Annual Financial Report 2014
For the year ended 31 December 2014
Allied Irish Banks, p.l.c.
AIB Description
AIB is a financial services group operating predominantly in the Republic of Ireland and the UK. We provide a
comprehensive range of services to personal, business and corporate customers in our target markets and have
leading market shares in banking products in the Republic of Ireland. AIB’s business has been restructured in
recent years with the aim of becoming a customer focused, profitable and lower risk institution, well positioned
to support economic recovery in Ireland while seeking to generate sustainable shareholder returns.
Contents
2014 Financial Summary
Chairman’s statement
Chief Executive Officer’s review
Our strategy
Our customers
Governance at a glance
Corporate Social Responsibility
Business review
Operating and financial review
Comprehensive assessment
Capital management
Risk Management
Principal risks and uncertainties
Framework
Individual risk types
Governance and oversight
The Board and Executive Officers
Report of the Directors
Schedule to Report of the Directors
Corporate Governance statement
Remuneration report
Supervision and Regulation
Financial statements
Statement of Directors’ responsibilities
Independent Auditor’s Report
Accounting policies
Critical accounting judgements and estimates
Consolidated financial statements
Notes to the consolidated financial statements
Parent company financial statements
Notes to the parent company financial statements
General information
Shareholder information
Glossary of terms
Principal addresses
Index
Annual Financial Report 2014
Page
3
4
6
11
15
20
24
28
44
45
51
60
158
161
163
167
189
190
218
223
230
326
332
57
179
185
193
381
382
387
388
Important Information and Forward Looking Statement
Important Information and
Forward Looking Statement
Important Information – Valuation
AIB has 523,438,445,437 (excluding 35,680,114 treasury shares) ordinary shares in issue, c. 99.8% of which are held by the Ireland
Strategic Investment Fund (ISIF), mainly following the issue of 500 billion ordinary shares to the National Pension Reserve Fund
Commission (the predecessor to the ISIF) at €0.01 per share in July 2011. Based on the number of ordinary shares currently
in issue and the closing share price of 3 March 2015, AIB trades on a valuation multiple of c. 6x (excluding the 2009 Preference
Shares) the net asset value (NAV) of the Group as at 31 December 2014. The Group continues to note that the median for
comparable European banks is c.1x NAV.
Forward-looking statement
This document contains certain forward-looking statements with respect to the financial condition, results of operations and
business of AIB Group and certain of the plans and objectives of the Group. 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, capital structure, Government shareholding in the Group, 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 the Principal Risk and Uncertainties on pages 51 to 56 in the 2014 Annual Financial
Report. In addition to matters relating to the Group’s business, future performance will be impacted by Irish, UK and wider
European and global economic and financial market considerations. Any forward-looking statements made by or on behalf of the
Group speak only as of the date they are made. The Group cautions that the list of important factors on pages 51 to 56 of the
2014 Annual Financial Report 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.
2
2014 Financial Summary
Operating performance
Profit before tax
€1,111m €2,798m
Return to profitability from higher
income, lower costs and reduced
provisions. In addition to a strong
underlying profitable performance, the
impact of €437 million of income from
balance sheet actions and realisations,
together with the net charge of
exceptional items of €233 million is
included in the reported profit before
tax.
Net interest margin(1)
1.69% 32bps
Continuing positive momentum in
NIM mainly driven by lower interest
earning assets and lower costs of
funding those assets.
Pre-provision operating profit(2)
Operating expenses(2)
€1,127m €673m
Positive contribution from business
segments through 2014 with €956
million from Irish operations and €171
million from the UK.
€1,403m 5%
Cost reductions in line with
expectation. €67 million reduction on
2013 and €345 million (20%) lower than
2012.
Total income(2)
€2,530m €606m
Significant increase in net interest
income of €342 million (lower funding
costs and ELG charge) and other
income of €264 million (gains on
disposal of AFS securities and loans
along with re-estimating cashflows on
NAMA bonds).
Credit provision writeback
€185m €2,101m
2014 net writeback of €185 million
compared to a net charge of €1,916
million in 2013 reflecting level of
debt restructuring and economic
improvement with a reduction in new
impairments.
Balance Sheet / Capital
Common equity tier 1 ratio(3)
Monetary authority funding
Loan to deposit ratio(4)
16.4% 1.4%
€3.4bn €9.3bn
99% 1%
Capital position remains robust
with the improvement mainly due to
retained profits in the year and lower
risk weighted assets.
Significant reduction in ECB funding
which now accounts for 3% of AIB’s
total funding requirement, down from
12% in 2013.
Loan to deposit ratio in line with 2013
as net loans reduced €2.3 billion,
while customer accounts reduced
€1.7 billion.
Provision coverage ratio(5)
51% 55% Dec 2013
Reduction driven by write-off of
provisions within portfolios with higher
provision cover and writebacks from
restructuring.
Impaired loans
€22.2bn €6.7bn
Reduction reflecting debt restructuring
activity during the year which included
structuring sustainable solutions for
customers, write-offs and repayments
partly offset by new impaired loans.
Liquidity coverage ratio
116% 105% Dec 2013
Improvement of 11% since 2013 mainly
driven by increased high quality liquid
assets and retail deposits.
(1)Net interest margin excluding eligible liabilities guarantee (“ELG”) charge.
(2)Before exceptional items. Exceptional items are detailed on page 29.
(3)Common equity tier 1 (“CET 1”) transitional capital ratio.
(4)Customer accounts includes repos of €2.2 billion.
(5)Specific provisions as a percentage of impaired loans.
3
Annual Financial Report 2014 “The 2014 results demonstrate
the significant progress made in
the recovery of AIB. Rebuilding
public confidence and trust in the
bank is paramount. Our focused
leadership team, dedicated workforce,
clear strategy and improved risk
governance will continue to progress
us to that goal.”
Chairman’s
Statement
Richard Pym
Chairman
4
The 2014 results demonstrate the significant progress
made in the recovery of AIB. They show a €1.1 billion
profit before tax, a major improvement from a loss of
€1.7 billion in 2013. In addition, during the year, the
bank received approval for its Restructuring Plan from
the EU Commission and also passed the Comprehensive
Assessment of capital adequacy conducted by the ECB
and the EBA.
As a newcomer to AIB, I have been very impressed
by what I have seen since I arrived in October 2014.
In my introductory visits around the bank, I have met
dedicated and enthusiastic colleagues who prioritise
the needs of our customers. I have also seen how our
leading digital products provide customers with easy
access to banking facilities.
Our customers have been very loyal to us during
these last difficult years and we appreciate it. It is very
encouraging to see how our measures of brand strength
have improved during the year and there has also been
a remarkable turnaround within the bank in
colleague engagement.
Chairman’s Statement The Irish nation has been badly damaged by the
past failings of its financial system. After a period of
significant restructuring, AIB’s continued progress is
supportive of economic recovery, and similarly the
Group is benefiting from the improvement in Ireland’s
growth. Continued constructive collaboration between
the Government and the bank will serve to strengthen
the national economy and benefit society as a whole.
AIB remains deeply conscious of its debt to the
Irish people and I want to reiterate our thanks for
that immense support. Irish taxpayers have invested
approximately €21 billion in AIB and we believe that
investment will be returned over a period of time.
Rebuilding public confidence and trust in the bank is
paramount. Our focused leadership team, dedicated
workforce, clear strategy and improved governance will
continue to progress us to that goal.
Richard Pym
Chairman
4 March 2015
2014 was a landmark year for AIB, testimony to the
transformative work of our outgoing Chief Executive,
David Duffy, and his team. It is to his credit that in three
years he led the bank’s turnaround and leaves behind a
stable, profitable lender headed by a strong leadership
team with a clear focus on customer experience,
growth, and prudent risk management.
David’s successor will be announced shortly and we look
forward to continuing to drive ahead with AIB’s strategy
under new leadership.
I took over as Chairman when David Hodgkinson
retired. David joined AIB in 2010 when the bank was
in a very challenged position and he set about the task
of rebuilding it. He was joined by David Duffy in 2011.
Together they have made a huge contribution to AIB and
we thank them both for their accomplishment.
We also said goodbye to Tom Wacker and Dick Spring
as non-Executive Directors of the Board of AIB. Tom
left before I joined AIB and I enjoyed my brief time
working with Dick Spring. He is a hugely experienced
Irish public representative who brought the national
interest into focus in Board discussions. We thank both
Tom and Dick for their service on the Board over a
number of years.
AIB is 99.8% owned by the State, and the Department
of Finance has commissioned preparatory work on the
capital structure which, when completed, will enable the
Government to determine if and when it disposes of any
of its capital instruments or equity shareholding. It is
entirely a matter for the Government to decide and the
role of AIB is to ensure that the business is delivering its
strategic objectives and medium term targets in order to
achieve value for shareholders.
5
Annual Financial Report 2014 Chief Executive’s Review
“2014 saw AIB successfully execute its
three year plan to deliver a bank that
is sustainably profitable, adequately
capitalised and appropriately funded. We
have a strong momentum in our business
and are committed to supporting
our customers by understanding their
needs, providing suitable solutions and
serving them through our omni channel
distribution model. We are focused on
growing our lending to support the Irish
economy and delivering sustainable
returns for our shareholders.”
Chief Executive’s
Review
Delivering our
Strategic Objectives
Introduction
Three years ago we embarked on a challenging
journey to transform AIB into a stable, customer
focused, profitable organisation. Having established a
track record of delivery over that period, 2014 was a
milestone year for the bank. We achieved significantly
improved financial results, and a material de-risking of
the balance sheet, all while constantly maintaining focus
on rebuilding our customers’ trust, improving customer
service levels and strengthening our internal governance.
Over a three year period we have delivered a c. €4.8
billion turnaround in the Group’s profit before tax.
Returning to sustainable profitability in 2014 was a
result of broad based improvements in all key areas and
geographies of the business: growth in income, including
improving Net Interest Margin (NIM); continued
David Duffy
Chief Executive
6
organisational efficiency; reducing loan impairments; and
increased levels of new customer lending. The Group is
now profitable again and, for the first time in a number
of years, is generating capital which supports our ability
to further increase our lending volumes.
Approval of the Group’s Restructuring Plan by the EU
Commission, and the successful completion of the ECB/
EBA’s Comprehensive Assessment during 2014, were
important external validations of the Group’s long term
strategy and the progress made to date in implementing
an extensive change and restructuring programme.
Although much has been achieved over the past three
years, we recognise that we have more to do. Overall,
the Group is now in a much stronger position to support
our customers and the Irish economy as we move on
to the next phase of our journey. We will measure our
future success not just on what we do for customers,
but how we conduct ourselves through our business
decisions. Our strategic direction over the next number
of years will be driven by that customer focus while
managing regulatory and financial priorities and starting
the process of returning capital to the State.
Focused on Supporting our Customers
We continue to align our customer strategy and
propositions across the Irish and UK businesses and
to seek appropriate lending opportunities. Following
significant restructuring, and as a profitable organisation,
we are focused on sustainable and prudent growth
and are well positioned in the personal, business and
corporate banking market segments in which we
operate. The operating environment in Ireland and the
UK improved steadily during 2014 and this has translated
into tangible progress in growing our new lending
volumes, particularly in the SME and Corporate sectors.
Improved growth levels are also evident in the mortgage
and personal lending markets.
We approved over €13 billion in lending during 2014,
c.37% higher than 2013, and customer drawdowns were
c.50% higher year on year.
We maintained our strong mortgage market share with
c.33% of mortgage drawdowns in the Republic of Ireland
in 2014. Transaction volumes in the market continued
to increase, albeit from historically low levels. We have
introduced a number of improvements to our customer
proposition, including online mortgage application,
dedicated mortgage advisors and competitive lending
rates for new and existing customers. In support of the
increased demand for housing in Ireland, we launched
a €350 million New Homes Development fund in 2014.
This fund was one of a number of sector specific
funds launched by the group in support of our
business customers.
Overall lending drawdowns to SME and Corporate
customers in Ireland and the UK were higher than
2013. Lending activity was higher across all the major
sectors, in particular Agriculture, Wholesale/Retail
Trade, Manufacturing and Tourism. This growth reflects
the increased demand for credit as the economic
environment improved, coupled with the successful
implementation of our differentiated, sector specialist,
customer engagement strategy.
We have continued to invest in our omni channel
customer strategy, namely the branch network, online,
mobile and direct offerings to provide more convenient
and accessible banking services for our customers.
This differentiated service model includes increased
innovation, technology and digitisation across our
multiple distribution channels. Large numbers of our
customers are migrating to mobile, internet and tablet
banking and we offer an expanding range of online
deposit and lending products. We remain focused on
simplifying our structure to achieve cost and income
benefits in the future, but importantly also to improve
our customers’ experience.
Adopting a fair and equitable approach to customers in
difficulty is fundamental to maintaining good working
relationships over time. We have developed and
implemented a comprehensive range of sustainable
solutions for our customers in mortgage arrears.
The total number of accounts in arrears in the Irish
residential mortgage portfolio declined by 18% in
2014 and significant numbers of AIB customers have
7
Annual Financial Report 2014 Chief Executive’s Review
been offered and accepted affordable and sustainable
solutions. We have gained traction with our customer
treatment strategies for SMEs as we seek to protect
employment and viable businesses. We remain focused
on reducing the substantial number of impaired loans
that remain on the balance sheet.
“Adopting a fair and equitable
approach to customers in difficulty
is fundamental to maintaining good
working relationships over time.”
Financial Performance
Return to Sustainable Profitability
Our financial performance in 2014 is the outcome of a
significant number of measures undertaken since 2012,
including improving our NIM and non interest income,
reducing our cost base and resolving legacy asset quality
issues. A number of these strategic objectives have been
achieved ahead of plan.
For the full year 2014, we reported a profit before tax
of € 1.1 billion, a c.€ 2.8 billion improvement on the
loss before tax in 2013. Excluding Eligible Liabilities
Guarantee (ELG) costs, NIM increased to 1.69% for 2014
as funding costs reduced and asset yields held broadly
stable. There were a number of specific transactions
during the year, including disposals in the Available for
Sale portfolio and asset disposals, which have had a
positive impact on our performance. However, even
when these items are excluded, the bank has returned
to sustainable profitability. Overall operating income
increased 31% year on year.
1 For further detail please see Glossary of terms on page 385 of this report.
8
Excluding exceptional items, we achieved our c.€0.35
billion operating cost reduction target in 2014, relative
to 2012 levels. Cost discipline will remain an ongoing
component of our strategy in 2015 and beyond as
we implement the next phase of our transformation
programme, and as we work towards achieving our
medium term target of a cost income ratio of less
than 50%.
2014 saw increasing stabilisation in the asset quality of
our loan portfolios. Total impaired loans reduced by
€6.7 billion or 23% during 2014 to €22.2 billion. This
reduction reflects improving economic conditions,
coupled with the significant restructuring activity
completed for customers in difficulty. This has the dual
benefit of reducing the legacy risk in the balance sheet
and increasing the levels of performing loans.
The underlying credit impairment charge is trending
towards more normalised levels driven by a reduction
in new impaired loans. This, together with the
amount of customer loan restructuring achieved by
our Financial Solutions Group (FSG) in an improving
economic environment, has resulted in a net writeback
of provisions for 2014. The solutions and customer
engagement processes developed in FSG have gathered
momentum and we expect the level of impaired loans
to continue to reduce in 2015, subject to market
conditions. However we will continue to adopt an
approach in concluding these case by case restructuring
solutions that is mutually beneficial for the Group and
our customers.
Our overall funding position continued to stabilise.
Underlying customer accounts, excluding repos1,
increased during 2014. A decline in the volume of repos
was offset, in part, by an increase in customer current
account volumes. The loan to deposit ratio was 99%
at 31 December 2014 from 100% a year earlier. This
change was due, in part, to a reduction in net loans, as
redemptions continue to outstrip new lending despite
the significant improvement in new lending volumes.
Continued growth in new lending across our loan
portfolio is a key priority for 2015, in line with a prudent
and conservative risk appetite. The Group also benefited
from the continuing repayment of NAMA Senior Bonds,
the volume of which reduced during the year by 40% to
€9.4 billion.
Any future actions in respect of the Group’s capital
structure will be subject to relevant regulatory and
shareholder approvals where necessary. There is no
definitive set of outcomes or completion date for
these discussions.
Relationship with the State
The Group has received significant support from the
State over the last number of years and is deeply
cognisant of its responsibilities to generate value for the
shareholder over time. The Group is now profitable and
generating capital. AIB has paid c. €2.4 billion in fees and
coupons since 2008 to the State. We remain focused on
generating sustainable returns for our shareholders over
time, subject to the financial performance of the Group
and evolving regulatory and market capital requirements.
Following the injections of capital into the group since
2009, the State holds 99.8% of the ordinary shares in the
Group and therefore the significant majority of the value
of the Group rests with the State.
The day to day relationship between the Group and
the State is governed by the March 2012 Relationship
Framework document specified by the Minister for
Finance.
Following the approval of the EU Restructuring Plan
in May 2014, the Group is now in a monitoring phase
until December 2017 in relation to its performance
against the commitments outlined in the plan. These
commitments are in line with the Group’s existing
operational plans and medium term targets. Further
information on the EU Restructuring Plan is contained
on page 317 of this report.
Our successful and balanced return to the funding
markets continued in 2014 with €1.0 billion in
issuances and we have also broadened our funding base
with €3 billion in additional sources of funds. We will
continue to monitor market conditions and will access
the funding markets when appropriate. We reduced
our monetary authority funding to €3.4 billion at end
31 December 2014, from €12.7 billion a year earlier.
Capital
Our capital position strengthened over the year due
to retained earnings and a 3% decline in risk weighted
assets. Our transitional Common Equity Tier 1 (CET1)
ratio increased to 16.4% and our fully loaded CET1
ratio, including the €3.5 billion 2009 Preference Shares,
was 11.8%. The Group’s increasing capital levels are
supportive of our aims to grow lending volumes to
support our customers and Irish economic recovery.
The Group expects to continue its discussions with the
Department of Finance regarding the appropriate capital
structure of the Group in the context of regulatory and
market requirements. These discussions are currently
focused on:
• Options in relation to the €3.5 billion 2009
Preference Shares, including the possible
conversion into ordinary shares of part or all
of the Preference Shares.
• Options in relation to the €1.6 billion Contingent
Capital Notes which mature in July 2016.
• A possible significant consolidation in the number of
ordinary shares in issue given AIB currently has in
excess of 523 billion ordinary shares in issue.
Based on the closing share price on 3 March
2015, the bank trades on a valuation multiple
of c. 6x (exluding the 2009 Preference Shares)
the net asset value of the Group as at
31 December 2014. The Group continues to
note that the median for comparable European
banks is c. 1x NAV.
9
Annual Financial Report 2014
our staff. I would like to take this opportunity to thank
them again for their continued commitment and service
to our customers. Our ambition of becoming a leading
consumer brand in Ireland will not be possible without
their dedication and hard work. AIB’s staff have been
central to our recovery and are key to our future.
Acknowledgement
Finally, I announced in January that I will be stepping
down from my positions as CEO and Executive Director
at the Group. My time at AIB has been immensely
rewarding both professionally and personally. Having
returned to profitability, received approval of the
Group’s EU Restructuring Plan and passed the recent
ECB/EBA Comprehensive Assessment, I believe now
is the right time for a new CEO to lead the Group
through the next phase of its recovery and growth and a
multi-year process of returning capital to the State. The
Board, leadership team and all members of staff have
worked tirelessly to bring the Group back to a position
of stability and growth and I am thankful for the support
I have received. While a number of challenges lie ahead,
I am confident that the Board and management are
well placed to continue delivering on the Group’s
strategic objectives.
David Duffy
Chief Executive Officer
4 March 2015
Chief Executive’s Review
Outlook
Economic conditions in AIB’s main markets of Ireland
and the UK have continued to improve and this has
positively impacted the performance of the Group.
Having returned to profitability we are well placed to
benefit from the expected increase in economic activity
in the main markets in which we operate. However,
we continue to face a number of challenges, including
the requirement to reduce the size of our significant
impaired loan portfolios, ensuring the Group’s capital
structure is appropriate in the context of evolving
regulatory and market requirements, the continued
decline in net loan volumes, and pension scheme
volatility.
Additionally we have a challenging agenda which includes
risk in execution of our strategy, including managing
risks related to the recruitment and retention of key
staff and expertise, while managing an industry wide
challenge in ensuring robust IT systems. Global growth
forecasts reflect a number of ongoing uncertainties,
including the historically low interest rate environment,
the uneven pace of economic output in the Eurozone
and the outcome of geo-political events in Eastern
Europe and the Middle East, which could impact on
economic activity in AIB’s main operating markets.
The Group will continue to focus on making steady
progress towards reaching our medium term
performance targets, while importantly improving
service levels for our customers. We are seeking to
prudently grow our business lending volumes while
maintaining simplification of our operations and
enhancing our customer proposition, both in the
Irish and UK businesses. We believe we are well
positioned from a capital and funding perspective to
support our customers and the continued recovery
in the Irish economy.
Staff
Over the past few years AIB has focused on building a
culture that prioritises our customers in everything we
do. Our progress to date and the implementation of the
next phase of our strategy relies on the dedication of
10
Our Strategy
Performance Momentum and Delivery to Date
2014 represented the final year of a 3 year strategic plan to return the bank to sustainable profitability.
2012
Restructuring
of the business
2013
Focus on
commercial
agenda
2014
Growth &
Profitability
Customers and our People
• We are lending more and our customer satisfaction rates are increasing
• We have made significant improvements to our customer proposition
• Our staff engagement levels have increased dramatically
Our Business
• We have returned to profitability and are generating capital
• We have materially reduced provision charges and our total impaired loans have fallen significantly
• We received approval of our Restructuring Plan from the EU in May 2014
• We successfully passed the ECB/EBA Comprehensive Assessment in October 2014
• We have made continued progress towards delivering our medium term targets
Operating Income
Operating Expenses (1)
Profit/(loss) before taxation from continuing operations
2,530
1,924
1,424
2012
2013
2014
Loan to Deposit Ratio
115
100
99
€m
2,700
1,800
900
0
%
120
110
100
90
€ m
1,800
1,200
600
0
€ bn
30.0
25.0
20.0
15.0
1,748
1,470
1,403
2012
2013
2014
(1) Excluding exceptional items
€ m
2,000
1,000
(1,000)
(2,000)
(3,000)
(4,000)
1,111
(1,687)
(3,729)
2012
2013
2014
Impaired loans
Transitional CET 1 ratio | Fully loaded CET 1 ratio (1)
29.4
28.9
22.2
16.4
15.0
11.8
10.5
%
18
12
6
0
01-Jan-14
Dec-14
01-Jan-14
Dec-14
(1)Based on full implementation of the Basel III CRD IV regulations
and includes 2009 Preference Shares
Dec -12
Dec -13
Dec -14
Dec -12
Dec -13
Dec -14
Current performance against our medium term targets
Description
Fully loaded CET1 Ratio
Net Interest Margin
Cost Income Ratio
Credit Impairment Charge
Loan to Deposit Ratio
(1) As of 1 Jan 2014
Original Target
>10%
>2.00%
<50%
<65bps
100-120%
2013
10.5%(1)
1.37%
76%
224bps
100%
2014
11.8%
1.69%
55%
(22bps)
99%
Status Update
On track
On track
On track
On track
On track
11
Annual Financial Report 2014 Our Strategy
Our Vision
To be a customer driven bank, recognised as a leading consumer brand.
Our Strategic Objectives
Our three year strategy has delivered significant benefits to the bank and our customers. The next phase of our journey
builds on the momentum we have achieved in our performance during those three years.
Understand our
customers’ needs
Serve through our omni channel
distribution model
Strategic
Objectives
Continuously innovate
to provide suitable
solutions for customers
Relentless delivery of simplification
and digitisation
Supporting economic recovery
Prudently managing our balance sheet
Progress towards medium term targets
Enabled by increasing employee engagement
We are investing in our people and propositions, including
a sector specialist approach to lending to our SME and
Corporate customers and the availability of dedicated
mortgage advisors. We are recognising and adapting to new
consumer behaviours in mobile and online, social media and
channel blending preferences. This is an ongoing journey we
are taking with our customers.
Understanding our customers’ needs
Strategic ambitions:
• The right customer experience, first time
and every time
• Industry leading Net Promoter Scores® 1
Our customers are central to our strategy. Using
analytics we seek to identify their needs. We are
listening to the feedback from 50,000 individuals who
took part in our Customer Experience Programme.
We are using these insights and analytics to deliver
personalised and tailored offerings and we are
measuring our progress through our Net Promoter
Scores.
1 The Net Promoter Score, or NPS® is a measurement programme that tracks AIB customers’ loyalty and advocacy.
12
Continuously innovate to provide
suitable solutions for customers
Serve through our omni channel
distribution model
Key strategic ambitions:
Key strategic ambitions:
• To be the leading Retail, SME and
Corporate Bank in Ireland
• Increase usage and integration of digital
distribution channels
• To become the No.1 challenger bank in
Northern Ireland
• Continue to build on our market leading mobile
and online adoption rates
• To be the best bank for owner-managed
businesses in Great Britain
• Provide tailored advisory services in our
branch network
By listening to our customers, we answer their needs
by providing appropriate products and services,
while seeking returns appropriate to the level of risk
undertaken, on a sustainable basis. We aim to maintain
our leading market shares in Ireland through propositions
that differentiate in each of our personal, business and
corporate banking customer segments. Our refreshed
structure resulting in a simpler, lower risk bank, is
intended to improve our customers’ experience of us. We
have also reshaped our Corporate & Institutional Banking
segment in our Irish business to better serve the needs of
these customers.
We believe we have a fair and equitable approach to
resolving the issues experienced by our customers
who are in financial difficulty, and offer them the most
comprehensive set of resolution solutions in the market.
Restructuring our impaired loan portfolio will focus on
returning these customers to stability and integration into
our core banking relationships portfolios.
We want our customers to have seamless access to our
banking services in whatever way they want. Our omni
channel approach combines our physical branch network
with online, mobile and direct offerings. It gives
customers the latest technology, supported by improving
service levels. Our innovative digital banking location,
the “LAB”, allows us to test the latest digital technology
in a live environment, learn lessons and implement
them. In parallel, we are continuing to invest in our
branch network, which remains central to our long term
strategy. We are introducing new branch layouts, better
designed to enhance our customers’ experience through
people, processes and technology.
“Complete
Consistent
Connected”
13
Annual Financial Report 2014
Our Strategy
Relentless delivery of simplification
and digitisation
Summary
Key strategic ambitions:
• Continuously improve our customer experience
• Deliver our medium term cost income ratio
target of less than 50%
Today AIB is a profitable bank, generating capital to
meet our customers’ lending needs as they, in turn,
help drive economic recovery. Looking ahead, we are
well placed to support a growing economy, within the
framework of a reformed governance structure and a
prudent risk appetite.
A simplified and more efficient AIB is better for our
customers, our staff and ultimately our cost base.
Our simplification and change agenda is broad based
and continues to deliver an improved customer
experience at a sustainable cost. Through our existing
channels we offer a differentiated approach and are
building on our market leading adoption rates as more
customers engage with us online or through our mobile
channel. The recent introduction of our innovative
eMortgage application is one example of how we are
enhancing and expanding our offerings.
We have worked hard to reduce the risk profile of
the Group, and to find solutions for our customers in
difficulty. This remains a key focus for 2015 and beyond.
Our staff are pivotal to our customer engagement
strategy and are the foundation upon which the Group’s
recovery is based. We want to achieve employee
engagement scores at world class levels, building on
the tangible progress made in 2014. We will continue
to invest in our people and focus on their professional
development to motivate and retain the talent required
to deliver our vision and strategic priorities.
Our change programme is being managed under the
guidance and control of our Group Chief Operating
Officer. Key initiatives will see us consolidate processing
and servicing activities, promote greater resilience in our
IT systems, and continued strategic sourcing. We want
to constantly improve our customer experience, and
these initiatives are designed to increase our speed to
market on innovative customer propositions.
While recognising that we have made significant progress
in recent years, we have more to do. In 2015 and
beyond, we will maintain a clear focus on those core
priorities which underpin our ambition to be a leading
consumer brand: innovating to meet our customers’
needs; driving integration across all of our channels; and
relentlessly simplifying our processes.
14
Our Customers
Customer centric brand values
We are working hard to hold our customers at the
heart of everything we do. An in-depth knowledge of
the needs of our customers is a good starting place. It
brings efficiency to how we drive and shape products
and services that customers want. Acknowledging what
our customers want focuses our activities and helps
them experience a better bank. We are making good
progress with this customer focus but recognise that we
have more to do.
T O U R CUSTOMER
E R TOGETHER
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RE BUILDING T R U S T A
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D A PPRECIATIO
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In AIB, our principal Brand Value is ‘we put our
customers first.’ This has been developed by our
people and our customers. We want our customers to
have a superior experience in each and every interaction
with us. This means that we are understanding our
customers because we listen to them, recognise their
financial needs and offer them solutions that meet those
needs. We are embedding this in the culture of our
organisation and making it visible in everything we do.
The Voice of the Customer
feedback from over 50,000 customers
We sought feedback from over 50,000 of our customers
in Ireland and the UK through our Customer Experience
Programme. We have listened to our customers and
as a result we are enhancing our interaction with them,
creating and improving initiatives for them and giving
them more choice and greater accessibility.
15
Annual Financial Report 2014
Our Customers
This is a journey, and the good news is that we are
making progress. The primary tool we use to measure
the success of this programme is our Net Promoter
Score®1. We want to improve these scores and we
have seen real progress in what our customers have
experienced in 2014.
Tailored offerings for distinct customer
segments and sectors
We have enhanced our offerings for our different
markets. Throughout 2014, we have undertaken
distinct segment and sector initiatives which we believe
are innovative and which improve our customers’
experience of us.
Personal customers
AIB’s goal is to be at the heart of our personal
customers’ financial lives while delivering exceptional
customer experience. We have strong market shares
in products for our personal customers in Ireland and
we provided 60,000 personal loans in 2014. These
propositions combine suitable products with informed
relationship management that reach them consistently
through all our channels.
Mortgages
Car
Loans
Personal
Loans
Credit
Cards
No.1 or
Joint No.1
Market
Shares
Main
Current
Accounts
Deposits
Regular
Savings
We increased our lending significantly to our personal
customers in the second half of 2014 as consumer
sentiment and general economic conditions improved. In
the Republic of Ireland, we lent €0.4 billion to personal
customers, an increase of 29% year on year. We focused
on new initiatives to make the process seamless for
customers, which included online fulfilment for personal
loans with a decision within three hours.
Youth market
We are focused on having a leading presence in the
student market. We updated and improved our
proposition, including a larger presence on campus in
15 universities and colleges in Ireland and a new student
loan facility to help with education expenses. 2014
was the 13th year of the AIB Build a Bank Challenge, a
national competition for second level students to run
their own school bank. The AIB Student Plus Account
was awarded the best value student account by
bonkers.ie, the price comparison website.
Mortgages
For most people, buying their home is the biggest
financial transaction of their lives. AIB is proud to have
a leading market share of mortgage drawdowns in the
Republic of Ireland, which demonstrates our support
to customers during this important time for them.
We supported c. 16,000 customers in gaining mortgage
approval in Ireland in 2014. We also reduced our
standard variable interest rate and our fixed interest
rate products for new and existing mortgage customers
in Ireland in 2014.
We want our customers to have access to specialist
advice when making this important decision. We
introduced mortgage advisors to our Irish branch
network, who support customers throughout the
mortgage application and approval process. The EBS
brand re-emerged in 2014 with increased locations for
mortgage consultations, including flexible meeting times
to suit customers’ needs.
AIB eMortgage is the first online mortgage application-
to-approval proposition on the Irish market and it is
gaining traction with our customers.
1 The Net Promoter Score, or NPS® is a measurement program that tracks AIB customers’ loyalty and advocacy.
16
AIB had a 33% market share of mortgage drawdowns in
2014 in Ireland with €1.3 billion in total drawdowns, a
34% increase on 2013.
industry and business. In partnership with industry
bodies we have continued to commission in-depth
research reports. To support our customers, we have
also hosted nationwide sector specific seminars.
We have launched sector specific funds, including a €200
million Export Fund, €300 million Long Term Care Fund
and a €350 million New Homes Development Fund. In
addition, we launched a €500 million Agriculture Fund,
underpinning our commitment to this sector.
In response to feedback from our business customers,
AIB has rolled out a series of other initiatives to support
this customer segment, including our ‘Backing Brave’
programme. This programme includes credit decisions
for SME loans up to €30,000 within 48 hours. We have
also introduced a dedicated SME phone desk which
operates extended business hours and to support new
entrepreneurs we launched a Start-up Academy.
In 2014 AIB approved €6.4 billion in business credit to
the SME sector in Ireland, a 50% increase year on year.
In the UK, AIB GB was awarded “Best Service from a
Business Bank 2014” by Moneyfacts Awards. This is in
recognition of its relationship management proposition
together with a focus on its customer service. New and
additional lending in AIB GB increased 63% year on year
to circa £1.3 billion. This underlines our focus on lending
to the business market and our target market of owner
managed businesses. In direct response to listening to
the ‘voice of our SME customers’ in Northern Ireland
we introduced two business funds, the Business Support
Fund and the Owner Managed Fund.
Mortgage drawdowns in First Trust Bank in Northern
Ireland increased by 42% year on year following an
expansion of our suite of mortgage products.
Business customers
No.1 Bank
for Start-ups
c. 15,500 SME customer
start-ups supported in 2014
Joint No.1 Bank
for main current account
No.1 Bank
for main loans
No.1 Bank
for main leasing agreement
No.1 Bank
for credit cards
AIB is committed to actively supporting economic
recovery and job creation. We are doing this by backing
entrepreneurs, early start-ups and established SMEs.
AIB has embedded its sectoral led approach, providing
customers with leading sector specialists who
understand the challenges and opportunities of their
17
Annual Financial Report 2014 Our Customers
Corporate customers
Customers in financial difficulties
We continue to develop and strengthen our
relationships with corporate and institutional customers
by providing sectoral expertise, tailored financial
solutions and a premium customer service.
Our sector specialist corporate banking teams work
closely with our Customer Treasury Service and
specialist product teams to ensure that we continue
to strongly support our customers as well as the Irish
economy. We provide a range of financing solutions to
our customers from senior debt and working capital
solutions through to mezzanine and equity finance.
In 2014, including the UK, lending to Corporate
customers increased by 57% year on year.
The reshaping of our Corporate & Institutional Banking
segment at the beginning of 2015 will enhance our
mid-market and corporate offering and allow the UK
and Irish businesses to collaborate more closely on
opportunities.
Leading position
in Irish banking market
No. 1 bank to the Foreign Direct
Investment (FDI) market.
Awarded ‘Deal of the Year’
for the second consecutive year in the
Loans & Financing Category of the
Finance Dublin Magazine awards.
We work with our customers who are in financial
difficulty and help them bring stability and certainty
to their situation. This has been a key area of focus
during 2014. The Financial Solutions Group (FSG) has
approximately 1,600 skilled staff dedicated to resolving
the issues of customers in difficulty, who are further
supported by their colleagues in the wider AIB branch
network
AIB seeks to consensually resolve mortgage and SME
arrears cases with customers who engage with the bank,
based on an assessment of affordability. In support of
our strategy the Group has developed what we believe
is the most comprehensive suite of sustainable mortgage
arrears solutions in the Irish market. We have further
supported this agenda by establishing and funding a
customer engagement channel in partnership with a
consumer debt advocacy organisation that provides
independent third party representation. This service
is available free to customers in Ireland in mortgage
difficulty. While we have much more to do to help our
customers, this approach is working, with arrears in
AIB’s Republic of Ireland mortgage portfolio down 18%
in 2014.
Significant progress is also evident in SME restructuring
and we have developed and deployed a comprehensive
customer treatment strategy for SME customers in
difficulty with business and non-core connected debt.
We have met or exceeded all of our restructuring
targets in 2014.
The approach being taken in FSG to restructuring
the debt of our customers in difficulty is fundamental
to the AIB strategy of maintaining our relationship
with our customers as they recover. Importantly the
success of this strategy can be measured by the number
of customers who have been offered and accepted
affordable and sustainable solutions. Continuing to work
with our customers in difficulty remains a key priority
for the Group.
18
ATMs
Branches
Tablet Banking
Internet Banking
Mobile Banking
Phone Banking
Community Bank
Omni channel delivery
AIB has an omni channel customer strategy which
focuses on customer convenience and consistency.
We are the leading Irish bank in driving mobile banking
uptake and transaction automation. We are developing
our capabilities across channels, putting technology
to work for customers to interact with our banking
services at a time and through a channel that works
for them.
In 2014, customers continued to adopt our digital
channels. Significant numbers of our customers in
Ireland are active on AIB’s online services, including
c.520 000 active mobile users and c.100,000 active tablet
users. Our customers completed 33 million transactions
online in 2014 across internet, tablet, mobile and IBB.
In our branch network, through ongoing adoption of
technology, we have given customers a new way to
bank with us through our ‘quick banking’ facilities.
The ‘LAB’ is an innovative digital banking location
which allows us to test our digital concepts in a live
environment with our customers. These have included
concepts such as the eMortgage, SME online lending
application, and more recently the Smartwatch, where
feedback from customers helps shape product and
services.
1 Excludes current accounts
Adoption is not limited to transactional banking as
customers embrace the omni channel sales experience.
Currently, c.49% of key products1 sold to personal and
SME customers in the Republic of Ireland are conducted
through AIB Direct Channels.
As a result of continuous investment in digital platforms,
AIB received external recognition, winning the “Best
Adoption of Social Media” at the CCMA awards, and the
AIB Tablet banking app won the best financial services
app at The Appys Awards and “Best Innovation in
Financial Services” at the Digital Media Awards.
Our omni channel approach is also being adopted in the
Northern Ireland and GB businesses as we move to a
more consistent model across our markets.
In conjunction with our market leading digital channels,
AIB continues to maintain the largest physical
distribution network in Ireland with c.200 AIB branches,
c. 70 EBS outlets and a joint venture with An Post with
over 1,000 locations nationwide. In the UK, AIB has 16
business centres in Great Britain to service our SME and
mid-corporate customers. We provide banking services
through 30 branches and outlets under the trading name
of First Trust Bank in Northern Ireland. The physical
network coupled with AIB’s robust offer of products
and services in digital channels allow the bank to better
serve our customers in a meaningful and effective way.
19
Annual Financial Report 2014 Governance at a Glance
Governance at a glance
Our Governance Framework
AIB’s Governance Framework reflects best practice standards, guidelines and statutory obligations and ensures our
organisation and control arrangements provide appropriate governance of the Group’s strategy, operations and
mitigation of related material risks.
Oversight by skilled
and experienced
Board of Directors,
the majority of whom
are independent
Strong and
independent internal
and external
audit functions
Chief Executive
Officer and Executive
Leadership Team
comprising strong and
diverse management
capability
Clear organisational
structure with
well defined and
transparent lines of
accountability and
responsibility
Effective
structures and
processes to
identify, manage,
monitor and
report risk
Robust internal control
mechanisms including
sound administrative,
accounting and IT
systems, procedures
and controls
Well documented and
executed delegation of
authority framework
Comprehensive,
coherent suite of
policies standards
and procedures
The Framework underpins effective decision making and accountability and is the basis on which we conduct our
business and engage with our customers and stakeholders.
20
The Board and its Committees
Supported by the Governance Framework, the Board oversees:
• Strategic and operational planning;
• Risk management and compliance;
• Financial management and external reporting; and
• Succession planning and culture.
The Board is supported in its endeavours by a number of Board Committees which consider, in greater depth than
would be practicable at Board meetings, matters within the Board’s responsibilities.
AIB Board
Board Audit
Committee
Board Risk
Committee
Board Remuneration
Committee
Quality and integrity
of accounting policies,
financial reporting and
disclosure, internal control
framework and audit
Risk management
and compliance
framework, risk profile,
concentrations
and trends
Remuneration policies and
practices, remuneration of
Chairman, CEO,
Executive Directors and
Leadership Team
Board Nomination &
Corporate Governance
Committee
Board composition,
committee membership,
and corporate governance
and social responsibility
policies and practices
Chief Executive Officer
to whom the Board has delegated responsibility for the day-to-day running and performance of the Group
The Chief Executive Officer
The Board delegates to the Chief Executive Officer (CEO) responsibility for strategy formulation and execution, and
the day to day running of the business ensuring an effective organisation structure, the appointment, motivation and
direction of senior executive management and the operational management of the Group’s businesses.
The Executive Leadership Team
The Leadership Team is the most senior executive committee of the Bank. The Leadership Team, under the
stewardship of the CEO, has responsibility for the day-to-day management of the Group’s operations. It assists
and advises the CEO in reaching decisions on and delivery of the Group’s strategy, governance, internal controls,
performance and risk management.
21
Annual Financial Report 2014 Governance at a Glance
Board of Directors
Non-executive directors
Richard Pym
Chairman since December 2014,
Non-Executive Director since
October 2014, Chairman of
the Nomination & Corporate
Governance Committee, Member
of the Remuneration Committee.
Dr. Michael Somers
Deputy Chairman, Non-Executive
Director since January 2010,
Chairman of the Board Risk
Committee, and Member of
the Nomination & Corporate
Governance Committee.
Catherine Woods
Non-Executive Director
since October 2011, Senior
Independent Director, Chairman
of the Audit Committee and
Member of the Board Risk
Committee, Chairman of EBS
Limited and Director of AIB
Mortgage Bank.
Simon Ball
Non-Executive Director since
October 2011, Member of
the Board Risk Committee
and Nomination & Corporate
Governance Committee.
Tom Foley
Non-Executive Director since
September 2012, Member
of the Audit Committee and
Remuneration Committee,
Director of AIB Group (UK) p.l.c.,
and EBS Limited.
Peter Hagan
Non-Executive Director since
July 2012, Member of the Audit
Committee, Board Risk Committee,
Nomination & Corporate
Governance Committee and
Remuneration Committee.
Jim O’Hara
Non-Executive Director since
October 2011, Chairman of
the Remuneration Committee,
Member of the Audit Committee,
and Nomination & Corporate
Governance Committee. Director
of EBS Limited.
Executive Directors
David Duffy
Chief Executive Officer and
Executive Director since
December 2011; has advised the
Board of his decision to step
down as CEO on a date to be
agreed.
Mark Bourke
Chief Financial Officer and
Executive Director since May
2014.
Bernard Byrne
Executive Director since June
2011, formerly Finance Director,
currently Director of Retail and
Business Banking.
22
The Executive Leadership Team
David Duffy
Chief Executive Officer
Mark Bourke
Chief Financial Officer
Bernard Byrne
Director of Retail and
Business Banking
Dominic Clarke
Chief Risk Officer
Helen Dooley
Group General Counsel
Orlagh Hunt
Group HR Director
Enda Johnson
Head of Corporate Affairs
and Strategy
Fergus Murphy
Director of Corporate and
Institutional Banking
Brendan O’Connor
Head of Financial
Solutions Group
Steve Reid
Managing Director, AIB Group
(UK) p.l.c.,
Stephen White
Group Chief Operating Officer
Full details of AIB’s corporate governance arrangements, including constituent roles and responsibilities and
biographical details for Directors and Executive Leadership Team Members, are included in the Governance
and Oversight Section of the Annual Financial Report from page 157 to 187.
23
Annual Financial Report 2014 Corporate Social Responsibility
BRENDAN CUMMINS...
2 ALL IRELANDS
5 ALL STARS
0 AIB CLUB ALL IRELANDS
#THETOUGHEST FINALS
ST. PATRICK’S DAY, CROKE PARK
THE TOUGHEST
OF THEM ALL
AIB201R0088148S_GAA.indd 2
10/02/2014 14:10
Corporate Social
Responsibility
At AIB we aim to make a positive contribution to the
communities in which we operate. This is part of our
strategy to contribute to economic recovery in Ireland
over time.
In this section we outline some of our activity to
support these goals under three pillars of Corporate
Social Responsibility.
AIB in the Community
Beyond our immediate commercial activity, we
see a responsibility to involve ourselves in our
local communities.
We have had a fruitful association with the Gaelic
Athletic Association (GAA) for over 30 years. We
consolidated this association 24 years ago when we
became official sponsor of the GAA Football and Hurling
All-Ireland Club Championships. Today that sponsorship
covers Junior, Intermediate and Senior levels. In 2014 we
added Camogie to the list. During 2014 our marketing
campaign for the GAA sponsorship - ‘The Toughest’ -
celebrated the commitment of players in the AIB GAA
Club Championships. In addition we won “Best Sports
Sponsorship Award” at the 2014 Irish Sponsorship
Awards as well as “Best Use of Social Media” in a
sponsorship.
In the Agricultural sector, we run agri seminars around
the country each being well attended by large numbers
of farmers. We sponsor the National Ploughing
Championships, the Tullamore Show and AIB National
Livestock Show, the Irish Grassland Association Dairy
Summer Tour and the AIB Macra na Feirme Club of
the Year.
24
BRENDAN CUMMINS...
2 ALL IRELANDS
5 ALL STARS
0 AIB CLUB ALL IRELANDS
#THETOUGHEST FINALS
ST. PATRICK’S DAY, CROKE PARK
AIB201R0088148S_GAA.indd 2
10/02/2014 14:10
THE TOUGHEST
OF THEM ALL
Our programme of financial education initiatives
in communities and schools continues through
organisations such as the National Consumer Agency
and Junior Achievement.
AIB and the Environment
AIB made good progress on energy and environmental
initiatives in 2014.
The Group has taken a leading role in promoting the
Women in Business agenda in partnership with
Network Ireland.
In the technology sector we were once again one of the
main sponsors of the annual Web Summit, attended by
over 10,000 international delegates.
We published a new Group Energy Policy and we were
awarded ISO 50001 accreditation for the management of
gas and electrical energy usage in our Bankcentre head
office. Here we reduced energy consumption by 27%.
We plan to extend this energy management system to
other office locations in the Republic of Ireland and the
UK in 2015.
For the past four years AIB has partnered with GIY
(Grow It Yourself), which helps people and communities
to grow their own food, through our Get Ireland
Growing Fund. GIY added 110 grants to community
food projects in 2014 including 46 school gardens and 20
community gardens.
Under a revised Group Environmental Policy we
were awarded the ISO 14001 accreditation for the
management of our environment in late 2014. In our
submission to the Carbon Disclosure Project we
disclosed a score of 75% and a Grade C performance
for reducing Carbon emissions.
In 2014, we continued our support of the Press
Photographers Association of Ireland. This was our
twelfth year sponsoring the Photojournalism Awards
which celebrate the best of Irish photojournalism. The
exhibition which followed the awards, featuring 118
prints, went on tour to selected AIB branches as well
as forming master classes for schools, camera clubs and
photography students around the country.
Our staff are involved in driving initiatives to raise
money for local and national causes in the Republic of
Ireland, Northern Ireland and the UK. At a corporate
level we invited charities into AIB Bankcentre to take
part in a Christmas market. Also during 2014 we started
to support Change for Charity in the majority of our
branches, where we collect from members of the public
for the benefit of major charities.
In partnership with GoCar.ie we give our people the
choice of a more sustainable approach to transport.
Three GoCars are on site at Bankcentre and our people
can book and hire them as an alternative to using their
own cars for work and to hiring taxis.
Working in tandem with one of our business customers,
we have started a unique biodiversity project with four
beehives housing 60,000 honey bees on the roof of
Bankcentre. The project, which is believed to be the first
rooftop apiary in Dublin, has had higher than expected
honey yields.
We redeveloped the AIB branch in University College
Dublin (Belfield Branch), installing a renewable power
system of 50 square meters of solar panels to generate
a significant amount of the branch’s energy needs.
In 2014, EBS also continued its charity support with
an ongoing partnership with Temple Street Children’s
Hospital in Dublin.
An Energy Efficiency Awareness day was held in
Bankcentre introducing employees to AIB business
customers active in energy efficiency.
A sustainability working group was set up in 2014
to increase awareness inside and outside the bank
about AIB’s sustainability. Our main achievement
has been a sponsorship agreement with Sustainable
Energy Authority of Ireland called the One Good Idea
25
Annual Financial Report 2014 leaders. The values act as our guiding compass in all we
do – the ‘how’ of what we do. Following the launch of
the brand values, we then held Brand Value Activation
sessions across the bank, before bringing them alive in
our work to make a difference to customers’ experience
of AIB.
We made enhancements to our learning and
development platform to offer classroom and web-
based learning on a range of topics under the banner
iLearn. Over 6,000 employees have attended classroom
training and completed over 180,000 web-based training
modules since iLearn launched in February 2014.
Recognising the level of change we experience as an
organisation, we have also run workshops to support
people through transition. These workshops encourage
those running change programmes to consider the
people aspect of change. We also support our people
leaders with training through the AIB Leadership
Framework and a new Leadership Curriculum.
Development is not just about learning, it is about
people having the energy and mindset to grow. This
year we launched The Well, an online resource with
information and resources designed to help everyone
to be at their best. It includes tips and activities to
maximise energy, increase wellbeing, build resilience and
promote physical, mental, emotional and spiritual health.
Corporate Social Responsibility
programme. It aims to increase students’ understanding
of climate change and energy efficiency, encouraging
them to take individual responsibility for tackling these
important issues. In 2014, 204 projects were submitted
from 68 schools representing approximately 2,000
students, with the One Good Idea now an annual feature
in many teachers’ calendars.
AIB and our people
Employee engagement is a critical aspect of any
company’s performance. Our metrics show that,
following a period of radical restructuring and rebuilding
the Group, the measure of our employee enagement has
tripled on this time last year. The increase is equivalent
to five years’ worth of significant progress in just over a
year, according to our engagement partners, Gallup. We
made dramatic increases in all business areas.
Our efforts here are far from over. We will continue
to invest in our people, focus on their professional
development and wellbeing and encourage maximum
collaboration, partnership and teamwork to build the
pride and confidence of AIB.
In early 2014 we developed a new set of brand values,
which our people and our customers helped to develop.
We launched the brand values in early 2014 at our
second Leadership Summit to 1,200 of our people
26
Business review
1. Operating and financial review
2. Comprehensive assessment
3. Capital management
Page
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
27
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Business review - 1. Operating and financial review
Summary income statement
Net interest income
Net fee and commission income
Trading and other operating income
Other income(1)
Total operating income
Personnel expenses
General and administrative expenses
Depreciation, impairment and amortisation
Total operating expenses
Operating profit before provisions
Writeback/(provisions) for impairment on loans and receivables
Writeback of provisions for liabilities and commitments
(Provisions)/writeback of provisions for impairment on financial investments available for sale
Total writeback/(provisions)
Operating profit/(loss)
Associated undertakings
Profit on disposal of property
Profit on disposal of business
Profit/(loss) from continuing operations before exceptional items
Profit/(loss) on disposal of loans and transfer of financial instruments to NAMA
Gain arising on disposal of Aviva Life Holdings (“ALH”)
Termination benefits
Bank levy
Retirement benefit curtailment
Restructuring and restitution expenses
Total exceptional items
Profit/(loss) before taxation from continuing operations
Income tax (charge)/credit from continuing operations
Profit/(loss) after taxation from continuing operations
Profit after taxation from discontinued operations(2)
Profit/(loss) for the year
Operating contribution before provisions by segment
Domestic Core Bank (“DCB”)
AIB UK
Financial Solutions Group (“FSG”)
Group
Operating profit before provisions
2014
€ m
1,687
390
453
843
2,530
(767)
(551)
(85)
(1,403)
1,127
185
4
(1)
188
1,315
23
6
-
1,344
2
-
(24)
(60)
-
(151)
(233)
1,111
(230)
881
34
915
€ m
1,176
171
146
(366)
1,127
2013
€ m
1,345
378
201
579
1,924
(851)
(519)
(100)
(1,470)
454
(1,916)
3
9
(1,904)
(1,450)
7
1
1
(1,441)
(226)
10
(86)
-
240
(184)
(246)
(1,687)
90
(1,597)
-
(1,597)
€ m
692
74
54
(366)
454
% change
25
3
125
46
31
-10
6
-15
-5
148
-
33
-
-
-
229
500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
% change
70
131
170
-
148
(1)Other income includes interest rate hedge volatility with 2013 re-presented (€ 5 million negative in 2014, € 9 million positive in 2013).
(2)Profit on the disposal of Ark Life Assurance Company Limited.
28
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Business review - 1. Operating and financial review
Basis of presentation
The following operating and financial review is prepared in line
Overview of results
2014 marked a return to post provision profitability and saw the
with how the Group’s performance is reported to management
successful culmination of the Group’s three year plan to return
and Board. The information presented excludes exceptional
to sustainable profitability. The Group has benefited from the
items that management believes obscures the underlying
economic recovery and the results of strong management
performance trends in the business. A list of the items classified
actions over this period. This is reflected in higher levels of
as exceptional are included below. Percentages presented
income, lower operating expenses and in particular a credit
throughout this report are calculated on the underlying figures
provision writeback in 2014.
and therefore may differ from the percentages based on the
rounded numbers in the report.
Profit before taxation from continuing operations (after
exceptional items) amounted to € 1,111 million in 2014
Exceptional items
The Group’s performance is presented to exclude those items
compared to a loss of € 1,687 million in 2013. This includes
income amounting to € 437 million (€ 93 million in 2013) as a
that management believe obscures the underlying performance
result of balance sheet actions and realisations. The net
trends in the business.
charge for exceptional items in 2014 is € 233 million
Total exceptional items
Profit/(loss) on disposal of loans and
transfer of financial instruments to NAMA
Gain arising on disposal of Aviva Life
Holdings (“ALH”)
Termination benefits
Bank levy
Retirement benefit curtailment
Restructuring and restitution expenses
Total exceptional items
(€ 246 million in 2013).
2014
€ m
2013
€ m
2
-
(24)
(60)
-
(151)
(233)
(226)
10
(86)
-
240
(184)
(246)
Profit before taxation from continuing operations and before
exceptional items was € 1,344 million in 2014 compared to a
loss of € 1,441 million in 2013, with improvement across net
interest income, other income, operating expenses and
provisions.
Net interest income increased by € 342 million compared to
2013, reflecting a lower ELG charge (€ 114 million lower) as a
result of the cessation of the ELG scheme, a lower cost of
deposits and other liabilities and higher asset pricing, partly
offset by lower average interest earning assets.
– Loss on disposal of loans: € 201 million loss in 2013 on
Other income was € 264 million higher than 2013. This
non-core deleveraging which completed in 2013.
performance benefited from income amounting to € 437 million
Gains/losses in 2014 on disposal of loans are included in
(€ 93 million in 2013) as a result of balance sheet actions and
other income as part of business performance.
realisations.
– Profit/(loss) on transfer of financial instruments to NAMA:
Valuation adjustments on previous transfers of financial
assets to NAMA amounted to € 2 million credit in 2014,
(€ 25 million charge in 2013).
– A € 10 million gain was realised on the disposal of Aviva Life
Holdings (“ALH”) in 2013.
Balance sheet actions and realisations
Net profit on disposal of AFS securities
Re-estimating the timing of cash flows
on NAMA senior bonds
– Termination benefits: The cost of the voluntary severance
Settlements and other gains
programme was € 24 million in 2014 (€ 86 million in 2013).
Balance sheet actions and realisations
– Bank levy of € 60 million in 2014.
– Retirement benefit curtailment of € 240 million recognised in
2014
€ m
181
132
124
437
2013
€ m
31
62
-
93
2013 following the closure of the defined benefit pension
In addition negative valuation adjustments on derivatives with
schemes to future accrual and removal of discretionary
customers were partly offset by an increase in banking fee
pension increases.
and commission income of 3% to € 390 million, € 25 million
– Restructuring and restitution expenses of € 151 million in
coupon on NAMA subordinated bonds and higher foreign
2014 (€ 184 million in 2013). These include costs associated
exchange income.
with restitution, transformation, re-organisation and writedown
of intangible assets.
Total operating expenses were € 67 million (5%) lower
– Interest rate hedge volatility is no longer classified as an
compared to 2013. This reduction in costs mainly related to
exceptional item for the purpose of the operating and
the impact of staff exits as part of the early retirement/
financial review and accordingly 2013 has been
voluntary severance schemes.
re-presented. Interest rate hedge volatility is included in
other income and was € 5 million negative in 2014
Provisions for impairment on loans and receivables reduced
compared to € 9 million positive in 2013.
by € 2,101 million from a provision charge of € 1,916 million
in 2013 to a provision writeback of € 185 million in 2014. See
the Risk management section on page 94 for more detail on
provisions.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
29
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Business review - 1. Operating and financial review
Net interest income
• NIM excluding ELG up 32 bps to 1.69%.
Net interest income
2014
€ m
1,687
• Substantially reduced funding costs and higher
margins on new lending partly offset by lower
net loans and redemptions of NAMA senior
bonds.
• Negative impact of 20 bps on NIM in 2014 due
to low yielding NAMA bonds.
2013
%
€ m change
1,345
25
-7
Average interest earning assets
103,370 111,004
%
% change
Group net interest margin
1.63
Group net interest margin excluding ELG 1.69
Group net interest margin excluding ELG
and NAMA senior bonds
1.89
1.21
1.37
0.42
0.32
1.54
0.35
The Group net interest margin excluding ELG increased
Continued deposit pricing actions in 2014 managed down the
32 basis points (“bps”) to 1.69%. NIM increased to 1.78% in
cost of customer accounts without negatively impacting retail
the second half-year compared with 1.60% in the half-year to
customer balances. This factor combined with stable yields on
June 2014. Excluding the impact of the Group’s low yielding
customer loans as a result of higher margins on new lending
NAMA senior bonds, NIM increased to 1.97% in the second
resulted in the gap between asset yields and the cost of funds
half-year compared with 1.82% in the half-year to June 2014.
increasing from 86 bps in H1 2013 to 137 bps in H2 2014.
Growth in NIM
1.82
1.60
1.67
1.45
1.97
1.78
%
2.00
1.75
1.50
1.42
1.28
1.25
1.00
H1 2013
H2 2013
H1 2014
H2 2014
NIM excluding ELG
NIM excluding ELG & NAMA senior bonds
Net interest income increased by € 342 million (25%) to
€ 1,687 million in 2014 from € 1,345 million in 2013. The
increase was mainly due to lower funding costs and a reduction
in the cost of the ELG scheme of € 114 million which was partly
offset by lower loan income on reduced loan balances.
Overall wholesale rates were lower driven by reductions in
both long term interest rates and credit spreads.
%
1.50
1.00
0.50
0.00
Movement in ECB Refi and 1 month Euribor
0.68
0.43
0.12
0.14
0.24
0.22
0.09
0.04
H1 2013
H2 2013
H1 2014
H2 2014
ECB Refi
1 month Euribor
Eligible liabilities guarantee (“ELG”)
The ELG charge was € 59 million in 2014 compared with
Asset yields improved from 285 bps to 290 bps as higher yields
€ 173 million in 2013. The reduction in the charge was due to
on loans to customers and net interest on swaps were partly
the cessation of the ELG scheme in the Republic of Ireland for
offset by lower yields on financial investments available for sale.
new liabilities in March 2013. As existing liabilities that are
The cost of funds excluding ELG reduced from 187 bps to
covered by the scheme mature, the ELG charge will continue
161 bps. These trends are set out in the following graph on a
to reduce.
half-yearly basis.
%
4.00
Net Interest Margin Drivers
3.00
2.87
2.83
2.86
0.86
2.01
2.00
1.00
0.00
1.74
1.64
1.57
2.94
1.37
ELG charge
Half-year to June 2013
Half-year to December 2013(1)
Half-year to June 2014
Half-year to December 2014(1)
€ m
123
50
32
27
H1 2013
H2 2013
H1 2014
H2 2014
Asset Yield
Cost of Funds (excluding ELG)
(1)The total liabilities guaranteed under the ELG Scheme at 31 December 2014 amounted to € 5 billion (€ 8 billion at 31 December 2013).
30
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Business review - 1. Operating and financial review
Average balance sheet
(1)
Assets
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale
Other interest earning assets
Net interest on swaps
Average interest earning assets
Non interest earning assets
Year ended
31 December 2014
Average Interest Average
rate
balance
%
€ m
€ m
65,391
12,569
19,444
5,966
2,237
80
567
22
91
3.42
0.64
2.92
0.36
Average
balance
€ m
69,902
16,743
18,621
5,738
Year ended
31 December 2013
Interest Average
rate
%
€ m
2,326
130
652
19
36
3.33
0.78
3.50
0.33
103,370
2,997
2.90
111,004
3,163
2.85
8,237
9,635
Total assets
111,607
2,997
120,639
3,163
Liabilities & shareholders' equity
Deposits by banks
Customer accounts
Subordinated liabilities
Other debt issued
Average interest earning liabilities
Non interest earning liabilities
Shareholders’ equity
46
637
256
312
1,251
0.25
1.30
18.30
3.49
1.61
18,515
48,944
1,401
8,921
77,781
22,426
11,400
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
Total liabilities & shareholders’ equity
111,607
1,251
120,639
1,645
Net interest income excluding ELG
Eligible liabilities guarantee (“ELG”)(1)
Net interest income including ELG
1,746
1.69
(59)
(0.06)
1,687
1.63
1,518
1.37
(173)
(0.16)
1,345
1.21
The net interest margin excluding ELG increased 32 bps from
increases in financial investments available for sale of
1.37% in 2013 to 1.69% in 2014. The net interest margin has
€ 0.8 billion. Net interest on swaps increased € 55 million
continued an upward trajectory since its trough in Q3 2012.
mainly due to increased investment in swaps to manage
The factors contributing to the increase of 32 bps were an
income volatility combined with the continued low short term
increase in yields on interest earning assets (5 bps) and a
interest rate environment.
decrease in the cost of funding those assets (27 bps).
Interest income from loans was lower in 2014 as a result of a
€ 1,645 million in 2013 to € 1,251 million in 2014 due to a
€ 4.5 billion reduction in average loans as loan amortisation
reduced funding requirement which resulted in lower volumes
exceeded new lending. Lower loan balances and their impact
of deposits by banks. This along with the impact of pricing
on income along with movements in wholesale market rates
actions on customer accounts and lower wholesale market
were partly offset by loan pricing actions during 2013/2014 and
rates resulted in lower funding costs.
The cost of interest earning liabilities reduced from
higher margins on new lending.
Interest income from financial investments available for sale
bonds, the net interest margin excluding ELG was 1.89% in
reduced € 85 million as higher yielding securities were sold
2014 compared to 1.54% in 2013.
Excluding the impact of the Group’s low yielding NAMA senior
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and replaced with lower yielding securities to improve
diversification. NAMA senior bond interest income reduced
€ 50 million as a result of reduced volumes following
redemptions of € 6.3 billion in 2014 and lower interest rates.
Average interest earning assets reduced from € 111 billion to
€ 103 billion as lower customer loans of € 4.5 billion and lower
NAMA senior bonds of € 4.2 billion were partly offset by
(1)The Average Balance Sheet (note 55 to the financial statements) is presented differently and includes the cost of ELG in interest within liabilities and
shareholders’ equity.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Business review - 1. Operating and financial review
Other income
• 4% increase in banking fees and commissions.
• Dividend of € 25 million received on the NAMA
subordinated bond.
• Improved other operating income due to
accelerated NAMA senior bond repayments and
disposals of both government bonds (AFS) and
loans.
Other income
Dividend income
Fee and commission income
Less: Fee and commission expense
Net trading (loss)/income
Foreign exchange gains
Miscellaneous operating income
Balance sheet actions and realisations
Other income before exceptional items
2014
€ m
2013
%
€ m change
25
430
(40)
(24)
11
4
437
843
4
525
414
(36)
93
1
10
93
579
4
11
-
-
-60
370
46
Other income before exceptional items was € 843 million in 2014
compared with € 579 million in 2013, an increase of € 264 million
in negative valuation adjustments mainly on sterling customer
(46%). Other income consisted of net fee and commission
derivative positions which result in funding and counterparty
income of € 390 million compared to € 378 million, trading/other
risk which can create volatility. Reductions in medium to long
income of € 428 million compared to income of € 197 million and
term sterling swap rates have increased this volatility. There
dividend income of € 25 million compared to € 4 million.
was a € 30 million increase in negative mark to market on
Dividend income
Dividend income was € 25 million in 2014 relating to NAMA
subordinated bonds compared to dividend income of € 4 million
in 2013 from equity shares held as financial investments
available for sale.
Net fee and commission income
Net fee and commission income was € 12 million (3%) higher
than 2013 as current account fees and other retail banking
customer fees increased. This was partly offset by lower
insurance commission income and higher credit card
commission expense.
Net trading (loss)/income
Foreign exchange contracts
Interest rate contracts and
debt securities
Credit derivative contracts
Equity securities and index contracts
Net trading (loss)/income
2014
€ m
45
(68)
(2)
1
(24)
2013
%
€ m change
37
53
-
3
93
22
-
-
-67
-
interest rate swaps and € 14 million increase in negative
interest rate hedge volatility.
Balance sheet actions and realisations
Net profit on disposal of AFS securities
Re-estimating the timing of cash flows
on NAMA senior bonds
Settlements and other gains
Balance sheet actions and realisations
2014
€ m
181
132
124
437
2013
€ m
31
62
-
93
Balance sheet actions and realisations
There was € 437 million of income arising from balance sheet
actions and realisations in 2014 compared to income of
€ 93 million in 2013. Income in 2014 included a net profit of
€ 181 million from the disposal of available for sale debt and
equity securities compared to a net profit of € 31 million in 2013.
Having considered NAMA’s current performance against
achieving its strategic objectives, AIB has recognised a gain
of € 132 million reflecting a revised expected timing of
repayments including those received in the year. A similar
gain of € 62 million was recognised in 2013.
Net trading (loss)/income
Trading income was € 24 million negative in 2014 compared to
Settlements and other gains of € 124 million in 2014 include
income of € 93 million in 2013. Foreign exchange contracts
€ 50 million profit on the disposal of loans to customers,
improved € 8 million to € 45 million in 2014 due to increased
€ 27 million income on settlement of a claim, a € 24 million fair
activity levels.
value gain on re-estimation of cashflows on loans previously
restructured and € 23 million due to a fair value gain on equity
Debt securities and interest rate contracts reduced by
warrants received as part of previous customer debt
€ 121 million to € 68 million negative due to € 75 million increase
restructuring.
32
Allied Irish Banks, p.l.c. Annual Financial Report 2014
2013
%
€ m change
851
519
100
-10
6
-15
-5
-3
-10
Business review - 1. Operating and financial review
Total operating expenses
(1)
• Costs down € 67 million (5%).
• Average staff numbers down 1,264 (10%).
Operating expenses
Personnel expenses
General and administrative expenses
Depreciation, impairment and
amortisation
2014
€ m
767
551
85
• Costs down € 345 million (20%) compared
to 2012.
Total operating expenses before
exceptional items
1,403
1,470
Total operating expenses before exceptional items were
€ 1,403 million in 2014 compared to € 1,470 million in 2013, a
Staff numbers at year end (FTE)(2)
Average staff numbers (FTE)(2)
11,047
11,384
11,431
12,648
reduction of € 67 million (5%).
Reduction in staff numbers (period end)(2)
12,718
FTE
14,000
12,000
10,000
11,431(3)
11,385
11,047
Cost Trend
716
313
403
686
313
297
389
707
754
306
448
717
339
378
€ m
1,000
750
500
250
0
Jun 2013
Dec 2013
Jun 2014
Dec 2014
H1 2013
H2 2013
H1 2014
H2 2014
Personnel expenses
Other costs
Personnel expenses
Personnel expenses reduced € 84 million (10%) with a reduction
Depreciation, impairment and amortisation
The charge for depreciation, impairment and amortisation of
in costs reflecting lower staff numbers. Average staff numbers
€ 85 million was € 15 million (15%) lower than 2013. The
reduced by 1,264 (10%) which reflected the early retirement/
acceleration of depreciation in prior years resulted in a lower
voluntary severance scheme in 2013 and 2014 and selective
depreciation charge in 2014, relative to 2013.
Cost income ratio
Cost income ratio of 55% equates to costs of € 1,403 million
and income of € 2,530 million. Costs exclude exceptional items
of € 233 million and income includes € 437 million of balance
sheet actions and realisations.
outsourcing of some back office and support functions. As part of
the early retirement/voluntary severance scheme approximately
3,200 staff have left the Group to date under the scheme.
General and administrative expenses
General and administrative expenses increased € 32 million
(6%) with savings across most classifications as part of ongoing
cost management and control more than offset by an increase in
costs as a result of outsourcing initiatives and additional
technology costs. General and administrative expenses of
€ 296 million in the half-year to December 2014 increased
€ 41 million compared to € 255 million in the half-year to
June 2014 due to the timing of external provider fees and
technology costs and increased outsourcing initiatives.
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(1)Excluding exceptional items.
(2)Staff numbers quoted in the commentary above are on a full time equivalent (“FTE”) basis.
(3)Excluding Ark Life staff numbers of 146. Ark Life was held for sale at 31 December 2013.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
33
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Business review - 1. Operating and financial review
Asset quality
(1)
• Improved demand for credit resulted in new
lending of € 5.9 billion in 2014.
• Significant restructuring progress, with
impaired loans reduced by € 6.7 billion (23%).
• Credit provisions reduced from a charge of
€ 1,916 million in 2013, to a net writeback of
€ 185 million in 2014.
Provisions
The income statement impairment provision charge for 2014
was a net recovery of € 0.2 billion (2013: € 1.9 billion charge)
including a writeback of IBNR of € 0.1 billion. Excluding FSG, the
charge as a % of average loans for 2014 was 0.46%, compared
to 1.61% in 2013. Both DCB and AIB UK are showing a reduced
bad debt charge with the DCB charge decreasing by 76% and
AIB UK decreasing by 58%.
Total Impairment Charge
Asset quality income statement
Credit writeback/(provisions)
Other provisions
Total writeback/(provisions)
Provision charge %
Provision charge % DCB
Provision charge % AIB UK
Provision charge % FSG
Asset quality balance sheet
Impaired loans
Balance sheet provisions
Amounts written off
Specific provisions/Impaired loans
Total provisions/Total loans
2014
€ m
185
3
188
(0.22)
0.43
0.54
(2.29)
2013
%
€ m change
(1,916)
12
(1,904)
-
-75
-
2.24
1.74
1.18
3.97
31 Dec 31 Dec
2013
%
€ bn change
2014
€ bn
-23
-27
310
22.2
12.4
4.7
%
51
16
28.9
17.1
1.1
%
55
21
€ bn
2.5
2.0
1.5
1.0
0.5
0
-0.5
1.9
2013
€2.1bn lower
reduction in downward migration to criticised grades. New
Credit quality in the portfolio has begun to improve, with a
-0.2
2014
lending increased to € 5.9 billion in 2014 (€ 3.9 billion in 2013).
SMEs in Republic of Ireland and corporate loans accounted for
€ 2.6 billion of this figure with Mortgages in Republic of Ireland
accounting for a further € 1.3 billion. The credit quality of new
loans drawn since 2013 is satisfactory and in line with
expectation.
The provision recovery was driven by restructuring activity and
a reduction in new impairments due to the improved economic
environment. Significant progress was made during 2014 in
Republic of Ireland mortgages
Residential mortgages in the Republic of Ireland amounted to
working with customers to restructure facilities. Each case
€ 36.3 billion, split 82% owner-occupier and 18% buy-to-let.
requires an in-depth review of cash flows and security, updated
Total loans in arrears in the portfolio decreased by 18% in the
for current valuations and performance. This work resulted in
year consisting of a decrease of 22% in the owner occupier
writebacks of provisions in some cases, offset by provisions
portfolio and a decrease of 7% in the buy to let portfolio.
from new impairments of € 0.5 billion.
Credit quality
Criticised loans decreased by € 7.8 billion in the year, primarily
Weighted average loan-to values in the residential mortgage
portfolio improved from 103% at 31 December 2013 to 87% at
31 December 2014 due to price increases and loan amortisation.
driven by a reduction in impaired loans of € 6.7 billion due to
restructures, write-offs and repayments, partly offset by new
SME / other commercial
The SME / other commercial portfolio of € 12.9 billion is
impaired loans.
geographically split 65% in the Republic of Ireland and 35% in
€ bn
50
40
30
20
10
0
Credit Profile – Criticised Loans
the United Kingdom. The portfolio is concentrated in
41.8
28.9
6.1
6.8
€7.8bn decrease
Credit quality within the portfolio improved due to restructuring
sub-sectors that are dependent on the domestic economies.
34.0
22.2
6.6
5.2
and the stronger economic environment, with a significant
reduction in new impairments. Within the Republic of Ireland,
the improved performance was mainly observed in urban
areas, with rural locations remaining weak.
Dec 2013
Dec 2014
Watch
Vulnerable
Impaired
(1)The commentary on asset quality summarises the key messages and trends. More extensive disclosures are in the Risk management section from
pages 60 to 126.
34
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Business review - 1. Operating and financial review
Asset quality (continued)
Balance sheet provisions
Specific provisions as a percentage of impaired loans
decreased from 55% at 31 December 2013 to 51% at
31 December 2014. This was driven by write-offs of provisions
within portfolios with higher provision cover and writebacks
from restructuring. Provision write-offs are generated through
both restructuring agreements with customers and also
write-offs of provisions where further recovery is considered
unlikely.
The stock of IBNR impairment provisions has been maintained
at € 1.1 billion as of 31 December 2014. It includes the impact
of an increase in Emergence Period for mortgages from 9 to
12 months and for non-mortgages from 6 to 8 months for the
Republic of Ireland. The level of IBNR reflects the need to
maintain a conservative estimate of unidentified incurred loss
within the portfolio.
Associated undertakings
Income from associated undertakings in 2014 was € 23 million
compared with € 7 million in 2013. This increase is mainly due
to higher profits from AIB’s share in the joint venture with First
Data International trading as AIB Merchant Services.
Income tax
The total taxation charge for 2014 was € 230 million compared
with a total taxation credit of € 90 million in 2013 reflecting a
return to profitability in 2014 as compared with the losses in
2013. Subject to specific exceptions, deferred tax assets in
respect of accumulated tax losses continue to be recognised
in full on the basis that it is expected that tax losses will be
utilised in full against future profit. These exceptions are set
out in note 32 to the financial statements.
Discontinued operations
Profit on the disposal of Ark Life Assurance Company Limited
of € 34 million, following completion of the sale on 8 May 2014
has been reported under discontinued operations. See note 17
to the financial statements.
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Business review - 1. Operating and financial review
Balance sheet commentary
• New lending of € 5.9 billion was 50% higher
Balance sheet
31 Dec 31 Dec
2013
%
€ bn change
2014
€ bn
than 2013.
• Reduction in NAMA senior bonds of
€ 6.2 billion (40%) to € 9.4 billion mainly due to
redemptions of € 6.3 billion in 2014.
• Customer deposits remained stable and
ECB funding reduced by € 9.3 billion.
Loans to customers
Gross loans to customers
Gross loans at € 75.8 billion were down € 7.0 billion (8%) since
31 December 2013 or € 8.1 billion (10%) excluding the impact of
currency movements. The reduction was due to restructuring
activity of € 5.5 billion and loan redemptions of € 8.5 billion partly
offset by new lending of € 5.9 billion. New lending at higher
Gross loans to customers
Provisions
75.8
(12.4)
82.8
(17.1)
Net loans to customers
63.4
Financial investments available for sale 20.2
NAMA senior bonds
9.4
Other assets
14.5
65.7
20.4
15.6
16.0
Total assets
107.5
117.7
Customer accounts
Deposits by banks - ECB
Other market funding
Debt securities in issue
Other liabilities
Total liabilities
64.0
3.4
13.4
7.9
7.2
95.9
65.7
12.7
10.4
8.8
9.6
107.2
Shareholders’ equity
11.6
10.5
margins of € 5.9 billion in 2014 was 50% higher than 2013. New
Total liabilities & shareholders’ equity
107.5
117.7
-8
-27
-4
-1
-40
-9
-9
-3
-73
29
-10
-25
-11
10
-9
lending in Republic of Ireland of € 4.2 billion, up 43% and new
lending in UK of € 1.7 billion, up 63%.
Provisions
Balance sheet provisions have decreased from € 17.1 billion to
€ 12.4 billion mainly due to the utilisation of provisions as part of
structuring sustainable solutions for customers and write-offs.
See the Risk management section on page 93 for more detail
on the movement in provisions during 2014.
Net loans to customers
Net loans reduced € 2.3 billion (4%) or € 3.3 billion (5%)
excluding the impact of currency movements and reflect the
gross loan movements as set out above along with the impact
of provisions. Net loans in DCB were broadly stable at
€ 44.1 billion (70% of total net loans). There was a reduction of
14% in AIB UK to € 10.4 billion and FSG net loans reduced
13% to € 8.9 billion.
The table below sets out the movement in loans to customers
from 1 January 2014 to 31 December 2014.
Loan to deposit ratio
%
99
% change
100
-1
€ bn
80
70
60
50
40
30
20
Net loans movement
5.9
-8.2
65.7
63.4
Dec
2013
New
Lending
Redemptions/
Other
Dec
2014
Loans to customers
Opening balance (1 January 2014)
New lending volumes
New impaired loans
Restructures and write-offs(1)
Redemptions of existing loans
Foreign exchange movements
Other movements
Closing balance (31 December 2014)
(1)Includes non-contractual write-offs.
36
Earning
Loans
€ bn
Impaired
Loans
€ bn
Gross
IBNR
Specific
Loans Provisions Provisions
€ bn
€ bn
€ bn
Net
Loans
€ bn
53.9
5.9
(1.6)
1.1
(6.6)
0.8
0.1
53.6
28.9
-
1.6
(6.6)
(1.9)
0.3
(0.1)
22.2
82.8
5.9
-
(5.5)
(8.5)
1.1
-
75.8
(15.9)
(1.2)
-
(0.5)
5.3
-
(0.1)
(0.1)
(11.3)
-
-
-
-
-
0.1
(1.1)
65.7
5.9
(0.5)
(0.2)
(8.5)
1.0
-
63.4
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Business review - 1. Operating and financial review
Financial investments available for sale (“AFS”)
AFS assets decreased from € 20.4 billion to € 20.2 billion
The reduction included a decrease in repos of € 3.6 billion and
recognition of deposits from Ark Life € 0.9 billion as customer
during 2014. Sales of € 8.0 billion and maturities of € 0.7 billion
accounts following deconsolidation / sale of Ark Life in May 2014.
were offset by purchases of € 7.3 billion and an increase in fair
There was strong growth in current accounts offset by a reduction
value of € 1.3 billion. To improve diversification, overall Irish
in deposits. The average cost of customer accounts dropped from
Sovereign and Sovereign Guaranteed Bank Debt were
187 bps in 2013 to 130 bps in 2014.
reduced by € 1.2 billion and Spanish and Italian Sovereign
holdings were increased by € 2.2 billion. This portfolio
rebalancing saw an increase in Supranational and Government
Deposits by banks - ECB
There was a reduction of € 9.3 billion (73%) in monetary
Agency securities which improved the proportion of High
authority funding during the year as the overall funding
Quality Liquid Assets ("HQLA") within the portfolio. Due to the
requirement reduced and the Group was able to access other
improvement in the Irish Sovereign market, the sales of
sources of funding as set out below.
securities and equities generated net income of € 181 million
net of hedge termination costs. The increase in fair value of
€ 1.3 billion was driven by a tightening of Irish Sovereign credit
Other market funding
Other market funding increased € 3.0 billion in 2014 as more
spreads and also a fall in fixed interest rates and an uplift in
normalised market conditions emerged and AIB was able to
the NAMA subordinated debt holding of € 0.3 billion as the fair
broaden its funding base. This increase offset the reductions in
value estimate increased to 79.4% from 15.5%. Further detail
both repos within customer accounts and debt securities in issue.
in respect of AFS is covered on pages 127 to 129.
NAMA senior bonds
In 2014 € 6.3 billion of NAMA bonds were redeemed. This
Debt securities in issue
Debt securities in issue reduced € 0.9 billion from € 8.8 billion
to € 7.9 billion during 2014. The reductions were predominantly
followed the success of NAMA in executing its strategy
due to € 0.9 billion of unsecured debt maturities and
enabling it to continue its accelerated redemptions during the
€ 1.0 billion related to liability management in the form of debt
year. Redemptions of low yielding NAMA senior bonds
buyback. The reductions were partly offset by a 5 year
improved the Group’s overall net interest margin.
€ 500 million fixed rate senior unsecured debt issue and a
Other assets
Other assets of € 14.5 billion comprised:
-
-
-
-
cash and loans to banks of € 7.3 billion up 18% from
€ 6.2 billion.
deferred taxation of € 3.6 billion broadly in line with 2013.
derivative financial instruments of € 2.0 billion up 25%
from € 1.6 billion.
the remaining assets of € 1.6 billion reduced 6% from
€ 1.7 billion.
At 31 December 2013 Ark Life assets of € 2.7 billion were
classified as held for sale. Ark Life was disposed of in May 2014.
See note 17 to the financial statements for further detail.
7 year AIB Mortgage Bank ACS issuance of € 500 million in
2014. The two issuances have been part of a balanced and
measured re-engagement in the wholesale markets.
Other liabilities
Other liabilities of € 7.2 billion comprised:
-
-
-
-
derivative financial instruments of € 2.3 billion up
€ 0.3 billion (15%) from € 2.0 billion.
contingent capital notes maturing in 2016 with a carrying
value of € 1.5 billion (nominal value of € 1.6 billion).
retirement benefit liabilities € 1.2 billion compared to
€ 0.2 billion in 2013 following changes in actuarial
assumptions used to value the Irish scheme’s liabilities.
the remaining liabilities of € 2.2 billion reduced 8% from
Customer accounts
Customer accounts reduced € 1.7 billion (3%) to € 64.0 billion
€ 2.4 billion.
At 31 December 2013 Ark Life liabilities of € 3.6 billion were
or € 2.6 billion (4%) excluding the impact of currency movements.
classified as held for sale. Ark Life was sold in May 2014. See
Stabilising Funding Profile
note 17 to the financial statements for further detail.
138%
83.7
115%
73.3
100%
99%
60.7
63.6
65.7
65.7
63.4
64.0
€ bn
100
75
50
25
0
Shareholders’ equity
Shareholders’ equity increased € 1.1 billion from € 10.5 billion
in 2013 to € 11.6 billion in 2014. This increase was mainly due
to profit for 2014 of € 0.9 billion and positive fair value gains on
available for sale securities and cash flow hedges of
€ 1.1 billion. The net pension deficit reserve has increased
from a deficit of € 0.1 billion at 31 December 2013 to a deficit
of € 0.9 billion at 31 December 2014 mainly due to a reduction
in the discount rate used to calculate the pension scheme’s
Dec 2011
Dec 2012
Dec 2013
Dec 2014
Net Loans
Customer Accounts
Loan to Deposit ratio
liabilities.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
37
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Funding
Customer accounts contributed 63% of the total funding
requirement at 31 December 2014, up from 60% at
31 December 2013. At 31 December 2014, the Group held
€ 40 billion in qualifying liquid assets/contingent funding
(including liquid assets in AIB Group (UK) p.l.c. which are
unavailable for use at an overall Group level) of which
approximately € 20 billion was not available due to repurchase,
secured loan and other agreements. For further detail on
funding see pages 142 to 144.
12%
17%
11%
€ bn
75
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25
0
Source of funds
Dec 2013
Dec 2014
3%
21%
13%
60%
63%
Customer Accounts
Wholesale Funding
Capital
Monetary Authority Funding
Summary Balance Sheet movements
65.7
63.4
65.7
64.0
15.6
9.4
Net
Loans
NAMA
Senior Bonds
Customer
Accounts
Dec 2013
Dec 2014
12.7
3.4
Monetary
Authority
Funding
Capital
See Capital section on pages 45 to 49.
38
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Business review - 1. Operating and financial review
Segment reporting
AIB reports the following key segments: Domestic Core Bank
Segment transfers
AIB completed non-core deleveraging during 2013 under the
(“DCB”), AIB UK, Financial Solutions Group (“FSG”) and Group.
Financial Measures Programme. Upon completion of the
Reporting on this segment basis commenced in 2013.
non-core deleveraging target, certain assets were transferred
back to the relevant segments.
Domestic Core Bank (“DCB”) services the personal, business
and corporate customers of AIB in the Republic of Ireland, in
In addition a decision was made to transfer management of
addition to wealth management services and has a strong
Corporate Banking Britain (“CBB”) to AIB UK segment as part
presence in all key sectors including SMEs, mortgages, personal
of a strategy change to grow and manage the corporate
and corporate banking. All owner occupier mortgages in the
business under the AIB GB brand.
Republic of Ireland are reported in DCB. This segment also
includes the Group’s treasury and capital markets functions.
The transfers were effective from 1 July 2013. If the transfers
had been effective from 1 January 2013, the estimated
contribution statement impact for the first half of 2013 is set out
in the table below.
H1 2013
Contribution statement impact € m
DCB AIB UK
€ m
Net interest income
Other income
Total operating expenses
Total provisions
Operating contribution
14
(1)
1
(14)
-
15
(1)
(6)
(46)
(38)
FSG
€ m
(29)
2
5
60
38
Total
€ m
-
-
-
-
-
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.
Financial Solutions Group (“FSG”) is dedicated to 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.
Group includes central control and support functions costs
which 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 segments’ performance statements include all income and
direct costs but exclude certain overheads which are managed
centrally and the costs of these are included in the ‘Group’
segment. Funding and liquidity charges are based on each
segment’s funding requirements and the Group’s funding cost
profile, which is informed by wholesale and retail funding costs.
Income on capital is allocated to segments based on each
segment’s capital requirement. The cost of services between
segments 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 consolidated
financial statements.
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Business review - 1. Operating and financial review
750 843
981
710
Contribution before exceptional items
1,002
(142)
Domestic Core Bank (“DCB”)
• Operating contribution of € 981 million in 2014
compared to a negative of € 151 million
in 2013.
• Net loans of € 44.1 billion in line with 2013.
• New lending of € 4.2 billion in 2014.
€ m
2,000
1,500
1,000
500
0
-500
Growth in operating contribution
1,886
1,442
-151
195
2013
2014
Total income
Total provisions
Total operating expenses
Operating contribution
Net interest income
Net interest income of € 1,190 million for 2014 was € 217 million
(22%) higher than 2013. Taking account of the transfers(1), net
interest income was € 203 million higher than 2013 due to
reductions in the ELG charge following cessation of the ELG
scheme for new liabilities on 28 March 2013, lower customer
deposit costs and lower wholesale funding costs. These positive
impacts were partly offset by lower loan volumes, lower income
on NAMA bonds, and the impact of both lower interest rates and
yields on treasury operations.
2013
%
€ m change
DCB contribution statement(1)
Net interest income before ELG
ELG
Net interest income
Other income(2)
Total operating income
Total operating expenses
2014
€ m
1,231
(41)
1,190
696
1,886
(710)
Operating contribution before provisions 1,176
Total provisions
(195)
Operating contribution
Associated undertakings
Contribution before disposal of property
Profit on disposal of property
981
18
999
3
1,120
(147)
973
469
1,442
(750)
692
(843)
(151)
8
(143)
1
10
-72
22
48
31
-5
70
-77
-
125
-
200
-
Cost income ratio
DCB balance sheet metrics(1)
Gross loans
Net loans
Customer accounts
Loan to deposit ratio
%
38
% change
52
-14
31 Dec 31 Dec
2013
%
€ bn change
2014
€ bn
47.2
44.1
51.2
%
86
47.6
44.3
53.6
-1
-
-4
% change
83
3
amortisation of € 44 million was € 10 million (19%) lower than
2013 mainly due to the acceleration of depreciation in prior years.
Other income
Other income improved € 227 million (48%) to € 696 million due
to the disposal of available for sale debt and equity securities
which were € 150 million higher than 2013 as a result of the
restructuring of the portfolio, income on settlement of a claim of
Provisions
Total provisions of € 195 million for 2014 were € 648 million
lower than 2013. Taking account of the transfers(1), total
provisions were € 662 million lower than 2013. The decrease
€ 27 million and a profit on disposal of corporate loans of
was mainly due to improving economic conditions and a lower
€ 50 million. Gains on the re-estimation of the timing of cash
level of loans recognised as impaired.
flows on NAMA senior bonds increased by € 70 million. These
positive items were partly offset by negative valuation
adjustments on customer derivative positions.
Operating expenses
Total operating expenses reduced € 40 million (5%) to
Balance sheet
Gross loans reduced € 0.4 billion since 31 December 2013 as
loan amortisation exceeded new lending on the mortgage
portfolio was partly offset by growth in SME and corporate
loans. Customer accounts reduced € 2.4 billion (4%) since
€ 710 million for 2014 as reduced staff numbers resulted in
31 December 2013. Excluding the reduction in repos of
lower salary and associated costs compared with 2013.
€ 3.6 billion and the recognition of deposits from Ark Life of
Personnel expenses of € 406 million were € 46 million (10%)
€ 0.9 billion as customer accounts following deconsolidation/
lower than 2013 mainly as a result of reductions in staff
sale of Ark Life, customer accounts increased € 0.3 billion since
numbers. General and administrative expenses of € 260 million
31 December 2013 with strong growth in current accounts partly
were € 16 million (7%) higher than 2013 primarily as a result of
offset by a reduction in deposits as a result of liability pricing
outsourcing initiatives in selected operational and support
management.
functions. The charge for depreciation, impairment and
(1)The balance sheet transfers were effective on 1 July 2013. If the transfers had been effective from 1 January 2013, the estimated contribution
statement impact for the first half of 2013 is set out on page 39.
(2)Other income includes interest rate hedge volatility with 2013 re-presented.
40
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Business review - 1. Operating and financial review
AIB UK
• Operating contribution of £ 81 million in 2014
compared to a negative of £ 69 million in 2013.
• Cost income ratio improvement, 50% for 2014
compared to 69% in 2013.
• New lending of £ 1.3 billion in 2014.
Growth in operating contribution
209
277
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
145
133
139
Contribution before disposal of property
81
57
Profit on disposal of property
-69
Contribution before exceptional items
Contribution before exceptional items € m 109
2014
£ m
228
(7)
221
56
277
81
4
85
2
87
2013
%
£ m change
161
(10)
151
58
209
(69)
1
(68)
-
(68)
(80)
42
-30
46
-3
33
-4
116
-57
-
300
-
-
-
-
(139)
(145)
138
(57)
64
(133)
£ m
300
200
100
0
-100
2013
2014
Total income
Total provisions
Total operating expenses
Operating contribution
Cost income ratio
Net interest income
Net interest income of £ 221 million was £ 70 million (46%) higher
than 2013. Taking account of the transfers(1), net interest income
was £ 57 million higher than 2013 due to lower funding costs as a
result of deposit pricing actions and the impact of loan repricing.
Other income
Other income of £ 56 million for 2014 was £ 2 million (3%) lower
than 2013. Fee and commission income was £ 5 million higher
AIB UK balance sheet metrics(1)
Gross loans
Net loans
Customer accounts
than 2013 but trading and other operating income was £ 7 million
Loan to deposit ratio
lower than 2013 principally due to a £ 10 million negative valuation
adjustments on customer derivative positions.
%
50
% change
69
-19
31 Dec 31 Dec
2013
%
£ bn change
2014
£ bn
9.5
8.1
9.0
%
90
11.2
9.4
9.1
-15
-14
-1
% change
103
-13
Total operating expenses
Total operating expenses of £ 139 million for 2014 were
Balance sheet
AIB UK gross loans to customers decreased £ 1.7 billion (15%)
£ 6 million (4%) lower than 2013. Taking account of the
transfers(1), total operating expenses were £ 11 million lower
than 2013 as reduced staff numbers resulted in lower salary and
to £ 9.5 billion since 31 December 2013 following loan
amortisation during the year of £ 3.0 billion of which £ 1.3 billion
was in criticised loans (a 25% reduction on 2013) partly offset by
associated costs partly offset by higher general and
new lending of £ 1.3 billion, an increase of £ 0.5 billion (63%) on
administrative expenses.
2013. Customer accounts of £ 9.0 billion are broadly in line with
31 December 2013. The loan to deposit ratio has decreased to
The increase in total income and the decrease in total operating
90% in 2014 compared to 103% in 2013. The decrease was
expenses resulted in an improvement of 19% in the cost income
driven by reductions in net loans.
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ratio from 69% for 2013 to 50% for 2014.
Provisions
Total provisions of £ 57 million were £ 76 million lower than
2013. Taking account of the transfers(1), provisions were
£ 115 million lower than 2013 with the net specific charge lower
than 2013. During the year, credit quality improved with
non-performing loans reducing by £ 0.8 billion mainly through
asset sales. The lower net specific charge in 2014 was driven by
a combination of lower new specific provisions and higher
recoveries.
(1)The balance sheet transfers were effective on 1 July 2013. If the transfers had been effective from 1 January 2013, the estimated contribution
statement impact for the first half of 2013 is set out on page 39.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Business review - 1. Operating and financial review
Financial Solutions Group (“FSG”)
• Reduction in gross loans of € 5.4 billion (25%)
mainly due to restructuring activity during the
year.
• Operating contribution of € 600 million in 2014
compared to a negative of € 852 million
in 2013.
• Total provisions writeback of € 454 million
compared to a charge of € 906 million in 2013
due to lower impaired loans and improving
economic conditions.
FSG balance sheet metrics(1)
Gross loans
Net loans
Customer accounts
FSG contribution statement(1)
Net interest income before ELG
ELG
Net interest income
Other income
Total operating income
Total operating expenses
Balance sheet
Gross loans reduced € 5.4 billion (25%) since 31 December 2013
mainly due to debt restructuring and write-offs during the year.
Provisions have reduced € 4.1 billion (35%) since 31 December
2013 mainly due to write-offs and restructuring activity.
Operating contribution before provisions
Total writeback/(provisions)
Operating contribution
Associated undertakings
Gross loans movement
Contribution before exceptional items
21.8
-4.5
-0.9
16.4
Cost income ratio
31 Dec 31 Dec
2013
%
€ bn change
2014
€ bn
16.4
8.9
1.3
21.8
10.2
1.1
-25
-13
18
2014
€ m
2013
%
€ m change
230
(9)
221
72
293
204
(14)
190
25
215
(147)
(161)
13
-36
16
188
36
-9
146
454
600
-
600
%
50
54
170
(906)
(852)
(3)
(855)
-
-
-
-
% change
75
-25
average staff numbers. General and administrative expenses
were higher than 2013 mainly due to increased outsourcing costs.
Dec 2013
Restructuring Redemptions
Dec 2014
(incl FX)
Provisions
Total writeback of € 454 million in 2014 compared with a
provision charge of € 906 million in 2013. Taking account of the
transfers(1), total provisions were € 1,300 million lower than 2013
and reflected the level of debt restructuring completed in the
year, reduction in the amount of additional provisions required
and improving economic conditions.
Net interest income
Net interest income of € 221 million in 2014 was € 31 million
(16%) higher than 2013. Taking account of the transfers(1), net
interest income was € 60 million higher than 2013 mainly due to
lower funding costs partly offset by reduced income from lower
loan balances.
Other income
Other income of € 72 million in 2014 was € 47 million (188%)
higher than 2013 mainly due to fair value gains on equity
warrants and the re-estimation of cashflows on loans previously
restructured.
Operating expenses
Total operating expenses reduced € 14 million (9%) to
€ 147 million in 2014 compared with 2013. Taking account of the
transfers(1), total operating expenses were € 9 million lower than
2013, with lower salary and associated costs due to lower
(1)The balance sheet transfers were effective on 1 July 2013. If the transfers had been effective from 1 January 2013, the estimated contribution
statement impact for the first half of 2013 is set out on page 39.
42
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Business review - 1. Operating and financial review
2014
€ m
2013
%
€ m change
1
6
7
(373)
5
17
22
(388)
(366)
1
Group
• Total operating expenses have reduced by
€ 15 million (4%).
Group contribution statement
Net interest income
Other income
Total operating income
Total operating expenses
Total operating income
Total operating income decreased € 15 million (68%) primarily due
to the negative impact of interest rate hedge volatility.
Operating expenses
Operating expenses in Group include unallocated overheads
relating to operations & technology, risk, audit, finance, general
counsel, human resources and corporate affairs & strategy. Total
operating expenses decreased € 15 million (4%) to € 373 million
for 2014 due to lower salary and associated costs resulting from
reduced staff numbers and lower depreciation and amortisation.
Personnel expenses of € 157 million for 2014 were € 5 million
(3%) lower than 2013 as a result of the reduction in average staff
numbers and associated staff costs.
General and administrative expenses of € 187 million for 2014
were in line with 2013 due to additional outsourcing costs offset by
reductions in other cost lines as a result of ongoing cost
management.
Depreciation, impairment and amortisation of € 29 million for 2014
was € 10 million (26%) lower than 2013 due to the acceleration of
depreciation in prior years.
Operating contribution before provisions (366)
Total (provisions)/writeback
(1)
Contribution before disposal
of business
Profit on disposal of business
(367)
(365)
-
1
Contribution before exceptional items
(367)
(364)
€ m
500
400
300
200
100
0
Reduction in costs
388
226
162
373
216
157
2013
2014
Staff costs
Other costs
-80
-65
-68
-4
-
-
-1
-
-1
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Business review - 2. Comprehensive assessment
Comprehensive Assessment (“CA”)
The CA European wide stress testing exercise was conducted
which takes into account collateral valuations, current trading
conditions, and the timing of cash flow realisation. In arriving at
by the European Banking Authority (“EBA”) and the European
the 2014 impairment provision recovery of € 0.2 billion, the
Central Bank (“ECB”) in conjunction with AIB’s National
Group considered the results of the AQR and the Central Bank
Competent Authority, the Central Bank of Ireland (“CBI”). The
of Ireland’s impairment guidelines. The Group is satisfied that
capital adequacy threshold used for the baseline stress test
balance sheet provisions as at 31 December 2014 take into
scenario was set at 8.0% Common Equity Tier 1 (“CET 1”) and
consideration the findings of the AQR.
set at 5.5% CET 1 in the adverse stress test scenario. Both
scenarios were assessed for capital under the transitional
arrangements as set out in Capital Requirements Directive IV
(“CRD IV”), over a 3 year period from 2014 - 2016.
The stress tests were conducted on a Static Balance Sheet
basis where the stress tests were based on how the balance
sheet as at end December 2013 would perform over three years
and on a Dynamic Balance Sheet basis where some assumptions
from the Restructuring Plan on loan restructuring, cost reductions
and new lending were allowed.
The results of the CA confirmed that AIB has capital buffers
comfortably above minimum requirements under all stress test
assessment scenarios. AIB therefore did not require any
additional capital as a result of the CA process.
The published results confirm that in all scenarios, AIB’s capital
ratios exceed the CA baseline and adverse stress test thresholds
over the period as outlined below:
AIB results of
Dynamic
Comprehensive assessment Balance Sheet Balance Sheet
Static
CET 1 ratio at 1 January 2014
AQR(1) adjusted CET 1 ratio
Buffer(2)
Adjusted CET 1 ratio after
Baseline Scenario
Buffer(2)(4)
Adjusted CET 1 ratio after
Adverse Scenario
Buffer(3)(4)
15.0%
14.6%
6.6%
12.4%
4.4%
6.9%
1.4%
15.0%
14.6%
6.6%
14.3%
6.3%
10.3%
4.8%
The aggregate adjustment due to the outcome of the AQR
process would have equated to a reduction of 35 bps to the CET 1
ratio of 15.0% as at 1 January 2014. A provision requirement of
€ 0.2 billion, 1.3% of balance sheet provisions as of 1 January 2014
was indicated. The Group determines impairment provisions on an
ongoing basis in accordance with IFRS accounting standards,
(1)Asset Quality Review (“AQR”).
(2)Minimum threshold of 8.0%.
(3)Minimum threshold of 5.5%.
(4)Lowest capital level versus threshold over 3 year period.
44
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Business review - 3. Capital management
The objectives of the Group’s capital management policy are to at all times comply with the regulatory capital requirements and to
ensure that the Group has sufficient capital to cover the current and future risk inherent in its business and to support its future
development.
The Group does this through a semi-annual Internal Capital Adequacy Assessment Process (“ICAAP”), which is subject to supervisory
review and evaluation. This is AIB’s main capital management tool and gives a clear picture of the Group’s capital and material risks. The
key stages in the ICAAP process are as follows:
–
a Risk Appetite Statement is prepared consistent with the Group’s business strategy. The risk appetite is set annually at the outset
of the annual financial planning process and is monitored on a quarterly basis by measuring the current risk profile against the risk
appetite;
– material risk assessment identifies all relevant (current and anticipated) risks and identifies those that require capital adequacy
assessment;
–
–
–
financial planning drives the levels of required capital to support growth plans and meet regulatory requirements. Base and stress
capital plans are produced as part of the integrated financial planning process;
stress testing is applied to capital plans and to all material risks in order to test the resilience of the Group and inform capital needs
as they arise; and
the final stage of the ICAAP is the production of base and stressed capital plans over a three year timeframe, comparing the capital
requirements to available capital. The objective is to demonstrate that the Group has adequate capital resources in excess of
minimum regulatory capital requirements and internal capital requirements.
Capital regulation
The European Union (“EU”) adopted legislative package, known as CRD IV, came into force on 1 January 2014, with some of its
provisions being phased-in from 2014. CRD IV consists of the Capital Requirements Regulation (“CRR”) which is directly applicable
across firms in the EU, and the new Capital Requirements Directive (“CRD”), which has been implemented by member states of the
European Economic Area through national law.
CRD IV is designed to strengthen the regulation of the banking sector and to implement the Basel III agreement in the EU legal
framework. On 31 March 2014, the Minister for Finance signed into Irish law two regulations to give effect to CRD IV. The European
Union (Capital Requirements) Regulations 2014 gave effect to CRD IV and the European Union (Capital Requirements) (No.2)
Regulations 2014 gave effect to a number of technical requirements in order that the CRR can operate effectively in Irish law. CRD IV
measures include:
–
enhanced requirements for quality and quantity of capital. CRD IV also harmonises the deductions from own funds in order to
determine the amount of regulatory capital that is prudent to recognise for regulatory purposes. Some of the new provisions of
CRD IV are being introduced on a phased basis from 2014, these typically follow 20% in 2014, 40% in 2015 etc. until 2018. The
main exception(1) to this relates to the deduction for the deferred tax asset which will be deducted at 10% per annum commencing
in 2015. AIB commenced reporting to its regulator under the transitional CRD IV rules during 2014. The transitional capital ratios
presented on page 47 take account of these phasing arrangements. The fully loaded capital ratios represent the full implementation
of CRD IV;
–
a liquidity coverage ratio (“LCR”) which will require banks to have sufficient high quality liquid assets to withstand a 30-day stressed
funding scenario that is specified by supervisors. An additional measure is the net stable funding ratio (“NSFR”) which is a longer
term structural ratio designed to address liquidity mismatches. The NSFR provides incentives for banks to use stable funding;
–
a leverage ratio which is designed to act as a non-risk sensitive back-stop measure to reduce the risk of build-up of excessive
leverage in an individual bank and the financial system as a whole. The implications of the leverage ratio will be closely monitored
prior to its possible move to a binding requirement on 1 January 2018;
–
–
a single set of harmonised prudential rules which banks throughout the EU must respect. The new rules remove a large number of
national options and discretions that were previously available; and
other measures including enhanced governance, sanctions, capital buffers, remuneration controls and improved transparency.
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A new system of financial supervision, the Single Supervisory Mechanism (‘’SSM’’), comprising the European Central Bank (‘’ECB’’) and
the national competent authorities of EU countries has been established. The SSM places the ECB as the central prudential supervisor
of financial institutions in the Eurozone, including AIB, and in those non-eurozone EU countries that choose to join the SSM. On
4 November 2014, the ECB commenced its supervisory role under the SSM. The aims of the SSM are to ensure the safety and
soundness of the EU banking system and to increase financial integration and stability in the EU. Although the ECB has been conferred
with the task of ensuring financial stability, some functions such as consumer protection, supervision of payment services and the
combat of money laundering remain at national level.
(1)The CBI published their ‘Implementation of Competent Authority Discretions and Options in CRD IV and CRR’ on 24 December 2013, updated on
21 May 2014 to reflect national transposition of CRD IV, which clarifies the application of transitional rules in Ireland under CRD IV.
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45
Business review - 3. Capital management
The Bank Recovery and Resolution Directive (“BRRD”) and the Single Resolution Mechanism (“SRM”) marks another step by
European authorities in improving the stability of the financial system, adding a common recovery and resolution framework to the
already established SSM. The overarching goal of the new bank recovery and resolution framework established by the BRRD/SRM
package is to break the linkages between national banking systems and sovereigns. The new framework is intended to enable
resolution authorities to resolve failing banks with a lower risk of triggering contagion to the broader financial system, while sharing the
costs of resolution with bank shareholders and creditors. To achieve this objective, the BRRD includes explicit provisions for the ‘bail-in’
of senior creditors where necessary. This specific ‘bail-in’ of certain senior creditors is not required to be brought into force until the
beginning of 2016. Relevant capital metrics in this regard include:
–
–
the Minimum Requirement Eligible Liabilities (“MREL”) which is being introduced as part of the BRRD. It is designed to ensure that
banks have sufficient loss-absorbing capacity through capital and liabilities eligible to be bailed in.
the Total Loss Absorption Capacity (“TLAC”) which is a proposed minimum requirement for total capital. It is proposed to be
imposed from 2019 on banks that are deemed by the Financial Stability Board (“FSB”) to be globally systemically important banks
(“G–SIBs”) (currently a list of 29 banks not including AIB).
The Group’s transitional Common Equity Tier 1 (“CET1”) ratio was 16.4% as at 31 December 2014, an increase of 140 bps in the year.
The fully loaded CET1 ratio was 11.8% including the 2009 Preference Shares which continue to be considered as CET1 until
31 December 2017. Excluding the 2009 Preference Shares, the fully loaded CET1 reduces to 5.9%. These levels of capital will enable
the Group to progress on-going discussions with the Department of Finance on determining the appropriate level and mix of capital for
the Group.
Capital structure
Resolutions to reorganise the share capital of the Group were passed at an extraordinary general meeting held on 19 June 2014. These
included the renominalisation of the ordinary shares and a resolution to allow for the increase of distributable reserves by € 5.0 billion.
An application was made to the High Court in July 2014 for approval of that increase in distributable reserves. On 15 October 2014, the
High Court granted an order permitting a share capital reduction which gave rise to additional distributable reserves totalling
€ 5.0 billion. This reduction was effected on 16 October 2014.
46
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Business review - 3. Capital management
Regulatory capital and capital ratios
Basel II
as reported
31 December
2013
€ m
10,494
Core/common equity tier 1 capital
Gross common equity tier 1
–
Less preference dividend
10,494
Common equity tier 1 after preference dividend
(179)
(34)
(284)
(642)
(151)
–
(158)
(120)
(1,568)
8,926
833
595
140
(158)
1,410
Regulatory adjustments
– Goodwill and intangibles
–
–
–
–
–
–
Cash flow hedge reserves
Reversal of fair value of contingent capital instrument
Available for sale securities
Pension
Deferred tax
Unconsolidated financial investments
– Other
Core/common equity tier 1 capital
Tier 2 capital
Subordinated debt
Credit provisions
Other
Regulatory adjustments
–
Unconsolidated financial investments
Total tier 2 capital
10,336
Total capital
Risk weighted assets
59,038
Credit risk
177
3,174
–
6
Market risk
Operational risk
Credit valuation adjustment
Other
CRD lV
transitional basis
Pro-forma
1 January 31 December
2014
€ m
2014
€ m
CRD lV
fully loaded basis(1)
Pro-forma
1 January
2014
€ m
31 December
2014
€ m
11,572
(280)
11,292
(174)
(383)
(189)
(1,369)
557
–
–
(17)
(1,575)
9,717
538
453
17
–
10,494
–
10,494
(179)
(34)
(284)
(649)
(132)
–
–
(93)
(1,371)
9,123
828
453
93
–
1,008
10,725
1,374
10,497
11,572
(280)
11,292
(174)
(383)
–
–
(121)
(3,640)
–
–
(4,318)
6,974
538
136
–
–
674
7,648
10,494
–
10,494
(179)
(34)
–
–
(54)
(3,838)
–
–
(4,105)
6,389
828
132
–
–
960
7,349
54,348
56,489
54,348
56,489
471
2,822
1,468
5
177
3,174
1,037
6
471
2,822
1,468
5
177
3,174
1,037
6
62,395
Total risk weighted assets
59,114
60,883
59,114
60,883
14.3% Core tier 1/common equity tier 1 ratio
16.6% Total capital ratio
16.4%
18.1%
15.0%
17.2%
11.8%
12.9%
10.5%
12.1%
(1)Fully loaded ratios are calculated including the 2009 Preference Shares (which will continue to be considered CET1 until 31 December 2017).
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Business review - 3. Capital management
Capital ratios at 1 January 2014
Transitional ratio
On implementation of CRD IV, the pro-forma CET1 ratio on a transitional basis at 1 January 2014 was 15.0%. This compared to a
Basel II core tier 1 ratio of 14.3% at 31 December 2013.
Under CRD IV, the supervisory deductions in relation to Ark Life (unconsolidated financial investments), which were deducted 50:50
from tier 1 and tier 2 capital under Basel II, was no longer applicable.
Under CRD IV, the main changes to risk weighted assets (“RWAs”) were a) a substantial element of deferred tax assets was removed
from the credit RWAs; b) the life assurance business, Ark Life, generates additional credit RWAs; c) a credit valuation adjustment was
included, where AIB is required to hold additional capital for entering into over-the-counter (“OTC”) derivative contracts.
Fully loaded ratio
On implementation of CRD IV, the pro-forma CET1 ratio on a fully loaded basis at 1 January 2014 was 10.5%. This compared to a Basel
II core tier 1 ratio of 14.3% at 31 December 2013. Under CRD IV, deferred tax assets relating to unutilised tax losses are deducted in
arriving at a fully loaded CET1 ratio. In addition, the available for sale (“AFS”) reserve and pension reserve form part of the fully loaded
CET1 ratio. The movements in RWA from Basel II to CRD IV are explained above.
Capital ratios at 31 December 2014
Transitional ratio
The CET1 transitional ratio has increased from 15.0% at 1 January 2014 to 16.4% at 31 December 2014. This is driven primarily by
profit of € 915 million generated during 2014 and a release of € 75 million in Tier 2 capital to CET1 following the disposal of Ark Life,
partly offset by the impact of the higher pension deficit at 31 December 2014 which arose as a result of a decrease in the discount rate
applied in the valuation of pension liabilities. A deduction, being a foreseeable charge, has been made in respect of the full dividend of
€ 280 million due on 13 May 2015 on the 2009 Preference Shares. This has reduced CET1 and total capital ratios by 0.5%.
The decrease in credit risk RWAs of € 2.1 billion reflects a reduction in net loans in addition to the impact of the disposal of Ark Life. The
RWAs attaching to operational risk reduced by € 352 million, reflecting the reduced levels of income in the annual calculation.
The CET1 transitional ratio, at 16.4%, is significantly in excess of the minimum CET1 regulatory requirements. The total capital ratio has
increased from 17.2% at 1 January 2014 to 18.1% at 31 December 2014. This reflects the increase in CET1 capital described above,
offset by a € 366 million reduction in tier 2 capital, primarily relating to a) the continuing reduction in the Tier 2 qualifying amount of the
contingent capital instrument that is due to mature in July 2016 and b) the transfer of Tier 2 capital to CET1 following the disposal of Ark
Life.
The capital figures reflect the audited 2014 year end profit for the Group. The quarterly SSM regulatory capital reporting process will
include these profits in due course.
Fully loaded ratio
The transitional CET1 ratio of 16.4% compares to 11.8% on a fully loaded basis at 31 December 2014. This reflects a reduction in CET1
of € 2,743 million. The main drivers of this reduction are:
–
–
the full deduction of the deferred tax asset (‘’DTA’’) of € 3,640 million under fully loaded 1 January 2014: €3,838 million. Under
transitional rules, the phasing in deduction of the DTA will commence in 2015 at 10% per annum.
the AFS reserve of € 1,369 million, driven by unrealised gains in sovereign debt securities and the revaluation of the Group’s
NAMA subordinated bonds, is included in the fully loaded position while it is excluded on a transitional basis at 31 December
2014.
–
the fully loaded CET1 position takes full account of the pension deficit within revenue reserves whereas under transitional rules the
impact of this deficit has been restricted. The difference in treatment amounted to € 678 million at 31 December 2014.
The total capital ratio for AIB on a fully loaded basis has increased from 12.1% to 12.9%, reflecting the factors outlined above, partly
offset by the continuing reduction in the Tier 2 qualifying amount of the contingent capital instrument.
The fully loaded capital ratios include the 2009 Preference Shares which continue to be considered as CET1 until 31 December 2017.
Excluding the 2009 Preference Shares, the reported fully loaded CET1 of 11.8% at 31 December 2014 would reduce to 5.9%.
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Leverage ratio
CRD IV also introduces a leverage ratio which is defined as tier 1 capital divided by a non-risk adjusted measure of assets. Based on
full implementation of CRD IV, the leverage ratio, including the 2009 Preference Shares, was 6% at 31 December 2014 (31 December
2013: 5%). This primarily reflects an increase in tier 1 capital as outlined above and a reduction in asset balances. Excluding the 2009
Preference Shares, the reported leverage ratio of 6% at 31 December 2014 would reduce to 3%.
Minimum Requirement Eligible Liabilities (“MREL”)
Based on current guidance, AIB’s MREL ratio at 31 December 2014 was 11.1% on a fully loaded basis (13.7% under transitional rules).
Total Loss Absorption Capacity (“TLAC”)
Based on current guidance, AIB’s TLAC ratio at 31 December 2014 was 12.9% on a fully loaded basis (18.1% under transitional rules).
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Risk management
1. Principal risks and uncertainties
2. Framework
2.1 Risk management framework
2.2 Risk appetite
2.3 Risk governance
2.4 Risk identification and assessment process
2.5
Stress and scenario testing
2.6 Risk culture
3. Individual risk types
3.1 Credit risk(1)
– 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
– Financial investments available for sale
3.2 Credit risk – Forbearance
3.3 Liquidity risk
3.4 Market risk
3.5 Operational risk
3.6 Regulatory compliance risk
3.7 Structural foreign exchange risk
3.8 Pension risk
Page
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80
97
115
123
127
130
139
150
154
155
156
156
(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.
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Risk management – 1. Principal risks and uncertainties
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
– Regulatory and legal risks
– Risks relating to business operations, governance and internal control systems
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 business may be adversely affected
by the economic and market conditions it operates
in
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
investments are de-scoped or de-prioritised, and may serve to
increase operational risk in the near-term. Market conditions
are also impacted by the competitive environment in which the
Group operates. The entry of bank and non-bank competitors
into the Group's markets may put additional pressure on the
Group's income streams and consequently have an adverse
impact on its financial performance.
The Group's financial planning process evaluates the impact
deterioration could result in reductions in business activity, lower
of economic and market conditions on the Group's capital,
demand for the Group’s products and services, reduced
funding and profitability under both forecast and stress
availability of credit, increased funding costs and, decreased
scenarios. Additionally, sensitivity analysis is used to evaluate
asset values.
the impact of individual risk drivers. Performance against the
Group’s financial plan is monitored by management and the
While there are some signs of improvement and stabilisation in
Board on a monthly basis.
the Irish economy, any renewed stress on or deterioration of the
economy 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
Constraints on the Group’s access to funding may
adversely affect liquidity risk management
Conditions could arise which would constrain funding or
levels of arrears, the Group’s collateral values and consequently,
liquidity opportunities for the Group. Currently, the Group funds
have a material impact on the Group’s future performance and
its activities primarily from customer deposits. However, a loss
results.
of confidence by depositors in the Group, the Irish banking
industry or the Irish economy could lead to losses of funding or
General economic conditions continue to be challenging for
liquidity resources over a short period of time. Concerns
customers. A continued high level of unemployment together with
around debt sustainability and sovereign downgrades in the
any further reduction in borrowers’ disposable income has the
Eurozone could impact the Group’s deposit base and could
potential to negatively impact customers’ ability to repay existing
impede access to wholesale funding markets, impacting the
loans. This could result in additional write downs and impairment
ability of the Group to issue debt securities to the market.
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
A stable customer deposit base and asset deleveraging has
allowed the Group to materially reduce its funding from the
continuing muted demand for credit has the potential to impact
European Central Bank (“ECB”). This, in turn, has allowed an
the Group’s financial position.
increase in unencumbered high quality liquid assets. The
Group has also identified certain management and mitigating
Deterioration in the economic and market conditions in which the
actions which could be considered on the occurrence of a
Group operates could negatively impact on the Group's
liquidity stress event. However, in the unlikely event that the
income, and may put additional pressure on the Group to more
Group exhausted these sources of liquidity it would be
aggressively manage its cost base. This may have negative
necessary to seek alternative sources of funding from the
consequences for the Group to the extent that strategic
monetary authorities.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Risk management – 1. Principal risks and uncertainties
The Capital Requirements Regulation (No. 575/2013) (“CRR”)
Group’s financial condition. Any change in membership of such
and the Capital Requirements Directive (2013/36/EU) (“CRD” and
associations or reductions in the perceived creditworthiness of
together with the CRR, “CRD IV”) require banks such as AIB to
one or more significant borrower or financial institution, could
meet targets set for the new Basel III liquidity related ratios: the
lead to market-wide liquidity problems, losses and defaults,
Net Stable Funding Ratio and Liquidity Coverage Ratio. Meeting
which could adversely affect the Group’s results, financial
the phased implementation deadlines of these requirements
condition and future prospects. The Group's stress testing
could impose additional costs on the Group while failure to
framework evaluates its risk profile under a range of scenarios,
demonstrate appropriate progress may lead to regulatory
including systemic threats which are caused by or give rise to
sanction.
contagion risk. The most severe systemic risks, together with
their associated risk mitigants (where available) are evaluated
The Group's liquidity management framework sets out the
as part of the Group's Recovery Planning framework.
manner in which the Group's funding and liquidity risk profile is
managed. See pages 139 to 149 for further detail.
The Group faces market risks, including non-trading
interest rate risk
The following market risks arise in the normal course of the
The Group may be adversely affected by further
austerity and budget measures introduced by the
Government
The current and future budgetary and taxation policy of Ireland
and other measures adopted by the Irish Government may
Group's banking business; interest rate risk, credit spread risk
have an adverse impact on borrowers’ ability to repay their
(including Sovereign risk), basis risk and FX risk.
loans and, as a result, the Group’s business. Furthermore,
Changes in the shape and level of interest rate curves impact the
of the Group through the imposition of measures such as the
economic value of the Group's underlying assets and liabilities.
bank levy introduced in Budget 2014. This bank levy imposes
The level of the Group's earnings is exposed to basis risk i.e. an
an additional taxation liability on the Group and applies during
imperfect correlation in the adjustment of the rates earned and
2014, 2015 and 2016. The annual levy paid by the Group in
some measures may directly impact the financial performance
paid on different products with otherwise similar repricing
2014 amounted to € 60 million.
characteristics. The persistence of exceptionally low interest
rates for an extended period could adversely impact the Group’s
The Terms of Reference proposed by the Joint Committee for
earnings through the compression of net interest margin.
the Inquiry into the Banking Crisis were agreed by Dáil Éireann
and Seanad Éireann in November 2014. The purpose of the
Widening credit spreads could adversely impact the value of the
Inquiry is to inquire into the reasons why Ireland experienced a
Group’s available for sale (“AFS”) bond positions.
systemic banking crisis, including the political, economic,
social, cultural, financial and behavioural factors and policies
Trading book risks predominantly result from supporting client
which impacted on or contributed to the crisis and the
businesses with small residual discretionary positions remaining.
preventative reforms implemented in the wake of the crisis.
Credit Value Adjustments (“CVA”) and Funding Value
The costs and potential implications for the Group of this
Adjustments (“FVA”) to derivative valuations arising from
inquiry are uncertain at this time.
customer activity have potentially the largest trading book derived
impact on earnings.
The Group assesses this risk by undertaking sensitivity
analysis in its financial planning process, and monitoring
Changes in foreign exchange rates, particularly the euro-sterling
financial performance against the Group’s financial plan on a
rate, affect the value of assets and liabilities denominated in
monthly basis.
foreign currency and the reported earnings of the Group’s
non-Irish subsidiaries.
Regulatory and legal risks
The Group manages this risk through a number of financial risk
management frameworks as described in pages 139 to 153 and
Increased regulation and supervision
A significant number of new regulations have been issued by
page 156. Risk positions are monitored on a regular basis at the
the various regulatory authorities in the recent past.
Asset and Liability Committee (“ALCo”).
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
The Eurozone’s largest banks, including the Group, came
under the direct supervision of, and are deemed to be
authorised by the ECB since the introduction on 4 November
2014 of the Single Supervisory Mechanism (“SSM”).
and dislocations caused by the interdependency of financial
The main aims of the SSM are to ensure the safety and
markets’ participants and of members of currency and
soundness of the European banking system and to increase
supranational economic associations is an on-going risk to the
financial integration and stability in Europe. A Single Resolution
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Mechanism (“SRM”) is being introduced including a single
resolution board and a single fund for the resolution of banks.
The requirements of the SRM are set out in the Banking
Recovery and Resolution Directive (“BRRD”) which is to come
into effect in 2015 and the Group is making preparations for the
The future of the Group’s business activities are
subject to possible interventions by the
Government or the disposal of the State’s
ownership and other interests in the Group
The Group is substantially owned by an agency of the Irish
Single Resolution Authority (“SRA”) which comes into effect in
State and accordingly, subject to EU state aid rules, controlled
2016. The establishment of the SRM is designed to ensure that
by the Irish Government. Such ownership or control may affect
supervision and resolution is exercised at the same level for
the Group’s operations, financial condition and future prospects.
countries that share the supervision of banks within the SSM.
The single resolution fund will be financed by bank levies
In order to comply with contractual commitments imposed on
raised at national level and the SRM will come into force on
1 January 2016.
Further information on regulatory change is set out in the
“Governance and Oversight - 6 Supervision and Regulation”
section of this Report.
The challenge of meeting this degree of regulatory change will
place a strain on the Group’s resources, particularly during a
period of significant organisational transformation. The
challenge of meeting tight implementation deadlines while
balancing competing resource priorities and demands adds to
the regulatory risk of 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 potential impact of new regulatory requirements is regularly
evaluated by the Group's management and cross-functional
programmes are put in place to ensure that the Group is able to
meet new regulatory requirements.
The Group is subject to substantial and changing
conduct regulations
The Group is exposed to many forms of Conduct Risk, which
the Group 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
agreed between the Irish 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 the 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 AIB and its management team, but the appointment
or removal of the chairman or chief executive officer of AIB are
reserved for 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 interventions may have a negative impact on
the operations of the Group.
The Irish Government may sell or otherwise dispose of its
ownership and other economic interests in the Group to any
private or public entity, including any intergovernmental
institution. Any such sale or disposal, and any conditions
attaching to it, may materially affect the Group’s operations,
may arise in a number of ways. In particular, the Group may
financial condition and future prospects.
be subject to allegations of mis-selling of financial products,
including, as a result of having sales practices and/or reward
structures in place that are determined to have been
inappropriate, which may result in adverse regulatory action
(including significant fines) or requirements to amend sales
processes, withdraw products or provide restitution to affected
customers, any or all of which could result in the incurrence of
significant costs, may require provisions to be recorded in the
financial statements and could adversely impact future revenues
from affected products.
The Group has implemented a Conduct Framework detailing
its approach to the management of Conduct Risk and oversight
of Conduct Risk is the responsibility of the Products and Conduct
Committee.
The Group actively engages and co-operates with all relevant
external stakeholders including governmental authorities.
The Group is subject to Government/European
Commission supervision and oversight
As a result of the recapitalisations of AIB by the Irish
Government, the Group is subject to various obligations under
the Relationship Framework as agreed between the Minister
and the Group in March 2012, and 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 on the operation of the Group’s business under the
Credit Institutions (Financial Support) Scheme 2008 (the “CIFS
Scheme”) and the National Asset Management Agency
(“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.
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Risk management – 1. Principal risks and uncertainties
As a result of the above mentioned supports by the Government,
the Group is also subject to obligations in respect of the
European Commission’s approval in May 2014 of AIB’s
The Group faces elevated operational risks
Operational risk is defined as risks arising from inadequate or
failed internal processes, people and systems, or from external
Restructuring Plan. In that respect, the Group has committed to a
events. The Group faces an elevated operational risk profile
range of measures relating to customers in difficulty, costs caps
given the current economic environment and the ongoing
and reductions, acquisitions and exposures, coupon payments,
significant organisational changes.
promoting competition and the repayment of aid to the State.
The Group actively engages and co-operates with all relevant
external stakeholders including governmental authorities.
The Group’s participation in the NAMA Programme
gives rise to certain residual financial risks
As a participating institution under the NAMA Act, during 2010
One of the Group's 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.
Under the terms of the recapitalisation of the Group by the
and 2011, AIB transferred financial assets to NAMA with a net
Irish Government, the Group is required to comply with certain
carrying value of € 15.5 billion for which it received as
executive pay and compensation arrangements. As a result of
consideration NAMA senior bonds and NAMA subordinated
these restrictions, the Group cannot guarantee that it will be
bonds.
Provisions of the NAMA Act provide for certain circumstances in
which the Group could face additional liabilities in relation to
assets transferred.
In addition, credit exposure to NAMA arises from the senior and
subordinated NAMA bonds acquired by AIB in consideration for
the transfer of assets to NAMA.
The Group monitors this risk by periodically reviewing the
carrying value of its NAMA senior and subordinated bonds,
including external benchmarking.
Risks relating 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
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.
The Group’s business is dependent on processing and
reporting accurately and efficiently a high volume of complex
transactions across numerous and diverse products and
services. Any weakness in these systems or processes could
have an adverse effect on the Group's results and on its ability
to deliver appropriate customer outcomes during the affected
period. In addition, any breach in security of the Group’s
systems (for example from increasingly sophisticated
cybercrime attacks), could disrupt its business, result in the
disclosure of confidential information or create significant
financial and/or legal exposure and the possibility of damage
to the Group’s reputation and/or brand.
The Group mitigates its operational risks by having detailed
risk assessment and internal control requirements in relation
of loans and other amounts due from customers and
to the management of its key people, process and systems
counterparties are inherent in a wide range of the Group’s
risk, and through comprehensive and robust business
businesses. In addition to the credit exposures arising from loans
continuity management arrangements. These are set out in
to individuals, SMEs and corporates, the Group also has
the Group's Operational Risk Framework which is described
exposure to credit risk arising from loans to financial institutions,
on page 154.
its trading portfolio, available for sale (“AFS”) portfolio,
derivatives and from off-balance sheet guarantees and
commitments. The Group has been exposed to increased
counterparty risk as a result of the risk 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.
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 the
outcomes of such disputes 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 has extensive credit policies, limits and controls in
the Group’s operations or result in a material adverse effect on
place which are described in detail on pages 60 to 79.
the Group’s reputation.
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The Group has a centralised legal team under the Group
is to be phased in evenly over 10 years commencing in 2015.
General Counsel and relevant internal and external legal
The Group monitors this risk by regularly reviewing the basis
expertise is retained to mitigate associated risks as appropriate.
for recognition of its deferred tax assets.
The Group may be subject to the risk of having
insufficient capital to meet increased minimum
regulatory requirements
The Group is subject to minimum capital requirements as set out
in CRD IV and implemented under the Single Supervisory
Mechanism. As a result of these requirements banks in the EU
have been, and will continue to be required to increase the
quantity and the quality of their regulatory capital. Given this
regulatory context, and the levels of uncertainty in the current
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 turn out to be inaccurate, and the value
realised by the Group for these assets may be
materially different from their current, or estimated,
fair value
In accordance with International Financial Reporting
economic environment, there is a possibility that the economic
Standards (“IFRS”), the Group recognises at fair value:
outturn over the Group's capital planning period may be
(i) derivative financial instruments;
materially worse than expected and/or that losses on the Group’s
(ii) financial instruments at fair value through profit or loss;
credit portfolio may be above forecast levels. Were such losses
(iii) certain hedged financial assets and financial liabilities; and
to be significantly greater than currently forecast, or capital
(iv) financial assets classified as AFS.
requirements for other material risks to increase significantly,
The best evidence of fair value is quoted prices in an active
there is a risk that the Group’s capital position could be eroded to
market. Disruption to quoted prices increases reliance on
the extent that it would have insufficient capital to meet its
valuation techniques which requires the use of judgement in
regulatory requirements. In addition, capital levels may be
the estimation of fair value. This judgement includes, but is not
negatively affected by volatility arising from the pension schemes
limited to, evaluating available market information, determining
and the available for sale portfolio values.
the cash flows for the instruments, identifying a risk free
discount rate and applying an appropriate credit spread.
This risk is mitigated by evaluating the adequacy of the Group's
Valuation techniques that rely to a greater extent on
capital under both forecast and stress conditions as part of the
non-observable data require a higher level of management
Internal Capital Adequacy Assessment Process (“ICAAP”). The
judgement to calculate fair value than those based on wholly
ICAAP process includes the identification and evaluation of
observable credit spread.
potential capital mitigants.
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
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
Ireland and the UK would lengthen the anticipated period over
and future prospects.
which the Group’s Irish and UK tax losses would be used. The
value of the deferred tax assets relating to unused tax losses
The Group mitigates this risk by having comprehensive
constitutes substantially all of the deferred tax assets recognised
valuation and accounting policies and methodologies in place
in the Group’s statement of financial position. A significant
reduction in anticipated profit, or changes in tax legislation,
for the valuation of certain financial assets, and in undertaking
control activities which provide assurance that these are being
regulatory requirements, accounting standards or relevant
adhered to.
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.
The Group’s risk management strategies and
techniques may be unsuccessful
The Group is exposed to a number of material risks. Although
the Group invests substantially in its risk management
The new capital adequacy rules under CRD IV require the Group
strategies and techniques, there is a risk that these fail to fully
inter alia, to deduct from its CET1, the value of most of the
Group’s deferred tax assets, including all deferred tax assets
arising from unused tax losses. This deduction from CET1
mitigate the risks in some circumstances.
The Group mitigates this risk by regularly reviewing the design
and operating effectiveness of its risk management policies
and methodologies. These reviews are supplemented in some
instances by external review and validation.
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Risk management – 1. Principal risks and uncertainties
The Group is subject to model risk
The Group develops and uses models across a range of risks
and activities including, but not limited to, capital management,
Negative impacts on the Group’s reputation may
impact its financial performance
Damage to the Group’s reputation may adversely affect
credit grading, valuations, liquidity, pricing and stress testing.
relationships with the Group’s stakeholders including
Where the Group uses risk measurement techniques based on
customers, staff and supervisors. Such damage may lead to
historical observations, there is a risk that these under or over
impacts on the Group’s capability to attract and retain
estimate exposure to the extent that future market conditions
customers, attract, motivate and retain staff and engage
deviate from historic norms. As a result, the Group may
positively with supervisors. This may lead to impacts on the
experience material unexpected losses.
Group’s ability to conduct its affairs and in turn on the
financial performance of the Group.
The Group may incur losses as a result of inaccuracies in these
models, the data used to build them or decisions made based on
The Group manages its reputational risk through its
incomplete understanding of these models.
management of other material risk types. For any risk, the
potential reputational impact is considered alongside the
The Group mitigates this risk by having comprehensive policies
direct and indirect financial consequence. The Nominations
in place in relation to models, appropriate segregation of duties
and Corporate Governance Committee is responsible for
between model build and validation, senior executive approval
overseeing the Group's management of reputational risk.
and oversight of models and on-going testing of the performance
of models.
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Risk management – 2. Framework
Introduction
The principal risks and uncertainties 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, is 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. To support this approach, a
number of Board approved frameworks and policies are in place
which set out the key principles, roles and responsibilities and
governance arrangements through which the Group's material
risks are managed. 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 maximum amount
‘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, headed by the Group Chief Risk Officer (“CRO”)
provides the second line of defence, providing independent
oversight and challenge to business line managers. The third
line of defence is the Group Internal Audit function, under the
Head of Group Internal Audit (“GIA”), which provides
independent assurance to the Audit Committee of the Board
on the effectiveness of the system of internal control.
Changes to the composition of the Leadership Team and
Board, both during 2014 and subsequently, which includes
the appointment of a new CRO from 1 November 2014 are
described on pages 158 to 161.
2.3.2 Committees with risk management
responsibilities
The Board has delegated a number of risk governance
responsibilities to various committees and key officers. The
diagram below summarises the current risk committee
structure of the Group.
of risk that the Group is willing to accept or tolerate in order to
The role of the Board, the Audit Committee, and the Board
deliver on its strategic and business objectives. The Group
Risk Committee (“BRC”) is set out in the Governance and
Risk Appetite Statement (“RAS”) is a blend of qualitative
statements and quantitative limits and triggers linked to the
Group's strategic objectives.
The Group RAS is reviewed and approved by the Board at
least annually or more often if required, in alignment with the
annual business and financial planning process. A Group
RAS was in place during the year under review, and was last
updated in January 2015. AIB authorised bank subsidiaries
and business segments are required to document and align
their own risk appetite statements with the Group statement.
While the Board reviews the Group RAS, the Leadership
Team is accountable for ensuring that risks remain within
appetite. The Group’s risk profile is measured against its risk
appetite and adherence to both the Group RAS and business
segment risk appetite statements are reported on a monthly
basis to the Executive Risk Committee (“ERC”) and Board
Risk Committee (“BRC”). Should any breaches of Group RAS
oversight - 4. Corporate Governance statement of this report.
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 role of the Executive Risk Committee (“ERC”) is to foster
risk governance within the Group, to ensure that risks within
the Group are appropriately managed and controlled, and to
evaluate the Group's risk appetite against the Group’s strategy.
It is a sub-committee of the Leadership Team chaired by the
Chief Financial Officer (“CFO”) and its membership includes
the CEO, CRO, Chief Operating Officer (“COO”), and the
Head of Internal Audit.
The ERC's principal duties and responsibilities include
reviewing the effectiveness of the Group’s risk frameworks and
policies, monitoring and reviewing the Group’s risk profile, risk
trends, risk concentrations and policy exceptions, and
monitoring adherence to approved risk appetite and other
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limits arise, these, together with associated management
limits. The ERC acts as the parent body of two other risk and
action plans, are escalated to the Board for review, and also
control committees, namely the Group Credit Committee
reported to the Central Bank of Ireland (“CBI”)/Single
(“GCC”) and the Products and Conduct Committee (“PCC”).
Supervisory Mechanism (“SSM”), in line with the provisions of
Principal responsibilities of the GCC include: the exercising of
its Corporate Governance Code.
2.3 Risk governance
2.3.1 Risk management organisation
The Board has ultimate responsibility for the governance of all
risk taking activity in the Group. The Group has adopted a
approval authority for exposure limits to customers of the
Group; exercising approval authority for credit policies;
considering quarterly provision levels, assurance reviews and
credit review reports; the approval of credit inputs to credit
decisioning models, as well as the review and approval of other
credit related matters as they occur. The PCC approves the
launch and ongoing performance of products and oversees the
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Risk management – 2. Framework
Group’s conduct risk management. The PCC plays a key role in
In ensuring sound capital and liquidity management and
promoting and supporting a customer centric ethos and culture
planning, ALCo reviews and approves models for the valuation
across the Group.
of financial instruments, for the measurement of market and
liquidity risk, for regulatory capital (‘IRB models’), and for the
The role of the Asset and Liability Committee (“ALCo”) is to act
calculation of expected and unexpected credit losses and
as the Group’s strategic balance sheet management forum that
stress testing. In addition, ALCo directs the shape of the
combines a business-decisioning and risk governance
balance sheet through funds transfer pricing, direction on
mandate. It is a sub-committee of the Leadership Team,
product pricing and review and analysis of risk adjusted
chaired by the Director of Finance and its membership
returns on capital.
includes the CFO, the CRO and the heads of significant business
areas. ALCo is tasked with decision-making in respect of the
The Group Disclosure Committee is responsible for reviewing
Group’s balance sheet structure, including capital, liquidity,
compliance of Group financial information with legal and
funding, interest rate risk in the Banking Book (“IRRBB”) from an
regulatory requirements prior to external publication, and for
economic value and net interest margin perspective, foreign
exercising oversight of the Accounting Policies Forum, which
exchange (“FX”) hedging risks and other market risks.
ensures that the accounting policies adopted by the Group
conform to the highest standards in financial reporting.
Risk Governance Structure
Board of Directors
Board Risk
Committee
Audit
Committee
Remuneration
Committee
Nominations &
Corporate Governance
Committee
Leadership Team
Executive Risk
Committee
Asset & Liability
Committee (ALCo)
Group
Disclosure
Committee
Group Credit
Committee
Products and
Conduct
Committee
UK ALCo
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2.3.3 Changes to committee structures in 2014
Towards the end of 2014, a review of the Group's
2.5 Stress and scenario testing
The Group’s risk identification and assessment framework
governance arrangements was undertaken. As a result, the
described above is supported by a framework of stress
Strategic Credit Forum (“SCF”) was retired and ERC
testing, scenario and sensitivity analysis and reverse stress
assumed direct responsibility for its activities. The SCF was
testing. The Group undertakes a regular programme of stress
charged with responsibility for governance of Group credit risk
testing across all its material risks to ensure that risk
strategy, credit risk appetite, credit quality and impairment
assessment is dynamic and forward looking and considers
provision adequacy. The Capital Committee (“CC”) and
not only existing risks but also potential and emerging threats.
Product Pricing Committee (“PPC”) were also retired and their
responsibilities subsumed within ALCo. The CC was
A key deliverable in 2014 was the stress testing component of
responsible for fostering sound capital management and
the European Central Bank's Comprehensive Assessment of
planning within the Group, ensuring that the quality and
the resilience of euro-zone banks.
quantum of capital held by the Group was commensurate with
its business objectives and risk appetite, and approving
Reverse stress testing is undertaken as part of the Group's
regulatory capital models. The PPC had delegated authority
Recovery Planning i.e. the means by which the Group
for the oversight and direction of balance sheet management
assesses the key threats to its viability and the available
and net interest margin including the approval of product
mitigants to address them.
pricing.
2.4 Risk identification and assessment process
The Group uses a variety of approaches and methodologies
2.6 Risk culture
The Group seeks to promote a strong risk culture throughout
the organisation which encourages the prompt identification
to identify and assess its principal risks and uncertainties. A
and escalation of issues and fosters an environment of
Material Risk Assessment (“MRA”) is undertaken on at least
continuous improvement and ‘learning from mistakes’. Risk
an annual basis. The MRA identifies and assesses the most
training is an important part of fostering a sound risk culture.
material risks facing the Group in terms of their likelihood and
A Risk Academy is in place which provides access to
impact, and separately evaluates whether an explicit amount
recommended training and education for risk professionals as
of capital is required to be held against them as part of the
well as supporting the on-going development of risk skills
Group's Internal Capital Adequacy Assessment Process
across the AIB organisation.
(“ICAAP”). Other assessments of risk are undertaken, as
required, by business areas, focussing on the nature of the
risk, the adequacy of the internal control environment and
whether additional management action is required. Ad hoc
risk assessments are also undertaken in response to specific
internal or external events. A monthly CRO Report is
presented to the ERC and BRC which sets out the risk profile
of the Group and seeks to identify emerging threats.
More information on the risk assessment techniques specific
to the management of individual risk types is provided on
pages 60 to 156.
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Risk management – 3. Individual risk types
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 had 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 government 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 and 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:
–
Includes a clear indication of the Group’s target market(s), in line with Group and Segment Risk Appetite Statements;
– Requires a thorough understanding and assessment of the borrower or counterparty, as well as the purpose and structure of credit,
and the source of repayment; and
– Enforces 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;
–
Loss given default (“LGD”) – the loss associated with a defaulted loan or borrower; and
– Expected loss (“EL”) – the loss that can be incurred as a result of lending to a borrower that may default. It is the average expected
loss in value over a specified period.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.1 Credit risk
Measurement of credit risk (continued)
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, at which authority level they can be
approved, and how any existing limits are managed for current borrowers.
The ratings methodology and criteria used in assigning borrowers to grades varies 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,
for larger cases with connected exposures, 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. borrowers’
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.
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.
Credit management and credit risk management continues to be a 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 2014, the Group used a combination of Standardised and Internal Ratings Based (“IRB”) approaches for the
calculation of regulatory capital. 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 certain of its
internal credit models in the calculation of its capital requirements. 42% (31 December 2013: 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.
The Group divides its internal rating systems into non-retail and retail approaches. Both approaches differentiate PD estimates into
between 9 and 16 grades in addition to the category of default. In all cases, impaired exposures and exposures 90 days or more past
due are considered to be in default.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Risk management – 3. Individual risk types
3.1 Credit risk
Measurement of credit risk (continued)
Non-retail
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. To calculate PD, the Group assesses the quality of borrowers and other counterparties using criteria particular to the type of
borrower under consideration.
Retail
For retail exposures, the Advanced IRB approach is adopted for Republic of Ireland residential mortgages (excluding 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.
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.
The table below shows the distribution of outstanding non-impaired credit exposures to customers in terms of EAD, PD, LGD and EL by
IRB portfolios.
Residential mortgages
Owner-occupier
Buy-to-let
Corporate
SME
Total
Residential mortgages
Owner-occupier
Buy-to-let
Corporate
SME
Total
EAD
€ m
15,282
2,961
18,243
5,330
2,503
26,076
EAD
€ m
15,803
3,211
19,014
4,924
2,522
26,460
Average
PD
%
Average
LGD
%
1.23
2.12
1.37
1.82
5.26
1.84
27.48
30.45
27.96
45.22
45.00
33.13
Average
PD
%
Average
LGD
%
1.32
2.13
1.46
2.59
5.49
2.05
27.56
30.75
28.10
45.17
45.00
32.89
2014
EL(1)
€ m
71
41
112
50
59
221
2013
EL(1)
€ m
79
45
124
67
62
253
(1)EL has been adjusted following the outcome of the 2013 Balance Sheet Assessment by the CBI.
The average PD and LGD have decreased mainly due to the improving grade profile of the non-impaired book, the improving economic
environment and the migration to impaired of some higher PD accounts during 2014.
For financial 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, accordingly, these will differ from amounts calculated from expected
loss models.
*Forms an integral part of the audited financial statements
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.1 Credit risk
Measurement of credit risk (continued)
Control mechanisms for rating systems
The Group ALCo approves all risk rating models, model development, model implementation and, all associated polices. The Group
mitigates model risk for IRB portfolios as follows:
– The Group has specific policies on documentation, data quality and management, and validation; and
– All models are subject to in-depth analysis and review, at least annually. This is carried out by a dedicated unit and is independent
of credit origination and management functions.
Credit risk principles and policy*
The Group implements and operates policies covering the identification, assessment, approval, monitoring, 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 the Credit Risk function.
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 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 Authorities 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.
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’s counterparty in the contract defaults prior to maturity at a time when
AIB has a claim on the counterparty under the contract. AIB would then have to replace the contract at the current market rate, which
may result in a loss. Derivatives are used by AIB to meet customer needs, to reduce interest rate risk, currency risk, and in some cases
credit risk 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.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Risk management – 3. Individual risk types
3.1 Credit risk
Measurement of credit risk (continued)
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 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 the robustness of impairment provisions.
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
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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
Trading portfolio financial assets(5)
Derivative financial instruments
Loans and receivables to banks
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale(6)
Included elsewhere:
Trade receivables
Accrued interest
Financial guarantees
Loan commitments and other credit
related commitments
Amortised
cost(1)
€ m
Fair
value(2)
€ m
4,879
146
–
–
–
1,865
63,362
9,423
–
–
–
–
2,038
–
–
–
2014*
Total
€ m
4,879
146
–
–
2,038
1,865
63,362
9,423
Amortised
cost(1)
€ m
Fair
value(2)
€ m
3,536
164
28(4)
–
–
2,048
65,713
15,598
–
–
–
1
1,629
–
–
–
–
19,772
19,772
–
20,251
2013*
Total
€ m
3,536
164
28
1
1,629
2,048
65,713
15,598
20,251
73
426
–
–
73
426
57
502
–
–
57
502
80,174
21,810
101,984
87,646
21,881
109,527
1,246
9,082
10,328
–
–
–
1,246
9,082
10,328
1,353
8,236
9,589
–
–
–
1,353
8,236
9,589
Total
90,502
21,810
112,312
97,235
21,881
119,116
(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 € 5,393 million (2013: € 4,132 million).
(4)Comprises loans and receivables to banks and customers measured at amortised cost.
(5)Excluding equity shares of € 1 million (2013: € 1 million).
(6)Excluding equity shares of € 413 million (2013: € 117 million).
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*Forms an integral part of the audited financial statements
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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 by 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 International Swaps and Derivatives Association (“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 loans and receivables portfolio, 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. The Group typically holds 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 through 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. 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 as follows:
*Forms an integral part of the audited financial statements
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.1 Credit risk – Credit exposure
Credit risk mitigants* (continued)
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 house price reductions from peak. 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) would 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. Current yields and estimated likely yields are applied to current rentals in valuing
investment property.
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
Central Statistics Office (”CSO”) Residential Property Price index in the Republic of Ireland are used.
Applying one or a combination of the above methodologies, in line with the 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 impairment 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, where available. 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 periodically reassessed on a case by case basis.
In assessing the value of collateral for impaired mortgage loans in the Republic of Ireland, the Group has used a house price fall from
peak of 50% (49% Dublin and 51% non-Dublin) as a base. The CSO index at 31 December 2014 shows a 38% fall from peak.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Risk management – 3. Individual risk types
3.1 Credit risk – Credit exposure
Credit risk mitigants* (continued)
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 a 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 2014 is based on property values at origination or date of latest valuation and applying the CSO Residential Property
Price index (Republic of Ireland) and Nationwide (United Kingdom) 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 65.
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 2014 and
31 December 2013:
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
5,972
5,837
3,347
3,381
2,742
21,279
6,380
27,659
29,014
Neither past
due nor
impaired
€ m
Past due
but not
impaired
€ m
2014
Total Neither past
due nor
impaired
€ m
€ m
Past due
but not
impaired
€ m
Impaired
2013
Total
€ m
€ m
Impaired
€ m
542
824
577
690
769
254
236
132
129
126
877
6,768
6,897
4,056
4,200
3,637
4,630
4,176
2,786
2,708
2,752
241
239
148
163
173
964
395
514
413
465
606
5,266
4,929
3,347
3,336
3,531
2,393
20,409
3,402
25,558
17,052
355
1,232
1,323
3,634
7,036
8,509
10,369
35,927
38,846
9,880
26,932
29,688
779
1,743
1,993
4,774
7,167
9,083
15,433
35,842
40,764
(2,877)
(2,877)
(3,333)
(3,333)
(550)
5,632
35,419
(619)
5,750
36,812
(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
68
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.1 Credit risk – Credit exposure
Credit risk mitigants* (continued)
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 2014 amounted to € 2,038 million (2013: € 1,629 million) and those with negative fair value
are reported as liabilities which at 31 December 2014 amounted to € 2,334 million (2013: € 1,960 million).
The enforcement of netting agreements would potentially reduce the statement of financial position carrying amount of derivative assets
and liabilities by € 1,221 million (2013: € 957 million). The Group also has Credit Support Annexes (“CSAs”) in place which provide
collateral for derivative contracts. As at 31 December 2014, € 843 million (2013: € 820 million) of CSAs are included within financial
assets as collateral for derivative liabilities and € 279 million (2013: € 188 million) of CSAs are included within financial liabilities as
collateral for derivative assets (note 43 to the consolidated financial statements). 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 2014, repurchase agreements amounted to Nil (2013: € 16 million).
NAMA senior bonds*
NAMA senior bonds, which at 31 December 2014 had a carrying value of € 9,423 million (2013: € 15,598 million), are guaranteed by the
Irish Government as to principal and interest.
Financial investments available for sale*
At 31 December 2014, government guaranteed senior bank debt which amounted to € 120 million (2013: € 381 million) was held within
the available for sale portfolio.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Risk management – 3. Individual risk types
3.1 Credit risk – 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 through
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 quarterly 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 and 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
customers 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 managing weaknesses in corporate, commercial and retail exposures are broadly similar, the
solutions reflect the differing nature of the assets.
Forbearance*
Forbearance occurs when a borrower is granted a temporary or permanent concession or an agreed change to the terms of a loan
(‘forbearance measure’) for reasons relating to the actual or apparent financial stress or distress of that borrower. A forbearance
agreement is entered into where the customer is in financial difficulty to the extent that they are unable currently 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.
The Group uses a range of initiatives to support customers. The Group considers requests from customers who are experiencing cash
flow difficulties on a case by case basis and will assess these requests against their current and likely future financial circumstances and
their willingness to resolve such difficulties, taking into account legal and regulatory obligations. Key principles include supporting
viable Small Medium Enterprises (“SMEs”), and providing support to enable customers remain in the family home, whenever possible.
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.
*Forms an integral part of the audited financial statements
70
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.1 Credit risk – Credit risk management
Forbearance* (continued)
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 (“MARP”).
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 that 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:
Positive equity sustainable solution – This solution involves a reduced payment to support customers who do not qualify for other
forbearance solutions such as split loans due to positive equity;
Low fixed interest rate sustainable solution – This solution aims to support customers who have an income (and can afford a
mortgage), but the income is not currently sufficient to cover full capital and interest repayments on their mortgage based on the current
interest rate(s) and/or personal circumstances. Their current income is, however, sufficient to cover full capital and interest at a lower
rate. It involves the customer being provided with a low fixed interest rate for an agreed period after which the customer will convert to a
prevailing market rate for the remainder of the term of the mortgage on the basis that there is currently a reasonable expectation that the
customer’s income and/or circumstances will improve over the period of the reduced rate. The customer must pay full capital and
interest throughout;
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 solution may also include an element of debt write-off;
Negative equity trade down – This solution allows a customer to sell his/her house and subsequently purchase a new property and
transfer the negative equity portion of the original property 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; and
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 selling the property and putting an appropriate agreement in place to repay any residual debt. This solution
may also include an element of debt-write off.
Credit policies are in place which outline the principles and processes underpinning the Group’s approach to mortgage forbearance.
Non-mortgage portfolio
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 and applying the following core
principles:.
– 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.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Risk management – 3. Individual risk types
3.1 Credit risk – Credit risk management
Forbearance* (continued)
Non-mortgage portfolio (continued)
The restructuring process is one of structured engagement to assess the long term levels of sustainable and unsustainable debt. The
process broadly moves from an initial customer disclosure stage, through to engagement and analysis, through to an initial proposal
from the Group, followed by credit approval, documentation and drawdown. The commercial aspects of this process require that
customer affordability is viewed holistically, to include all available sources of finance for debt repayment, including unencumbered
assets.
The debt solutions provided allow the customer to enter into a performance based arrangement, typically over a five year period, which
will be characterised by the disposal of non-core assets, contribution of unencumbered assets, and contribution toward residual debt
from available cash flow. This process may result in debt write-off, where applicable.
A request for forbearance will always be a trigger event for the Group to undertake an assessment of the customer’s financial
circumstances prior to any decision to grant a forbearance treatment. This may result in the downgrading of the credit grade assigned
and if a loss is deemed to be incurred, this will result in a specific impairment provision. Loans to which forbearance have been applied
continue to be classified as forborne until the forbearance measures expire or until an appropriate probation period has passed.
Types of forbearance include temporary arrangements such as placing the facility on interest only and permanent sustainable solutions
including fundamental restructures which include an element of potential debt write down, 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 within the Accounting policies section of this report.
The effectiveness of the forbearance measures over the lifetime of those arrangements will be measured and reviewed. A forbearance
measure is deemed to be effective if the borrower meets the modified or original terms of the contract over a sustained period of time
resulting in an improved outcome for the Group and the borrower.
Further details on forbearance are set out in ‘Risk management – 3.2 Additional credit information – Forbearance’
*Forms an integral part of the audited financial statements
72
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.1 Credit risk – Credit risk management
Loan loss provisioning*
The Group’s provisioning policy requires that impairment 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.
It is Group’s policy to provide for impairment promptly and consistently across the loan book. All business areas formally review and
confirm the appropriateness of their provisioning methodologies and the adequacy of their impairment provisions on a quarterly basis.
Loans are tested for impairment on receipt of a forbearance request and when accounts reach 90 days past due.
The following are triggers to prompt/guide Case Managers regarding the requirement to assess for impairment:
Mortgage portfolio triggers
– Deterioration in the debt service capacity.
– A material decrease in rents received on a buy-to-let property.
Commercial property triggers
– 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.
Small Medium Enterprises (“SME”) portfolio triggers
– Trading losses or a material weakening in trade which leads to concerns over the ability of the business to meet scheduled debt
service.
– 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.
In addition, the following factors are taken into consideration when assessing whether a loss event has occurred:
–
Loss of a significant tenant/material reduction in rental income.
– Significant financial difficulty.
– Decrease in cash flow.
–
Lack of objective evidence to prove the viability of the business.
– Material damage and loss to a firm’s assets and/or production capacity.
–
Loss of critical staff.
– Material increase in costs.
– Market/customer forced reduction in prices with no commensurate increase in volumes.
– Planned sale of property asset did not take place.
–
Loss of employment.
– Disappearance of an active market for refinancing or sale of assets.
– Net worth.
– Country risk.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Risk management – 3. Individual risk types
3.1 Credit risk – Credit risk management
Loan loss provisioning* (continued)
Specific provisions
Specific impairment provisions arise when the recovery of a loan or group of loans is in doubt based on 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 EBS). The calculation of an
impairment charge for loans below the “significant” threshold is undertaken on a collective basis.
Individually significant loans and receivables
All loans that are considered individually significant are assessed on a case-by-case basis throughout the year for 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 66 to 67. Individually significant provisions are calculated using
discounted cash flows for each exposure. The cash flows are determined with reference to the individual characteristics of the borrower
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 into account in
estimating the future cash flows and discounting these back to present value.
Individually insignificant loans and receivables
Provisioning is assessed on a collective basis to estimate losses for homogeneous groups of loans that are considered individually
insignificant. This applies for customer connections less than £/€ 500,000 or € 750,000 for EBS.
Individually insignificant – Mortgage portfolio (Republic of Ireland)
The individually insignificant mortgage provisioning methodology applies to both owner occupier and buy-to-let exposures.
Individually insignificant mortgage specific provisions are calculated using an individually insignificant and IBNR 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. The methodology is regularly reviewed and updated
to reflect current data on loss history and portfolio development as well as incorporating additional loss parameters assessed on
restructuring outcomes.
The model parameters were refined during the year based on an additional one year data set.
Key model parameters at 31 December 2014 for owner occupier mortgages are as follows: cure (4%); and repossession/advanced
forbearance (96%), in line with 2013.
The corresponding buy-to-let model parameters at 31 December 2014 are as follows: cure (0.5%) and repossession/advanced
forbearance (99.5%), in line with 2013.
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 on a case by case basis, 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: percentage of forced disposals; costs and time to dispose (voluntary and forced); house price fall from peak; 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.
*Forms an integral part of the audited financial statements
74
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3.1 Credit risk – Credit risk management
Loan loss provisioning* (continued)
Individually insignificant – Non-mortgage portfolio (Republic of Ireland)
A new non-mortgage individually insignificant and IBNR model was introduced and implemented for the year-end 2014. Previously, the
recovery rates for the non-mortgage individually insignificant portfolio were 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. The new model now also takes into consideration underlying security in determining the appropriate
provision cover rate for impaired exposures. The specific provision for impaired cases is calculated using a LGD model, which
differentiates loss based on loan size, product type and sector.
Individually insignificant – Mortgage and non-mortgage portfolio (United Kingdom)
Individually insignificant mortgage specific provisions are calculated based on a model which assumes that the outcome for all impaired
loans is repossession. The individually insignificant non-mortgage specific provisions are calculated based on recovery rates observed
over the past 4 years.
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 the 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.
Provisioning statistical models are used to determine the appropriate level of IBNR provisions for a portfolio/group of exposures with
similar risk characteristics. A new non-mortgage model was introduced in the Republic of Ireland for year-end December 2014 as
described above. The model estimates IBNR losses taking into consideration the following:
–
–
–
historical loss experience (loss emergence rates based on historic grade migration experience or probability of default) 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);
loss given default rates based on historical loan loss experience, adjusted for current observable data;
– 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, e.g. non-impaired forborne mortgages and restructured loans.
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3.1 Credit risk – Credit risk management
Loan loss provisioning* (continued)
Republic of Ireland residential mortgage portfolio – IBNR
The residential mortgage portfolio IBNR is calculated using the individually insignificant and IBNR mortgage model as described above.
The table below sets out the parameters used in the calculation of IBNR for the mortgage portfolio as at 31 December 2014 and
31 December 2013:
Good upper(1)
Good lower(1)
Watch(1)
Vulnerable(1)
The parameters for Cured and Forborne
non-impaired, are set out below.These sub
portfolios carry a higher level of IBNR:
Cured
Forborne – non-impaired
Exposure
€ m
12,928
8,386
2,546
764
Owner-occupier
Average
PD
%
Average
LGD
%
0.9
2.8
15.6
81.6
18.9
20.4
21.7
20.6
Exposure
€ m
1,055
1,390
426
233
477
1,798
37.9
23.9
19.6
19.9
197
446
Buy-to-let
Average
PD
%
1.5
5.5
27.0
71.2
54.5
30.6
2014
Average
LGD
%
15.6
19.3
20.4
20.2
21.5
21.3
2013
Good upper(1)
Good lower(1)
Watch(1)
Vulnerable(1)
The parameters for Cured and Forborne non-impaired, are set out below.
These sub portfolios carry a higher level of IBNR:
Cured
Forborne – non-impaired
(1)For definition see page 123.
Owner-occupier
Buy-to-let
Average
PD
%
Average
LGD
%
Average
PD
%
Average
LGD
%
0.8
2.5
16.0
69.9
42.0
26.3
18.5
20.5
20.6
20.8
14.6
19.4
1.4
4.1
17.6
73.5
68.6
25.4
18.1
22.5
24.2
25.4
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 individually insignificant and IBNR mortgage model. The mortgage provision model calculates individually insignificant specific
provisions and IBNR provisions.
Additional IBNR, where appropriate, determined by management judgement, is applied at a portfolio level and is not included in the
analysis above.
*Forms an integral part of the audited financial statements
76
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3.1 Credit risk – Credit risk management
Loan loss provisioning* (continued)
Republic of Ireland non-mortgage portfolio – IBNR
The non-mortgage portfolio IBNR (excludes a number of portfolios, in particular: credit cards; property and construction; and corporate
loans) is calculated using the individually insignificant and IBNR mortgage model as described above. The table below sets out the
parameters used in the calculation of IBNR for this portfolio:
Good upper
Good lower
Watch
Vulnerable
Included within the above are:
> 90 days past due but not impaired
Cured in the past 12 months
Non-mortgage
Average
PD
%
2014
Average
LGD
%
0.4
1.8
7.4
19.9
17.5
14.4
45.1
47.4
48.6
47.8
49.1
48.4
Exposure
€ m
48
4,129
701
861
251
228
The IBNR for the portfolio is calculated as PD multiplied by LGD multiplied by Exposure (adjusted for the Emergence Period) with the
PD and LGD coming from statistical models.
The IBNR for the property and construction portfolio and larger exposures continues to be calculated based on the “average annual loss
rate” for each homogeneous pool, suitably adjusted where appropriate for any factors currently affecting the portfolio, which may not
have been a feature in the past. Credit card provisions (specific and IBNR) are calculated on a custom built provisioning model.
Additional IBNR, where appropriate, determined by management judgement, is applied at a portfolio level and is not included in the
analysis above.
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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.
Emergence periods are reflective of the characteristics of the particular portfolio. Emergence periods are estimated based on historic
loan loss experience supported by back testing, and as appropriate, individual case sampling.
Emergence periods are reviewed on at least an annual basis. At 31 December 2014, a change to the Republic of Ireland emergence
periods was made for the mortgage portfolio (increase from 9 to 12 months) and for the non-mortgage portfolios (increase from 6
to 8 months, with the exception of credit cards and corporate portfolios, where emergence periods remain at 3 and 6 months
respectively). Increasing the emergence period gave rise to higher IBNR provisions of € 93 million for the mortgage portfolio and
€ 44 million for the non-mortgage portfolio. The increases were driven by more data becoming available (including the impact of
forbearance), the inclusion of a statistical confidence measure for non-mortgages, and also a continued emphasis on maintaining a
conservative estimate of the unidentified incurred loss within the portfolio.
The average emergence period for UK mortgages is 8 months with the non-mortgage emergence period ranging from between 3 to 7
months.
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 Chief Credit Officer (“CCO”)
or alternate specified Chair as outlined in the terms of reference for Credit Committees (approved by ERC annually), 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 the 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 the security held. Partial write-offs may also occur when it is considered that there
is no prospect for the recovery of the provisioned amount, for example when a loan enters a legal process. The provision is written off but
the remaining reduced loan balance remains on the balance sheet as impaired. In addition, write-offs may reflect restructuring activity
with customers who are subject to the terms of the agreement and satisfactory performance.
Reversals of Impairment
If the amount of an impairment loss decreased in a subsequent period, and the decrease can be related objectively to an event occurring
after the impairment was recognised, the excess is written back by reducing the loan impairment provision amount. The writeback is
recognised in the income statement.
Impact of changes to key assumptions and estimates on 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. A significant judgemental area is the calculation of individually
insignificant and IBNR impairment provisions which are subject to estimation uncertainty.
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
*Forms an integral part of the audited financial statements
78
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3.1 Credit risk – Credit risk management
Loan loss provisioning* (continued)
Impact of changes to key assumptions and estimates on the impairment provisions (continued)
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 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.
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 house price fall from peak 50%
(49% Dublin and 51% non-Dublin) 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 impairment provisions
of 1.5% (blended rate of owner-occupier/buy-to-let) of c. € 22 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 house price fall from peak assumption used for the collective mortgage provisions for December 2014 is estimated to
result in movements in provisions of c. € 34 million (€ 26 million specific provision and € 8 million IBNR).
An increase in the assumed repossession rate of 1% for collective mortgage provisions would result in an increase in provisions of 0.2%
(blended rate of owner-occupier/buy-to-let) of c. € 3 million.
For the € 11.3 billion or 51% of impaired loans for which automated cash flows are available, changes in interest rates and cash flow
timing would have the following impact:
–
–
If interest rates increased by 1%, this would have an impact on the discounting effect, resulting in an increase in impairment
provisions of c. € 98 million.
If anticipated cash receipt timelines moved out by 1 year, the impact on impairment provisioning would be an increase of
c. € 130 million.
An IBNR provision is made for impairments that have been incurred but have not been separately identifiable at the balance sheet date.
This provision is sensitive to changes in the time between the loss event and the date the impairment is specifically identified. This
period is known as the loss emergence period. In the Republic of Ireland mortgage portfolio, the emergence period is currently
12 months; a decrease of one month in the loss emergence period in respect of the loan portfolio assessed would result in a decrease
of c. € 30 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 IBNR provisions would result in an increase of c. € 35 million. For the United Kingdom, the impact would be an increase
of c. £ 8 million.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Risk management – 3. Individual risk types
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 2014 and 31 December 2013 loans and receivables to customers by
industry sector and geography(1):
(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.
Included on statement of
financial position as
Loans and
Disposal
receivables groups and
to non-current
customers assets held
for sale
€ m
€ m
1,818
265
1,733
15,537
6,253
1,010
887
5,646
38,846
3,837
75,832
51,146
2,524
22,162
75,832
(123)
59
(12,406)
63,362
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Loans and receivables
to customers*
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal:
Residential mortgages
Other
Gross loans and receivables
Analysed as to:
Neither past due nor impaired
Past due but not impaired
Impaired – provisions held
Unearned income
Deferred costs
Provisions for impairment
Total statement of
financial position
(1)Based on booking office.
Total
Total
Analysed geographically(1)
Republic
of Ireland Kingdom
United Rest of the
World
2014
€ m
1,747
239
1,271
11,220
5,055
819
589
€ m
71
25
462
4,317
1,198
191
295
2,969
2,634
36,324
3,429
2,522
408
63,662
12,123
€ m
–
1
–
–
–
–
3
43
–
–
47
€ m
1,818
265
1,733
%
2.4
0.3
2.3
15,537
20.5
8.2
1.3
1.2
7.5
51.2
5.1
100.0
6,253
1,010
887
5,646
38,846
3,837
75,832
51,146
2,524
22,162
75,832
(123)
59
(12,406)
63,362
The credit portfolio is diversified within each of its geographic markets by spread of locations, industry classification and individual
customer.
Other than property and construction (15%) and residential mortgages in the Republic of Ireland (48%) as at 31 December 2014, no
one industry or loan category, in any geographic market accounts for more than 10% of AIB Group’s total loan portfolio.
*Forms an integral part of the audited financial statements
80
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3.1 Credit risk – Credit profile of the loan portfolio
Included on statement of
financial position as
Loans and
receivables
to
customers
€ m
1,830
268
1,547
19,747
6,927
1,026
650
5,772
40,764
4,292
82,823
50,326
3,586
28,911
82,823
(101)
74
(17,083)
Disposal
groups and
non-current
assets held
for sale
€ m
–
28
–
–
–
–
–
–
–
–
28
28
–
–
28
–
–
–
Total
Total
Analysed geographically(1)
Republic
of Ireland
United Rest of the
World
Kingdom
2013+
€ m
1,772
268
1,211
14,626
5,311
838
472
€ m
58
23
336
5,121
1,616
188
174
3,027
2,646
38,151
3,859
2,613
433
€ m
–
5
–
–
–
–
4
99
–
–
69,535
13,208
108
€ m
1,830
296
1,547
%
2.2
0.4
1.9
19,747
23.8
8.3
1.2
0.8
7.0
49.2
5.2
100
6,927
1,026
650
5,772
40,764
4,292
82,851
50,354
3,586
28,911
82,851
(101)
74
(17,083)
65,713
28
65,741
Loans and receivables
to customers*
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal:
Residential mortgages
Other
Gross loans and receivables
Analysed as to:
Neither past due nor impaired
Past due but not impaired
Impaired - provisions held
Unearned income
Deferred costs
Provisions for impairment
Total statement of
financial position
(1)Based on booking office.
+The industry sector ‘lease financing’ is no longer reported by the Group. Accordingly, for December 2013, where tables show a sectoral analysis, lease
financing is re-presented in the relevant sector to which the borrower belongs.
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3.1 Credit risk – Credit profile of the loan portfolio
Included on statement of
financial position as
Loans and
receivables
customers
Disposal
groups and
to non-current
assets held
for sale
€ m
€ m
302
83
233
8,836
2,109
100
183
763
8,509
1,044
22,162
–
–
–
–
–
–
–
–
–
–
–
2014
Analysed geographically(1)
Total
Republic
of Ireland
United Rest of the
World
Kingdom
€ m
302
83
233
8,836
2,109
100
183
763
8,509
1,044
€ m
293
83
179
6,951
1,831
73
168
572
8,217
974
€ m
9
–
54
1,885
278
27
15
191
292
70
22,162
19,341
2,821
€ m
–
–
–
–
–
–
–
–
–
–
–
2013+
Included on statement of
financial position as
Loans and
receivables
to
customers
€ m
345
74
405
13,176
3,053
173
230
949
9,083
1,423
28,911
Disposal
groups and
non-current
assets held
for sale
€ m
–
–
–
–
–
–
–
–
–
–
–
Analysed geographically(1)
Total
Republic
of Ireland
United Rest of the
World
Kingdom
€ m
345
74
405
13,176
3,053
173
230
949
9,083
1,423
28,911
€ m
334
70
278
10,721
2,645
171
211
756
8,788
1,345
€ m
11
–
127
2,455
408
2
19
181
295
78
25,319
3,576
€ m
–
4
–
–
–
–
–
12
–
–
16
Impaired loans and
receivables to customers*
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal:
Residential mortgages
Other
Total
Impaired loans and
receivables to customers*
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal:
Residential mortgages
Other
Total
(1)Based on booking office.
+The industry sector ‘lease financing’ is no longer reported by the Group. Accordingly, for December 2013, where tables show a sectoral analysis, lease
financing is re-presented in the relevant sector to which the borrower belongs.
*Forms an integral part of the audited financial statements
82
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3.1 Credit risk – Credit profile of the loan portfolio
Included on statement of
financial position as
Provisions for impairment on loans
and receivables to customers*
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal
Residential mortgages
Other
Specific
IBNR
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
Specific
IBNR
Total
(1)Based on booking office.
Loans and
receivables
customers
Disposal
groups and
to non-current
assets held
for sale
€ m
€ m
185
40
144
5,478
1,217
69
96
493
2,877
716
11,315
1,091
12,406
–
–
–
–
–
–
–
–
–
–
–
–
–
Included on statement of
financial position as
Loans and
receivables
to
customers
€ m
256
43
255
8,136
1,857
126
134
666
3,333
1,092
15,898
1,185
17,083
Disposal
groups and
non-current
assets held
for sale
€ m
–
–
–
–
–
–
–
–
–
–
–
–
–
2014
Analysed geographically(1)
Total
Republic
of Ireland
United Rest of the
World
Kingdom
€ m
178
40
115
4,326
1,072
44
90
391
2,724
663
9,643
€ m
7
–
29
1,152
145
25
6
102
153
53
1,672
€ m
185
40
144
5,478
1,217
69
96
493
2,877
716
11,315
1,091
12,406
€ m
–
–
–
–
–
–
–
–
–
–
–
2013+
Analysed geographically(1)
Total
Republic
of Ireland
United Rest of the
World
Kingdom
€ m
256
43
255
8,136
1,857
126
134
666
3,333
1,092
15,898
1,185
17,083
€ m
248
43
203
6,693
1,648
125
123
552
3,204
1,038
€ m
8
–
52
1,443
209
1
11
105
129
54
13,877
2,012
x
x
€ m
–
–
–
–
–
–
–
9
–
–
9
x
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+The industry sector ‘lease financing’ is no longer reported by the Group. Accordingly, for December 2013, where tables show a sectoral analysis, lease
financing is re-presented in the relevant sector to which the borrower belongs.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
The following table analyses loans and receivables to customers by segment showing asset quality and impairment provisions for the years
ended 31 December 2014 and 31 December 2013:
Gross loans and receivables
to customers*
DCB
€ m
AIB UK
€ m
FSG
€ m
2014
Total
€ m
31,808
7,038
38,846
3,837
15,537
12,889
4,723
DCB
€ m
AIB UK
€ m
FSG
€ m
30,714
3,817
34,531
2,318
2,785
4,624
3,268
2,252
361
2,613
432
5,208
4,302
905
–
3,620
3,620
1,542
11,754
4,815
134
2013+
Total
€ m
32,966
7,798
40,764
4,292
19,747
13,741
4,307
29,631
3,567
33,198
2,341
2,647
4,685
4,241
2,177
345
2,522
407
4,395
4,492
392
–
3,126
3,126
1,089
8,495
3,712
90
47,112
12,208
16,512
75,832
47,526
13,460
21,865
82,851
Residential mortgages:
Owner-occupier
Buy-to-let
Other personal
Property and construction
SME/other commercial
Corporate
Total
Analysed as to asset quality(1)
Satisfactory
Watch
Vulnerable
Impaired
Total criticised loans
Total loans percentage
Criticised loans/total loans
Impaired loans/total loans
Impairment provisions –
33,581
3,571
2,915
7,045
13,531
%
29
15
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/(credit)
Specific
IBNR
Total impairment charge/(credit)
Impairment charge/(credit)/
2,310
714
3,024
%
33
43
6
€ m
308
(105)
203
%
7,051
1,222
1,049
2,886
5,157
%
42
24
€ m
1,718
85
1,803
%
60
62
15
€ m
129
(59)
70
%
1,219
379
2,683
12,231
15,293
%
93
74
€ m
7,287
292
7,579
%
60
62
46
€ m
(512)
61
(451)
%
41,851
5,172
6,647
22,162
33,981
%
45
29
€ m
11,315
1,091
12,406
%
51
56
16
€ m
(75)
(103)
(178)
%
33,019
4,587
3,034
6,886
14,507
%
31
14
€ m
2,401
828
3,229
%
35
47
7
€ m
713
137
850
%
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
%
973
718
1,829
18,345
20,892
%
96
84
41,040
6,786
6,114
28,911
41,811
%
50
35
€ m
11,427
225
€ m
15,898
1,185
11,652
17,083
%
62
64
53
€ m
1,091
(194)
897
%
%
55
59
21
€ m
2,058
(145)
1,913
%
average loans
0.43
0.54
(2.29)
(0.22)
1.74
1.18
3.97
2.24
(1)Satisfactory: credit which is not included in any of the criticised categories of Watch, Vulnerable and Impaired loans. For a definition of the criticised
categories, see page 61.
+The industry sector ‘lease financing’ is no longer reported by the Group. Accordingly, for December 2013, where tables show a sectoral analysis, lease
financing is re-presented in the relevant sector to which the borrower belongs.
*Forms an integral part of the audited financial statements
84
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.1 Credit risk – Credit profile of the loan portfolio
The following summarises the key points affecting the credit profile of the loan portfolio:
–
Improved demand for credit resulted in new lending of € 5.9 billion in 2014.
– Significant progress was made during 2014 in working with customers to restructure facilities.
–
Impairment provisions reduced from a charge of € 1,913 million in 2013, to a net writeback of € 178 million in 2014 driven by
restructuring activity and a significant reduction in new impairments due to the improved economic environment.
The Group is predominantly Republic of Ireland and United Kingdom focused and most sectors have experienced improved trading
conditions in 2014 due to the stronger economic environment. The Group has material concentrations in residential mortgages and
property and construction.
The satisfactory portfolio grew by 2% in 2014. This return to growth is in contrast to the trends observed in 2012 and 2013 when it
reduced by 20% and 13% respectively. This has been due to increased demand for credit across most sectors and a reduction in
downward grade migration. New business drawdowns increased to € 5.9 billion in 2014 (2013 € 3.9 billion), and included SME/other
commercial in the Republic of Ireland (€ 0.9 billion), corporate loans (€ 1.7 billion) and Republic of Ireland mortgages (€ 1.3 billion).
Restructuring
Restructuring the loans of customers in difficulty was a key focus for the Group during 2014. Treatment strategies, as described on
pages 70 to 72, have been developed for customers who are experiencing financial difficulties. The approach is one of structured
engagement with co-operating customers to assess their long term levels of sustainable debt.
A non-retail customer in difficulty typically has exposures across a number of asset classes, including owner-occupier and buy-to-let
mortgages, SME debt and associated property exposures. The aim is to apply the treatment strategies at a customer level to deliver a
holistic solution which prioritises owner-occupier and viable SME debt. Each case requires an in-depth review of cash flows and
security, updated for current valuations and business performance. This process may result in writebacks or top-ups of provisions
across asset classes or for the customer as a whole. Write-offs may also be a feature of this process.
Credit quality
Credit quality in the portfolio has begun to improve. Criticised loans, including impaired, decreased by 19%, driven by the restructuring
activity, write-offs and lower downward grade migration. Within criticised loans, vulnerable loans increased by c.€ 0.5 billion which was
due to the restructuring of impaired loans during the year. Most individually assessed loans are initially graded as vulnerable following
restructure.
Residential mortgages
Residential mortgages amounted to 51% of total loans and receivables to customers, with the loans mainly located in the Republic of
Ireland (94%) with most of the remainder in Northern Ireland. The portfolio consists of 82% owner-occupier loans and 18%
buy-to-let.
Total loans in arrears in the Republic of Ireland mortgage portfolio decreased by 18% during the year, including a decrease of 22% in
the owner-occupier portfolio and a decrease of 7% in the buy-to-let portfolio. The amount of loans which were new into arrears in 2014
fell by 43% in comparison to those entering arrears for the first time in 2013. These decreases in arrears can be attributed to increased
restructuring activity and improved economic conditions. Overall loans to value in the Republic of Ireland mortgage portfolio have
improved due to property price increases and loan amortisation.
Further detailed disclosures in relation to the Republic of Ireland mortgage portfolio are provided on pages 98 to 107 and the United
Kingdom mortgage portfolio on pages 108 to 114.
Property and construction
The property and construction portfolio amounted to 20% of total loans and receivables. The property market in the Republic of Ireland
has seen resurgence in demand as well as increased property values during 2014. This reflects a more positive economic environment
and increased liquidity which has resulted in a greater level of transactions across all sectors. The portfolio is comprised of 69%
investment loans (€ 10.7 billion), 26% land and development loans (€ 4.1 billion) and 5.1% other property and construction loans
(€ 0.8 billion). Overall, the portfolio reduced by € 4.2 billion or 21% during 2014, with all of the reduction coming from the criticised
grades. This reduction is due to the impact of write-offs, amortisations and repayments, resulting from asset disposals by customers
within the criticised portfolio.
Further detailed disclosures in relation to the property and construction portfolio are provided on pages 117 to 119.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
85
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Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
SME/other commercial
The SME/other commercial lending portfolio amounted to 17% of total loans and receivables. The geographical split is 65% in the
Republic of Ireland with the remaining 35% in the United Kingdom. This portfolio in both the Republic of Ireland and the United Kingdom
is concentrated in sub-sectors which are reliant on the domestic economies. Key sub-sectors include agriculture,hotels, retail, and other
services. Credit quality within the portfolio has improved due to restructuring and the improved economic environment.
Further detailed disclosures in relation to the SME/other commercial lending portfolio are provided on pages 120 to 121.
Loans and receivables to customers for the remaining portfolios consisted of € 3.8 billion in other personal loans and € 4.7 billion to
corporate borrowers. These portfolios are profiled in more detail on pages 115 to 116 and 122 respectively.
Impairment provisions
Specific provisions as a percentage of impaired loans decreased from 55% at 31 December 2013 to 51% at 31 December 2014. This
was mainly driven by restructures and write-offs of provisions within portfolios with higher provision cover which had the impact of
reducing overall cover for the remaining portfolio. Provision write-offs are generated through both restructuring agreements with
customers and also write-offs of provisions where further recovery is considered unlikely.
IBNR provisions of € 1.1 billion were held at 31 December 2014 compared to € 1.2 billion at 31 December 2013. Despite the
improvement in performance, the IBNR reduced only slightly compared to December 2013 and includes the impact of an increase in the
emergence period in the Republic of Ireland for mortgages from 9 to 12 months and for non-mortgages from 6 to 8 months. The level of
IBNR reflects the need to maintain a conservative estimate of unidentified incurred loss within the portfolio.
The income statement provision writeback of € 178 million compared to a charge of € 1.9 billion in 2013. Income statement specific
provisions included € 541 million from new impairments and a € 616 million writeback of provisions (net of top-ups). This writeback
amounted to c. 2% of opening impaired loans, and was generated primarily by the restructuring assessment process described above
and a reduction in the house price fall from peak assumption used for the mortgage individually insignificant provision model from 55%
at December 2013 to 50% during 2014.
The table on the following page profiles the asset quality of the Group’s loans and receivables as at 31 December 2014 and
31 December 2013. Profiles of past due but not impaired loans are detailed on pages 89 and 90, impaired loans are detailed on pages
91and 92 and provisions are detailed on pages 93 to 95.
86
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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 2014 and 31 December 2013.
Asset quality*
Neither past due nor impaired
Past due but not impaired
Impaired – provisions held
Gross loans and receivables
Specific provisions
IBNR provisions
Total provisions for impairment
Residential
mortgages
€ m
29,014
1,323
8,509
38,846
(2,877)
(550)
(3,427)
Other Property and SME/other
personal construction commercial
€ m
€ m
€ m
2,590
203
1,044
3,837
(716)
(52)
(768)
6,226
475
8,836
8,991
503
3,395
15,537
12,889
(5,478)
(174)
(2,054)
(254)
(5,652)
(2,308)
Corporate
€ m
4,325
20
378
4,723
(190)
(61)
(251)
2014
Total
€ m
51,146
2,524
22,162
75,832
(11,315)
(1,091)
(12,406)
Gross loans and receivables less provisions
35,419
3,069
9,885
10,581
4,472
63,426
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
Total provisions for impairment
Residential
mortgages
€ m
29,688
1,993
9,083
40,764
(3,333)
(619)
(3,952)
(123)
59
63,362
2013+
Total
€ m
50,354
3,586
28,911
82,851
(15,898)
(1,185)
(17,083)
Corporate
€ m
3,791
40
476
4,307
(228)
(79)
(307)
Other Property and
SME/other
construction commercial
€ m
€ m
personal
€ m
2,536
333
1,423
4,292
(1,092)
(55)
(1,147)
5,913
658
13,176
19,747
(8,136)
(324)
(8,460)
8,426
562
4,753
13,741
(3,109)
(108)
(3,217)
Gross loans and receivables less provisions
36,812
3,145
11,287
10,524
4,000
65,768
Unearned income
Deferred costs
Net loans and receivables
(101)
74
65,741
Gross loans and receivables to customers reduced by 8.5% to € 75.8 billion in 2014. The reduction was driven by a decrease in
criticised loans of € 7.8 billion primarily due to provision write-offs of € 4.7 billion and loan repayments mainly due to asset sales. The
satisfactory portfolio grew by 2% in 2014.
Loans which were neither past due nor impaired increased to 67% of total loans, up from 61% as at 31 December 2013.
+The industry sector ‘lease financing’ is no longer reported by the Group. Accordingly, for December 2013, where tables show a sectoral analysis, lease
financing is re-presented in the relevant sector to which the borrower belongs.
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
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 2% of the portfolio at 31 December 2014, are classified as repayable within
one year. Approximately 7% 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 below includes loans and receivables to customers amounting to Nil (31 December 2013: € 28 million) within disposal
groups and non-current assets held for sale.
Loans and receivables to customers
Fixed
rate
Variable
rate
Total
€ m
Republic of Ireland ......................4,038 ..............59,624 ..............63,662
United Kingdom ..............................898 ..............11,225 ..............12,123
Rest of the World ................................– ....................47 ....................47
€ m
€ m
Total loans by maturity
4,936
70,896
75,832
Fixed
rate
€ m
Variable
rate
€ m
Total
€ m
Republic of Ireland ......................4,375 ..............65,160 ..............69,535
United Kingdom ..............................839 ..............12,369 ..............13,208
Rest of the World ................................– ..................108 ..................108
Total loans by maturity
5,214
77,637
82,851
year
Within 1 After 1 year
but within 5
years
€ m
€ m
24,612
4,529
22
29,163
6,773
2,826
25
9,624
Within 1
year
€ m
30,579
5,468
86
36,133
After 1 year
but within 5
years
€ m
5,452
2,817
20
8,289
After 5
years
€ m
32,277
4,768
–
37,045
After 5
years
€ m
33,504
4,923
2
38,429
2014
Total
€ m
63,662
12,123
47
75,832
2013
Total
€ m
69,535
13,208
108
82,851
88
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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
50
–
21
140
69
6
12
69
552
30
50
999
733
118
148
999
%
1.32
10
–
4
37
18
1
1
26
259
7
14
377
280
36
61
377
%
0.50
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
61–90 days 91–180 days 181–365 days
€ m
€ m
€ m
3
–
1
28
7
–
–
3
151
4
13
210
145
28
37
210
%
0.28
9
–
1
58
28
–
2
10
116
3
18
245
131
27
87
245
%
0.32
15
–
2
58
35
–
–
11
127
1
15
264
128
20
116
264
%
0.35
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
The figures reported are inclusive of overdrafts, bridging loans and cases with expired limits.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2014
> 365 days
€ m
40
3
8
154
31
3
–
24
118
–
48
429
120
14
295
429
%
0.57
> 365 days
€ m
34
1
20
156
32
3
1
19
76
–
47
389
109
25
255
389
%
0.47
2014
Total
€ m
127
3
37
475
188
10
15
143
1,323
45
158
2,524
1,537
243
744
2,524
%
3.33
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
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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)
Loans past due but not impaired reduced by € 1.1 billion to € 2.5 billion or 3.3% of total loans and receivables to customers
(2013: € 3.6 billion or 4.3%).
Residential mortgage loans which were past due but not impaired at 31 December 2014, amounted to € 1.3 billion. This represents 52%
of total loans which were past due but not impaired ( 2013: € 2.0 billion or 56%). The level of residential mortgage loans in early arrears
(less than 30 days) decreased by 36% in 2014, due to active management of early arrears cases and the improving economic
environment. Property and construction loans which were past due but not impaired represent a further 19% or € 0.5 billion of total loans
which were past due but not impaired (2013: 18% or € 0.7 billion), with other personal at 8% or € 0.2 billion (2013: 9% or € 0.3 billion).
*Forms an integral part of the audited financial statements
90
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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 2014
Specific provision cover percentage
38,846
3,837
42,683
15,537
12,889
28,426
4,723
75,832
3,453
691
4,144
8,543
2,981
11,524
378
16,046
5,056
353
5,409
293
414
707
–
8,509
1,044
9,553
8,836
3,395
12,231
378
6,116
22,162
22
27
22
57
26
43
8
29
9,185
2,130
11,315
%
57
%
35
%
51
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
Specific provision cover percentage
40,764
4,292
45,056
19,747
13,741
33,488
4,307
82,851
4,104
866
4,970
12,668
4,054
16,722
476
22,168
4,979
557
5,536
508
699
1,207
–
9,083
1,423
10,506
13,176
4,753
17,929
476
6,743
28,911
22
33
23
67
35
54
11
35
12,875
3,023
15,898
%
58
%
45
%
55
+The industry sector ‘lease financing’ is no longer reported by the Group. Accordingly, for December 2013, where tables show a sectoral analysis, lease
financing is re-presented in the relevant sector to which the borrower belongs.
Specific provisions as a percentage of impaired loans decreased from 55% at 31 December 2013 to 51% at 31 December 2014. This
was mainly driven by restructures and write-offs of provisions within portfolios with higher provision cover which had the impact of
reducing overall cover for the remaining portfolio.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Specific impairment
provisions
% of
impaired
loans
Total
€ m
2,877
716
3,593
5,478
2,054
7,532
190
11,315
34
69
38
62
61
62
50
51
2013+
Specific impairment
provisions
% of
impaired
loans
Total
€ m
3,333
1,092
4,425
8,136
3,109
11,245
228
15,898
37
77
42
62
66
63
48
55
91
Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
Impaired loans for which provisions are held* (continued)
The provision cover for the collectively assessed portfolio reduced from 45% to 35%. This was driven by a lower proportion of
non-mortgage loans within the collective models (smaller loans with lower security and higher provision cover), a reduction in the
mortgage individually insignificant provision cover (due to the improvement in the house price fall from peak assumption), and a
reduction in the individually insignificant non-mortgage provision cover due to provision write-offs and the implementation of a new
individually insignificant non-mortgage model which takes into consideration underlying security as described on page 75.
*Forms an integral part of the audited financial statements
92
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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 2014 and
31 December 2013:
At 1 January
Exchange translation adjustments
(Credit to)/charge against income
statement – customers(1)
Credit to income statement – banks(2)
Amounts written off(3)
Recoveries of amounts written off
in previous years(3)
At 31 December
Total provisions are split as follows:
Specific
IBNR
Amounts include:
Residential
mortgages
€ m
3,952
12
(76)
–
(461)
–
3,427
2,877
550
3,427
Other Property and
SME/Other
personal construction commercial
€ m
€ m
€ m
1,147
9
15
–
8,460
97
(244)
–
3,224
22
81
(7)
Corporate
€ m
307
10
46
–
2014*
Total
€ m
17,090
150
(178)
(7)
(403)
(2,664)
(1,013)
(114)
(4,655)
–
768
716
52
768
3
1
5,652
2,308
5,478
174
5,652
2,054
254
2,308
2
251
190
61
251
Loans and receivables to customers (note 24 to the consolidated financial statements)
At 1 January
Exchange translation adjustments
Other
Charge against income statement – customers(1)
– banks(2)
Amounts written off(3)
Disposals
Recoveries of amounts written off
in previous years(3)
At 31 December
Total provisions are split as follows:
Specific
IBNR
Amounts include:
Residential
mortgages
€ m
Other Property and
construction
€ m
personal
€ m
SME/Other
commercial
€ m
3,206
1,139
8,126
3,478
–
20
813
–
(87)
–
–
(4)
–
125
–
(114)
–
1
(44)
(34)
724
–
(296)
(16)
–
(23)
–
221
3
(456)
–
1
3,952
1,147
8,460
3,224
3,333
619
3,952
1,092
55
1,147
8,136
324
8,460
3,116
108
3,224
Corporate
€ m
583
(5)
–
30
–
(181)
(120)
–
307
228
79
307
Loans and receivables to banks (note 23 to the consolidated financial statements)
Loans and receivables to customers (note 24 to the consolidated financial statements)
(1 )Geographic split :Republic of Ireland a credit of € 205 million (2013: a charge of € 1,726 million); United Kingdom a charge of € 27 million
(2013: a charge of € 185 million) and Rest of the World Nil (2013: a charge of € 2 million).
(2)Geographic split: Republic of Ireland a credit of € 7 million (2013: a charge of € 3 million); United Kingdom Nil (2013: Nil) and Rest of the World Nil
(2013: Nil).
(3)For geographical and sector split, see page 96.
*Forms an integral part of the audited financial statements
6
12,406
11,315
1,091
12,406
12,406
12,406
2013*
Total
€ m
16,532
(76)
(14)
1,913
3
(1,134)
(136)
2
17,090
15,905
1,185
17,090
7
17,083
17,090
Allied Irish Banks, p.l.c. Annual Financial Report 2014
93
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Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
Provisions – income statement
The following table analyses the income statement provision charge/(credit) split between individually significant, individually insignificant
and IBNR for loans and receivables for the years ended 31 December 2014 and 31 December 2013:
Specific provisions – Individually significant loans and receivables
– Individually insignificant loans and receivables
IBNR
Total provisions for impairment charge/(credit) on loans
and receivables to customers
Writeback of provisions for impairment on loans
and receivables to banks
Writeback of provisions for liabilities and commitments
Provisions for impairment on financial investments available for sale
Total
DCB
€ m
188
120
(105)
203
AIB UK
€ m
97
32
(59)
70
FSG
€ m
(335)
(177)
61
2014*
Total
€ m
(50)
(25)
(103)
(451)
(178)
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 on loans and receivables to banks
Provisions charge for liabilities and commitments
Writeback of provisions for impairment 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
(7)
(4)
1
(188)
2013*
Total
€ m
1,458
600
(145)
1,913
3
17
(9)
1,924
*Forms an integral part of the audited financial statements
94
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.1 Credit risk – Credit profile of the loan portfolio
Provisions – income statement (continued)
The following table analyses by segment the income statement impairment provision charge/(credit) for the years ended 31 December
2014 and 31 December 2013:
DCB
AIB UK
FSG
Total
Residential
mortgages
€ m
(24)
17
(69)
(76)
Other
€ m
227
53
(382)
(102)
2014*
Total
€ m
203
70
(451)
(178)
Residential
mortgages
€ m
679
(9)
143
813
Other
€ m
171
175
754
2013*
Total
€ m
850
166
897
1,100
1,913
The following table analyses by segment the income statement impairment provision charge/(credit) as a percentage of average loans
expressed as basis points (“bps”) for the years ended 31 December 2014 and 31 December 2013:
DCB
AIB UK
FSG
Total
Residential
mortgages
bps
(7)
68
(202)
(19)
Other
bps
169
51
2014*
Total
bps
43
54
(235)
(229)
(26)
(22)
Residential
mortgages
bps
195
(34)
384
197
Other
bps
122
154
400
249
2013*
Total
bps
174
118
397
224
Loan impairment provisions reduced from a charge of € 1.9 billion in 2013, to a net writeback of € 178 million in 2014. The writeback
comprised of € 75 million in specific provision writebacks and a release of IBNR provisions of € 103 million (31 December 2013:
€ 2.1 billion charge in specific provisions and release of IBNR provisions of € 145 million).
The specific provision writeback of € 75 million can be split into € 541 million new impairment provisions and a € 616 million writeback
(net of top-ups), which amounted to 2% of opening impaired loans. The writeback was mainly due to the restructuring process described
on page 85 and was driven primarily by increases in asset values, additional security in some cases, and improvements in trading
performance and cash flows. In addition, the house price fall from peak assumption used in the mortgage individually insignificant
provision model was changed from 55% at 31 December 2013 to 50% during 2014. This resulted in a specific provision writeback of
approximately € 130 million.
The 2014 income statement provision charge of € 203 million in DCB comprises a specific charge of € 308 million and an IBNR release
of € 105 million. This compares to an income statement specific provision charge of € 713 million and an IBNR charge of € 137 million
for 2013. The provision charge reduced mainly due to a lower level of new impairments, and the impact of the improvement in the house
price fall from peak assumption.
The 2014 income statement provision recovery of € 451 million in FSG comprises a writeback of specific provisions of € 512 million and
an IBNR charge of € 61 million. This compares to an income statement specific provision charge of € 1,091 million and an IBNR release
of € 194 million for 2013. The specific provision turnaround in 2014 was driven primarily by an increase in writebacks (net of top-ups)
and by a lower level of new impairments. The IBNR charge of € 61 million in 2014 was mainly due to an increase in IBNR for the SME
sector due to increased risks observed within the portfolio during 2014.
The impairment provision charge in AIB UK decreased from € 166 million to € 70 million reflecting continued improvement in economic
conditions during 2014.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2014
95
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Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
Loans written off and recoveries of previously written off loans
The following table analyses loans written off and recoveries of previously written off loans by geography and industry sector for the
years ended 31 December 2014 and 2013.
Loan
Loans written off
IRELAND
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal – Residential mortgages
– Other
UNITED KINGDOM
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal – Residential mortgages
– Other
REST OF THE WORLD
Energy
Manufacturing
Property and construction
Distribution
Transport
Other services
TOTAL
2014
€ m
56.2
14.3
80.9
2,257.3
530.3
58.9
53.9
191.4
447.4
385.0
4,075.6
1.6
–
8.3
407.1
77.0
0.5
6.0
34.4
13.9
17.5
566.3
1.6
–
–
–
–
11.4
13.0
2013
€ m
2.9
0.3
40.3
158.9
291.4
57.0
38.2
47.3
66.7
91.3
794.3
0.2
–
18.6
128.0
106.7
1.7
0.4
54.7
10.6
8.9
329.8
2.4
–
6.6
0.4
–
0.1
9.5
4,654.9
1,133.6
Recoveries of loans
previously written off
2013
€ m
2014
€ m
–
–
0.1
0.3
0.1
–
0.1
0.6
–
0.1
1.3
–
–
–
3.1
–
–
–
–
–
–
3.1
1.2
–
–
–
–
–
1.2
5.6
–
–
0.1
–
–
–
0.1
–
–
0.8
1.0
–
–
–
0.4
0.1
–
0.3
–
–
–
0.8
–
–
–
–
–
–
–
1.8
Write-offs as a percentage of total loans and receivables at 1 January 2014, equated to 5.6% compared to 1.3% for 2013.
96
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.1 Credit risk – Credit profile of the loan portfolio
Loans and receivables to customers – Residential mortgages
Residential mortgages amounted to € 38.8 billion at 31 December 2014, with the majority (94%) relating to residential mortgages in the
Republic of Ireland and the remainder relating to the United Kingdom. This compares to € 40.8 billion at 31 December 2013, of which
94% related to residential mortgages in the Republic of Ireland. The split of the residential mortgage book was owner-occupier
€ 31.8 billion and buy-to-let € 7.0 billion (31 December 2013: owner-occupier € 33 billion and buy-to-let € 7.8 billion). There was an
impairment provision credit of € 76 million to the income statement in 2014 comprising a € 4 million specific writeback and a € 72 million
IBNR release (2013: € 0.8 billion comprising € 0.7 billion specific charge and a € 0.1 billion IBNR charge). Statement of financial position
provisions of € 3.4 billion were held at 31 December 2014, split € 2.9 billion specific and € 0.5 billion IBNR (31 December 2013:
€ 3.9 billion split € 3.3 billion specific and € 0.6 billion IBNR).
This section provides the information listed below in relation to residential mortgages.
Republic of Ireland residential mortgages – pages 98 to 107
– 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 that were past due but not impaired
– Collateral value of residential mortgages that were past due but not impaired
– Residential mortgages that were impaired
– Properties in possession
– Repossessions disposed of
United Kingdom (“UK”) residential mortgages – pages 108 to 114
– 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 that were past due but not impaired
– Collateral value of UK residential mortgages that were past due but not impaired
– UK residential mortgages that were impaired
– UK properties in possession
Residual debt, which is now unsecured following the disposal of property on which the residential mortgage was secured, is included in
the residential mortgage portfolio and as such, is included in the tables within this section.
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3
Allied Irish Banks, p.l.c. Annual Financial Report 2014
99
Risk management – 3. Individual risk types
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 amounted to € 36.3 billion at 31 December 2014 compared to € 38.2 billion at
31 December 2013. The decrease in the portfolio was observed mainly in the criticised grades and was due to amortisation and
restructuring. Total drawdowns in 2014 were € 1.3 billion, of which 97% related to owner-occupier, whilst the weighted average indexed
loan-to-value for new residential mortgages was 70%, down from 72% in 2013.
The split of the residential mortgage portfolio is 82% owner-occupier and 18% buy-to-let and comprised 40% tracker rate, 52%
variable rate and 8% fixed rate mortgages. The proportion of the total residential mortgage portfolio in negative equity decreased from
51% at 31 December 2013 to 34% at 31 December 2014 reflecting the increase in residential property prices in Ireland during 2014 and
loan amortisation, whilst the quantum of negative equity in the book reduced from € 4.6 billion to € 2.7 billion.
Residential mortgage arrears
Total loans in arrears in the Republic of Ireland residential mortgage portfolio decreased by 18% during the year, reflecting a decrease of
22% in the owner-occupier portfolio and a decrease of 7% in the buy-to-let portfolio. The amount of loans which were new into arrears in
2014 fell by 43% in comparison to those entering arrears for the first time in 2013. These decreases in arrears can be attributed to
increased restructuring activity and improved economic conditions which was evident in both the early arrears (less than 90 days past
due) and the late arrears (greater than 90 days past due).
Total loans in arrears greater than 90 days at 11.3% decreased in the year to 31 December 2014 and remain below the industry
average of 12.9%(1). For the owner-occupier book, loans in arrears greater than 90 days at 9.0% were below the industry average of
11.2%. For the buy-to-let book, loans in arrears greater than 90 days at 24.7% exceeded the industry average of 22.1%.
Forbearance
The Group has maintained a strong focus on restructuring the residential mortgage portfolio during the year. The Group has
successfully met its Mortgage Arrears Resolution Targets (“MART”), with sustainable solutions offered to 100% of loans greater than 90
days past due (as defined by MART), with 58% deemed concluded at the year end, of which 87% were meeting the terms of their
agreement at 31 December 2014.
Residential mortgages subject to forbearance measures increased by € 0.6 billion to € 5.6 billion at 31 December 2014, compared to a
decrease of € 0.8 billion in 2013. A key feature of the forbearance portfolio is the growth in the proportion of advanced forbearance
solutions (split mortgages, low fixed interest rate voluntary sale for loss, negative equity trade down and positive equity solutions) driven
by the Group's strategy to deliver sustainable long-term solutions to customers and support customers in remaining in their family home.
Details of forbearance measures are set out in Section 3.2 below.
Impairment provisions
Impaired loans decreased from € 8.8 billion at 31 December 2013 to € 8.2 billion at 31 December 2014, mainly due to restructuring,
write-offs of provisions and amortisation through asset sales. The level of newly impaired loans declined by 37% in 2014.
There was a specific provision writeback of € 32 million in the year compared to a € 662 million charge for 2013. This can be split into a
charge for new impairments of € 186 million and a writeback of provisions (net of top-ups) of € 218 million. The writeback was due to a
change in the assumption used in the individually insignificant and IBNR mortgage model for the house price fall from peak from 55% to
50% and the impact of restructuring. The specific provision cover level reduced from 36.5% to 33.2% during the year as a result.
An IBNR release in 2014 of € 61 million compares to a charge of € 160 million in 2013. This was mainly due to the change in the house
price fall from peak assumption as described above and a reduction in required IBNR for the non-impaired forbearance portfolio off-set
by an increase in emergence period.
Specific provisions of € 0.9 billion were held against the forborne impaired portfolio of € 3.3 billion providing cover of 26.9%. In relation
to the non-impaired forborne portfolio of € 2.3 billion, of which € 0.7 billion is on an interest only arrangement or an arrangement to
repay amounts greater than interest only, IBNR impairment provisions of € 0.1 billion were held at 31 December 2014.
(1)Source: Central Bank of Ireland (“CBI”) Residential Mortgage Arrears and Repossessions Statistics as at 30 September 2014, based on numbers of
accounts.
*Forms an integral part of the audited financial statements
100
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.1 Credit risk – Credit profile of the loan portfolio
Loans and receivables to customers – Republic of Ireland residential mortgages (continued)
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 2014 and 31 December 2013:
Republic of Ireland
1996 and before
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Total
Total
Impaired
Total
Impaired
2014*
2013*
Number
Balance
€ m
Number
Balance
€ m
Number
Balance
€ m
6,144
2,831
3,447
4,601
6,095
6,737
10,551
14,856
20,060
28,295
36,280
35,222
33,384
22,040
15,404
4,653
6,752
5,646
6,060
149
70
114
198
308
423
835
1,402
2,339
3,725
5,807
5,871
5,607
3,335
2,282
682
1,049
906
1,222
954
350
503
658
855
919
1,549
2,469
3,633
5,739
8,672
8,701
6,917
2,835
947
109
28
7
2
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14
24
46
66
80
170
315
567
1,035
1,841
1,852
1,465
519
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3,131
3,851
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6,589
7,179
11,210
15,670
21,425
29,435
37,137
35,944
34,075
23,045
15,877
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6,934
5,863
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87
144
236
357
484
945
1,575
2,576
4,080
6,307
6,334
6,066
3,578
2,419
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1,116
921
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902
978
1,596
2,562
3,686
5,821
8,660
8,624
6,827
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72
89
183
348
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1,117
2,003
1,965
1,580
512
153
20
4
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45,847
8,217
275,563
38,151
45,948
8,788
The majority (€ 21.0 billion or 58%) of the € 36.3 billion residential mortgage book originated between 2005 and 2008, of which 29%
(€ 6.2 billion) was impaired at 31 December 2014. This was driven by reduced household income and increased unemployment in the
last number of years, and reflects the decrease in property prices since their peak in 2007. 16% of the residential mortgage portfolio was
originated before 2005 of which 23% was impaired at 31 December 2014, while the remaining 26% of the portfolio was originated since
2009 of which 7% was impaired at 31 December 2014.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Risk management – 3. Individual risk types
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 in the Republic of Ireland for
November 2014. The CSO Residential Property Price Index for November 2014 reported that national residential property prices were
38% lower than their highest level in early 2007 and reported an annual increase in residential property prices of 16% in the year to
30 November 2014.
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 2014 and 31 December 2013:
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%
Unsecured
Owner-occupier
€ m
%
5,307
5,542
3,256
3,386
2,794
4,328
3,998
947
73
17.9
18.7
11.0
11.4
9.4
14.6
13.5
3.2
0.3
Total
Weighted average indexed loan-to-value(1):
Stock of residential mortgages at year end
New residential mortgages issued during year
Impaired residential mortgages
29,631
100.0
83.6
70.5
107.0
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
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
%
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
30,714
100.0
Buy-to-let
2014*
Total
%
12.0
13.4
8.1
8.8
10.2
17.1
17.4
11.7
1.3
€ m
6,109
6,435
3,801
3,976
3,477
5,475
5,162
1,727
162
%
16.8
17.7
10.5
11.0
9.6
15.0
14.2
4.8
0.4
100.0
36,324
100.0
101.4
55.2
119.8
Buy-to-let
%
8.0
9.0
6.1
6.8
7.8
16.5
22.3
23.5
87.1
70.0
112.4
2013*
Total
%
12.4
11.8
8.1
8.1
8.8
17.2
18.9
14.7
€ m
4,727
4,504
3,114
3,092
3,347
6,548
7,211
5,608
100.0
38,151
100.0
€ m
802
893
545
590
683
1,147
1,164
780
89
6,693
€ m
597
670
454
503
582
1,229
1,658
1,744
7,437
98.9
72.2
124.6
119.0
61.6
137.5
102.8
71.9
130.0
(1)Weighted average indexed loan-to-values are the individual indexed loan-to-value calculations weighted by the mortgage balance against each property.
31% of the total owner-occupier and 46% of the total buy-to-let mortgages were in negative equity at 31 December 2014, compared to
48% and 62% respectively at 31 December 2013. The weighted average indexed loan-to-value for the total residential mortgage book
was 87.1% at 31 December 2014 compared to 102.8% at 31 December 2013, with the reduction driven primarily by the increase in
property prices in 2014, coupled with amortisation of the loan book.
*Forms an integral part of the audited financial statements
102
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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 mortgages that were neither past due nor impaired by the indexed
loan-to-value ratios at 31 December 2014 and 31 December 2013:
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%
Unsecured
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
2014*
Total
€ m
4,739
4,799
2,785
2,851
2,244
3,290
2,706
235
7
%
€ m
20.0
20.3
11.8
12.0
9.5
13.9
11.5
1.0
0.0
613
615
330
333
360
490
331
133
4
%
19.1
19.2
10.3
10.4
11.2
15.3
10.3
4.1
0.1
€ m
5,352
5,414
3,115
3,184
2,604
3,780
3,037
368
11
%
19.9
20.2
11.6
11.8
9.7
14.1
11.3
1.4
0.0
23,656
100.0
3,209
100.0
26,865
100.0
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
The proportion of residential mortgages that was neither past due nor impaired and in negative equity at 31 December 2014 decreased
in comparison to 31 December 2013, reflecting residential property price increases during the year, coupled with amortisation of the loan
book. 27% of residential mortgages that were neither past due nor impaired were in negative equity at 31 December 2014 compared to
43% at 31 December 2013.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Risk management – 3. Individual risk types
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 mortgages that were greater than 90 days past due and/or impaired by the
indexed loan-to-value ratios at 31 December 2014 and 31 December 2013:
Owner-occupier
Buy-to-let
Total
2014*
Total
residential
mortgage
portfolio
€ m
451
620
396
456
467
900
1,161
699
65
%
8.6
11.9
7.6
8.7
9.0
17.2
22.3
13.4
1.3
€ m
169
253
201
242
304
630
815
638
85
%
5.1
7.6
6.0
7.2
9.1
18.9
24.5
19.1
2.5
5,215
100.0
3,337
100.0
€ m
620
873
597
698
771
1,530
1,976
1,337
150
8,552
%
7.2
10.2
7.0
8.2
9.0
17.9
23.1
15.6
1.8
€ m
6,109
6,435
3,801
3,976
3,477
5,475
5,162
1,727
162
%
16.8
17.7
10.5
11.0
9.6
15.0
14.2
4.8
0.4
100.0
36,324
100.0
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
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%
Unsecured
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
2014 (57%) decreased in comparison to 31 December 2013 (73%), reflecting the increases in residential property prices during the
year.
*Forms an integral part of the audited financial statements
104
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.1 Credit risk – Credit profile of the loan portfolio
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 2014 and
31 December 2013:
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
23,656
971
5,004
29,631
(1,814)
27,817
Buy-to-let
€ m
3,209
271
3,213
6,693
(1,442)
5,251
2014*
Total
€ m
26,865
1,242
8,217
36,324
(3,256)
33,068
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
The percentage of the portfolio which is neither past due nor impaired increased in 2014 to 74% from 72% at 31 December 2013.
Residential mortgages that were past due but not impaired
Residential mortgages are assessed for impairment if they are past due, typically, for more than 90 days or if the borrower exhibits an
inability to meet their 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 cash flows, 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 mortgages that were past due but not impaired at 31 December 2014
and 31 December 2013:
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
456
195
109
73
79
59
971
Total gross residential mortgages
29,631
Buy-to-let
€ m
76
48
23
34
40
50
271
6,693
2014*
Total
€ m
532
243
132
107
119
109
Owner-
occupier
€ m
739
324
224
165
72
28
1,242
36,324
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
1,873
38,151
The amount of loans past due but not impaired at 31 December 2014 decreased by 34% when compared to 31 December 2013, driven
by the improved economic environment and an increased focus on the management of early arrears.
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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3.1 Credit risk – Credit profile of the loan portfolio
Collateral value of residential mortgages that were past due but not impaired
The following table profiles the collateral value of Republic of Ireland residential mortgages that were past due but not impaired at
31 December 2014 and 31 December 2013:
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
428
181
101
71
76
57
914
Buy-to-let
€ m
71
44
21
30
37
43
2014*
Total
€ m
499
225
122
101
113
100
Owner-
occupier
€ m
648
281
192
147
68
27
Buy-to-let
€ m
82
43
33
52
38
27
2013*
Total
€ m
730
324
225
199
106
54
246
1,160
1,363
275
1,638
The collateral value for the past due but not impaired portfolio was equal to 93% of the outstanding loan balances at 31 December 2014,
an increase from 87% at 31 December 2013.
Residential mortgages that were impaired
The following table profiles the Republic of Ireland residential mortgages that were impaired at 31 December 2014 and
31 December 2013:
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
1,174
267
125
101
306
536
2,495
5,004
Total gross residential mortgages
29,631
Buy-to-let
€ m
706
98
67
60
180
352
1,750
3,213
6,693
2014*
Total
€ m
1,880
365
192
161
486
888
4,245
8,217
Owner-
occupier
€ m
686
173
146
152
615
916
2,442
5,130
36,324
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
38,151
Impaired loans decreased by € 0.6 billion during 2014 due to restructuring and write-offs of provisions. In addition the rate of new
impairment slowed significantly in 2014 in comparison to 2013, driven by an improved economic environment. Of the residential
mortgage portfolio that was impaired at 31 December 2014, € 1.9 billion or 23% was not past due (2013: € 1.6 billion or 18%), of which
€ 1.2 billion (2013: € 0.8 billion) was subject to forbearance measures at 31 December 2014. This includes c. € 0.3 billion which were
subject to advanced forbearance (mainly split mortgages) which remain impaired for a probation period (typically 12 months) following
restructure.
*Forms an integral part of the audited financial statements
106
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.1 Credit risk – Credit profile of the loan portfolio
Republic of Ireland residential mortgages – properties in possession(1)
AIB seeks to avoid repossession through working with customers, but where agreement cannot be reached, AIB proceeds to
repossession of the property or the appointment of a 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 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.
For the purpose of the following table, a residential property is considered to be in AIB’s possession when AIB has taken possession of
and is in a position to dispose of the property. This includes situations of repossession, voluntary surrender and abandonment of the
property. This is a change from repossessions reported prior to 2014. Accordingly, the stock of residential properties in possession at
31 December 2013 now includes 218 properties which were in AIB’s possession through abandonment, but where AIB had not secured
legal title. The Group intends to dispose of all such properties in the foreseeable future.
The number (stock) of properties in possession at 31 December 2014 and 31 December 2013 is set out below:
Owner-occupier
Buy-to-let
Total
2014*
Balance
outstanding
€ m
145
19
164
Stock
548
82
630
Stock
308
70
378
2013*
Balance
outstanding
€ m
82
18
100
(1)The number of residential properties in possession relates to those held as security for residential mortgages only.
The increase in the stock of residential properties in possession in 2014 relates to the addition of 352 properties (2013: 119 properties),
partly offset by the disposal of 100 properties (2013: 92 properties). There has been a significant increase in stock due to the focus on
restructuring during the year. The majority of the properties taken into possession 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 2014 and 31 December 2013:
Number of Outstanding Gross sales
proceeds
balance at
disposals
repossession
on
disposal
date
€ m
€ m
60
40
100
17
12
29
7
5
12
Number of
disposals
Outstanding
balance at
repossession
date
€ m
Gross sales
proceeds
on
disposal
€ m
67
25
92
19
8
27
6
3
9
Costs
to
sell
€ m
–
–
–
Costs
to
sell
€ m
1
–
1
Loss on
sale(1)
2014*
Average
loan-to-
value at
sale price %
€ m
10
7
17
234
252
241
Loss on
sale(1)
2013*
Average
loan-to-
value at
sale price %
€ m
14
5
19
277
279
278
Owner-occupier
Buy-to-let
Total
Owner-occupier
Buy-to-let
Total
(1)Before specific impairment provisions.
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The disposal of 100 residential properties in the Republic of Ireland resulted in a total loss on disposal of € 17 million (before specific
impairment provisions) and compares to 2013 when 92 residential properties were disposed of resulting in a total loss of € 19 million.
Losses on the sale of such properties are recognised in the income statement as part of the specific provision charge.
*Forms an integral part of the audited financial statements
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
107
Risk management – Individual risk types
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 2014
and 31 December 2013:
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 charge/credit)
Income statement specific provisions
Income statement IBNR provisions
Total impairment charge/(credit)
(1)Includes all impaired loans whether past due or not.
Owner-
occupier
€ m
2,177
293
262
239
119
16
%
49.7
€ m
24
(10)
14
Buy-to-let
€ m
345
60
56
53
34
2
%
64.2
€ m
4
(1)
3
2014*
Total
€ m
2,522
353
318
292
153
18
%
52.4
€ m
28
(11)
17
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)
The UK mortgage portfolio is predominantly based in Northern Ireland (74% of total) with the remainder located in Great Britain.
Total loans in arrears in the UK residential mortgage portfolio decreased in the twelve months to December 2014 driven by improved
economic conditions, with total loans in arrears greater than 90 days reducing from 12.5% to 11.1%. Statement of financial position
specific provisions of € 153 million were held at 31 December 2014 and provided cover of 52.4% (31 December 2013: € 129 million
providing cover of 43.8%). The cover increased in 2014 due to a change in the UK individually insignificant model assumption for
disposal costs and a reduced market valuation for a small number of high value properties.
Statement of financial position IBNR provisions of € 18 million were held at 31 December 2014, down from € 27 million at 31 December
2013, reflecting an improvement in estimated incurred loss in the non-impaired portfolio.
*Forms an integral part of the audited financial statements
108
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.1 Credit risk – Credit profile of the loan portfolio
United Kingdom residential mortgages by year of origination
The following table profiles the UK total residential mortgage portfolio and impaired residential mortgage portfolio by year of origination
at 31 December 2014 and 31 December 2013:
United Kingdom
1996 and before
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Total
Total
Impaired
Total
Impaired
Number
Balance
€ m
Number
Balance
€ m
Number
Balance
€ m
Number
Balance
€ m
2014*
2013*
389
85
104
229
226
4,210
1,453
1,964
2,263
3,025
4,002
3,531
1,428
702
370
178
196
326
409
19
4
5
13
12
133
79
138
183
291
500
608
249
82
44
18
25
44
75
4
–
5
2
2
176
82
164
161
305
440
499
117
34
11
3
1
1
–
–
–
–
–
–
9
4
16
12
31
66
112
30
6
6
–
–
–
–
501
108
137
282
272
4,681
1,573
2,153
2,456
3,195
4,237
3,712
1,563
800
403
203
203
333
–
23
4
7
14
18
148
89
146
196
304
515
638
277
96
47
21
26
44
–
4
–
5
–
2
208
76
195
181
309
462
497
108
26
10
5
1
–
–
–
–
–
–
–
10
4
17
14
33
69
112
26
8
1
1
–
–
–
25,090
2,522
2,007
292
26,812
2,613
2,089
295
The majority (€ 1.6 billion or 65%) of the € 2.5 billion residential mortgage book in the UK was originated between 2005 and 2008, of
which 14% (€ 0.2 billion) was impaired at 31 December 2014 driven by reduced household income and reflecting the decrease in
property prices since their peak in 2007. 23% of the residential mortgage portfolio was originated before 2005 of which 7% was impaired
at 31 December 2014, while the remaining 12% of the portfolio was originated since 2009 of which 4% was impaired at 31 December
2014.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
109
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Risk management – 3. Individual risk types
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 for Quarter 3 2014. The index for Quarter 3 2014
reported that house prices across the UK increased by 8% for the year to the end of Quarter 3 2014.
In Northern Ireland (which includes 74% of the UK residential mortgage portfolio), the Nationwide HPI for Quarter 3 2014 reported that
house prices were 47% lower than their peak in 2007 and reported an increase of 7% for the year to the end of Quarter 3 2014.
Actual and weighted average indexed loan-to-value ratios of United Kingdom residential mortgages
The following table profiles the UK residential mortgage portfolio by the indexed loan-to-value ratios and the weighted average indexed
loan-to-value ratios at 31 December 2014 and 31 December 2013:
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%
Unsecured
Total
Weighted average indexed loan-to-value(1):
Stock of residential mortgages at year end
New residential mortgages issued during year
Impaired residential mortgages
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%
Owner-occupier
€ m
%
580
423
232
202
141
184
198
183
34
26.6
19.5
10.6
9.3
6.5
8.4
9.1
8.4
1.6
Buy-to-let
2014*
Total
€ m
79
39
23
22
19
49
61
36
17
%
22.9
11.4
6.7
6.3
5.4
14.1
17.7
10.5
5.0
€ m
659
462
255
224
160
233
259
219
51
%
26.1
18.4
10.1
8.9
6.3
9.2
10.3
8.7
2.0
2,177
100.0
345
100.0
2,522
100.0
81.2
68.9
129.9
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
91.6
50.1
129.6
Buy-to-let
%
16.6
13.1
5.8
6.9
5.5
9.3
15.6
27.2
100.0
105.4
60.1
151.0
82.6
68.8
129.9
2013*
Total
%
20.6
16.3
8.9
9.4
7.0
10.4
11.7
15.7
€ m
539
425
233
244
184
272
305
411
2,613
100.0
92.0
73.0
123.8
Total
Weighted average indexed loan-to-value(1):
Stock of residential mortgages at year end
New residential mortgages issued during year
Impaired residential mortgages
2,252
100.0
361
89.9
73.1
118.6
(1)Weighted average indexed loan-to-values are the individual indexed loan-to-value calculations weighted by the mortgage balance against each property.
26% of the total owner-occupier and 42% of the total buy-to-let mortgages were in negative equity at 31 December 2014, compared to
36% and 52% respectively at 31 December 2013, driven primarily by the increase in property prices in 2014, coupled with amortisation
of the loan book. The weighted average indexed loan-to-value for the total residential mortgage book was 82.6% at 31 December 2014
compared to 92.0% at 31 December 2013, reflecting the increase in residential property prices in the period.
*Forms an integral part of the audited financial statements
110
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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 mortgages that were neither past due nor impaired by the indexed loan-to-value ratios at
31 December 2014 and 31 December 2013:
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
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
Owner-occupier
Buy-to-let
€ m
544
388
210
178
122
160
161
104
%
29.1
20.8
11.3
9.5
6.5
8.6
8.6
5.6
€ m
76
35
22
19
16
39
51
24
%
27.0
12.2
7.7
6.8
5.8
13.7
18.1
8.7
2014*
Total
%
28.9
19.7
10.8
9.1
6.4
9.2
9.9
6.0
€ m
620
423
232
197
138
199
212
128
1,867
100.0
282
100.0
2,149
100.0
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
Residential mortgages that were neither past due nor impaired and in negative equity at 31 December 2014 decreased in comparison to
31 December 2013, reflecting the increases in residential property prices in the year. 25% of residential mortgages that were neither
past due nor impaired were in negative equity at 31 December 2014 compared to 34% at 31 December 2013.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
111
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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 greater than 90 days past
due and/or impaired
The following table profiles the UK residential mortgages that were greater than 90 days past due and/or impaired by the indexed loan-
to-value ratios at 31 December 2014 and 31 December 2013:
Owner-occupier
Buy-to-let
Total
€ m
24
25
18
20
16
19
34
72
34
%
9.4
9.6
6.9
7.5
6.1
7.2
12.9
27.5
12.9
262
100.0
€ m
2
3
2
2
2
9
9
10
17
56
%
3.2
5.2
2.6
3.9
3.3
16.9
15.5
18.3
31.1
€ m
26
28
20
22
18
28
43
82
51
%
8.3
8.8
6.2
6.9
5.6
8.9
13.3
25.9
16.1
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
2014*
Total
residential
mortgage
portfolio
€ m
659
462
255
224
160
233
259
219
51
%
26.1
18.4
10.1
8.9
6.3
9.2
10.3
8.7
2.0
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
100.0
318
100.0
2,522
100.0
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%
Unsecured
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 (excluding
unsecured loans) at 31 December 2014, decreased in comparison to 31 December 2013, driven by a decrease in the amount of loans
greater than 90 days past due and/or impaired at year end coupled with an increase in property prices in the year.
*Forms an integral part of the audited financial statements
112
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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 2014 and 31 December 2013:
United Kingdom
Neither past due nor impaired
Past due but not impaired
Impaired - provisions held
Gross residential mortgages
Provisions for impairment
Owner-
occupier
€ m
1,867
71
239
2,177
(135)
2,042
Buy-to-let
€ m
282
10
53
345
(36)
309
2014*
Total
€ m
2,149
81
292
2,522
(171)
2,351
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
United Kingdom residential mortgages that were past due but not impaired
Residential mortgages are assessed for impairment if they are past due, typically for more than 90 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 expected future cash flows either from the loan itself or from associated collateral
will not be sufficient to repay the loan 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 UK residential mortgages that were past due but not impaired at 31 December 2014 and 31 December
2013:
United Kingdom
1 - 30 days
31 - 60 days
61 - 90 days
91 - 180 days
181 - 365 days
Over 365 days
Total
Owner-
occupier
€ m
17
13
18
8
7
8
71
Buy-to-let
€ m
3
3
1
1
1
1
10
2014*
Total
€ m
20
16
19
9
8
9
81
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
Collateral value of United Kingdom residential mortgages that were past due but not impaired
The following table profiles the collateral value of UK residential mortgages that were past due but not impaired at 31 December 2014
and 31 December 2013:
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
15
11
16
8
7
7
64
2
2
1
1
1
1
8
2014*
Total
€ m
17
13
17
9
8
8
72
*Forms an integral part of the audited financial statements
Owner-
occupier
€ m
Buy-to-let
€ m
19
13
13
14
18
13
90
2
3
2
2
6
–
2013*
Total
€ m
21
16
15
16
24
13
15
105
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Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
United Kingdom residential mortgages that were impaired
The following table profiles the UK residential mortgages that were impaired at 31 December 2014 and 31 December 2013:
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
Owner-
occupier
€ m
Buy-to-let
€ m
13
3
6
8
19
34
156
239
3
–
2
1
3
13
31
53
345
2014*
Total
€ m
16
3
8
9
22
47
187
292
2,522
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
2,613
Total gross residential mortgages
2,177
The stock of impaired loans remained stable at 31 December 2014 in comparison to 31 December 2013.
United Kingdom residential mortgages – properties in possession(1)
For the purpose of the following table, a residential property is considered to be in AIB’s possession when AIB has taken possession of
and is in a position to dispose of the property. This includes situations of repossession, voluntary surrender and abandonment of the
property.
The number (stock) of properties in possession as at 31 December 2014 and 31 December 2013 is set out below:
Owner-occupier
Buy-to-let
Total
Stock
72
33
105
2014*
Balance
outstanding
€ m
26
5
31
Stock
136
76
212
2013*
Balance
outstanding
€ m
36
14
50
(1)The number of residential properties in possession relates to those held as security for residential mortgages only.
The decrease in the stock of residential properties in possession relates to the disposal of 234 properties during 2014 and the removal
of 12 properties from the stock following the clearance of arrears on the related mortgages, partly off-set by taking 139 properties into
possession.
The disposal of 234 residential properties in possession resulted in a loss on disposal of € 28 million before specific impairment
provisions (31 December 2013: disposal of 205 properties resulting in a loss on disposal of € 24 million). Losses on the sale of
properties in possession are recognised in the income statement as part of the specific provision charge.
*Forms an integral part of the audited financial statements
114
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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 2014 and 31 December 2013:
DCB
€ m
AIB UK
€ m
Analysed as to asset quality
Satisfactory
Watch
Vulnerable
Impaired
Total criticised loans
1,914
143
131
153
427
Total gross loans and receivables
2,341
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
%
18
7
€ m
112
28
140
%
73
92
6
253
46
38
70
154
407
%
38
17
€ m
53
2
55
%
76
79
14
FSG
€ m
58
33
177
821
1,031
1,089
%
95
75
€ m
551
22
573
%
67
70
53
2014*
Total
€ m
2,225
222
346
1,044
1,612
3,837
%
42
27
€ m
716
52
768
%
69
74
20
DCB
€ m
AIB UK
€ m
1,909
169
132
108
409
2,318
%
18
5
€ m
75
29
104
%
69
96
4
259
46
50
77
173
432
%
40
18
€ m
54
3
57
%
70
74
13
Income statement charge/(credit)
€ m
€ m
€ m
€ m
€ m
€ m
Specific
IBNR
Total impairment charge/(credit)
Impairment charge/(credit)
50
–
50
%
3
(2)
1
%
(35)
(1)
(36)
%
18
(3)
15
%
41
6
47
%
3
(9)
(6)
%
FSG
€ m
58
41
205
1,238
1,484
1,542
%
96
80
€ m
963
23
986
%
78
80
64
€ m
103
(19)
84
%
2013*
Total
€ m
2,226
256
387
1,423
2,066
4,292
%
48
33
€ m
1,092
55
1,147
%
77
81
27
€ m
147
(22)
125
%
/average loans
2.19
0.39
(2.63)
0.38
1.99
(1.29)
5.08
2.83
The other personal lending portfolio at € 3.8 billion reduced by € 0.5 billion during the year and comprises € 2.9 billion in loans and
overdrafts and € 0.9 billion in credit card facilities.
During 2014, the level of loans and receivables with satisfactory credit quality remained stable, with debt amortisation offset by new
lending. This is in contrast to the decline in satisfactory grades experienced in 2012 and 2013, where amortisation exceeded the
demand for credit. An increase in demand for personal loans which was observed during the year, was particularly evident in the second
half of the year, due to both the improved economic environment and an expanded product offering, including on-line approval through
internet and telephone banking applications.
The portfolio experienced a € 0.5 billion reduction in criticised loans in 2014, of which € 0.4 billion was written off. At 31 December 2014,
€ 1.6 billion or 42% of the portfolio was criticised of which impaired loans amounted to € 1.0 billion (2013: € 2.1 billion or 48% and
€ 1.4 billion).
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Risk management - 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
Loans and receivables to customers – Other personal lending (continued)
The reduction in the specific provision cover on impaired loans of 8% in the year is mainly due to the impact of write-offs of provisions on
loans within the portfolio with higher provision cover as well as the implementation of a new individually insignificant non-mortgage
model which takes into consideration underlying security, where available, as described on page 75.
The specific provision cover in DCB increased from 69% to 73% due to an increase in smaller loans and credit card exposures (with
higher provision cover) within the impaired loans.
The reduced income statement provision charge was due to a lower level of new impairments compared with 2013 and provision
writebacks due to restructuring and the new individually insignificant non-mortgage model. Provisions from new impairments amounted
to € 75 million.
116
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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 2014 and 31 December 2013:
Investment
Commercial investment
Residential investment
Land and development
Commercial development
Residential development
Contractors
Housing associations
DCB
€ m
AIB UK
€ m
2,078
269
2,347
125
101
226
74
–
2,012
798
2,810
84
902
986
154
445
FSG
€ m
4,333
1,166
5,499
786
2,084
2,870
126
–
2014*
Total
€ m
8,423
2,233
10,656
995
3,087
4,082
354
445
DCB
€ m
AIB UK
€ m
2,189
281
2,470
141
105
246
69
–
2,323
781
3,104
184
1,338
1,522
155
427
FSG
€ m
6,031
1,380
7,411
1,067
3,087
4,154
189
–
2013+*
Total
€ m
10,543
2,442
12,985
1,392
4,530
5,922
413
427
Total gross loans and receivables
2,647
4,395
8,495
15,537
2,785
5,208
11,754
19,747
Analysed as to asset quality
Satisfactory
1,554
1,357
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 charge/(credit)
Specific
IBNR
Total impairment charge/(credit)
Impairment charge/(credit)
343
220
530
1,093
%
41
20
€ m
223
25
248
%
42
47
9
€ m
113
(93)
20
%
681
450
1,907
3,038
%
69
43
€ m
1,166
45
1,211
%
61
64
28
€ m
32
(39)
(7)
%
684
145
1,267
6,399
7,811
%
92
75
€ m
4,089
104
4,193
%
64
66
49
€ m
(235)
(22)
(257)
%
1,727
1,398
3,595
1,169
1,937
8,836
383
255
420
11,942
1,058
%
77
57
€ m
5,478
174
5,652
%
62
64
36
€ m
(90)
(154)
(244)
%
%
38
15
€ m
149
123
272
%
35
65
10
€ m
62
3
65
%
788
534
2,488
3,810
%
73
48
€ m
1,459
80
1,539
%
59
62
30
€ m
150
(19)
131
%
472
472
542
10,268
11,282
%
96
87
€ m
6,528
121
6,649
%
63
65
56
€ m
605
(77)
528
%
3,597
1,643
1,331
13,176
16,150
%
82
67
€ m
8,136
324
8,460
%
62
64
43
€ m
817
(93)
724
%
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0.77
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(2.48)
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1.93
2.39
4.39
3.47
+The industry sector ‘lease financing’ is no longer reported by the Group. Accordingly, for December 2013, where tables show a sectoral analysis, lease
financing is re-presented in the relevant sector to which the borrower belongs.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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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 20% of total loans and receivables, or 16% of loans and receivables less impairment
provisions. The portfolio is comprised of 69% investment loans (€ 10.7 billion), 26% land and development loans (€ 4.1 billion) and 5%
other property and construction loans (€ 800 million). AIB UK accounts for 28% of the portfolio.
Overall, the portfolio reduced by € 4.2 billion or 21% during 2014, with all of the reduction coming from the criticised grades. This
reduction is due primarily to the impact of restructuring activity (as described on page 85) and to write-offs, amortisations and
repayments, resulting from asset disposals by customers within the criticised grades. Total provision write-offs for property and
construction for the year were € 2.7 billion. The restructuring of impaired loans during the year resulted in an increase in vulnerable
loans in this sector. Most individually assessed restructured loans are initially graded as vulnerable.
The property market in the Republic of Ireland has seen resurgence in demand as well as increased values. This reflects a more
positive economic environment and increased liquidity which has resulted in a greater level of transactions across all sectors. It is
important to note however, that the improved market demand and values are off a low base. The demand remains particularly evident in
prime locations with demand continuing to be lower in secondary areas. The commercial market in the United Kingdom had a positive
year against a backdrop of increased liquidity from domestic and global investors. Accordingly, the rate of downward grade migration
and new impairments significantly decreased during 2014 as a result of the improved market conditions.
There was a writeback of specific provisions net of top-ups of € 166 million (c. 1% of opening impaired loans) mainly due to the
restructuring process described on page 85. This was partially off-set by provisions for new impairments which amounted to € 76 million.
The IBNR provision has reduced by € 150 million due to a reduction in portfolio risk as a workout strategy has been finalised for most
cases in the portfolio, reducing uncertainty regarding potential losses.
Investment
Property investment loans amounted to € 10.7 billion at 31 December 2014 (31 December 2013: € 13.0 billion) of which € 8.4 billion
related to commercial investment. The reduction was largely as a result of asset sales which reduced loan balances and restructures
within the criticised loan portfolio along with amortisation and repayment of debt. € 7.1 billion of the investment property portfolio related
to loans for the purchase of property in the Republic of Ireland, € 3.3 billion in the United Kingdom, and € 192 million in other
geographical locations.
The commercial property market outperformed expectations in 2014. Greater liquidity, evident across most markets, fuelled the increase
in transactions particularly, in the second half of the year. Prime office rents have been driven upwards by a shortage of supply,
particularly in Dublin 2 and Dublin 4. Price increases are dominated by prime locations, with rural locations remaining fragile. While
there is continued strong demand for prime retail space, 2014 also saw some evidence of rental growth in regional locations. The
positive market conditions combined with the restructuring activity completed during the year resulted in a writeback of provisions.
€ 7.8 billion or 73% of the investment property portfolio was criticised at 31 December 2014 compared with € 10.2 billion or 78% at
31 December 2013. Included in criticised loans was € 5.2 billion loans which were impaired (2013: € 7.6 billion) and on which the Group
had € 2.7 billion in statement of financial position specific provisions, providing cover of 53% (2013: € 3.9 billion or 51%). Total
impairment provisions as a percentage of total loans is 27%, down from 32% at 31 December 2013. The impairment credit to the
income statement of € 193 million on the investment property element of the property and construction portfolio compared to a charge of
€ 465 million in 2013, with the reduction due to increased provision writebacks.
118
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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 2014, land and development loans amounted to € 4.1 billion (2013: € 5.9 billion). € 3.1 billion of this portfolio related to
loans in the Republic of Ireland and € 1 billion in the United Kingdom.
The increase in house price values evident in 2014 combined with a lack of supply of new homes has led to an increased demand for
well located sites with planning permission already in place, and particularly for three and four bedroom houses. Prices remain weak
outside of the main urban areas, however, liquidity has improved with a more normalised market observed, even in more rural locations.
€ 3.8 billion of the land and development portfolio was criticised at 31 December 2014 (2013 € 5.6 billion), including € 3.5 billion of loans
which were impaired (2013: € 5.3 billion) and on which the Group had € 2.6 billion in statement of financial position specific provisions,
providing cover of 75% (2013: 77%). The impairment credit of € 40 million to the income statement compared to a charge of
€ 239 million in 2013.
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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 2014 and 31 December 2013:
Agriculture
Distribution:
Hotels
Licensed premises
Retail/wholesale
Other distribution
Other services
Other
DCB
€ m
1,167
427
235
899
83
1,644
1,248
626
Total gross loans and receivables
4,685
AIB UK
€ m
71
650
134
276
20
1,080
2,534
807
4,492
FSG
€ m
472
692
514
929
86
2,221
665
354
2014*
Total
€ m
1,710
1,769
883
2,104
189
4,945
4,447
1,787
3,712
12,889
Analysed as to asset quality
Satisfactory
Watch
Vulnerable
Impaired
3,444
3,321
584
333
324
390
229
552
Total criticised loans
1,241
1,171
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 charge/(credit)
Specific
IBNR
Total impairment charge/(credit)
Impairment charge/(credit)
%
26
7
€ m
167
127
294
%
51
90
6
€ m
81
75
156
%
%
26
12
€ m
291
15
306
%
53
56
7
€ m
20
(7)
13
%
290
156
747
2,519
3,422
%
92
68
€ m
1,596
112
1,708
%
63
68
46
€ m
(164)
76
(88)
%
7,055
1,130
1,309
3,395
5,834
%
45
26
€ m
2,054
254
2,308
%
61
68
18
€ m
(63)
144
81
%
DCB
€ m
1,158
360
240
936
82
1,618
1,276
572
4,624
AIB UK
€ m
58
870
154
226
22
1,272
2,414
558
4,302
3,395
2,792
748
273
208
472
323
715
1,229
1,510
%
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
%
FSG
€ m
535
952
638
1,213
105
2,908
863
509
2013+*
Total
€ m
1,751
2,182
1,032
2,375
209
5,798
4,553
1,639
4,815
13,741
226
133
626
3,830
4,589
%
95
80
€ m
2,633
35
2,668
%
69
70
56
€ m
249
(90)
159
%
6,413
1,353
1,222
4,753
7,328
%
53
35
€ m
3,109
108
3,217
%
66
68
24
€ m
349
(128)
221
%
/average loans
3.36
0.28
(1.99)
0.60
1.10
0.20
3.19
1.55
+The industry sector ‘lease financing’ is no longer reported by the Group. Accordingly, for December 2013, where tables show a sectoral analysis, lease
financing is re-presented in the relevant sector to which the borrower belongs.
*Forms an integral part of the audited financial statements
120
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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. The geographical split is 65% in the
Republic of Ireland and the remaining 35% in the United Kingdom. Loans and receivables in this sector reduced by € 0.85 billion from
€ 13.7 billion as at 31 December 2013, primarily due to provision write-offs.
Satisfactory loans and receivables increased within all segments in 2014, mainly due to new drawdowns exceeding amortisations. In
contrast, this satisfactory portfolio declined in 2013 and 2012 by 9% and 15% respectively due to low demand for credit and downward
grade migration. The UK SME portfolio increased by € 0.5 billion during 2014, partly due to a realignment of the business (resulting in
a higher level of loans being categorised as SME/other commercial instead of corporate) and the impact of sterling appreciation. Total
new SME lending within the Republic of Ireland was € 0.9 billion.
The SME portfolio in both the Republic of Ireland and the United Kingdom is concentrated in sub-sectors which are reliant on the
domestic economies. There is now evidence that the Republic of Ireland is moving into a period of sustainable economic growth.
Results of the SME Credit Demand Survey carried out by RED C and published in November 2014 highlight significantly improved
trading conditions for Irish SMEs. This improvement is mainly observed in urban areas, with rural locations remaining weak.
Notwithstanding the positive signals and improving economic outlook, the domestic market remains challenging with many SMEs
experiencing difficulties managing their finances. The Group continues to strongly engage in restructuring existing facilities in order to
sustain viable SME businesses as described on page 85.
The following are the key themes within the largest segments of the portfolio:
– The agriculture sub-sector (13% of the portfolio) performed well in 2014, with growth in demand for new credit due to expansion
by farmers in preparation for the removal of EU milk quotas.
– The hotels sub-sector comprises 14% of the portfolio. Whilst trading conditions remain challenging, a significant improvement was
observed in 2014 due to a stronger local economy and increased numbers of tourists. Valuations for hotels improved, with a number
of foreign investors and fund managers competing for available properties.
– The licensed premises sub-sector comprises 7% of the portfolio. The market is weak and still struggling from the impact of austerity.
However, some locations such as Dublin and central Cork are showing improved performances based on the improving economic
outlook.
– The retail/wholesale sub-sector (16% of the portfolio) improved in 2014 due to the stronger economic environment, nevertheless,
there is still stress in the sub-sector, particularly in rural areas.
– The other services sub-sector comprises 35% of the portfolio which includes businesses such as solicitors, accounting, audit, tax,
computer services, R&D, consultancy, hospitals, nursing homes and plant and machinery. This sub-sector performed well in 2014
with an increase in drawdowns.
Credit quality within the portfolio improved due to restructuring and the improved economic environment. The level of criticised loans
reduced from € 7.3 billion to € 5.8 billion, mainly due to a reduction of € 1.4 billion in impaired loans. Specific provision write-offs for the
year were € 1.0 billion.
The specific provision cover decreased from 66% at December 2013 to 61% at December 2014 mainly due to write-offs of provisions for
loans with higher provision cover, writebacks due to restructuring, and the implementation of a new individually insignificant
non-mortgage model as described on page 75.
Specific provisions on new impairments amounted to € 132 million, and were off-set by a writeback of € 195 million (net of top-ups).
An increase in the level of IBNR of € 144 million was required, mainly due to a specific portfolio risk that was identified during the year.
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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 by segment showing asset quality and impairment provisions for the years ended
31 December 2014 and 31 December 2013:
Satisfactory
Watch
Vulnerable
Impaired
Total criticised loans
DCB
€ m
3,867
87
2
285
374
AIB UK
€ m
315
9
2
66
77
Total gross loans and receivables
4,241
392
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 charge/(credit)
Specific
IBNR
Total impairment charge/(credit)
Impairment charge/(credit)
%
9
7
€ m
114
56
170
%
40
60
4
€ m
19
(18)
1
%
FSG
€ m
47
–
16
27
43
90
%
48
30
%
20
17
€ m
€ m
55
5
60
%
83
91
15
21
–
21
%
78
78
23
€ m
€ m
46
–
46
%
(1)
–
(1)
%
AIB UK
€ m
FSG
€ m
2014*
Total
€ m
4,229
96
20
378
494
DCB
€ m
2,686
99
137
346
582
4,723
3,268
134
4,307
€ m
€ m
2013*
Total
€ m
3,511
105
215
476
796
%
18
11
€ m
228
79
307
%
48
64
7
€ m
49
(19)
30
%
53
–
55
26
81
%
60
19
22
–
22
%
85
85
16
€ m
(4)
(13)
(17)
%
772
6
23
104
133
905
%
15
11
53
–
53
%
51
51
6
%
18
11
€ m
153
79
232
%
44
67
7
€ m
€ m
12
(6)
6
%
41
–
41
%
%
10
8
€ m
190
61
251
%
50
66
5
€ m
64
(18)
46
%
/average loans
0.02
7.77
(0.46)
1.00
0.18
3.67
(9.02)
0.63
The corporate portfolio amounted to € 4.7 billion at 31 December 2014 compared with € 4.3 billion at 31 December 2013. Within this,
satisfactory loans increased by 20% compared to 2013, with drawdowns exceeding amortisation by € 0.7 billion.
The growth in the DCB segment was due to increased demand within the Republic of Ireland, driven by the improved business
environment. In addition, Corporate Banking North America originated loans within DCB increased by € 0.6 billion (further details are
included on page 126).
The AIB UK corporate portfolio reduced by € 0.5 billion. This decline was driven by a realignment of the business, with more business
being categorised as SME/other commercial.
The credit profile of the corporate lending portfolio continues to outperform the other loan portfolios due to less reliance on the Republic
of Ireland domestic market, and on the property market. Criticised loans have decreased by 38% or € 0.3 billion in 2014, including a
write-off of provisions of € 0.1 billion.
The income statement provision charge for the year was € 46 million or 1.0% of average customer loans (2013: € 30 million or 0.63%).
The provision cover for impaired loans increased slightly from 48% to 50%. IBNR provisions reduced from € 79 million to € 61 million
or from 2.1% to 1.4% of non-impaired loans and receivables, in line with improved impairment trends.
*Forms an integral part of the audited financial statements
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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 role of rating tools in identifying and managing loans including those
of lower credit quality is highlighted in further detail on pages 60 to 62. These lower credit quality loans are referred to as ‘Criticised
loans’ and include Watch, Vulnerable and Impaired, and are defined on page 61.
For reporting purposes loans and receivables to customers are categorised into:
– Neither past due nor impaired;
– Past due but not impaired; and
–
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
defined 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:
Vulnerable:
The credit is exhibiting weakness but with the expectation that existing debt can be fully repaid from normal cash flows.
Credit where repayment is in jeopardy from normal cash flows and may be dependent on other sources.
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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 2014 and 31 December 2013 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
13,711
10,956
2,207
2,140
29,014
4
76
348
895
1,323
8,509
38,846
181
1,989
192
228
2,590
1
54
30
118
203
1,044
3,837
96
3,433
1,115
1,582
6,226
–
66
54
355
475
47
6,886
1,050
1,008
8,991
8
114
80
301
503
8,836
15,537
3,395
12,889
378
4,723
Residential
mortgages
€ m
Other
personal
€ m
Property and
construction
€ m
SME/other
commercial
€ m
13,070
12,148
2,776
1,694
29,688
10
65
653
1,265
1,993
9,083
40,764
190
1,916
207
223
2,536
2
118
49
164
333
1,423
4,292
153
3,310
1,538
912
5,913
–
134
105
419
658
83
6,195
1,243
905
8,426
1
134
110
317
562
13,176
19,747
4,753
13,741
476
4,307
Corporate
€ m
765
3,446
96
18
4,325
2
16
–
2
20
Corporate
€ m
696
2,793
105
197
3,791
2
20
–
18
40
2014
Total
€ m
14,800
26,710
4,660
4,976
51,146
15
326
512
1,671
2,524
22,162
75,832
(123)
59
(12,406)
63,362
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
+The industry sector ‘lease financing’ is no longer reported by the Group. Accordingly, for December 2013, where tables show a sectoral analysis, lease
financing is re-presented in the relevant sector to which the borrower belongs.
The table above shows an increase in vulnerable loans in the property and construction sector of € 0.6 billion which was primarily due to
restructuring of impaired loans during the year. Following a restructure, loans are graded initially as vulnerable.
*Forms an integral part of the audited financial statements
124
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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 2014 and 31 December 2013 is
as follows:
AAA/AA
A/A-
BBB+/BBB/BBB-
Sub investment
Unrated
Total
AAA/AA
A/A-
BBB+/BBB/BBB-
Sub investment
Unrated
Total
Bank
€ m
3,991
1,615
7
149
–
5,762
Bank
€ m
3,408
1,564
718
–
63
5,753
Corporate
€ m
Sovereign
€ m
Other
€ m
2014
Total
€ m
8,204
20,234
2,469
150
3
4,114
18,619(1)
2,462
–
–
99
–
–
1
–
–
–
–
–
3
3
25,195(2)
100
31,060
Corporate
€ m
Sovereign
€ m
Other
€ m
–
–
14
–
1
15
5,417
–
26,171(1)
6
–
31,594(2)
304
133
85
14
–
536
2013
Total
€ m
9,129
1,697
26,988
20
64
37,898
(1)Includes NAMA senior bonds which do not have an external credit rating and to which the Group has attributed a rating of A- (31 December 2013:
BBB+) i.e. the external rating of the Sovereign.
(2)Includes supranational banks and government agencies.
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Risk management – 3. Individual risk types
3.1 Credit risk – credit profile of the loan portfolio
Corporate Banking North America lending including leveraged debt
The Group has a specialised leveraged lending team in North America and which is involved in participating in the provision of finance
to US corporations for mergers, acquisitions, buy-outs and general corporate purposes. The portfolio increased by c. 62% in 2014
(43% on a constant currency basis) as part of a strategic decision to grow this portfolio.
Loans originated by this team are reported on the basis of the booking office i.e., Ireland € 1,523 million and Rest of the World
€ 18 million. Furthermore, these loans are reported under the operating segment of DCB, with the property loans below included under
the property and construction analysis and all other loans reported under the Corporate asset class.
A sectoral analysis of the portfolio is as follows:
Drawn balances
Agriculture
Property and construction
Distribution
Energy
Financial
Manufacturing
Transport
Other services
2014*
€ m
9
5
164
27
71
443
207
615
1,541
2013*
€ m
3
–
59
45
42
275
119
405
948
At 31 December 2014, 90% of the portfolio was graded BB or better, with no loans classified as impaired.
92% of the customers in this portfolio are domiciled in the USA, 4% in Canada and 4% in the Rest of the World.
Large exposures
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 2014, the Group’s top 50 exposures amounted to € 5.1 billion, and accounted for 6.8% (€ 7.5 billion and 9.1% at
31 December 2013) of the Group’s on-balance sheet total gross loans and receivables to customers. In addition, these customers have
undrawn facilities amounting to c. € 200 million. No single customer exposure exceeded regulatory requirements. In addition, the Group
holds NAMA senior bonds amounting to € 9.4 billion (31 December 2013: € 15.6 billion).
*Forms an integral part of the audited financial statements
126
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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 2014 and 31 December 2013:
2014*
Unrealised
Unrealised
gross gains gross losses
€ m
€ m
Unrealised
gross gains
€ m
2013*
Unrealised
gross losses
€ m
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
Non Euro corporate securities
Other investments
Total debt securities
Equity securities(1)
Total financial investments
available for sale
Fair
value
€ m
9,107
3,631
182
2,852
99
1
3,897
–
3
–
1,327
170
9
119
–
–
105
–
–
–
19,772
413
1,730
338
20,185
2,068
Fair
value
€ m
10,328
1,968
608
3,092
–
535
3,671
34
3
12
20,251
117
–
–
–
–
(1)
–
–
–
(1)
–
(2)
(3)
(5)
910
110
54
29
–
1
59
–
–
–
1,163
38
–
(1)
–
(6)
–
(54)
(7)
–
–
–
(68)
(7)
(75)
20,368
1,201
(1)Includes NAMA subordinated bonds with a fair value of € 374 million (2013: € 73 million) of which unrealised gains amount to € 327 million
(2013:€ 26 million).
The following tables categorise AIB Group’s available-for-sale debt securities by contractual residual maturity and weighted average
yield at 31 December 2014 and 2013:
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 corporate securities
Total ............................................................
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 %
–
230
29
150
–
–
95
3
507
–
2.0
2.2
2.0
–
–
1.0
–
1.8
5,632
1,167
90
1,775
–
–
3,014
–
11,678
4.7
1.5
2.7
1.1
–
–
1.0
–
2.9
2,933
2,234
63
900
–
–
788
–
6,918
3.3
1.7
1.8
1.3
–
–
1.3
–
2.3
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
–
–
–
2014
After 10 years
€ m Yield %
542
–
–
27
99
1
–
–
669
3.3
–
–
2.0
1.5
0.3
–
–
3.0
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
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Risk management – 3. Individual risk types
3.1 Credit risk – Financial investments available for sale
The following tables analyse the available for sale portfolio by geography at 31 December 2014 and 31 December 2013:
Government securities
Republic of Ireland
Italy
France
Spain
Netherlands
Germany
Austria
Portugal
United Kingdom
Rest of the World
Asset backed securities
United Kingdom
United States of America
Spain
Rest of the World
Bank securities
Republic of Ireland
France
Netherlands
United Kingdom
Australia
Sweden
Canada
Finland
Norway
Belgium
Germany
Denmark
Spain
Irish
Government
€ m
Euro
government
€ m
2014*
Non Euro
government
€ m
Irish
Government
€ m
Euro
government
€ m
2013*
Non Euro
government
€ m
9,107
–
–
–
–
–
–
–
–
–
–
1,253
468
1,209
294
225
102
–
–
80
9,107
3,631
–
–
–
–
–
–
–
–
146
36
182
10,328
–
–
–
–
–
–
–
–
–
–
228
753
–
505
271
155
6
–
50
10,328
1,968
2014*
Total
€ m
–
99
1
–
100
Euro
€ m
484
741
486
486
221
192
84
142
193
53
77
75
437
3,671
2014*
Euro
€ m
Non Euro
€ m
266
818
561
439
380
263
378
234
253
183
50
72
–
3,897
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
519
89
608
2013*
Total
€ m
69
74
322
70
535
2013*
Non Euro
€ m
–
–
–
–
–
34
–
–
–
–
–
–
–
34
*Forms an integral part of the audited financial statements
128
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.1 Credit risk – Financial investments available for sale
Debt securities
Debt securities available for sale (“AFS”) have decreased from a fair value of € 20.3 billion at 31 December 2013 to € 19.8 billion at
31 December 2014. Sales and maturities of € 8.8 billion (nominal € 8.5 billion) were partially offset by purchases of € 7.3 billion
(nominal € 6.8 billion) and an increase in fair value of € 1 billion. The sales during the year generated € 369 million in profit on disposal.
The increase in fair value was due to a tightening of Irish sovereign spreads and the impact of lower interest rates on fixed rate security
holdings.
Sovereign holdings were diversified during the year with a reduction in Irish sovereign holdings of € 1.2 billion and an increase in Spanish
and Italian sovereign holdings of € 2.2 billion.
The external ratings profile of the portfolio continues to improve with almost half the portfolio upgrading from a rating of BBB to a rating
of A– in 2014, in line with the Irish sovereign rating upgrades from Fitch, Standard & Poor’s and Moody’s. The breakdown by rating was
AAA: 23% (2013: 23%), AA: 16% (2013: 19%), A: 48% (2013: 2%), BBB: 12% (2013: 55%) and sub investment grade 1% (2013: 0%).
Equity securities
Equity securities available for sale increased by € 0.3 billion due to the increase in fair value of the NAMA subordinated debt holding.
NAMA subordinated bonds are included within AFS equity securities. The fair value of these bonds at 31 December 2014 increased to
€ 374 million (31 December 2013: € 73 million) as the fair value estimate increased from 15.5% to 79.4% due to continued
improvements in NAMA’s financial position and forecasts.
Asset backed securities
Asset backed holdings in Spain, Portugal and the UK were sold during the first half of the year. The overall reduction in asset backed
holdings helped improve the Group’s Liquidity Coverage Ratio and Net Stable Funding Ratio.
Bank securities
At 31 December 2014, the fair value of bank securities of € 3.9 billion (31 December 2013: € 3.7 billion) included € 2.8 billion of covered
bonds (31 December 2013: € 2.9 billion), € 0.9 billion of senior unsecured bank debt (31 December 2013: € 0.5 billion) and € 0.1 billion
of government guaranteed senior bank debt (31 December 2013: € 0.4 billion). Spanish and Irish bank securities reduced by
€ 0.6 billion, Canadian and Australian holdings increased by € 0.5 billion, with € 0.1 billion increases each in Belgian and Finnish
holdings.
Republic of Ireland
The fair value of Irish debt securities in the AFS category amounted to € 9.4 billion at 31 December 2014 (31 December 2013:
€ 10.8 billion) and consisted of sovereign debt € 9.1 billion (31 December 2013: € 10.3 billion), senior unsecured bonds of € 0.14 billion
and covered bonds of € 0.13 billion (31 December 2013: € 0.1 billion). The Group no longer holds Irish Government guaranteed senior
bank debt (31 December 2013: € 0.4 billion). The NAMA subordinated debt holding is classified as an available for sale equity and has
a fair value of € 374 million (31 December 2013: € 73 million).
In addition to Irish Government securities outlined above, the Group holds NAMA senior debt amounting to € 9.5 billion nominal
(31 December 2013: € 15.8 billion), which is guaranteed by the Irish Government and is classified as loans and receivables.
Spain
The fair value of Spanish debt securities at 31 December 2014 was € 1.2 billion (31 December 2013: € 0.7 billion). During the period,
almost all Spanish holdings of asset backed securities and covered bonds were sold and € 1.2 billion of sovereign debt was purchased
across a range of issues with maturities between 5 and 8 years.
Italy
The fair value of Italian debt securities of € 1.3 billion at 31 December 2014 comprised solely of sovereign debt securities (31 December
2013: € 0.2 billion). The additional c. € 1 billion of Italian sovereign debt was purchased across a range of issues with maturities between
4 and 8 years.
.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
129
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Risk management – 3. Individual risk types
3.2 Additional credit risk information – Forbearance*
The following table sets out the risk profile of loans and receivables to customers (before impairment provisions) analysed as to
non-forborne and forborne at 31 December 2014:
Residential
mortgages
€ m
Other Property and
construction
€ m
personal
€ m
SME/other
commercial
€ m
Corporate
€ m
13,285
10,485
1,856
1,520
27,146
867
5,188
180
1,750
153
117
2,200
141
788
96
3,362
1,041
446
4,945
354
7,888
46
6,630
910
585
8,171
373
2,809
765
3,446
90
–
4,301
18
264
33,201
3,129
13,187
11,353
4,583
426
471
351
620
1,868
456
3,321
5,645(1)
1
239
39
111
390
62
256
708
–
71
74
1,136
1,281
121
948
2,350
1
256
140
423
820
130
586
1,536
–
–
6
18
24
2
114
140
2014
Total
€ m
14,372
25,673
4,050
2,668
46,763
1,753
16,937
65,453
428
1,037
610
2,308
4,383
771
5,225
10,379
Non-forborne loans and receivables
to customers
Neither past due nor impaired:
Good upper
Good lower
Watch
Vulnerable
Total
Past due but not impaired
Impaired
Total
Forborne loans and receivables
to customers
Neither past due nor impaired:
Good upper
Good lower
Watch
Vulnerable
Total
Past due but not impaired
Impaired
Total
Total loans and receivables
to customers
38,846
3,837
15,537
12,889
4,723
75,832
Weighted average interest rate of forborne
loans and receivables to customers
%
2.8
%
6.5
%
3.1
%
3.9
%
4.2
%
3.3
(1)Republic of Ireland: € 5,570 million and United Kingdom: € 75 million.
The Republic of Ireland residential mortgage forbearance portfolio is profiled in more detail on pages 131 to 136 and further detail on the
non-mortgage forbearance portfolio is included on pages 137 to 138.
Interest income is recognised, based on the original effective interest rate, on forborne loans in accordance with Accounting policy
number 6 and is included in ‘Interest and similar income’ in the Income Statement. The application of the effective interest method has
the effect of recognising income receivable evenly in proportion to the amount outstanding over the period to repayment. Interest
income on non-impaired forborne loans is based on the gross loan balance, whereas the net carrying amount after specific provisions is
used for impaired forborne loans.
Interest income on impaired loans amounted to € 329 million in 2014. At 31 December 2014, the net carrying amount of impaired loans
amounted to € 10,847 million which included forborne impaired mortgages of € 2,421 million and forborne impaired non-mortgages of
€ 854 million.
*Forms an integral part of the audited financial statements
130
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.2 Additional credit risk information – Forbearance*
Republic of Ireland 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 together with available forbearance strategies in operation to assist borrowers who have difficulty in meeting
repayment commitments are set out on page 71.
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 2014 and 31 December 2013:
Republic of Ireland owner-occupier
At 1 January
Additions
Expired arrangements
Payments
Interest
Closed accounts(1)
Transfer from owner-occupier to buy-to-let
At 31 December
Republic of Ireland buy-to-let
At 1 January
Additions
Expired arrangements
Payments
Interest
Closed accounts(1)
Transfer from owner-occupier to buy-to-let
At 31 December
Republic of Ireland – Total
At 1 January
Additions
Expired arrangements
Payments
Interest
Closed accounts(1)
At 31 December
(1)Accounts closed during year due primarily to customer repayments and redemptions.
Number
19,848
12,561
(4,15 6)
–
–
(507)
(32)
2014
Balance
€ m
2,952
1,691
(639)
(219)
77
(30)
(2)
Number
22,248
6,873
(8,706)
–
–
(521)
(46)
2013
Balance
€ m
3,544
981
(1,463)
(107)
35
(35)
(3)
27,714
3,830
19,848
2,952
Number
8,309
1,893
(2,155)
–
–
(143)
32
7,936
2014
Balance
€ m
1,998
345
(480)
(125)
26
(26)
2
1,740
Number
2014
Balance
28,157
14,454
(6,311)
–
–
(650)
35,650
€ m
4,950
2,036
(1,119)
(344)
103
(56)
5,570
Number
8,925
2,061
(2,577)
–
–
(146)
46
8,309
Number
31,173
8,934
(11,283)
–
–
(667)
28,157
2013
Balance
€ m
2,233
459
(612)
(73)
14
(26)
3
1,998
2013
Balance
€ m
5,777
1,440
(2,075)
(180)
49
(61)
4,950
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The stock of loans subject to forbearance measures increased by € 0.6 billion in 2014 compared to a decrease in 2013 of € 0.8 billion.
This trend reflects the impact of the increase in permanent sustainable solutions such as split mortgages, arrears capitalisations, Low
Fixed Interest Rate and Positive Equity solutions. In contrast, forbearance decreased in 2013 as customers were removed from
temporary forbearance measures such as interest only. The trend towards more permanent solutions can also be seen from the 44%
decline in expired arrangements from 11,283 to 6,311.
*Forms an integral part of the audited financial statements
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131
Risk management – 3. Individual risk types
3.2 Additional credit risk information – Forbearance*
Republic of Ireland residential mortgages (continued)
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 2014 and 31 December 2013:
Republic of Ireland owner-occupier
Interest only
Reduced payment (greater than interest only)
Payment moratorium
Arrears capitalisation
Term extension
Split mortgages
Voluntary sale for loss
Low fixed interest rate
Positive equity solution
Other
Total forbearance
Republic of Ireland buy-to-let
Interest only
Reduced payment (greater than interest only)
Payment moratorium
Arrears capitalisation
Term extension
Split mortgages
Voluntary sale for loss
Low fixed interest rate
Positive equity solution
Total forbearance
Republic of Ireland – Total
Interest only
Reduced payment (greater than interest only)
Payment moratorium
Arrears capitalisation
Term extension
Split mortgages
Voluntary sale for loss
Low fixed interest rate
Positive equity solution
Other
Total forbearance
*Forms an integral part of the audited financial statements
Total
Number
Balance
€ m
Loans > 90 days
in arrears and/or
impaired
Number Balance
€ m
2014
Loans neither > 90
days in arrears
nor impaired
Number
Balance
€ m
3,609
1,326
510
13,409
5,518
2,384
342
375
223
18
566
251
79
1,860
592
370
26
59
22
5
1,804
854
152
8,030
624
2,305
220
260
112
4
294
183
23
1,187
75
349
20
40
11
1
1,805
472
358
5,379
4,894
79
122
115
111
14
272
68
56
673
517
21
6
19
11
4
27,714
3,830
14,365
2,183
13,349
1,647
Total
Number
Balance
€ m
Loans > 90 days
in arrears and/or
impaired
Number Balance
€ m
2014
Loans neither > 90
days in arrears
nor impaired
Number
Balance
€ m
2,017
836
352
3,641
860
15
208
2
5
468
195
48
881
118
2
27
–
1
1,119
466
183
3,058
190
14
162
1
3
289
115
26
775
32
2
25
–
–
898
370
169
583
670
1
46
1
2
179
80
22
106
86
–
2
–
1
7,936
1,740
5,196
1,264
2,740
476
Total
Number
Balance
€ m
5,626
2,162
862
17,050
6,378
2,399
550
377
228
18
1,034
446
127
2,741
710
372
53
59
23
5
Loans > 90 days
in arrears and/or
impaired
Number Balance
€ m
2,923
1,320
335
583
298
49
11,088
1,962
814
2,319
382
261
115
4
107
351
45
40
11
1
2014*
Loans neither > 90
days in arrears
nor impaired
Number
Balance
€ m
2,703
842
527
5,962
5,564
80
168
116
113
14
451
148
78
779
603
21
8
19
12
4
35,650
5,570
19,561
3,447
16,089
2,123
132
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.2 Additional credit risk information – Forbearance*
Republic of Ireland residential mortgages (continued)
Residential mortgages subject to forbearance measures by type of forbearance (continued)
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
Loans > 90 days
in arrears and/or
impaired
Number
Balance
€ m
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
Loans > 90 days
in arrears and/or
impaired
Number
Balance
€ m
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
Loans > 90 days
in arrears and/or
impaired
Number
Balance
€ m
Number
Balance
€ m
7,465
2,818
462
9,993
7,043
236
140
1,538
608
77
1,908
769
35
15
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
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Total forbearance
(1)Mainly comprise ‘voluntary sale for loss’ solutions.
28,157
4,950
14,413
3,046
13,744
1,904
A key feature of the forbearance portfolio is the growth in the proportion of advanced forbearance solutions (split mortgages, low fixed
interest rate voluntary sale for loss, negative equity trade down and positive equity solutions) driven by the Group's strategy to deliver
sustainable long-term solutions to customers. Advanced forbearance solutions at € 510 million accounted for 9% of the total forbearance
portfolio as at 31 December 2014, compared to less than 1% (€ 47 million) as at 31 December 2013. Following restructure, loans
are reported as impaired for a probationary period of at least 12 months (unless a larger individually assessed case).
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Risk management – 3. Individual risk types
3.2 Additional credit risk information – Forbearance*
Republic of Ireland residential mortgages (continued)
Residential mortgages subject to forbearance measures by type of forbearance (continued)
Other permanent standard forbearance solutions are term extensions and arrears capitalisation (which often includes a term extension).
Permanent forbearance solutions are reported within the stock of forbearance for 5 years, and therefore, represent in some cases
forbearance solutions which were agreed up to 5 years ago. They include loans where a subsequent interest only or other temporary
arrangement had expired at 31 December 2014, but where an arrears capitalisation or term extension was awarded previously.
Arrears capitalisation is the largest category of forbearance solution at 31 December 2014, accounting for 49% of the total
forbearance portfolio (31 December 2013: 39% of the total forbearance portfolio). A high proportion of the arrears capitalisation
portfolio (72%) is impaired or 90 days in arrears. This reflects the historic nature of the forbearance event for part of the portfolio and the
requirement that loans complete a probationary period of at least 12 months before being upgraded from impairment, as described
above.
The Group’s processes for assessing customers and agreeing sustainable forbearance solutions have improved over the last
2 years with the development of advanced forbearance products. This is reflected in the performance of the arrears capitalisations
booked in 2014 (€ 1.1 billion), of which 94% were either not in arrears or less than 90 days past due at 31 December 2014.
The focus on long term sustainable solutions is evident from the decrease in the stock of solutions which are typically temporary,
including interest only (reduced by € 0.5 billion to € 1.0 billion) and reduced payment greater than interest only.
*Forms an integral part of the audited financial statements
134
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.2 Additional credit risk information – Forbearance*
Republic of Ireland 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 2014 and 31 December 2013:
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
138
63
42
33
41
33
350
Buy-to-let
€ m
31
14
8
15
16
18
2014
Total
€ m
169
77
50
48
57
51
102
452
Owner-
occupier
€ m
154
70
53
55
34
14
380
Buy-to-let
€ m
22
13
11
22
14
13
95
2013
Total
€ m
176
83
64
77
48
27
475
The amount of loans subject to forbearance and past due but not impaired decreased in the full year to 31 December 2014 by
€ 23 million, driven by a decrease in the arrears of less than 180 days, which was offset by an increase in arrears greater than 180
days. The proportion of the portfolio past due but not impaired reduced marginally in the period from 10% at 31 December 2013 to 8%
at 31 December 2014.
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 2014 and 31 December 2013:
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
874
221
87
62
143
191
498
Buy-to-let
€ m
363
52
29
28
75
159
509
2,076
1,215
2014
Total
€ m
1,237
273
116
90
218
350
1,007
3,291
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
1,413
1,481
2,894
Impaired loans subject to forbearance increased by € 0.4 billion during the year. Statement of financial position specific provisions of
€ 0.9 billion were held against the forborne impaired book at 31 December 2014, providing cover of 26.9%, while the income statement
specific provision charge was € 124 million for the year.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Risk management – 3. Individual risk types
3.2 Additional credit risk information – Forbearance*
Republic of Ireland 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 2014 and 31 December 2013:
Republic of Ireland
Less than 50%
50% – 70%
71% – 80%
81% – 90%
91% – 100%
101% – 120%
121% – 150%
Greater than 150%
Unsecured
Total forbearance
Owner-
occupier
€ m
557
648
391
397
387
632
640
151
27
Buy-to-let
€ m
126
164
128
151
165
330
383
266
27
3,830
1,740
2014
Total
€ m
683
812
519
548
552
962
1,023
417
54
5,570
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
The degree of negative equity in the residential mortgage portfolio in the Republic of Ireland that was subject to forbearance measures
at 31 December 2014 reduced to 37% of the owner-occupier and 56% of the buy-to-let mortgages compared to 54% and 73%
respectively at 31 December 2013, due primarily to the increase in property prices in 2014.
*Forms an integral part of the audited financial statements
136
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.2 Additional credit risk information – Forbearance*
Non-mortgage
The following table sets out an analysis of non-mortgage forbearance solutions at 31 December 2014:
Total
Balance
€ m
Loans neither
> 90 days
in arrears
nor impaired
Balance
€ m
Loans >
90 days in
arrears but
not impaired
Balance
€ m
Other personal
Interest only
Reduced payment
(greater than interest only)
Payment moratorium
Arrears capitalisation
Term extension
Fundamental restructure
Restructure
Other
Total
Property and construction
Interest only
Reduced payment
(greater than interest only)
Payment moratorium
Arrears capitalisation
Term extension
Fundamental restructure
Restructure
Other
Total
SME/other commercial
Interest only
Reduced payment
(greater than interest only)
Payment moratorium
Arrears capitalisation
Term extension
Fundamental restructure
Restructure
Other
Total
Corporate
Reduced payment
(greater than interest only)
Payment moratorium
Arrears capitalisation
Fundamental restructure
Restructure
Other
Total
67
7
4
36
105
17
462
10
708
455
29
18
60
294
722
663
109
29
5
3
2
98
16
262
5
420
119
10
18
6
240
710
202
50
2,350
1,355
198
36
9
47
172
180
838
56
1,536
3
13
7
17
36
64
140
87
8
7
10
120
169
457
32
890
1
–
–
17
–
6
24
9
–
–
3
2
–
16
2
32
11
1
–
8
7
3
16
1
47
8
2
–
2
7
4
34
3
60
2
–
–
–
–
–
2
Total non-mortgage forbearance
4,734
2,689
141
*Forms an integral part of the audited financial statements
Impaired
Specific
loans provisions on
impaired
loans
Balance
€ m
Balance
€ m
29
2
1
31
5
1
184
3
256
325
18
–
46
47
9
445
58
948
103
26
2
35
45
7
347
21
586
–
13
7
–
36
58
114
1,904
19
2
1
17
2
–
129
2
172
166
8
–
26
16
–
279
31
526
50
13
1
19
12
3
215
9
322
–
8
4
–
17
1
30
1,050
2014
Specific
provision
cover %
%
66
100
100
55
40
–
70
67
67
51
44
–
57
34
–
63
53
55
49
50
50
54
27
43
62
43
55
–
62
57
–
47
2
26
55
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137
Risk management – 3. Individual risk types
3.2 Additional credit risk information – Forbearance*
Non-mortgage (continued)
The Group has developed treatment strategies for customers in the non-mortgage portfolio who are experiencing financial difficulties
and who require a restructure. 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. 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.
Further information on non-mortgage forbearance is included on pages 71 to 72.
Non-retail customers in difficulty typically have exposures across a number of asset classes including SME debt, associated property
exposures and residential mortgages.
As at December 2014, non-mortgage loans reported as being subject to forbearance amounted to € 4.7 billion of which € 1.9 billion is
impaired with specific provision cover of 55%. The majority of these forborne loans are in the property and construction (€ 2.4 billion)
and SME/other commercial (€ 1.5 billion) sectors.
Within non-mortgage forbearance categories, ‘Fundamental restructure’ (€ 0.9 billion in total) includes longer term solutions where
customers have been through a full review as described above, have proven sustainable cash flows/repayment capacity and their
sustainable debt has been restructured. This may include debt write-off. Loans to borrowers that are fundamentally restructured
typically result in the initial loans together with any related impairment provisions being derecognised and the new restructured loans
being graded as ‘vulnerable’ in most cases. Approximately € 2.3 billion of non-mortgage loans were de-recognised during 2014, with
related impairment provisions and suspended interest of c.€ 1.2 billion.
The ‘Restructure’ category (€ 2.0 billion) includes some longer term/permanent solutions where the existing customer debt was deemed
to be sustainable post restructuring. The solutions offered include interest only with asset disposal or bullet/fixed payment, debt
consolidation, amongst others. This category also includes cases which were restructured prior to the current treatment strategies being
developed. Some of these cases may yet qualify for a ‘Fundamental Restructure’ following a full review of sustainable repayment
capacity.
The remaining forbearance categories include borrowers that have been afforded temporary forbearance measures which, depending
on performance, may in time, move out of forbearance or qualify for a more permanent forbearance solution.
*Forms an integral part of the audited financial statements
138
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.3 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 cash flows 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 cash flows 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 CRD IV related 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”) and ultimately the LCR as required by the recently published European Commission Delegated
Regulation (“the Delegated Act”) to supplement the CRR and which is scheduled to come into force on 1 October 2015.
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.
In addition to the CRR liquidity requirements, the Group’s liquidity management policy seeks to ensure AIB’s compliance with the
“Principles for 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 (“CBI”) “Requirements for the Management of Liquidity Risk” (June 2009) and in
doing so ensures that it has sufficient liquidity to meet its current and forecasted requirements. AIB is required to comply with the
liquidity requirements of the CBI/SSM 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 on 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 and controlled 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 to 8 day and 9 day to 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 on 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 the Treasury function which in 2014 reported to the Director of Products and Capital Markets 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 Group Asset and Liability Committee (“ALCo”),
the Executive Risk Committee (“ERC”) and the Board Risk Committee (“BRC”). In addition, the Leadership Team and the Board are
briefed on liquidity and funding on an on-going basis.
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Risk management - 3. Individual risk types
3.3 Liquidity risk*
At 31 December 2014, the Group held € 40 billion in qualifying liquid assets/contingent funding (including € 3 billion in liquid assets only
available for use within the UK) of which approximately € 20 billion was not available due to repurchase, secured loan and other
agreements. The available Group liquidity pool comprises the remainder and is held to cover contractual and stress outflows. As at
31 December 2014, the Group liquidity pool was € 17 billion (2013: € 14 billion). During 2014, the month-end liquidity pool ranged from
€ 14 billion to € 19 billion and the month-end average balance was € 16 billion.
Composition of the Group liquidity pool as at 31 December 2014 and 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
Cash and deposits with central banks
Total government bonds
Other:
Agencies and agency mortgage-backed securities
Other including NAMA senior bonds
Total other
Total
(1)Basis of calculation for LCR differs to the Group’s basis.
Liquidity pool
available
(ECB eligible)
€ bn
2014
Liquidity pool of which
LCR eligible(1)
Level 1
€ bn
Level 2
€ bn
–
4.5
–
11.3
11.3
15.8
2.9
4.5
–
7.5
7.5
14.9
–
–
–
–
–
–
Liquidity pool(1)
€ bn
0.9
4.5
–
11.4
11.4
16.8
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 Liquid Assets (“HQLA”) include amongst others domestic currency (euro) denominated bonds issued or
guaranteed by European Economic Area (“EEA”) sovereigns, other very highly rated sovereign bonds and unencumbered cash at
central banks.
Level 2 – HQLA include highly rated sovereign bonds, highly rated covered bonds and certain other strongly rated securities.
The above is based on May 2014 CBI guidelines (CBI LCR guidelines) for the LCR interim observation period. The Delegated Act
comes into force in October 2015 and contains some changes in relation to qualifying liquid assets.
Management of the Group liquidity pool
AIB manages its 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 pool assets primarily comprise government guaranteed bonds. AIB improved its liquidity buffer
during the course of 2014 from € 14 billion to € 17 billion. The liquidity buffer has increased, predominantly due to a combination of
profits for the year, and positive movement in the liquid asset portfolio due to yield compression.
*Forms an integral part of the audited financial statements
140
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.3 Liquidity risk*
Other contingent liquidity
AIB has access to other unencumbered assets which provide a source of contingent liquidity. These are not in the Group’s liquidity pool.
However, as a contingency, these assets may be monetised in a stress scenario to generate liquidity through their use as collateral for
secured funding or outright sale.
Liquidity regulation
AIB Group is required to comply with the liquidity requirements of the Single Supervisory Mechanism (“SSM”) (CBI prior to November
2014) and also with the requirements of local regulators in jurisdictions in which it operates.
The Group monitors and reports its current and forecast position against Basel III and CRD IV related 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 October 2015 at 60%, rising to 100% by January 2018. The minimum NSFR
requirement is scheduled to be introduced in January 2018 at 100%. Based on the current regulatory LCR guidelines, as at
31 December 2014, AIB had an estimated LCR of c.116%. At 31 December 2014, the Group had an estimated NSFR of c.112%. The
Group has adopted a prudent approach to the LCR calculation in the observation period(1).
The LCR and NSFR of c.105% and c.95% respectively reported at 2013 were based on the Group’s interpretation of Basel III standards
as at 31 December 2013. In addition to the LCR guidelines referred to above, in January 2014, a consultative document was issued by
the Basel Committee on Banking Supervision with revised NSFR rules. The 31 December 2014 NSFR is based on the Group’s
interpretation of these rules.
During 2014, the Group commenced regulatory reporting in line with CRD IV requirements.
Based on the Basel III standards and their EU implementation through the CRD IV, and ultimately, the recently published Delegated Act,
AIB is set to comply with these ratios.
(1)The period from 31 March 2014 to 1 October in 2015, when the 60% minimum LCR is effective, will be used by the CBI/SSM as an observation period
during which time the CBI/SSM will monitor reporting institutions convergence towards the minimum standard.
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 a 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. European Banking Authority (“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 stress tests is to ensure the continued stability of the Group’s liquidity position, within the Group’s pre-defined
liquidity risk tolerance levels. The results are reported to the ALCo, 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
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Risk management - 3. Individual risk types
3.3 Liquidity risk*
Internal and regulatory liquidity stress tests comparison
The LCP stress scenarios, including the EBA prescribed stress scenarios and CRD IV 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/CRD IV related ratios provide an independent assessment of the Group’s liquidity risk profile.
Stress test
Time horizon
Calculation
EBA liquidity
stress
Liquidity
Coverage Ratio
(LCR)
Net Stable
Funding Ratio
(NSFR)
1 month
30 days
1 year
Liquid assets to
Liquid assets to
Stable funding
net cash outflows
net cash outflows
resources to
stable funding
requirements
As at December 2014, the Group held liquid assets in excess of minimum required levels for internal stress measurement purposes and
the CRD IV LCR requirement. Internal Stress testing also considers stress periods of between 1 month and 1 year, breaches of which
would trigger the LCP.
Compliance with internal regulatory stress tests as at 31 December 2014 and 31 December 2013:
Liquidity pool as a percentage of anticipated net cash flows
Liquidity holding as a % of one month stress requirement
CRD IV LCR
(1)2013 based on Basel III.
2014
%
182
116
2013
%
137
105(1)
Funding structure
The Group’s funding strategy is to deliver a sustainable, diversified and robust customer deposit base at economic pricing and to
continue rebuilding a strong wholesale funding franchise with appropriate access to term markets in order 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
Securitisations
Senior debt
Capital
Total source of funds
Other
31 December 2014
%
€ bn
31 December 2013
%
€ bn
63
16
–
–
4
1
3
13
100
64.0
16.4
0.4
–
3.8
0.8
3.3
13.0
101.7
5.8
107.5
60
21
–
–
3
1
4
11
100
65.7
22.6
0.5
0.1
3.3
1.0
4.3
11.8
109.3
8.1
117.4
*Forms an integral part of the audited financial statements
142
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.3 Liquidity risk*
Funding structure (continued)
Customer accounts
The following table analyses average deposits by customers for 2014 and 2013:
Current accounts
Deposits:
Demand
Time
Repurchase agreements
Total
x
x
19,710
16,619
2014
Total
€ m
2013
Total
€ m
9,504
31,032
4,890
65,136
9,305
34,914
3,808
64,646
Current accounts are both interest bearing and non-interest cheque bearing accounts raised through AIB Group’s branch network in the
Republic of 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:
Euro
US dollar
Sterling
Other currencies
Total
2014
Total
€ m
50,245
1,212
12,458
103
64,018
2013
Total
€ m
52,788
1,143
11,631
105
65,667
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. Customer accounts have decreased by
€ 1.7 billion in the full year 2014, with decreases in customer repos and rate sensitive deposits as margins were managed downwards
being partially offset by increases in current account balances. The level of customer deposits and the reduction in customer loan
balances means the Group continues to have a strong loan to deposit ratio. The Group’s loan to deposit ratio as at 31 December 2014
was 99% (31 December 2013: 100%).
While the Group continued to participate in CBI/ECB operations, 2014 saw a reduction of € 9.3 billion in ECB funding. CBI/ECB funding
amounted to € 3.4 billion at 31 December 2014, down from € 12.7 billion at 31 December 2013. CBI/ECB drawings no longer include
funding from the ECB’s 3 year Long-Term Refinancing Operations (“LTROs”) (31 December 2013: € 11 billion). However, included in the
€ 3.4 billion is € 1.9 billion of Targeted Longer-Term Refinancing Operations (“TLTRO”) which locks in low cost term funding that will
benefit the Group’s NSFR.
Wholesale funding markets saw continued improvement in sentiment towards Ireland and towards AIB in 2014. The Group raised
secured funding through a € 500 million covered bond issuance and an unsecured € 500 million medium term note. These were issued
at spreads of 95 bps and 180 bps respectively over market rates, an improvement compared to 180 bps and 235 bps on issuances in
the second half of 2013. The two issuances have been part of a balanced and measured re-engagement in the wholesale markets.
Senior debt funding of € 3.3 billion at 31 December 2014 decreased from € 4.3 billion at 31 December 2013 due to maturing bonds. This
was predominantly due to € 0.8 billion of senior debt maturities and € 0.7 billion related to liability management in the form of a buyback
of senior ELG covered debt that was due to mature in quarter one 2015. The reductions were partly offset by the € 0.5 billion issuance
outlined above.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2014
143
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Risk management - 3. Individual risk types
3.3 Liquidity risk*
The Group continues to engage with the markets in a measured and consistent manner extending the duration of funding transactions.
In November 2014, the Group renegotiated the terms of the 2013 € 500 million Credit Card funding deal, at a reduced level of
€ 200 million.
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, together with 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 restructure stressed
assets, this is paramount to increasing the Group’s pool of available liquid assets and to the Group’s overall funding/liquidity strategy.
Composition of wholesale funding
As at 31 December 2014, total wholesale funding outstanding was € 26 billion (2013: €33 billion). € 17 billion of wholesale funding
matures in less than one year (2013: € 12 billion). € 9 billion of wholesale funding had a residual maturity of over one year, including
€ 1.9 billion of TLTRO drawings (2013: € 21 billion).
As at 31 December 2014, outstanding wholesale funding comprised € 21 billion of secured funding (2013: € 27 billion) and € 5 billion of
unsecured funding (2013: € 6 billion).
Deposits from banks
Certificate of deposits and
commercial paper
Senior unsecured
Covered bonds/ABS
Subordinated liabilities
Total 31 December 2014
Of which:
Secured
Unsecured
Deposits from banks
Certificate of deposits and
commercial paper
Senior unsecured
Covered bonds/ABS
Subordinated liabilities
Total 31 December 2013
Of which:
Secured
Unsecured
Not more
than 1
month
€ bn
9.9
–
–
–
–
9.9
9.5
0.4
9.9
Not more
than 1
month
€ bn
7.9
0.1
–
–
–
8.0
7.4
0.6
8.0
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
4.6
–
2.2
–
–
6.8
4.6
2.2
6.8
Over 1
month
but not
more than
3 months
€ bn
3.2
–
–
–
–
3.2
3.2
–
3.2
–
–
–
–
–
–
–
–
–
–
–
–
0.6
–
0.6
0.6
–
0.6
Over 3
months
but not
more than
6 months
€ bn
Over 6
months
but not
more than
1 year
€ bn
–
–
–
–
–
–
–
–
–
0.1
–
0.8
–
–
0.9
0.1
0.8
0.9
Total
less than
1 year
Total
over
1 year
€ bn
14.5
–
2.2
0.6
–
17.3
14.7
2.6
17.3
€ bn
2.3
–
1.1
4.0
1.4
8.8
6.4
2.4
8.8
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
2014
Total
€ bn
16.8
–
3.3
4.6
1.4
26.1
21.1
5.0
26.1
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
16.2
4.9
21.1
26.9
6.3
33.2
*Forms an integral part of the audited financial statements
144
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.3 Liquidity risk*
Currency composition of wholesale debt
At 31 December 2014, 99% (2013: 97%) of wholesale funding was in euro. A negligible balance was held in other currencies, mainly
GBP and USD. AIB manages cross-currency refinancing risk to foreign-exchange cash-flow limits.
Encumbrance
The asset encumbrance disclosure has been produced in line with the Group’s interpretation of the 2014 EBA Guidelines on disclosure
of encumbered and unencumbered assets. 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 to be sold.
The ability to encumber certain pools of assets is a key element of the Group’s funding and liquidity strategy. In particular, encumbrance
through the repo markets plays an important role in funding the Group’s NAMA senior bonds and financial investments available for sale
portfolios. The funding of customer loans is also supported through the issuance of covered bonds and securitisations. Other lesser
sources of encumbrance include cash placed, mainly with banks, in respect of derivative liabilities, sterling notes and coins issued and
loan collateral pledged in support of pension liabilities in AIB Group (UK) p.l.c..
The Group has seen, and would expect to continue to see a downward trend in encumbrance as the Group’s funding requirement is
reduced through NAMA bond repayments. The Group includes two authorised mortgage banks, AIB Mortgage Bank and EBS Mortgage
Finance that issue residential mortgage backed covered securities (“ACS”). In addition, the Group uses a number of securitisation
vehicles for funding purposes. As well as direct market issuance, the mortgage banks and the securitisation vehicles repo bonds
centrally for liquidity management purposes. Unused bonds held centrally contribute to the Group’s liquidity buffer and do not add to the
Group’s encumbrance level unless used in a repurchase agreement or pledged externally. Secured funding between the parent and
other Group entities (e.g. EBS Ltd and AIB Group (UK) p.l.c.) is an element of the Group’s liquidity management processes.
The following table analyses total assets by (1) encumbered assets and (2) unencumbered assets as at 31 December 2014:
Loans and receivables to banks
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale:
Debt securities
Equity securities
Other
Total
Assets Encumbered
assets
€ m
€ m
1,865
63,362
9,423
19,772
413
12,620
107,455
1,727
11,102
1,405
14,893
–
175
29,302
2014
Unencumbered assets
Other
Readily
available
€ m
€ m
138
13,523
8,018
4,879
–
2,650
–
38,737
–
–
413
9,795
29,208
48,945
The Group had an encumbrance ratio of 27% as at 31 December 2014, i.e. it is point in time encumbrance. The encumbrance level
is based on the amount of assets that are required in order to meet regulatory and contractual commitments. Both mortgage banks hold
higher levels of assets in their covered pools in order to meet rating agency requirements and beyond this for reasons of operational
flexibility. € 13,523 million of residential loan mortgages included in loans and receivables to customers are unencumbered but are
regarded by the Group as readily encumberable as they are held in covered bond and securitisation structures. The remaining loan
assets in this category € 38,737 million, whilst unencumbered, are not regarded as being available in support of liquidity management at
present. Other assets such as deferred tax assets, derivative assets, property, plant and equipment are not regarded as encumberable.
Financial liabilities of € 23,771 million matched encumbered assets amounting to € 27,131 million (including collateral received from
counterparties which is available for encumbrance). The fair value of collateral received available for encumbrance amounted to
€ 457 million of which Nil was encumbered.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2014
145
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Risk management - 3. Individual risk types
3.3 Liquidity Risk*
Encumbrance (continued)
Asset encumbrance of loans and receivables to customers
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.
The following table analyses the asset encumbrance of loans and receivables to customers as at 31 December 2014:
Mortgages (residential mortgage backed securities)
Retail and SME (credit card issuance)
Other
Total
Assets
€ bn
23.3
0.3
1.0
24.6
Externally
issued
notes
€ bn
Other
secured
funding
€ bn
4.5
–
–
4.5
3.1
0.2
–
3.3
2014
Retained
notes
€ bn
4.3
–
–
4.3
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
counterparties and in central bank facilities.
In addition to securities already in issue, at 31 December 2014, the Group had excess collateral within its asset backed funding
programmes that could readily be used to issue additional bonds of € 3.8 billion.
Firm financing repurchase agreements
The following table analyses the firm financing repurchase agreements as at 31 December 2014 and 31 December 2013:
Less than
1 month
€ bn
1 month to
3 months
€ bn
Over
3 months
€ bn
Maturity profile
10
5
3
2014
Total
€ bn
18
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 2015 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 "Ba2" for deposits and "Ba3" 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
146
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.3 Liquidity risk*
Financial assets and financial liabilities by contractual residual maturity
Financial assets
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
Repayable
on demand
€ m
–
1,828
25,078
–
3
–
3 months or
less but not
repayable
on demand
€ m
23
37
873
9,423
226
499
1 year or less
but over
3 months
5 years or
less but
over 1 year
Over
5 years
2014
Total
€ m
€ m
€ m
€ m
75
–
820
–
1,120
–
3,212
9,624
37,045
–
278
–
–
11,678
–
–
7,587
–
2,038
1,865
75,832
9,423
19,772
499
26,909
11,081
3,565
22,122
45,752
109,429
366
31,678
–
–
–
443
32,487
14,151
16,779
131
2,241
–
3
–
10,895
156
548
–
–
2,251
4,665
806
3,972
1,411
–
–
1
1,241
1,100
16,768
64,018
2,334
7,861
40
–
1,451
446
33,305
11,599
13,105
2,382
92,878
Repayable
on demand
€ m
–
–
–
1,680
31,854
–
3
–
3 months or
less but not
repayable
on demand
€ m
–
–
33
373
871
15,598
246
559
1 year or less
but over
3 months
5 years or
less but
over 1 year
Over
5 years
2013
Total
€ m
€ m
€ m
€ m
–
–
210
2
3,408
–
937
–
–
–
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
33,537
17,680
4,557
20,546
46,625
122,945
218
27,646
–
–
–
526
28,390
10,860
21,929
80
139
–
2
143
11,654
143
828
–
–
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
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(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 2 March 2015. 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
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
147
Risk management - 3. Individual risk types
3.3 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 the 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:
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
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
Repayable
on demand
€ m
366
31,678
–
–
–
443
32,487
Repayable
on demand
€ m
218
27,653
–
–
–
526
28,397
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
2014
Total
€ m
€ m
€ m
€ m
14,156
16,961
139
2,342
–
3
7
11,070
415
726
160
–
33,601
12,378
2,260
4,931
1,161
4,328
1,761
–
14,441
–
1
721
1,136
128
–
16,789
64,641
2,436
8,532
2,049
446
1,986
94,893
3 months
or less but
not repayable
on demand
€ m
10,865
22,138
406
258
–
2
1 year or less
but over
3 months
5 years
or less but
over 1 year
Over
5 years
€ m
€ m
146
11,897
323
1,023
160
–
12,079
4,846
884
7,399
1,920
–
27,128
2013
Total
€ m
23,308
66,534
2,590
9,572
2,201
528
€ m
–
–
977
892
121
–
33,669
13,549
1,990
104,733
*Forms an integral part of the audited financial statements
148
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.3 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
1,246
9,082
10,328
Payable on
demand
€ m
1,353
8,236
9,589
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
–
–
–
–
–
–
–
–
–
–
–
–
2014
Total
€ m
1,246
9,082
10,328
2013
Total
€ m
1,353
8,236
9,589
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Risk management - 3. Individual risk types
3.4 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 the interest rate and credit spread 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.
Credit spread risk is the exposure of the Group’s financial position to adverse movements in the credit spreads of bonds held in the
trading 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.
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.
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. Risks associated with valuation
adjustments such as credit value adjustment (“CVA”) and funding value adjustment (“FVA”) are managed by the trading unit in the
Group’s treasury function.
The Group’s treasury function is responsible for managing market risk in the Group. This includes a mandate to trade on its own
account in selected wholesale markets. The trading strategies employed by Treasury are desk and market specific with risk tolerances
approved on an annual basis through the Group’s Risk Appetite Statement.
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 Committee (“ALCo”) is a sub-committee of the Leadership Team and advises the Chief Financial Officer
(“CFO”) on the management of the Group’s assets and liabilities (including the management of capital, funding and liquidity, and net
interest margin) and on the management of market risks (including structural foreign exchange hedging). ALCo monitors the Group’s
IRRBB and approves relevant policies, limits, behavioural assumptions and the Market Risk Strategy and Appetite Statement.
Treasury Asset and Liability Management (“TALM”), reporting to the CFO, is responsible for identifying, measuring, monitoring and
reporting the Group’s aggregate market risk profile and managing the Group’s financial instruments valuation processes, in addition to
estimating the level of capital required to support market risks.
The Financial Risk function, reporting to the Chief Risk Officer (“CRO”), is responsible for exercising independent risk oversight and
control over the Group’s market risk. In particular, Financial Risk provides oversight on the integrity and effectiveness of the risk and
control environment. It provides assurance that the risk dimensions of the business activity are understood and ensures the
escalation of 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). The Financial Risk function is also responsible for the integrity of the market risk
measurement methodologies.
*Forms an integral part of the audited financial statements
150
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.4 Market risk*
Risk management and mitigation
Market risk in the Group is managed by Treasury. 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, available for sale credit spread risk,
IRRBB and trading risk are managed by distinct business units.
The ALCo is the governance committee for market risk. 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.
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 ALCo receives 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.
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Risk management - 3. Individual risk types
3.4 Market risk*
The following table sets out the allocation of financial assets and financial liabilities subject to market risk between trading and
non-trading portfolios, showing the principal market risks to which the assets and liabilities are exposed at 31 December 2014 and
31 December 2013:
Carrying
amount
€ m
Market risk measures
Trading Non-trading
portfolios
€ m
portfolios
€ m
Risk factors
2014
Assets subject to market risk
Cash and balances at central banks
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
Liabilities subject to market risk
Deposits by central banks and banks
Customer accounts
Derivative financial instruments
Debt securities in issue
Subordinated liabilities and other capital instruments
Assets subject to market risk
Cash and balances at central banks
Disposal groups and non-current assets held for sale(1)
Trading portfolio financial assets
5.393
1
2,038
1,865
63,362
9,423
20,185
16,768
64,018
2,334
7,861
1,451
Carrying
amount
€ m
4,132
28
2
Derivative financial instruments
1,629
1,001
Loans and receivables to banks
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale
Liabilities subject to market risk
Deposits by central banks and banks
Customer accounts
Derivative financial instruments
Debt securities in issue
Subordinated liabilities and other capital instruments
(1)Includes loans and receivables to customers held for sale.
2,048
65,713
15,598
20,368
23,121
65,667
1,960
8,759
1,352
–
–
–
–
–
–
923
–
–
–
1
5,393
Interest rate
–
Interest rate, credit spreads
1,024
1,014
Interest rate, foreign exchange,
–
–
–
–
–
–
1,150
–
–
1,865
63,362
9,423
20,185
16,768
64,018
1,184
credit spreads
Interest rate
Interest rate
Interest rate
Interest rate, credit spreads
Interest rate
Interest rate
Interest rate, foreign exchange,
credit spreads
7,861
1,451
Interest rate, credit spreads
Interest rate, credit spreads
Market risk measures
Trading Non-trading
portfolios
€ m
portfolios
€ m
Risk factors
2013
–
–
2
4,132
Interest rate
28
–
628
2,048
65,713
15,598
20,368
23,121
65,667
1,037
Interest rate
Interest rate, credit spreads
Interest rate, foreign exchange,
credit spreads
Interest rate
Interest rate
Interest rate
Interest rate, credit spreads
Interest rate
Interest rate
Interest rate, foreign exchange,
credit spreads
8,759
1,352
Interest rate, credit spreads
Interest rate, credit spreads
For details of the interest rate risk gap position for non-trading portfolios refer to note 48 to the consolidated financial statements.
*Forms an integral part of the audited financial statements
152
Allied Irish Banks, p.l.c. Annual Financial Report 2014
3.4 Market risk*
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 2014 and 31 December 2013 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
2014
€ m
21
(25)
2013
€ m
(50)
8
31 December
The above analysis is subject to certain simplifying assumptions such as all interest rate movements occurring simultaneously and in a
parallel manner. Additionally, it is assumed 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 2014 and 2013, measured in terms of Value at
Risk. 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
2014
€ m
2013
€ m
2014
€ m
2013
€ m
2014
€ m
2013
€ m
0.1
0.5
–
0.1
0.1
0.6
–
0.2
3.5
5.6
1.2
1.5
1.5
3.9
1.0
2.9
3.5
5.6
1.2
1.5
1.5
3.9
0.9
2.7
The following table sets out the VaR for foreign exchange rate and equity risk for the years ended 31 December 2014 and 2013:
1 day holding period:
Average
High
Low
31 December
Foreign exchange
rate risk
VaR (trading book)
2013
€ m
2014
€ m
0.04
0.10
0.02
0.03
0.04
0.05
0.02
0.05
Equity risk
VaR (trading book)
2014
€ m
0.05
0.11
0.02
0.02
2013
€ m
0.36
0.73
0.02
0.03
The modest VaR position during 2014 is explained by the very low levels of open risk being run in Treasury across interest rate, foreign
exchange and equity positions. Within the interest rate category, Treasury adapted its discretionary position throughout the year in line
with its dynamic reappraisal of the risk reward opportunities associated with the evolution of the Euro yield curve.
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Risk management - 3. Individual risk types
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; and
– Technology in place to support assessment and mitigation of operational risks.
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 materiality 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
continuity and resilience.
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
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
154
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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 emerging prudential regulations being monitored by the
Compliance Upstream unit. Regulatory Compliance undertakes a periodic detailed assessment of the key conduct of business
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 and/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 Group General Counsel and independently to the Board, through the Audit Committee, on the
effectiveness of the processes established to ensure compliance with laws and regulations within its scope.
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Risk management - 3. Individual risk types
3.7 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 being 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 Group ALCo monitors
structural foreign exchange risk and 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.
3.8 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 above what is already planned 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.
The Group maintains a number of defined benefit pension schemes for current and former employees, further details of which are
included in note 11 to the consolidated financial statements. These defined benefit schemes were closed to future accrual from the
31 December 2013. Approval was received from the Pensions Authority 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 United Kingdom, the
Group has established 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 potential
financial market fluctuations and possible 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
156
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Governance and oversight
1. The Board and Executive Officers
2. Report of the Directors
3. Schedule to Report of the Directors
4. Corporate Governance statement
5. Remuneration report
6. Supervision and Regulation
Page
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179
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Governance and oversight –
1. The Board and Executive Officers
Certain information in respect of the Directors and Executive Officers is set out below.
Richard Pym – Chairman – Non-Executive Director and Nomination and Corporate Governance Committee Chairman
Mr Pym was co-opted to the Board on 13 October 2014 as Chairman Designate and Non-Executive Director and was appointed
Chairman with effect from 1 December 2014. He is a Chartered Accountant with extensive experience in financial services having held
a number of senior roles including Group Chief Executive Officer of Alliance & Leicester plc. He is Chairman of Nordax Bank AB (publ)
and UK Asset Resolution Limited, the entity which manages, on behalf of the UK Government, the run off of the Government owned
closed mortgage books of Bradford & Bingley plc and NRAM plc. Mr Pym is a former Chairman of The Co-operative Bank plc,
BrightHouse Group plc, Halfords Group plc and a former Non-Executive Director of The British Land Company plc, Old Mutual plc and
Selfridges plc. Mr Pym is a member of the Remuneration Committee and Chairman of the Nomination and Corporate Governance
Committee. (Age 65)
Simon Ball BSc (Economics), FCA – Non-Executive Director
Mr Ball is currently the Non-Executive Deputy Chairman and Senior Independent Director of Cable & Wireless Communications plc, a
Non-Executive Director of Commonwealth Games England, and Non-Executive Chairman of Anchura Group Limited. Prior to this, he
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 HMG Department for Constitutional Affairs. Mr Ball, who joined the
Board in October 2011, 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 to oversee the process to appoint a new Non-Executive Chairman and stood down from that role in December
2014 following the Chairman’s appointment. (Age 54)
Mark Bourke* B.E., ACA, AITI - Chief Financial Officer
Mr Bourke joined AIB in April 2014 as Chief Financial Officer and member of the Leadership Team and was co-opted to the Board on
29 May 2014. He joined AIB from IFG Group plc where he held a number of senior roles, including Group Chief Executive Officer,
Deputy Chief Executive Officer and Finance Director. Mr Bourke began his career at PricewaterhouseCoopers (PwC) in 1989 and is a
former partner in international tax services with PwC US in California. He is a member of Chartered Accountants Ireland and the Irish
Taxation Institute. (Age 48)
Bernard Byrne* FCA – Director of Retail and Business Banking
Mr Byrne joined AIB in May 2010 as Group Chief Financial Officer and member of the Leadership Team, was appointed Director of
Personal, Business and Corporate Banking in 2011, and took up his current role in 2015. 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 and
was appointed Non-Executive Director of EBS Limited in July 2011. (Age 46)
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 53)
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 in Corporate, Treasury and Personal Banking in Ireland and the UK. 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 61)
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
Governance and oversight –
1. The Board and Executive Officers
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 September 2012, he was a director of each of the US subsidiaries of IBRC. He is at present 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, the Nomination and Corporate Governance Committee, the Remuneration Committee and the Audit Committee.
(Age 66)
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 and Chairman of a number of indigenous
technology start up companies. He is a past President of the American Chamber of Commerce in Ireland and former board member of
Enterprise 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 64)
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, 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 and a Non-Executive Director of St. Vincent's Healthcare Group Ltd. 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 72)
Catherine Woods BA, Mod (Econ) – Senior Independent 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.
She was appointed as Senior Independent Non-Executive Director for the AIB Board in January 2015. (Age 52)
* Executive Directors
Executive Officers (in addition to Executive Directors above)
Dominic Clarke, LLB, ACA - Chief Risk Officer
Mr Clarke joined AIB in May 2012 as Head of Internal Audit and was appointed to his current role as Chief Risk Officer in November
2014. He was a Managing Director in Deutsche Bank and worked previously for Barclays in the UK and trained as a chartered
accountant at PwC’s Banking and Capital Markets practice. He also holds a Law degree. (Age 42)
Helen Dooley LLB – Group General Counsel
Ms Dooley was appointed to her current role as Group General Counsel and to the Leadership Team in October 2012 and in June 2014
she also assumed responsibility for the Compliance function. Ms Dooley 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 46)
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Governance and oversight –
1. The Board and Executive Officers
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 42)
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 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 35)
Fergus Murphy BSc (Mgt), MA, DABS, AMCT, FIBI – Director of Corporate and Institutional Banking
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. He was subsequently appointed Group Services and Transformation Director in December 2011, Head of
Products and Capital Markets in 2012 and took up his current role in January 2015. 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 a Board member of the Irish Business and Employers Confederation (“IBEC”) and chairs the IBEC Audit Committee.
He is former Chairman of Financial Services Ireland. (Age 51)
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 49)
Steve Reid FCIOBS, MSFA - Managing Director, AIB Group (UK) p.l.c.
Mr Reid was appointed to his current role and the Leadership Team in July 2013. He previously 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 51)
Stephen White – BComm - Group Chief Operating Officer
Mr White was appointed to his current role and the Leadership Team in July 2014. Prior to this he was based in Melbourne, Australia,
where he worked for National Australia Bank (“NAB”). He held a number of senior executive roles with NAB, including Executive
General Manager Customer Payments and Processing and Chief Operating Officer of the Business Bank. Prior to this time in Australia
he also held a number of senior executive roles in the UK including Clydesdale/Yorkshire Bank, Abbey National and NHS Direct. He was
educated at Edinburgh University. (Age 43)
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
Governance and oversight –
2. Report of the Directors for the year ended 31 December 2014
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 2014. A Statement of the Directors’ responsibilities is shown on page 189.
Results
The Group’s profit attributable to the ordinary shareholders of the Company amounted to € 915 million and was arrived at as shown in
the consolidated income statement on page 223.
Dividend
There was no dividend paid to ordinary shareholders in 2014.
Going concern
The Group’s activities are subject to risks and uncertainties as set out on pages 51 to 56.
Notwithstanding these risks 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 approved by the Board in December 2014 covering the period 2015 to 2017, the Restructuring Plan
approved by the European Commission in May 2014, 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 outlook for the Irish, the eurozone
and UK economies and the factors and uncertainties impacting their performance. Furthermore, the Directors have considered the
results of the Comprehensive Assessment stress testing conducted by the European Central Bank in conjunction with the Central Bank
of Ireland and published in October 2014, which confirm that AIB Group has capital buffers comfortably above minimum requirements
under stress test assessment scenarios.
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 39 and in the Schedule on pages 163 to 164.
On 13 May 2014, arising from the decision of AIB not to pay a dividend amounting to € 280 million on the 2009 Preference Shares,
the National Pensions Reserve Fund Commission (“NPRFC”)(1) became entitled to bonus shares in lieu and the Company issued
2,177,293,934 new ordinary shares by way of a bonus issue to the NPRFC(1).
As at 31 December 2014, some 35.7 million shares (0.007% of issued ordinary shares), purchased in previous years were held as
Treasury Shares; see note 40.
Accounting policies
The principal accounting policies, together with the basis of preparation of the financial statements, are set out on pages 194 to 217.
Review of activities
The Statement by the Chairman on page 4 to 5, the review by the Chief Executive Officer on pages 6 to 10 and the Operating
and financial review on pages 28 to 43 contain a review of the development of the business of the Company during the year, of recent
events, and of likely future developments.
Directors
The following Board changes occurred with effect from the dates shown:
– Mr Mark Bourke was appointed Executive Director on 29 May 2014;
– Mr Tom Wacker retired as Non-Executive Director on 12 October 2014;
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– Mr Richard Pym was appointed Non-Executive Director and Chairman Designate on 13 October 2014, and assumed the role of
Chairman on 1 December 2014;
– Mr David Hodgkinson stood down as Chairman of the Board on 30 November 2014 and retired as Non-Executive Director on
18 December 2014;
– Mr Dick Spring retired as Non-Executive Director on 18 December 2014;
– On 19 January 2015, AIB advised that Mr David Duffy had informed the Board of his decision to step down as CEO and Executive
Director on a date to be agreed.
The names of the Directors, together with a short biographical note on each Director, are shown on pages 158 to 160.
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 165 to 166.
(1)National Treasury Management Agency as controller and manager of the Ireland Strategic Investment Fund (NTMA / ISIF with effect 22 December 2014).
Allied Irish Banks, p.l.c. Annual Financial Report 2014
161
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Governance and oversight –
2. Report of the Directors for the year ended 31 December 2014
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 the Remuneration report on page 183.
Directors’ Remuneration
The Company’s policy with respect to Directors’ remuneration is included in the Remuneration report on page 179. Details of the total
remuneration of the Directors in office during 2014 and 2013 are shown in the Remuneration Report on pages 180 to 184.
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 2014:
– NPRFC(1) 99.8%.
Corporate Governance
The Directors’ Corporate Governance Statement appears on pages 167 to 178 and forms part of this Report. Additional information is
included in the Schedule to the Report of the Directors on pages 163 to 166.
Political Donations
The Directors have satisfied themselves that there were no political contributions during the year, that 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 177 and 178, 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 387;
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 51 to 56.
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.
(1)National Treasury Management Agency as controller and manager of the Ireland Strategic Investment Fund (NTMA / ISIF with effect 22 December 2014).
David Duffy
Chief Executive Officer
Richard Pym
Chairman
4 March 2015
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
Governance and oversight –
3. Schedule to Report of the Directors for the year ended 31 December 2014
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 2014.
Capital Structure
The authorised share capital of the Company is € 1,790,000,000 divided into 702,000,000,000 Ordinary Shares of € 0.0025 each
(‘Ordinary Shares’) and 3,500,000,000 2009 Non-Cumulative Preference Shares of € 0.01 each (‘2009 Preference Shares’). The issued
share capital of the company is 523,474,125,551 Ordinary Shares and 3,500,000,000 2009 Preference Shares.
For so long as the Government Preference Shareholder 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, including 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 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.
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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.
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Governance and oversight –
3. Schedule to Report of the Directors for the year ended 31 December 2014
– 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 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.
– 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)
(b)
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
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(1) 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/SSM 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/SSM’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.
Percentage of Total Share Capital Represented by Each Class of Share
The Ordinary Shares represent approximately 98% of the authorised share capital and approximately 97.4% of the issued share
capital of the Company. The 2009 Preference Shares represent approximately 2% of the authorised share capital and approximately
2.6% of the issued share capital of the Company.
Restrictions on the Transfer of Shares
Save as set out below, there are no limitations in Irish law or in the Company’s Articles of Association 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 on the shares;
(1)National Treasury Management Agency as controller and manager of the Ireland Strategic Investment Fund (NTMA / ISIF with effect 22 December 2014).
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(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.
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 by a 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, 1963 to 2013, 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 (those 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;
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Governance and oversight –
3. Schedule to Report of the Directors for the year ended 31 December 2014
–
–
–
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.
–
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, if he or she resigns their
office by a written notice given to the Company, upon the expiry of such notice; 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.
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Governance and oversight –
4. Corporate Governance statement
Corporate Governance arrangements and practices
AIB’s Governance Framework encompasses the leadership, direction and control of AIB and its subsidiaries (collectively referred to as
‘AIB’, the ‘Group’ or the ‘Company’), reflects best practice standards, guidelines and statutory obligations and ensures that the
organisation and control arrangements are appropriate to governance of the Group’s strategy, operations and mitigation of related
material risks. The Framework underpins effective decision making and accountability and is the basis on which we conduct our business
and engage with our customers and stakeholders.
The Group’s governance arrangements include:
–
–
–
–
–
–
–
–
–
a Board of Directors of sufficient size and expertise, the majority of whom are independent Non-Executive Directors, to oversee the
operations of the Group;
a Chief Executive Officer to whom the Board has delegated responsibility 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, compliance and performance of all the Group’s businesses;
an Executive Leadership Team comprising strong and diverse management capabilities;
a clear organisational structure with well defined, transparent and consistent lines of responsibility;
a well-documented and executed delegation of authority framework;
a framework and policy architecture which comprises a comprehensive and coherent suite of frameworks, policies, procedures and
standards covering business and financial planning, corporate governance and risk management;
effective structures and processes to identify, manage, monitor and report the risks to which the Group is or might be exposed;
adequate internal control mechanisms, including sound administrative and accounting procedures, IT systems and controls, and
remuneration policies and practices which are consistent with and promote sound and effective risk management; and
strong and functionally independent internal and external audit functions.
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’ which 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.
The Company has also adopted the provisions of the UK Corporate Governance Code (the UK Code which is available on
www.frc.org.uk).
The Directors believe that the Company complied with the provisions of the Central Bank Code throughout 2014. They also believe the
Company is in compliance with the provisions of the UK Code, other than in the following instances:
–
provision B.7.1 which requires that all directors should be subject to annual election by shareholders; 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), the terms of which do not require him to stand for election or regular re-election by
shareholders;
–
provision C.3.2 which requires that the Board Risk Committee, if composed of independent directors, or the Board should review the
company’s internal control and risk management systems, otherwise, this activity should be undertaken by the Audit Committee;
review of the company’s internal control and risk management systems is performed by the Board Risk Committee which is chaired
by Dr Michael Somers who, as a shareholder appointed director is not deemed independent for the purposes of the UK Code; and
–
provision D.2.2 with regard to the Remuneration Committee’s delegated responsibility for setting remuneration for all Executive
Directors and the Chairman, including pension rights and any compensation payments; under the terms of capital injection
agreements with the Irish Government and the Relationship Framework agreed with the Minister, neither the Committee nor the
Board has autonomy in that regard.
During 2014, there were other provisions of the UK Code with which the Company was not compliant, including those relating to
independence of the former Chairman on appointment, of shareholder appointed directors and of the committees of which such directors
are, or were, members, the appointment of a Senior Independent Non-Executive Director, and the formulation of a Board Diversity Policy,
matters which have since been resolved.
AIB’s corporate governance practices also reflect Irish company law, the Listing Rules of the Enterprise Securities Market of the Irish
Stock Exchange and, in relation to the UK businesses, UK company law.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Governance and oversight –
4. Corporate Governance statement
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.
While arrangements have been made by the Directors for delegation of the management, organisation and administration of the
Company’s affairs, the following matters are specifically reserved for decision by the Board:
–
–
–
–
–
–
–
–
to retain primary responsibility for corporate governance within the Company at all times and oversee the efficacy of governance
arrangements;
to determine the Company's strategic objectives and policies, and to ensure that the necessary financial and human resources and
operational capabilities are in place for the Company to meet its objectives;
to approve the annual financial plan, interim and annual financial statements, operating and capital budgets, major acquisitions and
disposals, and risk appetite limits, frameworks and relevant policies;
to appoint the Chairman of the Board, Board Directors, Chief Executive Officer and Members of the Leadership Team, to address
related succession planning, and to approve, where appropriate, the removal of persons in charge of Control Functions;
to endorse the appointment of people who may have a material impact on the risk profile of the Company and monitor on an ongoing
basis their appropriateness for the role;
to render an account of the Company's activities to its shareholders;
to protect the assets of the Company taking into account the interests of the shareholders and the employees in general with
appropriate regard for the interests of other stakeholders; and
to put in place and monitor procedures designed to ensure that the Company complies with the law and good corporate citizenship.
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 Risk Officer’s monthly report, and relevant updates from
the Chairman of the Board Risk Committee. An overview of the Board Risk Committee’s activities is detailed on pages 173 and 174.
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 which the State holds c. 99.8% of the issued 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.
The names of the Directors, with brief biographical notes, are shown on pages 158 and 160.
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 on-going training and development of all directors, and reviewing the performance of individual
directors.
Mr Richard Pym was appointed Chairman Designate on 13 October 2014 and assumed the role of Non-Executive Chairman with effect
from 1 December 2014. Mr David Hodgkinson stood down as Non-Executive Chairman on 30 November 2014 and retired from the Board
on 18 December 2014.
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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Chief Executive Officer
The Chief Executive Officer (“CEO”) 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 CEO on 12 December 2011.
On 19 January 2015, AIB advised that Mr Duffy had informed the Board of his decision to step down as CEO and Executive Director to
pursue a career opportunity overseas. Mr Duffy will remain in position to support the Board in identifying his successor with his final
departure date to be agreed. The Board has commenced a process to appoint a permanent successor to the role, subject to all relevant
approvals.
Senior Independent Non-Executive Director
The Senior Independent Non-Executive Director is available to shareholders if they have concerns which contact through the normal
channels of Chairman or CEO have failed to resolve, or for which such contact is considered by the shareholder(s) concerned to be
inappropriate. Ms Catherine Woods was appointed Senior Independent Non-Executive Director with effect from 30 January 2015.
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.
The Board held fourteen scheduled meetings during 2014, and one additional out-of-course meeting. 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. A number of Non-Executive Directors of the Parent
Company are also Non-Executive Directors of the Company’s major regulated subsidiary companies, namely AIB Group (UK) p.l.c., AIB
Mortgage Bank and EBS Limited.
Board membership
It is the policy of the Board that a majority of the Directors should be Non-Executive. At 31 December 2014, there were 7 Non-Executive
Directors and 3 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.
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 2014, the Board retained the services of Boardroom Review to undertake an independent evaluation of the Board’s performance.
Boardroom Review have been undertaking such reviews for a number of years and have worked with a variety of FTSE and other
companies across many sectors. The results of the review which included recommendations for minor modifications to the workings of the
Board and its Committees, were presented to the Board and adopted.
The Chairman meets annually with each Director individually to review their performance. These reviews include discussion of, inter alia,
the Director’s 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 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 on the following
page and separately within the commentary on each of the Board Committees on subsequent pages.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Governance and oversight –
4. Corporate Governance statement
Attendance at scheduled Board and Board Committee Meetings
Board
(scheduled)
Board
(out of course)
Audit
Committee
Board Risk Remuneration
Committee
Committee
A
B
A
10
B
10
A
B
Nomination
and Corporate
Governance
Committee
A
6
B
6
Name
Directors
Simon Ball
Mark Bourke
(appointed 29 May 2014)
Bernard Byrne
David Duffy
Tom Foley
Peter Hagan
David Hodgkinson
(retired 18 December 2014)
Jim O’Hara
Richard Pym
(appointed 13 October 2014)
Dr Michael Somers
Dick Spring
(retired 18 December 2014)
Tom Wacker
(retired 12 October 2014)
A
14
9
14
14
14
14
14
14
3
14
14
11
B
14
9
14
14
14
14
14
14
3
14
11
9
Catherine Woods
14
14
A
1
1
1
1
1
1
1
1
1
1
1
1
B
1
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1
1
1
1
1
0
1
1
1
1
4
4
4
4
3
4
4
4
6
6
6
6
6
6
6
6
5
6
13
3
13
2
10
10
13
13
10
13
9
13
10
10
10
9
10
10
Column A indicates the number of scheduled meetings held during 2014 which the Director was eligible to attend; Column B indicates
the number of meetings attended by each Director during 2014.
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, on the recommendation of the Nomination and Corporate Governance Committee.
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 each AGM and have
offered themselves for reappointment with the exception of directors appointed by the Government. Under the terms of the
Government’s capital injection agreements, Government appointed directors are not, and have not been, 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 at December 2014, namely Mr Simon Ball, Mr Tom Foley, Mr Peter
Hagan, Mr Jim O’Hara, Mr Richard Pym, Dr Michael Somers 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 Dr Somers should be considered independent for the purposes of the Central Bank Code.
Notwithstanding Dr Somers designation as non-independent under the UK Code arising from his appointment by the Irish State as
shareholder, the Board is satisfied that Dr Somers exercises independence of thought and action in fulfilling his duties as a
Non-Executive Director.
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Induction and professional development
There is an induction process for new directors, the contents of which varies for Executive and Non-Executive Directors. In respect of
the latter, the induction is designed to provide familiarity with the Group and its operations, and comprises the provision of relevant
briefing material, including details of the Group’s strategic, business and financial 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.
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 and are formally noted by the Board. Papers for all Board Committee meetings are also made available to all
Directors, irrespective of membership. 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, 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
Members: Ms Catherine Woods, Chairman; Mr Tom Foley; Mr Peter Hagan (from 25 September 2014); Mr Jim O’Hara; Mr Tom Wacker
(retired from the Board 12 October 2014).
Member attendance during 2014:
Tom Foley
Jim O’Hara
Peter Hagan
Catherine Woods
Tom Wacker
Current Member
Current Member
Current Member
Current Member
Former Member
A
13
13
3
13
10
B
13
13
2
13
9
Column A indicates the number of Committee meetings held during 2014 which the Member was eligible to attend; Column B indicates
the number of meetings attended by each Member during 2014.
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:
–
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–
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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 the Auditor, the Chief Financial Officer, the
Group Internal Auditor, the Chief Risk Officer, the Group General Counsel and the Head of Compliance each of whom, attend the
Committee’s meetings by invitation. Other senior executives also attend by invitation where appropriate.
The following, whilst not intended to be exhaustive, is a summary of the activities undertaken by the Committee in the past year in the
discharge of its responsibilities.
The Committee:
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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;
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in the context of reviewing the financial statements, engaged with management in respect of accounting matters, the most
significant of which related to:
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the assessment that the preparation of the financial statements on a going concern basis remained appropriate;
the level of provisions for impairment on loans and receivables as at 31 December 2014;
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Governance and oversight –
4. Corporate Governance statement
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the engagement with customers in financial difficulty and associated loan restructuring activity, where the Committee received
updates from Management on the operational procedures and processes in place to implement approved forbearance solutions
and products, and on the associated accounting considerations and treatments;
the basis of recognition of deferred tax assets in Ireland and the UK; and
retirement benefit obligations and related accounting treatment and disclosure requirements;
–
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considered other matters where Management judgement was important to the results and financial position of the Group. Following
input from the Auditor as appropriate, the Committee satisfied itself that Management’s estimates, judgements and disclosures were
appropriate and in compliance with financial reporting standards. A detailed analysis of the significant matters is provided in the
‘critical accounting policies and estimates’ (on pages 218 to 222);
–
provided advice to the Board in respect of the Annual Financial Report, confirming that the Committee is satisfied that the Annual
Financial Report for the year ended 31 December 2014, 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 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 Chief Risk Officer and the Group Internal
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Auditor, in each case with only Non-Executive Directors present.
Internal Audit
The Committee provides assurance to the Board regarding the independence and performance of the Group Internal Audit function.
The Committee considered and approved the Internal Audit annual audit plan and the adequacy of resources allocated to the function.
Throughout the year, the Chairman of the Committee met with the Group Internal Auditor between scheduled meetings of the
Committee to discuss forthcoming agendas for Committee meetings and material issues arising, and the Committee met with the Group
Internal Auditor in confidential session once during 2014, in the absence of management. The Group Internal Auditor has unrestricted
access to the Chairman of the Audit Committee.
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. In November 2014, the then Group Internal Auditor was appointed to the role of Chief Risk Officer. The Committee is
engaged with Management and the Nomination and Corporate Governance Committee regarding the appointment of a suitable
replacement.
External Audit
Deloitte & Touche was appointed Auditor by shareholders at the Company’s AGM in 2013 following a competitive tender process which
was overseen by the Members of the Audit Committee, who led interviews with and assessment of the short-listed candidates and made
a final recommendation to the Board on the appointment.
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 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 15
on page 248).
The Committee considered 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, confidential discussions with the Auditor 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 2014, in the absence of management, and the Committee
Chairman met with the Auditor between scheduled meetings of the Committee to discuss material issues arising.
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Board Risk Committee
Members: Dr Michael Somers, Chairman; Mr Simon Ball; Mr Peter Hagan, Mr Dick Spring (retired from the Board on 18 December
2014) and Ms Catherine Woods.
Member attendance during 2014:
Simon Ball
Peter Hagan
Dr Michael Somers
Dick Spring
Catherine Woods
Current member
Current member
Current member
Former member
Current member
A
10
10
10
10
10
B
10
10
10
9
10
Column A indicates the number of Committee meetings held during 2014 which the Member was eligible to attend; Column B indicates
the number of meetings attended by each Member during 2014.
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 four 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 and commissioning, receiving and considering reports from
the Chief Risk Officer, the Chief Credit Officer, the 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 Chief Financial Officer, the
Chief Risk Officer, the Chief Credit Officer, and the Group Internal Auditor. Other senior executives also attend, where appropriate.
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 past 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, conduct 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:
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the governance and organisational framework;
the risk appetite framework and risk appetite statement;
the funding and liquidity policy, strategy and related stress tests;
risk frameworks and policies, including those relating to (i) credit and credit risk, (ii) capital management, (iii) financial risk,
including market risk, and (iv) conduct risk; and
capital planning, including consideration of the Group ICAAP reports and related firm wide stress test scenarios;
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− reports from management on a number of specific areas in order to ensure that appropriate management oversight and control was
evident, including:
(a) Anti-Money Laundering/Financial Sanctions policies and frameworks;
(b) significant operational risk events and potential risks;
(c) credit risk performance and trends, including days past due and monthly overview of significant credit transactions;
(d) the operating model for material outsourcing; and
(e) regulatory developments, including business preparedness for the introduction of the Single Supervisory Mechanism
(“SSM”) in November 2014;
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presentations from the individual businesses on their high level risks and related mitigants;
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Governance and oversight –
4. Corporate Governance statement
– 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.
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. In November 2014, Mr Peter Rossiter resigned as Chief Risk Officer and was succeeded by Mr Dominic Clarke.
The Committee meets individually on an annual basis with the Chief Risk Officer, Chief Credit Officer and the Group Internal Auditor 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
Members: Mr Richard Pym, Chairman (from 19 December 2014); Mr Simon Ball, (Chairman from 13 June 2013 to 19 December 2014);
Mr David Hodgkinson (retired from the Board on 18 December 2014); Mr Peter Hagan, Mr Jim O’Hara, Dr Michael Somers; Mr Dick
Spring (retired from the Board on 18 December 2014).
Member attendance during 2014:
Simon Ball
David Hodgkinson
Peter Hagan
Jim O’Hara
Dr Michael Somers
Dick Spring
Current member
Former member
Current member
Current member
Current member
Former member
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6
6
6
6
6
B
6
6
6
6
5
6
Column A indicates the number of Committee meetings held during 2014 which the Member was eligible to attend; Column B indicates
the number of meetings attended by each Member during 2014.
The Nomination and Corporate Governance Committee’s responsibilities include: recommending candidates to the Board for
appointment as Directors, reviewing the size, structure, composition, diversity and skills of the Board, the Board Committees and
subsidiary company Boards and the independence of Non-Executive Directors, reviewing Board and Senior Executive succession
planning, and monitoring the Group’s corporate social responsibilities and activities concerning customers, staff, the marketplace, the
environment and the community.
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 past year:
–
–
the appointment of a successor as Chairman of the Board following an extensive candidate search and evaluation process;
the schedule of matters reserved for the Board;
– Board skills and succession planning;
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appointments to key executive positions;
compliance with the Central Bank of Ireland and UK Corporate Governance Codes;
the independence of individual Directors and the Board;
consideration of appropriate external service providers to conduct the Board’s performance evaluation;
leadership development and succession planning;
formulation of a Board Diversity Policy and agreement of meaningful targets for female membership of the Board; and
alignment of corporate social responsibility strategy and initiatives with the Company’s overall strategy.
Board appointments
The search for suitable candidates for the Board is a continuous process, and recommendations for appointment are made based on
merit and objective criteria, having regard for the skills, experience and diversity requirements of the Board.
In addressing appointments to the Board, the Nomination and Corporate Governance Committee prepares a role specification having
regard for the skills and experience required for any particular role.
The services of experienced third party professional search firms are retained for non-executive director appointments. The typical
process involves the search firm identifying an appropriate pool of candidates based on the Committee’s specification and providing
independent assessments of the candidates for the Committee’s consideration. The Committee works with the search firm to produce a
shortlist of candidates from the pool who are then contacted by the firm to assess their interest in the role and availability. A series of
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meetings and interviews may be conducted with potential candidates, at different stages in the process, by the search firm, the
Chairman and members of the Committee. A comprehensive due diligence process is undertaken which includes candidates’
self-certification of probity and financial soundness and external checks involving a review of various publicly available sources. The due
diligence process facilitates the Committee in satisfying itself as to the candidate’s independence, fitness and probity, and capacity to
devote sufficient time to the role. A final recommendation is made to the Board by the Committee.
The Relationship Framework specified by the Minister for Finance, which governs the relationship between the Company and the State
as shareholder, requires the Board to obtain the written consent of the Minister in accordance with a pre-determined consent/
consultation procedure (“the procedure”) before appointing, reappointing or removing the Chairman or Chief Executive Officer, and to
consult with the Minister in accordance with the procedure in respect of all other Board appointments proposed.
The processes described above were followed during 2014 for the selection and appointment of Mr Richard Pym as Chairman, with
Korn Ferry Whitehead Mann (“KFWM”) having been retained to support that appointment. KFWM has also worked with the Group on
executive and other non-executive searches and in support of executive leadership development.
Diversity
Employee diversity and inclusion in AIB is addressed through policy, practices and values which recognise that a productive workforce
comprises different work styles, cultures, generations, genders and ethnic backgrounds and oppose all forms of unlawful or unfair
discrimination. The efficacy of related policy and practices and the embedding of Company values is overseen by the Board.
The Board recognises and embraces the benefits of diversity among its own Members, including diversity of skills, experience,
background, gender, ethnicity and other qualities, and is committed to achieving the most appropriate blend and balance of diversity
possible over time. To this end, the Board approved a Board Diversity Policy during February 2015 which states that the Board’s aim,
with regard to gender diversity, is to ensure that the percentage of females on the Board reaches or exceeds 25 per cent by the end of
2016 and thereafter.
The Nomination and Corporate Governance Committee is responsible for developing measurable objectives to effect the implementation
of this policy and for monitoring progress towards achievement of the objectives. The policy and performance relative to the target will be
reviewed annually by the Committee in conjunction with Board succession and skills planning.
Remuneration Committee
Members: Mr Jim O’Hara (Chairman); Mr Tom Foley; Mr Peter Hagan; Mr David Hodgkinson (retired from the Board on 18 December
2014); Mr Richard Pym (from 19 December 2014).
Member attendance during 2014:
Tom Foley
Peter Hagan
Jim O’Hara
David Hodgkinson
Current member
Current member
Current member
Former member
A
4
4
4
4
B
3
4
4
4
Column A indicates the number of Committee meetings held during 2014 which the Member was eligible to attend; Column B indicates
the number of meetings attended by each Member during 2014.
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.
The Remuneration 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.
AIB’s Remuneration Policy is currently governed by the Subscription and Placing Agreements in place with the Irish State and
encompasses all financial benefits available to employees across the Group.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Governance and oversight –
4. Corporate Governance statement
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 2014:
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the proposed remuneration of the incoming Chairman;
compliance with CRD IV remuneration related provisions and the Central Bank of Ireland’s guidelines on the remuneration of sales
staff;
the tender process for the appointment of external Independent Remuneration Consultants;
the 2013 Annual Financial Report remuneration disclosures and the 2013 Remuneration Disclosure Report; and
the Terms of Reference of the Remuneration Committee were also reviewed in 2014 by the Committee and updated to reflect minor
administrative changes.
Directors’ remuneration
Details of the total remuneration of the Directors in office during 2014 and 2013 are shown in the Remuneration Report on pages 180 to
184.
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 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 Report on Form 20-F for relevant years. The Group’s presentation to fund managers and
analysts of annual and interim financial results are also available on the Company’s website. For the period 2008 to 2013, the Annual
Financial Report and the Annual Report on Form 20-F have been combined. 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 2015 AGM is scheduled to be held on Tuesday, 28 April 2015, at the 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 days before the meeting, in
accordance with statutory requirements.
Accountability and Audit
Accounts and Directors’ Responsibilities
The Statement concerning the responsibilities of the Directors in relation to the financial statements appears on page 189.
Going Concern
The Group’s activities are subject to risk factors and uncertainties as set out on pages 51 to 56.
Notwithstanding these risks and uncertainties, the Directors have prepared the financial statements on a going concern basis as they
are satisfied, having considered the risks and uncertainties impacting the Group, that is has the ability to continue in business for the
period of assessment.
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Directors’ Statement on Risk Management and Internal Controls
The Board of Directors is responsible for the effective management of risks and opportunities and for the system of internal control in the
Group. The Group operates a continuous risk management process which identifies and evaluates the key risks facing the Group and
its subsidiaries. The system of internal control is designed to ensure that there is thorough and regular evaluation of the nature and
extent of risks and the ability of the Group to react accordingly, rather than to eliminate risk. This is done through a process of
identification, measurement, monitoring and reporting, which provides reasonable, but not absolute, assurance against material
misstatement or loss. This process includes an assessment of the effectiveness of internal control, which was in place for the full year
under review up to the date of approval of the accounts, and which accords with the Central Bank Code and the UK Corporate
Governance Code.
Supporting this process, the Group’s system of internal control is based on the following:
Board governance and oversight
– The Board reviews the effectiveness of the system of internal control on a continuous basis 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 is responsible for fostering sound risk governance within the Group, ensures risks within the Group are appropriately
identified, managed and controlled and ensures that the Group’s strategy is informed by, and aligned with, the Group’s Risk Appetite
Statement.
– The Audit Committee reviews various aspects of internal control, including the design and operating effectiveness of the financial
reporting framework, 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 Audit Committee’s review of the Business Governance Assurance process at regular intervals throughout the year forms an
integral part of its assessment of the internal control environment.
– The Chief Financial Officer (“CFO”), the Chief Risk Officer (“CRO”) and the Group Internal Auditor are involved in all meetings of the
Audit Committee and BRC.
– 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.
– The Nomination and Corporate Governance Committee’s responsibilities include, amongst others, recommending candidates to the
Board for appointment as Directors and reviewing the size, structure and composition of the Board and the Board Committees.
– Risk management committees are in place with approved terms of reference (“ToR”) that operate under delegated authority from the
Board and Leadership Team.
Executive risk management and control
– At the executive level, a Leadership Team is in place with responsibility for establishing business strategy, risk appetite, enterprise
risk management and control.
– The Group operates a ‘three lines of defence’ framework in the delineation of accountabilities for risk governance.
– 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 adherence to Board approved risk appetite and
limits.
– The Group Asset and Liability Committee (“ALCo”) is a sub-committee of the Leadership Team and acts as the Group’s strategic
balance sheet management forum that combines a business decisioning and risk governance mandate.
– There is a centralised risk control 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 reported to the Central Bank of
Ireland/SSM.
– 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
conduct of business and financial crime compliance and forthcoming regulations across the Group, and on management’s focus on
compliance matters.
– There is an independent Group Internal Audit 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 Chairman of the Audit
Committee.
– AIB employees who perform Pre-Approved Controlled functions/Controlled functions meet the required standards as outlined in
AIB’s Fitness and Probity programme.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Governance and oversight –
4. Corporate Governance statement
For further information on the Risk Management framework of the Group see pages 57 to 59 of this report.
Given the work of the Board, BRC, Audit Committee and representations made by the Executive that appropriate actions are in place to
address any shortcoming in the control framework identified, the Board is satisfied that there was an effective system of control in place
throughout the year.
Code of conduct
In June 2012, the Group adopted a new Code of Conduct in relation to business ethics that applies to all employees (the “Code of
Conduct”). 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. The Code of Conduct was extensively
revised and re-launched to staff in September 2014.
As part of the implementation of the Code of Conduct, the Group encourages its employees to raise any concerns of wrongdoing
through a number of channels, both internal and external (Speak-Up policy). One such channel includes a confidential external helpline.
Employees are assured that if they raise a concern in good faith, the Group will not tolerate any victimisation or unfair treatment of the
employee as a result.
The Protected Disclosure Act 2014 (Republic of Ireland) came into law in July 2014 and provides statutory protection for whistleblowers
in relation to reporting potential wrongdoing in the workplace. An extensive review of the Speak Up policy in 2014 addressed the
requirements of the Protected Disclosure Act 2014, as well as the UK Public Interest Disclosure Act 1998 (as amended 2013) and the
recommendations of the UK Whistleblowing Commission (2013).
The Code of Conduct and supporting policies are subject to annual review and update to the Board.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
Governance and oversight –
5. Remuneration report
Board Remuneration Committee
AIB’s Remuneration Policy is set and governed by the Remuneration Committee in accordance, currently, with relevant provisions of the
Subscription and Placing Agreements in place with the Irish State and the Relationship Framework specified by the Minister for Finance.
The Remuneration Policy encompasses all financial benefits available to employees across the Group.
Details of the Remuneration Committee membership, the number of meetings and the matters considered during 2014 are set out in the
Corporate Governance Statement on page 175. The Committee’s Terms of Reference may be viewed in the Corporate Governance
section of the Group website at www.aibgroup.com.
Remuneration Policy and Governance
AIB’s Remuneration Policy provides the framework by which AIB seeks to reward employees while also supporting the Group’s long
term strategic objectives. The Board recognises the need to embed the right skill-sets and customer centric employee behaviours which
drive the achievement of sustainable growth for all stakeholders. The Board further aims to ensure that policy and reward decisions
facilitate the Bank in attracting, retaining and motivating high calibre individuals, and provide fair, competitive remuneration and promote
effective risk management, consistent with the bank’s risk appetite statement.
During 2014, the Remuneration Policy was updated to incorporate the provisions of the Capital Requirements Directive (CRD IV) which
came into force with effect from 1 January 2014.
AIB published its Remuneration Disclosure Report 2013 in May 2014 as part of its Pillar 3 Disclosures. The Disclosure Report
summarised AIB’s principal remuneration policies and practices in relation to decision making and governance of remuneration, the link
between pay and performance, the remuneration of those staff whose professional activities are considered to have a material impact
on AIB’s risk profile and the design features of variable incentive schemes. The Remuneration Disclosure Report 2014 will be included
in the Group’s Pillar 3 Disclosures and will be available on AIB’s website.
Compliance with Capital Requirements Directive (CRD IV)
The Capital Requirements Directive IV (CRD IV) contained a number of additional remuneration provisions which principally related to
setting appropriate ratios between fixed and variable remuneration, the application of malus and clawback arrangements and the
introduction of qualitative and quantitative criteria for those staff whose professional activities have a material impact on the Group’s risk
profile (“Identified Staff”).
While the Remuneration Policy was updated in 2014 to reflect these new provisions, there were no bonus or other variable or incentive
schemes in operation during 2014 and therefore, the provisions were not applied in practice.
Changes in pension arrangements
Arising from the Labour Court and Labour Relations Commission recommendations of July 2013 on pay, pensions and future working
hours, the AIB Group defined benefit pension schemes closed to future accrual on 31 December 2013. With effect from 1 January 2014,
employees were migrated to a new defined contribution scheme 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%.
Remuneration Review
There were no general salary increases awarded in 2014 as remuneration continued to be closely monitored in line with financial
performance and the constraints arising under the Subscription and Placing Agreements. Out of course salary increases were overseen
by the Remuneration Committee and 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
severance schemes.
The salaries of Senior Executives within the Bank were managed by the Remuneration Committee in accordance with the Subscription
and Placing Agreements.
Remuneration was principally comprised of fixed pay and pension provisions. There were no bonus schemes or share incentive
schemes in operation during 2014.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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5. Remuneration report
Directors’ remuneration*
The following tables detail the total remuneration of the Directors in office during 2014 and 2013:
Remuneration
€ 000
€ 000
€ 000
€ 000
€ 000
€ 000
Directors’
fees
Parent and Irish
subsidiary
companies(1)
Directors’
fees
AIB Group
(UK) p.l.c.(2)
Salary
Annual
taxable
benefits(3)
Pension
contribution(4)
2014
Total
Executive Directors
Mark Bourke (Appointed 29 May 2014)
Bernard Byrne
David Duffy
Non-Executive Directors
Simon Ball
Tom Foley
Peter Hagan
David Hodgkinson(1(b))
(Chairman to 30 November 2014,
retired on 18 December 2014)
Jim O’Hara
Richard Pym(1(a))
(Appointed 13 October 2014,
Chairman from 1 December 2014)
Dr Michael Somers
(Deputy Chairman)
Dick Spring
(retired on 18 December 2014)
Tom Wacker(2)
(retired on 12 October 2014)
Catherine Woods
Former Directors
Declan Collier(2)
Kieran Crowley(2)
Stephen L Kingon(2)
Anne Maher(5)
David Pritchard(2)
Other(6)
Total
85
90
88
265
100
80
120
77
59
115
1,079
41
44
44
56
50
64
108
266
450
425
1,141
18
30
–
48
53
90
64
337
570
489
207
1,396
85
90
88
265
100
80
120
77
103
115
1,123
56
50
64
41
108
26
2,864
*Forms an integral part of the audited financial statements
180
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Directors’ remuneration* (continued)
(1 ) Fees paid to Non-Executive Directors during 2014 were based on the following computations:
(a) Mr Richard Pym was appointed a Non-Executive Director on 13 October 2014 and Chairman with effect from 1 December 2014. Mr Pym is paid an
annual non-pensionable flat fee of € 365,000 which includes remuneration for all services as a director of Allied Irish Banks, p.l.c.; the fee above is
the proportion earned between 13 October and 31 December 2014;
(b) Mr David Hodgkinson, who retired as Non-Executive Chairman on 30 November 2014 and as a Director on 18 December 2014, was paid an annual
non-pensionable flat fee of € 275,000 during his tenure; the fee above is the proportion earned between 1 January and 18 December 2014;
(c) All other Non-Executive Directors are paid a basic, non-pensionable fee of € 65,000 in respect of service as a Director and additional non-pensionable
remuneration in respect of other responsibilities, such as through the chairmanship or membership of Board Committees or the board of a subsidiary
company, or performing the roles of Deputy Chairman or Senior Independent Non-Executive Director;
(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
a non-pensionable flat fee, which is agreed and paid by AIB UK, in respect of their service as a Director of that company. In that regard, Messrs. Wacker,
Collier, Crowley, Kingon and Pritchard earned fees as quoted during 2014;
(3) ‘Annual taxable benefits’ represents a reduced non-pensionable cash allowance in lieu of company car, medical insurance and other contractual benefits
following an internal review of pay and benefits in 2012;
(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 Non-Executive Directors are non-pensionable;
(5) 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;
(6) ’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;
(7) All Directors’ fees are subject to (i) Irish tax and other statutory deductions including Pay Related Social Insurance, from which non-Irish resident directors
can be exempt, and Universal Social Charge, and (ii) the consent / consultation procedure outlined in the Relationship Framework specified by the
Irish Minister for Finance in respect of the relationship between the Irish Minister for Finance and Allied Irish Banks, p.l.c.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
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5. Remuneration report
Directors’ remuneration* (continued)
Remuneration
Executive Directors
Bernard Byrne
David Duffy
Non-Executive Directors
Simon Ball
Tom Foley
Peter Hagan
David Hodgkinson
(Chairman)
Jim O’Hara
Dr Michael Somers
(Deputy Chairman)
Dick Spring
Tom Wacker
Catherine Woods
Former Directors
Declan Collier
Kieran Crowley
Stephen L Kingon
Anne Maher
David Pritchard
Other
Total
Directors’
fees
Parent and Irish
subsidiary
companies
€ 000
Directors’
fees
AIB Group
(UK) p.l.c.
Salary
Annual
taxable
benefits
Pension
contribution
2013
Total
€ 000
€ 000
€ 000
€ 000
€ 000
85
104
87
275
127
150
77
63
159
1,127
31
35
35
35
47
58
94
361
425
786
30
–
30
99
64
163
490
489
979
85
104
87
275
127
150
77
98
159
1,162
35
47
58
31
94
41
2,447
*Forms an integral part of the audited financial statements
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
Directors’ remuneration* (continued)
Interests in shares
The beneficial interests of the Directors and the Secretary in office at 31 December 2014, and of their spouses and minor children, in the
Company’s ordinary shares are as follows:
Ordinary shares
Directors:
Simon Ball
Mark Bourke
Bernard Byrne
David Duffy
Tom Foley
Peter Hagan
Jim O’Hara
Richard Pym
Dr Michael Somers
Catherine Woods
Secretary:
David O’Callaghan
**or date of appointment, if later
31 December
2014
1 January
2014**
–
–
–
–
100
–
–
–
–
–
–
–
100
–
–
–
13,437
–
13,437
–
7,490
7,490
Throughout 2014, the Directors were prohibited from dealing in the Company’s shares due to significant ongoing corporate activity and
close periods in advance of public disclosures.
The following table sets out the beneficial interests of the Directors and Leadership Team (Senior Executive Officers) members of AIB as
a group (including their spouses and minor children) at 31 December 2014.
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
17,659
***
***The total shares in issue at 31 December 2014, excluding 35,680,114 Treasury Shares, was 523,438,445,437.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
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5. Remuneration report
Directors’ remuneration* (continued)
Share options
No share options were granted or exercised during 2014 and there were no options to subscribe for ordinary shares outstanding in
favour of the Executive Directors or Company Secretary at 31 December 2014.
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 2014 in the names of Executive Directors and members of the Leadership Team was 5,000 as follows:
Outstanding as at 31 December 2013:
Add: Options held by Senior Executive Officers appointed during 2014
Add: Options granted during 2014
Less: Options exercised during 2014
Less: Options lapsed during 2014
Less: Options held by Senior Executive Officers who left office during 2014
Options outstanding as at 31 December 2014
7,000
–
–
–
(2,000)
–
5,000
Performance shares
There were no conditional grants of awards of ordinary shares outstanding to Executive Directors or the Secretary at 31 December
2014.
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 2014 and 4 March 2015.
The year-end closing price, on the Enterprise Securities Market of the Irish Stock Exchange, of the Company’s ordinary shares was
€ 0.08 per share; during the year, the price ranged from € 0.07 to € 0.17.
Service contracts
There are no service contracts in force for any Director with the Company or any of its subsidiaries.
*Forms an integral part of the audited financial statements
184
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Governance and oversight –
6. Supervision and Regulation
6.1 Current climate of regulatory change
The regulatory landscape for the banking sector continues to evolve with a strong focus on supporting the stability of the banking
system and ensuring appropriate resolution and recovery mechanisms are in place post the global financial crisis.
The Group is committed to proactively identifying regulatory and compliance obligations arising in each of the Group’s operating markets
in Ireland, the United Kingdom and the United States and ensuring the implementation of regulatory change on time.
6.2 Ireland
Overview of financial services legislation
The development of the banking union framework (committed to at European Union (“EU”) level by heads of state and governments in
2012) progressed in 2014 with the implementation of the EU Single Banking Supervisory Mechanism (“SSM”) and the implementation
and transposition of the Capital Requirements Regulation and the Capital Requirements Directive IV (together “CRD IV”).
During 2014 the Group’s key focus areas included: SSM; CRD IV; the Banking Recovery and Resolution Directive (Directive
2014/59EU) (" BRRD"); European Markets Infrastructure Regulation (Regulation (EU) 648/2012) (“EMIR”); Protected Disclosures Act
2014; Credit Reporting Act 2013; Central Bank of Ireland’s (“CBI”) Corporate Governance Code for Credit Institutions and Insurance
Undertakings; the recast Deposit Guarantee Schemes Directive (Directive 2014/49/EU) (the “DGSD”); the directive on credit
agreements relating to residential immovable property (Directive 2014/17/EU), known as the Mortgage Credit Directive (“MCD”) and the
CBI’s Guidelines on Variable Remuneration for Sales Staff.
Capital Requirements Directive IV (“CRD IV”)
CRD IV which, amongst other things, implements Basel III rules in the EU became applicable on 1 January 2014 on a phased basis,
with full effect on 1 January 2019.
During 2014, the Group focussed on the implementation of CRD IV to ensure the timely alignment with its new requirements. The Group
will continue this focus in 2015, with particular emphasis on the various regulatory and the implementing technical standards being
published at EU level to support the full implementation process of CRD IV.
BRRD
BRRD was published in June 2014 and is to come into effect in 2015. The overarching goal of BRRD is to break the linkages between
national banking systems and sovereigns.
In particular, it is intended to enable authorities to resolve failing banks at a national level
(including cross-border banks) to lower the risk of impacting the broader financial system, while sharing the costs of resolution with bank
shareholders and creditors. To achieve this objective, the BRRD includes explicit provisions for the 'bail-in' of senior creditors where
necessary. The 'bail-in' provisions are not required to be brought into force until the beginning of 2016.
During 2014 the Group reviewed and updated its recovery plan that has been submitted to the CBI. During 2015 the Group will
complete further updates to the recovery plan and will continue to work with the CBI on resolution planning.
EMIR
EMIR is intended to increase the stability and transparency of over-the-counter derivative markets in the EU and is being introduced in a
phased manner over 2013-2015. It imposes requirements with regard to transacting derivatives, including clearing and margining,
reporting to central repositories, and risk mitigation techniques.
During 2014, the Group introduced processes to ensure compliance with the new regulatory obligations brought about by EMIR in 2014
and will continue the implementation process throughout 2015 as the additional EMIR regulatory obligations become applicable.
Markets in Financial Instruments Directive
A recast Directive on Markets in Financial Instruments (Directive 2014/65/EU) (“MiFID II”) and a Regulation on Markets in Financial
Instruments (Regulation (EU) No 600/2014) (“MiFIR”) were published in the official journal of the EU in May 2014. MiFID II covers
investor protection, transparency rules and organisational requirements. MiFIR covers pre and post trade transparency. MiFID II and
MiFIR must be implemented in all EU Member States by quarter one, 2017.
Much of the detailed requirements of MiFID II and MiFIR will be set out in the regulatory and implementing technical standards to be
developed by the European Securities Market Authority (ESMA) which the Group will focus on during 2015.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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6. Supervision and Regulation
6.2 Ireland (continued)
CBI Codes and Guidelines
On a national level, the Group addressed the regulatory obligations set out in the CBI’s publication of a revised and updated Corporate
Governance Code for Credit Institutions and Insurance Undertakings and the CBI’s Guidelines on Variable Remuneration for Sales
Staff.
6.3 Regulatory change horizon 2015 - Ireland
Throughout 2015, as further regulatory reform continues to emerge from regulators, the Group will continue to focus on the
management of regulatory change and its compliance obligations in particular on the DGSD and the MCD.
DGSD
In June 2014, the DGSD was published by the EU. The DGSD requires the harmonisation of deposit guarantee schemes across
Europe focussing on faster payout, improved financing and enhanced customer information. EU Member States will be required to make
certain changes to the manner in which their deposit guarantee schemes are operated with the majority of changes to be
implemented by 3 July 2015. The DGSD has yet to be transposed into Irish law and the Group is preparing for implementation.
MCD
The MCD was published in March 2014 and must be implemented by March 2016. The MCD will bring about some key changes in
relation to revised pre-contractual information, revised Annual Percentage Rate calculation, restrictions on early repayment and
minimum competency levels for staff “manufacturing” mortgages. The MCD has yet to be transposed into Irish law and therefore its final
impact is uncertain, however the Group has mobilised a working group to assess the impact of the MCD and prepare for
implementation.
Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Housing Loan Requirements) Regulations 2015 (S.I. 47 of
2015) (“Housing Loan Requirements Regulations”)
The Housing Loan Requirements Regulations were signed into law on 9 February 2015. Amongst the measures introduced are limits
on loan-to-value and loan-to-income for principal dwelling houses and buy-to-lets.
CBI Revised SME Lending Code
At a national level, the Group is monitoring the expected implementation during 2015 by the CBI of a revised Code of Conduct for
Business Lending to Small and Medium Enterprises 2012.
Credit Reporting Act 2013
During 2014, the CBI provided a revised timeframe in relation to the implementation of the Credit Reporting Act 2013 with regard to the
central credit register. The Group awaits further update from the CBI and will monitor this throughout 2015.
Companies Act 2014
The Group is monitoring the expected commencement, during 2015, of the Companies Act 2014. The Group will ensure that, at the
commencement date, it is prepared for any measures introduced, including those which will affect the Group’s relationship with its
customers, e.g. new classifications of companies and new rules for registering security with the Companies Registration Office.
186
Allied Irish Banks, p.l.c. Annual Financial Report 2014
6.4 United Kingdom
During 2014, AIB Group (UK) p.l.c. continued to prioritise compliance with its regulatory obligations in Great Britain and Northern Ireland
and will remain focussed on this throughout 2015.
Immigration Act
The UK Immigration Act 2014 (“Immigration Act”) came into law in December 2014 and prohibits banks and building societies from
opening current accounts for persons who do not have leave to remain in the United Kingdom, referred to as ‘disqualified persons.
During 2014, AIB Group (UK) p.l.c. addressed the regulatory obligations arising from the Immigration Act and to ensure compliance.
Mortgage regulation
The Mortgage Market Review brought about significant changes to mortgage regulation in the UK and came into force in April 2014.
One of the key changes is that, with limited exceptions, mortgage sales must be on an advised basis. AIB Group (UK) p.l.c. received
approval from the Financial Conduct Authority (“FCA”) to provide mortgage advice on regulated mortgage contracts.
In 2015, the Prudential Regulatory Authority and FCA will implement the Senior Managers and Certification Regime for UK banks. This
will replace the current approved persons regime and is intended to enable regulators to better hold senior managers to account for the
quality of their decision making. The exact implementation date is currently unknown but is likely to be in the latter half of the year.
6.5 United States
Applicable federal and state securities laws and regulations
Although AIB delisted its ordinary shares from the New York Stock Exchange in August 2011, it had continued to be subject to regulation
and supervision by the United States Securities and Exchange Commission (the “SEC”).
On 9 December 2014, AIB filed a certificate under Form 15F with the SEC. This filing will enable AIB to terminate the registration of
its American Depositary Shares (“ADSs”) (representing 10 ordinary shares of EUR 0.0025 each) under Section 12(g) of the Securities
Exchange Act 1934 (the “Exchange Act”), and its reporting obligations under Section 13(a) and Section 15(d) of the Exchange Act with
the SEC. Upon such filing, AIB’s reporting obligations with the SEC were immediately suspended. The termination of AIB’s registration
and reporting obligations are expected to become effective no later than 90 days after the filing of Form 15F. Accordingly, AIB will no
longer file its Annual Report on Form 20F with the SEC.
Compliance with federal and state banking laws and regulations
During 2014, AIB’s state-licensed branch in New York continued to prioritise compliance with its regulatory obligations in the United
States and will remain focussed on this throughout 2015. In particular, it will continue to monitor ongoing business activities with regard
to the Dodd Frank Act 2010.
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Financial statements
1. Statement of Directors’ responsibilities
2.
Independent Auditor’s Report
3. Accounting Policies
4. Critical accounting judgements and estimates
5. Consolidated financial statements
6. Notes to the consolidated financial statements
7. Parent company financial statements
8. Notes to the parent company financial statements
Page
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326
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
Statement of Directors’ responsibilities
The following statement which should be read in conjunction with the statement of Auditors' responsibilities set out with their Audit
Report, is made with a view to distinguishing 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 International Financial Reporting Standards
(“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 IFRSs 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.
In preparing each of the Group and Company financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
–
– make judgements and estimates that are reasonable and prudent;
–
state that the financial statements comply with IFRSs as adopted by the EU and IFRSs 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.
Each of the Directors confirm, to the best of their knowledge and belief, that:
–
–
–
–
they have complied with the above requirements in preparing the financial statements;
the Group financial statements, prepared in accordance with IFRSs as issued by the IASB and as adopted by the EU, give a true
and fair view of the state of the Group's affairs as at 31 December 2014 and of its profit for the year then ended;
the Company financial statements prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the state
of the Company's affairs as at 31 December 2014;
the Directors' report, Business review and Risk management sections, contained in the Annual Report includes 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; and
–
the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders
to assess the Group’s performance, business model and strategy.
For and on behalf of the Board
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Richard Pym
Chairman
4 March 2015
David Duffy
Chief Executive Officer
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Independent Auditor’s Report
Independent Auditor’s Report to the members of Allied Irish Banks, p.l.c.
Opinion
In our opinion:
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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 2014 and of its profit for the year then ended;
the parent company financial statements give a true and fair view, in accordance with IFRSs, as adopted by the 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 2014; 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
comprehensive income, the consolidated statement of financial position, the consolidated statement of cash flows and the consolidated
statement of changes in equity; and the parent company financial statements: the parent company statement of financial position, the
parent company statement of cash flows, and the parent 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 and restructuring
The risk that provisions for impairment on loans and receivables
Our audit response to the risk
We undertook an assessment of the provisioning practices to
do not represent an appropriate estimate of the losses incurred.
compare them with the requirements of IFRS.
This includes the risk that the estimate of cashflows on
restructuring cases is not appropriately measured.
We tested credit management processes and controls over
both new lending and for restructuring transactions; front line
The determination of appropriate provisions requires a significant
credit monitoring and assessment; the operations and
amount of management judgment and relies on available data.
controls over collective and latent models; and the work of the
credit review function.
In examining both sample loan cases and models we
challenged management on the judgments made regarding
the application of triggers, status of restructures, collateral
valuation and realisation time frames; and examined the
credit risk functions analysis of data at a portfolio level. We
tested samples of the data used in the models together with
the calculations in and the output from the models.
Where appropriate, this work involved assessing third party
valuations of collateral, internal valuation guidelines derived
from benchmark data; external expert reports on
borrowers’ business plans; and enterprise valuations to
determine whether appropriate valuation methodologies were
employed and assessing the objectivity of the external
experts used.
Deferred tax
Risk related to the incorrect recognition or measurement of
We reviewed the plans and the model used by management
deferred taxation. Deferred tax assets are recognised for unused
to 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
sufficient future taxable profits against which the losses can be
negative evidence for the projection of long-term future
used. The assessment of the conditions for the recognition of a
profitability. We reviewed management’s analysis of their
deferred tax asset is a critical judgment given the inherent
consideration of the “more likely than not” test and reviewed
uncertainties associated with projecting profitability over a long
the sensitivity analysis disclosed.
time period.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
Risk of material misstatement
IT Controls
The Groups IT environment is complex with financial accounting
Our audit response to the risk
We examined the design and execution of IT controls
systems dependent on IT. Deficiencies in the privileged access
including those relating to systems access, IT operations and
controls over a number of significant applications could have had
program change, including mitigating controls where relevant.
a significant impact on financial reporting controls and systems.
Where deficiencies affected specific applications within our
audit scope we extended our control testing to provide
assurance over both the compensating controls and the
completeness and accuracy of management information used
in key controls. Where appropriate we extended the scope of
our substantive procedures.
Retirement Benefit Obligations
The risk that the recognition and measurement of pension and
We challenged the appropriateness of key assumptions and
other retirement benefit obligations are inappropriate.
sensitivities used in determining retirement benefits including
discount rates, inflation rates and mortality assumptions. We
tested the calculation of the asset and liability.
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
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 focussed 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.
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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 2014 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.
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191
Independent Auditor’s Report (continued)
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
performing 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.
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 2015
192
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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 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 Segment reporting
30 Cash and cash equivalents
31 Prospective accounting changes
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*Forms an integral part of the audited financial statements.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Accounting policies
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. 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 2014. The accounting policies have been consistently applied by Group entities and are consistent with the previous year,
unless otherwise described. The consolidated financial statements also comply with the Companies Acts 1963 to 2013 and the
Communities (Credit Institutions: Accounts) Regulations, 1992 (as amended) and the Asset Covered Securities Acts 2001 and 2007.
The parent company financial statements and related notes set out on pages 326 to 380 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 2014 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 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 judgements and estimates
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 judgements and estimates is set out in ‘Critical accounting judgements and estimates’ on pages 218 to 222.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
3 Basis of preparation (continued)
Going concern
The financial statements for the year ended 31 December 2014 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 2015 to 2017 approved by the Board in December 2014, the restructuring plan
approved by the European Commission in May 2014, liquidity and funding forecasts, and capital resources projections, all of which have
been prepared under base and stress scenarios. In formulating these plans, the current Irish economic environment and forecasts for
growth and employment were considered as well as the stabilisation of property prices. The Directors have also considered the outlook
for the eurozone and UK economies, and the factors and uncertainties impacting their performance.
In addition, the Directors have considered the results of the Comprehensive Assessment stress testing conducted by the European
Central Bank in conjunction with the Central Bank of Ireland and published in October 2014, which confirm that AIB Group has capital
buffers comfortably above minimum requirements under stress test assessment scenarios.
The Directors have also considered the principal risks and uncertainties which could materially affect the Group’s future business
performance and profitability and which are outlined on pages 51 to 56.
The Directors 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 45 to 49.
The Group funding and liquidity profile is outlined on page 139 to 149. In relation to liquidity and funding, the Directors are satisfied,
based on AIB’s position in the market place, that in all reasonable circumstances required liquidity and funding from the Central Bank of
Ireland/ECB would be available to the Group during the period of assessment.
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 2014.
Amendments to IAS 32 Financial Instruments: Presentation on Offsetting Financial Assets and Financial Liabilities
These amendments are effective from 1 January 2014. The amendments 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.
The adoption of these amendments did not impact on the presentation of the financial position of the Group.
Amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosures of Interests in Other Entities and IAS 27
Separate Financial Statements on Investment Entities
These amendments, which are effective from 1 January 2014, provide an exception for investment entities to consolidate particular
subsidiaries. These subsidiaries should be measured at fair value through profit and loss in the consolidated and separate financial
statements. The amendments also set out the disclosure requirements for investment entities. The adoption of these amendments did
not impact the Group’s financial position or results.
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Accounting policies
3 Basis of preparation (continued)
Amendments to IAS 36 Impairment of Assets on Recoverable Amount Disclosures for Non-Financial Assets
These amendments, which are effective from 1 January 2014, clarify that the scope of the disclosures about the recoverable amount of
impaired assets is limited to those that are 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;
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; and
removal of requirement to disclose recoverable amounts of cash generating units where there is no impairment.
The adoption of these amendments will impact the disclosures required for the recoverable amount of impaired non-financial assets
where this is based on fair value less costs of disposal.
Amendments to IAS 39 Financial Instruments: Recognition and Measurement on Novation of Derivatives and Continuation of
Hedge Accounting
These amendments, which are effective from 1 January 2014, provide an exception to the requirement to discontinue hedge accounting
where a hedging derivative is novated, provided certain criteria are met.
Annual improvements
Other amendments, resulting from Annual Improvements to IFRSs issued by the IASB which the Group adopted in 2014, 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 policy was revised effective from 1 January 2014:
– Derivatives and hedge accounting (Accounting Policy number 22).
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.
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4 Basis of consolidation (continued)
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:
–
–
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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.
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:
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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). 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 can be clearly demonstrated 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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4 Basis of consolidation (continued)
Associated undertakings
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.
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:
–
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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 relevant
proportion of foreign currency translation reserve is re-attributed to the non-controlling interest.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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.
Interest income and expense presented in the consolidated income statement includes:
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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
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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.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Accounting policies
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.
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 (excluding amounts included in net interest on the net deferred benefit liability (asset)) 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.
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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
income. The present value of provisions is included in other liabilities.
When a decision is made that a leasehold property will cease 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. 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.
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 balance sheet 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 will reflect 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 to the extent that 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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13 Income tax, including deferred income tax (continued)
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. 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.
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)
the granting to the borrower of a concession, for economic or legal reasons relating to the borrower’s financial difficulty that
d)
e)
f)
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.
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15 Impairment of financial assets (continued)
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 under the collective incurred but not reported (“IBNR”) assessment. An IBNR impair-
ment 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 for 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
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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15 Impairment of financial assets (continued)
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:
–
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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 sections 3.1 and 3.2. 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.
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 individually assessed
mortgage and 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.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
15 Impairment of financial assets (continued)
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.
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Accounting policies
16 Determination of fair value of financial instruments (continued)
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.
17 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.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
17 NAMA senior bonds (continued)
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.
On an on-going basis and in accordance with IAS 39, AG8, the Group reviews its assumptions as regards the amount and timing of
expected cash flows based on experience to date and other relevant information. The revised cash flows are discounted at the bonds’
original effective interest rate. Any difference between the revised discounted cash flows and the previous carrying value is recognised as
‘other operating income’ in the income statement.
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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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.
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Accounting policies
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
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.
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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:
–
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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.
The Group discontinues hedge accounting when:
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b)
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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
d) a forecast transaction is no longer deemed highly probable.
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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.
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209
Accounting policies
22 Derivatives and hedge accounting (continued)
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
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.
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Disposal groups and non-current assets held for sale (continued)
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 the 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 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 required Ark Life 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 acquired with a view to resale were not fair valued. For presentation purposes in the statement of
financial position, Ark Life’s identifiable liabilities were measured at fair value and this amount was 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 was not required in
the notes to the financial statements.
Inter-company assets and liabilities were eliminated against the carrying amount of the disposal group where applicable. Inter-company
interest income/expense of the continuing group was 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.
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Accounting policies
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.
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.
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28 Shareholders’ equity (continued)
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 57.
Dividends on preference shares accounted for as equity are recognised in equity when approved for payment by the Board of Directors.
Other capital reserves
Other 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 where deferred shares were created and
cancelled.
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 42). 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 38) 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.
The non-refundable receipts of € 6,054 million from the Irish Government and the NPRFC(1) are distributable. These are included in
revenue reserves.
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Revenue reserves
Revenue reserves represent retained earnings of the parent company, subsidiaries and associated undertakings together with amounts
transferred from share premium and capital redemption reserves following Irish High Court approval. 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.
(1)National Treasury Management Agency as controller and manager of the Ireland Strategic Investment Fund (NTMA / ISIF with effect 22 December 2014).
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Accounting policies
28 Shareholders’ equity (continued)
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.
29 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.
30 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 a maturity of less than three months
from the date of acquisition.
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31 Prospective accounting changes
The following new standards and amendments to existing standards approved by the IASB in 2014 or prior years, 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 new
standards and amendments. The new accounting standards and amendments which are more relevant to the Group are detailed below:
Pronouncement
Nature of change
IASB effective date
Amendments to IFRS 11 Joint
The amendments to IFRS 11 Joint Arrangements state that,
Annual periods
Arrangements: Accounting for
where a joint operator acquires an interest in a joint operation
beginning on or after
Acquisitions of Interests in Joint
that constitutes a business, it must apply all of the principles
1 January 2016
Operations
on business combinations accounting in IFRS 3 Business
Combinations, and other IFRSs. The joint operator must disclose
the information that is required in those IFRSs in relation to
business combinations.
These amendments are not expected to have a significant impact
on AIB Group
The amendments are subject to EU endorsement.
Amendments to IAS 16 Property,
The amendment to IAS 16 Property, Plant and Equipment clarifies
Annual periods
Plant and Equipment and IAS 38
that the use of a revenue-based method to calculate depreciation
beginning on or after
Intangible Assets: Clarification of
of an asset is not appropriate.
1 January 2016
Acceptable Methods of Depreciation
and Amortisation
The amendment to IAS 38 Intangible Assets introduces a rebuttable
presumption that a revenue-based amortisation method for
intangible assets is inappropriate. There are limited circumstances
when this presumption can be overturned.
These amendments will not impact AIB Group.
The amendments are subject to EU endorsement.
Amendments to IAS 27 Separate
The amendments to IAS 27 Separate Financial Statements allow
Annual periods
Financial Statements: Equity
entities to use the equity method to account for investments in
beginning on or after
Method in Separate Financial
subsidiaries, joint ventures and associates in their separate
1 January 2016
Statements
financial statements.
These amendments are not expected to have a significant impact
on AIB Group
The amendments are subject to EU endorsement.
Amendments to IFRS 10
The amendments address an inconsistency between the
Annual periods
Consolidated Financial Statements
requirements in IFRS 10 Consolidated Financial Statements
beginning on or after
and IAS 28 Investments in Associates
and those in IAS 28 Investments in Associates and Joint Ventures
1 January 2016
and Joint Ventures: Sale or
in dealing with the sale or contribution of assets between an
Contribution of Assets between an
investor and its associate or joint venture. A full gain or loss is
Investor and its Associate or Joint
recognised when a transaction involves a business (whether it
Venture
is housed in a subsidiary or not). A partial gain or loss is recognised
when a transaction involves assets that do not constitute a
business, even if these assets are housed in a subsidiary.
These amendments are not expected to have a significant impact
on AIB Group
The amendments are subject to EU endorsement.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Accounting policies
31 Prospective accounting changes (continued)
Pronouncement
Nature of change
IASB effective date
Amendments to IAS 1 Presentation
These amendments to IAS 1 are designed to further encourage
Annual periods
of Financial Statements: Disclosure
companies to apply professional judgement in determining what
beginning on or after
Initiative
information to disclose in their financial statements. Furthermore,
1 January 2016
the amendments clarify that companies should use professional
judgement in determining where and in what order information is
presented in the financial disclosures.
These amendments are not expected to have a significant impact
on AIB Group
The amendments are subject to EU endorsement.
Amendments to IFRS 10, IFRS 12
These amendments address issues that have arisen and provide
Annual periods
and IAS 28 Investment Entities:
clarification in the context of applying the consolidation exception
beginning on or after
Applying the Consolidation Exception
for investment entities.
1 January 2016
These amendments are not expected to have a significant impact
on AIB Group
The amendments are subject to EU endorsement
Annual Improvements to IFRSs
The IASB's annual improvements project provides a process for
Annual periods
2012-2014 Cycle
making amendments to IFRSs that are considered non-urgent but
beginning on or after
necessary. The amendments clarify guidance and wording, or
1 July 2016
correct for relatively minor unintended consequences, conflicts or
oversights in existing IFRSs. Annual Improvements to IFRSs 2012-
2014 Cycle amends IFRSs in relation to four issues addressed
during this cycle.
None of the amendments are expected to have a significant impact
on reported results or disclosures.
The amendments are subject to EU endorsement.
IFRS 15 Revenue from Contracts
IFRS 15, which was issued in May 2014, replaces IAS 11
Annual periods
with Customers
Construction Contracts and IAS 18 Revenue in addition to IFRIC 13,
beginning on or after
IFRIC 15, IFRIC 18 and SIC-31. IFRS 15 specifies how and when an
1 January 2017
entity recognises revenue from a contract with a customer through the
application of a single, principles based five-step model. The standard
specifies new qualitative and quantitative disclosure requirements to
enable users of financial statements understand the nature, amount,
timing and uncertainty of revenue and cash flows arising from
contracts with customers.
The impacts of this standard are being considered by AIB Group.
The standard is subject to EU endorsement.
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31 Prospective accounting changes (continued)
Pronouncement
Nature of change
IASB effective date
IFRS 9 Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9 Financial
Annual periods
Instruments. This completes the IASB’s project to replace IAS 39
beginning on or after
Financial Instruments: Recognition and Measurement. The main
1 January 2018
changes are as follows:
Classification and measurement
IFRS 9 introduces a single, principles-based classification approach
that has two measurement categories: amortised cost and 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.
Impairment
IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected
credit loss’ model with this model being applied to all financial
instruments. IFRS 9 requires an entity to account for expected credit
losses from when financial instruments are first recognised and to
recognise full lifetime expected credit losses on a timely basis.
Hedge accounting
IFRS 9 replaces the rules-based general hedge accounting
requirements in IAS 39 Financial Instruments: Recognition and
Measurement with a principles-based approach that more closely
aligns the accounting treatment with risk management activities.
However, an entity may continue to apply the hedge accounting
requirements of IAS 39. The accounting for macro hedges is not
included within IFRS 9 and continues to be accounted for in
accordance with the requirements of IAS 39.
Own credit
IFRS 9 requires that changes in the fair value of an entity’s own debt
caused by changes in its own credit quality be recognised in other
comprehensive income rather than in profit or loss.
The Group is currently assessing the impact that IFRS 9 will have on
its financial statements. While the impact is expected to be significant,
it is not practicable to provide a reasonable estimate of the effects at
this time but expect to do so prior to the effective date.
The standard is subject to EU endorsement.
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Critical accounting judgements and estimates
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 2014 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 approved in December 2014 covering the period 2015 to 2017; the Restructuring Plan approved by the
European Commission in May 2014; liquidity and funding forecasts, and capital resources projections; and the results of the
Comprehensive Assessment stress testing conducted by the ECB. There have all been prepared under base and stress scenarios
having considered the outlook for the Irish, the eurozone and UK economies. In addition, the Directors have considered the
commitment of support provided to AIB by the Irish Government.
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 2014 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.
After a period of time, when it is concluded that there is no real prospect of recovery of loans/part of loans which have been subjected to
a specific provision, the Group writes off that amount of the loan deemed irrecoverable against the specific provision held against the
loan.
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 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.
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Specific provisions (continued)
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 78 and 79 of the Risk management section of this report.
The property and construction loan portfolio continues to have a high level of provisions following the downturn in both the Irish and UK
economies. While collateral values have stabilised and recovered somewhat, market activity remains low relative to normalised levels.
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. 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 78 and 79 of the Risk management 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. 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 32.
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.
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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:
–
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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;
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 Restructuring Plan approved by the European Commission in May 2014, targeting a return to profitability in 2014 and the ability
to grow profits thereafter;
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Critical accounting judgements and estimates
Deferred taxation (continued)
– Management actions taken in 2012 to 2014 in returning the Group to a normalised earnings path;
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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 losses in prior years; and
external forecasts for Ireland, and the UK 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.
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 proposed changes to the UK tax rates) and the likelihood of future developments
and their impact on profitability and utilisation.
The Group’s strategy and its medium term financial plan targeted a return to profitability by 2014 and growth in profitability thereafter.
The return to profitability objective was realised in 2014 and growth thereafter has been reaffirmed in the annual planning exercise
covering the period 2015 to 2017 undertaken by the Group in the second half of 2014. 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 2015-2017. Assuming a sustainable market
return on equity (9%) 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 (€ 3.24 billion) to be utilised. Furthermore, under this scenario, it is
expected that 51% of the deferred tax asset will be utilised in 15 years with 84% utilised in 20 years.
In a more stressed scenario with a return on equity of 8% and GDP growth of 1.5%, the utilisation period increases by a further 3 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 UK profits arising as being more likely than not. The carrying value of deferred tax
assets relating to UK tax losses reduced by € 86 million, reflecting a lower level of expected profitability in the 15 year period.
Furthermore, in December 2014, the UK Chancellor announced in his Autumn Statement a proposal that, from 1 April 2015, only fifty per
cent of a bank’s annual trading profits can be sheltered by unused tax losses arising before that date. As the legislation had not been
substantively enacted at 31 December 2014, the proposed change has not been reflected in the 2014 financial statements. Once the
legislation is substantively enacted, this could result in an immediate reduction of c £178 million (€ 229 million) in the Group’s UK
deferred tax asset, based on the 2014 year end position.
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 € 3,670 million of which € 3,242 million relates to Irish tax losses and € 428 million relates to UK 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. The 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.
220
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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 vari-
ables 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.
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 both 2014 and 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 these reviews, AIB adjusted the carrying value of the bonds and reflected the
difference € 132 million (2013: € 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
221
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Critical accounting judgements and estimates
Retirement benefit obligations (continued)
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 11 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.
222
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Consolidated income statement
for the year ended 31 December 2014
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 (loss)/income
Profit/(loss) on disposal/transfer of loans and receivables
Other operating income
Other income
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
Writeback/(provisions) for impairment on loans and receivables
Writeback/(provisions) for liabilities and commitments
(Provisions)/writeback for impairment on financial investments
available for sale
Operating profit/(loss)
Associated undertakings
Profit on disposal of property
Profit on disposal of businesses
Profit/(loss) before taxation from continuing operations
Income tax (charge)/credit from continuing operations
Profit/(loss) after taxation from continuing operations
Discontinued operations
Profit after taxation from discontinued operations
Profit/(loss) for the year
Attributable to:
Owners of the parent:
Profit/(loss) from continuing operations
Profit from discontinued operations
Basic earnings/(loss) per share
Continuing operations
Discontinued operations
Diluted earnings/(loss) per share
Continuing operations
Discontinued operations
Richard Pym
Chairman
4 March 2015
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Notes
2
3
4
5
5
6
7
8
9
30
31
26
37
12
29
13
14
16
17
18(a)
18(a)
18(b)
18(b)
2014
€ m
3,090
(1,403)
1,687
25
430
(40)
(1)
52
379
845
2,532
(1,527)
(65)
(46)
(1,638)
894
185
4
(1)
1,082
23
6
–
1,111
(230)
881
34
915
881
34
915
0.2c
–
0.2c
0.2c
–
0.2c
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)
2012
€ m
3,916
(2,810)
1,106
1
396
(29)
(100)
(803)
50
(485)
621
(1,716)
(60)
(60)
(1,836)
(1,215)
(2,434)
(9)
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)
(0.3c)
–
(0.3c)
(0.3c)
–
(0.3c)
(0.7c)
–
(0.7c)
(0.7c)
–
(0.7c)
223
223
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David Duffy
Chief Executive Officer
Catherine Woods
Director
David O’Callaghan
Company Secretary
Consolidated statement of comprehensive income
for the year ended 31 December 2014
Profit/(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)/gains 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
Notes
16
16
16
16
Total items that may be reclassified subsequently to profit or loss
Other comprehensive income for the year, net of tax from continuing operations
Total comprehensive income for the year
Attributable to:
Owners of the parent:
Continuing operations
Discontinued operations
2014
€ m
915
(1)
(939)
(940)
27
348
728
1,103
163
1,078
1,044
34
1,078
2013
€ m
2012
€ m
(1,597)
(3,557)
(1)
251
250
(9)
(18)
513
486
736
(2)
(716)
(718)
34
(162)
1,295
1,167
449
(861)
(3,108)
(861)
–
(861)
(3,108)
–
(3,108)
Richard Pym
Chairman
4 March 2015
224
David Duffy
Chief Executive Officer
Catherine Woods
Director
David O’Callaghan
Company Secretary
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Consolidated statement of financial position
as at 31 December 2014
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
Total shareholders’ equity
Total liabilities and shareholders’ equity
Notes
49
20
21
22
23
24
27
28
29
30
31
32
11
33
34
20
22
35
36
11
37
38
39
39
2014
€ m
5,393
146
14
1
2,038
1,865
63,362
9,423
20,185
69
171
290
211
10
3,576
526
175
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
107,455
117,734
16,768
64,018
–
2,334
7,861
–
1,225
729
1,239
258
1,451
95,883
1,344
1,752
8,476
11,572
107,455
23,121
65,667
3,593
1,960
8,759
48
1,321
943
177
299
1,352
107,240
5,248
2,848
2,398
10,494
117,734
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Richard Pym
Chairman
4 March 2015
David Duffy
Chief Executive Officer
Catherine Woods
Director
David O’Callaghan
Company Secretary
Allied Irish Banks, p.l.c. Annual Financial Report 2014
225
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Consolidated statement of cash flows
for the year ended 31 December 2014
Reconciliation of profit/(loss) before taxation to net
cash inflow/(outflow) from operating activities
Profit/(loss) for the year before taxation from continuing operations
1,111
(1,687)
(3,729)
Notes
2014
€ m
2013
€ m
2012
€ m
Adjustments for:
Profit on disposal of businesses
Profit on disposal of property, plant and equipment
(Profit)/loss on disposal/transfer of loans and receivables
Dividends received from equity securities
Dividends received from associated undertakings
Associated undertakings net income
(Writeback)/provisions for impairment on loans and receivables
(Writeback)/provisions for liabilities and commitments
Provisions/(writeback) for impairment on financial investments
available for sale
Change in other provisions
Retirement benefits – defined benefit credit
Termination benefits
Contributions to defined benefit pension schemes
14
13
7
4
29
29
26
37
12
11
11
Depreciation, amortisation and impairment
30 & 31
3
8
8
8
4
Interest on subordinated liabilities and other capital instruments
Net loss on buy back of debt securities in issue
Profit on disposal of financial investments available for sale
Loss on termination of fair value hedging swaps
Remeasurement of NAMA senior bonds
Amortisation of premiums and discounts
Change in prepayments and accrued income
Change in accruals and deferred income
Net cash inflow/(outflow) from operating activities before changes
in operating assets and liabilities
Change in deposits by central banks and banks
Change in customer accounts
Change in loans and receivables to customers(1)
Change in NAMA senior bonds
Change in loans and receivables to banks
Change in trading portfolio financial assets
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
Dividends received from equity securities
Effect of exchange translation and other adjustments
Net cash (outflow)/inflow from operating assets and liabilities
Net cash (outflow)/inflow from operating activities before taxation
Taxation (paid)/refund
Net cash (outflow)/inflow 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
–
(6)
(52)
(25)
(11)
(23)
(185)
(5)
1
70
(3)
(2)
(87)
111
256
1
(389)
208
(132)
31
87
(220)
736
(6,395)
(3,586)
3,736
6,343
(420)
1
(271)
24
(886)
5
36
(299)
25
(223)
(1,910)
(1,174)
(26)
(1,200)
1,706
(160)
346
5,730
308
6,384
(1)
(2)
226
–
(3)
(7)
1,916
17
(9)
84
(131)
(3)
(234)
124
241
–
(41)
10
(62)
(57)
(51)
(316)
(3)
(2)
803
–
(14)
(10)
2,434
9
86
175
(123)
132
(236)
120
223
–
(31)
7
–
(128)
114
153
14
(20)
(5,309)
(8,456)
3,397
5,078
1,916
567
21
249
26
2,654
6,798
2,438
265
33
(776)
13
(1,875)
(4,996)
(50)
(5)
(264)
–
78
3,829
3,843
40
3,883
(3,827)
(160)
(104)
5,926
(92)
5,730
9
254
(102)
–
(31)
(1,897)
(1,917)
42
(1,875)
546
(160)
(1,489)
7,373
42
5,926
226
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Consolidated statement of cash flows (continued)
for the year ended 31 December 2014
(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 undertakings
Proceeds of disposal of investment in businesses and subsidiaries
Dividends received from associated undertakings
Cash flows from investing activities
(b) Financing activities
Interest paid on subordinated liabilities and other capital instruments
Cash flows from financing activities
Notes
17
28
8 & 28
31
13 & 31
30
29
29
2014
€ m
–
(7,336)
2013
€ m
2012
€ m
(325)(2)
(6,666)
–
(5,059)
8,791
3,040
5,685
(47)
9
(60)
2
336(4)
11
(32)
15
(62)
10
190(3)
3
1,706
(3,827)
(160)
(160)
(160)
(160)
(37)
3
(71)
–
11
14
546
(160)
(160)
(1)Also includes loans and receivables to customers within disposal groups and non-current assets held for sale.
(2)Acquisition of Ark Life Assurance Company Limited.
(3)Disposal of Aviva Life Holdings Ireland Limited.
(4)Disposal of Ark Life Assurance Company Limited.
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227
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
229
Notes to the consolidated financial statements
Note
Page
Note
Page
1
2
3
4
5
6
7
8
9
Segmental information
Interest and similar income
Interest expense and similar charges
Dividend income
Net fee and commission income
Net trading (loss)/income
Profit/(loss) on disposal/transfer of loans
and receivables
Other operating income
Administrative expenses
10
Share-based compensation schemes
11 Retirement benefits
12
13
14
15
16
(Provisions)/writeback for impairment on
financial investments available for sale
Profit on disposal of property
Profit on disposal of businesses
Auditor’s fees
Taxation
17 Discontinued operations
18
Earnings per share
19 Distributions on equity shares
20 Disposal groups and non-current assets
held for sale
21
Trading portfolio financial assets
22 Derivative financial instruments
23
24
25
Loans and receivables to banks
Loans and receivables to customers
Amounts receivable under finance leases
and hire purchase contracts
26 Provisions for impairment on loans and
receivables
27 NAMA senior bonds
28
29
30
Financial investments available for sale
Interests in associated undertakings
Intangible assets
231
237
237
237
237
238
238
239
239
240
241
247
247
247
248
249
251
252
253
253
254
255
260
260
261
261
262
263
266
268
31
Property, plant and equipment
32 Deferred taxation
33 Deposits by central banks and banks
34 Customer accounts
35 Debt securities in issue
36 Other liabilities
37
38
Provisions for liabilities and commitments
Subordinated liabilities and other capital
instruments
39
Share capital
40 Own shares
41 Capital reserves and capital redemption
reserves
42 Capital contributions
43 Offsetting financial assets and financial
liabilities
269
270
273
274
274
274
275
276
277
279
280
280
281
44 Memorandum items: contingent liabilities
and commitments, and contingent assets
285
45
Subsidiaries and consolidated
structured entities
46 Off-balance sheet arrangements and
transferred financial assets
Fair value of financial instruments
Interest rate sensitivity
Statement of cash flows
47
48
49
50 Related party transactions
51 Commitments
52
Employees
53 Regulatory compliance
54
55
Financial and other information
Average balance sheets and interest rates
56 Non-adjusting events after the reporting
period
57 Dividends
58
Approval of financial statements
288
290
294
305
308
309
320
321
321
322
323
325
325
325
230
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Notes to the consolidated financial statements
1 Segmental information
The operating segments of the Group are as follows:
– Domestic Core Bank (“DCB”);
– AIB UK;
– Financial Solutions Group (“FSG”); and
– Group.
These segments reflect the internal reporting structure which is used by management to assess performance and allocate resources.
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 Group’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.
Financial Solutions Group (“FSG”) is dedicated to 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.
Group includes central control and support functions costs which include operations and technology, risk, audit, finance, general
counsel, human resources and corporate affairs and strategy. Certain overheads related to these activities are managed and reported
in the Group segment.
The segments’ performance statements include all income and direct costs but exclude certain overheads which are managed centrally
and the costs of these are included in the ‘Group’ segment. Funding and liquidity charges are based on each segment’s funding
requirements and the Group’s funding cost profile, which is informed by wholesale and retail funding costs. Income on capital is
allocated to segments based on each segment’s capital requirement. The cost of services between segments and from central support
functions is based on the estimated actual cost incurred in providing the service.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
231
231
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Notes to the consolidated financial statements
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)/writeback for impairment
DCB
AIB UK
€ m
€ m
1,190
696
1,886
(406)
(260)
(44)
(710)
1,176
275
69
344
(99)
(69)
(5)
(173)
171
FSG
€ m
221
72
293
(105)
(35)
(7)
(147)
146
on loans and receivables
(196)
(70)
451
Writeback/(provisions) for liabilities
and commitments
(Provisions) for impairment on
financial investments available for sale
Total (provisions)/writeback
Operating profit/(loss)
Associated undertakings
Profit on disposal of property
Profit/(loss) before taxation from
2
(1)
(195)
981
18
3
–
–
(70)
101
5
3
3
–
454
600
–
–
Group
Total Exceptional**
€ m
€ m
1
6
7
(157)
(187)
(29)
1,687
843
2,530
(767)
(551)
(85)
items
€ m
–
2
2
(24)
(185)
(26)
2014
Total
€ m
1,687
845
2,532
(791)
(736)
(111)
(373)
(1,403)
(235)
(1,638)
(366)
1,127
(233)
894
–
(1)
–
(1)
185
4
(1)
188
–
–
–
–
185
4
(1)
188
(367)
1,315
(233)
1,082
–
–
23
6
–
–
23
6
continuing operations
1,002
109
600
(367)
1,344
(233)
1,111
**Exceptional and one-off items are shown separately above. These are items that management believe obscures the underlying
performance trends in the business. Exceptional items include:
– Profit on transfer of financial instruments to NAMA;
– Termination benefits;
– Bank levy; and
– Restructuring and restitution expenses.
For further information on these items see page 29.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
1 Segmental information (continued)
Operations by business segment
Net interest income
Other income/(loss)
Total operating income/(loss)
Personnel expenses
General and administrative expenses
Depreciation, impairment and amortisation
Total operating expenses
Operating profit/(loss) before provisions
Provisions for impairment on loans
DCB
AIB UK
€ m
€ m
973
469
1,442
(452)
(244)
(54)
(750)
692
177
68
245
(109)
(56)
(6)
(171)
74
FSG
€ m
190
25
215
(128)
(32)
(1)
(161)
54
and receivables
(853)
(166)
(897)
Writeback/(provisions) for liabilities
and commitments
Writeback/(provisions) for impairment on
financial investments available for sale
Total (provisions)/writeback
Operating loss
Associated undertakings
Profit on disposal of property
Profit on disposal of business
–
10
(843)
(151)
8
1
–
10
–
(156)
(82)
2
–
–
(8)
(1)
(906)
(852)
(3)
–
–
Group
Total Exceptional**
€ m
€ m
items
€ m
2013
Total
€ m
5
17
22
(162)
(187)
(39)
(388)
(366)
–
1
–
1
1,345
579
1,924
(851)
(519)
(100)
(1,470)
3
1,348
(217)
362
(214)
1,710
147
(136)
(24)
(13)
(704)
(655)
(124)
(1,483)
454
(227)
227
(1,916)
–
(1,916)
3
9
(20)
(17)
–
9
(1,904)
(20)
(1,924)
(365)
(1,450)
(247)
(1,697)
–
–
1
7
1
1
–
1
–
7
2
1
Loss before taxation from continuing operations
(142)
(80)
(855)
(364)
(1,441)
(246)
(1,687)
Upon completion of the deleveraging target in the second half of 2013, certain assets transferred between segments with effect from
1 July 2013.
**Exceptional and one-off items are shown separately above. These are items that management believe obscures the underlying
performance trends in the business. Exceptional items include:
–
–
Loss on disposal of loans;
Loss on transfer of financial instruments to NAMA;
– Termination benefits;
– Retirement benefit curtailment;
– Restructuring and restitution expenses; and
– Gain on disposal of Aviva Life Holdings (“ALH”).
For further information on these items see page 29.
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Notes to the consolidated financial statements
1 Segmental information (continued)
DCB
AIB UK
€ m
€ m
Operations by business segment
Net interest income
Other income/(loss)
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 loss
Associated undertakings
Profit on disposal of property
Profit on disposal of business
Profit/(loss) before taxation
from continuing operations
747
346
1,093
(517)
(238)
(54)
(809)
284
(202)
(4)
(84)
(290)
(6)
13
–
1
8
FSG
€ m
230
(45)
185
(168)
(69)
(6)
(243)
(58)
Group
Total Exceptional**
€ m
€ m
items
€ m
27
(50)
(23)
(246)
(196)
(47)
1,106
318
1,424
(1,041)
(589)
(118)
(489)
(1,748)
–
(803)
(803)
33
(119)
(2)
(88)
2012
Total
€ m
1,106
(485)
621
(1,008)
(708)
(120)
(1,836)
(512)
(324)
(891)
(1,215)
102
67
169
(110)
(86)
(11)
(207)
(38)
(97)
(2,135)
–
–
(5)
(2)
(97)
(2,142)
–
–
–
–
(2,434)
(9)
(86)
(2,529)
–
–
–
–
(2,434)
(9)
(86)
(2,529)
(135)
(2,200)
(512)
(2,853)
(891)
(3,744)
2
–
–
(5)
–
2
–
2
–
10
2
3
–
–
–
10
2
3
(133)
(2,203)
(510)
(2,838)
(891)
(3,729)
**Exceptional and one-off items are shown separately above. These are items that management believe obscures the underlying
performance trends in the business. Exceptional items include:
–
Loss on disposal of loans;
– Profit on transfer of financial instruments to NAMA;
– Termination benefits;
– Retirement benefit curtailment; and
– Restructuring and restitution expenses.
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1 Segmental information (continued)
Other amounts – statement of financial position
Loans and receivables to customers
Interests in associated undertakings
Total assets
Customer accounts
Total liabilities(1)
Capital expenditure
Loans and receivables to customers
Loans and receivables held for sale
Interests in associated undertakings
Total assets
Customer accounts
Total liabilities(1)
Capital expenditure
DCB
€ m
44,125
51
82,672
51,231
81,673
104
DCB
€ m
44,251
–
44
89,080
53,605
90,083
89
AIB UK
€ m
10,374
18
15,907
11,504
12,927
2
AIB UK
€ m
11,225
–
14
15,636
10,918
12,420
3
FSG
€ m
8,863
–
8,876
1,283
1,283
1
FSG
€ m
10,237
28
–
13,018
1,144
4,737
2
Group
€ m
–
–
–
–
–
–
Group
€ m
–
–
–
–
–
–
–
2014
Total
€ m
63,362
69
107,455
64,018
95,883
107
2013
Total
€ m
65,713
28
58
117,734
65,667
107,240
94
(1)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.
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Notes to the consolidated financial statements
1 Segmental information (continued)
Geographic information - continuing operations(1)(2)
Gross external revenue
Inter-geographical segment revenue
Total revenue
Geographic information - continuing operations(1)(2)
Gross external revenue
Inter-geographical segment revenue
Total revenue
Geographic information - continuing operations(1)
Gross external revenue
Inter-geographical segment revenue
Total revenue
Republic of
Ireland
€ m
United
Kingdom
€ m
Rest of the
World
€ m
1,975
314
2,289
547
(308)
239
10
(6)
4
Republic of
Ireland
€ m
United
Kingdom
€ m
Rest of the
World
€ m
1,546
(47)
1,499
169
53
222
(5)
(6)
(11)
Republic of
Ireland
€ m
United
Kingdom
€ m
Rest of the
World
€ m
164
54
218
517
(34)
483
(60)
(20)
(80)
2014
Total
€ m
2,532
–
2,532
2013
Total
€ m
1,710
–
1,710
2012
Total
€ m
621
–
621
Revenue from external customers comprises interest and similar income (note 2) interest expense and similar charges (note 3) and all
other items of income (notes 4 to 8).
Geographic information
Non-current assets(3)
Geographic information
Non-current assets(3)
Geographic information
Non-current assets(3)
Republic of
Ireland
€ m
United
Kingdom
€ m
Rest of the
World
€ m
441
19
1
Republic of
Ireland
€ m
454
United
Kingdom
€ m
22
Rest of the
World
€ m
1
Republic of
Ireland
€ m
489
United
Kingdom
€ m
30
Rest of the
World
€ m
1
2014
Total
€ m
461
2013
Total
€ m
477
2012
Total
€ m
520
(1)The geographical distribution of total revenue 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)Non-current assets comprise intangible assets, and property, plant and equipment.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
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
2014
€ m
2,421
22
–
80
567
3,090
2013
€ m
2,520
19
–
130
652
2012
€ m
2,976
31
1
329
579
3,321
3,916
Interest income includes a credit of € 138 million (2013: a credit of € 138 million; 2012: a credit of € 217 million) removed from other
comprehensive income in respect of cash flow hedges.
Interest income reported above, calculated using the effective interest method, relates to financial assets not carried at fair value
through profit or loss.
Interest income recognised on impaired loans amounts to € 329 million (2013: € 373 million; 2012: € 392 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
2014
€ m
46
766
335
256
1,403
2013
€ m
123
1,265
344
241
1,973
2012
€ m
252
1,823
512
223
2,810
Interest expense includes a charge of € 92 million (2013: a charge of € 133 million; 2012: a charge of € 128 million) removed from other
comprehensive income in respect of cash flow hedges.
Included within interest expense is a charge of € 59 million (2013: € 173 million; 2012: € 388 million) in respect of the Irish Government’s
Eligible Liabilities Guarantee (“ELG”) Scheme.
Interest expense reported above, calculated using the effective interest method, relates to financial liabilities not carried at fair value
through profit or loss.
4 Dividend income
Dividend income relates to income from equity shares held as financial investments available for sale and amounts to € 25 million
(2013: € 4 million; 2012: € 1 million). In 2014, this dividend income was received on NAMA subordinated bonds.
5 Net fee and commission income
Retail banking customer fees
Credit related fees
Other commissions
Insurance commissions
Fee and commission income
Fee and commission expense(1)
2014
€ m
373
30
–
27
430
(40)
390
2013
€ m
351
31
–
32
414
(36)
378
2012
€ m
322
33
9
32
396
(29)
367
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(1)Fee and commission expense includes ATM expenses of € 5 million (2013: € 5 million; 2012: € 8 million) and credit card commissions of € 26 million
(2013: € 23 million; 2012: € 12 million).
Fees and commissions which are an integral part of the effective interest rate are recognised as part of interest and similar income
(note 2) or interest expense and similar charges (note 3).
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Notes to the consolidated financial statements
6 Net trading (loss)/income
Foreign exchange contracts
Interest rate contracts and debt securities
Credit derivative contracts
Equity securities, index contracts and warrants
2014
€ m
45
(68)
(2)
24(1)
(1)
2013
€ m
37
53
–
12(2)
2012
€ m
45
(75)
(38)
(32)(3)
102
(100)
(1)Mark to market gain on equity warrants
(2)Includes a gain of € 10 million arising on disposal of ALH (note 17).
(3)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 (note 17).
The total hedging ineffectiveness on cash flow hedges reflected in the income statement amounted to Nil (2013: a credit of € 7 million;
2012: a charge of € 7 million) and is included in net trading income.
7 Profit/(loss) on disposal/transfer of loans and receivables
The following table sets out details of the profit/(loss) on disposal/transfer of loans and receivables:
Profit/(loss) on disposal of loans and receivables to customers
Profit/(loss) on transfer of loans and receivables to NAMA
Total
2014
€ m
50
2
52
2013
€ m
(201)
(25)
(226)
2012
€ m
(962)
159
(803)
Profit/(loss) on disposal of loans and receivables to customers includes the impact of deleveraging non-core assets of Nil
(2013: loss € 193 million; 2012: loss € 962 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 37).
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.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
8 Other operating income
Profit on disposal of available for sale debt securities
Loss on termination of hedging swaps(1)
Profit on disposal of available for sale equity securities
Effect of re-estimating the timing of cash flows on NAMA senior bonds (note 27)
Net loss on buy back of debt securities in issue
Miscellaneous operating (expense)/income(2)
2014
€ m
369
(208)
20
132
(1)
67
379
2013
€ m
30
(10)
11
62
–
11
104
(1)Realised loss where the hedged item was disposed of, the majority of which is reported in profit on disposal of available for sale debt securities.
(2)Miscellaneous operating income includes:
– Foreign exchange gains € 11 million (2013: a credit of € 1 million; 2012: Nil).
– Income of € 27 million in settlement of claim (2013: Nil; 2012: Nil).
– Nil charge relating to terminated cash flow hedges which has been removed from equity (2013: Nil; 2012: charge of € 2 million).
– Effect of realisation/re-estimation of cash flows on loans and receivables previously restructured - credit of € 24 million (2013: Nil; 2012: Nil).
9 Administrative expenses
Personnel expenses:
Wages and salaries
Termination benefits(1)
Retirement benefits(2) (note 11)
Social security costs
Other personnel expenses
Total personnel expenses
General and administrative expenses:
Irish banking levy
Other general and administrative expenses
Total general and administrative expenses
2014
€ m
2013
€ m
599
24
91
66
11
791
60
676
736
653
86
(112)
77
–
704
–
655
655
2012
€ m
25
(7)
6
–
–
26
50
2012
€ m
786
171
(102)
85
68
1,008
–
708
708
1,527
1,359
1,716
(1)At 31 December 2014, a charge of € 24 million (2013: a charge of € 86 million; 2012: a charge of € 164 million) has been made to the income statement
in respect of termination benefits arising from the voluntary severance programme. This amount comprises Nil (2013: € 23 million; 2012: € 140 million) in
respect of past service costs relating to the early retirement scheme and € 24 million (2013: € 92 million; 2012: € 38 million) relating to the voluntary
severance scheme (note 11) and Nil (2013: 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 (2013: Nil; 2012: € 7 million) was made in respect of other termination benefits, principally, in the Isle of
Man/Channel Islands.
(2)Comprises a credit of € 3 million relating to defined benefit expense (2013: credit of € 131 million; 2012: credit of € 123 million), a defined contribution
expense charge of € 86 million (2013: € 13 million; 2012: € 13 million) and a long term disability payments expense charge of € 8 million
(2013: € 6 million; 2012: € 8 million) (note 11).
Employee numbers by segment are set out in note 52.
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Notes to the consolidated financial statements
10 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 Group Performance Share Plan 2005.
At 31 December 2014, the ordinary shares of Allied Irish Banks, p.l.c. were trading at € 0.079 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 2014, 2013 and 2012.
Number
of
options
’000
3,490.7
–
(2,285.7)
1,205.0
1,205.0
2014
Weighted
average
exercise
price
€
13.85
–
12.62
16.20
16.20
Number
of
options
’000
5,746.5
–
(2,255.8)
3,490.7
3,490.7
2013
Weighted
average
exercise
price
€
Number
of
options
’000
13.64
8,353.7
–
13.30
13.85
13.85
–
(2,607.2)
5,746.5
5,746.5
2012
Weighted
average
exercise
price
€
13.62
–
13.58
13.64
13.64
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.
(iii) 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 2014
or 2013. The plan will terminate in 2015.
Income statement expense
The total expense arising from share-based payment transactions amounted to Nil for the year ended 31 December 2014 (2013: Nil; 2012: 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.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
11 Retirement benefits
The Group operates a number of defined contribution and defined benefit schemes for employees. All defined benefit schemes are closed
to future accrual.
Defined contribution schemes
From 1 January 2014, all staff transferred to defined contribution schemes 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, the employer contribution
was 12%, 15% or 18% for each employee irrespective of whether the staff member made a contribution. The same contribution
arrangement will continue in 2015.
For members of defined contribution schemes in 2013, the standard contribution rate to the Irish DC scheme was 8% and 10% in respect
of the defined contribution element of a hybrid arrangement that was in place for certain staff. 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 scheme and the UK DC scheme for 2014 was € 86 million
(2013: € 13 million; 2012: € 13 million). The cost in respect of defined contributions is included in administrative expenses (note 9).
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 for future pension benefits. This led to a reduction of € 231 million in the defined benefit obligation and a
credit to the income statement as a negative past service cost in 2013. The most significant defined benefit schemes operated by the
Group are the AIB Group Irish Pension Scheme (‘the Irish scheme’) and the AIB Group UK Pension Scheme (‘the UK scheme’).
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.
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 Authority. 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 regulatory requirements with the Pensions Authority and Trustee
of the Irish Scheme, has remaining average contributions of € 50.5 million per annum over the next four years.
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 is set out in the Risk section on page 156 of this report.
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 will be carried out in respect of the Irish and UK schemes for valuation
dates no later than 30 June 2015 and 31 December 2014 respectively. Actuarial valuations are available for inspection by the members
of the schemes.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
241
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Notes to the consolidated financial statements
11 Retirement benefits (continued)
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.
The Irish Finance Act 2014 which was signed into law in December 2014, introduced an additional stamp duty levy of 0.15% on the
market value of the assets under management in Irish pension schemes, for the years 2014 and 2015 (inclusive). The levy is based on
the market value of the assets at the 30 June in each relevant year.
In 2014, a levy of € 30.3 million was paid in respect of the Irish defined benefit schemes and a levy of € 2.4 million was paid in respect of
the Irish DC schemes. The payment of the levy in respect of the Irish defined benefit schemes was incorporated into the return on
pension scheme assets.
Contributions
The total contributions to all the defined benefit pension schemes operated by the Group in 2015 are estimated to be € 83.6 million.
Payments in 2014 amounted to € 87 million, of which € 82 million related to the Irish scheme, as required by regulation, as part of the
Scheme’s Minimum Funding Standard regulatory funding plan.
Voluntary Severance Programme
During 2013, the Group recognised a past service cost in the income statement and an increase in the benefit obligation of € 23 million
for the Group’s early retirement scheme. Furthermore, a negative past service cost of € 29 million was recognised in the income
statement in relation to employees who left under the voluntary severance scheme and who were members of a Group defined benefit
pension scheme.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
11 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 2014 and 2013. The assumptions have been set based upon the advice of the Group’s actuary.
Financial assumptions
Irish scheme
Rate of increase of pensions in payment
Discount rate
Inflation assumptions
UK scheme
Rate of increase of pensions in payment
Discount rate
Inflation assumptions (RPI)
Other schemes
Rate of increase of pensions in payment
Discount rate
Inflation assumptions
(1)Nil for the next 3 years and 1.75% per annum thereafter.
2014
%
1.40(1)
2.20
1.75
3.00
3.70
3.00
2013
%
1.70
3.90
2.00
3.30
4.70
3.30
0.00 – 3.00
2.20 – 4.00
1.75 – 3.00
0.00 – 3.10
3.90 – 5.00
2.00 – 3.40
Mortality assumptions
The life expectancies underlying the value of the scheme liabilities for the Irish and UK schemes at 31 December 2014 and 2013 are
shown in the following table:
Life expectancy - years
Retiring today age 63
Retiring in 10 years at age 63
Males
Females
Males
Females
2014
24.8
26.2
26.1
27.3
2014
26.3
28.6
27.5
29.8
24.7
26.0
26.0
27.2
26.3
28.5
27.4
29.7
Irish scheme
2013
UK scheme
2013
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 2014 is assumed to live on average for 24.8 years for a male (26.3 years for the UK scheme) and 26.2 years for a female
(28.6 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 2014 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.
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Notes to the consolidated financial statements
11 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 2014 and 2013:
Defined Fair value
benefit of scheme
obligation
€ m
2014
Net defined
benefit
assets liability (asset)
€ m
€ m
Defined Fair value
benefit of scheme
obligation
€ m
2013
Net defined
benefit
assets liability (asset)
€ m
€ m
At 1 January
Included in profit or loss
Current service cost
Past service cost:
– Termination benefits
– Other
Interest cost (income)
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
5,336
(5,242)
94
5,536
(4,774)
–
–
(4)
215
–
211
(16)
–
1,631
–
87
1,702
–
–
(178)
(178)
–
–
–
(215)
1
(214)
–
–
–
(548)
(94)
(642)
(87)
–
178
91
–
–
(4)
–
1
(3)
(16)
–
1,631
(548)
(7)
1,060
(87)
–
–
(87)
78
(6)
(238)
221
–
55
8
(130)
101
–
(27)
(48)
–
16
(223)
(207)
–
–
–
(195)
3
(192)
–
–
–
(271)
23
(248)
(234)
(16)
222
(28)
At 31 December
7,071
(6,007)
1,064
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
– EBS scheme
– Other schemes
Total retirement benefit liabilities
Net pension deficit
(1)Includes payment of pension levy.
164
11
175
1,125
97
17
1,239
1,064
762
78
(6)
(238)
26
3
(137)
8
(130)
101
(271)
(4)
(296)
(234)
–
(1)
(235)
94
69
14
83
129
37
11
177
94
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
11 Retirement benefits (continued)
Scheme assets
The following table sets out an analysis of the scheme assets at 31 December 2014 and 2013:
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)(2)
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(2)
Structured debt
Fair value of scheme assets at 31 December
(1)Located in Europe.
(2)A quoted market price in an active market is not available.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
2014
€ m
185
70
180
148
106
312
147
169
150
49
48
1,379
10
1,389
823
869
1,692
49
28
77
1,769
230
5
13
420
24
133
82
35
801
423
1
1,932
–
1,932
486
11
6,007
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
1,304
187
7
13
316
22
241
64
33
547
320
1
1,557
5
1,562
528
–
5,242
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Notes to the consolidated financial statements
11 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
(279)
268
164
301
(250)
(163)
(62)
63
35
65
(59)
(35)
Maturity of the defined benefit obligation
The weighted average duration of the Irish scheme at 31 December 2014 is 22 years and of the UK scheme at 31 December 2014 is
20 years.
Asset-liability matching strategies
The Irish Scheme has conducted a review of its investment strategies which included 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.The implementation of the investment strategy continued in 2014 and is ongoing.
The UK scheme has already implemented a de-risking strategy that has resulted in a significant investment in liability matching assets.
This strategy includes the elimination of all equity investments and the investment of all assets in a combination of corporate bonds,
sovereign bonds and liability matching instruments.
Funding arrangements and policy
In addition to the funding arrangement set out in ‘Regulatory framework’ on page 241, 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 expected annual payments of
£ 22.4 million (range of £ 15 million to £ 35 million), 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 46).
Long-term disability payments
AIB provides an additional benefit to employees who suffer prolonged periods of sickness, subject to qualifying terms of the insurer. 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
2014, the Group contributed € 8 million (2013: € 6 million; 2012: € 8 million) towards insuring this benefit. This amount is included in
administrative expenses (note 9).
246
Allied Irish Banks, p.l.c. Annual Financial Report 2014
12 (Provisions)/writeback for impairment on financial
investments available for sale
Debt securities (note 28)
Equity securities (note 28)
(1)Of which Nil (2013: Nil; 2012: € 82 million) relates to NAMA subordinated bonds.
2014
€ m
(1)
–
(1)
2013
€ m
18
(9)(1)
9
2012
€ m
–
(86)(1)
(86)
13 Profit on disposal of property
2014
The sale of properties surplus to requirements gave rise to profit on disposal of € 6 million.
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.
14 Profit on disposal of businesses
2014
There was no profit or loss on disposal of businesses within the Group during the current financial year.
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).
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Notes to the consolidated financial statements
15 Auditor’s fees
The disclosure of Auditor’s fees is in accordance with (SI 220)(1). This mandates disclosure of fees paid to the Group Auditor only
(Deloitte & Touche Ireland) for services to the parent company in the categories set out below. All years presented are on that basis.
Auditor’s fees (excluding VAT):
Audit
Other assurance services
Taxation advisory services
Other non-audit services
2014
€ m
2013*
€ m
2.2
0.4
–
0.1
2.7
1.9
0.3
–
0.1
2.3
Included in the above are amounts paid to the Group Auditor, for services provided to other Group companies:
–
–
–
–
audit € 0.3 million (2013*: € 0.1 million);
other assurance services € 0.05 million (2013*: Nil);
taxation advisory services Nil (2013*: € 0.01 million); and
other non–audit services Nil (2013*: 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)(2):
2014
€ m
4.8
2013*
€ m
3.2
(1)SI 220 is titled the European Communities (Statutory Audits) (Directive 2006/43/EC) Regulations 2010.
(2)In conjunction with the Prudential Regulatory Authority in the UK, Deloitte LLP were appointed to undertake a Section 166 Review in AIB Group (UK) p.l.c.
in 2012. During 2014, € 4.3 million has been paid to Deloitte LLP as this review has continued throughout the year (2013*: € 2.8 million).
*Amounts paid in 2013 are from 20 June 2013 (date of appointment of Deloitte & Touche as Group Auditor).
248
Allied Irish Banks, p.l.c. Annual Financial Report 2014
16 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
Reduction in carrying value of deferred tax assets
in respect of carried forward losses
Total tax (charge)/credit for the year
Effective tax rate
2014
€ m
2013
€ m
2012
€ m
(1)
–
(1)
–
(1)
–
34
34
33
(156)
(21)
(86)
(263)
(230)
–
17
17
–
17
(32)
1
(31)
(14)
88
16
–
104
90
–
(2)
(2)
–
(2)
14
(12)
2
–
159
13
–
172
172
20.7%
5.3%
4.6%
Factors affecting the effective tax rate
The effective income tax rate for 2014 is 20.7% (2013: 5.3%; 2012: 4.6%). 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(1)
Adjustments to tax charge in respect of previous years
Effective income tax rate
(1)Change in the UK tax rate.
`
2014
%
12.3
1.8
(0.2)
–
8.5
(0.6)
–
(1.1)
20.7
2013
%
14.2
(1.8)
0.8
(1.6)
(2.8)
0.3
(4.5)
0.7
5.3
2012
%
14.3
(0.3)
0.1
–
(7.2)
(0.4)
(1.8)
(0.1)
4.6
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Notes to the consolidated financial statements
16 Taxation (continued)
Analysis of selected other comprehensive income
Continuing operations
Retirement benefit schemes
Actuarial (losses)/gains in retirement
benefit schemes
Total
Foreign currency translation reserves
Change in foreign currency translation
reserves
Total
Cash flow hedging reserves
Fair value (gains) transferred
to income statement
Fair value gains/(losses) taken to other
comprehensive income
Total
Available for sale securities reserves
Fair value (gains)/losses transferred
to income statement
Fair value gains taken to other
comprehensive income
Total
Gross
€ m
Tax
€ m
2014
Net
€ m
Gross
€ m
Tax
€ m
2013
Net
€ m
Gross
€ m
Tax
€ m
2012
Net
€ m
(1,067)
(1,067)
128
128
(939)
(939)
(292)
(292)
41
41
(251)
(251)
830
830
(114)
(114)
716
716
27
27
(46)
445
399
–
–
5
27
27
(9)
(9)
(41)
(5)
(56)
(51)
389
348
(15)
(20)
–
–
–
2
2
(9)
(9)
34
34
(5)
(87)
(13)
(18)
(98)
(185)
–
–
10
13
23
34
34
(77)
(85)
(162)
(388)
48
(340)
(51)
10
(41)
55
7
62
1,223
(155)
1,068
835
(107)
728
631
580
(77)
(67)
554
513
1,412
1,467
(179)
1,233
(172)
1,295
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
17 Discontinued operations
Disposal of Ark Life in 2014 and disposal of Aviva Life Holdings Ireland Limited and acquisition of Ark Life
in 2013
2014
In May 2014, AIB disposed of its investment in Ark Life Assurance Company Limited (‘Ark Life’) resulting in a gain on disposal of
€ 34 million (tax Nil).
2013
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. 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 was reported in ‘Net trading income/(loss)’ (note 6).
AIB then acquired a 100% interest in Ark Life for a consideration of € 325 million. The put option that 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 were included in ‘Administrative expenses’ (note 9).
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. The investment was accounted for
in accordance with the accounting policy set out on page 211 of the Annual Financial Report 2014. As set out in the accounting policy,
the disposal group was reported at the lower of its carrying amount and fair value less costs to sell at each reporting date. The fair value
was equal to or greater than the carrying value at 31 December 2013. However, no income was recorded in the year in accordance with
the accounting policy for a subsidiary acquired exclusively for resale.
2012
There were no discontinued operations in the year to 31 December 2012.
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Notes to the consolidated financial statements
18 Earnings per share
The calculation of basic earnings per unit of ordinary shares is based on the profit/(loss) attributable to ordinary shareholders divided by
the weighted average of ordinary shares in issue, excluding treasury shares and own shares held.
The diluted earnings per share is based on the profit/(loss) attributable to ordinary shareholders divided by the weighted average
number of ordinary shares in issue, excluding treasury shares and own shares held, adjusted for the effect of dilutive potential ordinary
shares.
(a) Basic
Profit/(loss) attributable to ordinary shareholders of the parent from continuing operations
Profit attributable to ordinary shareholders from discontinued operations
Profit/(loss) attributable to ordinary shareholders
2014
€ m
881
34
915
2013
€ m
(1,597)
–
2012
€ m
(3,557)
–
(1,597)
(3,557)
Number of shares (millions)
Weighted average number of ordinary shares in issue during the year
522,649.6
519,761.0
515,789.0
Earnings/(loss) per share from continuing operations – basic
EUR 0.2c
EUR (0.3c)
EUR (0.7c)
Earnings per share from discontinued operations – basic
–
–
–
(b) Diluted
Profit/(loss) attributable to ordinary shareholders of the parent
from continuing operations (note 18 (a))
Dilutive effect of CCN’s interest charge
Adjusted profit/(loss) attributable to ordinary shareholders from continuing operations
Profit attributable to ordinary shareholders of the parent
from discontinued operations
Adjusted profit/(loss) attributable to ordinary shareholders
Weighted average number of ordinary shares in issue during the year
Dilutive effect of options outstanding
Dilutive effect of CCNs
Potential weighted average number of shares
2014
€ m
881
234
1,115
34
1,149
2013
€ m
2012
€ m
(1,597)
(3,557)
–
–
(1,597)
(3,557)
–
–
(1,597)
(3,557)
Number of shares (millions)
522,649.6
519,761.0
515,789.0
–
160,000.0
682,649.6
–
–
–
–
519,761.0
515,789.0
Earnings/(loss) per share from continuing operations – diluted
EUR 0.2c
EUR (0.3c)
EUR (0.7c)
Earnings per share from discontinued operations – diluted
–
–
–
– Bonus shares in lieu of the dividend on the 2009 Preference Shares were issued to the NPRFC(1) in 2014, 2013 and 2012
amounting to: 2,177,293,934; 4,144,055,254; and 3,623,969,972 shares respectively (note 39). 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 contingent capital notes (“CCNs”). These notes are mandatorily redeemable and will
convert to AIB ordinary shares, by dividing the capital amount of € 1.6 billion by the conversion price of € 0.01 resulting in 160 billion
new ordinary shares (note 38), if the Core Tier 1 capital ratio falls below 8.25%. These incremental shares have been included in
calculating the 2014 diluted per share amounts because they were dilutive in 2014 but not in 2013 or 2012. However, the impact is
minimal.
The ordinary shares are included in the weighted average number of shares on a time apportioned basis.
(1)National Treasury Management Agency as controller and manager of the Ireland Strategic Investment Fund (NTMA / ISIF with effect 22 December 2014).
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19 Distributions on equity shares
No dividends were paid on equity shares in 2014, 2013 or 2012.
20 Disposal groups and non-current assets held for sale
At 31 December 2014, disposal groups and non-current assets held for sale include property surplus to requirements.
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 to customers
Other
Discontinued operations:
Ark Life(2)
Total disposal groups and non-current assets and
liabilities held for sale
2014
2013
Assets
€ m
Liabilities
€ m
Assets
€ m
Liabilities
€ m
–
14
–
14
–
–
–
–
28(1)
7
–
–
2,747
3,593
2,782
3,593
(1)Net of provisions of Nil (note 26).
(2)Ark Life which had been classified as held for sale as a discontinued operation at 31 December 2013, was disposed of in May 2014 (note 17).
Intercompany balances of € 1,148 million between AIB and Ark Life (which included deposits of € 1,011 million) were eliminated on consolidation.
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Notes to the consolidated financial statements
21 Trading portfolio financial assets
Debt securities
Equity securities
Of which listed:
Debt securities
Of which unlisted:
Equity securities
2014
€ m
–
1
1
2014
€ m
–
1
1
2013
€ m
1
1
2
2013
€ m
1
1
2
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 2014 was € 42 million (2013: € 467 million; 2012: € 1,025 million; 2011: € 1,410 million; 2010: € 2,538 million;
2009: € 4,104 million; 2008: € 5,674 million).
As at 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 2014 would have included unrealised fair value gains on reclassified trading portfolio financial assets
of € 15 million (2013: gains € 112 million; 2012: gains € 136 million).
After reclassification, the reclassified assets contributed the following amounts to the income statement:
Interest on financial investments available for sale
Provisions for impairment on financial investments available for sale
2014
€ m
2
(1)
2013
€ m
11
–
2012
€ m
32
–
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).
254
Allied Irish Banks, p.l.c. Annual Financial Report 2014
22 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
2014 and 2013 together with the positive and negative fair values attaching to those contracts:
Interest rate contracts(1)
Notional principal amount
Positive fair value
Negative fair value
Exchange rate contracts(1)
Notional principal amount
Positive fair value
Negative fair value
Equity contracts(1)
Notional principal amount
Positive fair value
Negative fair value
Credit derivatives(1)
Notional principal amount
Positive fair value
Negative fair value
Total notional principal amount
Total positive fair value(2)
Total negative fair value
2014
€ m
73,230
1,852
(2,136)
4,816
48
(73)
3,010
138
(117)
340
–
(8)
81,396
2,038
(2,334)
2013
€ m
104,072
1,443
(1,847)
4,314
35
(34)
2,390
151
(79)
–
–
–
110,776
1,629
(1,960)
(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)70% of fair value relates to exposures to banks (2013: 72%).
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Notes to the consolidated financial statements
22 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 by
residual maturity together with the positive fair value attaching to these contracts where relevant:
< 1 year 1 < 5 years
€ m
€ m
5 years +
€ m
2014
Total
€ m
< 1 year
€ m
1 < 5 years
€ m
5 years +
€ m
2013
Total
€ m
Residual maturity
Notional principal amount
Positive fair value
30,037
33,844
98
820
17,515
1,120
81,396
2,038
53,863
44,558
12,355
110,776
243
900
486
1,629
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
2013
€ m
2014
€ m
Positive fair value
2013
€ m
2014
€ m
78,035
2,886
475
81,396
107,557
2,833
386
110,776
1,542
469
27
2,038
1,253
358
18
1,629
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
22 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.
Risk management activities
In addition to meeting customer needs, the Group’s principal objective in holding or transacting derivatives is the management of inter-
est rate and foreign exchange risks which arise within the banking book through the operations of the Group as outlined below.
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 2014 and 2013, are presented within this note.
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Notes to the consolidated financial statements
22 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 2014 and 31 December 2013. A description of how the fair values of derivatives are determined is set out in
note 47.
Notional
principal
amount
€ m
2014
Fair values
Assets
Liabilities
€ m
€ m
Notional
principal
amount
€ m
2013
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
17,182
629
677
18,488
1,706
1,706
789
46
3
838
–
–
(905)
(42)
(5)
(952)
–
–
14,748
720
794
16,262
121
121
762
47
6
815
–
–
(761)
(43)
(6)
(810)
–
–
Total interest rate derivatives
20,194
838
(952)
16,383
815
(810)
Foreign exchange derivatives – OTC
Foreign exchange contracts
Currency options bought and sold
Total foreign exchange derivatives
Equity derivatives – OTC
Equity warrants
Equity index options
Total equity derivatives
Credit derivatives – OTC
Credit derivatives
Total credit derivatives
4,650
166
4,816
23
2,987
3,010
340
340
46
2
48
23
115
138
–
–
(70)
(3)
(73)
–
(117)
(117)
(8)
(8)
4,130
185
4,315
–
2,390
2,390
–
–
32
3
35
–
151
151
–
–
(32)
(2)
(34)
–
(79)
(79)
–
–
Total derivatives held for trading
28,360
1,024
(1,150)
23,088
1,001
(923)
Derivatives held for hedging
Derivatives designated as fair value hedges – OTC
Interest rate swaps
17,130
Total derivatives designated as fair value hedges
17,130
Derivatives designated as cash flow hedges – OTC
Interest rate swaps
Cross currency interest rate swaps
32,792
3,114
Total derivatives designated as cash flow hedges
35,906
500
500
511
3
514
(587)
(587)
(380)
(217)
(597)
Total derivatives held for hedging
Total derivative financial instruments
53,036
81,396
1,014
2,038
(1,184)
(2,334)
16,433
16,433
68,100
3,155
71,255
87,688
532
532
81
15
96
628
110,776
1,629
(590)
(590)
(367)
(80)
(447)
(1,037)
(1,960)
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
22 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
27
8
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
16
11
83
52
114
80
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
2014
Total
€ m
240
151
2013
Total
€ m
636
275
The table below sets out the hedged cash flows, including amortisation of terminated cash flow 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
27
33
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
16
32
83
97
114
99
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
2014
Total
€ m
240
261
2013
Total
€ m
636
440
For AIB Group, the ineffectiveness reflected in the income statement that arose from cash flow hedges is Nil (2013: a credit of
€ 7 million).
The pay fixed cash flow hedges are used to hedge the cash flows on variable rate liabilities and the receive fixed cash flow hedges are
used to hedge the cash flows on variable rate assets.
The total amount recognised in other comprehensive income net of tax during the year in respect of cash flow hedges was a gain of
€ 348 million (2013: a charge of € 18 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 47. The net mark to market on fair value hedging derivatives, excluding accrual and risk adjustments is negative € 161 million
(2013: negative € 56 million) and the net mark to market on the related hedged items is positive € 157 million (2013:
positive € 54 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 43.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
259
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Notes to the consolidated financial statements
23 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
Rest of the World
2014
€ m
664
1,201
–
1,865
2013
€ m
656
1,399
(7)
2,048
–
16
2014
€ m
402
1,461
2
1,865
2013
€ m
478
1,566
4
2,048
(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 € 773 million placed with derivative counterparties in relation to net derivative
positions and placed with repurchase agreement counterparties (2013: € 798 million) (notes 22 and 43).
Under reverse repurchase agreements, the Group accepted collateral in 2013 that it was permitted to sell or repledge in the absence of
default by the owner of the collateral. The collateral received consisted exclusively of non-government securities (bank bonds) with a fair
value of € 16 million. The fair value of collateral sold or repledged amounted to € 16 million. These transactions were conducted under
terms that are usual and customary to standard reverse repurchase agreements.
24 Loans and receivables to customers
Loans and receivables to customers
Reverse repurchase agreements
Amounts receivable under finance leases and hire purchase contracts (note 25)
Unquoted debt securities
Provisions for impairment (note 26)
Of which repayable on demand or at short notice
Amounts include:
Due from associated undertakings
2014
€ m
74,651
110
860
147
2013
€ m
81,680
–
965
151
(12,406)
(17,083)
63,362
25,078
65,713
31,853
–
–
The unwind of the discount on the carrying amount of impaired loans amounted to € 329 million (2013: € 373 million) and is included in
the carrying value of loans and receivables to customers. This has been credited to interest income.
Under reverse repurchase agreements, the Group has accepted collateral with a fair value of € 107 million (2013: Nil) that it is permitted to
sell or repledge in the absence of default by the owner of the collateral. In addition, loans and receivables to customers includes cash
collateral amounting to € 72 million (2013: € 27 million) placed with derivative counterparties.
For details of credit quality of loans and receivables to customers, including forbearance, refer to ‘Risk management – 3.1 and 3.2’.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
25 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 26).
2014
€ m
386
578
29
993
(136)
3
860
315
519
26
860
80
364
2013
€ m
465
617
24
1,106
(144)
3
965
392
552
21
965
223
303
26 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
provisions on loans and receivables within disposal groups and non-current assets held for sale. Further information on provisions for
impairment is disclosed in the ‘Risk management’ section.
At 1 January
Exchange translation adjustments
Other(1)
(Credit to)/charge against income statement – customers
(Credit to)/charge against income statement – banks
Amounts written off
Disposals
Recoveries of amounts written off in previous years
At 31 December
Total provisions are split as follows:
Specific
IBNR
Amounts include:
Loans and receivables to banks (note 23)
Loans and receivables to customers (note 24)
(1)Includes transfers (to)/from provisions for liabilities and commitments.
2014
Total
€ m
17,090
150
–
(178)
(7)
(4,655)
–
6
12,406
11,315
1,091
12,406
–
12,406
12,406
2013
Total
€ m
16,532
(76)
(14)
1,913
3
(1,134)
(136)
2
17,090
15,905
1,185
17,090
7
17,083
17,090
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e
t
a
t
s
l
i
a
c
n
a
n
F
i
n
o
i
t
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f
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Notes to the consolidated financial statements
27 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 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
Amortisation of discount
Repayments
Effect of re-estimating the timing of cash flows
At 31 December
2014
€ m
15,598
36
(6,343)
132
9,423
2013
€ m
17,387
65
(1,916)
62
15,598
On initial recognition of the NAMA senior bonds, AIB made certain assumptions as to the timing of expected repayments. In 2014,
having considered recent updates from NAMA on its current performance against achieving its strategic objectives, AIB reviewed its
expected pattern of repayments on the NAMA senior bonds and has recognised a gain of € 132 million reflecting a revised pattern of
repayment including those received during the year. The adjustment to the carrying amount has resulted in the recognition of a gain of
€ 132 million (31 December 2013: € 62 million) as set out in note 8 ‘Other operating income’.
The estimated fair value of the bonds at 31 December 2014 is € 9,479 million (31 December 2013: € 15,767 million). The nominal value
of the bonds is € 9,477 million (31 December 2013: € 15,820 million). Whilst these bonds do not have an external credit rating, the
Group has attributed to them a rating of A– (31 December 2013: BBB+) i.e. the external rating of the Sovereign.
At 31 December 2014, € 1,805 million (31 December 2013: € 12,435 million) of NAMA senior bonds have been pledged to central banks and
banks (note 33).
262
Allied Irish Banks, p.l.c. Annual Financial Report 2014
28 Financial investments available for sale
The following table sets out at 31 December 2014 and 31 December 2013, the carrying value (fair value) of financial investments
available for sale by major classifications together with the unrealised gains and losses.
Unrealised
gross
gains
€ m
Unrealised
gross
losses
€ m
Net unrealised
gains/
(losses)
€ m
Tax
effect
€ m
2014
Net
after
tax
€ m
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 corporate securities
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
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
9,107
3,631
182
2,852
99
1
3,897
3
19,772
374
39
413
1,327
170
9
119
–
–
105
–
1,730
327
11
338
20,185
2,068
–
–
–
–
(1)
–
–
(1)
(2)
–
(3)
(3)
(5)
1,327
170
9
119
(1)
–
105
(1)
(166)
1,161
(21)
(1)
149
8
(15)
104
–
–
(13)
–
(1)
–
92
(1)
1,728
(216)
1,512
327
8
335
(41)
(2)
(43)
286
6
292
2,063
(259)
1,804
Fair
value
€ m
10,328
1,968
608
3,092
535
3,671
34
3
12
Unrealised
gross
gains
€ m
Unrealised
gross
losses
€ m
Net unrealised
gains/
(losses)
€ m
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
after
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)
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m
k
s
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i
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h
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s
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o
d
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a
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c
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a
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r
e
v
o
G
s
t
n
e
m
e
t
a
t
s
l
i
a
c
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a
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Notes to the consolidated financial statements
28 Financial investments available for sale (continued)
Analysis of movements in financial
investments available for sale
At 1 January
Exchange translation adjustments
Purchases
Sales
Maturities
Writeback/(provisions) for impairment
Amortisation of discounts net of premiums
Movement in unrealised gains
At 31 December
Of which:
Listed
Unlisted
Debt
securities
€ m
Equity
securities
€ m
20,251
14
7,324
(8,022)
(735)
(1)
(67)
1,008
19,772
19,772
–
19,772
117
–
12
(24)
–
–
–
308
413
–
413
413
2014
Total
€ m
20,368
14
7,336
(8,046)
(735)
(1)
(67)
1,316
20,185
19,772
413
20,185
Debt
securities
€ m
Equity
securities
€ m
16,201
(45)
6,639
(1,795)
(1,122)
18
(8)
363
143
–
27
(79)
–
(9)
–
35
2013
Total
€ m
16,344
(45)
6,666
(1,874)
(1,122)
9
(8)
398
20,251
117
20,368
20,239
12
20,251
12
105
117
20,251
117
20,368
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
2014
€ m
507
11,678
6,918
669
19,772
2013
€ m
1,186
11,357
6,606
1,102
20,251
264
Allied Irish Banks, p.l.c. Annual Financial Report 2014
28 Financial investments available for sale (continued)
The following table sets out at 31 December 2014 and 31 December 2013, 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
Debt securities
Collateralised mortgage obligations
Non Euro corporate securities
Total debt securities
Equity securities
Equity securities – other
Total
70
–
70
11
81
–
3
3
5
8
Investments
with
unrealised losses
of less than
12 months
€ m
Investments
with
unrealised losses
of more than
12 months
€ m
–
909
–
1,293
2,202
2
2,204
62
50
513
160
785
–
785
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
Fair value
Total
€ m
70
3
73
16
89
Fair value
Total
€ m
62
959
513
1,453
2,987
2
2,989
Unrealised
losses
of less
than
12 months
€ m
(1)
–
(1)
(2)
(3)
Unrealised
losses
of less
than
12 months
€ m
–
(6)
–
(5)
(11)
–
(11)
2014
Unrealised losses
Total
Unrealised
losses
of more
than
12 months
€ m
€ m
(1)
(1)
(2)
(3)
(5)
–
(1)
(1)
(1)
(2)
2013
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)
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 € 1 million (2013: Nil) and Nil (2013: € 9 million) on equity securities have
been recognised as set out in note 12.
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Notes to the consolidated financial statements
29 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
Profit/(loss) on disposal of investment in associated undertakings(2)
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
Disposals(2)
Income for the year – Continuing operations
Dividends received from associates
Impairment on associated undertakings – Continuing operations
At 31 December(3)
Disclosed in the statement of financial position within:
Interests in associated undertakings
Of which listed on a recognised stock exchange
2014
€ m
2013
€ m
2012
€ m
23
(2)
2
–
23
16
(8)
(1)
–
7
15
–
–
(5)
10
2014
€ m
2013
€ m
58
1
–
23
(11)
(2)
69
69
–
64
(1)
(10)
16
(3)
(8)
58
58
–
(1)Includes AIB Merchant Services € 21 million profit (2013: € 10 million profit; 2012: € 14 million profit), Aviva Health Insurance Ireland Limited € 2 million
(2013: € 6 million; 2012: Nil) and Other associates Nil (2013: Nil; 2012: € 1 million profit).
(2)Spire Holdings was disposed of during 2014 with € 2 million profit on disposal. LaGuardia Hotel was disposed of during 2013 with € 1 million loss on
disposal.
(3)Includes the Group’s investments in AIB Merchant Services and Aviva Health Insurance Ireland Limited (2013: AIB Merchant Services and Aviva Health
Insurance Ireland Limited).
266
Allied Irish Banks, p.l.c. Annual Financial Report 2014
29 Interests in associated undertakings (continued)
The following are the principal associates of the Group at 31 December 2014:
Name of associate
Principal activity
Place of incorporation
and operation
Proportion of ownership
interest and voting power
held by the Group at
31 December
2014
%
2013
%
(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
All of the associates 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 2014 or 2013.
Change in the Group’s ownership interest in associates
There was no change in the ownership interest in associates.
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.
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Notes to the consolidated financial statements
30 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
708
48
12
–
768
532
48
17
–
597
171
3
–
–
–
3
3
–
–
–
3
–
2014
Total
€ m
711
48
12
–
771
535
48
17
–
600
171
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
(1)Relates to assets which are no longer in use with a nil carrying value.
Internally generated intangible assets under construction amounted to: € 40 million (2013: € 35 million).
The cost of internally generated software amounted to: € 442 million (2013: € 398 million).
Future capital expenditure in relation to both intangible assets and property, plant and equipment is set out in note 51.
268
Allied Irish Banks, p.l.c. Annual Financial Report 2014
31 Property, plant and equipment
Cost
At 1 January 2014
Reclassification to disposal groups and
non-current assets held for sale
Additions
Disposals
Amounts written off(1)
Exchange translation adjustments
At 31 December 2014
Depreciation/impairment
At 1 January 2014
Reclassification to disposal groups and
non-current assets held for sale
Depreciation charge for the year
Impairment charge for the year
Reversal of impairment charge for the year
Disposals
Amounts written off(1)
Exchange translation adjustments
At 31 December 2014
Net book value at 31 December 2014
Freehold
€ m
173
(4)
9
(1)
(4)
2
175
68
(2)
4
1
–
–
(4)
1
68
107
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
(1)Relates to assets which are no longer in use with a Nil carrying value.
Freehold
Property
Long
leasehold
€ 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
Property
Long
leasehold
€ m
Leasehold
under 50
years
€ m
99
(10)
1
–
(2)
–
88
32
(2)
4
2
(2)
–
(2)
–
32
56
Equipment
2014
Total
€ m
469
–
27
(4)
(22)
3
473
389
–
20
4
–
(2)
(22)
3
392
81
€ m
883
(14)
47
(5)
(56)
7
862
582
(4)
36
12
(2)
(2)
(56)
6
572
290
Equipment
2013
Total
€ m
486
17
(19)
(13)
(2)
469
396
25
–
(17)
(13)
(2)
389
80
€ m
920
32
(46)
(19)
(4)
883
587
40
11
(33)
(19)
(4)
582
301
142
–
10
–
(28)
2
126
93
–
8
5
–
–
(28)
2
80
46
Leasehold
under 50
years
€ m
141
13
(6)
(5)
(1)
142
93
8
3
(5)
(5)
(1)
93
49
The net book value of property occupied by the Group for its own activities was € 199 million (2013: € 216 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
(2013: € 2 million). Property and equipment includes € 8 million for items in the course of construction (2013: € 10 million).
Future capital expenditure in relation to both property plant and equipment and intangible assets is set out in note 51.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
269
269
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Notes to the consolidated financial statements
32 Deferred taxation
Deferred tax assets:
Provision for impairment on 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
2014
€ m
4
128
12
3,670
1
46
3,861
(54)
(22)
(12)
(197)
(285)
3,576
2013
€ m
11
12
17
3,871
2
76
3,989
(3)
(45)
(23)
(90)
(161)
3,828
Represented on the statement of financial position as follows:
Deferred tax assets
3,576
3,828
For each of the years ended 31 December 2014 and 2013, 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 – Continuing operations (note 16)
At 31 December
2014
€ m
3,828
41
(30)
(263)
3,576
2013
€ m
3,845
(15)
(106)
104
3,828
Comments on the basis of recognition of deferred tax assets on unused tax losses are included in ‘Critical accounting judgements and
estimates’ on pages 218 to 222. Information on the regulatory capital treatment of deferred tax assets is included in ‘Principal risks and
uncertainties’ on page 55.
At 31 December 2014, recognised deferred tax assets on tax losses and other temporary differences, net of deferred tax liabilities,
totalled € 3,576 million (2013: € 3,828 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 € 3,463 million (2013: € 3,773 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.
In December 2014, the UK Chancellor announced in his Autumn Statement a proposal that, from 1 April 2015, only fifty per cent of a
bank’s annual trading profits can be sheltered by unused tax losses arising before that date. As the legislation had not been
substantively enacted at 31 December 2014, the proposed change has not been reflected in the 2014 financial statements. Once the
legislation is substantively enacted, this could result in an immediate reduction of c £178 million (€ 229 million) in the Group’s UK
deferred tax asset, based on the 2014 year end position.
270
Allied Irish Banks, p.l.c. Annual Financial Report 2014
32 Deferred taxation (continued)
The Group has not recognised deferred tax assets in respect of Irish tax on unused tax losses of € 226 million (2013: € 269 million) and
overseas tax (UK and USA) on unused tax losses of € 2,439 million (2013: € 1,675 million), and foreign tax credits, for Irish tax
purposes, of € 5 million (2013: € 5 million). Of these tax losses totalling € 2,665 million for which no deferred tax is recognised,
€ 66 million expires in 2031, € 46 million in 2032, € 33 million in 2033 and € 17 million in 2034.
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 (2013: Nil).
Deferred tax recognised directly in equity amounted to Nil (2013: Nil).
Analysis of income tax relating to other comprehensive income
Profit 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
Net change in property revaluation reserves
Total comprehensive income for the year
Attributable to:
Owners of the parent
Gross
Tax
Net of tax
€ m
1,111
27
399
835
(1,067)
(1)
1,304
€ m
(230)
–
(51)
(107)
128
–
(260)
€ m
881
27
348
728
(939)
(1)
1,044
2014
Net amount
attributable
to owners of
the parent
€ m
881
27
348
728
(939)
(1)
1,044
1,304
(260)
1,044
1,044
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)
€ m
90
–
2
(67)
(41)
–
(16)
(16)
Gross
Tax
Net of tax
2013
Net amount
attributable
to owners of
the parent
€ m
€ m
(1,597)
(1,597)
(9)
(18)
513
251
(1)
(861)
(9)
(18)
513
251
(1)
(861)
(861)
(861)
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Notes to the consolidated financial statements
32 Deferred taxation (continued)
Analysis of income tax relating to other comprehensive income
Gross
Tax
Net of tax
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
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)
€ m
(3,729)
34
(185)
1,467
(830)
–
(3,243)
€ m
172
–
23
(172)
114
(2)
135
(3,243)
135
(3,108)
(3,108)
272
Allied Irish Banks, p.l.c. Annual Financial Report 2014
33 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 – secured
– unsecured
Amounts include:
Due to associated undertakings
2014
€ m
3,400
–
3,400
12,653
350
365
13,368
16,768
2013
€ m
12,725
–
12,725
9,136
750
510
10,396
23,121
–
–
Securities sold under agreements to repurchase (note 46), (with the exception of € 1.9 billion funded through the ECB two year Targeted
Long Term Refinancing Operation (“TLTRO”) (2013: € 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.
In addition, the Group has granted a floating charge over certain residential mortgage pools, the drawings against which were Nil at
31 December 2014 (2013: Nil).
Deposits by central banks and banks include cash collateral of € 318 million (2013: € 200 million) received from derivative
counterparties in relation to net derivative positions (note 22) and also from repurchase agreement counterparties.
Financial assets pledged
(a) 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
Banks
€ m
2014
Total
€ m
Total carrying value of financial assets pledged
5,337
13,857
19,194
Of which:
Government securities(1)
Other securities
1,084
4,253(2)
9,479
4,378
10,563
8,631
Central
banks
€ m
14,662
12,048
2,614
Banks
€ m
9,938
6,441
3,497
2013
Total
€ m
24,600
18,489
6,111
(1)Includes NAMA senior bonds.
(2)The Group has securitised certain of its mortgage and loan portfolios held in AIB Mortgage Bank and EBS and has also issued covered bonds. These
securities, other than issued to external investors, have been pledged as collateral in addition to other securities held by the Group.
(b) The Group has securitised credit card receivables with a carrying value of € 297 million (2013: € 675 million) as described in note 46.
Funding received from external investors is included above as ‘other borrowings -secured’ and has been secured on these and
future credit card receivables.
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Notes to the consolidated financial statements
34 Customer accounts
Current accounts
Demand deposits
Time deposits(1)
Securities sold under agreements to repurchase(2)
Of which:
Non-interest bearing current accounts
Interest bearing deposits, current accounts and short-term borrowings
Amounts include:
Due to associated undertakings
2014
€ m
21,665
10,004
30,196
2,153
64,018
18,260
45,758
64,018
2013
€ m
18,274
9,372
32,238
5,783
65,667
15,384
50,283
65,667
75
150
(1)Following the acquisition of Ark Life in March 2013, deposits amounting to € 1,011 million placed by Ark Life with AIB were eliminated on consolidation
at 31 December 2013. Since Ark Life is no longer consolidated following its disposal in May 2014, deposits placed by Ark Life are now included in
customer accounts since the date of disposal.
(2)The Group pledged government available for sale securities with a fair value of € 2,941 million (31 December 2013: € 5,814 million) and non-government
available for sale securities with a fair value of Nil (31 December 2013: € 284 million) as collateral for these facilities and providing access to future
funding facilities (see note 43 for further information).
At 31 December 2014, the Group’s five largest customer deposits amounted to 9% of total customer accounts.
35 Debt securities in issue
Bonds and medium term notes:
European medium term note programmes
Bonds and other medium term notes
Other debt securities in issue:
Commercial paper
2014
€ m
3,293
4,518
7,811
50
7,861
2013
€ m
4,346
4,334
8,680
79
8,759
Debt securities issued during the year amounted to € 3,198 million (31 December 2013: € 3,510 million) of which € 500 million relates
to a covered bond issuance (31 December 2013: € 1,000 million), a € 500 million EMTN bond issuance (31 December 2013:
€ 500 million) with the balance relating to issuances under the short-term commercial paper programme. Debt securities matured or
repurchased amounted to € 4,091 million (31 December 2013: € 5,421 million) of which € 937 million (31 December 2013: Nil) related to
securities repurchased as part of a debt buyback programme.
36 Other liabilities
Notes in circulation
Items in transit
Creditors
Fair value of hedged liability positions
Other
2014
€ m
422
126
12
325
340
2013
€ m
417
213
12
330
349
1,225
1,321
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
37 Provisions for liabilities and commitments
At 1 January
Transfers out
Exchange translation adjustments
Amounts charged to income
statement
Amounts released to income
statement
Provisions utilised
At 31 December
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
Liabilities
and
charges
€ m
72
–
(1)
1(4)
(5)(4)
(7)
60
Liabilities
and
charges
€ m
21
34
–
–
28(4)
(11)(4)
–
72
NAMA(1)
provisions
Onerous(2)
contracts
Legal
claims
€ m
35
–
–
6(1)
(8)(1)
–
33
€ m
€ m
36
–
1
29
(9)
(6)
51
14
–
–
21
(2)
(1)
32
provisions
Other(3) Voluntary
severance
scheme
€ m
€ m
139
(5)
5
34
(3)
(89)
81
3
–
–
1
–
(3)
1
NAMA(1)
provisions
Onerous(2)
contracts
Legal
claims
Other
provisions
€ m
31
–
–
–
18(1)
(14)(1)
–
35
€ m
€ m
27
–
(2)
–
20
(1)
(8)
36
9
4
–
–
4
(2)
(1)
14
€ m
156
1
(4)
(4)
89
(29)
(70)
139
Voluntary
severance
scheme
€ m
6
–
–
–
3
–
(6)
3
2014
Total
€ m
299
(5)
5
92
(27)
(106)
258
2013
Total
€ m
250
39
(6)
(4)
162
(57)
(85)
299
(1)NAMA income statement charge/(credit) relates to ongoing valuation adjustments in relation to loans previously transferred to NAMA.
(2)Provisions for the unavoidable costs expected to arise from the closure of properties surplus to requirements.
(3)Includes € 58 million provisions in 2014 for refunds to customers. These relate to payment protection insurance in both Ireland and the UK, interest rate
hedge products in the UK, credit card insurance, and other restitutions. Provisions in respect of restructuring and reorganisation are also included in
‘Other provisions’.
(4)Included in charge/(writeback) of provisions for liabilities and commitments in income statement.
The total provisions for liabilities and commitments expected to be settled within one year amount to € 147 million (2013: € 110 million).
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Notes to the consolidated financial statements
38 Subordinated liabilities and other capital instruments
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
– nominal value € 25.5 million (maturity extended to 2035 as a result of the SLO)
£ 368m 12.5% Subordinated Notes due June 2019
– nominal value £ 79 million (maturity extended to 2035 as a result of the SLO)
£ 500m Callable Fixed/Floating Rate Notes due March 2025
– nominal value £ 1million (maturity extended to 2035 as a result of the SLO)
Maturity of dated loan capital
Dated loan capital outstanding is repayable as follows:
5 years or more
€ 1.6bn Contingent Capital Tier 2 Notes due 2016
Notes
2014
€ m
2013
€ m
1,600
(447)
258
1,411
1,600
(447)
163
1,316
(a)
8
32
–
40
8
28
–
36
1,451
1,352
2014
€ m
40
2013
€ m
36
(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 42). 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 AIB’s Common Equity Tier 1 (CET 1) Ratio falls below the trigger ratio of 8.25%, the CCNs will
immediately and mandatorily 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.
Following the liability management exercises in 2011 and the Subordinated Liabilities Order (“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 of those dated loan agreements outstanding. 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. These instruments will amortise to their nominal value in the period to their
maturity in 2035.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
39 Share capital
Ordinary share capital
Ordinary shares of € 0.0025 (2013: € 0.01) each
Preference share capital
2009 Non cumulative preference shares of € 0.01 each
Deferred share capital
Deferred shares of € 0.01 each
Authorised
2013
m
2014
m
2014
m
Issued
2013
m
702,000.0
702,000.0
523,474.1
521,296.8
3,500.0
3,500.0
3,500.0
3,500.0
–
403,775.2
–
–
Ordinary share capital/share premium
2014
On 13 May 2014, arising from AIB’s decision not to pay the discretionary dividend on the 2009 Preference Shares amounting to
€ 280 million, the NPRFC(1) became entitled to bonus shares in lieu and the Company issued 2,177,293,934 ordinary shares of
€ 0.01 each by way of a bonus issue to the NPRFC(1). This number of shares is equal to the aggregate cash amount of the annual
dividend of € 280 million on the NPRFC’s(1) holding of 3.5 billion 2009 Preference Shares, divided by the average ordinary share price
per share in the 30 trading days prior to 13 May 2014. In accordance with the Company’s Articles of Association, an amount of
€ 22 million, equal to the nominal value of the shares issued, was transferred from share premium account
Following this transaction, the NPRFC(1) holds 522,558,712,910 ordinary shares in AIB (99.8% of the issued ordinary share capital
(31 December 2013: 99.8%)).
to ordinary share capital.
Following shareholder resolutions passed at the EGM held on 19 June 2014:
–
–
the authorised share capital of the Company was reduced from € 11,092,752,297 to € 1,790,000,000;
the ordinary shares of the Company were renominalised, each ordinary share of € 0.01 was subdivided into one ordinary share of
€ 0.0025 each (carrying the same rights and obligations as an existing ordinary share) and one deferred share of € 0.0075. The
deferred shares created on the renominalisation had no voting or dividend rights and had no economic value; and
–
the Company acquired all of the deferred shares for nil consideration and immediately cancelled them in accordance with its Articles
of Association adopted at the EGM, which resulted in € 3,926 million transferring from share capital to a capital redemption reserve
fund.
On 15 October 2014, the Irish High Court confirmed an application by AIB for a reduction of the share premium account by
€ 1,074 million, in addition to a reduction of € 3,926 million of its capital redemption reserves (note 41). This resulted in a transfer from
these reserve accounts (€ 5 billion) to revenue reserves.
2013
On 13 May 2013, arising from the non-payment of dividend amounting to € 280 million on the 2009 Preference Shares, the NPRFC(1)
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(1). This number of shares is equal to the aggregate cash amount of the annual dividend of € 280 million on the NPRFC’s(1)
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.
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 to
subscribe for ordinary shares (the ‘2009 Warrants’), to the NPRFC(1) for an aggregate subscription price of € 3.5 billion. The
Government’s national pensions reserve fund is controlled by the NPRFC(1) and managed by the National Treasury Management
Agency (“NTMA”).
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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 if so, 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(1) in 2010, 2011, 2012, 2013 and 2014. In accordance with the Company’s
Articles of Association, an amount of € 22 million (2013: € 42 million), equal to the nominal value of the shares issued, was transferred
from the share premium account to the ordinary share capital account (see below).
(1)National Treasury Management Agency as controller and manager of the Ireland Strategic Investment Fund (NTMA / ISIF with effect 22 December 2014).
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Notes to the consolidated financial statements
39 Share capital (continued)
Preference share capital - 2009 Preference Shares
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 (now CET 1), which for the first five years after the date of issue was at
a subscription price of € 1.00 per share (now expired) and thereafter, at a price of € 1.25 per share, subject at all times to the consent of
the Central Bank of Ireland/Single Supervisory Mechanism.
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(1) 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
Preference shares
Ordinary shares in lieu of dividend
Ordinary shares of € 0.01 each renominalised
Ordinary shares of € 0.0025 each arising on renominalisation
Deferred shares of € 0.0075 each arising on renominalisation
Cancellation of deferred 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 2014
Class of share
Ordinary share capital
2009 Preference Shares
2014
€ m
5,213
35
5,248
22
5,270
(5,235)
1,309
3,926
(3,926)
1,344
1,309
35
1,344
2014
€ m
2,848
(22)
(1,074)
1,752
2013
€ m
5,171
35
5,206
42
5,248
–
–
–
–
5,248
5,213
35
5,248
2013
€ m
2,890
(42)
–
2,848
Authorised
Issued
share capital share capital
%
%
98.0
2.0
97.4
2.6
(1)National Treasury Management Agency as controller and manager of the Ireland Strategic Investment Fund (NTMA / ISIF with effect 22 December 2014).
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39 Share capital (continued)
The following table shows the Group’s capital resources at 31 December 2014 and 31 December 2013:
Capital resources
Shareholders’ equity
Contingent capital notes (note 38)
Dated capital notes (note 38)
Total capital resources
2014
€ m
11,572
1,411
40
13,023
2013
€ m
10,494
1,316
36
11,846
40 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
2014
2013
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
In the past, the Group sponsored a number of employee share schemes whereby purchases of shares were made in the open market to
satisfy commitments under the various schemes.
At 31 December 2014, 1.5 million shares (2013: 1.5 million) were held by trustees with a book value of € 23 million (2013: € 23 million), and
a market value of € 0.1 million (2013: € 0.1 million). The book value is deducted from revenue reserves while the shares continue to be held
by the Group.
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Notes to the consolidated financial statements
41 Capital reserves and capital redemption reserves
Capital reserves
At 1 January
Transfer to revenue reserves:
Anglo business transfer
CCNs issuance (note 38)
Disposal of Ark Life(1)
Other movement
At 31 December
Capital
contribution
reserves
€ m
Other
capital
reserves
€ m
2,344
253
(470)
(94)
–
(564)
–
–
–
(75)
(75)
–
2014
Total
€ m
2,597
(470)
(94)
(75)
(639)
–
Capital
contribution
reserves
€ m
Other
capital
reserves
€ m
2013
Total
€ m
2,385
253
2,638
(140)
(79)
–
(219)
178(2)
–
–
–
–
–
(140)
(79)
–
(219)
178
1,780
178
1,958
2,344
253
2,597
(1)Arising from the disposal of Ark Life in May 2014, an amount of € 75 million, previously accounted for as capital reserves, has now been transferred to
revenue reserves.
(2)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 this Annual Financial
Report. The transfers to revenue reserves relate to the capital contributions being deemed distributable.
Capital redemption reserves
On 20 June 2014, the ordinary shares of Allied Irish Banks, p.l.c. were renominalised which resulted in the creation of ordinary shares of
€ 0.0025 each, totalling € 1,309 million and deferred shares of € 0.0075 each, totalling € 3,926 million. The deferred shares were
acquired by AIB for Nil consideration and immediately cancelled which resulted in € 3,926 million transferring from share capital to
capital redemption reserves (note 39).
Following the Irish High Court confirmation on 15 October 2014 of an application by AIB for a reduction of its capital redemption reserve
fund, € 3,926 million was transferred to revenue reserves from this account.
Capital redemption reserves
At 1 January
Transfer from share capital (note 39)
Reduction and transfer to revenue reserves
At 31 December
2014
€ m
–
3,926
(3,926)
–
2013
€ m
–
–
–
–
42 Capital contributions
On 28 July 2011, the Minister for Finance (‘the Minister’) and the NPRFC(1) 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 CET 1
for regulatory purposes and are included within ‘Revenue reserves’. Neither the Minister nor the NPRFC(1) has an entitlement to seek
repayment of these capital contributions.
(1)National Treasury Management Agency as controller and manager of the Ireland Strategic Investment Fund (NTMA / ISIF with effect 22 December 2014).
280
Allied Irish Banks, p.l.c. Annual Financial Report 2014
43 Offsetting financial assets and financial liabilities
The disclosures set out in the tables below include financial assets and financial liabilities that:
–
–
are offset in the Group’s statement of financial position; or
are subject to enforceable master netting arrangements or similar agreements that covers similar financial instruments, irrespective
of whether they are offset in the statement of financial position.
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 € 1,221 million
(2013: € 957 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 2014, € 843 million (2013: € 820 million) of CSAs
are included within financial assets and € 279 million (2013: € 188 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.
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Notes to the consolidated financial statements
43 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 2014:
2014
Net
amount
€ m
3
(7)
2014
Net
amount
€ m
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
€ m
Related amounts not
offset in the statement
of financial position
Financial
collateral
(including
cash
collateral)
received
€ m
Financial
position instruments
€ m
1,490
110
1,600
–
–
–
1,490
(1,221)
(279)
(10)
110
1,600
(107)
(1,328)
–
(279)
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
€ m
Related amounts not
offset in the statement
of financial position
Financial
collateral
(including
cash
collateral)
pledged
€ m
Financial
position instruments
€ m
16,053
2,153
2,140
20,346
–
–
–
–
16,053
(16,862)
51
(758)
2,153
2,140
(2,206)
(1,221)
20,346
(20,289)
2
(843)
(790)
(51)
76
(733)
Financial assets
Derivative financial instruments
Note
22
Loans and receivables to customers –
Reverse repurchase agreements
24
Total
Financial liabilities
Deposits by central banks and banks –
Note
Securities sold under agreements
to repurchase
Customer accounts –
Securities sold under agreements
to repurchase
Derivative financial instruments
33
34
22
Total
282
Allied Irish Banks, p.l.c. Annual Financial Report 2014
43 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 2013:
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
1,177
(957)
(188)
16
1,193
(16)
(973)
–
(188)
Gross
amounts of
recognised
financial
assets
€ m
1,177
16
1,193
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)
pledged
€ m
Financial
instruments
€ m
Gross
amounts of
recognised
financial
liabilities
€ m
2013
Net
amount
€ m
32
–
32
2013
Net
amount
€ m
Financial assets
Derivative financial instruments
Loans and receivables to banks –
Note
22
Reverse repurchase agreements
23
Total
Financial liabilities
Deposits by central banks and banks –
Note
Securities sold under agreements
to repurchase
Customer accounts –
33
21,861
Securities sold under agreements
to repurchase
Derivative financial instruments
34
22
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)
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;
loans and receivables to customers – 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.
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Notes to the consolidated financial statements
43 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 2014 and
31 December 2013:
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
2014
Financial
assets not
in scope of
offsetting
disclosures
€ m
1,490
Derivative financial instruments
2,038
548
110
Loans and receivables to customers
63,362
63,252
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
2014
Financial
liabilities not
in scope of
offsetting
disclosures
€ m
16,053
Deposits by central banks and banks
16,768
715
2,153
2,140
Customer accounts
Derivative financial instruments
64,018
2,334
61,865
194
Financial assets
Derivative financial instruments
Loans and receivables to customers –
Reverse repurchase agreements
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
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
Carrying
amount in
statement
of financial
position
€ m
1,629
2,048
Carrying
amount in
statement
of financial
position
€ m
2013
Financial
assets not
in scope of
offsetting
disclosures
€ m
452
2,032
2013
Financial
liabilities not
in scope of
offsetting
disclosures
€ m
284
Allied Irish Banks, p.l.c. Annual Financial Report 2014
44 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
2013
€ m
2014
€ m
739
507
1,246
14
6,837
2,231
9,082
10,328
796
557
1,353
17
6,552
1,667
8,236
9,589
(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.
Concentration of exposure
Republic of Ireland
United Kingdom
United States of America
Total
Contingent liabilities
Commitments
2014
€ m
629
480
137
2013
€ m
745
429
179
1,246
1,353
2014
€ m
7,580
1,480
22
9,082
2013
€ m
7,164
1,045
27
8,236
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Notes to the consolidated financial statements
44 Memorandum items: contingent liabilities and commitments, and contingent assets (continued)
The credit ratings of contingent liabilities and commitments as at 31 December 2014 and 2013 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
2014
€ m
3,544
3,527
730
196
488
1,843
10,328
2013
€ m
2,491
3,937
381
255
669
1,856
9,589
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 (notes 37 and 46).
(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)
the balances then or at any time standing to the credit of Payment Module accounts held by AIB with a Eurosystem central bank
(‘Charge over Payment Module Accounts’); and
(ii) each of the eligible securities included from time to time in the Eligible Securities Schedule furnished by AIB to the Central Bank
(‘Charge over Eligible Securities’).
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 (specified 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.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
44 Memorandum items: contingent liabilities and commitments, and contingent assets (continued)
Participation in TARGET 2 - Ireland
The Central Bank amended its collateral management system in May 2014, moving from an earmarking system to a pooling one for
certain collateral accepted for Eurosystem credit operations. As part of this transition, AIB and the Central Bank entered into a
Framework Agreement in respect of Eurosystem Operations secured over Collateral Pool Assets dated 7 April 2014 (‘Framework
Agreement’). The Framework Agreement provided for the release of the Charge over Eligible Securities with effect from 26 May 2014.
A deed of charge was made on 7 April 2014 between AIB and the Central Bank in connection with the Framework Agreement
(‘Framework Agreement Deed of Charge’). The Framework Agreement Deed of Charge created a first fixed charge in favour of the
Central Bank over AIB’s right, title, interest and benefit, present and future in and to eligible assets (as identified as such by the Central
Bank) which comprise present and future rights, title, interest, claims and benefits of AIB at that time in and to, or in connection with, a
collateral account (the “Collateral Account”) and eligible assets which stand to the credit of the Collateral Account and a first floating
charge in favour of the Central Bank over AIB’s right, title, interest and benefit, present and future in and to other eligible assets of
AIB.
The Charge over Payment Module Accounts remains in place.
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Notes to the consolidated financial statements
45 Subsidiaries and consolidated structured entities
The following are the material companies of AIB Group at 31 December 2014 and 31 December 2013:
Name of company
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.
AIB Mortgage Bank
Issue of mortgage covered securities
Republic of Ireland
EBS Limited
– a licensed bank
Mortgages and savings
– a licensed bank
Republic of Ireland
AIB Group (UK) p.l.c. trading
Banking and financial services
Northern Ireland
as Allied Irish Bank (GB) in
– a licensed bank
Great Britain and First Trust
Bank in Northern Ireland
The proportion of ownership interest and voting power held by the Group in the above subsidiaries is 100%.
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 its respective financial regulator to maintain capital ratios
above a certain minimum level. 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.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
45 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 46.
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.
Ark Life Assurance Company Limited
Ark Life Assurance Company Limited (‘Ark Life’) was acquired in 2013, as a wholly owned subsidiary, 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. This sale was completed in May 2014 (note 17).
Further details on AIB’s principal subsidiaries are set out in note L to the parent company’s financial statements.
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Notes to the consolidated financial statements
46 Off-balance sheet arrangements and transferred financial assets
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, AIB has primarily been an investor in securitisations issued by other credit institutions 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; and
as an originator of securitisations to support the funding activities of the Group.
AIB controls certain special purpose entities which were set-up to support the funding activities of the Group. Details of these special
purpose entities are set out below under the heading ‘Special purpose entities’. AIB controls two special purpose entities set up in
relation to the funding of the Group Pension Schemes which are also detailed below.
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 10 ‘Share-based compensation schemes’ to the
consolidated financial statements.
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 33) and ‘Customer accounts’ (note 34). 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 33 and 34. 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, including credit risk and interest rate risk, 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 35). As the Group segregates the assets which back these debt securities into “cover asset pools” it does not have the ability to
otherwise use such segregated financial assets during the term of these debt securities. However, of the total debt securities of this type
issued amounting to € 10 billion, internal Group companies hold € 6 billion which are eliminated on consolidation. These internally
issued bonds are used by the Group as part of sale and repurchase agreements with the Central Bank of Ireland as outlined above.
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46 Off-balance sheet arrangements and transferred financial assets (continued)
Special purpose entities
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 35) or in ‘Deposits by central banks and banks’ (note 33). 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 further recourse to the Group. The Group does not have the ability to otherwise 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 35) on the
statement of financial position. At 31 December 2014, the carrying amount of the assets which the Group continues to recognise is
€ 332 million (2013: € 380 million) and the carrying amount of the associated liabilities is € 178 million (2013: € 237 million).
In 2013, the Group securitised part of its credit card receivables portfolio 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 Allied Irish Banks 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. At 31 December 2014, the carrying amount of the receivables which the Group continues to recognise is
€ 297 million (2013: € 675 million). The liability in respect of cash received by Goldcrest from external investors is included within
‘Deposits by central banks and banks’ (note 33) 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 amounted to € 1,500 million. The carrying amount of transferred secured loans that
the Group has recognised at 31 December 2014 is € 735 million (2013: € 823 million). The carrying amount of the bonds issued by
Emerald 4 to third party investors amounts to € 575 million (2013: € 815 million) and is included within ‘Debt securities in issue’
(note 35).
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 2014 is € 1,533 million (2013: € 1,708 million). Bonds were issued by Emerald 5 to EBS Limited 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 2014 is € 814 million (2013: € 903 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 Limited are not shown in the Group’s financial statements, as these bonds are eliminated on consolidation.
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Notes to the consolidated financial statements
46 Off-balance sheet arrangements and transferred financial assets (continued)
The following table summarises as at the 31 December 2014 and 31 December 2013, 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
Sale and repurchase agreements
Covered bond programmes
Residential mortgage backed
Securitisations
€ m
22,135(1)
7,379(1)
1,365
€ m
18,206(2)
3,765
953
Carrying
amount of
associated
liabilities held
by Group
companies
€ m
–
–
498
Fair
value of
transferred
assets
Fair value
of associated
liabilities
held by third
parties
€ m
22,146
6,387
1,286
€ m
18,206
4,103
902
Fair value
of associated
liabilities
held by
Group
companies
€ m
–
–
478
Carrying
amount of
transferred
assets
€ m
Sale and repurchase agreements
30,698
Covered bond programmes
Residential mortgage backed
Securitisations
6,478
1,886
Carrying
amount of
associated
liabilities held
by third parties
€ m
27,644(2)
3,315
1,557
Carrying
amount of
associated
liabilities held
by Group
companies
€ m
–
–
321
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
2014
Net
fair value
position
€ m
3,940
2,284
(94)
2013
Net
fair value
position
€ m
3,189
2,014
86
(1)The asset pools (€ 20 billion) in the covered bond programme have been apportioned on a pro-rata basis in relation to the value of bonds held by external
investors and those held by AIB Group companies. The € 7,379 million above refers to those assets apportioned to external investors. Those held
internally by AIB have been used in sale and repurchase agreements or are available for pledging as collateral.
(2)See notes 33 and 34.
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 was 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 entitle the UK scheme to expected annual payments of £ 22.4 million (range of £ 15 million to
£ 35 million) from 2016 until 2033, with a potential termination payment in 2032 of up to £ 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.
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46 Off-balance sheet arrangements and transferred 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 2014, the Group recognised € 1.2 million
(cumulative € 3.2 million) (2013: € 1.5 million (cumulative € 2 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 their 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 2014, the Group recognised € 16 million (cumulative
€ 69 million) (2013: € 16 million (cumulative € 53 million)) in the income statement for the servicing of financial assets transferred to
NAMA.
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Notes to the consolidated financial statements
47 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.
Readers of these financial statements are advised to use caution when using the data in the following tables 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 2014.
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. 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 that reflects the observability of significant market inputs:
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 2014 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 Valuation Adjustment ("CVA") and Funding Valuation Adjustment ("FVA") are applied to all uncollateralised over the
counter derivatives. CVA is calculated as: (Option replacement cost x probability of default (“PD”) x loss given default (“LGD”)). PDs are
derived from market based Credit Default Swap ("CDS") information. As most counterparties do not have a quoted CDS, PDs are
derived by mapping each counterparty to an index CDS by industry sector and credit grade. LGDs are based on the specific
circumstances of the counterparty and take into account valuation of offsetting security where applicable. For unsecured counterparties,
an LGD of 60% is applied.
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47 Fair value of financial instruments (continued)
Funding valuation adjustment
In line with market practice which continues to evolve, AIB applies a FVA for calculating the fair value of uncollateralised derivative
contracts. The application of the FVA in the valuation of uncollateralised derivative contracts, introduces the use of a funding curve for
discounting of cash flows where market participants consider that this cost is included in market pricing. The funding curve used is the
average funding curve implied by the Credit Default Swaps (“CDS”) of the Group’s most active external derivative counterparties. The
logic in applying this curve is to best estimate the FVA which a counterparty would apply in a transaction to close out the Group’s
existing positions. The application of FVA, while an overall negative adjustment, contains within it the benefit of own credit which can be
applied by Debit Valuation Adjustment (“DVA”) and accordingly, DVA, which had been applied in 2013, is no longer applied to the
Group’s derivatives valuations to avoid duplication.
Within the range of estimates and fair value sensitivity measurements, a favourable and an adverse scenario have been selected for
PDs and LGDs for CVA. The favourable/adverse scenario for customer PDs are (i) a single rating upgrade and (ii) a single rating
downgrade respectively. 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 yielding positive and negative valuations
which are disclosed as potential alternative valuations on page 303 For FVA, a favourable scenario is the use of the bond yields of the
Group’s most active derivative counterparties while an adverse scenario is the use of the Group’s own estimated senior unsecured bond
yields.
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
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 2014 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Notes to the consolidated financial statements
47 Fair value of financial instruments (continued)
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.
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 44. 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.
The tables on the following pages set out the carrying amount and fair value of financial instruments across the three levels of the fair
value hierarchy at 31 December 2014 and 31 December 2013:
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
Notes to the consolidated financial statements
47 Fair value of financial instruments (continued)
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
2014 and 31 December 2013:
Group
Transfer into Level 1 from Level 2
Transfer into Level 2 from Level 1
Financial assets
Trading
portfolio
€ m
Debt
securities
€ m
–
–
–
1
2014
Total
€ m
–
1
Financial assets
Trading
portfolio
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Debt
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€ m
–
–
13
3
2013
Total
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13
3
Transfers into Level 1 from Level 2 occurred due to increased availability of reliable quoted market prices which were not previously
available.
Transfers into Level 2 from Level 1 occurred due to reduced availability of reliable quoted market prices.
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 2014 and 2013:
Financial assets
Financial liabilities
2014
Derivatives
Available for sale
Total Derivatives
Total
Group
At 1 January 2014
Transfers into Level 3(1)
Total gains or (losses) in:
Profit or loss
– Net trading gain
Other comprehensive income
– Net change in fair value of financial
investments available for sale
– Net change in fair value of
cash flow hedges
Purchases
Sales
At 31 December 2014
€ m
419
114
107
–
2
2
–
–
642
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Equity
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–
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h
g
s
r
e
v
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d
n
a
e
c
n
a
n
r
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i
Allied Irish Banks, p.l.c. Annual Financial Report 2014
301
n
o
i
t
a
m
r
o
n
f
i
l
a
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e
n
e
G
Notes to the consolidated financial statements
47 Fair value of financial instruments (continued)
Financial assets
Group
Disposal groups
and non-current
assets held for sale
€ 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)
–
Derivatives
€ m
–
630
(211)
–
–
(211)
–
–
–
419
12
–
–
–
–
–
–
–
–
12
Available for sale
Debt
securities
€ m
Equity
securities
€ m
84
–
31 December 2013
Financial liabilities
Total
Derivatives
Total
€ m
292
630
€ m
20
161
€ m
20
161
–
(217)
(36)
(36)
(9)
–
(9)
27
6
(4)
104
(9)
–
(226)
27
6
(194)
535
–
–
(36)
–
–
(20)
125
–
–
(36)
–
–
(20)
125
(1)Transfers between levels of the fair value hierarchy are recognised at the end of the reporting period during which the change occurred.
Transfers into Level 3 arose as a result of the unobservable inputs becoming significant to the fair value measurement 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 2014 and 31 December 2013:
Net trading income/( loss)
Provisions for impairment on financial investments available for sale
Total
2014
€ m
193
–
193
2013
€ m
(34)
(9)
(43)
302
Allied Irish Banks, p.l.c. Annual Financial Report 2014
47 Fair value of financial instruments (continued)
Significant unobservable inputs
The table below sets out information about significant unobservable inputs used for the years ended 31 December 2014 and
31 December 2013 in measuring financial instruments categorised as Level 3 in the fair value hierarchy:
Fair Value
2014
€ m
642
300
2013
€ m
419
125
Financial
instrument
Uncollaterised
Asset
customer
Liability
derivatives
Valuation
technique
Significant
unobservable
input
CVA
LGD
PD
Range of estimates
2014
46% – 82%
(Base 55%)
0.9% – 1.4%
2013
45% – 80%
(Base 59%)
0.8% – 2.0%
FVA(2)
DVA
(Base 1.1% 1 yr PD)
(Base 1.5% 1 yr PD)
Combination
LGD and PD(1)
As above with greater
As above with greater
unfavourable impact
unfavourable impact
due to combination of
due to combination of
PD and LGD changes
PD and LGD changes
Funding spreads
(0.3%) – 0.8%
n/a
PD
n/a
The PD is shifted
from 2.1% to 0.4%
in the unfavourable
scenario. In the
favourable scenario
the capping of DVA
at CVA level is
removed.
NAMA
Asset
374
73
Discounted
NAMA
Discount rate of 12%
The estimates range
subordinated
bonds
cash flows
profitability i.e.
applicable to base
from: (a) NAMA making
ability to generate
asset price. The
a single payment only
cash flow for
estimates range from:
under the bonds i.e.
repayment
(a) NAMA making 50%
5.26% of nominal; to
of full 5.26% coupon
(b) a full repayment of
payments; to (b) an
the bonds at maturity.
early full repayment
of coupons plus capital
(March 2018) at a
reduced discount rate.
(1)The fair value measurement sensitivity to unobservable inputs ranges from negative € 53 million to positive € 25 million (2013: negative € 27 million to
positive € 21 million).
(2)As already noted, FVA incorporates an element of own credit which had been applied through DVA in 2013.
A number of other derivatives are subject to valuation methodologies which use unobservable inputs. As the variability of the valuation is
not greater that € 1 million in any individual case or collectively, the detail is not disclosed here.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
303
n
o
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t
a
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r
o
n
f
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e
n
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G
Notes to the consolidated financial statements
47 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
Derivative financial instruments
Financial investments available for sale – equity securities
Total
Classes of financial liabilities
Derivative financial instruments
Total
Level 3
2014
Effect on income
statement
Favourable Unfavourable
€ m
€ m
Effect on other
comprehensive income
Favourable Unfavourable
€ m
€ m
61
–
61
10
10
(77)
–
(77)
(37)
(37)
–
59
59
–
–
–
(56)
(56)
–
–
2013
Level 3
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
–
–
–
–
–
–
–
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.
304
Allied Irish Banks, p.l.c. Annual Financial Report 2014
48 Interest rate sensitivity
The net interest rate sensitivity of the Group at 31 December 2014 and 31 December 2013 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 in each year’s
table.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
305
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Notes to the consolidated financial statements
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
307
Notes to the consolidated financial statements
49 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
2014
€ m
5,393
991
6,384
2013
€ m
4,132
1,598
5,730
2012
€ m
4,047
1,879
5,926
The Group is required to maintain balances with the Central Bank of Ireland which at 31 December 2014 amounted to € 120 million
(2013: € 115 million; 2012: € 107 million).
The Group is required by law to maintain reserve balances with the Bank of England. At 31 December 2014, these amounted to
€ 544 million (2013: € 542 million; 2012: € 586 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.
308
Allied Irish Banks, p.l.c. Annual Financial Report 2014
50 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 f, 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) 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 46).
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 46).
(d) Compensation of Key Management Personnel
The following disclosures are made in accordance with the provisions of IAS 24 Related Party Disclosures, in respect of the
compensation of Key Management Personnel. Under IAS 24, Key Management Personnel are defined as comprising Executive and
Non-Executive Directors together with Senior Executive Officers, namely, the members of the Leadership Team (see pages 158 to 160).
The figures shown below include the figures separately reported in respect of Directors’ remuneration in the Remuneration report on
pages 179 to 184.
Short-term compensation(1)
Post-employment benefits(2)
Termination benefits
Total
2014
€ m
6.6
0.7
–
7.3
Group
2013
€ m
Allied Irish Banks, p.l.c.
2013
€ m
2014
€ m
5.8
0.5
0.4
6.7
6.0
0.7
–
6.7
5.5
0.5
0.4
6.4
(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 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 schemes closed for future accrual with effect from 31 December 2013 and all future employee pension benefits now accrue
under the defined contribution scheme.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
309
309
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50 Related party transactions (continued)
(e) Transactions with Key Management Personnel
At 31 December 2014, 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 € 4.56 million (2013: € 5.04 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
2014 and 2013 are as follows:
(i) Current Directors
Mark Bourke:
Loans
Overdraft/Credit card
Total
Interest charged during 2014
Maximum debit balance during 2014*
David Duffy:
Loans
Overdraft/Credit card
Total
Interest charged during 2014
Maximum debit balance during 2014*
Tom Foley:
Loans
Overdraft/Credit card
Total
Interest charged during 2014
Maximum debit balance during 2014*
Jim O’Hara:
Loans
Overdraft/Credit card
Total
Interest charged during 2014
Maximum debit balance during 2014*
Dr Michael Somers:
Loans
Overdraft/Credit card
Total
Interest charged during 2014
Maximum debit balance during 2014*
Balance at
31 December
2013
€ 000
2014
Balance at
31 December
2014
€ 000
622
–
622
1,261
12
1,273
–
–
–
–
–
–
–
–
–
611
–
611
8
622
1,171
4
1,175
10
1,301
–
–
–
–
1
–
–
–
–
13
–
3
3
–
6
*The maximum debit balance is calculated by aggregating the maximum debit balance drawn on each facility during the year,
310
Allied Irish Banks, p.l.c. Annual Financial Report 2014
50 Related party transactions (continued)
(e) Transactions with Key Management Personnel
(i) Current Directors
Catherine Woods:
Loans
Overdraft/Credit card
Total
Interest charged during 2014
Maximum debit balance during 2014*
Balance at
31 December
2013
€ 000
2014
Balance at
31 December
2014
€ 000
88
–
88
79
–
79
1
88
As at 31 December 2014, guarantees entered into by Catherine Woods in favour of the Group amounted to € 0.1 million.
Simon Ball, Bernard Byrne and Peter Hagan had no facilities with the Group during 2014.
(ii) Former Directors who were in office during the year
Dick Spring:
Loans
Overdraft/Credit card
Total
Interest charged during 2014
Maximum debit balance during 2014*
David Hodgkinson and Tom Wacker had no facilities with the Group during 2014.
(iii) Senior Executive Officers in office during the year
(Aggregate of 7 persons (2013: 7)):
Loans
Overdraft/Credit card
Total
Interest charged during 2014
Maximum debit balance during 2014*
(iv) Aggregate amounts outstanding at year-end
Balance at
31 December
2013
€ 000
2014
Balance at
31 December
2014
€ 000
–
4
4
–
5
5
–
12
Balance at
31 December
2013
€ 000
2014
Balance at
31 December
2014
€ 000
1,399
13
1,412
1,343
5
1,348
42
1,431
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Loans, overdrafts/credit cards
31 December 2013
€ 000
31 December 2014
€ 000
Directors (2014:7 persons; 2013: 6 persons)
Senior Executive Officers (2014:7 persons; 2013: 7 persons)
1,988
1,412
3,400
As at 31 December 2014, guarantees entered into by 1 Director in favour of the Group amounted to € 0.1 million in aggregate
(2013: € 0.72 million by 1 Director and 1 Senior Executive Officer). As at 31 December 2014, no Senior Executive Officer held
guarantees in favour of the Group.
*The maximum debit balance is calculated by aggregating the maximum debit balance drawn on each facility during the year.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
1,873
1,348
3,221
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Notes to the consolidated financial statements
50 Related party transactions (continued)
(e) Transactions with Key Management Personnel
(v) Connected persons
The aggregate of loans to connected persons of Directors in office as at 31 December 2014, as defined in Section 26 of the Companies
Act 1990, are as follows (aggregate of 19 persons; 2013: 18 persons):
Loans
Overdraft/Credit card
Total
Interest charged during 2014
Maximum debit balance during 2014*
Balance at
31 December
2013
€ 000
2014
Balance at
31 December
2014
€ 000
1,957
86
2,043
1,608
52
1,660
40
2,265
No impairment charges or provisions have been recognised during the year 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.
(i) Directors in office during 2013
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
2013
Balance at
31 December
2013
€ 000
1,348
3
1,351
1,261
12
1,273
16
1,382
–
–
–
–
–
–
–
1
1
–
9
9
–
–
–
–
6
–
–
–
–
12
–
–
–
–
4
–
4
4
–
17
*The maximum debit balance is calculated by aggregating the maximum debit balance drawn on each facility during the year.
312
Allied Irish Banks, p.l.c. Annual Financial Report 2014
50 Related party transactions (continued)
(e) Transactions with Key Management Personnel
(i) Directors in office during 2013
Catherine Woods:
Loans
Overdraft/Credit card
Total
Interest charged during 2013
Maximum debit balance during 2013*
Balance at
31 December
2012
€ 000
2013
Balance at
31 December
2013
€ 000
97
–
97
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 2013
There were no changes to the Board during the year
(iii) Senior Executive Officers in office during 2013
(Aggregate of 7 persons (2012: 14)):
Loans
Overdraft/Credit card
Total
Interest charged during 2013
Maximum debit balance during 2013*
(iv) Aggregate amounts outstanding at year-end
Directors (2013: 6 persons; 2012: 6 persons)
Senior Executive Officers (2013: 7; 2012: 9 persons)
Balance at
31 December
2012
€ 000
2013
Balance at
31 December
2013
€ 000
1,841
17
1,858
1,604
27
1,631
51
1,885
Loans, overdrafts/credit cards
31 December 2012
€ 000
31 December 2013
€ 000
1,458
1,858
3,316
1,365
1,631
2,996
As at 31 December 2013, guarantees entered into by 1 Director and 1 Senior Executive Officer in favour of the Group amounted to
€ 0.7 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):
Loans
Overdraft/Credit card
Total
Interest charged during 2013
Maximum debit balance during 2013*
Balance at
31 December
2012
€ 000
2013
Balance at
31 December
2013
€ 000
831
22
853
836
62
898
33
981
No impairment charges or provisions have been recognised during the year 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.
*The maximum debit balance is calculated by aggregating the maximum debit balance drawn on each facility during the year.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
313
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Notes to the consolidated financial statements
50 Related party transactions (continued)
(f) 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 NPRFC(1) 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.
In addition, the European Commission, in approving AIB’s restructuring plan on 7 May 2014, found that restructuring aid granted by
Ireland to AIB is in line with EU state aid rules.
(1)National Treasury Management Agency as controller and manager of the Ireland Strategic Investment Fund (NTMA / ISIF with effect 22 December 2014).
314
Allied Irish Banks, p.l.c. Annual Financial Report 2014
50 Related party transactions (continued)
(f) Summary of relationship with the Irish Government
– Capital investments
National Treasury Management Agency (“NTMA”)
The Ireland Strategic Investment Fund (the “ISIF”) was established on 22 December 2014 by the National Treasury Management
(Amendment) Act 2014. The ISIF is controlled and managed by the NTMA. Pursuant to this Act, all property held by the National
Pensions Reserve Fund Commission ( the “NPRFC”), including its holding of ordinary shares and the 2009 Preference Shares in
AIB transferred to the NTMA on 22 December 2014.
Ordinary shares
At 31 December 2014, the Irish Government, through the NTMA, held 522.6 billion (31 December 2013: 520.4 billion) ordinary
shares in AIB representing 99.8% of the issued ordinary share capital (2013: 99.8%). During 2014, the number of ordinary shares
held by the NPRFC increased by 2.2 billion following the non-payment of the cash dividend on the 2009 Preference Shares as
noted below. See note 39 for details of the Government’s investment in the ordinary shares of AIB.
2009 Preference Shares
At 31 December 2014, the Irish Government, through the NTMA, held € 3.5 billion capital (2013: € 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 2014 or 2013, however, the dividend entitlement was satisfied by way of a bonus issue of 2.2 billion ordinary shares (2013:
4.1 billion). The terms and conditions attaching to the 2009 Preference Shares are outlined in note 39.
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 38.
Capital contributions
On 28 July 2011, capital contributions totalling € 6.054 billion were made by the Irish State to AIB for nil consideration.
For further details, see note 42.
– 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.
In January 2010, Allied Irish Banks, p.l.c., and certain of its subsidiaries, became participating institutions for the purposes of the
ELG Scheme. The total liabilities guaranteed under the ELG Scheme at 31 December 2014 amounted to € 4.6 billion
(31 December 2013: € 7.8 billion). 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 2014, 2013 and 2012 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.
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Notes to the consolidated financial statements
50 Related party transactions (continued)
(f) 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 NAMA subordinated bonds which
are detailed in notes 7, 27 and 28. 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 44.
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 2014 of € 10 million), with the remainder invested on behalf of
clients.
– Funding support
Throughout the financial crisis, the Irish Government provided guarantees under the CIFS (expired September 2010) and ELG
schemes as outlined above. In addition, through the Central Bank, the Irish Government 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 € 3.4 billion (2013: € 12.7 billion). At 31 December 2014, AIB had no
borrowings from the Central Bank under non-standard liquidity facilities (2013: Nil).
The interest rate on the facilities above is set by the Central Bank and advised to AIB on each rollover date and at 31 December
2014 was 0.05 %, being the current ECB refinancing rate. The facilities were for maturities of between 7 days and 3 months, apart
from the € 1.9 billion (2013: € 11.25 billion in Long Term Refinancing Operation) in the Targeted Long Term Refinancing Operation
(note 33) which will mature between September 2016 and September 2018 depending on eligible lending activities in excess of
specific benchmarks. At 31 December 2014, the amounts outstanding, totalling € 3.4 billion (2013: € 12.7 billion) are included within
Deposits by central banks and banks in the table below. See note 33 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.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
50 Related party transactions (continued)
(f) Summary of relationship with the Irish Government
– Credit Institutions (Stabilisation) Act 2010
The Credit Institutions (Stabilisation) Act 2010, which was enacted in December 2010, ceased to have effect on 31 December 2014.
During the period when the Act was effective, the Minister invoked certain of his powers under the Act in relation to AIB as follows:
–
–
–
a Direction Order in December 2010;
a Transfer Order in February 2011;
a Subordinated Liabilities Order in April 2011; and
– 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 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.
– 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.
– Approval of AIB Restructuring Plan
On 7 May 2014, the European Commission approved under state aid rules AIB’s Restructuring Plan. In arriving at its final decision,
the European Commission acknowledged the significant number of restructuring measures previously implemented by AIB,
comprising business divestments, asset deleveraging, Liability Management exercises and significant cost reduction actions. The
Commission concluded that the Restructuring Plan sets out the path to restoring long term viability. The plan covers the period from
2014 to 2017.
– Restructuring Plan commitments
AIB has committed to a range of measures relating to customers in difficulty: cost caps and reductions; acquisitions and exposures;
coupon payments; promoting competition; and the repayment of aid to the State. All of the commitments are aligned to AIB’s
operational plans and are supportive of AIB’s return to viability.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
317
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Notes to the consolidated financial statements
50 Related party transactions (continued)
(f) 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 2014 and 31 December 2013,
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
2014
Highest(2)
Balance
Note
balance held
€ m
€ m
2013
Highest(2)
balance held
€ m
2,143
111
116
31
17,406
10,660
€ m
258
10
115
29
15,598
10,401
26,411
560
3
120
73
9,423
9,481
19,660
2,496
10
122
86
15,605
10,715
Balance
2014
Highest(2)
balance held
€ m
€ m
Balance
2013
Highest(2)
balance held
€ m
€ m
3,400
3,349
93
1,411
8,253
13,480
8,993
93
1,411
12,725
6,818
34
1,316
20,893
23,230
6,884
34
1,316
(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 2014 was € 511 million (31 December 2013: € 515 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 € 9,107 million (2013: € 10,328 million) in Irish Government securities held in the
normal course of business and NAMA subordinated bonds which have a fair value at 31 December 2014 of € 374 million
(31 December 2013: € 73 million) detailed above under ‘NAMA’.
e
f
This relates to funding received from the Central Bank which is detailed under ‘Funding Support’ above.
Includes € 1,575 million (2013: € 5,117 million) received from an Irish Government body under a repurchase agreement (note 34).
The Group has pledged Irish Government securities with a fair value of € 1,619 million (2013: € 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 38).
All other balances, both assets and liabilities are carried out in the ordinary course of banking business on normal terms and
conditions.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
50 Related party transactions (continued)
(f) Summary of relationship with the Irish Government
Local government(1)
During 2014 and 2013, 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 2014 and 2013, 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.
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 2014 and 31 December 2013, 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
Liabilities
Deposits by central banks and banks(2)
Derivative financial instruments
Customer deposits(3)
2014
Balance
€ m
2013
Balance
€ m
20
4
267
9
17
19
48
–
413
172
23
39
(1)The highest balance in loans and receivables to banks amounted to € 108 million in respect of funds placed during the year (2013: € 77 million).
(2)The highest balance in deposits by central banks and banks amounted to € 509 million in respect of funds received during the year (2013: € 872 million).
(3)The highest balance in customer deposits amounted to € 48 million in respect of funds received during the year (2013: € 331 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
319
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Notes to the consolidated financial statements
50 Related party transactions (continued)
(g) 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.
51 Commitments
Capital expenditure
Estimated outstanding commitments for capital expenditure
not provided for in the financial statements
Capital expenditure authorised but not yet contracted for
2014
€ m
17
35
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
2014
€ m
57
61
58
56
55
394
681
2013
€ m
25
26
2013
€ m
66
62
61
58
60
451
758
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 two separate lease arrangements.
The minimum lease terms remaining on the most significant leases vary from 1 year to 15 years. The average lease length
outstanding until a break clause in the lease arrangements is approximately 7 years with the final contractual remaining terms ranging
from 1 year to 23 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
€ 2 million (2013: € 3 million).
Operating lease payments recognised as an expense for the year were € 67 million (2013: € 80 million). Sublease income amounted to
€ 4 million (2013: € 4 million).
320
Allied Irish Banks, p.l.c. Annual Financial Report 2014
52 Employees
The following table shows the geographical analysis of average employees for 2014 and 2013 as follows:
Republic of Ireland
United Kingdom
United States of America
Total
Analysed by segment as follows:
DCB
AIB UK
FSG
Group
Total
2014
9,689
1,641
54
11,384
2014
5,339
1,266
1,534
3,245
2013
10,559
2,034
55
12,648
2013
6,085
1,490
1,512
3,561
11,384
12,648
The average number of employees by segment for 2014 and 2013 is set out above (excluding employees on career breaks and other
unpaid long term leaves and Ark Life(1) employees). The figures for Group segment include the following centralised functions: Chief
Financial Office; Chief Risk Office; Corporate Affairs and Strategy; Office of the Group General Counsel; Office of Group Internal Audit;
and Operations and Technology.
The 12 month average of 11,384 employees is lower than the average figure for 2013 of 12,648 due to the impact of voluntary
severance and early retirements. Actual FTEs fell to the 31 December 2014 level of 11,047 from 11,431 at 31 December 2013,
reflecting the impact of voluntary severance and selective outsourcing of some back-office and support functions in the period.
(1)Acquired in 2013 with a view to its subsequent disposal. The sale was completed in May 2014 (note 17).
53 Regulatory compliance
During 2014, AIB Group, and Allied Irish Banks, p.l.c. and its regulated subsidiaries complied with their externally imposed capital ratios.
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Notes to the consolidated financial statements
54 Financial and other information
Operating ratios
Operating expenses/operating income
Operating expenses/operating income before exceptional items
Other income/(loss)/operating income
Other income/operating income before exceptional items
Performance measures
Return on average total assets
Return on average ordinary shareholders’ equity
2014
2013
2012
64.7%
55.5%
33.4%
33.3%
86.7%
76.4%
21.2%
30.1%
295.7%
122.8%
(78.1%)
22.3%
0.8%
8.0%(1)
(1.3%)
(21.8%)
(2.7%)
(36.0%)
(1)Profit attributable to ordinary shareholders after deduction of the annual dividend on the 2009 Preference Shares as a percentage of average ordinary
shareholders’ equity which excludes the € 3.5 billion in 2009 Preference Shares.
Rates of exchange
€ /$*
Closing
Average
€ /£*
Closing
Average
*Throughout this report, Pound sterling is denoted by £ and US dollar by $.
Currency information
Euro
Other
1.2141
1.3286
0.7789
0.8062
Assets
2013
€ m
97,292
20,442
1.3791
1.3282
0.8337
0.8494
1.3194
1.2850
0.8161
0.8110
Liabilities and equity
2013
€ m
2014
€ m
88,395
19,060
99,597
18,137
2014
€ m
86,771
20,684
107,455
117,734
107,455
117,734
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
55 Average balance sheets and interest rates(1)
The following table shows interest rates prevailing at 31 December 2014 and 31 December 2013 together with average prevailing
interest rates, gross yields, spreads and margins for the years ended 31 December 2014, 2013 and 2012:
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
Gross yields, spreads and margins(2)
Gross yields(3)
Interest rate spread(4)
Net interest margin(5)
As at 31 December
2013
2014
%
%
Average interest rates for
years ended 31 December
2013
%
2014
%
2012
%
0.50
0.02
0.08
0.50
0.50
0.56
0.75
0.23
0.29
0.50
0.49
0.53
0.64
0.13
0.21
0.50
0.49
0.54
2.81
1.13
1.63
0.63
0.13
0.22
0.50
0.49
0.51
2.82
0.75
1.21
0.85
0.33
0.58
0.50
0.62
0.83
2.98
0.25
0.91
(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 page.
(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.
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Notes to the consolidated financial statements
55 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 2014, 2013 and 2012. 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
Loans and receivables to banks
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale
Average
balance
€ m
–
5,966
65,391
12,569
19,444
–
22
2,237
80
567
Average interest earning assets
Net interest on swaps
103,370
2,906
91
Year ended
31 December 2014
Interest Average
rate
%
€ m
Year ended
31 December 2013
Year ended
31 December 2012
Average Interest Average Average Interest Average
rate
balance
%
€ m
rate
%
€ m
€ m
€ m
1.4
0.4
3.4
0.6
2.9
2.8
14
5,724
–
19
70,018
2,329
16,743
18,621
130
652
111,120
3,130
36
2.9
0.3
3.3
0.8
3.5
2.8
37
7,693
1
31
81,003
2,701
18,957
14,510
329
579
122,200
3,641
130
2.7
0.4
3.3
1.7
4.0
3.0
Total average interest earning assets
Non-interest earning assets
103,370
2,997
2.9
111,120
3,166
2.9
122,200
3,771
3.1
8,237
9,635
9,767
Total average assets
111,607
2,997
2.7
120,755
3,166
2.6
131,967
3,771
2.9
Liabilities and shareholders’ equity
Due to central banks and banks
Due to customers
Other debt issued
Subordinated liabilities
Average interest earning liabilities
Non-interest earning liabilities
Total average liabilities
Shareholders’ equity
Total average liabilities and
18,515
48,944
8,921
1,401
77,781
22,426
46
673
335
256
1,310
0.3
1.4
3.8
18.3
1.7
26,242
123
51,728
1,110
8,623
1,311
344
241
0.5
2.1
4.0
18.4
33,522
252
50,634
1,678
12,294
1,240
512
223
87,904
1,818
2.1
97,690
2,665
22,031
20,899
0.8
3.3
4.2
18.0
2.7
100,207
1,310
1.3
109,935
1,818
1.7
118,589
2,665
2.2
11,400
10,820
13,378
shareholders’ equity
111,607
1,310
1.2
120,755
1,818
1.5
131,967
2,665
2.0
324
Allied Irish Banks, p.l.c. Annual Financial Report 2014
56 Non-adjusting events after the reporting period
On 4 March 2015, the Board approved that the annual dividend on the 2009 Preference Shares be paid in cash. This payment,
amounting to € 280 million, will be made on 13 May 2015.
57 Dividends
No final dividend on ordinary shares will be paid in respect of the year ended 31 December 2014.
58 Approval of financial statements
The financial statements were approved by the Board of Directors on 4 March 2015.
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Allied Irish Banks, p.l.c.
Parent company financial statements and notes
Parent company statement of financial position
Parent company statement of cash flows
Parent company statement of changes in equity
Accounting policies
Note
a
b
c
d
e
f
g
h
i
j
k
l
Administrative expenses
Retirement 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
Capital contributions
Offsetting financial assets and financial liabilities
Memorandum items: Contingent liabilities and commitments, and contingent assets
Transferred financial assets
Fair value of financial instruments
Statement of cash flows
ad Related party transactions
ae Commitments
af
ag
Credit risk information
Liquidity risk information
ah Market risk information
Page
327
328
330
332
332
333
335
335
336
339
339
340
341
342
342
344
349
350
351
352
353
353
353
354
354
355
355
355
356
359
360
361
370
370
370
371
379
380
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
Parent company statement of financial position
as at 31 December 2014
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
Notes
ac
c
d
e
f
g
j
k
l
m
n
o
p
q
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s
b
t
u
v
v
2014
€ m
1,396
66
13
1
2,062
23,111
29,658
9,423
20,980
3
5,106
158
248
152
2
2,756
450
95,585
23,137
50,169
2,686
2,622
17
317
468
1,143
222
1,451
82,232
1,344
1,752
10,257
13,353
95,585
2013
€ m
1,215
79
336
2
1,653
23,856
31,603
15,598
20,129
3
4,859
159
252
145
1
2,839
533
103,262
29,112
53,112
2,404
3,271
17
380
635
141
215
1,352
90,639
5,248
2,848
4,527
12,623
103,262
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Richard Pym
Chairman
4 March 2015
David Duffy
Chief Executive Officer
Catherine Woods
Director
David O’Callaghan
Company Secretary
Allied Irish Banks, p.l.c. Annual Financial Report 2014
327
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Parent company statement of cash flows
for the year ended 31 December 2014
Notes
2014
€ m
2013
€ m
2012
€ m
Reconciliation of profit/(loss) before taxation to net
cash outflow from operating activities
Profit/(loss) for the year before taxation from continuing operations
Adjustments for:
Profit on disposal of businesses
Profit on disposal of property, plant and equipment
(Profit)/loss on disposal/transfer of loans and receivables
Dividends received from associated undertakings,
subsidiaries and equity securities
Associated undertakings income
Writeback of impairment of subsidiary undertakings
Gain on designation of associate as an equity investment at
fair value through profit or loss
(Writeback)/provisions for impairment on loans and receivables
(Writeback)/provisions for liabilities and commitments
Provisions/(writeback) for impairment on financial investments available for sale
Change in other provisions
Retirement benefits – defined benefit expense/(credit)
Termination benefits
Contributions to defined benefit pension schemes
Depreciation, amortisation and impairment
Interest on subordinated liabilities and other capital instruments
Net loss on buy back of debt securities in issue
(Profit)/loss on disposal of financial investments available for sale
Loss on termination of fair value hedging swaps
Remeasurement of NAMA senior bonds
Amortisation of premiums and discounts
Change in prepayments and accrued income
Change in accruals and deferred income
Net cash inflow/(outflow) from operating activities before changes
l
i
b
b
in operating assets and liabilities
Change in deposits by central banks and banks
Change in customer accounts
Change in loans and receivables to customers(1)
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
Dividends received from equity securities
Effect of exchange translation and other adjustments
Net cash (outflow)/inflow from operating assets and liabilities
Net cash (outflow)/inflow from operating activities before taxation
Taxation refund
Net cash (outflow)/inflow 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
745
–
(3)
(52)
(30)
–
(292)
–
(149)
(4)
8
28
6
(3)
(84)
97
256
9
(352)
208
(132)
38
85
(170)
209
(6,388)
(3,420)
3,038
6,343
1,069
1
(305)
13
(649)
(6)
(83)
24
(53)
(416)
(207)
–
(207)
537
(205)
125
2,066
51
2,242
497
–
(1)
197
(9)
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(1)Includes loans and receivables to customers within disposal groups and non-current assets held for sale.
328
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Parent company statement of cash flows (continued)
for the year ended 31 December 2014
Notes
k
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(a) Investing activities
Net cash outflow on acquisition of business combinations
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Proceeds from sales and maturity of financial investments
available for sale
Additions to property, plant and equipment
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Additions to intangible assets
Disposal of investment in associated undertakings
Investment in Group undertakings
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
Repayment of preference shares
Interest paid on subordinated liabilities and other capital instruments
Cash flows from financing activities
2014
€ m
–
(8,474)
2013
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(325)
(7,367)
2012
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(4,522)
8,771
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329
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330
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
331
Notes to the parent company financial statements
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 194 to 217.
a Administrative expenses
Personnel expenses:
Wages and salaries
Termination benefits(1)
Retirement benefits(2)
Social security costs
Other personnel expenses
Total personnel expenses
General and administrative expenses:
Irish banking levy
Other general and administrative expenses
Total general and administrative expenses
2014
€ m
2013
€ m
515
19
85
56
(80)
595
45
443
488
1,083
535
65
(85)
58
(57)
516
–
381
381
897
2012
€ m
630
129
(123)
68
7
711
–
424
424
1,135
(1)At 31 December 2014, a charge of € 19 million (2013: € 65 million) has been recognised in the income statement in respect of termination benefits arising
from the voluntary severance programme. This amount comprises Nil (2013: € 20 million) in respect of past service costs relating to the early retirement
scheme, € 19 million (2013: € 69 million) relating to the voluntary severance scheme (notes b and t) and Nil (2013: a credit of € 24 million) in
respect of a pension curtailment gain.
(2)Comprises a charge of € 6 million relating to defined benefit expense (2013: a credit of € 98 million; 2012: a credit of € 137 million), a defined
contribution expense of € 71 million (2013: € 7 million; 2012: € 7 million) and a long term disability payments expense of € 8 million (2013: € 6 million;
2012: € 7 million) (see note b).
332
Allied Irish Banks, p.l.c. Annual Financial Report 2014
b Retirement benefits
Allied Irish Banks, p.l.c. operates a number of defined contribution and defined benefit schemes for employees. All defined benefit
schemes are closed to future accrual.
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 11). The total cost in respect of the DC scheme for 2014 was € 71 million (2013: € 7 million; 2012: € 7 million). The
cost in respect of defined contributions is included in administrative expenses (note a).
Defined benefit schemes
The most significant defined benefit scheme operated by Allied Irish Banks, p.l.c. is the AIB Group Irish Pension Scheme (‘the Irish
scheme’), further details of which are provided in the Group’s retirement benefits note (note 11).
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 11 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 11).
Movement in defined benefit obligation and scheme assets
The following table sets out the movement in the defined benefit obligation and scheme assets during 2014 and 2013:
Defined
Fair value
benefit of scheme
obligation
€ m
2014
Net defined
benefit
assets liability (asset)
€ m
€ m
Defined Fair value
benefit of scheme
obligation
€ m
2013
Net defined
benefit
assets liability (asset)
€ m
€ m
4,071
(3,930)
141
4,179
(3,512)
–
–
3
156
159
(21)
–
1,392
–
4
1,375
–
–
(132)
(132)
–
–
–
(153)
(153)
–
–
–
(293)
(2)
(295)
(84)
–
132
48
–
–
3
3
6
(21)
–
1,392
(293)
2
1,080
(84)
–
–
(84)
64
(4)
(184)
164
40
54
(115)
79
–
(1)
17
–
14
(179)
(165)
–
–
–
(142)
(142)
–
–
–
(247)
1
(246)
(194)
(14)
178
(30)
5,473
(4,330)
1,143
4,071
(3,930)
At 1 January
Included in profit or loss
Current service cost
Past service cost:
– Termination benefits
– Other
Interest cost (income)
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
At 31 December
(1)Includes payment of pension levy.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
667
64
(4)
(184)
22
(102)
54
(115)
79
(247)
–
(229)
(194)
–
(1)
(195)
141
333
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Notes to the parent company financial statements
b Retirement benefits (continued)
Scheme assets
The following table sets out an analysis of the schemes assets at 31 December 2014 and 2013:
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)(2)
Derivatives(2)
Investment funds
Quoted investment funds
Bonds
Equity
Fixed interest
Forestry
Multi asset
Total quoted investment funds
Unquoted investment funds
Total investment funds
Mortgage backed securities(2)
Fair value of schemes assets at 31 December
(1)Located in Europe.
(2)A quoted market price in an active market is not available.
2014
€ m
175
70
180
148
106
312
147
169
150
49
48
1,379
10
1,389
169
869
1,038
49
28
77
1,115
230
5
420
44
10
34
422
930
–
930
486
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
4,330
3,930
Long-term disability payments
Allied Irish Banks, p.l.c. provides an additional benefit to employees who suffer prolonged periods of sickness, subject to qualifying
terms of the insurer. 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 2014, Allied Irish Banks, p.l.c. contributed € 8 million (2013: € 6 million; 2012: € 7 million) towards insuring this
benefit. This amount is included in administrative expenses (note a).
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c Disposal groups and non-current assets held for sale
At 31 December 2014, disposal groups and non-current assets held for sale include property surplus to requirements. 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 to customers
Other
Discontinued operations:
Ark Life
Total disposal groups and non-current assets held for sale
Assets
€ m
2014
Liabilities
€ m
–
13
–
13
–
–
–
–
Assets
€ m
28(1):
6
302(2)
336
2013
Liabilities
€ m
–
–
–
–
(1)Loans and receivables held for sale are net of provisions of Nil (note i).
(2) Ark Life which had been classified as held for sale as a discontinued operation at 31 December 2013, was disposed of in May 2014 (note 17 to the
consolidated financial statements).
d Trading portfolio financial assets
Debt securities
Equity securities
Of which listed:
Debt securities
Of which unlisted:
Equity securities
2014
€ m
–
1
1
2014
€ m
–
1
1
2013
€ m
1
1
2
2013
€ m
1
1
2
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Notes to the parent company financial statements
e Derivative financial instruments
Details of derivative transactions entered into and their purpose are described in note 22 to the consolidated financial statements.
The following table presents the notional principal amount together with the positive and negative fair values attaching to those
contracts:
Interest rate contracts(1)
Notional principal amount
Positive fair value
Negative fair value
Exchange rate contracts(1)
Notional principal amount
Positive fair value
Negative fair value
Equity contracts(1)
Notional principal amount
Positive fair value
Negative fair value
Credit derivatives(1)
Notional principal amount
Positive fair value
Negative fair value
Total notional principal amount
Positive fair value
Negative fair value
2014
€ m
2013
€ m
104,693
1,876
(2,487)
137,851
1,447
(2,195)
4,834
48
(74)
3,010
138
(117)
340
–
(8)
4,328
35
(35)
3,611
171
(174)
–
–
–
112,877
145,790
2,062
(2,686)
1,653
(2,404)
(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 together with the positive fair value attaching to these contracts where relevant:
< 1 year 1 < 5 years
€ m
€ m
5 years +
€ m
2014
Total
€ m
< 1 year
€ m
1 < 5 years
€ m
5 years +
€ m
2013
Total
€ m
Residual maturity
Notional principal amount
Positive fair value
35,196
38,737
125
837
38,944
1,100
112,877
2,062
57,300
52,679
35,811
145,790
218
945
490
1,653
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
2014
€ m
2013
€ m
110,487
143,795
1,915
475
1,609
386
112,877
145,790
2014
€ m
1,714
321
27
2,062
2013
€ m
1,399
236
18
1,653
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
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 2014 and 31 December 2013. A description of how the fair values of derivatives are determined is set out
in note 47 to the consolidated financial statements.
Notional
principal
amount
€ m
2014
Fair values
Assets
Liabilities
€ m
€ m
Notional
principal
amount
€ m
2013
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
46,657
1,134
(1,225)
44,194
1,047
(1,089)
629
692
46
3
(42)
(4)
720
800
47
6
(43)
(6)
Total interest rate derivatives – OTC
47,978
1,183
(1,271)
45,714
1,100
(1,138)
Interest rate derivatives – exchange trade
Interest rate futures
Total interest rate derivatives -exchange traded
1,706
1,706
–
–
–
–
121
121
–
–
–
–
Total interest rate derivatives
49,684
1,183
(1,271)
45,835
1,100
(1,138)
Foreign exchange derivatives – OTC
Foreign exchange contracts
Currency options bought and sold
Total foreign exchange derivatives
Equity derivatives – OTC
Equity warrants
Equity index options
Total equity derivatives
Credit derivatives – OTC
Credit derivatives
Total credit derivatives
4,668
166
4,834
23
2,987
3,010
340
340
46
2
48
23
115
138
–
–
(71)
(3)
(74)
–
(117)
(117)
(8)
(8)
4,143
185
4,328
–
3,611
3,611
–
–
32
3
35
–
171
171
–
–
(33)
(2)
(35)
–
(174)
(174)
–
–
Total derivatives held for trading
57,868
1,369
(1,470)
53,774
1,306
(1,347)
Derivatives held for hedging
Derivatives designated as fair value hedges – OTC
Interest rate swaps
12,724
Total derivatives designated as fair value hedges
12,724
Derivatives designated as cash flow hedges – OTC
Interest rate swaps
Cross currency interest rate swaps
39,171
3,114
Total derivatives designated as cash flow hedges
42,285
Total derivatives held for hedging
Total derivative financial instruments
55,009
112,877
151
151
539
3
542
693
(587)
(587)
(412)
(217)
(629)
(1,216)
13,110
13,110
75,751
3,155
78,906
92,016
222
222
110
15
125
347
(588)
(588)
(389)
(80)
(469)
(1,057)
2,062(1)
(2,686)(2)
145,790
1,653(1)
(2,404)(2)
(1)Includes exposure to subsidiary undertakings of € 202 million (2013: € 163 million).
(2)Includes amounts due to subsidiary undertakings of € 388 million (2013: € 403 million)
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Notes to the parent company financial statements
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
27
9
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
17
11
85
53
117
80
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
2014
Total
€ m
246
153
2013
Total
€ m
636
275
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
27
34
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
17
32
85
98
117
99
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
2014
Total
€ m
246
263
2013
Total
€ m
636
362
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
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
2014
€ m
101
23,010
–
23,111
950
22,161
23,111
2013
€ m
95
23,768
(7)
23,856
1,008
22,848
23,856
3,376
16
2014
€ m
22,238
871
2
2013
€ m
22,949
903
4
23,111
23,856
(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 € 1,206 million (2013: € 795 million) placed with derivative counterparties in
relation to net derivative positions (note e).
Under reverse repurchase agreements with external and subsidiary counterparties, AIB has accepted collateral that it is permitted to sell
or repledge in the absence of default by the owner of the collateral. The collateral received consisted exclusively of non-government
securities (bank bonds) with a fair value of € 3,494 million (2013: € 16 million). The fair value of collateral sold or repledged amounted to
€ 3,192 million (2013: € 15 million). These transactions were conducted under terms that are usual and customary to standard reverse
repurchase agreements.
g Loans and receivables to customers
Loans and receivables to customers
Reverse repurchase agreements
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
2014
€ m
36,558
110
423
131
(7,564)
29,658
19,880
9,778
29,658
23,273
2013
€ m
42,292
–
438
137
(11,264)
31,603
21,428
10,175
31,603
29,126
–
–
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Under reverse repurchase agreements, AIB has accepted collateral with a fair value of € 107 million (2013: Nil) that it is permitted to
sell or repledge in the absence of default by the owner of the collateral.
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Notes to the parent company financial statements
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).
2014
€ m
2013
€ m
123
334
12
469
(49)
3
423
123
291
9
423
45
219
133
336
11
480
(45)
3
438
133
296
9
438
98
182
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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.
At 1 January 2014
Exchange translation adjustments
(Credit to)/charge against income
statement – customers
Credit to income statements – banks
Amounts written off
Recoveries of amounts written off
in previous years
At 31 December 2014
Total provisions are split as follows:
Specific
IBNR
Amounts include:
Loans and receivables to customers (note g)
Residential
mortgages
€ m
Other Property and
construction
€ m
personal
€ m
SME/Other
commercial
€ m
221
1,089
–
3
–
1
7
–
(26)
(384)
–
198
173
25
198
–
713
663
50
713
6,943
25
(257)
–
(2,253)
–
4,458
4,331
127
4,458
2,711
–
59
(7)
(819)
–
1,944
1,709
235
1,944
At 1 January 2013
146
1,066
6,534
2,811
Residential
mortgages
€ m
Other
personal
€ m
Property and
construction
€ m
SME/Other
commercial
€ m
Exchange translation adjustments
Transfers(1)
Charge against income statement – customers
Charge against income statement – banks
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)
–
–
84
–
(9)
–
–
(3)
–
134
–
(109)
–
1
221
1,089
194
27
221
1,038
51
1,089
(4)
(33)
545
–
(92)
(7)
–
6,943
6,751
192
6,943
(12)
–
209
3
(300)
–
–
2,711
2,626
85
2,711
(1)Includes transfers (to)/from provisions for liabilities and commitments.
Corporate
€ m
307
10
46
–
2014
Total
€ m
11,271
36
(142)
(7)
(114)
(3,596)
2
251
190
61
251
Corporate
€ m
574
(5)
–
30
–
(172)
(120)
–
307
228
79
307
2
7,564
7,066
498
7,564
7,564
2013
Total
€ m
11,131
(24)
(33)
1,002
3
(682)
(127)
1
11,271
10,837
434
11,271
7
11,264
11,271
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Notes to the parent company financial statements
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)
Amortisation of discount
Repayments
Effect of re-estimating the timing of cash flows
At 31 December
(1)Acquired from a subsidiary company.
2014
€ m
15,598
–
36
(6,343)
132
9,423
2013
€ m
17,082
279
65
(1,890)
62
15,598
k Financial investments available for sale
The following table sets out at 31 December 2014 and 31 December 2013, the carrying value (fair value) of financial investments
available for sale by major classifications together with the unrealised gains and losses:
Unrealised
gross gains
€ m
Unrealised Net unrealised
gains/(losses)
€ m
gross losses
€ m
Tax effect
€ m
2014
Net
after tax
€ m
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 corporate securities
Fair value
€ m
8,870
3,631
182
2,852
99
1
4,982(1)
3
1,291
170
9
119
–
–
105
–
Total debt securities
20,620
1,694
Equity securities
Equity securities – NAMA subordinated bonds
Equity securities – other
Total equity securities
Total financial investments
available for sale
358
2
360
313
1
314
–
–
–
–
(1)
–
(66)
(1)
(68)
–
–
–
1,291
(161)
1,130
170
9
119
(1)
–
39
(1)
(21)
(1)
(15)
–
–
(5)
–
149
8
104
(1)
–
34
(1)
1,626
(203)
1,423
313
1
314
(39)
–
(39)
274
1
275
20,980
2,008
(68)
1,940
(242)
1,698
(1)Includes € 1,085 million in respect of subsidiary undertakings.
342
Allied Irish Banks, p.l.c. Annual Financial Report 2014
k Financial investments available for sale (continued)
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
gross losses
€ m
Net unrealised
gains/(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
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 € 1 million (2013: Nil) and € 7 million (2013: Nil) on equity securities
have been recognised.
Analysis of movements in financial investments available for sale
At 1 January
Exchange translation adjustments
Purchases
Sales
Maturities
(Provisions)/writeback for impairment
Amortisation of discounts net of premiums
Movement in unrealised gains
At 31 December
Of which:
Listed
Unlisted
Debt
securities
€ m
Equity
securities
€ m
20,049
14
8,474
(8,035)
(721)
(1)
(74)
914
20,620
20,620
–
20,620
80
–
–
(15)
–
(7)
–
302
360
–
360
360
2014
Total
€ m
20,129
14
8,474
(8,050)
(721)
(8)
(74)
1,216
20,980
20,620
360
20,980
Debt
securities
€ m
Equity
securities
€ m
14,829
(44)
7,346
(1,758)
(681)
18
(17)
356
20,049
20,037
12
20,049
101
(1)
21
(75)
–
–
–
34
80
7
73
80
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
Allied Irish Banks, p.l.c. Annual Financial Report 2014
2014
€ m
507
12,150
7,531
432
20,620
2013
Total
€ m
14,930
(45)
7,367
(1,833)
(681)
18
(17)
390
20,129
20,044
85
20,129
2013
€ m
1,186
11,357
6,606
900
20,049
343
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Notes to the parent company financial statements
l
Investments in Group undertakings
Equity
At 1 January
Additions
Liquidations
Reversal of impairment
At 31 December
Subordinated debt
At 1 January and 31 December
Total
Of which:
Credit institutions
Other
Total – all unquoted
2014
€ m
4,559
–
(45)(2)
292
4,806
300
5,106
4,397
709
5,106
2013
€ m
2,435
773(1)
–
1,351
4,559
300
4,859
4,105
754
4,859
(1)Additions in 2013 include € 330 million investment in EBS Limited; € 200 million in AIB Mortgage Bank and € 243 million in AIB Holdings (N.I.) Limited.
(2)AIB International Finance preference shares € 45 million were fully repaid during 2014.
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/Single Supervisory
Mechanism. AIB Mortgage Bank is a designated mortgage credit institution for the purposes of the Asset Covered Securities Acts 2001
and 2007 (as amended) and holds a banking authorisation. 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.
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 2014, the total amount of principal outstanding in respect of mortgage covered securities issued by AIB Mortgage
Bank was € 7.7 billion (2013: € 8.0 billion) of which € 3.8 billion was held by external debt investors (2013: € 3.3 billion), € 1.1 billion by
Allied Irish Banks, p.l.c. (2013: Nil) and € 2.8 billion was self-issued to AIB Mortgage Bank (2013: € 4.8 billion). The mortgage covered
securities 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. As at 31 December 2014, the total amount of principal outstanding of mortgage loans (mortgage credit assets)
and cash comprised in AIB Mortgage Bank’s cover assets pool was € 15.1 billion (2013: € 15.7 billion).
344
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Investments in Group undertakings (continued)
l
Principal subsidiary undertakings incorporated in the Republic of Ireland (continued)
EBS Limited (“EBS”)
EBS (previously EBS Building Society), which is regulated by the Central Bank of Ireland/Single Supervisory Mechanism, became a
wholly owned subsidiary of Allied Irish Banks, p.l.c. on 1 July 2011. AIB operates EBS as a standalone, separately branded subsidiary
with its own branch network which continues to offer mortgage and savings products.
EBS Group had consolidated total assets of € 14 billion as at 31 December 2014. EBS operates in the Republic of Ireland and has a
countrywide network of 71 offices 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 (‘Haven’), a wholly owned subsidiary, to independent mortgage intermediaries. At 31 December 2014, the CET 1
ratio and total capital ratio for EBS were 13.0% and 13.9%, respectively.
In December 2007, EBS established 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/Single
Supervisory Mechanism as a retail credit firm under Part V of the Central Bank Act 1997 (as amended). Haven has its own board of di-
rectors 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/Single Supervisory Mechanism. 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 authorisation. 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 2014, the total amount of principal
outstanding of mortgage loans (mortgage credit assets) and cash comprised in EBS Mortgage Finance’s cover assets pool was
€ 4.7 billion (2013: € 5.4 billion).
In December 2008, EBS Mortgage Finance launched a € 6 billion Mortgage Covered Securities Programme. As at 31 December 2014,
the total amount of principal outstanding in respect of mortgage covered securities issued by EBS Mortgage Finance was € 1.85 billion
(2013: € 2.8 billion) of which Nil (2013: € 0.05 billion) was held by external debt investors. EBS held € 1.85 billion (2013: € 2.75 billion).
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 € 3,120 million
(2013: € 3,434 million). For further details on these SPEs, see note 46 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: 92 Ann Street, Belfast BT1 3AY
Nature of business
Banking and financial services
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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.
AIB Group (UK) p.l.c., a bank registered in the UK and regulated by the Financial Conduct Authority and the Prudential Regulation
Authority had consolidated total assets of £13.7 billion at 31 December 2014. It operates in two distinct markets, Great Britain (GB)
and Northern Ireland (NI), each with different economies and operating environments. It is the primary legal entity within the segment
AIB UK.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
345
Notes to the parent company financial statements
Investments in Group undertakings (continued)
l
Principal subsidiary undertaking incorporated outside the Republic of Ireland
Great Britain (GB)
In this market, the segment operates under the trading name Allied Irish Bank (GB) from 16 locations in major business centres in GB.
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 (NI)
In this market, the segment operates under the trading name First Trust Bank from 30 branches and outlets throughout NI. 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 the range of customer segments, including professionals, high net worth
individuals, SMEs, as well as the public and corporate sectors.
Guarantees given to subsidiaries by Allied Irish Banks, p.l.c.
Each of the companies listed below, and consolidated into AIB Group’s financial statements, 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
Skonac
Skobar
Skodell
Skovale
Skopek
Wallkav Limited
Marro Properties Limited
Ammonite Limited
AIB Capital Exchange Offering 2009 Limited
Allied Irish Banks (Holdings & Investments) Limited
AIB European Investments Limited
Allied Irish Finance Limited
Allied Irish Nominees Limited
Eyke Limited
Hengram Limited
The Hire Purchase Company of Ireland Limited
Blogram Limited
Sanditon Limited
S. & M. (Limerick) Limited
AIB International Finance
General Estates and Trust Company Limited
AIB Limited
Commdec Limited
Dohcar Limited
Dohhen Limited
Kavwall Limited
Traprop Limited
Jonent Downs 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
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.
346
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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) p.l.c.;
AIB UK Loan Management Limited.
EBS Limited;
AIB Holdings (NI) Limited and
Impairment losses reversed 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. However, 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 2014, the carrying value of investments in the following subsidiary undertakings of the parent company were reviewed
for impairment/reversal of impairment:
– 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.
In recent years, 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. Furthermore, the expectations
as regards future loan impairments in these subsidiaries also improved. Following the most recent planning exercise approved by the
Board in December 2014, forecasts for certain AIB’s principal subsidiaries 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 2014 of the
assumptions underpinning the previous impairment and to determine the recoverable amount of these subsidiaries. Following this
review, the remaining impairment provision of € 292 million on the EBS investment was written back. The basis used for determining any
impairment writeback is set out below:
EBS Limited (“EBS”)
AIB carried out an impairment reversal assessment of its investment in EBS at 31 December 2014. Prior to this assessment, the
investment was carried at € 1,480 million. In 2013, € 600 million in impairment provisions were written back following an impairment
reversal assessment leaving an impairment provision of € 292 million on this investment.
Following the recent planning exercise covering the period 2015 to 2017, the forecast profits for EBS increased in line with the improved
outlook for both AIB Group and the Irish economy. The key drivers for EBS’s forecast improved profitability were: reduced margins on
funding; impairment provision writebacks; and increased mortgage income.
Arising from the recent actual performance and the planning outturn of EBS, AIB reviewed its investment given that there were strong
indications that the previous impairment had reversed in full. The recoverable amount of the investment was determined using cash flow
projections based on financial plans approved by the Board and covering the period 2015 to 2017 and a growth rate of 2% from 2018
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 in excess of the carrying value of € 1,480 million. Accordingly, it was considered that a reversal of the
impairment provision was appropriate.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
347
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Notes to the parent company financial statements
l Investments in Group undertakings (continued)
Impairment losses reversed in Group undertakings
EBS Limited (“EBS”)
However, in accordance with IAS 36 Impairment of Assets, the impairment reversal was limited to the previous impairment amount of
€ 292 million. The resultant carrying value at € 1,772 million is approximately 23% lower than the value-in-use valuation.
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 2018 into perpetuity would reduce the impairment reversal by € 43 million.
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 (£ 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. Following an impairment reversal review in 2014, it was considered that there were not sufficient grounds for
reversing previous impairment amounts.
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 the remaining assets continue to run down in line with their repayment profile.
Against this backdrop, an impairment reversal review at 31 December 2014, was carried out. However, 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.
348
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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
656
46
12
–
714
497
43
16
–
556
158
3
–
–
–
3
3
–
–
–
3
–
2014
Total
€ m
659
46
12
–
717
500
43
16
–
559
158
Software
€ m
Other
€ m
600
47
10
(1)
656
432
51
15
(1)
497
159
3
–
–
–
3
3
–
–
–
3
–
2013
Total
€ m
603
47
10
(1)
659
435
51
15
(1)
500
159
(1)Relates to assets which are no longer in use with a nil carrying value.
Internally generated intangible assets under construction amounted to: € 40 million (31 December 2013: € 32 million).
The cost of internally generated software amounted to: € 396 million (31 December 2013: € 357 million).
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
349
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Notes to the parent company financial statements
n Property, plant and equipment
Cost
At 1 January 2014
Reclassification to disposal groups and non-current
assets held for sale
Additions
Disposals
Amounts written off
At 31 December 2014
Depreciation/impairment
At 1 January 2014
Depreciation charge for the year
Impairment charge for the year
Reversal of impairment
Disposals
Amounts written off
At 31 December 2014
Net book value at 31 December 2014
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
Property
Long
leasehold
€ m
Leasehold
under 50
years
€ m
81
(8)
1
–
(1)
73
23
3
1
(2)
–
(1)
24
49
93
–
8
–
(9)
92
50
6
3
–
–
(9)
50
42
Equipment
2014
Total
€ m
421
–
27
(3)
(11)
434
348
20
3
–
(2)
(11)
358
76
€ m
709
(10)
45
(3)
(21)
720
457
32
8
(2)
(2)
(21)
472
248
Property
Long
leasehold
€ m
Leasehold
under 50
years
€ m
84
–
(3)
81
22
1
1
(1)
23
58
81
13
(1)
93
46
3
2
(1)
50
43
Equipment
2013
Total
€ m
415
16
(10)
421
334
20
–
(6)
348
73
€ m
706
30
(27)
709
439
27
4
(13)
457
252
Freehold
€ m
114
(2)
9
–
–
121
36
3
1
–
–
–
40
81
Freehold
€ m
126
1
(13)
114
37
3
1
(5)
36
78
The net book value of property occupied by Allied Irish Banks, p.l.c. for its own activities was € 162 million (2013: € 166 million).
Property and equipment includes € 7 million for items in the course of construction (2013: € 10 million).
350
Allied Irish Banks, p.l.c. Annual Financial Report 2014
o Deferred taxation
Deferred tax assets:
Provision for impairment on loans and receivables
Retirement benefits
Cash flow hedges
Unutilised tax losses
Assets 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
2014
€ m
–
149
–
2,807
–
54
3,010
(44)
(13)
(197)
(254)
2013
€ m
1
21
6
2,848
2
81
2,959
–
(15)
(105)
(120)
2,756
2,839
2,756
2,839
For each of the years ended 31 December 2014 and 2013, 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
At 31 December
2014
€ m
2,839
1
(4)
(80)
2013
€ m
2,919
–
(96)
16
2,756
2,839
Comments on the basis of recognition of deferred tax assets on unused tax losses are included in ‘Critical accounting judgements and
estimates’ on pages 218 to 222. Information on the regulatory capital treatment of deferred tax assets is included in ‘Principal risks and
uncertainties’ on page 55.
At 31 December 2014, recognised deferred tax assets on tax losses and other temporary differences, net of deferred tax liabilities,
totalled € 2,756 million (2013: € 2,839 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.
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351
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Notes to the parent company financial statements
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
2014
€ m
3,400
–
3,400
12,733
7,004
19,737
23,137
16,560
6,577
23,137
2013
€ m
11,750
–
11,750
9,136
8,226
17,362
29,112
21,640
7,472
29,112
–
–
(1)Amounts due to subsidiary undertakings may include repurchase agreements.
Details of AIB’s sale and repurchase activity are set out in note 46 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 2014 (2013: Nil).
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
5,257
13,937
19,194
13,523
9,938
23,461
Central
banks
€ m
Banks
€ m
2014
Total
€ m
Central
banks
€ m
Banks
€ m
2013
Total
€ m
Of which:
Government securities(1)
Other securities
(1)Includes NAMA senior bonds.
1,004
4,253
9,559
4,378
10,563
8,631
11,980
1,543
6,441
3,497
18,421
5,040
352
Allied Irish Banks, p.l.c. Annual Financial Report 2014
q Customer accounts
Current accounts
Demand deposits
Time deposits
Securities sold under agreements to repurchase(1)
Of which:
Non-interest bearing current accounts
Interest bearing deposits, current accounts and short-term borrowings
Of which:
Due to third parties
Due to subsidiary undertakings(2)
Amounts include:
Due to associated undertakings
2014
€ m
16,191
6,589
25,198
2,191
50,169
15,847
34,322
50,169
45,562
4,607
50,169
2013
€ m
13,674
6,230
27,425
5,783
53,112
13,375
39,737
53,112
47,456
5,656
53,112
75
150
(1)AIB pledged government available for sale securities with a fair value of € 2,941 million (2013: € 5,814 million) and non-government available for sale
securities with a fair value of € 53 million (2013: € 284 million) as collateral for these facilities and providing access to future funding 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
2014
€ m
2013
€ m
2,572
3,192
50
2,622
79
3,271
Debt securities issued during the year amounted to € 2,697 million (31 December 2013: € 2,510 million) of which € 500 million relates to
an EMTN issuance (31 December 2013: € 500 million) with the balance relating to issuances under the short-term commercial paper
programme. Debt securities matured or repurchased amounted to € 3,348 million (31 December 2013: € 4,390 million) of which
€ 370 million (31 December 2013: Nil) related to securities repurchased as part of a debt buyback programme.
s Other liabilities
Items in transit
Creditors
Fair value of hedged liability positions
Other
Allied Irish Banks, p.l.c. Annual Financial Report 2014
2014
€ m
9
7
55
246
317
2013
€ m
49
7
86
238
380
353
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Notes to the parent company financial statements
t Provisions for liabilities and commitments
At 1 January
Exchange translation adjustments
Amounts charged to income
statement
Amounts released to income
statement
Provisions utilised
At 31 December
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
Liabilities
and
charges
€ m
72
(1)
1(4)
(5)(4)
(7)
60
Liabilities
and
charges
€ m
21
34
–
–
28(4)
(11)(4)
–
72
NAMA(1)
provisions
Onerous(2)
contracts
Legal
claims
€ m
35
–
6(1)
(8)(1)
–
33
€ m
22
–
3
(4)
(5)
16
€ m
5
–
20
(1)
(1)
23
provisions
Other(3) Voluntary
severance
scheme
€ m
€ m
78
5
12
(2)
(3)
90(5)
3
–
–
–
(3)
–
NAMA(1)
provisions
Onerous(2)
contracts
Legal
claims
Other(3)
provisions
€ m
21
–
–
–
18(1)
(4)(1)
–
35
€ m
€ m
10
–
(2)
–
18
–
(4)
22
5
–
–
–
2
(2)
–
5
€ m
142
1
–
(4)
8
(24)
(45)
78(5)
Voluntary
severance
scheme*
€ m
–
–
–
–
3
–
–
3
2014
Total
€ m
215
4
42
(20)
(19)
222
2013
Total
€ m
199
35
(2)
(4)
77
(41)
(49)
215
(1)NAMA income statement charge/(credit) relates to valuation adjustments in relation to loans previously transferred to NAMA.
(2)Provisions for the unavoidable costs expected to arise from the closure of properties surplus to requirements.
(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.
(5)Includes € 76 million (2013: € 72 million) due to a subsidiary undertaking.
The total provisions for liabilities and commitments expected to be settled within one year amount to € 72 million (31 December 2013:
€ 92 million).
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 38 to the consolidated financial statements.
354
Allied Irish Banks, p.l.c. Annual Financial Report 2014
v Share capital
The share capital and share premium of Allied Irish Banks, p.l.c. are detailed in note 39 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)
At 31 December
Capital
contribution
reserves
€ m
Other
capital
reserves
€ m
1,389
156
(470)
(94)
(564)
825
–
–
–
156
2014
Total
€ m
1,545
(470)
(94)
(564)
981
Capital
contribution
reserves
€ m
Other
capital
reserves
€ m
2013
Total
€ m
1,608
156
1,764
(140)
(79)
(219)
1,389
–
–
–
(140)
(79)
(219)
156
1,545
The capital contributions were 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 41 to the consolidated financial statements.
x Capital contributions
Capital contributions from the Minister for Finance and the NPRFC(1) to Allied Irish Banks p.l.c. are detailed in note 42 to the
consolidated financial statements.
(1)National Treasury Management Agency as controller and manager of the Ireland Strategic Investment Fund (NTMA / ISIF with effect 22 December 2014).
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355
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Notes to the parent company financial statements
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 43 to the consolidated financial 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 2014:
2014
Net
amount
€ m
(118)
3
(121)
2014
Net
amount
€ m
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
1,665
(1,221)
(450)
(6)
1,665
3,376
110
5,151
–
–
–
–
3,376
(3,494)
110
5,151
(107)
(4,822)
–
–
(450)
Gross
Net
amounts of amounts of
financial
recognised
liabilities
financial
presented
assets
amounts of offset in the
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)
pledged
€ m
Financial
position instruments
€ m
16,133
2,191
2,475
20,799
–
–
–
–
16,133
(16,942)
51
(758)
2,191
2,475
(2,259)
(1,221)
20,799
(20,422)
2
(1,276)
(1,223)
(66)
(22)
(846)
Financial assets
Derivative financial instruments
Loans and receivables to banks –
Reverse repurchase agreements
Loans and receivables to customers –
Reverse repurchase agreements
Note
e
f
g
Total
Financial liabilities
Deposits by central banks and banks –
Note
Securities sold under agreements
to repurchase
Customer accounts –
Securities sold under agreements
to repurchase
Derivative financial instruments
p
q
e
Total
356
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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 2013:
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
1,177
(957)
(188)
16
1,193
(16)
(973)
–
(188)
Gross
amounts of
recognised
financial
assets
€ m
1,177
16
1,193
Financial assets
Derivative financial instruments
Loans and receivables to banks –
Reverse repurchase agreements
Note
e
f
Total
Financial liabilities
Deposits by central banks and banks –
Note
Securities sold under agreements
to repurchase
Customer accounts –
Securities sold under agreements
to repurchase
Derivative financial instruments
p
q
e
Total
Gross
amounts of
recognised
financial
liabilities
€ m
20,886
5,783
1,819
28,488
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)
pledged
€ m
Financial
instruments
€ m
–
–
–
–
20,886
(21,711)
8
(817)
5,783
1,819
(6,098)
(957)
28,488
(28,766)
(1)
(820)
(813)
(316)
42
(1,091)
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;
loans and receivables to customers – 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.
2013
Net
amount
€ m
32
–
32
2013
Net
amount
€ m
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k
s
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h
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s
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e
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o
d
n
a
e
c
n
a
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e
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357
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Notes to the parent company financial statements
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 2014 and
31 December 2013:
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
2014
Financial
assets not
in scope of
offsetting
disclosures
€ m
1,665
Derivative financial instruments
2,062
397
Financial assets
Derivative financial instruments
Loans and receivables to banks –
Reverse repurchase agreements
3,376
Loans and receivables to banks
23,111
19,735
Loans and receivables to customers –
Reverse repurchase agreements
110
Loans and receivables to customers
29,658
29,548
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
2014
Financial
liabilities not
in scope of
offsetting
disclosures
€ m
16,133
Deposits by central banks and banks
23,137
7,004
2,191
2,475
Customer accounts
Derivative financial instruments
50,169
2,686
47,978
211
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 liabilities
Deposits by central banks and banks –
Securities sold under agreements
to repurchase
Customer accounts –
Securities sold under agreements
to repurchase
Derivative financial instruments
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
358
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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 44 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 44 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.
(3)Included in exposures are amounts relating to Group subsidiaries of € 265 million (2013: Nil).
Contract amount
2013
€ m
2014
€ m
475
292
767
11
6,023
1,210
7,244
8,011(3)
567
357
924
15
5,907
1,232
7,154
8,078
Concentration of exposure
Republic of Ireland
United Kingdom
United States of America
Total
Contingent liabilities
2013
€ m
2014
€ m
Commitments
2013
€ m
2014
€ m
629
1
137
767
745
–
179
924
7,160
62
22
7,244
7,011
116
27
7,154
Credit ratings
The credit ratings of contingent liabilities and commitments as at 31 December 2014 and 31 December 2013 are set out in the following
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i
table.
Good upper
Good lower
Watch
Vulnerable
Impaired
Unrated
Total
2014
€ m
3,150
3,635
134
161
422
509
2013
€ m
2,427
3,916
121
233
659
722
8,011
8,078
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
359
Notes to the parent company financial statements
aa Transferred 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 46 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
Sale and repurchase agreements
22,188
Securitisations:
€ m
€ m
18,324(1)
Credit card receivables
297
200
Carrying
amount of
associated
liabilities held
by Group
companies
€ m
–
97
Fair
value of
transferred
assets
Fair value
of associated
liabilities
held by third
parties
€ m
22,199
€ m
18,324
297
200
Fair value
of associated
liabilities
held by
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€ m
–
97
Carrying
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transferred
assets
€ m
Sale and repurchase agreements
29,559
Securitisations:
Carrying
amount of
associated
liabilities held
by third parties
€ m
26,669(1)
Credit card receivables
675
500
(1)See notes p and q.
Carrying
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liabilities held
by Group
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€ m
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175
Fair
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assets
Fair value
of associated
liabilities
held by third
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€ m
29,694
€ m
26,669
675
500
Fair value
of associated
liabilities
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Group
companies
€ m
–
175
2014
Net
fair value
position
€ m
3,875
–
2013
Net
fair value
position
€ m
3,025
–
(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 46 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 2014, Allied Irish Banks, p.l.c. recognised € 16 million (cumulative € 69 million) (2013: € 16 million (cumulative € 53 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
2014, Allied Irish Banks, p.l.c. recognised € 58 million (cumulative € 396 million) (2013: € 58 million (cumulative € 338 million)) in the
income statement for the provision of services under this agreement.
360
Allied Irish Banks, p.l.c. Annual Financial Report 2014
ab Fair value of financial instruments
The tables on the following pages 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.
Readers of these financial statements are advised to use caution when using the data in the following tables 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 2014.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
365
Notes to the parent company financial statements
ab Fair value of financial instruments (continued)
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
2014 and 31 December 2013:
Financial assets
Transfer into Level 1 from Level 2
Transfer into Level 2 from Level 1
Trading
portfolio
€ m
Debt
securities
€ m
–
–
–
1
2014
Total
€ m
–
1
Trading
portfolio
€ m
Debt
securities
€ m
–
–
13
3
2013
Total
€ m
13
3
Transfers into Level 1 from Level 2 occurred due to increased availability of reliable quoted market prices which were not previously
available.
Transfers into Level 2 from Level 1 occurred due to reduced availability of reliable quoted market prices.
366
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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 2014 and 2013:
Financial assets
Financial liabilities
2014
Derivatives
Available for sale
Total Derivatives
Total
At 1 January 2014
Transfers into Level 3(1)
Total gains or (losses) in:
Profit or loss
– Net trading gain
Other comprehensive income
– Net change in fair value of financial
investments available for sale
– Net change in fair value of cashflow hedges
Sales
At 31 December 2014
At 1 January 2013
Transfers into Level 3(1)
Total gains or (losses) in:
Profit or loss
– Net trading loss
Other comprehensive income
– Net change in fair value of financial
investments available for sale
Sales
At 31 December 2013
Debt
securities
€ m
Equity
securities
€ m
12
3
–
–
–
(12)
3
70
–
–
294
–
(5)
359
€ m
279
104
75
–
2
–
460
Financial assets
Derivatives
€ m
–
460
(181)
–
–
279
Available for sale
Debt
securities
€ m
Equity
securities
€ m
12
–
–
–
–
12
243
–
–
24
(197)
70
€ m
361
107
€ m
84
119
€ m
84
119
75
38
38
294
2
(17)
822
–
30
–
271
–
30
–
271
2013
Financial liabilities
Total
Derivatives
Total
€ m
255
460
€ m
20
116
€ m
20
116
(181)
(32)
(32)
24
(197)
361
–
(20)
84
–
(20)
84
(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. Transfers into Level 3
arose as a result of the unobservable inputs becoming significant to the fair value measurement 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
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assets and liabilities held at 31 December 2014 and 31 December 2013:
Net trading income/(loss)
Provisions for impairment on financial investments available for sale
Total
Allied Irish Banks, p.l.c. Annual Financial Report 2014
2014
€ m
124
–
124
2013
€ m
(25)
–
(25)
367
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Notes to the parent company financial statements
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 2014 and
31 December 2013 in measuring financial instruments categorised as Level 3 in the fair value hierarchy:
Fair Value
2014
€ m
460
271
2013
€ m
279
84
Financial
instrument
Uncollaterised
Asset
customer
Liability
derivatives
Valuation
technique
Significant
unobservable
input
CVA
LGD
PD
Range of estimates
2014
46% – 73%
(Base 55%)
0.9% – 1.4%
2013
45% – 80%
(Base 59%)
0.8% – 2.0%
FVA(2)
DVA
(Base 1.1% 1 yr PD)
(Base 1.5% 1 yr PD)
Combination
LGD and PD(1)
As above with greater
As above with greater
unfavourable impact
unfavourable impact
due to combination of
due to combination of
PD and LGD changes
PD and LGD changes
Funding spreads
(0.3%) – 0.8%
n/a
PD
n/a
The PD is shifted
from 2.1% to 0.4%
in the unfavourable
scenario. In the
favourable scenario
the capping of DVA
at CVA level is
removed.
NAMA
Asset
358
70
Discounted
NAMA
Discount rate of 12%
The estimates range
subordinated
bonds
cash flows
profitability i.e.
applicable to base
from: (a) NAMA making
ability to generate
asset price. The
a single payment only
cash flow for
estimates range from:
under the bonds i.e.
repayment
(a) NAMA making 50%
5.26% of nominal; to
of full 5.26% coupon
(b) repayment of the
payments; to (b) an
bonds at maturity.
early full repayment
of coupons plus capital
(March 2018) at a
reduced discount rate.
(1)The fair value measurement sensitivity to unobservable inputs ranges from negative € 37 million to positive € 21 million (2013: negative € 20 million to
positive € 19 million).
(2)As detailed in note 47 to the consolidated financial statements, FVA incorporates an element of own credit which had been applied through DVA in 2013.
A number of other derivatives are subject to valuation methodologies which use unobservable inputs. As the variability of the valuation is
not greater that € 1 million in any individual case or collectively, the detail is not disclosed here.
368
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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
2014
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
25
–
25
2
2
(46)
–
(46)
(7)
(7)
–
57
57
–
–
–
(53)
(53)
–
–
2013
Classes of financial assets
Derivative financial instruments
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
14
–
14
5
5
(22)
(46)
(68)
(2)
(2)
–
106
106
–
–
–
–
–
–
–
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.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
369
n
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Notes to the parent company financial statements
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
2014
€ m
1,396
846
2,242
2013
€ m
1,215
851
2,066
2012
€ m
1,076
1,358
2,434
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 50 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
2014
€ m
16
33
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
2014
€ m
49
45
31
17
16
130
288
2013
€ m
25
26
2013
€ m
62
58
52
34
16
140
362
Operating lease payments recognised as an expense for the year were € 46 million (2013: € 62 million). Sublease income amounted to
Nil (2013: Nil). Included in the lease payments to other Group subsidiaries is € 35 million (2013: € 37 million). Future minimum lease
payments due to subsidiaries of Allied Irish Banks, p.l.c. amount to € 77 million excluding VAT (2013: € 137 million excluding VAT) and are
included in the total of € 288 million in 2014 (2013: € 362 million).
370
Allied Irish Banks, p.l.c. Annual Financial Report 2014
af Credit risk information
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 2014
and 31 December 2013:
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(9)
Financial guarantees
Loan commitments and other credit
related commitments
Total
Amortised
cost(10)
€ m
Fair
value(11)
€ m
928
66
–
–
–
23,111
29,658
9,423
–
–
–
–
2,062
–
–
–
2014
Total
€ m
928
66
–
–
2,062
23,111
29,658
9,423
Amortised
cost(10)
€ m
Fair
value(11)
€ m
659
79
28(3)
–
–
23,856
31,603
15,598
–
–
–
1
1,653
–
–
–
–
20,620
20,620
–
20,049
2013
Total
€ m
659
79
28
1
1,653
23,856
31,603
15,598
20,049
46
366
–
–
46
366
23
450
–
–
23
450
63,598
22,682
86,280
72,296
21,703
93,999
767
7,244
8,011
–
–
–
767
924
7,244
8,011
7,154
8,078
–
–
–
924
7,154
8,078
71,609
22,682
94,291
80,374
21,703
102,077
(1)Included within cash and balances at central banks of € 1,396 million (2013: € 1,215 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 (2013: € 1 million).
(5)Exposures to subsidiary undertakings of € 202 million (2013: € 163 million) have been included.
(6)Exposures to subsidiary undertakings of € 22,161 million (2013: € 22,848 million) have been included.
(7)Exposures to subsidiary undertakings of € 9,778 million (2013: € 10,175 million) have been included.
(8)Excluding equity shares of € 360 million (2013: € 80 million).
(9)Exposures to subsidiary undertakings of € 8 million (2013: € 8 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’.
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Allied Irish Banks, p.l.c. Annual Financial Report 2014
371
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Notes to the parent company financial statements
af Credit risk information (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 66.
Set out below is the fair value of collateral accepted by Allied Irish Banks p.l.c. at 31 December 2014 and 31 December 2013 in relation
to financial assets detailed in the maximum exposure to credit risk table on page 371:
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 2014, Allied Irish Banks p.l.c. had received collateral with a fair value of Nil on loans with a carrying value of Nil
(2013: € 16 million and € 16 million respectively).
Loans and receivables to customers
The following table shows the fair value of collateral held for residential mortgages at 31 December 2014 and 31 December 2013:
Neither past
due nor
impaired
€ m
Past due
but not
impaired
€ m
Impaired
2014
Total
€ m
€ m
Neither past
due nor
impaired
€ m
Past due
but not
impaired
€ m
Impaired
2013
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
167
165
92
121
138
683
540
1,223
1,357
7
5
3
3
11
29
16
45
47
11
18
21
29
88
167
172
339
397
185
188
116
153
237
879
728
1,607
1,801
(173)
(173)
(25)
224
1,603
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
(194)
(194)
(28)
253
1,730
(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 2014 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 page 68..
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 2014 have
a carrying value of € 9,423 million (2013: € 15,598 million).
Financial investments available for sale
At 31 December 2014, government guaranteed senior bank debt amounting to € 120 million (2013: € 381 million) was held within the
available for sale portfolio.
372
Allied Irish Banks, p.l.c. Annual Financial Report 2014
af Credit risk information (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 2014 and 31 December 2013
2014
Included on statement of
financial position as
Republic
of Ireland
United
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
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal
Residential mortgages
Other
Unearned income
Deferred costs
Provisions
Total
€ m
1,700
203
740
10,943
4,708
538
514
2,343
1,801
3,423
26,913
(84)
3
(7,453)
19,379
€ m
–
17
19
224
116
36
91
66
–
–
569
(3)
–
(111)
455
€ m
–
1
–
–
–
–
3
43
–
–
47
(1)
–
–
46
€ 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
–
5
–
–
–
–
4
99
–
–
108
(1)
–
(10)
97
Republic
of Ireland
United
Kingdom
Rest of the
World
Total
Loans and
receivables
to
customers
€ m
1,700
221
759
11,167
4,824
574
608
2,452
1,801
3,423
€ m
1,700
221
759
11,167
4,824
574
608
2,452
1,801
3,423
27,529
27,529
(88)
3
(7,564)
19,880
(88)
3
(7,564)
19,880(1)
Disposal
groups and
non-current
assets held
for sale
€ m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2013
Included on statement of
financial position as
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
373
i
w
e
v
e
r
s
s
e
n
s
u
B
i
t
n
e
m
e
g
a
n
a
m
k
s
R
i
i
t
h
g
s
r
e
v
o
d
n
a
e
c
n
a
n
r
e
v
o
G
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
n
f
i
l
a
r
e
n
e
G
(1) Excludes intercompany balances of € 9,778 million (2013: € 10,175 million).
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Notes to the parent company financial statements
af Credit risk information (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 2014 and 31 December 2013 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
569
537
127
124
1,357
–
3
6
38
47
397
1,801
181
1,733
148
195
2,257
1
51
29
112
193
973
3,423
79
2,141
460
1,184
3,864
–
43
37
287
367
6,936
11,167
46
3,205
630
778
4,659
8
104
66
268
446
2,805
7,910
Residential
mortgages
€ m
Other
personal
€ m
Property and
construction
€ 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
Corporate
€ m
640
2,096
77
17
2014
Total
€ m
1,515
9,712
1,442
2,298
2,830
14,967
2
16
–
2
20
378
3,228
Corporate
€ m
579
1,954
87
197
11
217
138
707
1,073
11,489
27,529
(88)
3
(7,564)
19,880
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
Details of the rating profiles and lending classifications are set out on page 123.
374
Allied Irish Banks, p.l.c. Annual Financial Report 2014
af Credit risk information (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
2014 and 31 December 2013.
2014
Included on statement of
financial position as
Republic
of Ireland
United
Kingdom
Rest of the
World
Total
Loans and
receivables
to
customers
€ m
€ m
€ m
291
80
176
6,795
1,816
66
168
562
397
973
–
–
–
141
–
24
–
–
–
–
11,324
165
Disposal
groups and
non-current
assets held
for sale
€ m
–
–
–
–
–
–
–
–
–
–
–
€ m
291
80
176
6,936
1,816
90
168
562
397
973
€ m
291
80
176
6,936
1,816
90
168
562
397
973
11,489
11,489
–
–
–
–
–
–
–
–
–
–
–
2013
Included on statement of
financial position as
Loans and
receivables
to
customers
€ m
327
66
263
10,832
2,617
154
211
761
447
1,345
€ m
327
66
263
10,832
2,617
154
211
761
447
1,345
17,023
17,023
Disposal
groups and
non-current
assets held
for sale
€ m
–
–
–
–
–
–
–
–
–
–
–
Republic
of Ireland
United
Kingdom
Rest of the
World
Total
€ m
327
62
261
10,577
2,611
154
211
722
447
1,345
16,717
€ m
€ m
–
–
2
255
6
–
–
27
–
–
290
–
4
–
–
–
–
–
12
–
–
16
i
w
e
v
e
r
s
s
e
n
s
u
B
i
t
n
e
m
e
g
a
n
a
m
k
s
R
i
i
t
h
g
s
r
e
v
o
d
n
a
e
c
n
a
n
r
e
v
o
G
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
F
i
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal:
Residential mortgages
Other
Total
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal:
Residential mortgages
Other
Total
Allied Irish Banks, p.l.c. Annual Financial Report 2014
375
n
o
i
t
a
m
r
o
n
f
i
l
a
r
e
n
e
G
Notes to the parent company financial statements
af Credit risk information (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 2014 and 31 December 2013:
1 – 30
days
€ m
31 – 60
days
€ m
61 – 90
days
€ m
91 – 180
days
€ m
181 – 365
days
€ m
> 365
days
€ m
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)
48
–
19
84
55
5
2
58
11
29
44
8
–
4
22
16
1
–
24
6
7
14
355
1.3%
102
0.4%
3
–
–
19
7
–
–
3
8
4
12
56
9
–
1
43
27
–
–
10
7
3
17
117
0.2%
0.4%
15
–
1
52
31
–
–
11
9
1
14
40
3
8
147
30
3
–
24
6
–
48
134
0.5%
309
1.1%
1,073
3.9%
1 – 30
days
€ m
31 – 60
days
€ m
61 – 90
days
€ m
91 – 180
days
€ m
181 – 365
days
€ m
> 365
days
€ m
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal:
Residential mortgages
Credit cards
Other
Total
61
1
18
133
58
6
1
69
19
32
109
507
13
1
4
37
11
1
1
10
7
9
21
115
17
–
1
21
12
–
–
11
6
6
17
91
15
1
5
45
19
2
1
13
7
4
30
9
–
4
108
36
1
–
12
7
1
26
34
1
20
138
32
3
1
20
4
–
46
142
204
299
1,358
As a percentage of total loans(1)
1.55%
0.35%
0.28%
0.43%
0.62%
0.91%
4.14%
(1)Total loans (excluding intercompany) are gross of impairment provisions and unearned income.
376
Allied Irish Banks, p.l.c. Annual Financial Report 2014
2014
Total
€ m
123
3
33
367
166
9
2
130
47
44
149
2013
Total
€ m
149
4
52
482
168
13
4
135
50
52
249
af Credit risk information (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 2014 and 31 December 2013.
2014
Included on statement of
financial position as
Republic
of Ireland
United
Kingdom
Rest of the
World
Total
Loans and
receivables
to
customers
€ m
176
37
108
4,243
1,058
39
90
368
173
663
6,955
498
7,453
€ m
€ m
–
–
–
88
–
23
–
–
–
–
111
–
111
–
–
–
–
–
–
–
–
–
–
–
–
–
€ m
176
37
108
4,331
1,058
62
90
368
173
663
7,066
498
7,564
€ m
176
37
108
4,331
1,058
62
90
368
173
663
7,066
498
7,564
Disposal
groups and
non-current
assets held
for sale
€ m
–
–
–
–
–
–
–
–
–
–
–
–
–
Republic
of Ireland
United
Kingdom
Rest of the
World
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
–
–
–
–
–
–
–
9
–
–
9
1
10
€ m
241
35
189
6,751
1,620
108
123
532
194
1,038
10,831
433
11,264
2013
Included on statement of
financial position as
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
–
–
–
–
–
–
–
–
–
–
–
–
–
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal:
Residential mortgages
Other
Specific
IBNR
Total
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal:
Residential mortgages
Other
Specific
IBNR
Total
i
w
e
v
e
r
s
s
e
n
s
u
B
i
t
n
e
m
e
g
a
n
a
m
k
s
R
i
i
t
h
g
s
r
e
v
o
d
n
a
e
c
n
a
n
r
e
v
o
G
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
F
i
Allied Irish Banks, p.l.c. Annual Financial Report 2014
377
n
o
i
t
a
m
r
o
n
f
i
l
a
r
e
n
e
G
Notes to the parent company financial statements
af Credit risk information (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 2014
and 31 December 2013 is as follows:
AAA/AA
A/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
3,632
1,059
7
149
–
4,847
–
–
–
–
3
3
4,114
18,382(2)
2,462
–
–
99
–
–
1
–
24,958(3)
100
29,908
2014
Total
€ m
7,845
19,441
2,469
150
3
Bank(1)
€ m
Corporate
€ m
Sovereign
€ m
2,861
1,091
710
–
63
4,725
–
–
14
–
1
15
5,417
–
25,957(2)
6
–
31,380(3)
Other
€ m
304
133
85
14
–
536
2013
Total
€ m
8,582
1,224
26,766
20
64
36,656
(1)Excludes balances with subsidiaries of € 23,246 million (2013: € 22,848 million).
(2)Includes NAMA senior bonds which do not have an external credit rating and to which the Group has attributed a rating of A- (2013: BBB+) i.e. the
external rating of the Sovereign.
(3)Includes supranational banks and government agencies.
378
Allied Irish Banks, p.l.c. Annual Financial Report 2014
ag Liquidity risk information
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
2014
Total
Over
5 years
€ m
€ m
Financial assets
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
–
23,100
23,273
–
3
–
50
11
552
9,423
226
412
75
–
837
–
1,100
–
2,585
5,462
5,435
–
278
–
–
–
12,150
7,963
–
–
2,062
23,111
37,307
9,423
20,620
412
Financial liabilities
Deposits by central banks and banks
Customer accounts
Derivative financial instruments(2)
Debt securities in issue
Subordinated liabilities and other
capital instruments
Other financial liabilities
46,376
10,674
2,938
18,449
14,498
92,935
6,931
27,331
–
–
–
244
34,506
14,155
13,885
153
1,599
–
–
–
6,927
159
24
–
–
2,051
2,025
1,121
999
1,411
–
–
1
1,253
–
40
–
23,137
50,169
2,686
2,622
1,451
244
29,792
7,110
7,607
1,294
80,309
Repayable
on demand
€ m
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
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
–
–
–
23,841
29,126
–
3
–
–
–
63
20
531
15,598
246
473
–
–
155
2
2,590
–
937
–
–
–
945
–
28
1
490
–
4,818
5,876
–
–
11,357
7,506
–
–
28
1
1,653
23,863
42,941
15,598
20,049
473
Financial liabilities
Deposits by central banks and banks
Customer accounts
Derivative financial instruments(2)
Debt securities in issue
Subordinated liabilities and other
capital instruments
Other financial liabilities
52,970
16,931
3,684
17,120
13,901
104,606
7,683
25,593
–
–
–
279
33,555
10,486
18,870
139
75
–
–
143
6,157
148
753
–
–
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
29,570
7,201
18,080
1,124
89,530
(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 2 March 2015. Upon maturity, the issuer has the option to settle in cash or
issue new notes and to date has issued new notes.
The balances shown above include exposures to/by subsidiary undertakings.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
379
i
w
e
v
e
r
s
s
e
n
s
u
B
i
t
n
e
m
e
g
a
n
a
m
k
s
R
i
i
t
h
g
s
r
e
v
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Notes to the parent company financial statements
ag Liquidity risk information (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
Commitments
Contingent liabilities(1)
Commitments
Payable on
demand
€ m
767
7,244
8,011(1)
Payable on
demand
€ m
924
7,154
8,078(1)
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
–
–
–
–
–
–
–
–
–
–
–
–
2014
Total
€ m
767
7,244
8,011
2013
Total
€ m
924
7,154
8,078
(1)Includes € 265 million (2013: Nil) relating to Group subsidiaries.
ah Market risk information
Market risk profile
The following table sets out the VaR for Allied Irish Banks, p.l.c. at 31 December 2014 and 31 December 2013:
Interest rate risk
1 day holding period:
Average
High
Low
31 December
VaR (trading book)
2013
€ m
2014
€ m
VaR (banking book)
2013
€ m
2014
€ m
Total VaR
2014
€ m
2013
€ m
0.1
0.5
–
0.1
0.1
0.6
–
0.2
3.5
5.6
1.2
1.5
1.4
3.8
1.0
2.9
3.5
5.6
1.2
1.5
1.4
3.8
0.9
2.7
The following table sets out the VaR for foreign exchange rate and equity risk for the years ended 31 December 2014 and 31 December
2013:
1 day holding period:
Average
High
Low
31 December
Foreign exchange
rate risk
VaR (trading book)
2013
€ m
2014
€ m
–
0.1
–
–
–
0.3
–
–
Equity risk
VaR (trading book)
2014
€ m
0.1
0.1
–
–
2013
€ m
0.4
0.7
–
–
380
Allied Irish Banks, p.l.c. Annual Financial Report 2014
General information
Shareholder information
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.
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.
AIB had previously listed its ordinary shares, in the form of American Depository Shares (“ADS”), evidenced by an American
Depository Receipt (“ADR”) on the New York Stock Exchange (“NYSE”). Following the decision in 2011 to delist, ADSs were no
longer traded on the NYSE. The ADR Depository, The Bank of New York Mellon, advised that the sale of ordinary shares underlying
the ADSs, commenced in 2012, had been completed in 2014 and they had initiated the process of remitting the cash from the
proceeds to the ADS holders. AIB filed a Form 15F with the United States Securities and Exchange Commission (“SEC”) on
9 December 2014 to terminate the registration of AIB’s Securities and to cease its reporting requirements.
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
Shareholding analysis
The National Pensions Reserve Fund Commission(1) hold 522,558,712,910 ordinary shares of € 0.0025 each in the share capital of
Allied Irish Banks, p.l.c..
Financial calendar
Annual General Meeting: 28 April 2015, at the Company’s Head office at Bankcentre, Ballsbridge, Dublin 4.
Interim results
The unaudited Half-Yearly Financial Report 2015 will be announced towards the end of July/early August 2015 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
(1)National Treasury Management Agency as controller and manager of the Ireland Strategic Investment Fund (NTMA / ISIF with effect 22 December 2014).
Allied Irish Banks, p.l.c. Annual Financial Report 2014
381
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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
Basis risk
Buy-to-let
CBOs/CDOs
CET 1 ratio
Collectively
assessed
impairment
Commercial
paper
Commercial
property
Concentration
risk
Contractual
maturity
Core tier 1
capital
CRD
Credit default
swaps
Credit
derivatives
382
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.
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.
A residential mortgage loan approved for the purpose of purchasing a residential investment property to rent out.
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).
Common equity tier 1 – A measurement of a bank’s core equity capital compared with its total risk-weighted assets.
Impairment assessment on a collective basis for portfolios of impaired loans that are not considered individually significant for
specific 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 paper is similar to a deposit and is a relatively low-risk, short-term, unsecured promissory note traded on money
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 property lending focuses primarily on the following property segments:
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 risk is the risk of loss from lack of diversification, investing too heavily in one industry, one geographic area or one
type of security.
The period when a scheduled payment is due and payable in accordance with the terms of a financial instrument.
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.
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.
An agreement between two parties whereby one party pays the other a fixed coupon over a specified term. The other party makes
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.
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Credit risk
Credit risk
mitigation
Credit risk
spread
The risk that one party to a financial instrument will cause a financial loss to the other party by failing to discharge an obligation.
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
Debt
restructuring
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.
This is the process whereby customers in arrears, facing cash flow or financial distress, renegotiate the terms of their loan
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
Default
Economic
capital
certificates.
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.
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, Lithuania became a member of the Eurozone on 1 January 2015.
Exposure at
default
First/second
lien
Forbearance
Funded/
unfunded
exposures
Guarantee
Home loan
ICAAP
Exposure at default (“EAD”) is the expected or actual amount of exposure to the borrower at the time of default.
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.
Second lien holders are subordinate to the rights of first lien holders to a property security.
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.
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.
An undertaking by the Group/other party to pay a creditor should a debtor fail to do so.
A loan secured by a mortgage on the primary residence or second home of a borrower.
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2014
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Glossary of terms
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
LCR
Leveraged
lending
Leverage
ratio
Standardised contracts, developed by the International Swaps and Derivatives Association (“ISDA”), used as an umbrella under
which bilateral derivatives contracts are entered into.
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 1 January 2015 and 100% on 1 January 2018.
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.
This is the ratio of loans and receivables compared to customer accounts as presented in the statement of financial position.
Loan to deposit
ratio
Loan workout
Loan workout is the process whereby once a loan is deemed to be criticised (i.e. ‘Watch’, ‘Vulnerable’ or ‘Impaired’), the Group
monitors and reviews it 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 decreases or
increases in the loan carrying amount if repayments are not made and interest is capitalised onto the outstanding loan balance.
Medium term
Medium term notes (“MTNs”) are notes issued by the Group across a range of maturities under the European Medium Term Note
notes
NAMA
Net interest
income
Net interest
margin
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.
The amount of interest received or receivable on assets net of interest paid or payable on liabilities.
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.
NSFR
Net Stable Funding Ratio: The ratio of available stable funding to required stable funding over a 1 year time horizon.
384
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Optionality
risk
A type of market risk associated with option features that are embedded within assets and liabilities on the Group's balance sheet.
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
PCA
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.
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
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
repaying the proceeds of the loan. For the counterparty to the transaction, it is termed a reverse repurchase agreement or a reverse
repo.
RWAs
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.
SLO
SSM
On 14 April 2011, following an application by the Irish Minister for Finance 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, 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 cetain subordinated liabilities and other capital instruments.
The Single Supervisory Mechanism ("SSM") is a system of financial supervision comprising the European Central Bank ("ECB") and
the national competent authorities of participating EU countries whichin Ireland is the Central Bank of Ireland ("CBI"). The main aims
of the SSM are to ensure the safety and soundness of the European banking system and to increase financial integration and
stability in Europe.
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Glossary of terms
SME
SPE/SPV
Small and medium enterprises
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).
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.
386
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Principal addresses
Ireland & Britain
Group Headquarters
Bankcentre, PO Box 452,
Ballsbridge, Dublin 4.
Telephone: + 353 1 660 0311
Website: group.aib.ie
AIB Bank – Corporate &
Institutional Banking,
Bankcentre, Ballsbridge,
Dublin 4.
Telephone: + 353 1 660 0311
Facsimile: + 353 1 660 6575
AIB – Retail & Business 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)
St Helen’s, 1 Undershaft,
London EC3A 8AB.
Telephone: + 44 20 7647 3300
Facsimile: + 44 20 7629 2376
AIB Finance and Leasing
Bankcentre, Ballsbridge,
Dublin 4.
Telephone: + 353 1 660 0311
Facsimile: + 353 1 641 6529
AIB Customer Treasury Services
Bankcentre, Ballsbridge,
Dublin 4.
Telephone: + 353 1 660 0311
Facsimile: + 353 1 660 6575
AIB Commercial Finance Limited
Bankcentre, Ballsbridge,
USA
AIB Corporate Banking
North America
1345 Avenue of the Americas,
10th Floor,
New York, New York 10105.
Telephone: + 1 212 339 8000
AIB Customer Treasury Services
1345 Avenue of the Americas,
10th Floor,
New York, New York 10105.
Telephone: + 1 212 339 8000
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
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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).
Allied Irish Banks, p.l.c. Annual Financial Report 2014
387
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E
Earnings per share
Employees
Exchange rates
M
Market risk
252
321
322
F
Fair value of financial instruments
N
NAMA senior bonds
NAMA subordinated bond
294
Net fee and commission income
Finance leases and hire purchase
Net trading income
contracts
Financial and other information
Financial assets and financial
liabilities by contractual
residual maturity
Financial calendar
Financial investments
261
322
147
381
available for sale
127 and 263
Financial liabilities by undiscounted
contractual maturity
Financial statements
Forbearance
Foreign exchange risk
Forward looking information
G
Glossary
Going concern
Governance and oversight
Group Internal Audit
I
Income statement
Independent auditor’s report
Intangible assets
Interest income
Interest expense
Interest rate risk (non-trading)
Interest rate sensitivity
Investments in Group undertakings
Irish Government
L
Liquidity risk
Loans and receivables to banks
Loans and receivables to customers
148
188
130
156
2
382
195
157
172
223
190
268
237
237
150
305
344
314
139
260
260
Nomination and Corporate
Governance Committee
Non-adjusting events after the
reporting period
Notes to the financial statements
O
Off balance sheet arrangements
Offsetting financial assets and
financial liabilities
Operating and financial review
Operational risk
Other liabilities
Other operating income
Own shares
P
Parent company risk information
Pension risk
Principal addresses
Profit on disposal of property
Profit/(loss) on disposal/transfer
of loans and receivables
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
150
262
263
237
238
174
325
230
290
281
28
154
274
239
279
371
156
387
247
238
269
215
247
261
275
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
B
Board Committees
Board and Executive Officers
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
Capital contributions
Corporate Governance Statement
Corporate Social Responsibility
Credit ratings
Credit risk
Critical accounting judgements and
estimates
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
Dividend income
Dividends
193
239
381
326
325
266
171
248
323
171
158
47
45
280
280
4
6
320
169
285
280
167
24
123
60
218
322
274
274
270
273
255
158
183
180
251
253
247
253
237
325
388
Allied Irish Banks, p.l.c. Annual Financial Report 2014
Index (continued)
R
Regulatory compliance
Regulatory compliance risk
Related party transactions
Remuneration report
Report of the Directors
Retirement benefits
Risk appetite
Risk framework
Risk governance structure
Risk identification and
assessment process
Risk management
Risk management and internal
controls
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
Stock exchange listings
Subordinated liabilities and
other capital instruments
Subsidiaries and consolidated
structured entities
Supervision and regulation
T
Taxation
Trading portfolio financial assets
Transferred financial assets
W
Website
321
155
309
179
161
241
57
57
58
59
50
177
163
231
240
277
226
224
228
189
225
381
276
288
185
249
254
290
381
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AIB Group, Bankcentre, PO Box 452, Dublin 4, Ireland
T: + 353 (1) 660 0311 group.aib.ie
© AIB GROUP 2015
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