,425
5,783
53,112
13,149
226
37,808
1,929
53,112
47,456
5,656
53,112
2012
€ m
12,193
6,312
30,246
–
48,751
11,633
214
34,631
2,273
48,751
42,363
6,388
48,751
150
1,259
(1)AIB pledged government available for sale securities with a fair value of € 5,814 million (2012: Nil) and non-government available for sale securities with a
fair value of € 284 million (2012: Nil) as collateral for these facilities.
(2)Amounts due to subsidiary undertakings may include repurchase agreements.
r Debt securities in issue
Bonds and medium term notes:
European medium term note programme
Other debt securities in issue:
Commercial paper
2013
€ m
2012
€ m
3,192
5,142
79
3,271
–
5,142
Debt securities issued during the year amounted to € 2,510 million (31 December 2012: Nil) of which € 500 million relates to an EMTN
issuance with the balance relating to issuances under the short-term commercial paper programme. Debt securities matured amounted
to € 4,390 million (31 December 2012: € 4,767 million).
s Other liabilities
Items in transit
Creditors
Fair value of hedged liability positions
Other
384
2013
€ m
49
7
86
238
380
2012
€ m
20
3
165
332
520
t Provisions for liabilities and commitments
At 1 January
Transfers in
Transfers out
Exchange translation adjustments
Amounts charged to income
statement
Amounts released to income
statement
Provisions utilised
At 31 December
At 1 January
Transfers out
Exchange translation adjustments
Amounts charged to income
statement
Amounts released to income
statement
Provisions utilised
At 31 December
Liabilities
and
charges
€ m
21
34
–
–
28(4)
(11)(4)
–
72
Liabilities
and
charges
€ m
24
(8)
–
10(4)
(1)(4)
(4)
21
31 December 2013
Total
provisions
Other(3) Voluntary
severance
scheme
€ m
€ m
NAMA(1)
provisions
Onerous(2)
contracts
Legal
claims
€ m
21
–
–
–
18(1)
(4)(1)
–
35
€ m
€ m
10
–
(2)
–
18
–
(4)
22
5
–
–
–
2
(2)
–
5
142
1
–
(4)
8
(24)
(45)
78
–
–
–
–
3
–
–
3
31 December 2012
Total
Voluntary
severance
scheme*
€ m
NAMA(1)
provisions
Onerous(2)
contracts
Legal
claims
Other(3)
provisions
€ m
298
–
–
18(1)
(88)(1)
(207)
21
€ m
€ m
6
–
–
6
(1)
(1)
10
5
–
–
1
(1)
–
5
€ m
103
–
1
54
(5)
(11)
142
–
–
–
35
–
(35)
–
€ m
199
35
(2)
(4)
77
(41)
(49)
215
Restated*
€ m
436
(8)
1
124
(96)
(258)
199
The total provisions for liabilities and commitments expected to be settled within one year amount to € 92 million (31 December 2012:
€ 153 million*).
(1)NAMA provisions represent amounts due to NAMA in respect of adjustments to transfers which had not been settled at 31 December 2011. At
31 December 2013, € 4 million (2012: € 88 million) of this provision was released to the income statement. This followed the resolution with NAMA of
certain issues relating to transfers which had taken place in earlier periods. In addition, € 18 million (2012: € 18 million) was charged to the income
statement in respect of Section 93 claims i.e. new claims under the NAMA Act.
(2)Provisions for the unavoidable costs expected to arise from branch closures.
(3)Includes provisions for refunds to customers in respect of payment protection insurance, restructuring and reorganisation costs.
(4)Included in charge/(writeback) of provisions for liabilities and commitments in income statement.
*Restated due to change in accounting policy for employee benefits (note af).
u Subordinated liabilities and other capital instruments
All outstanding subordinated liabilities and other capital instruments of AIB Group are issued by Allied Irish Banks, p.l.c. and are detailed
in note 40 to the consolidated financial statements.
385
Notes to the financial statements – Allied Irish Banks, p.l.c.
v Share capital
The share capital and share premium of Allied Irish Banks, p.l.c., are detailed in note 41 to the consolidated financial statements, all of
which relates to Allied Irish Banks, p.l.c..
w Capital reserves and capital redemption reserves
Capital reserves
At 1 January
Transfer to revenue reserves:
Anglo business transfer
CCNs issuance (note v)
Capital
contribution
reserves
€ m
Other
capital
reserves
€ m
1,608
156
(140)
(79)
(219)
–
–
–
2013
Total
€ m
1,764
(140)
(79)
(219)
At 31 December
1,389
156
1,545
Capital
contribution
reserves
€ m
Other
capital
reserves
€ m
2012
Total
€ m
1,855
156
2,011
(187)
(60)
(247)
1,608
–
–
–
(187)
(60)
(247)
156
1,764
The capital contributions are initially non-distributable but may become distributable as outlined in accounting policy number 28. The
transfers to revenue reserves relate to the capital contributions being deemed distributable.
Capital redemption reserves
All capital redemption reserves are held in Allied Irish Banks p.l.c. and are detailed in note 43 to the consolidated financial statements.
x Contributions from the Minister for Finance and the NPRFC
Capital contributions from the Minister for Finance and the NPRFC to Allied Irish Banks p.l.c. are detailed in note 44 to the consolidated
financial statements.
386
y Offsetting financial assets and financial liabilities
The disclosures set out in the tables below include financial assets and financial liabilities that:
–
–
are offset in Allied Irish Banks, p.l.c.’s statement of financial position; or
are subject to an enforceable master netting arrangement or similar agreement that covers similar financial instruments, irrespective
of whether they are offset in the statement of financial position.
Details of these transactions are set out in note 45 to the consolidated financials statements and apply equally to Allied Irish Banks,
p.l.c.
The following tables show financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and
similar agreements at 31 December 2013:
Financial assets
Derivative financial instruments
Loans and receivables to banks –
Reverse repurchase agreements
Note
e
f
Total
Financial liabilities
Note
Deposits by central banks and banks –
Securities sold under agreements
to repurchase
Customer accounts –
Securities sold under agreements
to repurchase
Derivative financial instruments
p
q
e
Total
Gross
Net
amounts of amounts of
financial
recognised
assets
financial
presented
liabilities
amounts of offset in the
in the
statement
statement
recognised
financial of financial of financial
position
€ m
assets
€ m
Gross
€ m
Related amounts not
offset in the statement
of financial position
Financial
collateral
(including
cash
collateral)
received
€ m
Financial
position instruments
€ m
1,177
16
1,193
–
–
–
1,177
(957)
(188)
16
1,193
(16)
(973)
–
(188)
Gross
Net
amounts of amounts of
financial
recognised
financial
liabilities
presented
assets
in the
amounts of offset in the
statement
statement
recognised
financial of financial of financial
position
liabilities
€ m
€ m
Gross
€ m
Related amounts not
offset in the statement
of financial position
Financial
collateral
(including
cash
collateral)
received
€ m
Financial
position instruments
€ m
2013
Net
amount
€ m
32
–
32
2013
Net
amount
€ m
20,886
5,783
1,819
28,488
–
–
–
–
20,886
(21,711)
8
(817)
5,783
1,819
(6,098)
(957)
28,488
(28,766)
(1)
(820)
(813)
(316)
42
(1,091)
387
Notes to the financial statements – Allied Irish Banks, p.l.c.
y Offsetting financial assets and financial liabilities (continued)
The following tables show financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and
similar agreements at 31 December 2012:
Gross
amounts of
recognised
financial
liabilities
offset in the
statement
of financial
position
€ m
–
–
–
Net
amounts of
financial
assets
presented
in the
statement
of financial
position
€ m
Related amounts not
offset in the statement
of financial position
Financial
collateral
(including
cash
collateral)
received
€ m
Financial
instruments
€ m
1,961
(1,539)
(289)
61
(61)
2,022
(1,600)
–
(289)
Gross
amounts of
recognised
financial
assets
€ m
1,961
61
2,022
Gross
amounts of
recognised
financial
assets
offset in the
statement
of financial
position
€ m
Net
amounts of
financial
liabilities
presented
in the
statement
of financial
position
€ m
Related amounts not
offset in the statement
of financial position
Financial
collateral
(including
cash
collateral)
received
€ m
Financial
instruments
€ m
Gross
amounts of
recognised
financial
liabilities
€ m
2012
Net
amount
€ m
133
–
133
2012
Net
amount
€ m
25,174
2,792
27,966
–
–
–
25,174
2,792
27,966
(27,211)
(1,539)
(28,750)
33
(2,004)
(1,209)
(1,176)
44
(1,960)
Financial assets
Derivative financial instruments
Loans and receivables to banks –
Reverse repurchase agreements
Note
e
f
Total
Financial liabilities
Note
Deposits by central banks and banks –
Securities sold under agreements
to repurchase
Derivative financial instruments
p
e
Total
The gross amounts of financial assets and financial liabilities and their net amounts as presented in the statement of financial position
that are disclosed in the above tables are measured on the following bases:
–
–
–
–
derivative assets and liabilities – fair value;
loans and receivables to banks – amortised cost;
deposits by central banks and banks – amortised cost; and
customer accounts – amortised cost
The amounts in the above tables that are offset in the statement of financial position are measured on the same basis.
388
y Offsetting financial assets and financial liabilities (continued)
The following tables reconcile the ‘Net amounts of financial assets and financial liabilities presented in the statement of financial
position’, as set out in the previous pages, to the line items presented in the statement of financial position at 31 December 2013 and
31 December 2012:
Net amounts
of financial
assets presented
in the statement
of financial position
€ m
Line item in
statement of
financial position
Carrying
amount in
statement
of financial
position
€ m
2013
Financial
assets not
in scope of
offsetting
disclosures
€ m
1,177
Derivative financial instruments
1,653
476
Financial assets
Derivative financial instruments
Loans and receivables to banks –
Reverse repurchase agreements
16
Loans and receivables to banks
23,856
23,840
Net amounts
of financial
liabilities presented
in the statement
of financial position
€ m
Line item in
statement of
financial position
Carrying
amount in
statement
of financial
position
€ m
2013
Financial
liabilities not
in scope of
offsetting
disclosures
€ m
20,886
Deposits by central banks and banks
29,112
8,226
5,783
1,819
Customer accounts
Derivative financial instruments
53,112
2,404
47,329
585
Financial liabilities
Deposits by central banks and banks –
Securities sold under agreements
to repurchase
Customer accounts –
Securities sold under agreements
to repurchase
Derivative financial instruments
Net amounts
of financial
assets presented
in the statement
of financial position
€ m
Line item in
statement of
financial position
Carrying
amount in
statement
of financial
position
€ m
2012
Financial
assets not
in scope of
offsetting
disclosures
€ m
1,961
Derivative financial instruments
2,768
807
Financial assets
Derivative financial instruments
Loans and receivables to banks –
Reverse repurchase agreements
61
Loans and receivables to banks
31,284
31,223
Net amounts
of financial
liabilities presented
in the statement
of financial position
€ m
Line item in
statement of
financial position
Carrying
amount in
statement
of financial
position
€ m
2012
Financial
liabilities not
in scope of
offsetting
disclosures
€ m
Financial liabilities
Deposits by central banks and banks –
Securities sold under agreements
to repurchase
25,174
Deposits by central banks and banks
Derivative financial instruments
2,792
Derivative financial instruments
39,389
3,541
14,215
749
389
Notes to the financial statements – Allied Irish Banks, p.l.c.
z Memorandum items: contingent liabilities and commitments, and contingent assets
Allied Irish Banks, p.l.c. has given guarantees in respect of the liabilities of certain of its subsidiaries and has also given guarantees to
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 (note L).
Details of contingent liabilities and commitments entered into by AIB Group are set out in note 46 to the consolidated financial
statements.
The commentary on Legal proceedings, Contingent liability/contingent assets and Participation in TARGET 2 – Ireland, as set out in
note 46 to the consolidated financial statements, applies also to Allied Irish Banks, p.l.c.
The following tables give the nominal or contract amounts of contingent liabilities and commitments for Allied Irish Banks, p.l.c.:
Contingent liabilities - credit related
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
Undrawn formal standby facilities, credit lines and other commitments to lend:
Less than 1 year(1)
1 year and over(2)
(1)An original maturity of up to and including 1 year or which may be cancelled at any time without notice.
(2)With an original maturity of more than 1 year.
Contract amount
2012
€ m
2013
€ m
567
357
924
15
5,907
1,232
7,154
8,078
761
334
1,095
16
6,144
1,530
7,690
8,785
Concentration of exposure
Republic of Ireland
United Kingdom
United States of America
Total
Contingent liabilities(1)
2013
€ m
745
–
179
924
2012
€ m
848
–
247
1,095
Commitments
2012
€ m
2013
€ m
7,011
116
27
7,154
7,517
132
41
7,690
(1)Included in exposures are amounts relating to Group subsidiaries of Nil (2012: € 27 million).
Credit ratings
The credit ratings of contingent liabilities and commitments as at 31 December 2013 and 31 December 2012 are set out in the following
table.
Good upper
Good lower
Watch
Vulnerable
Impaired
Unrated
Total
390
2013
€ m
2,427
3,916
121
233
659
722
8,078
2012
€ m
3,625
2,854
297
168
1,130
711
8,785
aa Transfer of financial assets
Allied Irish Banks, p.l.c. enters into transactions in the normal course of business in which it transfers previously recognised financial
assets. Transferred financial assets may, in accordance with IAS 39 Financial Instruments: Recognition and Measurement:
(i) continue to be recognised in their entirety; or
(ii) be derecognised in their entirety but Allied Irish Banks, p.l.c. retains some continuing involvement.
The most common transactions where the transferred assets are not derecognised in their entirety are sale and repurchase
agreements and securitisations. Details of these transactions are set out in note 49 to the consolidated financial statements and apply
equally to Allied Irish Banks, p.l.c..
(i) Transferred financial assets not derecognised in their entirety
The following table sets out the carrying value of financial assets which did not qualify for derecognition and their associated financial
liabilities:
Carrying
amount of
transferred
assets
Carrying
amount of
associated
liabilities held
by third parties
€ m
€ m
Carrying
amount of
associated
liabilities held
by Group
companies
€ m
Sale and repurchase agreements
29,5591)
26,669(2)
Securitisations
Credit card receivables
675
500
–
175
Carrying
amount of
transferred
assets
Carrying
amount of
associated
liabilities held
by third parties
€ m
€ m
Carrying
amount of
associated
liabilities held
by Group
companies
€ m
Sale and repurchase agreements
29,791(1)
25,174(2)
–
(1)Includes NAMA senior bonds.
(2)See notes P and Q.
Fair
value of
transferred
assets
Fair value
of associated
liabilities
held by third
parties
€ m
29,694
€ m
26,669
675
500
Fair value
of associated
liabilities
held by
Group
companies
€ m
–
175
Fair
value of
transferred
assets
Fair value
of associated
liabilities
held by third
parties
€ m
29,837
€ m
25,174
Fair value
of associated
liabilities
held by
Group
companies
€ m
–
2013
Net
fair value
position
€ m
3,025
–
2012
Net
fair value
position
€ m
4,663
(ii) Transferred financial assets derecognised in their entirety but Allied Irish Banks, p.l.c. retains some
continuing involvement
Allied Irish Banks, p.l.c. has a continuing involvement in transferred financial assets where it retains any of the risks and rewards of
ownership of the transferred financial assets. Set out below are transactions in which Allied Irish Banks p.l.c. has a continuing
involvement in financial assets transferred.
NAMA
Details in relation to the continuing involvement of assets transferred to NAMA by Allied Irish Banks, p.l.c. are set out in note 49 to the
consolidated financial statements. The carrying value of assets transferred during 2010 and 2011 amounted to € 13,483 million, all of
which were derecognised.
In 2013, Allied Irish Banks, p.l.c. recognised € 16 million (cumulative € 53 million) (2012: € 16 million (cumulative € 37 million)) in the
income statement for the servicing of all financial assets transferred to NAMA by the Group.
AIB Mortgage Bank
In 2011, Allied Irish Banks, p.l.c. transferred substantially all of its mortgage intermediary originated Irish residential loans, related
security and related business of approximately € 4.2 billion to AIB Mortgage Bank.
Under an Outsourcing and Agency Agreement dated 8 February 2006, Allied Irish Banks, p.l.c., as Service Agent for AIB Mortgage
Bank, originates residential mortgage loans through its retail branch network and intermediary channels in the Republic of Ireland,
services the mortgage loans and provides treasury services in connection with financing, as well as a range of other support services. In
2013, Allied Irish Banks, p.l.c. recognised € 58 million (cumulative € 338 million) (2012: € 58 million (cumulative € 280 million) in the in-
come statement for the provision of services under this agreement.
391
Notes to the financial statements – Allied Irish Banks, p.l.c.
ab Fair value of financial instruments
Details of the methodologies employed by AIB in measuring fair value are set out in note 50 to the consolidated financial statements.
As outlined in this note, the basis of fair value measurement has changed since 2012 arising from the implementation of IFRS 13 Fair
Value Measurement. Accordingly, the financial statements for 2013 have been prepared under IFRS 13 whilst the 2012 financial
statements have preen prepared under IAS 39 measurement basis.
Readers of these financial statements are advised to use caution when using the data in the following table to evaluate the financial
position of Allied Irish Banks, p.l.c. or to make comparisons with other institutions. Fair value information is not provided for items that do
not meet the definition of a financial instrument. These items include 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 Company as a going concern at 31 December 2013.
The following tables set out the carrying amount in the statement of financial position of financial assets and financial liabilities
distinguishing between those measured at fair value and those measured at amortised cost. In addition, the fair value of all financial
assets and financial liabilities is shown setting out the fair value hierarchy as described below into which the fair value measurement is
categorised:
Level 1 – financial assets and liabilities measured using quoted market prices from an active market (unadjusted).
Level 2 – financial assets and liabilities measured using valuation techniques which use quoted market prices from an active market or
measured using quoted market prices unadjusted from an inactive market.
Level 3 – financial assets and liabilities measured using valuation techniques which use unobservable market data.
392
ab Fair value of financial instruments (continued)
At fair value through
profit and loss
Held for
trading
€ m
Fair value
hedge
derivatives
€ m
Carrying amount in statement of financial position
At fair value through
At amortised cost
equity
Total
Fair value hierarchy
2013
Cashflow
hedge
derivatives
€ m
Available
for sale
securities
€ m
Loans and
receivables
Other
Level 1
Level 2
Level 3
Total
€ m
€ m
€ m
Financial assets measured at fair value
Trading portfolio financial assets
Debt securities
Equity securities
Derivative financial instruments(1)
Interest rate derivatives
Exchange rate derivatives
Equity derivatives
Financial investments available for sale
1
1
1,100
35
171
Government securities
Supranational banks and
government agencies
Asset backed securities
Bank securities
Corporate securities
Other investments
Equity securities
222
–
–
125
–
–
12,690
3,092
535
3,717
3
12
80
1
1
1,447
35
171
1
–
–
–
–
12,690
12,690
3,092
535
3,717
3
12
80
3,092
535
3,717
–
7
–
1
1,168
35
171
–
–
–
–
3
–
3
–
–
279
–
–
–
–
–
–
–
12
70
1
1
1,447
35
171
12,690
3,092
535
3,717
3
12
80
1,308
222
125
20,129
21,784
20,042
1,381
361
21,784
Financial assets not measured at fair value
Cash and balances at central banks
Items in the course of collection
Disposal groups and non-current
assets held for sale
Loans and receivables
Loans and receivables to banks(3)
Loans and receivables to customers(4)
NAMA senior bonds
Other financial assets
3
9
3
659
79
28
23,856
31,603
15,598
71,823
556(2)
473
1,029
1,215
79
28
23,856
31,603
15,598
473
72,852
556
659
–
79
1,215
79
95
556
754
28
23,761
31,387
15,767
473
71,495
28
23,856
31,387
15,767
473
72,805
3
9
4
ab Fair value of financial instruments (continued)
Carrying amount in statement of financial position
At amortised cost
Total
Fair value hierarchy
2013
At fair value through profit
and loss
Held for
trading
€ m
Fair value
hedge
derivatives
€ m
At fair value through
equity
Cashflow
hedge
derivatives
€ m
Other
Level 1
Level 2
Level 3
Total
€ m
€ m
Financial liabilities measured at fair value
Derivative financial instruments(5)
Interest rate derivatives
Exchange rate derivatives
Equity derivatives
Financial liabilities not measured at fair value
Deposits by central banks and banks(6)
Other borrowings
Securities sold under agreements
to repurchase
Customer accounts(7)
Current accounts
Demand deposits
Time deposits
Securities sold under agreemnts
to repurchase
Debt securities in issue(8)
Bonds and medium term notes
Other debt securities in issue
Subordinated liabilities and other
capital instruments
Other financial liabilities
1,138
35
174
1,347
588
–
–
588
469
–
–
469
2,195
35
174
2,404
–
–
–
–
2,111
35
174
2,320
84
–
–
84
2,195
35
174
2,404
8,226
8.226
8,226
8,226
20,886
20,886
11,750
9,136
20,886
13,674
6,230
27,425
13,674
6,230
27,425
13,674
6,230
27,676
13,674
6,230
27,676
5,783
5,783
6,034
6,034
3,192
79
1,352
279
87,126
3,192
79
1,352
279
87,126
3,283
79
–
1,775
–
–
279
3,283
79
1,775
279
3,362
13,525
71,255
88,142
(1)Includes exposure to subsidiary undertakings of € 163 million.
(2)Comprises cash on hand.
(3)Includes exposure to subsidiary undertakings of € 22,848 million.
(4)Includes exposure to subsidiary undertakings of € 10,175 million.
(5)Includes amounts due to subsidiary undertakings of € 403 million.
(6)Includes amounts due to subsidiary undertakings of € 7,472 million.
(7))Includes amounts due to subsidiary undertakings of € 5,656 million.
(8)Includes amounts due to subsidiary undertakings of Nil.
ab Fair value of financial instruments (continued)
The following table analyses the carrying amounts of the financial assets and liabilities by category as defined in IAS 39 Financial Instruments: Recognition and Measurement and by
statement of financial position heading together with the related fair value.
Carrying amount in statement of financial position
At fair value through
profit and loss
At fair value
through equity
At amortised
cost
Financial assets
Cash and balances at central banks
Items in the course of collection
Disposal groups and non-current
assets held for sale
Trading portfolio financial assets
Derivative financial instruments
Loans and receivables to banks
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale
Other financial assets
Financial liabilities
Deposits by central banks and banks
Customer accounts
Derivative financial instruments
Debt securities in issue
Subordinated liabilities and
other capital instruments
Other financial liabilities
(1)Comprises cash on hand.
At fair value
through profit
and loss
€ m
Fair value
hedge
derivatives
€ m
Cashflow
hedge
derivatives
€ m
Available
for sale
securities
€ m
Loans
and
receivables
€ m
–
–
196(2)
24
1,664
–
–
–
–
–
1,884
–
–
1,864
–
–
–
–
–
–
–
–
–
–
–
352
752
–
–
–
–
–
352
–
–
732
–
–
–
–
–
–
–
–
–
–
945
–
–
–
–
–
–
–
–
–
–
–
14,930
–
558
95
353
–
–
31,284
37,234
17,082
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
752
14,930
86,606
1,864
732
945
Other
€ m
518(1)
–
–
–
–
–
–
–
–
418
936
39,389
48,751
–
5,142
1,271
330
Total
carrying
amount
€ m
1,076
95
549
24
2,768
31,284
37,234
17,082
14,930
418
105,460
39,389
48,751
3,541
5,142
1,271
330
94,883
98,424
2012
Total
fair
value
€ m
1,076
95
435
24
2,768
31,337
34,759
17,139
14,930
–
39,439
49,238
3,541
5,207
1,650
–
(2)Designated on initial recognition as at fair value through profit or loss. All other financial assets/financial liabilities in this column are held for trading.
3
9
5
Notes to the financial statements – Allied Irish Banks, p.l.c.
ab Fair value of financial instruments (continued)
Fair value hierarchy
The following table sets out, by financial instrument measured at fair value, the valuation methodologies(1) adopted in the financial
statements as at 31 December 2012:
Financial assets
Disposal groups and non-current assests held for sale
Trading portfolio financial assets
Derivative financial instruments
Financial investments available for sale – debt securities
– equity securities
Financial liabilities
Derivative financial instruments
Level 1
€ m
Level 2
€ m
Level 3
€ m
–
23
–
14,753
53
14,829
–
–
–
1
2,768
64
1
2,834
3,521
3,521
196
–
–
12
47
255
20
20
2012
Total
€ m
196
24
2,768
14,829
101
17,918
3,541
3,541
Significant transfers between Level 1 and Level 2 of the fair value hierarchy
The following table shows significant transfers between Level 1 and Level 2 of the fair value hierarchy for the years ended 31 December
2013 and 31 December 2012:
Financial assets
Transfer into Level 1 from Level 2
Transfer into Level 2 from Level 1
Trading
portfolio
€ m
Debt
securities
€ m
–
–
13
3
2013
Total
€ m
13
3
Trading
portfolio
€ m
Debt
securities
€ m
–
–
908
–
2012
Total
€ m
908
–
Transfers into Level 1 from Level 2 occurred due to increased availability of reliable quoted market prices which were not previously
available.
396
ab Fair value of financial instruments (continued)
Reconciliation of balances in Level 3 of the fair value hierarchy
The following tables show a reconciliation from the beginning balances to the ending balances for fair value measurements in Level 3 of
the fair value hierarchy for 2013 and 2012:
Financial assets
Financial liabilities
2013
Group
Disposal groups Derivatives
and non-current
assets held for sale
€ m
€ m
At 1 January 2013
Transfers into Level 3(1)
Total gains or (losses) in:
Profit or loss
– Net trading loss
– Provisions for impairment on
financial investments
available for sale
– Other operating loss
Other comprehensive income
– Net change in fair value of
financial investments
available for sale
Purchases
Sales
At 31 December 2013
–
–
–
–
–
–
–
–
–
–
–
–
460
(181)
(181)
–
–
–
–
–
–
279
Available for sale
Total Derivatives
Total
Debt
securities
€ m
12
–
–
–
–
–
–
–
–
–
12
Equity
securities
€ m
243
–
–
–
–
–
24
24
–
€ m
255
460
(181)
(181)
–
–
24
24
–
(197)
70
(197)
361
€ m
20
116
(32)
(32)
–
–
–
–
–
(20)
84
€ m
20
116
(32)
(32)
–
–
–
–
–
(20)
84
2012
Financial assets
Disposal groups
and non-current
assets held for sale
€ m
Derivatives
€ m
Available for sale
Debt
securities
€ m
Equity
securities
€ m
At 1 January 2012
Designated at fair value through
profit or loss
Transfers out of level 3(1)
Total gains or losses in:
Profit or loss
– Net trading loss
– Provisions for impairment on
financial investments
available for sale
Other comprehensive income
Net NAMA subordinated bonds
Settlements
At 31 December 2012
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12
–
–
–
––
–
–
–
–
12
146
196
(18)
(78)
–
(78)
–
(3)
–
243
Financial liabilities
Total
Derivatives
Totall
€ m
158
196
(18)
(78)
–
(78)
–
(3)
–
255
€ m
109
–
–
39
39
–
–
–
€ m
109
–
–
39
39
–
–
–
(128)
20
(128)
20
(1)Transfers between levels of the fair value hierarchy are recognised at the end of the reporting period during which the change occurred.
Transfers out of Level 3 occurred because of increased observability in the market prices of these instruments.
397
Notes to the financial statements – Allied Irish Banks, p.l.c.
ab Fair value of financial instruments (continued)
Reconciliation of balances in Level 3 of the fair value hierarchy
Total gains or losses included in profit or loss that is attributable to the change in unrealised gains or losses relating to those
assets and liabilities held at 31 December 2013 and 31 December 2012:
Net trading loss
Provisions for impairment on financial investments available for sale
Total
2013
€ m
(25)
–
(25)
2012
€ m
(6)
(78)
(84)
398
ab Fair value of financial instruments (continued)
Significant unobservable inputs
The table below sets out information about significant unobservable inputs used at the year ended 31 December 2013 in measuring financial instruments categorised as Level 3 in the fair
value hierarchy:
Type of financial
Fair value at
instrument
31 December 2013
Valuation
technique
Significant
Range of estimates
unobservable inputs
Fair value measurement
sensitivity to unobservable
inputs
Uncollateralised
Assets: € 279 million
Counterparty valuation
1. Loss given default (“LGD”)
1. 44.8% to 79.5% (Base 58.7%)
1. Negative € 11 million to
customer
derivatives
Liabilities: € 84 million
adjustment (“CVA”);
2. Customer probability of
2. 0.815% - 1.96% (Base 1.52% 1 yr PD)
positive € 7 million
Total CVA negative
default (“PD”)
3. As above with greater impact due to
2. Negative € 9 million to
€ 30 million
3. Combination LGD and
combination of PD and LGD
positive € 14 million
PD change
changes
3. Negative € 20 million to
positive € 19 million
Uncollateralised
Assets: € 279 million
Debit valuation
Own credit i.e.PD
The PD is shifted from 2.13% to 0.38% 1. Negative € 4 million to
customer
derivatives
Liabilities: € 84 million
adjustment (“DVA”);
in the unfavourable scenario. In the
positive € 4 million
Total DVA positive
€ 9 million
favourable scenario, the capping of
DVA at CVA level is removed
NAMA subordinated
Asset: € 70 million
Discounted cash flows
NAMA profitability i.e.
The estimates range from NAMA
Negative € 46 million i.e. 5.26%
bonds
ment
ability to generate cash
making a single payment only under
of nominal only to positive € 106
flow for repayment.
the bonds i.e. 5.26% of nominal to a full million i.e. 39% being full repay-
repayment of the bonds at maturity.
discounted at 15%.
Counterparty Valuation Adjustment ("CVA") and Debit Valuation Adjustment ("DVA") are applied to all uncollateralised over the counter derivatives. CVA and DVA are calculated as: (Option
replacement cost x PD x LGD). PDs are derived from market based Credit Default Swap ("CDS") information. As most counterparts do not have a quoted CDS, PDs are derived by mapping
each counterparty to an index CDS by industry sector and credit grade. For DVA, a BB Financial CDS curve is used to derive own PD. LGDs are based on the specific circumstances of the
counterparty and take into account valuation of offsetting security where applicable. For unsecured counterparts, an LGD of 60% is applied. The DVA is capped at the CVA level for all
derivatives i.e. where DVA (always a positive adjustment) is higher than CVA (always a negative adjustment), the net adjustment made is zero. This is due to an internal management view
that a net positive adjustment is unlikely to be achieved in an external transaction to exit the derivative position. In the favourable scenario, the cap is removed creating a more positive DVA.
Within the range of estimates and fair value sensitivity measurements, an adverse and a favourable scenario have been selected for PDs and LGDs for CVA. The adverse scenario for
customer PDs is a single rating downgrade. The favourable scenario for customer PDs is based on internal models which analyse historical default levels by credit grade. Customer LGDs
are shifted according to estimates of improvement in value of security compared with potential derivatives’ market values. Within the combination of LGD and PD, both are shifted together.
An A
rated Financial CDS curve is used to derive own PD in the adverse DVA scenario. The favourable scenario for DVA is the removal of the cap at CVA level. As it is common market practice
to apply 60% as the LGD for financial institutions in CDS calculations, no range is applied to LGD for DVA.
A number of other derivatives are subject to valuation methodologies which use unobservable inputs. As the variability of the valuation is not greater than € 1 million in any individual case or
3
9
9
collectively, the detail is not disclosed here.
Notes to the financial statements – Allied Irish Banks, p.l.c.
ab Fair value of financial instruments (continued)
Sensitivity of Level 3 measurements
The implementation of valuation techniques involves a considerable degree of judgement. While the Company believes its estimates of
fair value are appropriate, the use of different measurements or assumptions could lead to different fair values. The following table sets
out the impact of using reasonably possible alternative assumptions in the valuation methodology:
Level 3
2013
Effect on income
statement
Favourable Unfavourable
€ m
€ m
Effect on other
comprehensive income
Favourable Unfavourable
€ m
€ m
Classes of financial assets
Derivative financial instruments
Financial investments available for sale – equity securities
Total
Classes of financial liabilities
Derivative financial instruments
Total
14
–
14
5
5
(22)
(46)
(68)
(2)
(2)
106
106
–
–
–
–
–
–
2012
Classes of financial assets
Financial investments available for sale – equity securities
Total
Classes of financial liabilities
Derivative financial instruments
Total
Level 3
Effect on income
statement
Favourable Unfavourable
€ m
€ m
Effect on other
comprehensive income
Favourable Unfavourable
€ m
€ m
–
–
3
3
(45)
(45)
(3)
(3)
140
140
–
–
–
–
–
–
In relation to the investment in ALH which was designated as an equity investment at fair value through profit or loss (and categorised
as held for sale) this sale was concluded in March 2013 (note 31 to the consolidated financial statements).
Day 1 gain or loss:
No difference existed between the fair value at initial recognition of financial instruments and the amount that was determined at that
date using a valuation technique incorporating significant unobservable data.
ac Statement of cash flows
Analysis of cash and cash equivalents
For the purpose of the statement of cash flows, cash equivalents comprise the following balances with less than three months maturity
from the date of acquisition:
Cash and balances at central banks
Loans and receivables to banks
400
2013
€ m
1,215
851
2,066
2012
€ m
1,076
1,358
2,434
2011
€ m
1,067
2,025
3,092
ad Related party transactions
Related parties of Allied Irish Banks, p.l.c. (“AIB”) include subsidiary undertakings, associate undertakings and joint undertakings,
post-employment benefits, Key Management Personnel and connected parties. The Irish Government is also considered a related party
by virtue of its effective control of AIB. Related party transactions are detailed in note 54 to the consolidated financial statements.
ae Commitments
Capital expenditure
Estimated outstanding commitments for capital expenditure
not provided for in the financial statements
Capital expenditure authorised but not yet contracted for
Operating lease rentals
2013
€ m
25
26
The total of future minimum lease payments under non-cancellable operating leases are set out in the following table.
One year
One to two years
Two to three years
Three to four years
Four to five years
Over five years
Total
2013
€ m
62
58
52
34
16
140
362
2012
€ m
7
29
2012
€ m
66
63
62
55
35
149
430
Operating lease payments recognised as an expense for the year were € 62 million (2012: € 67 million). Sublease income amounted to
Nil (2012: Nil). Included in the lease payments to other Group subsidiaries is € 37 million (2012: € 41 million). Future minimum lease
payments due to subsidiaries of Allied Irish Banks, p.l.c. amount to € 137 million excluding VAT (2012: € 180 million excluding VAT) and
are included in the total of € 362 million in 2013 (2012: € 430 million).
Details of the sale and leaseback arrangements of AIB Group are set out in note 55 to the consolidated financial statements.
401
Notes to the financial statements – Allied Irish Banks, p.l.c.
Impact of adopting new accounting standards
af
As outlined in the Basis of preparation on page 212, from 1 January 2013, Allied Irish Banks, p.l.c. has adopted ‘IAS 19 Employee Benefits
(Revised). This standard is required to be applied retrospectively, and accordingly, previously published comparative periods have been
restated as set out below:
Published
€ m
IAS 19R
€ m
2012
Restated
€ m
Published
€ m
IAS 19R
€ m
Statement of financial position (selected lines)
Assets
Deferred taxation
Total assets
Liabilities
Retirement benefit liabilities
Provisions for liabilities and commitments
Total liabilities
Shareholders’ equity
Reserves
Total shareholders’ equity
Total liabilities and shareholders’ equity
Statement of cash flows (selected lines)
Loss from continuing operations before taxation
Retirement benefits – defined benefit expense
Termination benefits
Closing cash and cash equivalents
Statement of changes in equity (selected lines)
At 1 January
Loss for the year
Other comprehensive income
Total comprehensive income for the year
At 31 December
2,931
111,743
690
276
(12)
(12)
(23)
(77)
2,919
111,731
2,738
122,805
667
199
794
436
100,420
(100)
100,320
110,487
3,227
11,323
111,743
(1,668)
(160)
195
2,434
12,318
(1,418)
423
(995)
11,323
88
88
3,315
11,411
2,222
12,318
(12)
111,731
122,805
78
23
(101)
–
–
68
20
88
88
(1,590)
(137)
94
2,434
12,318
(1,350)
443
(907)
11,411
(4,516)
22
–
3,092
2,912
(3,674)
(642)
(4,316)
12,318
–
–
–
–
–
–
–
–
(23)
23
–
–
–
(20)
20
–
–
2011
Restated
€ m
2,738
122,805
794
436
110,487
2,222
12,318
122,805
(4,539)
45
–
3,092
2,912
(3,694)
(622)
(4,316)
12,318
Arising from the implementation of IAS 19 Employee Benefits (Revised) a past service cost of € 23 million recognised in 2012 in relation
to employees expected to leave under the early retirement scheme in 2013 and a provision of € 77 million recognised in 2012 in relation
to employees expected to leave in 2013 under the voluntary severance scheme have been restated due to a change in the recognition
criteria for termination benefits.
402
Statement of Directors’ responsibilities in relation to the
Financial statements
The following statement which should be read in conjunction with the statement of Auditor’s responsibilities set out with their Audit
Report, is made with a view to distinguish for shareholders the respective responsibilities of the Directors and of the Auditor in relation to
the financial statements.
The Directors are responsible for preparing the Annual Report and the Group and Company financial statements, in accordance with
applicable law and regulations.
Company law requires the Directors to prepare Group and Company financial statements for each financial year. Under that law the
directors are required to prepare the Group financial statements in accordance with IFRSs as adopted by the EU and have elected to
prepare the Company financial statements in accordance with IFRSs as adopted by the EU and as applied in accordance with the
provisions of the Companies Acts 1963 to 2013. The Directors have also elected to prepare the Group financial statements in
accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("lASB").
The Group and Company financial statements are required by law and IFRSs as adopted by the EU to present fairly the financial
position and performance of the Group and Company: the Companies Acts 1963 to 2013 provide in relation to such financial statements
that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair
presentation.
select suitable accounting policies and then apply them consistently;
In preparing each of the Group and Company financial statements, the Directors are required to:
–
– make judgements and estimates that are reasonable and prudent;
–
–
state that the financial statements comply with IFRS as adopted by the EU and IFRS issued by the IASB; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will
continue in business.
The Directors are responsible for keeping proper books of account that disclose with reasonable accuracy at any time the financial
position of the Company and enable them to ensure that its financial statements comply with the Companies Acts 1963 to 2013.They
are also responsible for taking such steps as are reasonably open to them to safeguard the assets of the Group and Company and to
prevent and detect fraud and other irregularities. Under applicable law, 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 Enterprise Securities
Market ("ESM") 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 that are listed on page 184 to 185 confirm, to the best of their knowledge and belief, that:
–
the Group financial statements, prepared in accordance with IFRS as issued by the IASB and as adopted by the EU, give a true
and fair view, in accordance with IFRSs as issued by the IASB and as adopted by the EU, of the state of the Group's affairs as at
31 December 2013 and of its loss for the year then ended;
the Company financial statements prepared in accordance with IFRS as adopted by the EU, give a true and fair view, in accordance
–
with IFRSs as adopted by the EU of the state of the Company's affairs as at 31 December 2013 and of its loss for the year then
ended; and
–
the Directors' report and the Financial Review and Risk Management sections, contained in the Annual Report include a fair review
of the development and performance of the business and the financial position of the Group, together with a description of the
principal risks and uncertainties faced by the Group.
On behalf of the Board
David Hodgkinson
Chairman
David Duffy
Chief Executive Officer
403
Independent Auditor’s Report
Independent Auditor’s Report to the members of Allied Irish Banks, p.l.c.
Opinion
In our opinion:
•
the Group financial statements give a true and fair view, in accordance with International Financial Reporting Standards (IFRSs) as
adopted by the European Union, of the state of the Group’s affairs as at 31 December 2013 and of its result for the year then ended;
the parent company financial statements give a true and fair view, in accordance with IFRSs, as adopted by the European Union as
applied in accordance with the provisions of the Companies Acts 1963, to 2013, of the state of the parent company’s affairs as at
31 December 2013; and
the financial statements have been properly prepared in accordance with the Companies Acts, 1963 to 2013.
•
•
The financial statements comprise the Group Financial Statements: the Consolidated Income Statement, the Consolidated Statement of
Recognised Income and Expense, the Consolidated Balance Sheet, the Consolidated Cash Flow Statement and the Consolidated
Statement of Changes in Equity: and the Parent Company Financial Statements: the Company Balance Sheet, the Company Cash Flow
Statement, the Company Statement of Changes in Equity; and the related notes. The financial reporting framework that has been
applied in their preparation is Irish law and IFRSs as adopted by the European Union and, as regards the parent company financial
statements, as applied in accordance with the provisions of the Companies Acts, 1963 to 2013.
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation
of resources in the audit and directing the efforts of the engagement team:
Risk of material misstatement
Loan Impairment
The risk that provisions for impairment on loans and
Our audit response to the risk
We tested credit management processes and controls
receivables do not represent an appropriate estimate
over both new lending and for restructuring transactions; front
of the losses incurred. The determination of appropriate
line credit monitoring and assessment; the operations and
provisions requires a significant amount of management
controls over models; and the work of the credit review function.
judgment and relies on available data.
We examined both sample loan cases and models challenging
the appropriateness of judgments made regarding collateral
valuation and realisation time frames; and examined the credit
risk functions analysis of data at a portfolio level.
Deferred Tax
Risk related to the recognition and measurement of deferred
We reviewed the plans and the model used by management to
taxation. Deferred tax assets are recognised for unused
assess the likelihood of future profitability and challenged
tax losses to the extent that it is probable that there will be
management’s assessment of a range of positive and negative
sufficient future taxable profits against which the losses can be
evidence for the projection of long-term future profitability. We
used. Given the inherent uncertainties associated with projecting
reviewed management’s analysis of their consideration of the
profitability the assessment of the conditions for the recognition
more likely than not test and reviewed the sensitivity analysis
of a deferred tax asset is a critical judgement.
disclosed.
Capital and Funding
The risk that the capital and liquidity projections which are
We examined the process in place to monitor, forecast and plan
fundamental to the continuing presentation of the financial
the Group’s funding and capital needs. This included assessing
statements on a going concern basis are not appropriate.
both the controls in place and assumptions made; establishing
whether key assumptions had been validated; and assessing
the adequacy of disclosures in the financial statements.
Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole, and not
to express an opinion on individual accounts or disclosures. Our opinion on the financial statements is not modified with respect to any
of the risks described above, and we do not express an opinion on these individual matters.
Our assessment of materiality
We define materiality as the magnitude of misstatement that makes it probable that the economic decisions of a reasonably
knowledgeable person relying on the financial statements, would be changed or influenced. We use materiality both in planning the
scope of our audit work and in evaluating the results of our work.
We determined materiality for the Group to be € 75 million, which we set at less than 1% of shareholders equity which we have
determined, in our professional judgement, to be one of the principal benchmarks within the financial statements of the Group. We
404
Independent Auditor’s Report (continued)
agreed with the Audit Committee that we would report to the Committee all audit differences in excess of € 3.75 million as well as
differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on
disclosure matters that we identified when assessing the overall presentation of the financial statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and
assessing the risks of material misstatement at the Group level. Based on that assessment, we focused our Group audit scope primarily
on the audit work in six legal entities all of which were subject to a full audit, whilst the remaining legal entities were subject to specified
audit procedures, where the extent of our testing was based on our assessment of the risks of material misstatement and of the
materiality of the Group’s operations in those entities.In addition, audits are performed for entity statutory purposes for all legal entities.
At the parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that
there were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject
to audit or audit of specified account balances.
As part of the group audit, the group engagement team issued instructions to all component audit teams, and evaluated the outputs
from each audit location.
Matters on which we are required to report by the Companies Acts 1963 to 2013
• 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 parent company;
The parent 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 and the description in
the Corporate Governance Statement of the main features of the internal control and risk management systems in relation to the
process for preparing the Group financial statements is consistent with the Group financial statements; and
The net assets of the parent company, as stated in the parent 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 2013 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
parent company.
•
Matters on which we are required to report by exception
Our duty to read other information in the Annual Report
Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the annual
report is:
• materially inconsistent with the information in the audited financial statements; or
•
apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of per
forming our audit; or
otherwise misleading.
•
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial
statements that give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance
with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.
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.
405
Independent Auditor’s Report (continued)
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the Group’s and the parent company’s circumstances and have been
consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the
overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report
to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially
incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become
aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Gerard Fitzpatrick
For and on behalf of Deloitte & Touche
Chartered Accountants and Statutory Audit Firm
Hardwicke House
Hatch Street
Dublin 2
Ireland
4 March 2014
406
Additional information
Schedule to Report of the Directors
Information required to be contained in the Directors’ Annual Report by the European Communities (Takeover Bids (Directive
2004/25/EC)) Regulations 2006.
As required by these Regulations, the information contained below represents the position as of 31 December 2013.
Capital Structure
The authorised share capital of the Company is € 11,092,752,297 divided into 702,000,000,000 Ordinary Shares of € 0.01 each
(‘Ordinary Shares’), 3,500,000,000 2009 Non-Cumulative Preference Shares of € 0.01 each (‘2009 Preference Shares’) and
403,775,229,679 Deferred Shares of € 0.01 each (‘Deferred Shares’). The issued share capital of the company is 521,296,831,617
Ordinary Shares and 3,500,000,000 2009 Preference Shares.
For so long as the National Pensions Reserve Fund Commission (“NPRFC”) holds 2009 Preference Shares, subject to certain
exceptions, the consent of the Minster will be required for the passing of certain share capital resolutions of the Company,
being resolutions relating to: (i) an increase in the authorised share capital; (ii) a re-issue of Treasury Shares; (iii) the issue of any
shares; or (iv) the redemption, consolidation, conversion or sub-division of the share capital. The exceptions referred to above include
any issue of shares made for the purposes of redeeming or purchasing the 2009 Preference Shares.
Rights and Obligations of Each Class of Share
The Rights and Obligations of the Ordinary Shares and the 2009 Preference Shares are contained in a summary of the Memorandum
and Articles of Association on pages 410 to 416.
Percentage of Total Share Capital Represented by Each Class of Share
The Ordinary Shares represent approximately 63.3% of the authorised share capital and approximately 99.3% of the issued share
capital of the Company. The 2009 Preference Shares represent approximately 0.3% of the authorised share capital and approximately
0.7% of the issued share capital of the Company. The Deferred Shares represents appromimately 36.4% of the authorised share capital
none of which is in issue.
Restrictions on the Transfer of Shares
Save as set out below there are no limitations in Irish law on the holding of the Ordinary Shares and there is no requirement to obtain
the approval of the Company, or of other holders of the Ordinary Shares, for a transfer of Ordinary Shares.
(a) The Ordinary Shares are, in general, freely transferable but the Directors may decline to register a transfer of Ordinary Shares
upon notice to the transferee, within two months after the lodgement of a transfer with the Company, in the following cases:
(i) a lien held by the Company;
(ii) in the case of a purported transfer to an infant or a person lawfully declared to be incapable for the time being of dealing
with their affairs; or
(iii) in the case of a single transfer of shares which is in favour of more than four persons jointly.
– Ordinary Shares held in certificated form are transferable upon production to the Company’s Registrars of the Original
Share certificate and the usual form of stock transfer duly executed by the holder of the shares.
– Shares held in uncertificated form are transferable in accordance with the rules or conditions imposed by the operator of the
relevant system which enables title to the Ordinary Shares to be evidenced and transferred without a written instrument and
in accordance with the Companies Act 1990 (Uncertificated Securities) Regulations 1996.
– The rights attaching to Ordinary Shares remain with the transferor until the name of the transferee has been entered on the
Register of Members of the Company.
(b) 2009 Preference Shares are freely transferable provided that the minimum number of 2009 Preference Shares transferred to
any one person is not less than 50,000.
407
Additional information
Exercise of Rights of Shares in Employees’ Share Schemes
The AIB Approved Employees’ Profit Sharing Scheme 1998 and the Allied Irish Banks, p.l.c. Share Ownership Plan (UK) provide that
voting rights in respect of shares held in trust for employees who are participants in those schemes are, on a poll, to be exercised only
in accordance with any directions in writing by the employees concerned to the Trustees of the relevant scheme.
Deadlines for exercising Voting Rights
Voting rights at general meetings of the Company are exercised when the chairman puts the resolution at issue to the vote of the
meeting. A vote decided under show of hands is taken forthwith. A vote taken on a poll for the election of the Chairman or on a question
of adjournment is also taken forthwith and a poll on any other question is taken either immediately, or at such time (not being more than
thirty days from the date of the meeting at which the poll was demanded or directed) as the chairman of the meeting directs. Where a
person is appointed to vote for a shareholder as proxy, the instrument of appointment must be received by the Company not less than
forty-eight hours before the time appointed for holding the meeting or adjourned meeting at which the appointed proxy proposes to vote,
or, in the case of a poll, not less than forty-eight hours before the time appointed for taking the poll.
Rules Concerning Amendment of the Company’s Articles of Association
As provided in the Companies Acts, the Company may, by special resolution, alter or add to its Articles of Association. A resolution is a
special resolution when it has been passed by not less than three-fourths of the votes cast by shareholders entitled to vote and voting in
person or by proxy, at a general meeting at which not less than twenty-one clear days’ notice specifying the intention to propose the
resolution as a special resolution, has been duly given. A resolution may also be proposed and passed as a special resolution at a
meeting of which less than twenty-one clear days’ notice has been given if it is so agreed by a majority in number of the members
having the right to attend and vote at any such meeting, being a majority together holding not less than ninety per cent in nominal value
of the shares giving that right.
Rules Concerning the Appointment and Replacement of Directors of the Company
– Other than in the case of a casual vacancy, Directors are appointed on a resolution of the shareholders at a general meeting,
usually the Annual General Meeting.
– No person, other than a Director retiring at a general meeting is eligible for appointment as a Director without a
recommendation by the Directors for that person’s appointment unless, not less than forty-two days before the date of the general
meeting, written notice by a shareholder, duly qualified to be present and vote at the meeting, of the intention to propose the
person for appointment and notice in writing signed by the person to be proposed of willingness to act, if so appointed, shall have
been given to the Company.
– A shareholder may not propose himself or herself for appointment as a Director.
– The Directors have power to fill a casual vacancy or to appoint an additional Director (within the maximum number of Directors fixed
by the Company in general meeting) and any Director so appointed holds office only until the conclusion of the next Annual General
Meeting following his appointment, when the Director concerned shall retire, but shall be eligible for reappointment at that meeting.
– One third of the Directors for the time being (or if their number is not three or a multiple of three, not less than one third), are
obliged to retire from office at each Annual General Meeting on the basis of the Directors who have been longest in office since
their last appointment. While not obliged to do so, the Directors have, in recent years, adopted the practice of all (wishing to
continue in office) offering themselves for re-election at the Annual General Meeting.
– A person is disqualified from being a Director, and their office as a Director ipso facto vacated, in any of the following
circumstances:
–
–
–
–
–
–
–
–
if at any time the person has been adjudged bankrupt or has made any arrangement or composition with his or her creditors
generally;
if found to be mentally disordered in accordance with law;
if the person be prohibited or restricted by law from being a Director;
if, without prior leave of the Directors, he or she be absent from meetings of the Directors for six successive months (without an
alternate attending) and the Directors resolve that his or her office be vacated on that account;
if, unless the Directors or a court otherwise determine, he or she be convicted of an indictable offence;
except in the case of a Government Appointee, if he or she be requested, by resolution of the Directors, to resign his or her
office as Director on foot of a unanimous resolution (excluding the vote of the Director concerned) passed at a specially
convened meeting at which every Director is present (or represented by an alternate) and of which not less than seven days’
written notice of the intention to move the resolution and specifying the grounds therefore, has been given to the Director;
except in the case of a Government Appointee, if he or she has reached an age specified by the Directors as being that at which
that person may not be appointed a Director or, being already a Director, is required to relinquish office and a Director who
reaches the specified age continues in office until the last day of the year in which he or she reaches that age; or
in the case of a Government Appointee, if removed from office by the Government Preference Shareholder pursuant to the
Articles of Association.
408
Rules Concerning the Appointment and Replacement of Directors of the Company (continued)
–
In addition, the office of Director is vacated, subject to any right of appointment or reappointment under the Articles, if:
–
not being a Director holding for a fixed term an executive office in his or her capacity as a Director, he or she resigns their
office by a written notice given to the Company; or
being the holder of an executive office other than for a fixed term, the Director ceases to hold such executive office on
retirement or otherwise; or
the Director tenders his or her resignation to the Directors and the Directors resolved to accept it; or
he or she ceases to be a Director pursuant to any provision of the Articles.
–
–
–
– Notwithstanding anything in the Articles of Association or in any agreement between the Company and a Director, the Company
may, by Ordinary Resolution of which extended notice has been given in accordance with the Companies Acts, remove any
Director before the expiry of his or her period of office.
– The Minister for Finance has power to nominate such number of non executive directors equal to either (a) 25 per cent of the
Directors when the total number of Directors is 15 or less or (b) 4 Directors where the total number of Directors is 16, 17 or 18.
The Powers of the Directors Including in Relation to the Issuing or Buying Back by the Company of its Shares
Under the Articles of Association, the business of the Company is to be managed by the Directors who may exercise all the powers of
the Company subject to the provisions of the Companies Acts, the Memorandum and Articles of Association of the Company and to any
directions given by special resolution of a general meeting. The Articles of Association further provide that the Directors may make such
arrangement as may be thought fit for the management, organisation and administration of the Company’s affairs including the
appointment of such executive and administrative officers, managers and other agents as they consider appropriate and delegate to
such persons (with such powers of sub-delegation as the Directors shall deem fit) such functions, powers and duties as the Directors
may deem requisite or expedient.
Pursuant to resolution of the shareholders, in accordance with the provisions of the Companies Acts, the Directors are
unconditionally authorised until 26 July 2016 to exercise all the powers of the Company to allot relevant securities up to the
aggregate nominal amount of € 6,892,692,445. By such authority, the Directors may make offers or agreements which would, or might,
require the allotment of such securities after 26 July 2016.
Any treasury shares for the time being held by the Company may, by decision of the Directors, be re-issued off market. Where treasury
shares are re-issued for the purposes of the AIB Approved Employees’ Profit Sharing Scheme 1998, the Allied Irish Banks, p.l.c. Share
Ownership Plan (UK), the AIB Group Share Option Scheme or the AIB Group Performance Share Plan 2005, the
minimum price at which a treasury share may be re-issued is the issue price as provided for in such a scheme. In all other
circumstances the minimum price shall be 95% of the Appropriate Price. The “Appropriate Price” is the average of the closing
quotation prices of the Ordinary Shares for the five business days immediately preceding the day on which the treasury share is
re-issued, as published in the Irish Stock Exchange Daily Official List (or any successor publication thereto or any equivalent
publication for securities admitted to trading on the Enterprise Securities Market). For any business day on which there is no dealing on
the Ordinary Shares on that Exchange, the minimum price will be the price equal to (i) the mid-point between the high and low market
guide prices and for the Ordinary Shares as published in the Irish Stock Exchange Daily Official List (or any successor
publication thereto or any equivalent publication for securities admitted to trading on the Enterprise Securities Market); or (ii) if there is
only one such market guide price so published, the price so published. The maximum price at which a treasury share may be
re-issued off-market is 120% of the Appropriate Price.
409
Additional information
Memorandum and Articles of Association
A summary of the Memorandum and Articles of Association of Allied Irish Banks, p.l.c. is set out below.
Objects and Registration Details
AIB is a public limited company that was incorporated as a limited company in 1966 and was subsequently re-registered as a public
limited company in 1985. Objects and purposes are set out in its Memorandum of Association. The principal objects of AIB are to carry
on the business of banking in all or any of its branches and departments and to undertake all manner of financial services.
Directors
Any Director who is in any way, whether directly or indirectly, interested in a contract or arrangement with AIB must declare his/her
interest at a meeting of the Directors at which the question of entering into such contract/arrangement first arises, if his interest then
exists, or in any other case at the first meeting of the Directors after he becomes so interested. The Articles of Association also require
that a Director may not vote in respect of any such contract or arrangement or any other proposal whatsoever in which he has a
material interest. Nothing in the Articles of Association will restrict a Government Appointee from participating fully in any meeting of the
Directors or voting on any matter unless the Government Appointee has an interest in the matter which concerns him personally (for
example, the fact that he or she was appointed by the Government Shareholder, the fact that a Government Preference Shareholder or
a Government Body may have an interest in the matter or the fact that the matter relates to a matter that requires the consent of the
Government Preference Shareholder shall not be regarded as giving rise to such an interest). Interests in shares or debentures or other
securities of, or otherwise in or through, AIB are disregarded for the purpose. This prohibition on voting is disapplied in respect of
resolutions concerning the following matters (amongst others):
– where a Director is to be given security or indemnified in respect of money lent or obligations incurred by him for the
benefit of AIB or any of its subsidiaries;
–
–
–
the giving of security or indemnifying a third party in respect of a debt or obligation of AIB or any of its subsidiaries for which
he himself has assumed responsibility in whole or in part under a guarantee or indemnity or by the giving of security;
any proposal concerning an offer of shares, debentures or securities of or by AIB or any of its subsidiaries in which a Director is
interested as an underwriter or sub-underwriter;
regarding any proposal concerning any other company in which a Director is interested, directly or indirectly, provided that he
does not hold or is not beneficially interested in 1% or more of any class of the equity share capital of that company (or of any
third company through which his interest is derived) or of the voting rights available to members of the relevant company (any
such interest being deemed for the purposes of this Article to be a material interest in all circumstances);
–
any proposal concerning the adoption, modification or operation of any superannuation fund or retirement benefits plan under
which he might benefit and which has been approved by or is subject to and conditional upon approval by the Revenue
Commissioners; and
–
relating to any other arrangement for the benefit of employees of AIB or any of its subsidiaries under which a Director benefits or
stands to benefit in a similar manner as the employees concerned and which does not accord to any Director as such any privilege
or advantage not generally accorded to the employees to whom the arrangement relates.
The remuneration of the Directors is determined from time to time by AIB in General Meeting. Any Director while holding the office of
Chairman or Deputy Chairman is entitled to such additional remuneration as may be determined from time to time by the Directors.
Remuneration granted may be by way of fees, salary, commission, participation in profits, or all or any of such modes, or by such other
mode as AIB may from time to time consider appropriate. All remuneration fixed or granted accrues from day to day. Any Director who
serves on any Committee or devotes special attention to the business of the Company or who otherwise performs services which in the
opinion of the Directors are outside the scope of the ordinary duties of a Director may be paid such extra remuneration by way of salary,
commission, participation in profits or otherwise as the Directors may determine. A Director holding an executive office shall receive
such remuneration, whether in addition to or in substitution for his ordinary remuneration as a Director and whether by way of salary,
commission, participation in profits or otherwise or partly in one way and partly in another, as the Directors may determine.
The Directors may exercise all the borrowing powers of AIB and the power to give mortgages and charges over its assets and to issue
debentures, debenture stock and other securities whether outright or as security for any debts or liabilities of AIB or any third party.
Under the Articles, retirement of Directors, other than Government Appointees, is by rotation at each Annual General Meeting and
one-third of the Directors for the time being, or, if their number is not three or a multiple of three, then not less than one-third shall retire
from office at each Annual General Meeting.
410
Rights and Restrictions Attaching to Shares
The authorised share capital of AIB is € 11,092,752,297 divided into 702,000,000,000 Ordinary Shares, 3,500,000,000 2009 Preference
Shares and 403,775,229,679 Deferred Shares. Subject to the Companies Acts and to any special rights of existing shares, any share in
the Company may be issued with such preferred, deferred or other special rights or restrictions and unless otherwise determined by the
Directors in relation to any particular preference shares prior to allotment, preference shares may be issued on the terms and in such
manner as the Company may by Special Resolution determine.
Rights and Obligations of Ordinary Shares
The following rights attach to the Ordinary Shares:
– The right to receive duly declared dividends, in cash or, where offered by the Directors, by allotment of additional Ordinary
Shares.
– The right to attend and speak, in person or by proxy, at general meetings of the Company.
– The right to vote, in person or by proxy, at general meetings of the Company having, in a vote taken by show of hands, one vote,
and, on a poll, a vote for each Ordinary Share held.
– The right to appoint a proxy, in the required form, to attend and/or vote at general meetings of the Company.
– The right to receive, (by post or electronically), twenty-one days at least before the Annual General Meeting, a copy of the
Directors’ and Auditor’s reports accompanied by (a) copies of the balance sheet, profit and loss account and other documents
required by the Companies Acts to be annexed to the balance sheet or (b) such summary financial statements as may be permitted
by the Companies Acts.
– The right to receive notice of general meetings of the Company.
–
In a winding-up of the Company, and subject to payments of amounts due to creditors and to holders of shares ranking in
priority to the Ordinary Shares, repayment of the capital paid up on the Ordinary Shares and a proportionate part of any surplus
from the realisation of the assets of the Company.
There is attached to the Ordinary Shares an obligation for the holder, when served with a notice from the Directors requiring the holder
to do so, to inform the Company in writing not more than 14 days after service of such notice, of the capacity in which the shareholder
holds any share of the Company and if such shareholder holds any share other than as beneficial owner to furnish in writing, so far as it
is within the shareholder’s knowledge, the name and address of the person on whose behalf the shareholder holds such share or, if the
name or address of such person is not forthcoming, such particulars as will enable or assist in the identification of such person and the
nature of the interest of such person in such share. Where the shareholder served with such notice (or any person named or identified
by a shareholder on foot of such notice), fails to furnish the Company with the information required within the time specified, the
shareholder shall not be entitled to attend meetings of the Company, nor to exercise the voting rights attached to such share, and, if the
shareholder holds 0.25% or more of the issued Ordinary Shares, the Directors will be entitled to withhold payment of any dividend
payable on such shares and the shareholder will not be entitled to transfer such shares except by sale through a Stock Exchange to a
bona fide unconnected third party. Such sanctions will cease to apply after not more than seven days from the earlier of receipt by the
Company of notice that the member has sold the shares to an unconnected third party or due compliance, to the satisfaction of the
Company, with the notice served as provided for above.
Rights and Obligations of 2009 Preference Shares
The following rights attach to the 2009 Preference Shares:
– The right to receive a non-cumulative cash dividend at a fixed rate of 8% of the subscription price per annum payable annually, at
the discretion of the Directors, in arrears on each anniversary of the date of the issue of the shares.
– The right to receive this dividend ranks:
(a)
(b)
(c)
pari passu with other shares constituting core tier 1 capital (excluding the Ordinary Shares);
junior to certain other preferred securities; and
in priority to the Ordinary Shares.
–
In the event that a dividend on 2009 Preference Shares is not paid in cash, the right to receive a bonus issue of Ordinary Shares
(‘Bonus Shares’) calculated by dividing the amount of the unpaid dividend by the average price of an Ordinary Share over the 30
trading days prior to the dividend payment date, subject to an adjustment in circumstances where the Bonus Shares are not issued
on the dividend payment date.
– Where the issue of Bonus Shares is deferred, the holders of 2009 Preference Shares are granted voting rights at general meetings
of the Company equivalent to the voting rights that would have attached to the Bonus Shares if they had been issued on the
relevant dividend payment date (‘Provisional Voting Rights’) provided provided these shall not be exercisable to vote:
(a)
against any Directors’ resolution for the issue of core tier 1 securities to redeem or purchase all or any of the 2009 Preference
Shares; or
(b)
on any resolution on any action by the Company in relation to ‘Preferred Securities’ as defined in the Memorandum and
Articles of Association.
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Additional information
– The right to receive copies of the circulars to shareholders but not to attend, speak or vote at general meetings save while held by
a Government Body and then only in the following circumstances and the following manner:
(a) on a resolution seeking approval for a change of control of the Company or a sale of all or substantially all of its business; and
(b) on a resolution to appoint, re-elect or remove directors.
– Subject as provided below, on either of the foregoing resolutions (and while held by a Government Body) the right to cast a
–
–
number of votes equal to 25% of all votes capable of being cast by shareholders (including the 2009 Preference Shareholder) on a
poll at a general meeting of the Company.
If the NPRFC and Government Entities, through their holding of Ordinary Shares (or other securities issued in future), control
25% or more of the total voting rights, then the 2009 Preference Shares will carry no voting rights. If those entities, through their
holding of Ordinary Shares (or other securities issued in future), control less than 25% of the total voting rights, then, in respect of
resolutions to appoint, re-elect or remove directors and any resolution concerning a proposed change of control of AIB, the 2009
Preference Shares carry the right to “top-up” their total voting rights to 25% of the total voting rights, including the votes
attaching to the 2009 Preference Shares.
In a winding up of the Company or a return of capital by the Company (other than a redemption or purchase of shares) the right to
receive a repayment of the capital (including premium) paid up, rank as follows:
(a)
(b)
(c)
pari passu with the repayment of the paid up nominal value on Ordinary Shares;
in priority to the payment of any further amount on Ordinary Shares; and
junior to the repayment of capital on all other classes of shares that rank ahead of the Ordinary Shares.
– The right while held by a Government Body to appoint directly either (a) 25% of the Directors where the total number of Directors is
15 or less or (b) 4 Directors where the total number of Directors is 16, 17 or 18 (in either case including any Directors nominated by
the Minister pursuant to the Government Guarantee Schemes).
Redemption of 2009 Preference Shares
The following terms and conditions apply in relation to the redemption of the 2009 Preference Shares:
– The 2009 Preference Shares will not be redeemable at the option of the holder.
– The 2009 Preference Shares may be redeemed or purchased, in whole or in part, at any time subject to the consent of Central Bank
provided that the redemption or purchase is made up of distributable profits and/or the proceeds of an issue of shares constituting
core tier 1 capital.
– The redemption price for the first five years shall be € 1.00 per 2009 Preference Share, being the original subscription price
including premium of each 2009 Preference Share. Thereafter, the redemption price of each 2009 Preference Share will be € 1.25,
including premium.
– The Company shall be required to redeem all of the 2009 Preference Shares if there are less than 35,000,000 2009 Preference
Shares in issue, subject to the Central Bank’s consent.
– The Company may redeem or purchase 2009 Preference Shares which are held by a Government Entity without being required to
redeem or purchase any 2009 Preference Shares held by another person.
– On redemption or purchase of 2009 Preference Shares, the Company will be required to issue any outstanding Bonus Shares.
Rights and Obligations of the Deferred Shares
The Deferred Shares have no voting or dividend rights. On a winding-up of the Company or other return of capital (other than a
redemption or purchase of shares of any class in the capital of the Company), holders of Deferred Shares have the right to receive the
nominal value of those shares only after the holders of Ordinary Shares have received payment of such amount as is paid up or
credited as paid up in respect of those Ordinary Shares plus € 10 million per share.
The Deferred Shares are not transferable, other than with the prior written consent of the Directors. The Company has, however, the
right at any time, without the consent of the holder, to instruct the Company Secretary to acquire the Deferred Shares for nil
consideration. The Company acquired and cancelled 395,759,506,824 Deferred Shares on 27 July 2011 resulting from the
renominalisation of the ordinary share capital of the Company from € 0.32 each to € 0.01 each following the passing of a Special
Resolution to this effect on 26 July 2011.
Dividend Rights
Under Irish law, and under the Articles, dividends are payable only out of income available for distribution. Holders of the shares of the
Company are entitled to receive such dividends as may be declared by the Company by Ordinary Resolution provided that the dividend
cannot exceed the amount recommended by the Directors.
Subject to any preferential or other special rights for the time being attached to any class of shares, the income to be distributed by
way of dividend is to be applied in payment of dividends upon the shares of the Company in proportion to the amounts paid up thereon
otherwise than in advance of calls.
The Company may pay such interim dividends as appear to the Directors to be justified by the income of the Company available for
distribution.
412
Under Article 46 the Company may by Ordinary Resolution convert any paid up shares into stock and re-convert any stock into paid-up
shares of any denomination. Any dividend which has remained unclaimed for 12 years from the date of its declaration may be forfeited
and cease to remain owing by the Company.
Voting Rights at General Meetings
Voting at any General Meeting is by a show of hands unless a poll is properly demanded. On a show of hands, every member who is
present in person or by proxy has one vote regardless of the number of shares held by him. On a poll, every member who is present in
person or by proxy has one vote for each share of which he is the holder. A poll may be demanded by the Chairman of the
meeting or by at least five members having the right to vote at the meeting or by a member or members representing not less than
one-tenth of the total voting rights of all the members having the right to vote at the meeting or by a member or members holding shares
in the Company conferring a right to vote at the meeting, being shares on which an aggregate sum has been paid up equal to not less
than one-tenth of the total sum paid up on all the shares conferring that right.
All business is deemed special that is transacted at an Extraordinary General Meeting. All business that is transacted at an Annual
General Meeting is also deemed special with the exception of declaring a dividend, receiving the accounts, statements of financial
position and reports of the Directors and Auditors, electing Directors in the place of those retiring, voting additional remuneration for the
Directors, appointing Auditors and fixing of the remuneration of the Auditors.
No business may be transacted at any General Meeting unless a quorum is present at the time when the meeting proceeds to business.
Ten members present in person and entitled to vote at such meeting constitutes a quorum. In the case of an Annual General Meeting or
of a meeting for the passing of a Special Resolution or the appointment of a Director, twenty-one clear days’ notice at the least, and in
any other case fourteen clear days’ notice at the least, needs to be given in writing in the manner provided for in the Articles to all the
members (other than those who, under the provisions of the Articles or the conditions of issue of the shares held by them, are not
entitled to receive the notice) and to the Auditors for the time being of the Company.
Variation of Class Rights
The rights, privileges, limitations or restrictions attached to the 2009 Preference Shares may be varied, altered or abrogated, either
whilst the Company is a going concern or during or in contemplation of a winding up, with the written consent of the holders of not less
than 662/3% in nominal value of such class of shares or with the sanction of a resolution passed at a class meeting of holders of such
classes of shares provided that the holders of not less than 662/3% in nominal value of such class of shares vote in favour of such
resolution.
Article 7 provides that whenever the capital of the Company is divided into different classes of shares, the special rights attached to any
class may, subject to the provisions of the Companies Acts and subject as otherwise provided in the Articles be varied or abrogated,
either whilst the Company is a going concern or during or in contemplation of a winding up, with the sanction of a Special Resolution
passed at a class meeting of the holders of the shares of the class but not otherwise.
Convening of General Meetings
AIB must hold a General Meeting in each year as its Annual General Meeting in addition to any other meetings in that year and no more
than fifteen months may elapse between the date of one Annual General Meeting and that of the next. The Annual General Meeting will
be held at such time and place as the Directors determine. All General Meetings other than Annual General Meetings, are called
Extraordinary General Meetings. The Directors may at any time call an Extraordinary General Meeting. Extraordinary General Meetings
shall also be convened by the Directors on the requisition of members holding, at the date of the requisition, not less than one-tenth of
the paid up capital carrying the right to vote at General Meetings and in default of the Directors within twenty-one clear days, convening
such a meeting to be held within two months, the requisitionists (or more then half of them) may but only within three months
themselves convene a meeting.
Disclosure of Share Ownership
Article 13(b) provides that the Directors may by notice in writing sent to any member require such member to inform the Company in
writing not more than 14 days after service of the notice of the capacity in which such member holds any share otherwise than as
beneficial owner to furnish in writing, so far as it is within the member’s knowledge, the name and address of the person on whose
behalf the member holds such share or, such particulars as will enable or assist in the identification of such person and the nature of the
interest of such person in such shares. Failure to respond to such notice within the prescribed period of time will result in the member
not being entitled to attend meetings of the Company not to exercise the voting rights attached to such share, and, if the member holds
0.25% or more of the issued Ordinary shares of the Company, the Directors are entitled to withhold payment of any dividend payable on
such shares and the member shall not be entitled to transfer such shares except by sale through a Stock Exchange to a bona fide
unconnected third party.
413
Additional information
Material Contracts
The following are all the contracts (not being contracts entered into in the ordinary course of business) that have been entered into by
members of the AIB Group: (i) within two years immediately preceding the date of this document which are, or may be, material to the
Group; or (ii) at any time and contain obligations or entitlements which are, or may be, material to the Group as at the date of this
document:
1 The Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 and the Eligible Liabilities Guarantee Scheme Agreements. On
20 January 2010, the Company and its subsidiaries, AIB Group (UK) p.l.c., AIB CI Limited (formerly AIB Bank (CI) Limited) and
Allied Irish Banks North America Inc. each executed an Eligible Liabilities Guarantee Scheme Agreement and on 21 January 2010
were each issued with a Participating Institution Certificate under the Eligible Liabilities Guarantee Scheme. EBS and AIB ISL
Limited (formerly AIB International Savings Limited and formerly Anglo Irish Bank Corporation (International) plc and which is an Isle
of Man company that was acquired by AIB in February 2011), both also hold a Participating Institution Certificate under the Eligible
Liabilities Guarantee Scheme.
2
Arrangements in relation to The National Pensions Reserve Fund Commission (“NPRFC”)
(i) The Subscription Agreement
(a) Pursuant to the terms of the Subscription Agreement between AIB, the Minster for Finance (the ‘Minister’) and the NPRFC
dated 13 May 2009, AIB agreed to issue the 2009 Preference Shares and the 2009 Warrants to the NPRFC at an aggregate
subscription price of € 3.5 billion.
(b) AIB gave the NPRFC and the Minster certain warranties relating to the business and operation of the Group. These
warranties are considered standard for this type of agreement and cover issues such as the Company’s issued share
capital, accuracy and completeness of certain information, accuracy of audited financial statements, payment of taxes,
possession of all material licences and absence of material litigation.
(c) AIB provided various undertakings to the NPRFC and the Minster, including agreeing to commit to the Minster’s ‘Bank
Customer Package’. This includes, inter alia, obligations on AIB to:
A increase lending capacity to small to medium-sized enterprises by 10 per cent. and provide an additional 30 per cent
capacity for lending to first-time buyers during each quarter of the financial year when compared to the corresponding
quarter in the year commencing 1 January 2008;
B establish a € 100 million fund to support environmentally friendly investment and innovations in clean energy;
C comply with the Code of Conduct for Business Lending to Small and Medium Enterprises and the Code of Conduct
for Mortgage Arrears published by the Central Bank;
D make every effort to avoid repossessions and, in any case, not commence court proceedings for the repossession of a
principal private residence within 12 months of arrears appearing, where the customer maintains contact and
co-operates reasonably with AIB;
E fund and co-operate with an ‘Independent Review of Credit Availability’; and
F work closely with the IDA Ireland, Enterprise Ireland and with other Irish state agencies to ensure the supply of
appropriate finance to contractors engaged on major projects sponsored by those agencies.
In addition, AIB agreed to accept restrictions on the amount of remuneration Directors would receive.
AIB also agreed that, on request from the NPRFC, it would undertake all necessary acts in order to facilitate the
placing, offering to the public or admission to listing of the 2009 Preference Shares or any Ordinary Shares acquired as a
result of the 2009 Warrants or the 2009 Preference Shares.
Under the terms of the Subscription Agreement, AIB must consult with the Minister or his nominee prior to taking any
material action which may be reasonably expected to have a public interest dimension.
(d) On 13 May 2009, the NPRFC paid to AIB € 3.5 billion (less an arrangement fee of € 30 million paid by AIB to the
NPRFC) in respect of the issue to it of the 2009 Preference Shares and the 2009 Warrants.
(e) AIB undertook in the Subscription Agreement that application would be made in due course for the Warrant Shares and
any Bonus Shares to be admitted to trading on a regulated market.
(f)
In addition to agreeing to allow the Government Entities to make use of any public offer prospectus issued by the
Company for the purposes of placing such Ordinary Shares with investors, the Company also undertook to co-operate in
the preparation and issue of a public offer prospectus where this is required for the purposes of an offering to the public, a
placing or listing of the 2009 Preference Shares or any Ordinary Shares acquired as a result of holding 2009 Preference
Shares or 2009 Warrants.
414
(ii) 2010 Placing Agreement
(a) Pursuant to the terms of the Placing Agreement between the Minister, the NPRFC, the National Treasury Management
Agency (“NTMA”) and AIB, dated 23 December 2010, AIB agreed to issue 675,107,845 new Ordinary Shares to the NPRFC
at an aggregate subscription price of € 3,818,438,297.
(b) To the extent that the NPRFC subscription for these shares would result in it holding more than 49.9% of the Ordinary
Shares in issue, convertible non-voting shares (“CNV Shares”) were to be allotted to the NPRFC so that, following such
allotment, the NPRFC did not acquire more than 49.9% of the Ordinary Shares then in issue. In April 2011, AIB converted
into ordinary shares on a one-for-one basis the 10,489,899,564 CNV Shares issued to the NPRFC in connection with the
2010 Placing Agreement, following completion of the disposal of AIB’s interests in BZWBK.
(c) The obligations of the Minister, the NPRFC and the NTMA were conditional on AIB having complied, and continuing to
comply, with letters from the Minister dated 13 and 22 December 2010, stating that the provision of further state funding to
AIB was conditional on the Board’s decision not to pay any bonuses to staff no matter when they may have been earned,
since AIB could not be in a position to pay without state support, past, present and future save that nothing in the Agreement
was to prevent AIB meeting its obligations on foot of a Court Order.
(d) The cancellation of the 294,251,819 warrants over new Ordinary Shares held by the NPRFC in return for the payment to it by
AIB of approximately € 52 million;
(e) AIB gave the Minister, the NPRFC and the NTMA certain warranties relating to the business and operation of the Group.
These warranties are considered standard for this kind of agreement and cover issues such as the Company’s issued share
capital, accuracy and completeness of certain information, accuracy of audited financial statements, payment of taxes,
possession of all material licenses, absence of material litigation and absence of breach of material change of control
provisions.
(f) AIB entered into various covenants with the Minister, the NPRFC, the NTMA, the National Asset Management Agency or any
other state entity to use all reasonable efforts to comply, and procure compliance by the Group, with various commitments
including:
A Meeting a lending target of € 3 billion per annum for new or increased credit facilities to SMEs in each of the two twelve
month periods commencing on 1 January 2011 and 2012.
B Providing € 20 million for seed capital to Enterprise Ireland supported ventures and € 100 million for environmental, clean
energy and innovation projects (in addition to the commitments under the Subscription Agreement).
C Working with Enterprise Ireland and the Irish Bankers Federation to develop sectoral expertise in the modern growth
sectors of the economy, and with Enterprise Ireland to develop a range of banking services to meet the needs of Irish
SMEs trading internationally.
D Taking actions, agreed with the Minister, to develop new credit products in areas where cash flow, rather than property or
assets, is the basis for business lending.
(g) AIB also agreed to co-operate fully with the Minster and the European Commission in connection with the Commission’s
assessment of the Group’s restructuring plan under EU State aid rules and to implement fully the final restructuring plan
when approved by the NTMA and the Commission.
(h) AIB repeated and extended undertakings in the Subscription Agreement relating to matters concerning the remuneration of
its directors, senior executives and employees.
(i) AIB undertook various obligations in respect of the CNV Shares, relating to the issue of securities, the modification of rights
attaching to securities and the transferability of the CNV Shares.
(iii) 2011 Placing Agreement, Capital Contribution and Minister’s Letter
(a) Pursuant to the terms of the Placing Agreement between the Minister, the NPRFC, the NTMA and AIB, dated 1 July 2011,
AIB agreed to issue 500,000,000,000 new Ordinary Shares to the NPRFC at an aggregate subscription price of € 5 billion.
On 28 July 2011, the Minister and the NPRFC agreed to make capital contributions of € 2,283,146,860 and € 3,770,970,659
respectively to AIB for no consideration and AIB is not legally obliged to repay the capital contributions. The capital
contributions were made in order to enable AIB to meet its regulatory capital requirements.
(b) The Company agreed to give certain covenants and undertakings to the Minister, the NTMA and the NPRFC, including in
relation to its reserves, dividends, disclosure of information, matters of public interest, use of proceeds and future material
transactions, together with additional covenants and undertakings in relation to the availability of credit, the Group’s
415
Additional information
restructuring plan, corporate governance and remuneration. In addition, the Company gave certain representations and
warranties and indemnities to the Minister, the NTMA and the NPRFC and the liability of the Company in respect of any
breach of those representations, warranties and indemnities is unlimited as to time and amount.
(c) The continued provision of State funding and support to AIB is dependent on enforcement by AIB of a wide restriction on
payment of employment bonuses by the Group, details of which are contained in a letter from the Minister to AIB dated
25 July 2011. The Minister’s Letter contains undertakings in relation to measures to promote the availability of credit, AIB’s
restructuring plan, related party transactions, corporate governance and remuneration and fees payable to directors, senior
executives, employees and service providers of AIB.
(iv) Contingent Capital Note Purchase Agreement
(a) Pursuant to the terms of the Note Purchase Agreement between the Minister and AIB, dated 26 July 2011, AIB agreed to
issue € 1.6 billion of contingent tier 2 capital notes to the Minister, issued at par with a five year and one day maturity, with an
aggregated principal amount of € 1.6 billion.
(b) The Contingent Capital Notes will convert mandatorily in their entirety into Ordinary Shares in the event that the core tier 1
capital ratio of AIB falls below 8.25% or (following implementation of the Capital Requirements Directive IV in Ireland), AIB’s
common equity tier 1 ratio falls below 8.25% or, if the Central Bank, in its sole discretion, notifies AIB that it has determined
that the Group’s financial and solvency condition is deteriorating in such a way that a fall below the ratios described above is
likely to occur in the short term and AIB is incapable of restoring the Group’s capital ratio to a level above 8.25% during the
following 90 days. The Contingent Capital Notes will also convert immediately and mandatorily into Ordinary Shares in the
event that a non-viability event occurs (including in the event of the Group becoming insolvent, bankrupt, unable to pay its
debts as they fall due, ceases to carry on its business or fails to meet minimum capital adequacy requirements).
(c) Following a conversion event, the Contingent Capital Notes will be immediately converted into a fixed number of Ordinary
Shares that is determined by dividing the principal amount of each Contingent Capital Note by the conversion price of € 0.01
per Ordinary Share. The Contingent Capital Notes also include certain anti-dilution adjustments.
(d) The Contingent Capital Notes carry a fixed annual mandatory interest rate of 10% of the principal amount. The Minister may,
where it remains the holder of 100% of the Contingent Capital Notes, in order to facilitate the sale of the Contingent
Capital Notes to third party investors, at any time (but becoming effective only from the date of such sale being completed
and settled) increase the interest rate to a new level determined by an independent remarketing agent nominated by the
Minister, but not exceeding 18%. per annum. In addition, AIB will provide, at the request of the Minister, sufficient
disclosure to allow for the Contingent Capital Notes to be listed and to be sold to third party investors. AIB will have the
option, prior to any such sale of the Contingent Capital Notes being completed and settled, to source third party investors at
a potentially lower interest rate, but only if it has sourced sufficient investors to purchase an amount equal to the principal
amount paid by the Minister for the Contingent Capital Notes on overall better terms. The Minister will have discretion as to
whether or not to sell to any such investors. Admission of the Contingent Capital Notes to the Official List of the Irish Stock
Exchange and to trading on its Global Exchange Market, an exchange-regulated market, occurred on 27 October 2011.
(e) The Contingent Capital Notes constitute direct, unsecured and subordinated obligations of the Group and rank junior to
unsubordinated obligations of the Group and pari passu without any preference among themselves and equally with all other
dated subordinated obligations of the Group which rank or are expressed to rank equally with the Contingent Capital Notes
(if any). The Contingent Capital Notes rank senior to other obligations of the Group that are expressed to rank junior to the
Contingent Capital Notes.
(v) Relationship Framework
In order to comply with contractual commitments imposed on AIB in connection with its recapitalisation by the Irish State and
with the requirements of EU State aid applicable in respect of that recapitalisation, a relationship framework was entered into
between the Minister and AIB in March 2012. This provides the framework under which the relationship between the Minister
and AIB is governed. Under the relationship framework, the authority and responsibility for strategy and commercial policies
(including business plans and budgets) and conducting AIB's day-to-day operations rest with the Board of AIB and its
management team. However, the Board is required to obtain the prior written consent of the Minister, or to consult with the
Minister, in respect of certain material matters, such as material disposals.
(vi) EU Restructuring Plan
AIB also agreed to submit a restructuring plan to the Minster, including an assessment of AIB’s business model’s viability
and details of how AIB intends to repay the State aid provided. This restructuring plan, which was prepared by the Group, has
now been submitted to the European Commission by the Government.
416
Reporting currency and exchange rates
AIB Group publishes consolidated financial statements in euro (€). In this Annual Financial Report, references to ‘US dollars’,
‘dollars’, ‘US$’, ‘cents’ or ‘¢’ are to United States currency, references to ‘EUR’, ‘euro’, ‘€’ or ‘c’ are to euro currency, references to
‘sterling’ or ‘Stg£’ are to British currency, references to ‘zloty’, ‘PLN’ or ‘zl’ are to Polish currency and references to ‘Yen’ are to Japanese
currency.
The following table shows, for the periods and dates indicated, certain information regarding the noon buying rate, expressed in US
dollars per euro.
Year ended 31 December 2009
Year ended 31 December 2010
Year ended 31 December 2011
Year ended 31 December 2012
Year ended 31 December 2013
Period
end(1)
1.4332
1.3269
1.2973
1.3186
1.3779
Average
rate(2)
1.3936
1.3302
1.3946
1.2921
1.3298
High
1.5100
1.4536
1.4875
1.3463
1.3816
Low
1.2547
1.1959
1.2926
1.2062
1.2774
(1)The noon buying rate at such dates differed from the rates used in the preparation of AIB Group’s consolidated financial statements,
which were US$ 1.4406, US$ 1.3362, US$ 1.2939, US$ 1.3194 and US$ x to € 1.00 at 31 December 2009, 2010, 2011, 2012
and 2013 respectively.
(2)The average rate for each period is the average of the noon buying rates on the last day of each month during that period.
On 21 February 2014 the noon buying rate was € 1.00 = US$ 1.3722
The accounting policy in respect of the translation of gains and losses arising in foreign locations is set out on page 215. Details of the
exchange rates used in the preparation of the consolidated financial statements are set out in note 58 of this report.
417
Additional information
Offer and listing details
Trading market for Ordinary shares of AIB
0n 26 January, 2011 AIB ordinary shares commenced trading on the Enterprise Securities Market ("ESM") of the Irish Stock Exchange
(“ISE”). This followed a direction to AIB by the Irish High Court on 23 December 2010, under the Credit Institutions (Stabilisation) Act
2010, to apply to cancel its listing of ordinary shares on the Main Securities Market of the ISE (‘Irish Main Market Delisting’) and to apply
for admission to trading on the ESM of the ISE.
The High Court also directed AIB to apply to cancel the admission of its ordinary shares to the Official List maintained by the UK
Financial Services Authority and to cancel trading on the main market of the London Stock Exchange (‘UK Delisting’).
AIB traded on the New York Stock Exchange (“NYSE”) in the form of American Depositary Shares (“ADS”). Each ADS, which comprised
10 ordinary shares, traded under the symbol “AIB” and was evidenced by an American Depositary Receipt (“ADR”). On 25 August 2011,
AIB delisted from the NYSE, from which time AIB’s ADSs were no longer traded on the NYSE.
At 31 December 2013, AIB had outstanding 521,296,831,617 ordinary shares of € 0.01 each, of which 35,680,114 were held as
Treasury Shares (notes 41 and 42). 500 billion shares were issued at € 0.01 per share.
The following table sets forth the high and low sales prices of the ordinary shares during the periods indicated, based on mid-market
prices at close of business on the Irish Stock Exchange and the high and low sales prices for ADS, as reported on the NYSE composite
tape.
Year ended 31 December
2009
2010
2011
2012
2013
Calendar year
2012
First quarter
Second quarter
Third quarter
Fourth quarter
2013
First quarter
Second quarter
Third quarter
Fourth quarter
Ordinary
shares(1)
American
Depositary Shares(2)
High
Low
High
Low
(Euro)
(Dollars)
3.37
1.79
0.33
0.14
0.15
0.14
0.09
0.07
0.06
0.09
0.07
0.09
0.15
0.27
0.27
0.04
0.05
0.05
0.06
0.06
0.05
0.05
0.05
0.06
0.05
0.09
9.84
4.95
4.48
0.76
0.83
0.41
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)On 26 July 2011, the nominal value of each ordinary share was reduced from € 0.32 to € 0.01 per share.
(2)An ADS represented two ordinary shares up to 22 February 2011. On 23 February 2011, AIB changed the ratio whereby one ADS represents ten ordinary
shares.
Bonus Issue
On 13 May 2013, Allied Irish Banks, p.l.c. (“AIB”) issued and allotted 4,144,055,254 ordinary shares to the National Pensions Reserve
Fund Commission (“NPRFC”) by way of bonus issue.
This number of shares is equal to the aggregate cash amount of the annual dividend of € 280 million on the NPRFC’s holding of
€ 3.5 billion 2009 Non-Cumulative Preference Shares, divided by the average price per share in the 30 trading days prior to 13 May 2013.
The total number of AIB ordinary shares in issue post this bonus issue is 521,261,151,503*. The Irish State, through the NPRFC, owns
99.8% of the ordinary shares of AIB.
*Excludes treasury shares
418
American Depositary Receipts
Allied Irish Banks, p.l.c. (“AIB”) listing of its ordinary shares, in the form of American Depository Shares (“ADS”), was obtained on the
New York Stock Exchange (“NYSE”) effective 28 November 1990. Each ADS, which comprised two ordinary shares, traded under the
symbol “AIB” and was evidenced by an American Depository Receipt (“ADR”). The ADR depositary is The Bank of New York Mellon
(‘the Depositary’). On 7 February 2011, AIB announced its intention to change the ratio of one ADS representing two ordinary shares to
one ADS representing ten ordinary shares. The effective date of this change was 23 February 2011.
On 4 August 2011, AIB announced that its Board of Directors had resolved to delist its ADSs, each representing ten ordinary shares, par
value € 0.01 per share, from the NYSE, terminate the deposit agreement governing the ADSs (‘the Deposit Agreement’) with the
Depositary and, in due course, terminate the registration of AIB’s securities with the US Securities and Exchange Commission
(‘the SEC’) under the US Securities Exchange Act of 1934 (‘the Exchange Act’), in each case after the completion of the required legal
steps. The Board of Directors of AIB made the decision in light of the increase in the Irish Government’s shareholding (through the
NPRFC) to 99.8% on 27 July 2011, following the issue of 500,000,000,000 shares at € 0.01 per share, and the savings in costs and
administrative efforts that would result from the delisting and any subsequent deregistration under the Exchange Act.
AIB filed the related Form 25 with the SEC on 15 August 2011. The delisting became effective at the close of business on 25 August
2011, from which time AIB’s ADSs were no longer traded on the NYSE. On 10 October 2011, AIB terminated the ADS facility by
terminating the Deposit Agreement between AIB and the Depositary.
In April 2012, the Depositary commenced the sale of the ordinary shares underlying the ADSs on the ESM. Because of the limited
liquidity in the ordinary shares on the ESM this disposal process has extended over a significant period and is continuing. While at
31 December 2013, 26,513,561 ADSs were still outstanding, as a result of the ongoing sale process each ADS is now backed by
approximately 3.5 ordinary shares and a cash amount which has been accumulated following sales to date completed by the
Depositary. On completion of the sale of the remaining ordinary shares underlying the ADSs (approximately 93 million) by the
Depositary, the outstanding ADSs will be cancelled, cash will be remitted to the ADS holders and AIB will terminate the registration of its
securities.
AIB has not arranged for listing and/or registration on another US national securities exchange or for quotation of its securities in a US
quotation medium, but expects that its ordinary shares will continue to trade on the ESM of the Irish Stock Exchange.
419
Additional information
Taxation
This is a summary of the principal tax consequences for Irish resident individual holders and Eligible United States (“US”) Holders, as
defined below, of AIB Ordinary Shares or American Depositary Shares (“ADSs”) representing such Ordinary Shares, held as capital
assets. It also covers Irish Dividend Withholding Tax (“DWT”) in general. It is not a comprehensive analysis of all potential tax
consequences and does not cover all categories of investors. Investors are advised to consult their own tax advisors in relation to the
tax consequences of the purchase, ownership and disposal of AIB Ordinary Shares or ADSs, including any foreign, state or local tax
law.
Underlying this summary is the Double Taxation Convention between Ireland and the US (‘the Tax Treaty’) and the tax laws, judicial
decisions, regulations and administrative rulings and practices of Ireland and the US currently in effect, which are subject to change at
any time.
Irish Dividend Withholding Tax (“DWT”) - General
In general, DWT is deducted from dividends paid by Irish resident companies at the standard rate of income tax (currently 20%).
Certain classes of shareholders are exempt from DWT provided they return a properly completed declaration (certified as required) to
AIB’s Registrar, prior to the relevant dividend payment record date.
Potentially-exempt shareholders include Irish resident companies, pension schemes, charities and certain non-resident persons. For a
full exemption listing see the Irish Revenue website http://www.revenue.ie/en/tax/dwt/exemptions.html
Declaration forms to claim exemption may be obtained either from AIB’s Registrar at:
Computershare Investor Services (Ireland) Ltd, Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18, Ireland.
Telephone: +353-1-2475411. Facsimile: +353-1-2163151.
Website: http://www.computershare.com
or from the Irish Revenue Commissioners at:
Dividend Withholding Tax Unit, Collector General’s Division, Government Offices, Nenagh, Co. Tipperary, Ireland.
Telephone: +353-67-63400. Facsimile: +353-67-33822.
Email: infodwt@revenue.ie
Website: http://www.revenue.ie/en/tax/dwt/index.html
Taxation of Irish Resident Individual Shareholders:
Taxation of Dividends
(i) Irish Income Tax and Dividend Withholding Tax Credit
Shareholders who are individuals are liable to Irish income tax at their marginal rate on the amount of the dividend before deduction
of DWT, and the DWT is available either for offset against the income tax liability, or for repayment, where it exceeds the total income
tax liability. Such shareholders will normally also be liable to PRSI contribution (if regarded as ‘self-employed’ or a ‘modified PRSI rate
payer’) and to the Universal Social Charge. All shareholders will be liable to PRSI contribution from 1 January 2014.
(ii) Back-up Withholding Tax
An Irish resident holder of ADSs is subject to US withholding tax at the rate of 15% with respect to dividends paid on ADSs or
the proceeds of sale of ADSs. Unless the holder has provided to the withholding agent the applicable completed Form W-8
(‘Certificate of Foreign Status’) the dividends or the proceeds of sale of the ADSs may be subject to US back-up withholding tax
which will increase the total withholding tax to 28%.
Irish Capital Gains Tax
When shares are disposed of a capital gain may result if the sales proceeds less selling costs are greater than the base cost of the
shares sold and allowable deductions. Capital gains tax is charged at 33% on chargeable gains arising on disposals.
Stamp Duty
The Irish stamp duty implications of transactions in shares or ADSs are the same as for Eligible US Holders. See ‘Irish Stamp Duty’ in
the ‘Taxation of Eligible US Holders’ section.
420
Taxation of a gift or an inheritance
Capital acquisitions tax (“CAT”), comprising gift tax and inheritance tax, is charged in Ireland where the value of the aggregate
taxable gifts and inheritances received by an individual on or after 5 December 1991 exceeds the tax free threshold applicable. The tax
free threshold applicable is determined by the relationship between the parties. Amounts in excess of the threshold are taxed at 33%.
Taxation of Eligible US Holders:
An ‘Eligible US Holder’, for the purpose of this discussion, is a beneficial owner of ordinary shares or ADSs who is (a) a resident of the
United States for the purposes of US federal income tax, (b) not a resident of Ireland for the purposes of Irish taxes and (c) not engaged
in trade or business in Ireland through a permanent establishment, and (d) eligible for benefits under the Tax Treaty.
Eligible US Holders of ADSs are treated as the owners, as appropriate, of the underlying ordinary shares for US federal income tax
purposes and for the purposes of the Tax Treaty.
Irish Tax
(i) Irish Income Tax
An Eligible US Holder is not liable to Irish income tax on dividends paid by AIB where the recipient is:
– a person, other than a company, who is not ordinarily resident in Ireland in a year of assessment; or
– a company that is not under the control (direct or indirect) of a person or persons who are Irish resident; or
– a company, the principal class of shares of which (or of its 75% parent or of a collection of companies which own 100% of that
company) are substantially and regularly traded on a recognised stock exchange.
(ii) Irish Dividend Withholding Tax and Related Tax Treaty Provisions
Generally an exemption from Irish DWT is available where the Eligible US Holder provides AIB’s Registrar with the relevant
declaration, certified as required and, in the case of an individual, is not ordinarily resident in Ireland.
For further detail in relation to claims for exemption, see above under Irish Dividend Withholding Tax (“DWT”) – General.
Eligible US Holders who have DWT deducted from their dividend may, subject to certain conditions, be entitled to a refund
by making an application to the Irish Revenue Commissioners at the address shown above. Where entitlement to repayment under
Irish domestic law cannot be established, the provisions of the Tax Treaty may apply. The provisions of the Tax Treaty can limit the
Irish tax liability of an Eligible US Holder, who is unable to claim repayment of the full DWT deducted from the dividend, to
15% of the aggregate of the cash dividend and related DWT (the ‘gross amount’). In such circumstances, the Eligible US Holder
may claim repayment from the Irish Revenue Commissioners under the provisions of the Tax Treaty of the amount of DWT in
excess of 15% of the gross amount of the dividend.
(iii) Gains on Sale, Exchange or Other Disposal
A gain realised on the sale, exchange or other disposal of the AIB ordinary shares or ADSs by an Eligible US Holder who is
not ordinarily resident in Ireland for Irish tax purposes is not subject to Irish capital gains tax.
(iv) Irish Stamp Duty
In the case of a transfer or sale of AIB ordinary shares, stamp duty will generally be charged at the rate of 1% of the value of the
shares.
The surrender of ADSs to the Depositary in return for ordinary shares, where the surrender does not relate to a sale or
contemplated sale or mortgage of such AIB ordinary shares, will generally not be chargeable to the 1% stamp duty. Where there is
a surrender of the ADSs to the Depositary in return for ordinary shares which is done as a conveyance on sale or in
contemplation of sale, then stamp duty is payable at the rate of 1% of the value of the shares.
(v) Taxation of a gift or an inheritance
Capital acquisitions tax (“CAT”), comprising gift tax and inheritance tax, applies to gifts and bequests of Irish situate assets. CAT
may also apply to non-Irish situate assets depending on the tax residence, ordinary residence and domicile positions of the donor
and the successor or donee. As such, CAT applies to gifts and bequests of AIB ordinary shares. It is not entirely clear whether ADSs
representing ordinary shares are regarded as non-Irish situate assets. As such, CAT may also apply to gifts and bequests of ADSs
representing ordinary shares regardless of the residence, ordinary residence or domicile of the donor and successor or donee. For
further details of CAT see ‘Taxation of Irish Shareholders - Taxation of a Gift or an Inheritance’.
US Tax
(i) US Federal Income Taxation
An Eligible US Holder is subject to US Federal income taxation on the gross amount of any dividend paid by AIB out of AIB’s current
or accumulated earnings and profits (as determined for US federal income tax purposes). Dividends received by individuals that
constitute qualified dividend income, are taxed at a maximum federal tax rate of 20%, subject to certain holding requirements.
Holders of Ordinary Shares or ADSs must have held their shares for more than 60 days during the 121-day period beginning 60
days before the ex-dividend date.
421
Additional information
Dividends paid by AIB with respect to ordinary shares or ADSs will be qualified dividend income for US tax purposes if AIB was not
in the year prior to the year in which the dividend was paid, and is not, in the year in which the dividend was paid, a passive foreign
investment company (“PFIC”). Based on our current and projected financial data, we believe AIB should not be treated as a PFIC for
US federal income tax purposes with respect to tax years 2012 and 2013 and we do not anticipate that AIB would be treated as a
PFIC for the 2014 year.
Dividends paid by AIB to US corporate stockholders with respect to ordinary shares and ADSs, will not qualify for the dividend
received deduction otherwise generally allowed to such stockholders. The amount of the dividend to be included in income will be
the US dollar value of the euro payment made, determined at the spot US dollar/euro exchange rate on the date of actual or
constructive receipt by the Eligible US Holder in the case of ordinary shares, or by the Depositary in the case of ADSs, regardless of
whether the payment is actually converted into US dollars. Any gain or loss recognised by an Eligible US Holder on the sale or
disposal of euros as a result of currency exchange fluctuations during the period from the date the dividend payment is includable in
income to the date the payment is converted into US Dollars will be treated as ordinary income or loss and will not be eligible for the
special tax rate applicable to qualified dividend income.
Distributions in excess of current or accumulated earnings and profits would be treated as a non-taxable return of capital to the
extent of the Eligible US Holder’s basis in his AIB ordinary shares or ADSs and would reduce the US Holder’s basis in his AIB
ordinary shares or ADSs. Any remaining excess would be treated for US federal tax purposes as capital gains, provided the AIB
ordinary shares or ADSs are capital assets in the hands of such Eligible US Holder.
Subject to various limitations, Eligible US Holders who have Irish DWT applied to their dividend may be entitled to a credit against
their US federal income tax liability. Under US tax law, the limitation on foreign taxes eligible for credit is calculated separately with
respect to separate classes of income. Dividends paid by AIB are foreign source “passive category income” or “general category
income” depending on the holder’s circumstances. In either case, foreign tax credits allowable with respect to each category of
income cannot exceed the US federal income tax otherwise payable with respect to such category of income. No foreign tax credit
is allowed to the extent a refund of DWT is available to the Eligible US Holder.
(ii) US Withholding Tax
A holder of ADSs may, under certain circumstances, be subject to US backup withholding tax with respect to dividends paid on
ADSs or the proceeds of sale of ADSs. A US holder of ADSs is subject to backup withholding tax unless such holder: (i) is a
corporation or comes within the certain other exempt categories and, when required, certifies this fact; or (ii) provides a correct tax-
payer identification number (“TIN”), certifies that such holder is not subject to backup withholding tax and otherwise
complies with applicable requirements of the backup withholding tax rules. Subject to certain limitations, amounts withheld under the
US backup withholding tax rules may be creditable against the holder’s US federal income tax liability.
(iii) US State and local taxes
State and local taxes may apply to distributions received by holders of AIB ordinary shares or ADSs.
(iv) Gains on sale, exchange or other disposal
Upon the sale, exchange or other disposal of AIB ordinary shares or ADSs, a US Holder will recognise a gain or loss, if any, equal to
the difference between the amount realised upon the sale, exchange, or disposal and the US Holder’s tax basis. Generally, a
holder’s tax basis in AIB ordinary shares or ADSs will be the US Holder’s cost. Such gain or loss will generally be capital gain or
loss. Capital gains recognised by non-corporate US Holders on shares held longer than one year, are taxed at a maximum rate of
20%. Any gain will generally be treated as income from sources within the US for foreign tax credit limitation purposes. Effective
10 October 2011, AIB terminated its ADR facility. A US Holder of ADSs could surrender their ADSs and receive underlying AIB
ordinary shares. A US Holder does not recognise gain or loss on the surrender of ADSs and receipt of AIB ordinary shares. The US
Holder’s tax basis in the ordinary shares received is equal to the tax basis in the ADSs surrendered. A US Holder that does not
surrender their ADSs ultimately will receive proceeds in connection with the termination and, at that point, under current law, would
be treated as having sold their shares, recognising gain or loss equal to the difference between the amount realised and the US
Holder’s tax basis. As discussed above such gain or loss would generally be capital gain or loss.
(v) Taxation of a gift or an inheritance
The 1951 estate tax convention between Ireland and the US is accepted by both countries’ revenue authorities as applying to Irish
inheritance tax, but not gift tax. Under this convention and US tax law any such inheritance tax payable in Ireland generally will be
allowed as a credit, subject to certain limitations, against so much of the US federal estate tax as is payable on the same property.
Transfers of AIB ordinary shares or ADSs upon death may be subject to US federal estate tax subject to certain threshold
exemptions. US federal gift tax may apply to gifts of AIB ordinary shares or ADSs subject to certain thresholds and exemptions. No
credit is allowable against Federal gift tax for Irish gift tax paid on the same property.
422
Exchange controls
Under Article 63 of the Treaty on the Functioning of the European Union, all restrictions on the movements of capital between member
states of the European Union and between such member states and third countries are prohibited.
Under Article 66 of the Treaty where, in exceptional circumstances, movements of capital to or from third countries cause, or threaten to
cause, serious difficulties for the operation of economic and monetary union, the Council of the European Union, on a proposal from the
European Commission, and after consulting the European Central Bank, may take safeguard measures with regard to third countries for
a period not exceeding six months if such measures are strictly necessary.
Under Article 75 of the Treaty, where is necessary to prevent and combat terrorism and related activities, the European Parliament and
the Council, acting by means of regulations are to define a framework for administrative measures with regard to capital
movements and payments, such as the freezing of funds, financial assets or economic gains belonging to, or owned or held by, natural
or legal persons, groups or non-State entities.
There are no restrictions under AIB’s Articles of Association or under Irish law, as currently in force, that limit the right of non-resident or
foreign owners, as such, to hold securities of AIB freely or, when entitled, to vote such securities freely. There are currently no
restrictions under Irish law, decrees, or regulations affecting the remittance of dividends or other payments to non-resident holders of
AIB securities except in respect of United Nations and/or European Union sanctions.
423
Additional information
Employees
At year end December 2013, AIB Group had 11,431(1) full time equivalent staff in payment (end of month staff in payment full time
equivalent, excluding career breaks and other unpaid long-term leaves) on a worldwide basis, mainly in the Republic of Ireland,
Northern Ireland, Great Britain and United States of America.
AIB Group offers a wide range of employee relations programmes in each of the areas in which it operates. In 2013, AIB, and the Irish
Bank Officials' Association ("IBOA") which is the principal recognised trade union for bank employees, reaffirmed their commitment to
agreed principles underpinning a positive and constructive approach to employee and industrial relations.
The AIB Code of Conduct, sets out the standards of conduct and behaviour required from staff and is supported by a number of
detailed policies which are subject to regular review. AIB encourages its staff to raise any concerns of wrongdoing through a number of
channels, both internal and external. One such channel, the AIB Speak-Up policy, includes a confidential external helpline. Staff are
assured that if they raise a concern in good faith, AIB will not tolerate any victimisation or unfair treatment of the staff member as a
result.
AIB’s remuneration levels in 2013 continued to be closely managed in line with the Group’s financial performance. There were no
general salary increases awarded. Out of course salary increases were managed within tight budgetary parameters, the increases being
primarily restricted to retaining key staff and skills or to instances where staff stepped up to expanded roles in light of restructuring or
staff departures under the voluntary severance programme. Under the terms of the Pay and Benefits Review, introduced in 2012,
reductions of up to 7.5% in salaries and benefits, relative to market benchmarks, were applied to managers with effect from 1 January
2013. The salaries of senior executives within the Group were managed by the Remuneration Committee in accordance with the
obligations of the Subscription and Placing Agreements. There were no bonuses schemes or share incentive schemes in operation.
The average number of employees by new operating segment for 2013 and by market segment for 2012 and 2011 (excluding
employees on career breaks, long term absences or any other unpaid leaves) are described in the table below. See also note 56 to the
consolidated financial statements.
Employee numbers as at 31 December 2013, for Ark Life total 146. This subsidiary was acquired in March 2013, and is held for sale as
a discontinued operation (note 21). The employee numbers above, do not include Ark Life employees.
Continuing operations
DCB
AIB UK
FSG
Group(2)
Total
2013
6,085
1,490
1,512
3,561
12,648(1)
Continuing operations
PBB
CICB
AIB UK
EBS(3)
Group(2)
Discontinued operations
BZWBK(5)(6)
2012
2011
6,285
1,620(4)
2,234
604
3,965
6,017
1,752
2,282
288
3,943
14,708
14,282
–
14,708
2,434
16,716
(1)The 12 month average of 12,648 employees is lower than the average figure for December 2012 of 14,708 due to the high level of voluntary severance
and early retirements in the period. Actual FTEs fell to the 31 December 2013 level of 11,431 from 13,429 at 31 December 2012, also reflecting the high
level of voluntary severance and early retirements in the period.
(2)The figures for Group include the following centralised functions: Chief Financial Office; Chief Risk Office; Corporate Affairs and Strategy; Office of the
Group General Counsel, Human Resources, Chief Operating Office and Office of Group Internal Audit.
(3) EBS was acquired on 1 July 2011, accordingly, staff numbers have been time apportioned in 2011.
(4)AIB Investment Managers was disposed of on 1 June 2012, data has been included for January to May 2012.
(5)Central and Eastern Europe division ceased operations in 2010, following the classification of BZWBK and BACB as a discontinued operation during the
year.
(6)BZWBK includes all staff in BZWBK and its subsidiaries, excluding assignees from AIB.
424
Description of property
As of 31st December 2013, AIB operated from an estate of 261 branches/outlets, and 22 office locations. These are held principally in
the Republic of Ireland, Northern Ireland, Great Britain, Isle of Man, and the Channel Islands. The estate is held under a combination of
freehold/long leasehold and short lease tenures. AIB also holds a large number of ATM locations under lease and licence agreements.
Over the course of 2013, AIB undertook another significant branch consolidation programme. This resulted in the closure of a further 17
branches and sub offices in the Republic of Ireland. This brings to 63 the total number of properties closed since January 2012. These
properties, depending on tenure, will be sold or surrendered back to landlords over the course of the year.
AIB is headquartered at Bankcentre, Ballsbridge Dublin 4. This is a large campus style complex of interlinked office buildings on a site of
approximately 14 acres. The complex houses most of AIB’s support functions, in addition to car parking, meeting and staff welfare
facilities. AIB holds this site under a number of separate lease arrangements.
As part of a major Head Office Consolidation Programme, AIB exited leases at a number of key locations around Dublin City. Included in
this programme were offices at AIB International Centre in the IFSC, No.85 Pembroke Road, Hume House and the Sweepstakes
Centre. Ashford House and Stack B, Trade were also exited in the latter part of the year, with property negotiations ongoing.
The Consolidation Programme will continue over 2014 to reduce the Bank’s occupancy costs across the Estate and maximise the
potential of the remaining portfolio. In addition, AIB has a number of other head office properties in principal towns nationwide including
Dublin, Naas, Cork, Limerick, Waterford and Galway.
The AIB estate in the Channel Islands was also reviewed over the course of 2013 with a number of key transactions taking place. AIB
approved the sub-letting of the Esplanade Building in St. Helier, Jersey as well as placing the residence at Sunnyholm on the market for
sale. Negotiations were also successfully completed to exit Finch Road and the Jubilee Buildings, in Douglas, Isle of Man.
In Northern Ireland, AIB’s First Trust Bank is headquartered at First Trust Centre, 92 Ann Street, Belfast and has a branch network
comprising 32 locations. There were 10 branch closures over the course of 2013 with 8 property disposals completed. There are
another 5 properties on the market for sale which will continue into 2014.
AIB’s UK headquarters is located at Tenterden Street, West End London which is held under lease. In addition, AIB GB has a further 10
leasehold properties in and around London and the South East as well as 12 leasehold and one freehold location nationwide. A further 5
closed premises are held under management. 2013 saw the surrender of 5 closed premises over the course of the year.
EBS is largely accommodated across the AIB Bankcentre campus. The former EBS headquarters, at 2 Burlington Road, Dublin 4, is
now an integrated part of the AIB head office estate. This is a modern 80,000 square foot facility held under lease. The branch estate
comprises 62 outlets which are leased or owned by EBS with a further 24 locations held by tied agents and franchises.
Other shareholder information
1.
Internet-based Shareholder Services
Ordinary Shareholders with access to the internet may:
register for electronic communications on the following link, www.computershare.com/register/ie;
–
– check their shareholdings on the Company’s Share Register;
–
–
check past dividend payment details;
update your information online on the following link: www.investorcentre.com/ie/changeaddress; 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 Investor Relations, Shareholder Information and Personal Shareholder Details 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 Financial Report.
2. Stock Exchange Listings
Allied Irish Banks, p.l.c. is an Irish-registered company. Its ordinary shares are traded on the Enterprise Securities Market (“ESM”) of
the Irish Stock Exchange.
425
Additional information
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: www.computershare.com or www.investorcentre.com/ie/contactus
4. Shareholding analysis
The National Pensions Reserve Fund Commission hold 520,381,418,976 ordinary shares of € 0.01 each in the share capital of
Allied Irish Banks, p.l.c..
Financial calendar
Annual General Meeting: 19 June 2014, at the Company’s Head office at Bankcentre, Ballsbridge, Dublin 4.
Interim results
The unaudited Half-Yearly Financial Report 2014 will be announced towards the end of July/early August 2014 and will be available on
the Company’s website – www.aibgroup.com.
Shareholder’s enquires regarding Ordinary Shares should be addressed to:
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
Website: www.computershare.com
or
www.investorcentre.com/ie/contactus
or
www.aibgroup.com
426
Glossary of terms
ABS
Asset backed securities are securities that represent an interest in an underlying pool of referenced assets. They are typically
structured in tranches of differing credit qualities. Some common types of asset backed securities are those backed by credit card
receivables, home equity loans and car loans. Within this report, ABS which are backed by an underlying pool of residential
mortgage loans are referred to as “RMBS” – see below.
Arrears
Arrears relates to any interest or principal on a loan which was due for payment, but where payment has not been received.
Customers are said to be in arrears when they are behind in fulfilling their obligations with the result that an outstanding loan is
unpaid or overdue.
Banking
book
A regulatory classification to support the regulatory capital treatment that applies to all exposures which are not in the trading book.
Banking book positions tend to be structural in nature and, typically, arise as a consequence of the size and composition of a Bank's
balance sheet. Examples include the need to manage the interest rate risk on fixed rate mortgages or rate insensitive current
account balances. The Banking Book portfolio will also include all transactions/positions which are accounted for on an interest
accruals basis or, in the case of financial instruments, on an available for sale or hold to maturity basis (e.g. AFS Securities
portfolios).
Basis point
One hundredth of a per cent (0.01%), so 100 basis points is 1%. Used in quoting movements in interest rates or yields on securities.
Basis risk
A type of market risk that refers to the possibility that the change in the price of an instrument (e.g. asset, liability, derivative, etc)
may not match the change in price of the associated hedge, resulting in losses arising in the Group's portfolio of financial
instruments.
Buy- to- let
A residential mortgage loan approved for the purpose of purchasing a residential investment property to rent out.
CBOs/CDOs
A collateralised bond obligation (“CBO”)/collateralised debt obligation (“CDO”) is an investment vehicle (generally an SPE) which
allows third party investors to make debt and/or equity investments in a vehicle containing a portfolio of loans and bonds with certain
common features. In the case of synthetic CBOs/CDOs, the risk is backed by credit derivatives instead of the sale of assets (cash
CBOs/CDOs).
CET 1 ratio
Common equity tier 1 – A measurement of a bank’s core equity capital compared with its total risk-weighted assets.
Collectively
Impairment assessment on a collective basis for portfolios of loans that are not considered individually significant for specific
assessed
impairment
provisioning. In addition, portfolios of performing loans are assessed on a collective basis to estimate the amount of losses incurred,
but which have yet to be individually identified (IBNR provisions).
Commercial
Commercial paper is similar to a deposit and is a relatively low-risk, short-term, unsecured promissory note traded on money
paper
markets issued by companies or other entities to finance their short-term expenses. In the USA, commercial paper matures within
270 days maximum, while in Europe, it may have a maturity period of up to 365 days; although maturity is commonly 30 days in the
USA and 90 days in Europe.
Commercial
Commercial property lending focuses primarily on the following property segments:
property
a) Apartment complexes;
b) Develop to sell;
c) Office projects;
d) Retail projects;
e) Hotels; and
f) Selective mixed-use projects and special purpose properties.
Concentration
Concentration risk is the risk of loss from lack of diversification, investing too heavily in one industry, one geographic area or one
risk
type of security.
Contractual
The period when a scheduled payment is due and payable in accordance with the terms of a financial instrument.
maturity
Core tier 1
capital
Called-up share capital, share premium and eligible reserves plus equity non-controlling interests, less goodwill, intangible assets
and supervisory deductions as specified by the Central Bank of Ireland.
CRD
Capital requirements directives (‘CRD’): Capital adequacy legislation implemented by the European Union and adopted by member
states. They are designed to ensure the financial soundness of credit institutions and certain investment firms.
Credit default
An agreement between two parties whereby one party pays the other a fixed coupon over a specified term. The other party makes
swaps
no payment unless a specified credit event, such as a default, occurs, at which time a payment is made and the swap terminates.
Credit default swaps are typically used by the purchaser to provide credit protection in the event of default by a counterparty.
Credit
derivatives
Financial instruments where credit risk connected with loans, bonds or other risk-weighted assets or market risk positions is
transferred to counterparties providing credit protection. The credit risk might be the exposure inherent in a financial asset such as a
loan or might be generic credit risk such as the bankruptcy risk of an entity.
427
Glossary of terms
Credit risk
The risk that one party to a financial instrument will cause a financial loss to the other party by failing to discharge an obligation.
Credit risk
mitigation
Credit risk
spread
Techniques by lenders used to reduce the credit risk associated with an exposure by the application of credit risk mitigants.
Examples include: collateral; guarantee; and credit protection.
Credit spread can be defined as the difference in yield between a given security and a comparable benchmark government security,
or the difference in value of two securities with comparable maturity and yield but different credit qualities. It gives an indication of
the issuer’s or borrower’s credit quality.
Criticised loans
Loans requiring additional management attention over and above that normally required for the loan type.
Customer
accounts
A liability of the Group where the counterparty to the financial contract is typically a personal customer, a corporation (other than a
financial institution) or the government. This caption includes various types of deposits and credit current accounts, all of which are
unsecured.
Debt
This is the process whereby customers in arrears, facing cash flow or financial distress, renegotiate the terms of their loan
restructuring
agreements in order to improve the likelihood of repayment. Restructuring may involve altering the terms of a loan agreement
including a partial write down of the balance. In certain circumstances, the loan balance may be swapped for equity in the
counterparty.
Debt securities
Assets on the Group’s balance sheet representing certificates of indebtedness of credit institutions, public bodies and other
undertakings.
Debt securities
Liabilities of the Group which are represented by transferable certificates of indebtedness of the Group to the bearer of the
in issue
certificates.
Default
When a customer breaches a term and/or condition of a loan agreement, a loan is deemed to be in default for case management
purposes. Depending on the materiality of the default, if left unmanaged it can lead to loan impairment. Default is also used in Basel
II context when a loan is either 91+ days past due or impaired, and may require additional capital to be set aside.
Economic
capital
The amount of capital which the Group needs to protect against extreme losses from a material risk it is running (e.g. credit risk,
market risk). It is based on internally developed calculation methodologies and estimates, as opposed to regulatory capital, which
uses a methodology determined by the Basel Accord and imposed by the Regulator.
Eurozone
The eurozone consists of the following eighteen European Union countries that have adopted the euro as their common currency:
Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, Netherlands,
Portugal, Slovakia, Slovenia and Spain. In addition, Bulgaria and Romania became members of the eurozone on 1 January 2014.
Exposure at
Exposure at default (“EAD”) is the expected or actual amount of exposure to the borrower at the time of default.
Default
First/second
Where a property or other security is taken as collateral for a loan, first lien holders are paid before all other claims on the property.
lien
Second lien holders are subordinate to the rights of first lien holders to a property security.
Forbearance
Forbearance is the term that is used when repayment terms of a loan contract have been renegotiated in order to make repayment
terms more manageable for borrowers. Forbearance techniques have the common characteristic of rescheduling principal or interest
repayments, rather than reducing them. Standard forbearance techniques employed by the Group include: - interest only; a
reduction in the payment amount; a temporary deferral of payment (a moratorium); extending the term of the mortgage; and
capitalising arrears amounts and related interest.
Sub-headings under forbearance include:
Split mortgages
A split mortgage is one of the forbearance solutions that may be offered to customers in arrears whose mortgages are
unsustainable. The loan is split in to two parts, a sustainable element and an unsustainable element which are subject to separate
repayment schedules.
Negative equity trade down
A forbearance solution which allows a customer to sell their residential property and subsequently purchase a new property and
transfer the negative equity portion to a new loan secured on the new property.
Voluntary sale for loss
A forbearance solution which may be offered to residential mortgage customers in financial difficulty. This operates on a voluntary
basis whereby the customer agrees to sell the mortgage property and repay any residual debt outstanding.
428
Glossary of terms
Funded/
unfunded
exposures
Funded: Loans, advances and debt securities where funds have been given to a debtor with an obligation to repay at some future
date and on specific terms.
Unfunded: Unfunded exposures are those where funds have not yet been advanced to a debtor, but where a commitment exists to
do so at a future date or event.
Guarantee
An undertaking by the Group/other party to pay a creditor should a debtor fail to do so.
Home loan
A loan secured by a mortgage on the primary residence or second home of a borrower.
ICAAP
Internal Capital Adequacy Assessment Process (“ICAAP”): The Group’s own assessment, through an examination of its risk profile
from regulatory and economic capital perspectives, of the levels of capital that it needs to hold.
Impaired loans
Loans are typically reported as impaired when interest thereon is 91 days or more past due or where a provision exists in
anticipation of loss, except: (i) where there is sufficient evidence that repayment in full, including all interest up to the time of
repayment (including costs) will be made within a reasonable and identifiable time period, either from realisation of security,
refinancing commitment or other sources;or (ii) where there is independent evidence that the balance due, including interest, is
adequately secured. Upon impairment the accrual of interest income based on the original terms of the claim is discontinued but the
increase of the present value of impaired claims due to the passage of time is reported as interest income.
IRBA
The Internal Ratings Based Approach (“IRBA”) allows banks, subject to regulatory approval, to use their own estimates of certain
risk components to derive regulatory capital requirements for credit risk across different asset classes. The relevant risk components
are: Probability of Default (“PD”); Loss Given Default (“LGD”); and Exposure at Default (“EAD”).
ISDA Master
Agreements
Standardised contracts, developed by the International Swaps and Derivatives Association (“ISDA”), used as an umbrella under
which bilateral derivatives contracts are entered into.
LCR
Liquidity Coverage Ratio: The ratio of the stock of high quality liquid assets to expected net cash outflows over the next 30 days
under a stress scenario. CRD IV requires that this ratio exceed 60% on 1st January 2015 and 100% on 1st January 2018.
Leveraged
lending
Leverage
ratio
Leveraged lending involves lending to entities by leveraging off their equity structures having considered the cash generating
capacity of the business and its capacity to repay any associated debt. Leveraging structures are typically used in management and
private equity buy-outs, mergers and acquisitions. Leverage lending typically is to non-investment grade borrowers and carries
commensurate rates of return.
To prevent an excessive build-up of leverage on institutions’ balance sheets, Basel III introduces a non risk- based leverage ratio to
supplement the risk-based capital framework of Basel II. It is defined as the ratio of tier 1 capital to total exposures. Total exposures
include on-balance sheet items, off-balance sheet items and derivatives, and should generally follow the accounting measure of
exposure.
LGD
Loss Given Default (“LGD”) is the expected or actual loss in the event of default, expressed as a percentage of
‘exposure at default’.
Liquidity risk
The risk that Group does not have sufficient financial resources to meet its obligations as they fall due, or will have to do so at an
excessive cost. This risk arises from mismatches in the timing of cash flows.
Loans past due
When a borrower fails to make a contractually due payment, a loan is deemed to be past due. ‘Past due days’ is a term used to
describe the cumulative number of days that a missed payment is overdue. Past due days commence from the close of business on
the day on which a payment is due but not received. In the case of overdrafts, past due days are counted once a borrower:
– has breached an advised limit;
– has been advised of a limit lower than the then current amount outstanding; or
– has drawn credit without authorisation. When a borrower is past due, the entire exposure is reported as past due, rather than the
amount of any excess or arrears.
Loan to deposit
This is the ratio of loans and receivables to customers as presented in the statement of financial position compared to customer
ratio
accounts.
Loan workout
Loan workout is the process whereby once an advance is deemed to be criticised (i.e. ‘Watch’, ‘Vulnerable’ or ‘Impaired’), the Group
monitors and reviews the advance regularly with the objective of working with the customer to resolve their financial difficulties,
which may include restructuring, in order to maximise the level of recovery by the Group.
LTV
Loan to value (“LTV) is an arithmetic calculation that expresses the amount of the loan as a percentage of the value of
security/collateral. A high LTV indicates that there is less of a cushion to protect the lender against collateral price falls or
increases in the loan carrying amount if repayments are not made and interest is capitalised onto the outstanding loan balance.
429
Glossary of terms
MCEV
Market consistent embedded value (“MCEV") of a life insurance company represents the shareholders' interests in the earnings
distributable from assets allocated to the covered business after sufficient allowance for the aggregate risks in the covered business
has been made.
Medium term
Medium term notes (“MTNs”) are notes issued by the Group across a range of maturities under European Medium Term Note
notes
NAMA
Programme.
National Asset Management Agency (“NAMA”) was established in 2009 as one of a number of initiatives taken by the Irish
Government to address the serious problems which arose in Ireland’s banking sector as the result of excessive property lending.
Net interest
The amount of interest received or receivable on assets net of interest paid or payable on liabilities.
income
Net interest
margin
NIM
Net interest margin (“NIM”) is a measure of the difference between the interest income generated on average interest earning
financial assets (lendings) and the amount of interest paid on average interest bearing financial liabilities (borrowings) relative to the
amount of interest-earning assets.
Net interest margin (NIM) is a measure of the difference between the interest income generated on financial assets (lendings) and
the amount of interest paid on financial liabilities (borrowings) relative to the amount of interest-earning assets.
NSFR
Net Stable Funding Ratio: The ratio of available stable funding to required stable funding over a 1 year time horizon.
Optionality
A type of market risk associated with option features that are embedded within assets or liabilities on the Group's balance sheet.
risk
The embedded option features can significantly change the cash flows (and/or redemption) of the contract and can, therefore, effect
its duration, yield and pricing. Examples include bonds with early call provisions or prepayment risk on a mortgage portfolio. Where
these risks are left unhedged, it can result in losses arising in the Group's portfolio.
OUBBs
Own-use bank bonds (“OUBBs”): Banks issue government-guaranteed bonds to themselves and use these bonds as collateral to
procure funding from the European Central Bank.
PCA
Principal components analysis (“PCA”) is a tool used to analyse the behaviour of correlated random variables. It is especially useful
in explaining the behaviour of yield curves. Principal components are linear combinations of the original random variables, chosen
so that they explain the behaviour of the original random variables, and so that they are independent of each other. Principal
components can, therefore, be thought of as just unobservable random variables. For yield curve analysis, it is usual to perform PCA
on arithmetic or logarithmic changes in interest rates. Often the data is “de-meaned”; adjusted by subtracting the mean to produce a
series of zero mean random variables. When PCA is applied to yield curves, it is usually the case that the majority (> 95%) of yield
curve movements can be explained using just three principal components (i.e. a parallel change, a rotation and a change of the
curvature ). PCA is a very useful tool in reducing the dimensionality of a yield curve analysis problem and, in particular, in
projecting stressed rate scenarios.
PD
Probability of Default (“PD”) is the likelihood that a borrower will default on an obligation to repay.
Prime loan
A loan in which both the criteria used to grant the loan (loan-to-value, debt-to-income, etc.) and to assess the borrower’s history (no
past due reimbursements of loans, no bankruptcy, etc.) are sufficiently conservative to rank the loan as high quality and low-risk.
Re-pricing risk
Re-pricing risk is a form of interest rate risk (i.e. a type of market risk) that occurs when asset and liability positions are mismatched
in terms of re-pricing (as opposed to final contractual) maturity. Where these interest rate gaps are left unhedged, it can result in
losses arising in the Group’s portfolio of financial instruments.
Repo
ing
RWAs
Repurchase Agreement (“Repo”) is a short-term funding agreement that allows a borrower to create a collateralised loan by selling a
financial asset to a lender. As part of the agreement, the borrower commits to repurchase the security at a date in the future repay-
the proceeds of the loan. For the counterparty to the transaction it is termed a reverse repurchase agreement or a reverse repo.
Risk weighted assets (“RWAs”) are a measure of assets (including off-balance sheet items converted into asset equivalents e.g.
credit lines) which are weighted in accordance with prescribed rules and formulas as defined in the Basel Accord to reflect the risks
inherent in those assets.
RMBS
Residential mortgage-backed securities (“RMBS”) are debt obligations that represent claims to the cash flows from pools of
mortgage loans, most commonly on residential property.
Securitisation
Securitisation is the process of aggregation and repackaging of non-tradable financial instruments such as loans and receivables,
or company cash flow into securities that can be issued and traded in the capital markets.
SME
Small and medium enterprises
SPE/SPV
Special purpose entity (“SPE”) is a legal entity which can be a limited company or a limited partnership created to fulfil narrow or
specific objectives. A company will transfer assets to the SPE for management or use by the SPE to finance a large project thereby
achieving a narrow set of goals without putting the entire firm at risk. This term is used interchangeably with SPV (special purpose
vehicle).
430
Glossary of terms
Structured
securities
This involves non-standard lending arrangements through the structuring of assets or debt issues in accordance with customer
and/or market requirements. The requirements may be concerned with funding, liquidity, risk transfer or other needs that cannot be
met by an existing off the shelf product or instrument. To meet this requirement, existing products and techniques must be
engineered into a tailor-made product or process.
Sub-prime
Extension of credit to borrowers who, at the time of the loans’ origination, exhibit characteristics indicating a significantly higher risk
of default than traditional bank lending customers.
Tier 1 capital
A measure of a bank’s financial strength defined by the Basel Accord. It captures core tier 1 capital plus other tier 1 securities in
issue, but is subject to deductions relating to the excess of expected loss on the IRBA portfolios over the IFRS provision on the IRBA
portfolios, securitisation positions and material holdings in financial companies.
Tier 2 capital
Broadly includes qualifying subordinated debt and other tier 2 securities in issue, eligible collective impairment provisions, unrealised
available for sale equity gains and revaluation reserves. It is subject to deductions relating to the excess of expected loss on the
IRBA portfolios over the accounting impairment provisions on the IRBA portfolios, securitisation positions and material holdings in
financial companies.
Tracker mortgage
A mortgage with a variable interest rate which tracks the European Central Bank (“ECB”) rate, at an agreed margin above the ECB
rate and will increase or decrease within five days of an ECB rate movement.
VaR
The Group’s core risk measurement methodology is based on an historical simulation application of the industry standard Value at
Risk (“VaR”) technique. The methodology incorporates the portfolio diversification effect within each standard risk factor (interest
rate, credit spread, foreign exchange, equity, as applicable). The resulting VaR figures, calculated at the close of business each day,
are an estimate of the probable maximum loss in fair value over a one day holding period that would arise from an adverse
movement in market rates. This VaR metric is derived from an observation of historical prices over a period of one year and
assessed at a 95% statistical confidence level (i.e. the VaR metric may be exceeded at least 5% of the time).
Vulnerable loans
Loans where repayment is in jeopardy from normal cash flow and may be dependent on other sources for repayment.
Watch loan
Loans exhibiting weakness but with the expectation that existing debt can be fully repaid from normal cash flow.
Yield curve risk
A type of market risk that refers to the possibility that an interest rate yield curve changes its shape unexpectedly (e.g. flattening,
steepening, non-parallel shift), resulting in losses arising in the Group's portfolio of interest rate instruments.
431
USA
AIB Corporate Banking
North America
1166 Avenue of the Americas, 18th Floor,
New York, NY 10036.
Telephone: + 1 212 339 8000
Facsimile: + 1 212 515 6710
AIB Customer Treasury Services
1166 Avenue of the Americas, 18th Floor,
New York, NY 10036.
Telephone: + 1 212 339 8000
Facsimile: + 1 212 339 8006
AIB Commercial Finance Limited
AIB Bankcentre, Ballsbridge,
Dublin 4.
Telephone: + 353 1 667 0233
Facsimile: + 353 1 667 0250
AIB Corporate Banking Britain
St Helen’s, 1 Undershaft,
London EC3A 8AB.
Telephone: + 44 207 090 7130
Facsimile: + 44 207 090 7100
EBS Limited
The EBS Building,
2 Burlington Road,
Dublin 4.
Telephone: + 353 1 665 9000
Facsimile: + 353 1 874 7416
AIB Financial Solutions Group
Bankcentre, PO Box 452,
Ballsbridge, Dublin 4.
Telephone: + 353 1 660 0311
AIB Arrears Support Unit
Bankcentre, PO Box 452,
Ballsbridge, Dublin 4.
Telephone: + 353 1 660 0311
AIB Third Party Servicing
Bankcentre, PO Box 452,
Ballsbridge, Dublin 4.
Telephone: + 353 1 660 0311
Principal addresses
Ireland & Britain
Group Headquarters
Bankcentre, PO Box 452,
Ballsbridge, Dublin 4.
Telephone: + 353 1 660 0311
Website: http://www.aibgroup.com
AIB Bank - Personal, Business and
Corporate Banking
Bankcentre, Ballsbridge,
Dublin 4.
Telephone: + 353 1 660 0311
Facsimile: + 353 1 660 3063
First Trust Bank
First Trust Centre, 92 Ann Street,
Belfast BT1 3HH.
Telephone: + 44 28 9032 5599
From RoI: 048 9032 5599
Allied Irish Bank (GB)
4 Tenterden Street, Off Hanover Square,
London W1S 1TE.
Telephone: + 44 20 7647 3300
Facsimile: + 44 20 7629 2376
AIB Corporate Banking
AIB Bankcentre, Ballsbridge,
Dublin 4.
Telephone: + 353 1 660 0311
Facsimile: + 353 1 660 4018
AIB Finance and Leasing
AIB Bankcentre, Ballsbridge,
Dublin 4.
Telephone: + 353 1 660 0311
Facsimile: + 353 1 641 6529
AIB Customer Treasury Services
AIB Bankcentre, Ballsbridge,
Dublin 4.
Telephone: + 353 1 660 0311
Facsimile: + 353 1 641 2201
AIB Business Banking
AIB Bankcentre, Ballsbridge,
Dublin 4.
Telephone: + 353 1 660 0311
Facsimile: + 353 1 7721221
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).
432
Index
A
Accounting policies
Administrative expenses
Annual General Meeting
Allied Irish Banks, p.l.c. (Parent
company) financial statements
and notes
Approval of financial statements
Associated undertakings
Audit Committee
Auditor’s fees
Average balance sheets and
interest rates
Aviva Life Holdings Ireland Limited
B
Board Committees
Board and Executive Officers
Businesses of AIB Group
C
Capital adequacy information
Capital management
Capital reserves
Capital redemption reserves
Chairman’s statement
Chief Executive’s review
Commitments
Company secretary
Contingent liabilities
and commitments
Contributions from the Minister for
Finance and the NPRFC
Corporate Governance Statement
Corporate Social Responsibility
Credit ratings
Credit risk
Critical accounting policies
Currency information
Customer accounts
D
Debt securities in issue
Deferred taxation
Deposits by central banks
and banks
Derivative financial instruments
Directors
Directors’ interests
Directors’ remuneration
Discontinued operations
Disposal groups and non-current
assets held for sale
Disposal of businesses
Distributions on equity shares
209
252
426
356
355
285
192
263
350
266
192
184
16
49
47
301
301
4
6
347
190
306
301
189
9
127
71
50
417
294
294
290
293
273
184
334
331
266
271
262
271
Dividend income
Dividends
249
355
E
Earnings per share
Employees
Exchange controls
Exchange rates
269
348 and 424
423
417
F
Fair value of financial instruments
Finance leases and hire purchase
contracts
Financial and other information
Financial assets and financial
liabilities by contractual
residual maturity
315
279
349
161
426
Financial calendar
Financial investments
available for sale
150 and 282
Financial liabilities by undiscounted
contractual maturity
Financial review
Foreign exchange risk
Forward looking information
G
Gain on redemption/remeasurement
of subordinated liabilities and
other capital instruments
Glossary
Going concern
Group Internal Audit
I
Income statement
Independent auditor’s report
Intangible assets and goodwill
Interest income
Interest expense
Interest rate risk (non-trading)
Interest rate sensitivity
Internal controls
Investments in Group undertakings
Irish Government
162
15
166
2
250
427
211
69
236
404
288
249
249
164
324
198
375
341
L
Liquidity risk
Loans and receivables to banks
Loans and receivables to customers
Loss on disposal/transfer of loans
and receivables
153
278
278
251
M
Management report
Market risk
Memorandum and articles
of association
N
NAMA senior bonds
NAMA subordinated bond
Net fee and commission income
Net trading income
Nomination and Corporate
Governance Committee
Non-adjusting events after the
reporting period
Notes to the financial statements
O
Off balance sheet arrangements
Offer and listing details
Offsetting financial assets and
financial liabilities
Operational risk
Other liabilities
Other operating income
Own shares
P
Parent company risk information
Pension risk
Principal addresses
Profit/(loss) on disposal of property
Property, plant and equipment
Prospective accounting changes
Provision for impairment on
financial investments
available for sale
Provisions for impairment on
loans and receivables
Provisions for liabilities
and commitments
23
164
410
281
282
249
250
195
355
243
308
418
302
167
294
252
300
170
169
432
262
289
232
262
280
295
433
Index (continued)
R
Regulatory compliance
Regulatory compliance risk
Related party transactions
Remuneration committee
Report of the Directors
Retirement benefits
Risk appetite
Risk framework
Risk governance and risk
management organisation
Risk identification and
assessment process
Risk management
S
Schedule to Report of
the Directors
Segmental information
Share-based compensation
schemes
Share capital
Statement of cash flows
Statement of comprehensive
income
Statements of changes in
equity
Statement of Directors’
responsibilities
Statement of financial
position
Subordinated liabilities and
other capital instruments
Subsidiaries and consolidated
structured entities
Supervision and regulation
349
168
336
195
187
255
67
67
67
69
60
407
244
253
298
239
237
241
403
238
296
309
201
T
Taxation
264 and 420
Trading portfolio financial assets
Transfer of financial assets
W
Website
272
311
426
434