Annual Financial Report 2015
For the financial year ended 31 December 2015
Allied Irish Banks, p.l.c.
Annual Financial Report 2015
Contents
2015 Financial Summary
Chairman’s statement
Chief Executive Officer’s review
Governance at a glance
Sustainable Banking
Business review
Operating and financial review
Capital reorganisation
Capital management
Risk management
Principal risks and uncertainties
Framework
Individual risk types
Governance and oversight
The Board
The Leadership Team
Group Directors’ Report
Schedule to Group Directors’ report
Corporate Governance report
Report of the Board Audit Committee
Report of the Board Risk Committee
Report of the Nomination and Corporate Governance Committee
Report of the Remuneration Committee
Directors’ Remuneration report
Viability statement
Internal Controls
Other governance information
Supervision and Regulation
Financial statements
Statement of Directors’ responsibilities
Independent Auditors’ Report
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
60
166
196
196
Page
3
4
6
12
14
22
43
44
50
63
170
172
174
177
182
185
187
190
192
198
199
202
203
207
213
345
350
403
404
410
411
1
Forward Looking Statements
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 50 to 59 in the 2015 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 50 to 59 of the
2015 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
Annual Financial Report 2015
2015 Financial Highlights
Operating performance
Profit before tax
Net interest margin (“NIM”)(1)
Total income(3)
€1,914m €803m
Increased profitability from higher income,
lower costs and higher net credit provision.
Outturn for the year includes a net charge
of €296 million from exceptional items and
income of €163 million from other items.
1.97% 28bps
Continuing positive momentum in NIM
mainly due to lower funding costs and
reduction in low yielding assets. There
was an exit NIM(2) for 2015 of 2.02%.
Pre-provision operating profit(3)(4)
Operating expenses(3)
€1,296m 8%
€2,623m €93m
Increases in net interest income of €240
million (lower funding costs and ELG
charge). Other income €147 million lower
(reductions on gains on NAMA senior bonds
and reduced profits on disposals of AFS
securities partly offset by higher net trading
and fee & commission income).
Credit provision writeback
€925m €740m
Cost reductions in line with expectation. €107
million reduction with all major expense lines
reducing, reflecting further improvement on
prior year reductions. Cost income ratio(3) for
2015 was 49% compared to 55% for 2014.
Net writeback of €925 million compared
to a net writeback of €185 million, an
increase of €740 million, reflecting improved
economic conditions and progress on debt
restructuring.
€1,327m €200m
Positive contribution from business
segments with €1,133 million from AIB
Ireland, €185 million from AIB UK and €9
million from Group & International.
Balance Sheet / Capital
CET 1 transitional capital ratio(5)
New lending drawdowns(4)
Customer deposits
15.9% 0.5%
CET 1 fully loaded capital ratio(5)
13.0% 7.1%
Strong capital position with the positive
effect of profits generated and capital
reorganisation(6) in the year.
Impaired loans
€13.1bn €9.1bn
41% reduction reflecting the implementation
of sustainable restructure solutions
for customers and improved economic
conditions. Impaired loans are 19% of total
gross loans compared to 29% in 2014.
€8.7bn 49%
Strong growth in new lending drawdowns
with increases across all segments. New
lending from AIB Ireland of €5.0 billion up
41%, AIB UK of €2.6 billion up 60% and
Group and International of €1.1 billion up
59% compared to 2014.
€63.4bn €0.6bn
Customer deposits remain stable at €63.4
billion with the average cost down from
130 bps to 97 bps.
Provision coverage ratio(7)
Liquidity coverage ratio (“LCR”)
47% 4%
Continued progress on restructuring
impaired loans. Coverage rate remains
at robust levels.
113% 3%
The LCR reflects the overall quality of the
funding profile with high quality liquid assets
and a strong retail deposit base that meets
regulatory requirements.
(1)Net interest margin excluding eligible liabilities guarantee (“ELG”) charge.
(2)Exit NIM is the average net interest margin excluding ELG for Q4 2015.
(3)Before bank levies and exceptional items. Exceptional items are detailed on page 23.
(4)Segment descriptions are detailed on page 37.
(5)Common equity tier 1 (“CET 1”).
(6)For detail on capital reorganisation see page 43.
(7)Specific provisions as a percentage of impaired loans.
(8)38bps excluding impact of provision writebacks.
Financial Targets Delivered
Franchise growth
New lending approvals
Net interest margin(1)
Cost / income ratio
Credit impairment charge
Loan / deposit ratio
CET 1 fully loaded capital ratio(5)
Medium Term Targets
December 2015
No.1 Irish Bank
No. 1 market shares
€7bn - €10bn p.a.
€14.4bn
>2%
<50%
<65bps
100% - 120%
>10%
1.97% - exit NIM(2) 2.02%
49%(3)
(126bps) / 38bps(8)
100%
13.0%
3
Chairman’s statement
“These very solid results reflect the scale of AIB’s
financial transformation to sustainable profitability over
the past number of years. Our strengthened capital
position and ongoing improving risk profile reinforces our
progress and paves the way for the State to potentially
sell part of its shareholding in AIB. The bank is working
very hard to demonstrate to our personal and business
customers that they can rely on us to operate to the
highest level of professionalism, integrity and service.
We remain focused on supporting them and Ireland’s
economy.”
Chairman’s
Statement
Richard Pym
Chairman
4
In the context of AIB’s recovery, 2015 proved to be a
milestone year and a decisive turning point in the bank’s
recent history.
Having strengthened and simplified the capital structure,
the bank returned €1.7 billion of capital to the State in
December 2015 following the partial redemption of the
2009 Preference Shares. It was a hugely symbolic step
and paves the way for the State to potentially sell part
of its shareholding in AIB.
AIB’s re-establishment as a stable, customer-focused
institution, supporting Ireland’s economic revival was
achieved through huge State support. Returning in full
the State’s investment of €20.8 billion over time is a
key ambition of the bank. In July 2016, the scheduled
maturity of the Contingent Capital Notes will result in
a further payment of €1.8 billion to the State.
I am particularly conscious that rebuilding customer
trust is one of the most difficult challenges still facing
the banking sector. Regaining customers’ confidence can
only be achieved if they experience a bank that operates
to the highest level of professionalism, integrity and
service. Only then will people be persuaded that AIB
really is an institution they can trust and we are
Annual Financial Report 2015
working very hard indeed to demonstrate to our
2.6 million customers that they can rely on us to
take care of their interests and respect their needs.
We are also looking to add two additional directors
in 2016 and to raise the female representation on the
Board during the year.
Meanwhile, assisting customers in financial difficulty
remained a priority in 2015 and tangible results were
achieved. AIB’s impaired loan book has dropped to €13
billion, down from approximately €30 billion in early
2013.
Given the interdependent relationship between the
national economy and AIB, Ireland’s improved macro-
economic environment has impacted very positively
on the bank’s performance. Growing GDP, falling
unemployment and increased consumer spending all led
to Ireland being the fastest-growing economy in Europe
and, as a bank, we benefited from that momentum
through 2015. In return, we will continue to play a
central role in that national growth narrative.
Thanks
The support that we have received from our customers
and stakeholders through very challenging times cannot
be overstated and continues to be deeply appreciated by
AIB. Without our customers and the Irish tax payer, we
would not be here today and that is why we are working
so diligently to ensure the State’s investment is repaid
in full.
Since I joined this organisation in 2014, I have been
deeply impressed by the commitment shown by
my colleagues in bringing the bank back to good
financial health.
In 2015, the bank achieved a profit before tax of €1.9
billion, a remarkable transformation from previous years.
To the staff of the bank who have worked so hard
through this unprecedented period of challenge and
change, I say a big “thank you”.
I also want to acknowledge, and express thanks for their
assistance, to the officials at the Department of Finance,
the Central Bank of Ireland and the European Central
Bank during what was a particularly busy year. We look
forward to continuing that work together to restore AIB
to its full and positive potential.
Richard Pym
Chairman
2 March 2016
Leadership
Bernard Byrne took over as CEO of AIB in May 2015,
following the resignation of David Duffy. I thank David
for his leadership and commitment to the bank during
his three year tenure.
Bernard has been a very effective and energetic Chief
Executive and has already made a marked impact on the
bank. I look forward to his continued contribution over
the coming years.
Board Changes
We are pleased to welcome Helen Normoyle to the
Board – she joined at the end of the year and brings with
her a depth of experience in marketing and consumer
issues. She will be leading the Board’s sustainability
agenda.
A short biography and background of all our Directors is
set out on pages 166 to 169.
5
Chief Executive’s Review
“There can be no doubt that the Group’s financial
performance has confirmed our transition from a
work-in-progress to a fully functioning sustainable
well-capitalised bank. This bank is now well-positioned
to enable the State to recover its full investment
of €20.8bn.
Our strong profitability, significant increased lending,
material reductions in impaired loans, normalised
capital structure and significant payments to the
State made 2015 a milestone year for AIB.”
Chief Executive’s
Review
Bernard Byrne
Chief Executive Officer
6
Introduction
As CEO reporting on my first full year’s results for
AIB, I am pleased to be able to present a very strong
set of results and to highlight a number of significant
achievements for AIB during 2015. There can be no
doubt that the Group’s financial performance confirms
our transition from a work in progress to a fully
functioning, customer-focused, sustainable and well
capitalised bank.
Our financial performance
In the year, our total operating income is up 4%, our
costs are down 8% and our profit before tax, at €1.9
billion, is up 72%. This €1.9 billion comprises c. €1 billion
of underlying profitability and c. €900 million of net
additional credits, arising, in the main, from provision
writebacks as we continue to resolve the significant
legacy impaired loan portfolios. This strong profitability
combined with the strengthening and simplification of
our capital has positioned us well, with a robust fully
loaded CET 1 ratio of 13.0% (transitional 15.9%). We
now have a sound capital base, comfortably above
minimum regulatory requirements, from which to grow
our business, leaving us well-positioned for the future.
Annual Financial Report 2015
In summary, we have a business that is well capitalised,
growing its profitability within agreed risk appetite
parameters, managing its costs efficiently, investing in
its future and successfully addressing significant legacy
issues. All of this is being achieved by putting the
customer at the heart of what we do whilst managing
financial and regulatory requirements. We have a lot
more to do but we are on the right path to deliver a
bank that everyone can believe in.
Our customers
Putting our customers first is at the heart of our
business. Over the long term, the most successful
companies are those that have earned the trust, respect
and loyalty of their customers. In AIB, we have, over
the past number of years gone about rebuilding our
business and organising ourselves with this long term
truth at the heart of our plans. To do this, we are and
must continue to focus on understanding our customers’
needs, ensuring we deliver what they need, when and
how they need it. In essence we must be useful to our
customers, and if we are, we will be at the heart of their
financial lives.
We know we have a long way to travel and on occasion,
we may disappoint our customers with our delivery.
We are cognisant that legacy issues still have the
potential to affect our reputation and we remain active
in competently managing any issues that arise. I would
like to thank our customers for their business and
loyalty to AIB over the past number of years.
In 2015, we saw significant growth in new lending. There
are a number of internal initiatives and external variables
which have contributed to this, including the ongoing
recovery of the Irish economy. We approved €14.4
billion in new lending during 2015 across ROI and the
UK, with actual customer drawdowns, at €8.7 billion,
49% higher than 2014 levels and encouragingly, increasing
across all business segments. In Ireland, mortgages were
up 32%, personal lending was up 40%, business lending
was up 28%, corporate lending was up 63% and in our
UK business, drawdowns were up 60%.
Adopting a fair and equitable approach to customers
in difficulty is fundamental to maintaining sustainable
working relationships. Our impaired loan balances of
€13.1 billion have been reduced by €9.1 billion since
2014 and by €15.8 billion since 2013. The impaired
loan balances are €6.9 billion net of specific provision
cover of 47%. We maintain significant momentum in the
resolution of these difficult cases and are working hard
to achieve satisfactory outcomes for our customers
and the bank at an impressive run rate. We expect to
maintain this momentum for the year ahead by which
time the quantum of impaired loans will reduce to more
normalised levels.
Our total costs for the year, at €1.296 billion, represent
a €107 million reduction on 2014 levels and €450 million
reduction on 2012. We are focused on simplifying our
business by concentrating our efforts on true customer
needs and eliminating complexity and related cost. We
continue to invest heavily in new technology and we
are in the middle of a 3 year, €870 million investment
programme which is delivering resilience, agility and
a simple and efficient operating model focused on
improving customer experience.
Our net interest margin at 1.97% and cost income ratio
at 49% are 28bps and 6 percentage points, respectively,
favourable on 2014.
7
Chief Executive’s Review
The good news is that we are making real progress and
we are delivering better and more convenient services
to our customers all the time. Our Transactional Net
Promoter Score(1) (NPS) increased by 20 points, to 36,
since quarter 4 2014. Within this overall NPS score,
we continually track specific customer engagement
journeys. Examples where we have made good progress
are Complaint Resolution, Card Replacement, Mobile
Banking and Personal New Current Account. The results
from these engagement journeys are really encouraging
because we can see a definitive correlation between
them and specific initiatives we have delivered during the
year. Our NPS scores also tell us where we need to do
better and this is something we are continually focused
on.
Transactional NPS
36
33
30
26
16
13
10
11
7
1
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2013
2014
2015
Personal customers
It’s not just about better service or better understanding
of customer needs, it’s also about being fair. As we have
reduced our funding and operating costs we have sought
to pass these benefits on to all customers, both new and
existing. We believe that our existing customers should
know they, along with new customers, will get the best
value. We also think they should not have to work hard
to get it. To that end we reduced our Standard Variable
Rates (SVRs) for all mortgage customers across AIB,
EBS and Haven by up to 75bps over the past 15 months.
This benefited c. 155,000 customers. No other bank
in Ireland has come close to matching this. No other
bank in Ireland has sought to share these benefits,
automatically, with its customers. With our EBS
brand we launched our ‘anytime anywhere’ mortgage
proposition, meaning that our customers can meet a
mortgage advisor at a time and place that suits them
seven days a week.
To reward our customers’ loyalty, we have also
introduced fee-free banking for our AIB Mortgage
customers, again both new and existing. This is our way
of acknowledging their commitment to the bank. Our
mortgage approvals now last for 12 months reflecting
the time needed to find a new home. Customers can
also apply for their mortgage online and enjoy a full
end-to-end online decision process. We also have a
multi brand approach, offering choice to customers and
allowing us to tailor products to their needs.
The benefits of focusing on the real needs of customers
are clear. During 2015, we enhanced our overall
personal lending proposition and streamlined underlying
processes. Our personal lending drawdowns increased
by 40% on 2014 levels and as at quarter 4 2015, we have
achieved NPS scores of 68 for ‘personal loans successful’
and 69 for ‘personal new current account’ journeys.
During the year, we also launched a new personal loan
proposition called ‘first loan’ for customers who have
started in their first full-time job. In every branch, we
now have a dedicated personal loan advisor. Online,
we have aided customers by making a personal loan
affordability calculator available.
Business & corporate customers
We continue to support our business customers by
providing a large range of business products and our
sector specialist approach resulted in growth in key
sectors in 2015 including agriculture, tourism, retail
and manufacturing. In addition, our 48 hour decision
for SME loans less than €30,000 and extended opening
hours also benefited business customers during the year.
In February, we partnered with the Strategic Banking
Corporation of Ireland (SBCI), launching a €200 million
fund to SMEs at a market leading rate of 4.5%. This
represents a 2% reduction on the standard business loan
rate, the reduction being shared between AIB and the
SBCI. Following the success of the first tranche, we were
very pleased to announce, in November, a further fund
of €200 million at the same rate. Our business lending
drawdowns increased by 28% in 2015.
(1)The Net Promoter Score or NPS is a measurement program that tracks customers’ loyalty and advocacy and ranges from -100 to 100.
8
Annual Financial Report 2015
Our Corporate Banking team provides tailored solutions
and sector expertise to premium customers. The
performance in 2015 is reflective of increased business
activity in an improving Irish economy, resulting in
lending growth of 63% to €2.8 billion in the year.
We remain the number one bank for Foreign Direct
Investment (FDI) in Ireland.
customers do we have in that market and how active
are these customers? When it comes to considering
credit we think about the size of our current lending to
each sector in the market and our share of the flow of
new business. We measure the level of approvals and
drawdowns but focus on the movements in balance
sheet and the size of the overall commitment.
AIB UK customers
In AIB UK, our differentiated service model provides
specialist industry and sectoral expertise to Owner
Managed Businesses (OMBs) and the Corporate sector.
We launched the Owner Managed Business Outlook, a
bi-annual survey that details the concerns and views of
OMBs on the wider marketplace. We want to enhance
our understanding of our customers’ businesses and
operating environments and continue to develop
services to meet their needs. In First Trust Bank (FTB),
we serve our customers through our focused challenger
bank strategy, lending to niche SME sectors, providing
sectoral expertise and offering a full banking service, in
branch, online and through mobile to our customers.
Legacy customer challenges
We acknowledge that challenges will continue to arise
as a result of legacy issues. As and when they emerge,
we are committed to dealing with and resolving these
challenges in a fair and equitable way for our customers.
In December 2015, the Central Bank of Ireland (CBI)
launched an industry wide examination of tracker
mortgage related issues. We had already mobilised to
address this issue before the examination was launched.
We are committed to meeting all requirements of the
CBI examination on a complete and timely basis. Where
we have identified areas where redress is relevant, we
will work through the various steps associated with
this review to ensure we deliver the right customer
outcomes. Further details are available on page 23.
Our market position
When we think about how strong our market position
is, we consider a significant number of factors. For
example, how clearly defined is the market, how many
This gives us real comfort that when it comes to
Personal, Business and Corporate markets in Ireland,
in all key respects we are the number one bank. This
is because we have more customers and more balance
sheet commitment in Ireland than any other provider in
the marketplace.
We hold key leading market shares across personal and
business lines as follows:
Strong market share positions in retail
and business banking
#1 Mortgages
#1 Personal & Business
Current Accounts
#1 Personal(1) & Business Loans
#1 Business Leasing (2)
#1 Personal & Business
Credit cards
43%
38%
37%
31%
29%
19%
Personal
Current
Accounts
Personal
Loans
Mortgages
Leasing
Business
Current
Accounts
Main
Business
Loans
Ipsos MRBI Q1 – Q4 2015 except mortgages per Central Bank of Ireland - December 2015
(1)Amongst Banks
(2)Main business leasing agreement
9
Chief Executive’s Review
Digital and distribution
Our market leading digital offerings enable our
customers to bank with us how and when they wish.
We now have over one million active digital customers,
with 530,000 customers active on mobile banking. 60%
of our personal loans are now applied for online and 50%
of key products are now purchased via online channels.
In 2015, we asked our customers how we could improve
our mobile banking app and we used their feedback to
enhance this proposition. The customer response to
this initiative has exceeded expectations, with average
monthly customer logins on mobile rising from 13 to
27. Our innovative digital offerings will be an area of
continued focus and investment into the future.
We were excited to open new branches during 2015,
ensuring that our branch footprint throughout the
country remains strong. We opened three branches
at centres in Dublin and Cork, which will continue to
strengthen our community presence.
Our people
In AIB, our people and our values are the cornerstones
on which our culture and ongoing success are built.
Collectively, we are all working hard to get the right
culture in the bank. I was delighted that our employee
engagement scores continued on a significant upward
trajectory this year.
The dedication of our staff has been of paramount
importance to AIB’s survival and transformation over
the last number of years. After the unprecedented crisis
of 2008, the bank’s workforce has more than halved
and those who remained on and have joined since, were
charged with turning AIB into a stable, profitable bank,
positively contributing to the recovery of the Irish
economy. This demanded a deep-seated commitment
with personal and professional investment of significant
time, effort and emotional resilience. That level of
dedication continues to pay off as is evidenced in these
financial results and our improving brand positions. It
is important that I acknowledge and thank our staff for
their ongoing hard work and commitment.
Our shareholders
There were a number of very important actions during
2015 that materially impacted on our shareholders and
established an investable capital structure for the bank.
10
Firstly, the capital reorganisation in December
resulted in the normalisation of our capital structure.
This entailed the conversion of Government owned
preference shares into equity capital and the repayment
of €1.7 billion of capital to the Irish Government. A cash
payment of accrued dividends on the preference shares
of €166 million was also made. The EBS Promissory
Note was also cancelled as part of this process.
Secondly, there was a share consolidation process which
resulted in a significant reduction in the number of
ordinary shares in issue to 2.7 billion from 523.4 billion.
At the same time we executed two market transactions
totalling €1.25 billion. We issued €750 million Tier 2
notes and €500 million of AT1 capital. Encouragingly,
both issuances, which were executed within days of each
other, were heavily oversubscribed by an internationally
diverse investor base.
These events have addressed the remaining legacy
capital instruments in the bank and ensure we have a
capital structure that is not only fit for purpose in the
current regulatory environment but allowed us to start
the process of repaying the State. We remain deeply
conscious of the State’s support in recent years and we
were very pleased to make significant repayments in
2015. This will continue into 2016 when we will make a
further material repayment of c. €1.8 billion upon the
maturity of our Contingent Capital Note. This will bring
the total payments to the State to c. €6.5 billion by mid-
2016.
Outlook and priorities for 2016
Ireland’s projected economic growth of 5% for next year
will continue to provide a positive domestic environment
for the bank. However, there are a number of macro
uncertainties which we still face. The prospect of an
exit by Britain from the EU is fraught with economic
uncertainty and the full impact cannot be predicted.
Global economic uncertainty and geopolitical risk may
also increase volatility. On the domestic front, the
subdued yet very competitive mortgage market presents
a challenge to us, as does the prevailing low interest rate
environment.
For our part, we will continue to play a critical role in
supporting economic growth, protecting employment
and fuelling job creation. Our long term success will
be based on the strength of our culture. A robust, risk
aware, commercial and customer focused culture will
win out in the long term. That is what we are building.
Annual Financial Report 2015
Our ambition is to be at the heart of our customers’
financial lives by always being useful, always informing
and always providing an exceptional customer
experience. We will deliver a bank with compelling,
sustainable capital returns and a considered, transparent
and controlled risk profile.
To help us achieve this we have worked hard to enhance
our strategy and prioritise the key areas of focus where
we will differentiate ourselves. These areas of focus will
determine the initiatives we pursue and deliver.
Our four key areas of focus and our aspirations for each
are set out in more detail below. We will measure our
success against key metrics, ensuring we are focused on
what we need to achieve.
Customer first
• Transforming the customer experience to deliver
advocacy and mutual value as measured over the
lifetime of our customers
• Differentiating through customer-led innovation
enabled by deep customer insight
Risk and Capital Management
•
•
•
Effective and dynamic Risk Appetite Statement
that will drive and inform business strategy and
risk-taking
In the context of ICAAP* and risk appetite, allocate
capital consistently across the Group to optimise
sustainable risk-adjusted returns
Individual lending, pricing and investment decisions
taken based on consistent Group-wide standards
and models
Talent and culture
• A vibrant, risk-aware, diverse and progressive
culture that consistently puts the customer first,
aligned to our AIB Brand Values
• An employee experience, that creates and retains
a highly engaged, inspired, talented workforce, to
deliver an exceptional customer experience
•
Focusing first on our core customer segments with
whom we will have the ability to develop deep
relationships
Acknowledgments
• Addressing legacy customer challenges
Simple and efficient
•
Focus process and technology improvements on the
elements that have most impact on our customers’
experience and deliver value for the bank
• Deliver standardised, repeatable, de-risked,
straight-through processes and procedures
• Deliver simplicity and uniformity in systems and our
process architecture enabling resilient, intuitive,
transparent customer processes and outcomes
whilst minimising complexity
• Appropriately utilise customer data to generate
insights.
*Internal Capital Adequacy Assessment Process
It has been a successful year. Our business has
performed well and we have the leading position in all
key markets that matter to us in Ireland, with clear
niche positions in Northern Ireland and Great Britain.
I am proud of what we have delivered and the significant
progress we have made. I am also thankful to the Board,
Leadership Team and my colleagues for the support
I have received since I took up the role of CEO in
May. Together, we are confident that we can deliver a
better bank - a bank that our colleagues, customers and
stakeholders can truly believe in.
Bernard Byrne
Chief Executive Officer
2 March 2016
11
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
Chief Executive
Officer and Executive
Leadership Team
comprising strong and
diverse management
capability
Strong and
independent internal
and external
audit functions
Effective
structures and
processes to
identify, manage,
monitor and
report risk
Clear organisational
structure with
well defined and
transparent lines of
accountability and
responsibility
Robust internal control
mechanisms including
sound administrative,
accounting and IT
systems, procedures
and controls
Comprehensive,
coherent suite of
policies, standards
and procedures
Well documented and
executed delegation of
authority framework
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.
12
12
Annual Financial Report 2015
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 and
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 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.
13
Sustainable Banking
Our world is changing. Being useful to our customers
means we have to be ready to anticipate change,
and help them, too, to meet the challenges ahead
with confidence. In 2016, AIB will be developing its
sustainable banking strategy, and reporting on our
progress.
As a large employer with a significant reach into the
markets and the communities we serve, our business
has the potential to make a significant impact on our
stakeholders. Our approach to sustainable banking
looks at how we can make a positive impact for
our customers, our communities, our people, our
environment and our suppliers.
How we do business
Our approach to sustainable banking is not just about
what we do, but how we do it.
AIB has a robust corporate governance structure, which
is detailed on pages 12 and 13 of this report. However,
responsibility for how we conduct our business is
shared among every member of our staff. Everyone who
works for AIB is bound by our Code of Conduct, which
sets out what it means for us as individuals, and as an
organisation, to do business responsibly and ethically.
Sustainable Banking
Introduction
For AIB, sustainable banking means working through our
business to bring about positive and lasting change in the
markets we operate in.
We create value in our business by providing products
and services that are useful for our customers, and that
they can trust.
The long-term success of our business depends on
our long-term relationship with our stakeholders, and
in particular our customers. In turn, their long-term
wellbeing depends on the society and environment
they live in. As a pillar bank in Ireland, with 2.3 million
customers, and over 300,000 customers across
Northern Ireland and Great Britain, we have the
opportunity to shape that long-term future through our
core business activities, contributing not only to the
financial wellbeing of our customers, but also making
choices that contribute to a thriving society, and a
sustainable environment.
14
Annual Financial Report 2015
Tackling financial fraud and corruption
Helping customers in difficulty
As a bank, we know that for some customers in
difficulty, finding a workable solution to their situation
can be difficult. That is why, as part of our efforts to
find solutions for as many of our customers as possible,
we have partnered with the voluntary organisation, the
Irish Mortgage Holders Organisation (IMHO), to provide
another channel for them to engage with AIB. To year
end 2015, c.2,370 customers have achieved a resolution
with AIB via the IMHO, with 779 achieved during 2015.
Supporting our business customers
We understand that supporting business networks is
important. During 2015, AIB has been an active sponsor
of women’s business and entrepreneurial networks,
including the Network Ireland Partnership, the Female
Founders Programme at the National Digital Research
Centre, and the Illuminate Female Entrepreneurship
Programme at the Drogheda Enterprise Centre.
As a community bank, we are active in local business
networks through our representation on the councils
of 22 of the 31 Local Enterprise Offices, through
regional chambers of commerce, and through our
engagement with our farming customers. In 2015,
AIB supported the Teagasc Farm Business Plan of
the Year Awards, the Teagasc Greenfield Open Day,
Macra na Feirme’s Young Farmer’s Positive Forum, the
AIB National Livestock Show and the Irish Grassland
Association Dairy Summer Tour.
Supporting start-ups
AIB is the largest bank seed fund investor in Ireland,
and a significant provider of venture and growth capital
funding, with commitments currently totalling €105
million across seven funds. These funds have invested in
138 companies to date, creating 1,775 Irish jobs. In 2015,
more than €12.7 million was contributed to seed funds
for onward investment in Irish SMEs.
Our Code of Conduct is supported by a range of policies
and procedures to ensure that our staff and Directors
adhere to best practice in avoiding potential conflicts
of interest, corrupt practices or the facilitation of
criminal behaviour such as money laundering or terrorist
financing. These policies and procedures establish
the norms that AIB expects from all its staff and
Directors. They are supplemented with a confidential
reporting (“Speak-Up”) process that allows issues to
be escalated by individual staff members, independently
of line management if necessary, to ensure that the
bank’s operations are conducted compliantly and
transparently. These policies are reviewed annually, and
training and awareness of their operation is provided
for all staff. Our Board receives an annual report on
the effectiveness of AIB’s anti-money laundering and
terrorist financing controls.
Managing risk
Managing risk effectively is critical to AIB being a
sustainable business. Our approach to risk is set out
extensively in the risk management section of this
report.
Our customers
Fair products
Our policy means that all new products being designed
by AIB have to meet the test of having fair outcomes for
the customers who avail of them – a process which is
overseen by our Products and Conduct Committee.
Dealing with complaints
Following a period of profound difficulty for the bank
and many of our customers, AIB is working hard
to improve our customers’ experience. In 2015, we
received 50,063 complaints; this compares to 66,577
in 2014, a 25% reduction. In response to feedback from
our customers, 2015 saw the introduction of dedicated
complaint resolver roles across our branch network.
These dedicated ‘Resolvers’ are empowered to resolve
a customer complaint on the spot, subject to certain
limits.
15
Sustainable Banking
In August 2015, AIB announced a five-year partnership
with Galway City Innovation District – a new initiative
supporting start-ups and business innovation in Galway
city and the west of Ireland. AIB is proud to sponsor
PorterShed – the first accommodation to open as part of
this new initiative. PorterShed will house an accelerator
programme, high potential start-ups and entrepreneurs,
as well as providing co-working space and an open area
for workshops and seminars.
Our communities
Supporting social investment
AIB has a dedicated nonprofits sector team to support
customers operating in the nonprofit sector since
January 2014. This team is actively providing support to
organisations operating within this diverse sector which
includes social housing and community development,
charities, health and education, sports, arts and culture,
religious orders and professional associations.
During 2015, AIB co-financed the €80 million
construction and operation of four new Irish schools.
These post-primary schools and sports pitches will
accommodate c. 3,000 students, and are located in
Louth, Clare, Tipperary and Cork.
In the UK market, AIB GB has over twenty-five years’
experience of lending for social and voluntary housing,
managing c.£200 million worth of lending to the sector.
In Ireland, AIB is currently actively supporting Approved
Housing Bodies (AHBs) to build and renovate social
housing.
Supporting sustainable communities
AIB sponsors the Sustainable Energy Authority of Ireland
‘One Good Idea’ competition for primary and secondary
schools. Last year, 888 primary and secondary school
pupils entered the competition with their campaigns
to raise awareness in their school or community about
climate change and energy efficiency. 2015 was also the
third year of our partnership with “Grow it Yourself” to
fund their “Get Ireland Growing Campaign”, an initiative
to support food growing projects by schools, local
communities and nonprofit groups.
16
“The Sustainable Energy Authority of Ireland (SEAI)
is delighted to be working with AIB on the One
Good Idea Schools Project, which educates students
on climate change by encouraging them to run
energy awareness campaigns. Due to the generous
support of AIB, SEAI was able to expand this annual
competition from post-primary schools to include all
primary schools in the country. With AIB’s support,
SEAI launched a nationwide campaign which
comprised of the four winning teams developing
posters for display on bus shelters and in public
transport around the country, as well as digital
displays in all AIB branches.”
Emer Barry, Education Executive, SEAI
Supporting education
2015 is the second year of a seven-year partnership with
UCD to support research and educational initiatives
that will contribute to Ireland’s social and economic
well-being. The flagship of this partnership is the
establishment of a Chair in Behavioural Economics at
UCD, together with a PhD scholarship programme,
an MSc programme in Behavioural Economics and the
creation of a new UCD-AIB Behavioural Economics Lab
at the UCD Geary Institute.
In keeping with our commitment to support new and
emerging sciences, AIB also partnered with Dublin City
University to establish the AIB Chair in Data Analytics.
In January 2015, AIB signed a three-year partnership
agreement with the DCU Centre for Family Business,
together with leading accountancy and law firms, PwC
and William Fry. As a bank with a deep commitment
to family-owned businesses, we will be working with
DCU to develop a centre for excellence for Irish
family businesses, providing education and advice on
best practice in management of family firms, for this
generation and the next.
First Trust Bank was also proud to partner with the
William J Clinton Leadership Institute at Queen’s
University Belfast to establish a bespoke corporate
leadership programme, which will support the
development of the next generation of business leaders
in Northern Ireland.
Financial literacy is critically important to social
inclusion. In 2015, AIB together with a panel of teachers
developed a non-partisan financial education programme
to develop practical financial literacy skills among
primary and secondary school pupils. Last year, the
‘Future Me’ programme ran in 373 primary schools and
111 secondary schools, supported by local AIB branches.
AIB is also a long-standing partner of the Junior
Achievement programme, where our staff volunteer
their time to encourage young people in their career
development, and a founding sponsor of College
Awareness Week, which aims to inspire, encourage and
inform students on the importance of having a post-
secondary education plan.
Many businesses and governments already
incorporate the insights of behavioural
economics into their activities. The AIB Chair
in Behavioural Economics will locate UCD
at the cutting edge of the field in advancing
behavioural economics theory and evaluating
real-world applications. AIB’s foresight in
supporting this initiative at UCD will ensure
extensive benefits to business, government and
society through both research and education.”
Professor Colin Scott, Principal UCD
College of Social Sciences and Law
Annual Financial Report 2015
Supporting young people
In 2015, AIB entered into a three-year partnership with
Soar, a social enterprise which creates and delivers
early intervention mental and emotional wellbeing
programmes for young people aged 12 to 18. That
partnership will cover the period 2016-2018.
Supporting art in the community
AIB has an extensive art lending programme, with
artworks constantly on loan to public institutions.
During 2015, 286 artworks went on loan to 15 public
venues nationwide.
As an Irish bank, we are proud to have supported Irish
artists over several decades, and to bring their works
to a wider audience. In May 2015, works from the AIB
and Crawford Art Gallery Collections made up the ‘Art
of a Nation’ exhibition in London. This was the first
major exhibition of Irish art in London for over 30 years,
featuring over 70 artworks, and attracting an estimated
15,000 visitors.
In September 2015, over 2,500 people viewed 30
artworks from the AIB collection on display during
the annual Clifden Arts Festival, while in November 42
artworks from the AIB collection went on display in our
branch at 66 South Mall, Cork, as part of its centenary
celebrations. AIB also participated in Culture Night
2015, opening its doors in Bankcentre to provide art
tours to the public.
AIB is a supporter and patron of Business to Arts,
through our Private Banking unit.
17
Employee relations
AIB has positive working relations with all three of
its employee representative unions IBOA, SIPTU and
Unite. An initiative is underway with IBOA, the largest
union, focused on enhancing working relations between
management and union representatives at all levels
across the organisation and promoting more effective
processes of local engagement.
Diversity and Equal Opportunities
In 2015, AIB put in place a Diversity and Inclusion Code,
which sets out our approach to embedding diversity
across our organisation. In February 2015, the Board
also adopted a Board diversity policy, which includes
the objective of achieving a minimum of 25% female
representation on the Board by the end of 2016 and
thereafter.
Over the last year, we have launched an internal
networking programme for women under our Diversity
and Inclusion programme, simplified our flexible working
policies, and started to roll out ‘unconscious bias’
training for 120 top leaders in the bank.
Training and development
On average, our staff completed approximately 25 hours
of accredited training during the year via our iLearn
Learning Service.
Work-life balance
We actively support diversity within our organisation
and as such we recognise that our people may need
flexibility in their work patterns at certain times in their
career when balancing priorities between their personal
and work life. AIB provides a wide variety of flexible
working options, including reduced hours, specific
options for parents, career breaks, special absence
breaks and agile working policies.
Sustainable Banking
Supporting club and county
2015 was the 24th year of AIB’s sponsorship of the
GAA Senior Club Championships, which includes
Junior, Intermediate and Senior grades in hurling,
football and camogie. In February 2015, AIB announced
a new sponsorship of the Football All-Ireland Senior
Championship, cementing our support of the GAA in
both club and county.
As part of that support in 2015, we engaged with
over 1,600 GAA clubs in Ireland and provided training
equipment to over 150 clubs who were successful in
winning county titles in hurling, football and camogie.
Our people
Engaging our staff
At AIB, employee engagement is about our people
feeling listened to, involved, valued and energised about
their work and the part they play in delivering our
strategy. In recent years we have invested a significant
level of time and resources in raising employee
engagement as a core element of our overall people
strategy. Since 2013, we have worked closely with
Gallup, using their proven approach to help us drive
engagement, particularly at local team level. In 2015, 86%
of our employees took part in our engagement survey –
up 6% from last year. Based on Gallup’s Q12 engagement
survey, we have made significant strides in increasing
employee engagement across the bank. When compared
to Gallup’s worldwide database, AIB has made more
than eight years’ worth of significant increases in just
two years, the biggest two year increase that Gallup has
ever seen among its European clients.
18
Environment
Supporting sustainability through business lending
AIB has a dedicated fund of €100 million for energy
efficiency investment in SMEs. We understand the
benefits to the bottom line for businesses who introduce
energy saving measures, and we factor those benefits
into our credit decision process.
Projects sanctioned by our business banking team during
2015 will generate 32.1MW of energy, or 95,790,000
kWh per annum, which is enough to provide clean
electricity for c.19,000 Irish households every year.
To support future champions, AIB has also pledged €5
million in equity funding for start-up companies in the
sustainable technologies sector.
AIB is committed to being a leader in the solar energy
sector in Ireland, but we know that it is important for
businesses to see the demonstration effect of investing
in energy efficiency. That is why, in 2015, we announced
our intention to construct our own rooftop Solar PV
plant at our Dublin headquarters, one of the largest
projects of its kind in Ireland.
Supporting sustainable investment by homeowners
In 2015, we launched a new initiative for customers
taking out Home Improvement Loans, where they can
benefit from a free Building Energy Rating certificate and
a personalised advisory report, to encourage investment
in home energy efficiency.
Reducing our own environmental footprint
AIB made good progress in 2015 in reducing its
overall environmental footprint, winning ‘Large Green
Organisation of the Year 2015’, a ‘Pakman Professional
Services Award’ and the ‘Overall Pakman award for
environmental performance’. We were also finalists in
the SEAI Energy Leadership awards and the Envirocom
water and waste reduction awards.
Annual Financial Report 2015
We successfully rolled out our ISO50001 international
energy management system to four of our head office
sites in the Republic of Ireland. AIB also became one
of the first organisations in Ireland to operate to the
newest version of the Environmental Management
Standard (ISO14001:2015).
AIB maintained its purchase of electricity in the Republic
of Ireland and Northern Ireland from 100% renewable
resources in 2015. Investment in strategic projects
reduced overall energy consumption in the Republic of
Ireland by 9% in 2015.
All waste generated at AIB head offices is diverted from
landfill, with 65% being recycled, with our focus for 2016
to be on an overall reduction in waste being generated
at source.
As a large employer, we can make a difference by making
our staff more aware of their own environmental impact.
In 2015, we developed a bespoke online interactive
energy awareness course. So far, over 10,000 AIB staff
have undertaken this training, and we have licensed it to
the ISI Centre and Skillnets for distribution to the wider
corporate community.
Untitled-2 1
Abbey Community College,
Co. Roscommon
One Good Idea 2015 Junior Winner
01/09/2015 16:45
This is what students from Abbey Community College suggested as their
One Good Idea to be more energy efficient and tackle climate change.
What’s yours? Enter the 2016 competition at: www.seai.ie/OneGoodIdea
Presented by
Supported by
1012711 SEAI OGI Abbey CC A2.indd 1
17/02/2016 09:49
19
Sustainable Banking
Our environmental reporting
AIB reports annually to the Carbon Disclosure Project
(CDP). AIB exceeded its target score for its annual
carbon footprint submission in 2015, achieving an
excellent score of 98% disclosure and a ‘Band B’ position
for performance, retaining its position as a ‘Carbon
Leader’. Based on 2014 data, AIB’s total reported carbon
footprint was 25,853 tCO2eq, a drop of 1.2% from the
previous year.
Our Suppliers
As a large Irish company, AIB has a wide and diverse
supplier base of approximately 2,600 suppliers. Our
relationship with our suppliers is governed by our Group
Sourcing and Supplier Relationship Management Policy.
Last year, we implemented a Supplier Relationship
Management programme, which governs engagement
between AIB and its suppliers. This governance and
oversight extends from the Board to individual Supplier
Relationship Managers and business owners. During
2016, we will be extending our capacity to allow our
suppliers to provide 360 degree feedback on their
experience and to rate AIB’s performance.
We understand the importance to SMEs of prompt
payment. In 2015, our average time of payment was 28
days. Looking ahead to 2016, we will be implementing
e-invoicing for all suppliers to improve our payment
process times and make it easier for our suppliers to
work with AIB.
20
Business review
1. Operating and financial review
2. Capital reorganisation
3. Capital management
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Business review - 1. Operating and financial review
Summary income statement
Net interest income
Business income
Other items
Other income
Total operating income
Personnel expenses
General and administrative expenses
Depreciation, impairment and amortisation
Total operating expenses
Operating profit before levies and provisions
Bank levies
Writeback of provisions for impairment on loans and receivables
(Provisions)/writeback of provisions for liabilities and commitments
Provisions for impairment on financial investments available for sale
Total writeback of provisions
Operating profit
Associated undertakings
Profit on disposal of property
Profit from continuing operations before exceptional items
Restitution and restructuring expenses
Gain on transfer of financial instruments
Termination benefits
Other exceptional items
Total exceptional items
Profit before taxation from continuing operations
Income tax charge from continuing operations
Profit after taxation from continuing operations
Profit after taxation from discontinued operations(1)
Profit for the year
Operating contribution before levies and provisions by segment
AIB Ireland
AIB UK
Group & International
Operating profit before levies and provisions
2015
€ m
1,927
533
163
696
2,623
(725)
(497)
(74)
(1,296)
1,327
(68)
925
(2)
-
923
2,182
25
3
2,210
(250)
5
(37)
(14)
(296)
1,914
(534)
1,380
-
1,380
€ m
1,133
185
9
1,327
2014
€ m
1,687
406
437
843
2,530
(767)
(551)
(85)
(1,403)
1,127
(60)
185
4
(1)
188
1,255
23
6
1,284
(151)
2
(24)
-
(173)
1,111
(230)
881
34
915
€ m
906
152
69
1,127
% change
14
31
-63
-17
4
-5
-10
-13
-8
18
13
400
-
-
391
74
9
-50
72
-
-
-
-
-
72
132
57
-
51
% change
25
22
-87
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(1)Profit on the disposal of Ark Life Assurance Company Limited.
22
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Basis of presentation
The following operating and financial review is prepared in line
Other exceptional items: Capital reorganisation costs and
with how the Group’s performance is reported to management
other related items of € 14 million in 2015 (nil in 2014).
and the Board. The information presented excludes exceptional
items that management believe obscure the underlying
Profit before taxation from continuing operations and
performance trends in the business. A list of the items classified
as exceptional is included below. Percentages presented
before exceptional items
The Group has continued its positive momentum in 2015 and
throughout this report are calculated on the absolute figures and
has achieved its medium term targets which were set in 2012
therefore may differ from the percentages based on the rounded
(see page 3). The Group has benefited from the improved
numbers.
Impact of currency movements
The impact of currency movements is calculated by comparing
economic environment and the results of management actions.
Profit before taxation from continuing operations and before
exceptional items was € 2,210 million in 2015 compared to
€ 1,284 million in 2014 with an increase in income, reduction in
the results for the current reporting period to results for the
costs and significant increase in net credit provision writebacks
comparative period retranslated at exchange rates for the
in 2015.
current reporting period.
Overview of results
Profit before taxation from continuing operations (after
Net interest income of € 1,927 million in 2015 increased by
€ 240 million compared to 2014, reflecting reductions in the
cost of customer deposits, other interest bearing liabilities and
the ELG charge partly offset by lower average interest earning
exceptional items) amounted to € 1,914 million in 2015
assets (mainly due to the redemption of NAMA senior bonds)
compared to € 1,111 million in 2014. This included a net charge
for exceptional items in 2015 of € 296 million compared to
and lower asset pricing.
€ 173 million in 2014.
Exceptional items
Other income, now presented as ‘business income’ and ‘other
items’, of € 696 million in 2015 was € 147 million lower than
2014. Business income of € 533 million in 2015 increased by
€ 127 million compared to 2014 due to higher net trading
Total exceptional items
Restitution and restructuring expenses
Gain on transfer of financial instruments
Termination benefits
Other exceptional items
Total exceptional items
2015
€ m
(250)
5
(37)
(14)
2014
€ m
(151)
2
(24)
-
(296)
(173)
income.
Other items
Net profit on disposal of AFS securities
net of hedge termination costs
Effect of acceleration / re-estimation of the
timing of cash flows on NAMA senior bonds
Settlements and other gains
Restitution and restructuring expenses: Restitution and
Other items
2015
€ m
2014
€ m
85
6
72
163
181
132
124
437
restructuring expenses of € 250 million in 2015 (€ 151 million in
2014). These include costs associated with customer redress(1),
restitution, transformation, reorganisation and certain provisions for
liabilities.
Other items of € 163 million in 2015 were € 274 million
lower than 2014.
Customer redress relates to the request from the Central Bank of
Operating expenses of € 1,296 million in 2015 were
Ireland (“CBI”) in December 2015, to the Irish banking industry,
€ 107 million lower compared to 2014. This reduction was a
including AIB, to conduct a broad examination of tracker mortgage
result of ongoing cost control and management, supported by
related issues, comprising of a review of mortgage loan books
progress on the Group’s transformation strategy which enabled
(including both Principal Dwelling House (“PDH”) and
staff exits as part of the Group’s severance scheme.
Buy-To-Let (“BTL”) properties, and those disposed of). The Group
has identified areas where customer redress is relevant. The Group
Bank levies of € 68 million in 2015 were € 8 million higher
has provided € 105 million relating to the refund of interest and
than 2014 due to an additional levy in 2015 relating to the
other compensation amounts.
introduction of the Bank Recovery and Resolution Directive
Furthermore, the Group has recognised a provision of € 85 million
for other related matters.
(“BRRD”) levy.
Writeback of provisions for impairment on loans and
receivables of € 925 million in 2015 increased by € 740 million
Gain on transfer of financial instruments: Valuation adjustments on
from an overall net provision writeback of € 185 million in
previous transfers of financial assets to NAMA amounted to a gain
2014. The net writebacks were mainly due to improvements in
of € 5 million in 2015 (€ 2 million in 2014).
the economic environment which has driven improvements in
trading performance, increases in asset values and progress
Termination benefits: The cost of the voluntary severance
programme was € 37 million in 2015 (€ 24 million in 2014).
in the restructuring process. See the Risk management
section on page 97 for more detail on provisions.
(1)For further detail see page 248 and page 291.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Business review - 1. Operating and financial review
Net interest income
• NIM(1) of 1.97% up 28 bps compared to 2014.
%
4.00
Net interest margin drivers(3)
• Exit NIM(2) of 2.02% for 2015.
3.00
2.86
2.94
2.89
2.89
• Excluding the impact of low yielding NAMA
senior bonds, NIM(1) was 2.12%.
• Significantly reduced funding costs offset by
reduction of income on NAMA senior bonds
and Available For Sale (“AFS”).
1.22
2.00
1.00
0.00
1.64
1.57
1.38
1.27
1.62
Net interest income
Net interest income
2015
€ m
1,927
Average interest earning assets
99,272
103,370
2014
%
€ m change
1,687
14
-4
NIM excluding ELG
NIM excluding ELG and NAMA
senior bonds
NIM
%
1.97
2.12
1.94
% change
1.69
0.28
1.89
1.63
0.23
0.31
H1 2014
H2 2014
H1 2015
H2 2015
Asset yield
Cost of funds (excluding ELG)
The 2015 average asset yield of 289 bps was broadly in line
with 2014. The mix of assets moved in favour of customer
loans with the reduction of low yielding NAMA senior bonds.
Customer asset yields remained stable notwithstanding the
reduction in the interest rate environment and the two variable
mortgage rate reductions. Yields on financial investments
available for sale reduced by 29 bps and yields on NAMA
senior bonds reduced by 23 bps.
The 2015 average cost of funds of 133 bps reduced from
161 bps in 2014 as a result of continued deposit pricing
Net interest income of € 1,927 million in 2015 increased by
actions, the change in funding mix with an increase in low
€ 240 million (14%) from € 1,687 million in 2014. The increase
yielding current accounts and the roll-off of deposits at higher
was mainly due to significant reductions in funding costs, growth
rates.
in new lending volumes at risk appropriate margins and a lower
ELG charge. This was partly offset by the impact of customer
The reduction in the average cost of funds combined with
loan redemptions, lower income from NAMA senior bonds and
broadly stable asset yields resulted in the gap between asset
AFS securities and lower yield on the variable rate mortgage
yields and the cost of funds increasing to 162 bps in H2 2015
portfolio following two significant rate reductions in the year.
from 122 bps in H1 2014. The gap increased by 11 bps since
The impact of currency movements increased net interest
income by € 26 million in 2015.
%
0.50
0.00
0.24
0.22
Movement in ECB Refi and 1 month Euribor(3)
0.09
0.04
0.05
-0.02
-0.25
H1 2014
H2 2014
H1 2015
ECB Refi
1 month Euribor
0.05
-0.12
H2 2015
Growth in NIM(3)
1.82
1.60
1.97
1.78
2.08
1.92
2.16
2.01
H1 2015.
%
2.50
2.00
1.50
1.00
0.50
0.00
H1 2014
H2 2014
H1 2015
H2 2015
NIM excluding ELG
NIM excluding ELG & NAMA senior bonds
The net interest margin(1) of 1.97% in 2015 increased by
28 bps from 1.69% in 2014. The factors contributing to the
The ECB maintained low official rates and short term Euribor
increase were a decrease in yields on interest earning assets
rates moved slightly into negative territory during 2015 positively
impacting on short term funding.
(1 bp) and a decrease in the cost of funding those assets
(29 bps). Continuous growth in net interest margin(1) at 2.01%
in H2 2015 from 1.60% in H1 2014.
(1)Excluding ELG
(2)Exit NIM is the average net interest margin excluding ELG for Q4 2015.
(3)Trends are set out on a half-yearly basis.
24
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Average balance sheet
(1)
Assets
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale
Financial investments held to maturity
Other interest earning assets
Net interest on swaps
Average interest earning assets
Non interest earning assets
Year ended
31 December 2015
Average Interest Average
rate
balance
%
€ m
€ m
64,868
2,214
7,614
19,503
106
7,181
31
514
4
25
81
3.41
0.41
2.63
3.76
0.36
Average
balance
€ m
65,391
12,569
19,444
-
5,966
Year ended
31 December 2014
Interest Average
rate
%
€ m
2,237
80
567
-
22
91
3.42
0.64
2.92
-
0.36
99,272
2,869
2.89
103,370
2,997
2.90
7,557
8,237
Total assets
106,829
2,869
111,607
2,997
Liabilities & shareholders' equity
Deposits by banks
Customer accounts
Subordinated liabilities
Other debt issued
Average interest earning liabilities
Non interest earning liabilities
Shareholders’ equity
4
426
278
204
912
0.03
0.97
17.10
2.74
1.33
15,734
43,777
1,625
7,475
68,611
25,985
12,233
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
Total liabilities & shareholders’ equity
106,829
912
111,607
1,251
Net interest income excluding ELG
Eligible liabilities guarantee (“ELG”)(1)
Net interest income including ELG
1,957
1.97
(30)
(0.03)
1,927
1.94
1,746
1.69
(59)
(0.06)
1,687
1.63
Average interest earning assets of € 99 billion in 2015 reduced
securities were sold or matured along with the impact of the
from € 103 billion in 2014 as the impact of redemptions of NAMA
lower market interest rates on the average book yield.
senior bonds of € 5.0 billion and lower loans and receivables to
customer of € 0.5 billion were partly offset by an increase in
The cost of interest earning liabilities of € 912 million in 2015
financial investments of € 0.2 billion and other interest earning
reduced by € 339 million from € 1,251 million in 2014 due to a
assets of € 1.2 billion.
reduced funding requirement and lower yields. The higher
volume of low interest current accounts was offset by lower
Interest income from loans to customers of € 2,214 million in
volumes of deposits. This along with the reduction in deposit
2015 was marginally lower than 2014 as a result of loan pricing
pricing on customer accounts and lower wholesale market
during 2015, which included the two variable mortgage rate
rates have resulted in materially lower funding costs.
reductions and the impact on yields of falling market interest
rates.
The exit NIM(3) for 2015 was 2.02% of which the main drivers
were an average yield on loans and receivables to customers
Interest income from NAMA senior bonds of € 31 million in 2015
of 3.29%, average yield on financial investments available for
reduced by € 49 million from € 80 million in 2014 as a result of a
sale of 2.63% and an average yield on customer accounts of
reduction in average volumes of € 5.0 billion following
0.83%.
redemptions in 2014 and 2015 and lower interest rates. The
reduction of these lower yielding assets had a positive effect on
the net interest margin(2) of 6 bps.
Eligible liabilities guarantee (“ELG”)
The ELG charge was € 30 million in 2015 compared with
Financial investments available for sale of € 3.5 billion were
the scheme mature, the ELG charge will continue to reduce.
reclassified to financial investments held to maturity during 2015.
The total liabilities guaranteed under the ELG Scheme at
Interest income from financial investments available for sale and
31 December 2015 amounted to € 1.8 billion (€ 4.6 billion at
held to maturity reduced by € 49 million as higher yielding
(1)The Average Balance Sheet (note 59 to the consolidated financial statements) includes the cost of ELG in interest within liabilities and shareholders’
31 December 2014).
equity. Other interest earning assets is split into Trading portfolio financial assets and Loans and receivables to banks.
€ 59 million in 2014. As existing liabilities that are covered by
(2)Excluding ELG
(3)Exit NIM and yields are based on the average yields excluding ELG for Q4 2015.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Business review - 1. Operating and financial review
Other income
• Business income up 31% to € 533 million:
- net trading income up € 112 million
- net fee and commission income up € 15 million.
• Reductions in other items as lower gains on
AFS disposals, NAMA senior bonds and other
settlements in 2015.
Net trading income
Net trading income
Foreign exchange contracts
Derivative contracts and debt securities
Net trading income
2015
€ m
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87
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%
€ m change
45
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Other income
Net fee and commission income
Dividend income
Net trading income
Foreign exchange gains
Miscellaneous operating income
Business income
Net profit on disposal of AFS securities
Effect of acceleration / re-estimation of the
timing of cash flows on NAMA senior bonds
Settlements and other gains
Other items
Other income
2015
€ m
405
26
87
15
-
533
85
6
72
163
696
Net trading income was € 87 million in 2015 compared to a
2014
%
€ m change
cost of € 25 million in 2014.
390
25
(25)
11
5
406
181
132
124
437
843
4
4
-
36
-
31
-
-
-
-63
-17
Income from derivative contracts and debt securities was
€ 46 million in 2015 compared to a cost of € 70 million in 2014.
The € 70 million cost in 2014 was primarily from the negative
valuation adjustments on sterling customer derivative positions
due to the reduction in medium to long term sterling interest
rates. In 2015, due to an increase in term sterling interest
rates, this negative valuation adjustment was partially
reversed.
Other items
There was € 163 million of income classified as other items in
2015 compared to € 437 million in 2014. Income included a
net profit of € 85 million from the disposal of available for sale
debt and equity securities compared to € 181 million in 2014
due to a lower volumes of sales in 2015.
Other income, now presented as ‘business income’ and ‘other
A gain of € 6 million was recognised on NAMA senior bonds
items’, was € 696 million in 2015 compared with € 843 million in
reflecting accelerated repayments following redemptions of
2014, a decrease of € 147 million (17%). Business income of
€ 3.8 billion in 2015. A gain of € 132 million was recognised in
€ 533 million increased by € 127 million and other items of
2014 that reflected a revised expected timing of repayments
€ 163 million reduced by € 274 million compared with 2014.
including those received in the year.
The impact of currency movements increased other income by
€ 7 million in 2015.
Business income
Net fee and commission income
Net fee and commission income of € 405 million in 2015
increased by € 15 million (4%) compared with 2014 as a result of
increases in wealth commissions, insurance profit share and
credit related fees. Current account fees were 3% higher than
2014 reflecting income from growth in transaction numbers
which were partly offset as customers continued to migrate to
cheaper self service options.
Dividend income
Dividend income was € 26 million in 2015 compared with
€ 25 million in 2014. € 25 million was received on NAMA
subordinated bonds in both years.
Settlements and other gains
Effect of realisation/re-estimation of cash flows on
loans and receivables previously restructured(1)
Income on settlement of claims
Fair value gain on equity warrants
Net gain/(loss) on buyback of debt securities
in issue
(Loss)/profit on disposal of loans(2)
Settlements and other gains
2015
€ m
45
38
8
8
(27)
72
2014
€ m
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27
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(1)
50
124
Settlements and other gains of € 72 million in 2015 reduced by
€ 52 million compared with 2014.
(1)For further detail please see pages 139 to 140.
(2)The loss on disposal of loans in 2015 of € 27 million consists of a loss of € 39 million relating to the disposal of a UK portfolio of loans partly
offset by a profit on disposal of corporate loans of € 12 million compared to profit of € 50 million on disposal of loans to customers in 2014.
26
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Total operating expenses
(1)
• Costs of € 1,296 million down € 107 million (8%)
compared to 2014.
• Average staff numbers down 721 (6%)
compared to 2014.
• Since 2012, costs down 26% reaching cost
reduction of € 452 million.
Operating expenses
Personnel expenses
General and administrative expenses
Depreciation, impairment and
amortisation
2015
€ m
725
497
74
2014
%
€ m change
767
551
-5
-10
85
-13
Total operating expenses before
exceptional items
1,296
1,403
Staff numbers at period end (FTE)(2) 10,204
Average staff numbers (FTE)(2)
10,663
11,047
11,384
-8
-8
-6
Reduction in staff numbers (period end)(2)
13,429
11,431(3)
11,047
10,204
FTE
14,000
12,000
10,000
8,000
Dec 2012
Dec 2013
Dec 2014
Dec 2015
Average staff numbers of 10,663 reduced by 721 (6%) mainly
due to the severance scheme in 2014 and 2015 and continued
selective outsourcing of some back office and support
functions. Costs related to this outsourcing activity are
reflected in general and administrative expenses. Personnel
expenses in 2015 included € 12 million relating to a 2% salary
increase approved at the Labour Relations Commission for
staff earning up to €100,000 or £80,000 per annum.
Total operating expenses of € 1,296 million in 2015 were
€ 107 million (8%) lower compared to 2014. This reduction in
General and administrative expenses
General and administrative expenses of € 497 million in 2015
costs mainly related to ongoing cost control and management,
were € 54 million (10%) lower than 2014 with savings across
supported by progress on the Group’s transformation strategy
most classifications as part of ongoing cost management and
which enabled staff exits as part of the Group’s severance
control partly offset by an increase in costs as a result of
scheme.
outsourcing initiatives.
The impact of currency movements increased operating
expenses by € 23 million in 2015.
Depreciation, impairment and amortisation
The charge for depreciation, impairment and amortisation of
Cost reductions
€ 74 million in 2015 was € 11 million (13%) lower than 2014
€ m
2,000
1,748
1,600
707
1,470
-16%
1,041
619
851
1,200
800
400
0
-20%
1,403
636
-26%
1,296
571
767
725
2012
2013
2014
2015
Personnel expenses
Other costs
due to the timing of depreciation relating to the strategic
investment programme.
Cost income ratio(1)
Costs of € 1,296 million and income of € 2,623 million resulted
in a cost income ratio of 49% compared to 55% in 2014.
Strategic investment programme
While costs continue to reduce in line with expectations, the
Group continues to invest in customer, digital, information
technology and related programmes. AIB has invested
€ 313 million in 2015, of which € 240 million was capitalised,
as part of the investment programme to provide an improved
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Since 2012 the Group has undergone a structured programme
experience for our customer, to simplify internal processes and
of cost reduction and has achieved a 26% (€ 452 million)
to ensure resilience in our core infrastructure, up € 111 million
reduction in the period. In this regard, in 2015, the Group has
from 2014. This will enhance the Group’s capacity to achieve
reached its cost reduction targets.
further cost and income benefits into the future.
Personnel expenses
Personnel expenses of € 725 million in 2015 were € 42 million
(5%) lower compared to 2014 reflecting lower staff numbers and
capitalisation of costs relating to the strategic investment
programme.
(1)Excluding exceptional items and bank levies.
(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 2015
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Business review - 1. Operating and financial review
Bank levies
Bank levies of € 68 million in 2015 compared with € 60 million
in 2014. Bank levies in 2015 include an Irish bank levy of
€ 60 million (€ 60 million in 2014) and an additional levy of
€ 8 million relating to the introduction of the Bank Recovery
and Resolution Directive (“BRRD”) levy. The Irish bank levy is
a form of stamp duty which applies for the years 2014 to
2016, which has now been extended to 2021 following the
budget announcement in October 2015.
Associated undertakings
Income from associated undertakings of € 25 million in 2015
compared with € 23 million in 2014, relating to AIB’s share in
the joint venture with First Data International trading as AIB
Merchant Services and AIB’s share in associate Aviva Health
Insurance Ireland Limited. The increase in 2015 is mainly due
to higher profits from AIB’s share in associate Aviva Health
Insurance Ireland Limited.
Income tax
The total taxation charge for 2015 was € 534 million compared
with a charge of € 230 million in 2014. The increase was due
to an increase in pre-tax profits together with a once off UK
deferred tax expense of € 242 million arising from legislation
enacted in March 2015 which only allows fifty per cent of a UK
bank’s annual trading profits to be offset by unused tax losses
arising before 1 April 2015. Deferred Tax Assets (“DTA”) 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, subject to specific
exceptions e.g. AIB Group (UK) p.l.c. These exceptions are set
out in note 34 to the consolidated 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 in 2014. See
note 19 to the consolidated financial statements.
28
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Balance sheet commentary
• Earning loans(1) at € 57.0 billion have increased
by 6% and impaired loans(1) at € 13.1 billion
have reduced by 41% since 31 December 2014.
• New lending of € 8.7 billion was 49% higher
than 2014.
• Reduction in NAMA senior bonds of
€ 3.8 billion (40%) to € 5.6 billion due to
redemptions.
• Customer deposits at € 63.4 billion remained
broadly stable. Increase in current accounts
offset by reduction in deposits.
31 Dec 31 Dec
2014
%
€ bn change
2015
€ bn
Balance sheet
Gross loans to customers
Provisions
Net loans to customers
63.2
Financial investments available for sale 16.5
Financial investments held to maturity
3.5
NAMA senior bonds
Other assets
Total assets
Customer accounts
Deposits by banks - ECB
Other market funding
Debt securities in issue
Other liabilities
Total liabilities
70.1
(6.9)
75.8
(12.4)
63.4
20.2
-
9.4
14.5
5.6
14.3
103.1
107.5
63.4
2.9
11.0
7.0
6.7
91.0
64.0
3.4
13.4
7.9
7.2
95.9
-8
-45
-
-18
-
-40
-1
-4
-1
-15
-18
-11
-7
-5
5
-4
Earning and Impaired loans trend
57.0
53.6
22.2
13.1
€ bn
60.0
50.0
40.0
30.0
20.0
10.0
0.0
Earning loans
Impaired loans
2014
2015
Earning loans, excluding the impact of currency movements,
have increased by € 2.5 billion to € 57.0 billion and includes
€ 3.2 billion of loans upgraded to earning in the year. This also
includes new lending of € 8.7 billion which was 49% higher
than 2014.
5.0
3.5
€ bn
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Growth in new lending
2.6
1.6
1.1
0.7
AIB Ireland
AIB UK
Group & International
2014
2015
New lending in AIB Ireland was up 41% at € 5.0 billion, AIB UK
up 60% at € 2.6 billion and Group & International up 59% at
€ 1.1 billion compared to 2014.
New lending 2015 by sector
Shareholders’ equity
12.1
11.6
Total liabilities & shareholders’ equity
103.1
107.5
Loan to deposit ratio
Loans to customers
Gross loans to customers
%
100
% change
99
1
16%
9%
403
20%
389
378
55%
Distribution 17%
Services 15%
Manufacturing 10%
Transport 6%
Agriculture 4%
Other 3%
Gross loans at € 70.1 billion reduced by € 5.7 billion (8%) since
31 December 2014 or € 6.8 billion (9%) excluding the impact of
Non-property business
Personal
currency movements of € 1.1 billion. The reduction was due to
Mortgages
Property and construction
the impact of loan restructuring of € 4.7 billion, the disposal of a
portfolio of loans in the UK of € 0.7 billion and loan redemptions
Non-property business lending contributed to 55% of all new
of € 10.1 billion partly offset by new lending of € 8.7 billion.
lending in 2015. 20% of new lending in 2015 was from
mortgage lending. AIB Group was the largest provider of new
mortgage lending drawdowns in Ireland in 2015 with a market
share of 34%.
(1)Represents gross loans to customers.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Business review - 1. Operating and financial review
Impaired loans, excluding the impact of currency movements,
Net loans to customers
have reduced by € 9.3 billion to € 13.1 billion since
Net loans of € 63.2 billion reduced by € 0.2 billion, excluding
31 December 2014 reflecting the implementation of
the impact of currency movements net loans reduced by
sustainable restructure solutions for customers and improved
€ 1.2 billion (2%), and reflect the gross loan movements as set
economic conditions. The reduction also included the disposal
out below along with the impact of movement in provisions.
of a portfolio of loans in the UK. New to impaired loans for
2015 was € 0.7 billion compared to € 1.6 billion new to
The table below sets out the movement in loans to customers
from 1 January 2015 to 31 December 2015.
impaired for 2014.
Provisions
Balance sheet provisions of € 6.9 billion have decreased from
€ 12.4 billion mainly due to the utilisation of provisions as part
of sustainable restructure solutions for customers and
write-offs. Provisions on new to impaired loans were
€ 0.3 billion for the year. See the Risk management section on
page 96 for more detail on the movement in provisions during
2015.
Loans to customers
Opening balance (1 January 2015)
New lending volumes
New impaired loans
Restructures, write-offs and disposals(1)
Redemptions of existing loans
Foreign exchange movements
Other movements
Closing balance (31 December 2015)
Earning
loans
€ bn
Impaired
loans
€ bn
Gross
loans
€ bn
Specific
provisions
€ bn
IBNR
provisions
€ bn
53.6
8.7
(0.7)
3.2
(8.5)
0.9
(0.2)
57.0
22.2
-
0.7
(8.6)
(1.6)
0.2
0.2
13.1
75.8
8.7
-
(5.4)
(10.1)
1.1
-
70.1
(11.3)
(1.1)
-
(0.3)
5.5
-
(0.1)
-
(6.2)
-
-
-
-
-
0.4
(0.7)
Net
loans
€ bn
63.4
8.7
(0.3)
0.1
(10.1)
1.0
0.4
63.2
(1)Includes write-offs not contracted with customers. See the Risk management section on page 99.
30
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Financial investments Available For Sale (“AFS”)
AFS assets which are held for liquidity and investment
purposes, were € 16.5 billion at 31 December 2015 and have
decreased from € 20.2 billion during 2015. The decrease was
mainly due to a reclassification of AFS assets of € 3.5 billion in
2015 to financial investments held to maturity. Sales of
€ 3.8 billion, maturities of € 0.3 billion and a decrease in fair
value of € 0.4 billion were partly offset by purchases of
€ 4.3 billion. The sale of securities generated net profits of
€ 85 million (net of hedge termination costs). The decrease in
fair value of AFS debt securities of € 0.8 billion was due to
widening of Irish, Italian and Spanish sovereign spreads and
the impact of higher interest rates on fixed rate security
holdings. AFS equity securities increased by € 0.4 billion
principally due to an increase in fair value on an equity
investment in Visa Europe. Further detail in respect of AFS is
available in note 29 to the consolidated financial statements.
Financial investments Held To Maturity (“HTM”)
AFS assets of € 3.5 billion were reclassified to financial
investments held to maturity during 2015 following a review of
strategy in relation to securities holdings and a commitment to
long term (to maturity) investment in selected Irish Government
Bonds.
NAMA senior bonds
In 2015, € 3.8 billion of NAMA senior bonds were redeemed.
Redemptions of low yielding NAMA senior bonds have
improved the Group’s overall net interest margin.
Other assets
Other assets of € 14.3 billion comprised:
-
cash and loans to banks of € 7.3 billion were broadly in
line with 2014. 2015 includes cash and balances with
Central Banks at € 5.0 billion, loans & receivables to
banks (secured) at € 1.7 billion and loans & receivables to
banks (unsecured) at € 0.6 billion.
-
deferred taxation of € 2.9 billion, € 0.7 billion lower than
December 2014 as tax losses were utilised to offset
current year profits, and includes the impact of the partial
writedown of the UK deferred tax assets (reflecting new
legislation).
-
-
derivative financial instruments of € 1.7 billion, € 0.3 billion
lower than December 2014.
the remaining assets of € 2.4 billion up 50% from
€ 1.6 billion at December 2014 mainly due to proceeds of
€ 0.4 billion awaiting settlement on the disposal of a UK
loan portfolio.
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31
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Business review - 1. Operating and financial review
Customer accounts
Customer accounts reduced by € 0.6 billion (1%) to € 63.4 billion.
Excluding the impact of currency movements, customer accounts
reduced by € 1.5 billion (2%). The reduction included a decrease in
repos of € 1.2 billion. Overall customer deposits remained broadly
stable with strong growth in current accounts offset by a reduction
in term deposits. The average cost of customer accounts dropped
from 130 bps in 2014 to 97 bps in 2015. The loan to deposit ratio
remained strong at 100% at 31 December 2015.
Stabilising customer franchise funding profile
115%
73.3
100%
99%
100%
63.6
65.7 65.7
63.4
64.0
63.2
63.4
€ bn
100.0
75.0
50.0
25.0
0.0
Dec 2012
Dec 2013
Dec 2014
Dec 2015
Net loans
Customer accounts
Loan to deposit ratio
Deposits by banks - ECB
Monetary authority funding of € 2.9 billion at 31 December 2015
reduced by € 0.5 billion (15%) since 2014 as the overall funding
requirement reduced.
Other market funding
Other market funding reduced by € 2.4 billion (18%) in 2015 due
to a € 2.5 billion reduction in bilateral repos principally due to
NAMA senior bond repayments.
Debt securities in issue
Debt securities in issue reduced by € 0.9 billion during 2015
which reflected an overall lower funding requirement for the
Group. The reduction was primarily due to the scheduled
maturity of € 2.2 billion of unsecured debt and € 0.5 billion of
Shareholders’ equity
Shareholders’ equity
Opening balance (1 January 2015)
Profit for the year
Other comprehensive income(3)
AT1 issuance
Partial redemption of 2009 Preference Shares
Preference share dividend payments
Closing balance (31 December 2015)
€ bn
11.6
1.4
0.8
0.5
(1.7)
(0.5)
12.1
Shareholders’ equity of € 12.1 billion at 31 December 2015
increased by € 0.5 billion from € 11.6 billion at 31 December
2014. The table above sets out the movements in the year.
Funding
Source of funds
Dec 2014
3%
Dec 2015
3%
18%
15%
403
378
63%
378
64%
21%
13%
Customer accounts
Capital(1)
Wholesale funding(2)
Monetary authority funding
At 31 December 2015 customer accounts were € 63.4 billion,
with wholesale funding at € 18.0 billion, monetary authority
funding at € 2.9 billion and capital at € 14.4 billion.
Qualifying liquid assets
At 31 December 2015, the Group held € 34 billion in qualifying
secured (ACS) debt partly offset by three debt issuances in 2015
liquid assets/contingent funding (including € 4 billion in liquid
totalling € 2.0 billion. The issuances have been part of a
assets only available for use in AIB Group (UK) p.l.c) of which
balanced and measured approach to funding in the wholesale
approximately € 14 billion was not available due to repurchase,
secured loan and other agreements. As at 31 December 2015,
the Group liquidity pool was € 16 billion (31 December 2014:
€ 17 billion). For further detail on funding see pages 146 to
148.
markets.
Other liabilities
Other liabilities of € 6.7 billion comprised:
-
subordinated liabilities of € 2.3 billion up 60% from
€ 1.5 billion in 2014. € 750 million of subordinated Tier 2
notes were issued in 2015. Subordinated liabilities include
contingent capital notes maturing in 2016 with a carrying
value of € 1.5 billion (nominal value of € 1.6 billion).
derivative financial instruments of € 1.8 billion reduced by
24% from € 2.3 billion in 2014.
retirement benefit liabilities € 0.4 billion compared to
€ 1.2 billion in December 2014 benefitting from changes in
actuarial assumptions used to value the Irish scheme’s
-
-
liabilities.
remaining liabilities of € 2.3 billion were in line with 2014.
-
(1)Includes shareholders’ equity and subordinated liabilities.
(2)Includes other market funding and debt securities in issue.
(3)Other comprehensive income primarily consists of a € 0.8 billion reduction in the net pension reserve deficit.
32
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Capital
• Common Equity Tier 1 (“CET 1”) fully loaded
ratio(2) of 13.0% at 31 December 2015, up from
5.9% in 2014
• 2015 profit after tax of € 1.4 billion key
component of improved ratio.
• Capital reorganisation successfully completed in
December 2015.
Capital
Transitional risk weighted assets(1)
Fully loaded risk weighted assets(2)
Transitional CET 1(1)
Fully loaded CET 1(2)
Transitional CET 1 ratio(1)
Fully loaded CET 1 ratio(2)
31 Dec 31 Dec
2014
€ bn change
2015
€ bn
58.5
59.1
9.3
7.7
%
15.9
13.0
59.1
59.1
9.7
3.5
-0.6
-0.1
-0.4
4.2
% change
16.4
5.9
-0.5
7.1
Capital reorganisation
In 2015, the Group underwent a capital reorganisation. This
involved the following actions:
- a payment of € 1.7 billion of capital to the State as a partial
redemption of the 2009 Preference Shares representing 1.36
billion of the 3.5 billion preference shares.
- conversion of the remainder of the 2009 Preference Shares
into Ordinary Shares of €0.0025 each.
- a payment of a final preference dividend of € 166 million to
the NTMA.
Transitional CET 1 ratio
€ bn
Transitional - capital movements
0.9
(1.7)
12.0
11.0
707
0.5
10.0
9.7
16.4%
9.0
8.0
7.0
(0.2)
0.1
(0.1)
636
9.3
15.9%
31 Dec 14
2015
pre-provision
profit
Overall
net
writeback
Pref
Share
redemption
Final
Pref
dividend
Impact
of
pension
DTA/
Other
31 Dec 15
The transitional CET 1 ratio of 15.9% at 31 December 2015
reduced from 16.4% at 31 December 2014 primarily due to the
€ 1.7 billion payment as partial redemption of the 2009
Preference Shares partially offset by the 2015 profit after tax of
€ 1.4 billion.
Fully loaded CET 1 ratio
€ bn
Fully loaded - capital movements
0.4
7.7
0.8
1.8
(0.2)
13.0%
8.0
7.0
6.0
5.0
4.0
3.0
2.0
0.9
0.5
3.5
5.9%
31 Dec 14
2015
pre-provision
profit
Overall
net
writeback
Pref
Share
Conversion
Final
Pref
dividend
Impact
of
pension
DTA/
AFS/
Other
31 Dec 15
- the issue of a Tier 2 instrument of € 750 million in
The fully loaded CET 1 ratio of 13.0% at 31 December 2015
November 2015.
increased from 5.9% at 31 December 2014. CET 1 capital on a
- the issue of an Additional Tier 1 (“AT1”) of € 500 million in
fully loaded basis has increased by € 4.2 billion, reflecting the
December 2015.
Risk Weighted Assets
Transitional Risk Weighted Assets (“RWAs”) of € 58.5 billion
conversion of the 2009 Preference Shares resulting in a net
€ 1.8 billion increase, the 2015 profit after tax (€ 1.4 billion) and
a decrease in the pension deficit of € 0.8 billion due to an
increase in the discount rate applied in the valuation of pension
have reduced by € 0.6 billion during 2015, with credit risk RWA
liabilities. Other movements include a reduction in DTA of
reducing by € 0.8 billion in the period. This was primarily due to
€ 0.5 billion and an increase in value of equity investment in
a reduced volume of defaulted loans, offset by an increase due
Visa Europe of € 0.2 billion.
to FX movements (€ 1.0 billion). Operational risk RWA increased
by € 0.3 billion in the period, reflecting the increased levels of
income in the annual calculation. Credit valuation adjustment
Transitional to Fully Loaded CET 1 ratio
The transitional CET 1 ratio of 15.9% compares to 13.0% on a
RWA reduced by € 0.1 billion, reflecting a reduced level of
fully loaded basis at 31 December 2015. The main driver of the
exposure.
(1)Based on a phased implementation of the Basel III CRD IV regulations.
(2)Based on full implementation of the Basel III CRD IV regulations.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
difference is the full deduction of the deferred tax asset, this
deduction is phased into the transitional calculation at 10% per
annum which commenced in 2015. The pension deficit and
AFS reserves are included in the fully loaded calculations
compared to phased percentages in the transitional
calculations. The difference of € 0.5 billion in 2015 between
Transitional and Fully Loaded RWAs is in relation to the
phasing of the unrealised gains/losses portion of the AFS
portfolio. See Capital Management section on pages 44 to 48.
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33
Business review - 1. Operating and financial review
Asset quality
(1)
• Significant restructuring progress, with
impaired loans reduced by € 9.1 billion (41%).
• Improved demand for credit resulted in new
lending of € 8.7 billion, up 49% in 2015.
• Overall net provision writeback of € 925 million
in 2015 improved from an overall net provision
writeback of € 185 million in 2014.
Asset quality balance sheet
Impaired loans
New to impaired loans in the year
Balance sheet provisions
Amounts written off
Specific provisions/Impaired loans
Total provisions/Total loans
Asset quality income statement
Credit writeback(2)
Other (provisions)/writebacks
Total writeback
31 Dec 31 Dec
2014
%
€ bn change
2015
€ bn
-41
-56
-45
-1
13.1
0.7
6.9
4.6
%
47
10
22.2
1.6
12.4
4.7
%
51
16
2015
€ m
2014
%
€ m change
925
(2)
923
185
3
188
400
-
391
Provision charge %(3)
Provision charge % AIB Ireland
(1.26)
(1.52)
Provision charge % AIB UK
(0.35)
Provision charge % Group & International 0.50
(0.22)
(0.39)
0.54
0.25
Loan portfolio - Credit quality
Gross loans and receivables to customers reduced by 7.5% or
€ 5.7 billion in 2015. The reduction was due to restructuring
Continued progress in working with customers to restructure
facilities has resulted in the quantum of impaired loans reducing
by € 9 billion in the year (a decrease of 41%). The reduction
reflects restructuring activity, write-offs (including non-contracted
write-offs), redemptions and repayments due to customer asset
sales. In addition the level of new to impaired loans for 2015 was
€ 0.7 billion compared to € 1.6 billion for 2014 (a decrease of
56%).
Restructuring
Restructuring loans of customers in difficulty continues to be a
key focus for the Group. Treatment strategies, as described on
pages 73 to 75 have been developed for customers who are
experiencing financial difficulties. The approach is one of
structured engagement with customers to assess their long term
levels of sustainable debt. Overall, the quantum of impaired
loans reduced by € 9.1 billion in the year, primarily due to
restructures, write-offs and cures totalling € 8.6 billion. This
€ 8.6 billion was made up of restructuring engagement with
customers and which resulted in c. € 3.4 billion of loans being
restructured out of impairment in the year, a further € 3.4 billion
of loans were written off (including non-contracted write offs), and
cures of € 1.8 billion.
In addition to the reduction of impaired in the year, there is
c. € 2.2 billion of impaired mortgages that are in forbearance, of
which c. € 1 billion is currently performing in accordance with
agreed forbearance sustainable solutions and the continued
compliance to terms over a period of 12 months will result in an
upgrade out of impairment. The remaining € 1.2 billion includes
loans that have been the subject of a temporary or short term
forbearance solution but will remain classified as impaired and in
arrears until a sustainable solution has been put in place.
Following this, they will be required to maintain at least 12
months satisfactory performance before being considered for
upgrade out of impairment.
activity of € 4.7 billion, the disposal of a portfolio of loans in the
UK of € 0.7 billion and loan redemptions of € 10.1 billion offset
Net credit provision writeback
The overall net credit provision writeback of € 925 million for
by new lending of € 8.7 billion. The movement in loans to
2015 compared to an overall net credit provision writeback of
customers from 1 January 2015 to 31 December 2015 is set out
€ 185 million for 2014. Income statement specific provisions
on the table on page 96.
included € 281 million from new impairments and a € 789 million
writeback of provisions (net of top-ups). This writeback amounted
Improved demand for credit resulted in new lending of
to 3.6% of the opening impaired loan balance. Key drivers of the
€ 8.7 billion in 2015 (2014: € 5.9 billion) spread across most
writeback include:
sectors and included € 1.7 billion mortgage and € 3.3 billion
• increased security values and improved business
non-mortgage in AIB Ireland, € 2.6 billion in AIB UK and
cashflows due to the stronger economic environment,
€ 1.1 billion in Group & International.
• cases cured from impairment, and
Credit quality in the portfolio continues to improve. Non-impaired
process.
loans as a percentage of total loans have increased from 71% at
The impairment provisions remain dependent on significant
31 December 2014, to 81% at 31 December 2015. The
levels of future collateral realisations.
• additional security gained as part of the restructuring
improving credit quality is as a result of the level of new business
in the year combined with the reduction in the impaired portfolio
arising out of the restructuring process.
(1)More extensive disclosures on asset quality are in the Risk management section from page 91.
(2)Credit writeback/(provisions) consists of a writeback of € 925 million relating to loans and receivables to customers and nil relating to loans and
receivables to banks in 2015 (€ 178 million writeback and € 7 million writeback respectively in 2014).
(3)Provision charge % is the total provision charge (specific and IBNR) expressed as a percentage of average advances.
34
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Asset quality (continued)
Impairment provisions
Specific impairment provisions as a percentage of impaired loans
Other personal
The portfolio of € 3.5 billion at 31 December 2015 reduced by
decreased from 51% at 31 December 2014 to 47% at
€ 0.3 billion or 8% during 2015, predominantly in the impaired
31 December 2015. This was mainly due to the write-off of
portfolio. There has been increased customer demand for
provisions against related loan balances where the prospect of
personal lending products due to the stronger economic
recovery is unlikely (reduced cover by 6%), along with the impact
environment and improved customer offerings.
of other restructures and writebacks.
IBNR provisions of € 0.7 billion were held at 31 December 2015
Property and construction
The portfolio of € 11.5 billion at 31 December 2015 reduced by
compared to € 1.1 billion at 31 December 2014. The reduction
€ 4.0 billion or 26% during 2015. Impaired loans within this sector
was mainly due to a reduction in the probability of default in the
reduced by € 4.5 billion, mainly due to restructuring, redemptions
portfolio reflecting the improved economic environment as well
and customer repayments through asset sales. Activity in the
as changes in model parameters. The level of IBNR reflects a
sector has been underpinned by improved economic
conservative estimate of unidentified incurred loss within the
performance and increased investment which has had a positive
portfolio.
impact on the residential and commercial land and development
market.
Residential mortgages
Total loans in arrears (including impaired loans) in the Republic
of Ireland residential mortgage portfolio of € 6.7 billion at
Non-property business
The non-property business portfolio of € 18.3 billion at
31 December 2015 decreased by € 2.8 billion (29%) (by value)
31 December 2015 increased by € 0.7 billion due to earning
during 2015, reflecting a decrease of 25% in the
loans up € 2.4 billion partly offset by a reduction in impaired
owner-occupier portfolio and a decrease of 36% in the
loans of € 1.7 billion during 2015. The business was
buy-to-let portfolio in the period. By number of customers,
concentrated in sub-sectors which are reliant on the domestic
these decreases were 24%, 24% and 25% respectively. The
economy. It also includes exposures which are more dependent
reduction in arrears can be mainly attributed to the
on international markets. Key sub-sectors (as a percentage of
restructuring of the portfolio and the improving economic
total sector) include agriculture (10%), hotels (13%), licensed
conditions. The reduction in arrears was evident in both the
premises (4%), retail/wholesale (13%) and other services (32%).
performance of early arrears (less than 90 days past due) and
the late arrears (greater than 90 days past due).The amount of
The table below sets out the asset quality by sector for a range of
loans which were new into arrears for the first time in 2015 fell
credit metrics. Further detail of the risk profile of the Group is
by 51% compared to 2014.
available in the Risk management section on pages 83 to 124.
Loan book sectoral profile
31 December 2015
Loans and receivables to customers(1)
Of which: Impaired
Balance sheet provisions (specific + IBNR)
Specific provisions / Impaired loans (%)
Total provisions / Total loans (%)
12 months to 31 December 2015
Specific impairment (credit)/charge
Total impairment (credit)/charge(2)
31 December 2014
Loans and receivables to customers(1)
Of which: Impaired
Balance sheet provisions (specific + IBNR)
Specific provisions / Impaired loans (%)
Total provisions / Total loans (%)
12 months to 31 December 2014
Specific impairment (credit)/charge
Total impairment (credit)/charge(2)
Residential Other personal
mortgages
€ bn
€ bn
Property and
construction
€ bn
Non-property
business
€ bn
36.8
6.0
2.3
34%
6%
€ m
(204)
(478)
€ bn
38.8
8.5
3.4
34%
9%
€ m
(4)
(76)
3.5
0.7
0.5
70%
15%
€ m
(5)
(8)
€ bn
3.8
1.0
0.8
69%
20%
€ m
18
15
11.5
4.3
2.7
57%
23%
€ m
(216)
(214)
€ bn
15.5
8.8
5.7
62%
36%
€ m
(90)
(244)
18.3
2.1
1.3
55%
7%
€ m
(83)
(225)
€ bn
17.6
3.8
2.6
59%
15%
€ m
1
127
Total
€ bn
70.1
13.1
6.9
47%
10%
€ m
(508)
(925)
€ bn
75.8
22.2
12.4
51%
16%
€ m
(75)
(178)
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(1)The table above has been extracted from the Credit Risk tables in section 3.1 of the Risk management section. Loans and receivables to customers
include unearned income and deferred costs.
(2)Impairment charge excludes provisions on loans to banks of nil in 2015 (€ 7 million credit in 2014).
Allied Irish Banks, p.l.c. Annual Financial Report 2015
35
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36
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Segment reporting
The Group has reorganised its business in 2015 to enable a
customer focused, profitable and low risk enterprise which is well
No. 1 Physical Distribution Network in Ireland
Personal relationships is an important proposition in the Irish
positioned to support the economic recovery in Ireland while
market. AIB Ireland has the leading distribution network in
seeking to generate sustainable shareholder returns. This
Ireland consisting of 203 branches, 20 Business Centres, the
change focuses on the needs of its customers, so as to combine
Lab (an award winning concept store focusing on Digital
customer groups with similar needs into franchises able to
banking and innovation), 13 Campus locations, 70 EBS
deliver co-ordinated services. Previously the Group’s loan
locations and banking services offered through the c. 1,100
restructuring activity was reported within the Financial Solutions
strong An Post network.
Group (“FSG”) segment and has now been integrated back into
business as usual. Customers are included in respective
segments regardless of the credit quality of the customer.
AIB UK
AIB UK comprises of two long established and distinct
businesses offering full banking services operating as Allied
The Group reported the following key segments in the
Irish Bank (GB) in Great Britain and First Trust Bank in
Half-Yearly Financial Report 2015: Retail & Business Banking
Northern Ireland.
(“RBB”), Corporate & Institutional Banking (“CIB”), AIB UK and
Group. Reporting on this segment basis commenced in 2015.
Great Britain
Allied Irish Bank (GB) aims to be recognised as the bank of
Following further enhancements to the Group structure,
choice for owner managed businesses in Great Britain. It
Corporate Ireland was moved from CIB to RBB, forming a new
operates through 16 business centres and currently services
segment called AIB Ireland. Wholesale Treasury and the
c. 2,000 Business/Corporate customers. Through its Direct
International businesses were moved from CIB to Group to form
Banking proposition it serves the needs of smaller owner
the new segment Group & International. In the Annual Financial
managed businesses and the personal banking requirements
Report 2015, the Group reports the following key segments:
of business owners and personal savers through the provision
AIB Ireland, AIB UK, and Group & International.
of digital and self-service channels, serving c. 68,000
customers.
AIB Ireland
AIB Ireland comprises Personal, Business and Corporate
Banking. It is the leading franchise bank across key segments
Northern Ireland
In Northern Ireland, First Trust Bank (“FTB”) is a
and products in the domestic market and is well positioned for
well-established and trusted full service retail, business and
growth. With an integrated customer focused approach, from
corporate bank. FTB’s strategic aim is to be a focused
product design to distribution, AIB Ireland has over 2.3 million
challenger in Northern Ireland by simplifying products and
customers. AIB Ireland is divided into the following
closely aligned to that offered by the Retail Banking area of
sub-segments: Retail Ireland, which consists of personal and
AIB Ireland.
business, and Corporate Ireland, which consists of corporate
and property lending.
No. 1 Position in Key Product lines
AIB Ireland operates in five key product areas / segments:
Mortgages, Personal Lending, Business Lending, Corporate and
Deposits. AIB Ireland has strong market shares in Retail and
Corporate Markets:
#1 Bank for Mortgages
Operating out of 30 branches and 5 business offices, FTB
services c. 270,000 active customers. A high quality digital
offering is available to those customers seeking digital
solutions to their banking requirements.
Group & International
Group & International includes the businesses outside Ireland
and the UK. It also includes wholesale treasury activities,
central control and support functions (business and customer
#1 Bank for Personal and Business Current Accounts
services, risk, audit, finance, general counsel, human
#1 Bank for Personal and Business Loans
#1 Bank for Personal and Business Leasing
resources and corporate affairs). Certain overheads related to
these activities are managed and reported in the
#1 Bank for Personal and Business Credit Cards
Group & International segment.
#1 Corporate Bank for Foreign Direct Investment
No. 1 Digital Channel Distribution Network in Ireland
As banking becomes more digitally enabled, AIB Ireland has a
Segment allocations
The segments’ performance statements include all income and
direct costs but exclude certain overheads which are managed
significant lead on Irish competitors in capability and customer
centrally and the costs of these are included in
adoption. The core digital platforms include Internet Banking (full
Group & International. Funding and liquidity charges are based
responsive infrastructure), Mobile App, iBusiness Banking,
on each segment’s funding requirements and the Group’s
Tablet banking and AIB Social Media channels. With over
funding cost profile, which is informed by wholesale and retail
1 million customers online, AIB is ranked higher than its peers in
digital adoption.
funding costs. Income attributable to capital is allocated to
segments based on each segment’s capital requirement.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
37
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Business review - 1. Operating and financial review
AIB Ireland
• Operating contribution of € 2,034 million
compared to € 1,163 million in 2014.
• New lending of € 5.0 billion, up 41%, in 2015
compared to € 3.5 billion in 2014.
- Retail Ireland € 3.3 billion (up 32%)
- Corporate Ireland € 1.7 billion (up 65%)
• Total overall net provision writeback of
€ 901 million compared to a net provision
writeback of € 257 million in 2014, increased
due to debt restructuring and improving
economic conditions.
€ m
2,500
2,000
1,500
1,000
500
0
-500
-1,000
Improvement in operating contribution
1,734
1,888
2,034
1,163
901
257
(828)
2014
(755)
2015
Total income
Total operating expenses
Total net writeback/(provisions)
Operating contribution
AIB Ireland contribution statement
Net interest income
Other income
Total operating income
Total operating expenses
2015
€ m
1,445
443
1,888
2014
%
€ m change
1,298
436
1,734
(755)
(828)
Operating contribution before levies
and provisions
Total net writeback of provisions
Operating contribution
Associated undertakings
1,133
901
2,034
21
Contribution before disposal of property 2,055
Profit on disposal of property
3
906
257
1,163
18
1,181
3
Contribution before exceptional items
2,058
1,184
Other items of € 56 million in 2015 were € 9 million (19%) higher
than 2014. This included € 45 million due to the effect of
realisation/re-estimation of cash flows on loans and receivables
previously restructured compared to € 24 million in 2014 and a
fair value gain of € 6 million in 2015 on equity warrants received
as part of previous customer debt restructuring compared to
€ 24 million in 2014.
Operating expenses
Total operating expenses of € 755 million in 2015 were
€ 73 million (9%) lower than 2014. Personnel expenses of
€ 462 million were € 26 million (5%) lower than 2014 as a result
of lower staff numbers due to selective outsourcing and the
voluntary severance scheme. General and administrative
expenses of € 251 million were € 40 million (14%) lower than
2014 due to cost savings across most classifications partly offset
by higher outsourcing costs. The charge for depreciation,
impairment and amortisation of € 42 million was € 7 million (14%)
11
2
9
-9
25
251
75
17
74
-
74
AIB Ireland contribution statement
Retail Ireland
Corporate Ireland
€ m
999
134
777
129
29
4
Operating contribution before levies
and provisions
1,133
906
25
€ m change
lower than 2014.
Provisions
Total overall net writeback of € 901 million in 2015 compared to
a total overall net writeback of € 257 million for 2014. The net
writeback comprised of € 487 million in specific provision
writebacks, a release of IBNR provisions of € 405 million and a
net writeback of provisions for liabilities and commitments of
€ 9 million (2014: net writeback of specific provisions of
Net interest income
Net interest income of € 1,445 million in 2015 was € 147 million
€ 208 million, a release of IBNR provisions of € 46 million and a
net writeback of provisions for liabilities and commitments of
(11%) higher than 2014 due to continued reductions in the cost
€ 3 million), and reflected the level of debt restructuring
of customer deposits and lower wholesale funding costs while
completed in the year, lower new to impaired loans and
maintaining risk appropriate pricing on customer asset yields
improving economic conditions. For further detail on provisions
including two variable mortgage rate reductions. These positive
see the Risk management section on pages 97 to 98.
impacts were partly offset by lower average loan volumes.
Other income
Other income of € 443 million in 2015 was € 7 million (2%)
higher than 2014. Business income of € 387 million was broadly
in line with 2014 and includes fee and commission income of
€ 342 million which was 3% higher than 2014 offset by other
business income.
38
Allied Irish Banks, p.l.c. Annual Financial Report 2015
AIB Ireland (continued)
AIB Ireland balance sheet metrics
31 Dec
2015
€ bn
31 Dec
%
2014
€ bn change
Retail Ireland
Corporate Ireland
Gross loans
Retail Ireland
Corporate Ireland
Net loans
Retail Ireland
Corporate Ireland
Customer accounts
Retail Ireland
Corporate Ireland
Loan to deposit ratio
47.7
8.1
55.8
42.4
7.7
50.1
40.2
10.0
50.2
%
105
77
100
53.4
8.3
61.7
43.6
7.5
51.1
37.7
10.8
48.5
-11
-2
-10
-3
3
-2
7
-7
4
€ bn
2.0
1.5
1.0
0.5
0.0
Growth in new lending
1.7
1.3
1.7
1.1
0.9
1.0
0.5
0.4
Personal
Mortgages
Business
Corporate
2014
2015
AIB Ireland new lending of € 5.0 billion was up € 1.5 billion
% change
(41%) compared to 2014. This included personal lending of
116
69
105
-11
8
-5
€ 0.5 billion (up 40%), mortgage lending of € 1.7 billion (up
32%), business lending of € 1.1 billion (up 28%) and corporate
lending of € 1.7 billion (up 65%).
New lending 2015 by sector
Balance sheet
Gross loans in AIB Ireland of € 55.8 billion reduced by € 5.9 billion
(10%) since 31 December 2014 due to reductions of gross loans
in Retail Ireland of € 5.7 billion (11%) to € 47.7 billion and
Corporate Ireland of € 0.2 billion (2%) to € 8.1 billion as loan
restructuring of € 4.1 billion and redemptions/other of € 6.8 billion
exceeded new lending of € 5.0 billion.
13%
12%
41%
403
34%
389
378
Distribution 16%
Services 10%
Agriculture 6%
Manufacturing 4%
Transport 3%
Other 2%
Gross loans movement
5.0
(4.1)
(6.8)
55.8
11.4
44.4
€ bn
80.0
60.0
61.7
19.2
40.0
42.5
20.0
0.0
Dec 2014
New lending
Restructuring
Redemptions/
Other
Dec 2015
Earning loans
Impaired loans
Non-property business
Personal
Mortgages
Property and construction
Business and corporate lending are split between property and
construction and non-property business in the graph above.
Non-property business lending contributed to 41% of all new
lending in 2015. 34% of new lending in 2015 was from
mortgage lending. AIB Group was the largest provider of new
mortgage lending drawdowns in Ireland in 2015, with a market
share of 34%.
AIB Ireland has made significant progress and momentum in
restructuring customers in financial difficulty with impaired loans
Earning loans of € 44.4 billion increased by € 1.9 billion (4%) as
reducing to € 11.4 billion at 31 December 2015 from
new lending and loans upgraded to earning exceeded
€ 19.2 billion.
repayments.
AIB Ireland customer accounts increased by € 1.7 billion (4%)
since 31 December 2014 with strong growth in Retail Ireland of
€ 2.5 billion (7%) as current accounts increased by € 2.9 billion
partly offset by a reduction in term deposits. Customer accounts
in Corporate Ireland reduced by € 0.8 billion (7%) to
€ 10.0 billion mainly due to a reduction in term deposits.
The loan to deposit ratio for AIB Ireland reduced from 105% at
31 December 2014 to 100% at 31 December 2015 due to the
reduction in net loans and increase in customer accounts.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
39
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Business review - 1. Operating and financial review
AIB UK
• Operating contribution of £ 166 million
compared to £ 67 million in 2014.
• New lending of £ 1.9 billion in 2015 compared
to £ 1.3 billion in 2014.
• Total overall net provision writeback of
£ 32 million compared to a charge of
£ 57 million in 2014 due to debt restructuring
and improving economic conditions.
(117)
(130)
AIB UK contribution statement
Net interest income
Other income
Total operating income
Total operating expenses
Operating contribution before levies
and provisions
Total net writeback/(provisions)
Operating contribution
Associated undertakings
2015
£ m
215
36
251
134
32
166
3
Contribution before disposal of property 169
Profit on disposal of property
-
Contribution before exceptional items
169
Contribution before exceptional items €m 232
2014
%
£ m change
198
56
254
124
(57)
67
4
71
2
73
90
9
-36
-1
-10
8
-
148
-25
138
-
132
158
AIB UK contribution statement
AIB GB
First Trust Bank
Operating contribution before levies
and provisions
£ m
87
47
134
£ m change
87
37
-
27
124
8
Net interest income
Net interest income of £ 215 million in 2015 was £ 17 million (9%)
higher than 2014 mainly due to lower funding costs while
maintaining risk appropriate pricing on customer asset yields.
Net interest income in AIB GB of £ 145 million increased by
£ 10 million (7%) and net interest income in First Trust Bank
(“FTB”) of £ 70 million increased by £ 7 million (11%) compared to
2014.
40
£ m
300
250
200
150
100
50
0
-50
-100
-150
Improvement in operating contribution
254
251
67
(57)
(130)
2014
166
32
(117)
2015
Total income
Total operating expenses
Total net writeback/(provisions)
Operating contribution
Other income
Other income of £ 36 million in 2015 was £ 20 million (36%)
lower than 2014. Fee and commission income of £ 46 million
was in line with 2014. There was a loss of c. £ 29 million on the
disposal of a portfolio of loans in 2015 and lower net profits on
the disposal of AFS equity securities partly offset by a positive
increase of c. £ 14 million in valuation adjustments mainly on
sterling customer derivative positions.
Excluding the loss on the disposal of loans, other income in
AIB GB increased by £ 13 million offset by a reduction in other
income in FTB of £ 4 million compared to 2014.
Total operating expenses
Total operating expenses of £ 117 million in 2015 were
£ 13 million (10%) lower than 2014 due to lower salary and
associated costs along with lower general and administrative
expenses due to lower occupancy costs.
Provisions
Total overall net writeback was £ 32 million in 2015 compared to
a charge of £ 57 million in 2014. Continuing management action
to dispose of impaired assets within the specific provisions held,
low levels of new impairment and improving economic
conditions have contributed a net writeback in 2015. For further
detail on provisions see the Risk management section on pages
97 to 98.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
AIB UK (continued)
AIB UK balance sheet metrics
31 Dec
2015
£ bn
31 Dec
%
2014
£ bn change
AIB GB
FTB
Gross loans
AIB GB
FTB
Net loans
AIB GB
FTB
Customer accounts
AIB GB
FTB
Loan to deposit ratio
5.3
3.1
8.4
5.1
2.5
7.6
4.8
3.8
8.6
%
106
66
88
£ bn
1.5
1.0
0.5
0.0
New lending trend
1.3
0.8
0.5
0.3
0.06
0.02
0.06
0.04
Personal
Mortgages
Business
Corporate
2014
2015
New lending of £ 1.9 billion in 2015, AIB GB at £ 1.6 billion and
6.0
3.5
9.5
5.4
2.7
8.1
5.2
3.8
9.0
-12
-11
-12
-6
-7
-6
-8
-
-4
% change
FTB at £ 0.3 billion, was £ 0.6 billion higher than 2014 mainly in
104
71
90
2
-5
-2
business and corporate customer segments.
New lending 2015 by sector
Balance sheet
Gross loans were £ 1.1 billion lower at £ 8.4 billion mainly due to
28%
redemptions/other during the year of £ 2.1 billion, the disposal of a
64%
portfolio of loans in 2015 of £ 0.5 billion and restructuring of
£ 0.4 billion partly offset by new lending of £ 1.9 billion.
6%
2%
389
378
Distribution 20%
Services 17%
Manufacturing 11%
Transport 8%
Financial 4%
Other 4%
Gross loans movement
1.9
(0.4)
(0.5)
(2.1)
£ bn
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
9.5
2.2
7.3
Dec 2014
New lending
Restructuring
Loan
disposals
Redemptions/
Other
Dec 2015
Earning loans
Impaired loans
Non-property business
Personal
Mortgages
Property and construction
8.4
1.2
7.2
Business and corporate lending are split between property and
construction and non-property business in the graph above.
Non-property business lending contributed to 64% of all new
lending in AIB UK in 2015.
Impaired loans of £ 1.2 billion at 31 December 2015 have
reduced from £ 2.2 billion at 31 December 2014 which is due
to repayments, write-offs and the disposal of a portfolio of
loans in 2015.
Earning loans of £ 7.2 billion were broadly in line with
Customer accounts were £ 8.6 billion at 31 December 2015
31 December 2014 as new lending was offset by repayments and
compared to £ 9.0 billion at 31 December 2014 with lower
loan disposals.
deposit balances offset in part by an increase in current
accounts. The loan to deposit ratio has decreased to 88% in
2015 compared to 90% in 2014 due to reductions in net loans.
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Business review - 1. Operating and financial review
Group & International
• New lending of € 1.1 billion, up 59%, in 2015
compared to € 0.7 billion in 2014.
• Reductions in other income due to lower gains
on AFS disposals and NAMA senior bonds in
2015.
• Total operating expenses have reduced by
€ 34 million (8%).
Other items
Net profit on disposal of AFS securities
Effect of acceleration / re-estimation of the
timing of cash flows on NAMA senior bonds
Settlements and other gains
Other items
2015
€ m
77
6
51
134
2014
€ m
172
132
66
370
Other items of € 134 million for 2015 were € 236 million (64%)
lower than 2014.
Group & International
contribution statement
Net interest income
Other income
Total operating income
Total operating expenses
2015
€ m
185
203
388
(379)
(413)
Operating contribution before levies
and provisions
9
Bank levies
(68)
Total (provisions)/writeback of provisions (22)
Operating contribution
Associated undertakings
Contribution before exceptional items
Group & International
balance sheet metrics
Gross loans
(81)
1
(80)
31 Dec
2015
€ bn
2.8
Net loans
2.8
Financial investments available for sale 16.5
Financial investments held to maturity
3.5
NAMA senior bonds
Customer accounts
5.6
1.5
2014
%
€ m change
Operating expenses
Operating expenses in Group & International include unallocated
143
339
482
69
(60)
1
10
-
10
29
-40
-20
-8
-87
13
-
-
-
-
overheads relating to operations & technology, risk, audit,
finance, general counsel, human resources and corporate
affairs & strategy. Total operating expenses of € 379 million in
2015 were € 34 million (8%) lower than 2014 due to ongoing
cost control and management.
Personnel expenses of € 167 million in 2015 were € 11 million
(6%) lower than 2014 due to lower staff numbers. General and
administrative expenses of € 183 million in 2015 were
€ 19 million (9%) lower than 2014 with reductions across the
majority of cost classifications as a result of ongoing cost
management partly offset by an increase in costs as a result of
outsourcing initiatives. Depreciation, impairment and
amortisation of € 29 million in 2015 was € 4 million (12%) lower
31 Dec
2014
%
€ bn change
than 2014.
1.9
1.9
20.2
-
9.4
4.0
47
47
-18
-
-40
-63
Bank levies
Bank levies of € 68 million in 2015 were € 8 million higher than
2014 due to an additional levy in 2015 relating to the introduction
of the Bank Recovery and Resolution Directive (“BRRD”) levy.
Total (provisions)/writeback of provisions
Provision charge of € 22 million in 2015 relates to a credit provi-
sion charge of € 11 million and a provision charge for liabilities
and commitments of € 11 million, compared to a net writeback of
Net interest income
Net interest income of € 185 million in 2015 was € 42 million
€ 1 million in 2014.
(29%) higher than 2014 due to lower funding costs and strong
growth in the Leverage Portfolio due to higher new business
Balance sheet
Gross loans of € 2.8 billion increased by € 0.9 billion since
lending volumes. These positive impacts were partly offset by
31 December 2014 with new lending of € 1.1 billion, an increase
lower income on NAMA senior bonds due to ongoing repayments
of 59% compared to 2014.
of the portfolio and lower income from the securities portfolio due
to the sale and maturity of legacy high margin positions.
AFS assets which are held for liquidity and investment purposes,
were € 16.5 billion at 31 December 2015 and have decreased
Other income
The reduction in other income was mainly attributable to ‘Other
from € 20.2 billion during 2015 mainly due to assets of
€ 3.5 billion being reclassified to held to maturity following a
Items’ (see other items table). Other movements included the
review of strategy in relation to securities holdings and a
positive movement in valuation adjustments on sterling customer
commitment to long term (to maturity) investment in selected
derivative positions from a cost of € 63 million in 2014 to income
Irish Government Bonds. NAMA senior bonds reduced by
of € 12 million in 2015. The cost in 2014 was primarily from the
€ 3.8 billion in the period due to redemptions.
negative valuation adjustments on sterling customer derivative
positions due to the reduction in medium to long term sterling
interest rates. In 2015, due to an increase in term sterling interest
Customer accounts of € 1.5 billion reduced by € 2.5 billion (63%)
since 31 December 2014 of which € 1.2 billion related to a
rates, this negative valuation adjustment was partially reversed.
reduction in repos and € 1.3 billion in treasury deposits.
42
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Business review - 2. Capital Reorganisation
AIB announced in its 2014 Annual Financial Report and in its 2015 Half-Yearly Financial Report, that it had been engaged in discussions
with the Irish Minister for Finance (‘the Minister’) regarding the simplification and rationalisation of its capital structure. The outcome of
the engagement with the Minister was the Capital Reorganisation completed in December 2015.
The Capital Reorganisation was designed to enable AIB to:
–
–
initially return € 1.7 billion of capital to the Irish Government in line with AIB’s obligations under its EU Restructuring Plan;
create a sound and sustainable base on which to grow AIB’s business;
– meet regulatory requirements under Capital Requirements Directive IV (“CRD IV”), and the Banking Recovery and Resolution
Directive (“BRRD”);
–
allow future payment of dividends on ordinary shares as and when conditions permit;
– more closely align the Group’s capital structure with market norms and investor expectations; and
–
position AIB for a return to private ownership over time.
In order to implement the Capital Reorganisation, the 3.5 billion 2009 Preference Shares were to be partially converted to ordinary
shares and partially redeemed. A condition for the conversion/redemption of the 2009 Preference Shares was the issuance of specific
debt capital instruments by AIB. In November 2015, AIB issued € 750 million of subordinated Tier 2 notes (note 41 to the consolidated
financial statements) and € 500 million Additional Tier 1 (“AT 1”) securities (note 44 to the consolidated financial statements).
At an Extraordinary General Meeting (“EGM“) held on 16 December 2015, shareholders approved the resolutions with respect to the
Capital Reorganisation enabling the implementation of the following actions:
– Partial redemption of the 2009 Preference Shares: 1,360 million of the 3,500 million 2009 Preference Shares were redeemed for
cash at 125% of the subscription price resulting in a repayment of € 1.7 billion of capital to the Irish State;
– Conversion of the remainder of the 2009 Preference Shares: 2,140 million 2009 Preference Shares were converted into ordinary
shares of € 0.0025 each at 125% of the subscription price, resulting in 155.1 billion additional ordinary shares.
– A dividend payment of € 166 million was made to the NTMA on 17 December 2015, being the accrued dividend on the 2009
Preference Shares from 13 May 2015 to the date of conversion/redemption of the 2009 Preference Shares;
– AIB cancelled all its outstanding treasury shares with no impact on capital ratios – see note 43 to the consolidated financial
statements; and
– Ordinary share consolidation: On conversion of the 2009 Preference Shares, AIB had 678.6 billion existing ordinary shares of
€ 0.0025 nominal value per share in issue. On 21 December 2015, consolidation of these existing ordinary shares resulted in
shareholders receiving one new ordinary share of € 0.625 for every 250 existing ordinary shares with a nominal value of € 0.0025.
Following the consolidation, AIB now has 2.7 billion new ordinary shares of € 0.625 nominal value in issue of which the Irish
Government holds 99.9%. The consolidation of ordinary shares did not impact capital ratios;
– EBS Promissory Note Redemption: In conjunction with the partial redemption of the 2009 Preference Shares, the EBS Promissory
Note issued by the Minister in 2010 and held as an available for sale financial asset by AIB Group was redeemed at its carrying
value of € 225 million and subsequently cancelled. See note 54 to the consolidated financial statements for further detail; and
– Potential issue of warrants to the Minister: AIB received approval, at the EGM held on 16 December 2015, to enter into a Warrant
Agreement with the Minister which, following a Regulated Market Event, would entitle the Minister to subscribe for new ordinary
shares with a nominal value of € 0.625 per share, subject to a maximum of 9.99% of the issued ordinary share capital. See
note 54 to the consolidated financial statements for further detail.
The redemption/conversion of the 3,500 million 2009 Preference Shares resulted in a net increase in CRD IV fully loaded capital of
€ 1.8 billion.
For further detail on the redemption/conversion of the 2009 Preference Shares and the ordinary share consolidation see note 42 to the
consolidated financial statements.
In addition, as part of the Board’s consideration of an appropriate capital structure for AIB and related discussions with the Minister, the
Board considered AIB’s options in relation to the € 1.6 billion Convertible Contingent Tier 2 Capital Notes (“CCNs”) issued to the
Minister. The Board concluded, that given the short time remaining to the scheduled maturity of the CCNs in July 2016, it is not in the
best interests of the shareholders to take any measures in respect of the CCNs before their scheduled maturity. Accordingly, the CCNs
will continue to form part of AIB’s capital structure.
Specific details in relation to the CCNs are set out in note 41 to the consolidated financial statements.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
43
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Business review - 3. Capital management
Objectives*
The objectives of the Group’s capital management policy are to at all times comply with regulatory capital requirements and to ensure
that the Group has sufficient capital to cover the current and future 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 as part of the
annual financial planning process and is monitored on a monthly 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. This is fully integrated with the Group’s financial planning process and ensures that the Group has
adequate capital resources in excess of minimum regulatory capital requirements and internal capital requirements.
Capital regulation
CRD IV consists of the Capital Requirements Regulation (“CRR”) and the Capital Requirements Directive (“CRD”), and is designed to
strengthen the regulation of the banking sector and to implement the Basel III agreement in the EU legal framework. CRD IV measures
include:
–
a single set of harmonised prudential rules which 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 provisions of CRD IV were introduced on a phased basis from 2014, these
typically followed 20% in 2014, 40% in 2015 etc. until 2018. The main exception to this relates to the deduction for the deferred tax
asset which will be deducted at 10% per annum commencing in 2015; and
–
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.
AIB commenced reporting to its regulator under the transitional CRD IV rules during 2014. The transitional capital ratios presented on
page 46 take account of these phasing arrangements. The fully loaded capital ratios represent the full implementation of CRD IV.
The Single Supervisory Mechanism (‘’SSM’’), comprising the European Central Bank (‘’ECB’’) and the national competent authorities of
EU countries was established in 2014. The SSM places the ECB as the central prudential supervisor of financial institutions in the
Eurozone, including AIB. 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.
Future developments
The Banking Recovery and Resolution Directive (“BRRD”) is a single EU-wide rulebook designed to address bank and investment firm
failure. It has been transposed into Irish law through the European Union (Bank and Recovery Resolution) Regulations, 2015
(S.I. No. 289 of 2015) which commenced on 15 July 2015. The BRRD gives resolution authorities new powers under BRRD to address
failure.
Some of their key tasks include;
–
–
–
to draft resolution plans for banks under supervision of the SSM which includes AIB;
carry out an assessment of the banks’ resolvability and to adopt resolution plans and address any obstacles to resolution and
cooperate on resolving them; and
to set the minimum requirements for own funds and eligible liabilities (“MREL”) which is designed to ensure that banks have
sufficient loss-absorbing capacity through capital and liabilities eligible to be bailed in.
*Forms an integral part of the audited financial statements
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Future developments (continued)
The Single Resolution Mechanism (“SRM”), which implements the EU-wide BRRD in the Euro area, becomes fully operational on
1 January 2016. The full resolution powers of the Single Resolution Board (“SRB”) applies as of 1 January 2016.
AIB continuously monitors advancements in regulatory frameworks by assessing potential capital impacts and ensuring that the Group
maintains a robust capital position.
Ratings
In May 2015, Moody’s upgraded AIB’s long-term rating to Ba2 from Ba3 and upgraded the outlook to stable. This followed a change in
Moody’s bank rating methodology. In November 2015, Moody’s upgraded AIB’s long term rating to Ba1 from Ba2 and upgraded the
outlook to positive, in light of AIB’s capital reorganisation and general improvement in fundamentals impacting the Group.
In July 2015, S&P upgraded AIB’s long-term rating to BB+ from BB and upgraded the outlook to stable. In December 2015, S&P raised
AIB’s outlook to positive and re-affirmed AIB’s long term rating at BB+. While S&P removed the final notch of government support
incorporated into the rating, this was offset by an uplift to AIB’s standalone credit rating.
As part of a review of sovereign support for banks’ globally in May 2015, Fitch removed the five notches of government support it had
included in AIB’s senior rating. This was partially offset by an increase of two notches following improvements to AIB’s fundamentals. In
December 2015, Fitch further upgraded AIB’s long-term rating to BB+ and affirmed its positive outlook. Year on year, the Group’s senior
rating with Fitch has reduced by two notches from BBB to BB+.
AIB long-term ratings
Long-term
Outlook
AIB long-term ratings
Long-term
Outlook
Moody's
Ba1
S&P
BB+
2015
Fitch
BB+
Positive
Positive
Positive
Moody's
Ba3
Stable
S&P
BB
2014
Fitch
BBB
Negative
Negative
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Business review - 3. Capital management
Regulatory capital and capital ratios
CRD lV
transitional basis
31 December
CRD lV
fully loaded basis(1)
31 December
Shareholders’ equity
Less: Additional Tier 1 capital
Regulatory adjustments:
Goodwill and intangibles
Cash flow hedging reserves
Reversal of fair value of contingent capital instrument
Available for sale securities reserves
Pension
Deferred tax
2009 Preference Shares(1)
Other
Total common equity tier 1 capital
Additional Tier 1 capital
Total tier 1 capital
Tier 2 capital
Subordinated debt
Credit provisions
Other
Total tier 2 capital
Total capital
Risk weighted assets
Credit risk
Market risk
Operational risk
Credit valuation adjustment
Other
Total risk weighted assets
Common equity tier 1 ratio
Tier 1 ratio
Total capital ratio
2015
€ m
12,148
(494)
(292)
(354)
(46)
(1,250)
(91)
(317)
–
(19)
2014
€ m
11,292(2)
–
(174)
(383)
(189)
(1,369)
557
–
–
(17)
2015
€ m
12,148
(494)
(292)
(354)
–
–
(153)
(3,171)
–
(9)
(2,369)
(1,575)
(3,979)
9,285
494
9,779
973
287
9
1,269
11,048
53,596
457
3,139
1,352
5
58,549
%
15.9
16.7
18.9
9,717
–
9,717
538
453
17
1,008
10,725
54,348
471
2,822
1,468
5
59,114
%
16.4
16.4
18.1
2014
€ m
11,292(2)
–
(174)
(383)
–
–
(121)
(3,640)
(3,500)
–
(7,818)
3,474
–
3,474
538
136
–
674
7,675
494
8,169
973
20
–
993
9,162
4,148
54,105
457
3,139
1,352
5
59,058
%
13.0
13.8
15.5
54,348
471
2,822
1,468
5
59,114
%
5.9
5.9
7.0
The capital position as at 31 December 2015 outlined above, does not include any deduction for future dividends on ordinary shares.
(1)2014 fully loaded ratios are calculated excluding the 2009 Preference Shares (cease to be considered CET1 after 31 December 2017).
(2)After deducting the dividend amounting to € 280 million on the 2009 Preference Shares at 31 December 2014.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
Capital ratios at 31 December 2015
Transitional ratio
The CET1 transitional ratio decreased to 15.9% at 31 December 2015 from 16.4% at 31 December 2014. The decrease in CET1 capital
of € 432 million was primarily driven by the impact of the Capital Reorganisation and transitional provisions, partially offset by positive
movements in the 12 months to 31 December 2015. As part of the Capital Reorganisation the redemption of the 1,360 million 2009
Preference Shares resulted in a decrease in transitional CET1 capital of € 1,700 million. The deduction of 10% of deferred tax relating to
unutilised tax losses, led to a reduction in CET1 capital of € 317 million. Positive movements in the 12 months to 31 December 2015
which resulted in CET1 capital increasing by € 1,751 million are driven primarily by retained profit of € 1,380 million, gains arising from
changes in pension actuarial assumptions of € 149 million and net unrealised gains on the AFS portfolio of € 222 million. The Group
avails of the derogation not to include unrealised gains or losses on exposures to central governments in transitional CET1. The net
pension deficit reduced by € 797 million due to an increase in the discount rate applied in the valuation of pension liabilities and as a
result regulatory adjustments increased by € 648 million.
RWAs reduced by € 565 million during 2015, with credit RWAs reducing by € 752 million in the year. This was primarily driven by a
reduced volume of defaulted loans, offset by an increase driven by foreign exchange movements of € 1,047 million. Operational risk
RWAs increased by € 317 million since 31 December 2014, reflecting the increased levels of income in the annual calculation. Credit
valuation adjustment RWAs reduced by € 116 million, reflecting a reduced level of exposure.
The CET1 transitional ratio, at 15.9%, is significantly in excess of the SSM’s minimum CET1 regulatory requirement.
There was an increase in transitional tier 1 capital of € 62 million with the decrease in CET1 capital outlined above being offset by the
issue of € 500 million of additional tier 1 (“AT1”) in November 2015.
There was an increase in transitional tier 2 capital of € 261 million as the issue of € 750 million of tier 2 capital in November 2015 was
partially offset by the continuing reduction in the tier 2 qualifying amount of the contingent capital instrument and the reduction in the
excess of IRB provisions over expected loss.
The transitional total capital ratio increased from 18.1% at 31 December 2014 to 18.9% at 31 December 2015.
The capital figures reflect the audited 2015 year-end profit for the Group. The quarterly SSM regulatory capital reporting process will
include these profits in due course.
Fully loaded ratio
The fully loaded CET1 ratio increased to 13.0% at 31 December 2015 from 5.9% (excluding the 2009 Preference Shares) at
31 December 2014. The main driver of this increase in the fully loaded ratio was an increase in CET1 capital of € 4,201 million. This was
primarily driven by the Capital Reorganisation generating an increase of € 1,800 million, positive impact of profits of € 1,380 million, a
decrease in the pension deficit by € 765 million as a result of an increase in the discount rate applied in the valuation of pension
liabilities and a reduction in the deferred tax asset of € 469 million.
The fully loaded CET1 ratio of 13.0% compares to 15.9% on a transitional basis at 31 December 2015. This reflects a difference of
€ 1,610 million in the amounts qualifying as CET1. The main drivers of this difference are:
–
–
–
the full deduction of the deferred tax asset (‘’DTA’’) for unutilised tax losses of € 3,171 million under fully loaded. Under transitional
rules, the phasing in deduction of the DTA commenced in 2015 at 10% per annum amounting to € 317 million;
the AFS reserves of € 1,472 million, comprising unrealised gains in sovereign debt securities and equity securities are included in
the fully loaded position, while € 222 million is included on a transitional basis at 31 December 2015; and
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 € 62 million at 31 December 2015.
The difference of € 509 million in 2015 between transitional and fully loaded RWAs is in relation to the phasing of the unrealised
gains/losses portion of the AFS portfolio.
There was an increase in fully loaded tier 1 capital of € 4,695 million comprising the increase of CET1 capital outlined above and the
issuance of AT1.
There was an increase in fully loaded tier 2 capital of € 319 million. See transitional tier 2 capital above.
The fully loaded total capital ratio increased from 7.0% at 31 December 2014 to 15.5% at 31 December 2015.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
47
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Business review - 3. Capital management
Capital ratios at 31 December 2015
Leverage ratio
The leverage ratio 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, under the delegated act implemented on 18 January 2015, was 7.9% at 31 December 2015 (3.2% at 31 December
2014 excluding the 2009 Preference Shares). This primarily reflects an increase in tier 1 capital as outlined above.
48
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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
– Financial investments held to maturity
3.2
3.3
3.4
3.5
Credit risk – Forbearance
Liquidity risk
Market risk
Operational risk
3.6
Regulatory compliance risk
3.7
Structural foreign exchange risk
3.8
Pension risk
Page
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(1)The credit risk disclosures in this section are aligned with the Central Bank of Ireland (‘Central Bank’) 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 adequately 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 risks;
– Regulatory and legal risks; and
– 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 risks
The Group’s business may be adversely affected by
deterioration of the Irish economy, the economy of the
United Kingdom or the global economy
Deterioration in the performance of the Irish economy or other
relevant economies has the potential to adversely affect the
Group’s overall financial condition and performance. Such
deterioration could result in reductions in business activity, lower
demand for the Group’s products and services, reduced
availability of credit, increased funding costs, and decreased
asset values.
investments are de-scoped or de-prioritised, and may serve to
increase operational risk. 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 of
economic and market conditions on the Group's capital,
funding and profitability under both forecast and stress
scenarios. Additionally, sensitivity analysis is used to evaluate
the impact of individual risk drivers. Performance against the
Group’s financial plan is monitored by Management and the
While the Irish economy has performed well with GNP up from
Board on a monthly basis.
4.6 per cent. in 2014 to 7 per cent. in Quarter 3 2015 (CSO
Quarterly National Accounts, Quarter 3 2015), 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 levels of arrears, the Group’s collateral values
Constraints on the Group’s access to funding,
including a loss of confidence by depositors or
curtailed access to wholesale funding markets, may
result in the Group being required to seek
alternative sources of funding
Conditions could arise which would constrain funding or
and consequently, have a material impact on the Group’s future
liquidity opportunities for the Group. Currently, the Group funds
performance and results.
General economic conditions, while improving, continue to be
challenging for customers. An increase in the level of
its activities primarily from customer deposits. However, a loss
of confidence by depositors in the Group, the Irish banking
industry or the Irish economy, could lead to losses of funding or
liquidity resources over a short period of time. Concerns around
unemployment together with any further reduction in borrowers’
debt sustainability and sovereign downgrades in the eurozone
disposable income has the potential to negatively impact
could impact the Group’s deposit base and could impede
customers’ ability to repay existing loans. This could result in
access to wholesale funding markets, impacting the ability of
additional write downs and impairment charges for the Group and
the Group to issue debt securities to the market.
negatively impact its capital and earnings position. Challenging
economic conditions would also influence the demand for credit
A stable customer deposit base and asset deleveraging has
in the economy. A declining or continuing muted demand for
allowed the Group to materially reduce its funding from the
credit has the potential to impact the Group’s financial position.
European Central Bank (“ECB”). This, in turn, has allowed an
increase in unencumbered high quality liquid assets. The
Deterioration in the economic and market conditions in which the
Group has also identified certain management and mitigating
Group operates could negatively impact on the Group's income,
actions which could be considered on the occurrence of a
and may put additional pressure on the Group to more
liquidity stress event. However, in the unlikely event that the
aggressively manage its cost base. This may have negative
Group exhausted these sources of liquidity it would be
consequences for the Group to the extent that strategic
necessary to seek alternative sources of funding from monetary
authorities.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
The Capital Requirements Regulation (No. 575/2013) (“CRR”)
associations or reductions in the perceived creditworthiness of
and the Capital Requirements Directive (2013/36/EU) (“CRD”
one or more significant borrower or financial institution, could
and together with the CRR, “CRD IV”) require banks such as the
lead to market-wide liquidity problems, losses and defaults,
Group to meet targets set for the new Basel III liquidity related
which could adversely affect the Group’s results, financial
ratios: the Net Stable Funding Ratio and Liquidity Coverage
condition and future prospects.
Ratio. Meeting the phased implementation deadlines of these
requirements could impose additional costs on the Group while
The Group's stress testing framework evaluates its risk profile
failure to demonstrate appropriate progress may lead to
under a range of scenarios, including systemic threats which
regulatory sanction.
are caused by or give rise to contagion risk. The most severe
systemic risks, together with their associated risk mitigants
The Group's liquidity management framework sets out the
(where available) are evaluated as part of the Group's
manner in which the Group's funding and liquidity risk profile is
Recovery Planning framework.
managed.
The Group is exposed to market risks
The following market risks arise in the normal course of the
Group's banking business; interest rate risk, credit spread risk
(including Sovereign risk), basis risk and foreign exchange risk.
Departure of one or more member countries from
the common currency or a decision by the UK to
leave the European Union could disrupt the markets
and adversely affect the Group’s business and
financial performance
Although the severity of the European-wide financial crisis has
Changes in the shape and level of interest rate curves impact the
abated over the last several years, the emergence of significant
economic value of the Group's underlying assets and liabilities.
anti-austerity sentiment in some member countries, may
The level of the Group's earnings is exposed to basis risk i.e. an
contribute to renewed instability in the European sovereign debt
imperfect correlation in the adjustment of the rates earned and
markets and in the economy more generally. There can be no
paid on different products with otherwise similar repricing
assurance that actions taken by European policymakers will be
characteristics. The persistence of exceptionally low interest
sufficient to counteract any such instability. If one or more
rates for an extended period could adversely impact the Group’s
members of the eurozone defaults on their debt obligations or
earnings through the compression of net interest margin.
decides to leave the common currency, this could result in the
reintroduction of one or more national currencies. Should a
Widening credit spreads could adversely impact the value of the
eurozone country conclude it must exit the common currency,
Group’s available for sale (“AFS”) bond positions.
the resulting need to reintroduce a national currency and restate
Trading book risks predominantly result from supporting client
financial, legal, political and social consequences, leading not
businesses with small residual discretionary positions remaining.
only to significant losses on the sovereign debt of that country
Credit Value Adjustments (“CVA”) and Funding Value
but also on private debt in that country. Given the highly
Adjustments (“FVA”) to derivative valuations arising from
interconnected nature of the financial system within the
customer activity have potentially the largest trading book
eurozone, this could result in dislocation across the financial
existing contractual obligations could have unpredictable
derived impact on earnings.
markets and the Group’s ability to plan for such a contingency
in a manner that would reduce its exposure may be limited. If
Changes in foreign exchange rates, particularly the euro-sterling
the overall economic climate deteriorates as a result of one or
rate, affect the value of assets and liabilities denominated in
more departures from the eurozone, the Group’s business,
foreign currency and the reported earnings of the Group’s
financial condition, results of operations and prospects could
non-Irish subsidiaries. Any failure to manage market risks to
be materially adversely affected.
which the Group is exposed could have a material adverse effect
on its business, financial conditions and prospects.
In addition, the UK will hold a referendum on continued UK
membership of the European Union on 23 June 2016. The
The Group manages this risk through a number of financial risk
outcome of such a referendum is uncertain. The impacts of a
management frameworks. Risk positions are monitored on a
UK exit from the European Union on the UK economy and
regular basis at the Asset and Liability Committee (“ALCo”).
trade is unknown but may have negative consequences for the
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
Group both in terms of its UK and Irish operations and impacts
on the UK and Irish economies.
The regulatory position of the Group’s operations in the UK,
and dislocations caused by the interdependency of financial
may also become uncertain. Accordingly, if the UK were
markets’ participants and of members of currency and
to exit the European Union, this could have a material adverse
supranational economic associations is an on-going risk to the
effect on the Group’s business, financial condition, results of
Group’s financial condition. Any change in membership of such
operations and prospects.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Risk management – 1. Principal risks and uncertainties
The Group closely monitors activities and developments in the
Recovery and Resolution Directive (Directive 2014/59/EU)
EU and eurozone.
(“BRRD”) which came into effect in 2015 and the Group is
making preparations for the Single Resolution Authority (“SRA”)
Furthermore, the Group's stress testing framework evaluates its
which comes into effect in 2016. The SRM Regulation, subject
risk profile under a range of scenarios. The most severe
to some exceptions, is applicable from 1 January 2016 and the
systemic risks, together with their associated risk mitigants
SRB is fully operational from January 2016. The BRRD has
(where available) are evaluated as part of the Internal Capital
been implemented in Ireland pursuant to the European Union
Adequacy Assessment Process (“ICAAP”).
(Bank Recovery and Resolution) Regulations 2015 (the “BRRD
Downgrades to the Irish sovereign’s credit ratings or
outlook could impair the Group’s access to private
sector funding and weaken its financial position
Fitch upgraded Ireland’s credit rating to A in February 2016 and
Regulations”). The BRRD Regulations, other than regulations
79 to 94, came into effect on 15 July 2015. Regulations 79 to
94 are scheduled to come into effect on 1 January 2016. The
establishment of the SRM is designed to ensure that
supervision and resolution is exercised at the same level for
S&P upgraded its credit rating to A+ in June 2015. Moody’s have
countries that share the supervision of banks within the SSM.
Ireland on positive outlook while S&P and Fitch have Ireland on a
The single resolution fund will be financed by bank levies
stable outlook for their respective ratings. There can be no
raised at national level.
assurance, however, that the Irish sovereign’s credit rating would
not be downgraded in the future. Any such downgrade could
The overarching goal of the new bank recovery and resolution
impair the Group’s access to private sector funding and weaken
framework established by the BRRD/SRM package is to break
its financial position. Downgrades could also adversely impact
the linkages between national banking systems and sovereigns.
the National Asset Management Agency (“NAMA”) senior bonds
The new framework is intended to enable resolution authorities
and the Group’s use of them as collateral for the purposes of
to resolve failing banks with a lower risk of triggering contagion
accessing the liquidity provision operations offered by monetary
to the broader financial system, while sharing the costs of
authorities, as well as the Group’s holdings of Irish Government
resolution with bank shareholders and creditors. Among other
securities as part of its available-for-sale (“AFS”) and held to
provisions, the BRRD requires banks to produce a full recovery
maturity (“HTM”) portfolios.
plan that sets out detailed measures to be taken in different
scenarios when the viability of the institution is at risk.
The Group undertakes liquidity stress tests as part of its ICAAP.
Furthermore, one or more of the Group’s regulators may
These consider the potential impact of a range of specific events
require the Group to make changes to the legal structure of the
including rating downgrades.
Regulatory and legal risks
The Group is subject to increasing regulation and
supervision following the introduction of the SSM
and the new bank recovery and resolution
framework, which may strain its resources. The
Group is subject to European Commission
supervision and oversight
A significant number of new regulations have been issued by
Group pursuant to its implementation of requirements under
the SRM Regulation, the BRRD or other applicable law or
regulation. In relation to the BRRD and the SRM Regulation,
see below “The BRRD and the SRM Regulation provide for
resolution tools that may have a material adverse effect on the
Group”.
The Group will have to meet the cost of all levies that are
imposed on it in relation to funding the bank resolution fund
established under the SRM or those that are imposed on it
under other applicable compensation schemes relating to banks
or other financial institutions in financial difficulties. In addition,
the various regulatory authorities in the recent past. The
the challenge of meeting this degree of regulatory change
eurozone’s largest banks, including the Group, came under the
will place a strain on the Group’s resources. The challenge of
direct supervision of, and are deemed to be authorised by the
meeting tight implementation deadlines while balancing
ECB since the introduction on 4 November 2014 of the Single
competing resource priorities and demands adds to the
Supervisory Mechanism (“SSM”).
regulatory risk of the Group. These may also impact
significantly on the Group’s future product range, distribution
The main aims of the SSM are to ensure the safety and
channels, funding sources, capital requirements and
soundness of the European banking system and to increase
consequently, reported results and financing requirements.
financial integration and stability in Europe.
A Single Resolution Mechanism (“SRM”) has been introduced,
regularly evaluated by the Group's management and
including a single resolution board (“SRB”) and a single fund for
cross-functional programmes are put in place to ensure that
the resolution of banks. The requirements of the SRM are set out
the Group is able to meet new regulatory requirements.
The potential impact of new regulatory requirements is
in the Single Resolution Mechanism Regulation (Regulation (EU)
No. 806/2014 of 15 July 2014) (the “SRM Regulation”), Banking
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The BRRD and the SRM Regulation provide for
resolution tools that may have a material adverse
effect on the Group
The BRRD establishes a European framework dealing with
- New accounting standards, for example, IFRS 9 Financial
Instruments, which will replace IAS 39 Financial
Instruments: Recognition and Measurement, will change the
classification and measurement of certain financial assets,
resolution mechanisms, loss absorbency and bail-in rules. The
the recognition and the financial impact of impairment and
SRB has been established to exercise a centralised power of
hedge accounting. IFRS 9 is mandatorily effective for
resolution in the eurozone and any other participating
periods beginning on or after 1 January 2018;
Member States. From 1 January 2016, the SRB will become
- Conduct risk exists and may occur when certain aspects of
principally responsible for determining the Group’s resolution
the Group’s business may be determined by the relevant
strategy.
authorities or the courts not to have been conducted in
accordance with applicable local, or, potentially overseas
The BRRD is designed to provide relevant authorities with a
laws or regulations;
credible set of tools to intervene sufficiently early and quickly in
- Contractual obligations may either not be enforceable as
an unsound or failing institution so as to ensure the continuity of
intended or may be enforced against the Group in an
the institution’s critical financial and economic functions, while
adverse way;
minimising the impact of an institution’s failure on the economy
- Regulatory actions pose a number of risks to the Group,
and financial system. The BRRD also equips the resolution
including substantial monetary damages or fines, the
authority with certain resolution powers (the “Resolution Tools”)
amounts of which are difficult to predict and may exceed the
in circumstances where the credit institution is failing or is likely
amount of provisions set aside to cover such risks. In
to fail.
addition, the Group may be subject to other penalties and
injunctive relief, civil or private litigation arising out of a
Amongst other provisions, the BRRD introduces a statutory
regulatory investigation, the potential for criminal
write-down and conversion power to write down or to convert into
prosecution in certain circumstances and regulatory
equity the Group’s capital instruments if certain conditions are
restrictions on the Group’s business. The Group needs to
met.
be aware of and comply with new regulation as it emerges
and existing regulation as it evolves. All of these issues
In drawing up the Group's resolution plan, the SRB would identify
could have a negative effect on the Group’s reputation and
any material impediments to the Group's resolvability. Where
the confidence of its customers in the Group as well as
necessary, the SRB may instruct that actions are taken to
taking a significant amount of management time and
remove such impediments.
resources away from the implementation of the Group’s
strategy.
If the SRB is of the view that the measures proposed by the
– The Group may settle litigation or regulatory proceedings
Group would not effectively address the impediments to
prior to a final judgement or determination of liability to
resolvability, the SRB may direct the Group to take alternative
avoid the cost, management efforts or negative business,
measures as outlined in the SRM Regulation.
regulatory or reputational consequences of continuing to
contest liability.
The changes to be implemented in respect of the SRM
Regulation and the BRRD may have an effect on the Group’s
The Group adopts a systematic approach to the identification,
business, financial condition or prospects. Depending on the
assessment, transposition, control and monitoring of new or
specific nature of the requirements and how they are enforced,
changing regulatory requirements. Once implemented, a
such changes could have a significant impact on the Group’s
compliance monitoring team tests the adequacy of, and
operations, structure, costs and/or capital requirements.
adherence to, the control environment.
The Group continues to actively engage with the Resolution
Authorities as they finalise the resolution strategy for the Group.
The Group is exposed to risks associated with its
compliance with a wide range of laws, accounting
standards and regulations
The Group must comply with numerous laws, accounting
standards and regulations and, consequently, it faces risks,
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.
including:
Adverse regulatory action or adverse judgements in litigation
- Detailed and emerging prudential regulatory requirements
could result in a monetary fine or penalty, adverse monetary
in the form of CRR/CRD IV, BRRD, EBA and CBI
judgement or settlement and/or restrictions or limitations on the
requirements;
Group’s operations or result in a material adverse effect on the
Group’s reputation.
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Risk management – 1. Principal risks and uncertainties
The Group has a centralised legal team under the Group
Furthermore, some measures may directly impact the financial
General Counsel and relevant internal and external legal
performance of the Group through the imposition of measures
expertise is retained to mitigate associated risks, as appropriate.
such as the bank levy introduced by the Irish Government in
The future of the Group’s business activities are
subject to possible interventions by the Irish
Government or the disposal of the Irish State’s
ownership and other interests in the Group
The Group is substantially owned by an agency of the Irish
State and accordingly, subject to EU state aid rules, controlled
Budget 2014 and which the Irish Government announced
during Budget 2016 would be extended to 2021. The annual
levy paid by the Group in 2015 amounted to € 60 million.
Equally, the UK Treasury have imposed a corporation tax
surcharge effective from 2016. These measures may be further
extended and increased in the future.
by the Irish Government. Such ownership or control may affect
The Group assesses this risk by undertaking sensitivity
the Group’s operations, financial condition and future prospects.
analysis in its financial planning process, and monitoring
financial performance against the Group’s financial plan on a
In order to comply with contractual commitments imposed on
monthly basis.
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’)
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
and the Group in March 2012. This Relationship Framework
and 2011, the Group transferred financial assets to NAMA with
provides the framework under which the relationship between the
a net carrying value of € 15.5 billion for which it received as
Minister and the Group is governed. Under the Relationship
consideration NAMA senior bonds and NAMA subordinated
Framework, the authority and responsibility for strategy and
bonds. NAMA senior bonds were also received as
commercial policies (including business plans and budgets) and
consideration as part of the ‘Anglo’ and ‘EBS’ transactions.
conducting the Group's day-to-day operations rest with the Board
of the Group and its Management team, but the appointment or
Provisions of the NAMA Act provide for certain circumstances
removal of the Chairman or Chief Executive Officer of the Group
in which the Group could face additional liabilities in relation to
are reserved for the Minister, and in respect of which the Board
assets transferred. In addition, credit exposure to NAMA arises
may only engage with the prior consent of the Minister.
from the senior and subordinated NAMA bonds.
Nevertheless, for so long as ownership of the Group remains
The Group monitors this risk by periodically reviewing the
within State control, there remains a risk of undue pressure by
carrying value of its NAMA senior and subordinated bonds,
the Irish Government in relation to the operations and policies of
including external benchmarking.
the Group. Such pressure 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
Irish legislation, regulations and Government policy
in relation to mortgages may adversely affect the
Group’s mortgage business
Legislation and regulations have been introduced to the Irish
conditions attaching to it, may materially affect the Group’s
mortgage market which may affect the Group’s customers’
operations, financial condition and future prospects.
attitudes towards their debt obligations, and hence their
interactions with the Group in relation to their mortgages.
Furthermore, changes to the political landscape following the
Irish general election on 26 February 2016 may lead to changes
In particular, on 1 July 2013, a revised Code of Conduct on
to the Irish Government’s approach to its relationship with the
Mortgage Arrears (the “CCMA”) came into force. The CCMA
Group. Intervention by the Irish Government may have a material
requires mortgage lenders to develop a Mortgage Arrears
adverse effect on the Group’s business, financial condition and
Resolution Process (“MARP”) with specific procedures when
prospects.
dealing with borrowers experiencing arrears and financial
difficulties. It applies only to mortgages on primary residences
The Group actively engages and co-operates with all relevant
and outlines timelines and conditions to be followed by lenders
external stakeholders including governmental authorities.
in relation to the arrears resolution process.
The Group may be adversely affected by further
austerity or budget measures introduced by the Irish
Government or the UK Government
The current and future budgetary and taxation policy of Ireland
In addition, the Personal Insolvency Act 2012 (the “Personal
Insolvency Act”) came into force on 26 December 2012. The
Personal Insolvency Act introduced a personal insolvency
arrangement for the agreed settlement of secured debt up to
and other measures adopted by the Irish Government or the UK
an amount of € 3 million (subject to extension by agreement of
Government may have an adverse impact on borrowers’ ability to
all of the debtor’s secured creditors) and for unsecured debt,
repay their loans and, as a result, the Group’s business.
with no limit. On 28 July 2015, the Irish Government
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amended the Personal Insolvency Act so as to give the courts
issues across Irish banks (including AIB and ROI subsidiaries
power to review and, where appropriate, approve arrangements
of AIB). In December 2015, the Central Bank confirmed to the
in respect of secured debt which have been rejected by a bank
affected banks, (including AIB and ROI subsidiaries of AIB), that
or other secured creditors. The Group has been proactive in
the objective of the Examination is to assess compliance with
developing forbearance solutions for borrowers experiencing
both contractual and regulatory requirements. In circumstances
arrears and financial difficulties. In accordance with Central Bank
where customer detriment is identified from this Examination,
requirements, it has developed a Mortgage Arrears Resolution
AIB is required to provide appropriate redress and
Strategy (“MARS”), which builds on and formalises the MARP it
compensation in line with the CBI ’Principles for Redress’.
was required to introduce in order to comply with the CCMA.
Notwithstanding the provisions for customer redress as set out
Nonetheless, there is a risk that legislation and regulations such
in note 40 to the consolidated financial statements ‘Provisions
as the Personal Insolvency Act and the CCMA will result in
for liabilities and commitments’, it is not possible at this stage to
changes in customers’ attitudes towards their debt obligations.
assess the final outcome of the Examination or any related
Customers may be more likely to default even when they have
litigation or regulatory action required. However, such matters
sufficient resources to continue making payments on their
may result in any of the consequences described above and
mortgages. This could result in delays in the Group’s recoveries
may materially adversely affect the Group’s business, financial
in respect of its mortgage portfolio and increased impairments,
condition or prospects.
which could have a material adverse effect on its business,
results of operations, financial condition and prospects.
Irish Government policy in relation to mortgages is continuing to
evolve and it is possible that further changes in legislation or
regulation could be introduced, for example, the Government
may seek to influence how credit institutions set interest rates on
mortgages, may amend the Personal Insolvency Act to reduce
the entitlements currently afforded to mortgage holders
thereunder or may enact other legislation or introduce further
regulation that affects the rights of lenders in other ways which
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 have a material adverse effect on its business,
financial condition, results of operations and
prospects
Risks arising from changes in credit quality and the
could have a material adverse effect on the Group’s business,
recoverability of loans and other amounts due from customers
financial condition and prospects.
and counterparties are inherent in a wide range of the Group’s
businesses. In addition to the credit exposures arising from
The Group actively engages with all relevant industry and
loans to individuals, SMEs and corporates, the Group also has
government stakeholders highlighting, as appropriate, the
exposure to credit risk arising from loans to financial
intended and unintended consequences of any proposed
institutions, its trading portfolio, AFS and HTM portfolios,
regulatory or legislative changes including its impacts on
derivatives and from off-balance sheet guarantees and
customers, the Group and the industry as a whole.
commitments.
The Group is subject to conduct risk claims
The Group is exposed to many forms of conduct risk, which may
arise in a number of ways. The Group needs to be able to
demonstrate how it delivers fair treatment and transparency,
while upholding the best interests of customers. The
evidential standards required by the Group’s regulators in this
regard are very high. The Group may be subject to allegations of
mis-selling of financial products, including, having sales practices
The Group has extensive credit policies, limits and controls in
place.
The Group’s management may not be able to
successfully implement its strategic objectives, in
particular with respect to its omni-channel
distribution model
The Group has identified several strategic objectives for its
and/or reward structures in place that are determined to have been
business. There can, however, be no guarantee that the
inappropriate. The Group may also be subject to allegations of
Group would be successful in implementing its strategy. In
overcharging and breach of contract and/or regulation. Any of the
particular, in relation to its omni-channel distribution model,
foregoing may result in adverse regulatory action (including significant
which combines its physical branch network with online, mobile
fines) or requirements to amend sales processes, withdraw products
and direct channels, the Group is focused on increasing usage
or provide restitution to affected customers, any or all of which could
and integration of digital distribution channels and continuing to
result in the incurrence of significant costs, may require provisions to
build on its mobile and online adoption rates. There can be no
be recorded in the financial statements and could adversely impact
guarantee that the Group would be successful in achieving
future revenues from affected products. The Central Bank
such integration and increased usage or in anticipating
announced in October 2015 that it had commenced a broad
evolving customer preferences for access to banking services.
examination (the “Examination”) of tracker mortgage-related
Furthermore, it may not be able to develop in a timely manner
the technology necessary to accommodate these preferences,
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Risk management – 1. Principal risks and uncertainties
such as internet banking channels and new applications for
mobile and tablet banking. The Group may also be required to
invest more than it has currently planned in order to expand and
improve its internet banking channels and it may not realise
cost efficiencies resulting from increasing digitisation at the level
or in the time frame that it expects.
The Group’s risk management systems and
processes as well as guidelines and policies may
prove inadequate for the risks faced by its business
and any failure to properly assess or manage the
risks which it faces could cause harm to the
Group’s business
The Group is exposed to a number of material risks, such as
The Group conducts a strategic review and detailed financial
strategic risk, credit risk, capital risk, liquidity risk, market risk,
planning on an annual basis. The Group reviews performance
operational risk, competition risk and conduct risk. Although the
against objectives on a regular basis.
Fostering of a poor or inappropriate culture across
the Group may adversely impact performance and
impede achievement of strategic goals
If the Group does not continuously develop and promote an
Group invests substantially in its risk management strategies
and techniques, there is a risk that these fail to fully mitigate
the risks in some circumstances.
Furthermore, Senior Management are required to make
complex judgements and there is a risk that the decisions
appropriate culture then a strategy or actions could be adopted
made by Senior Management may not be appropriate or yield
which may result in the business, results of operations, financial
the results expected or that Senior Management may be unable
condition and prospects being materially adversely affected.
to recognise emerging risks in order to take appropriate action
The Group has developed and is embedding a customer centric
in a timely manner.
series of Brand Values with the tone being set from the top.
The Group mitigates this risk by regularly reviewing the design
These values aim to drive and influence the activities of
and operating effectiveness of its risk management policies
businesses and staff, guiding our dealings with customers.
and methodologies. These reviews are supplemented in some
In addition, a Risk Culture Charter was approved in June 2015.
It introduces the principles which underpin a robust risk culture
and are a key support to further embedding the Brand Values
across the Group.
Negative impacts on the Group’s reputation may
impact its financial performance.
Damage to the Group’s reputation may adversely affect
instances by external review and validation.
Risk models used by the Group may not provide an
accurate estimate of risk exposure
The Group develops and uses models across a range of risks
and activities including, but not limited to, capital management,
credit grading, valuations, liquidity, pricing and stress testing.
Where the Group uses risk measurement techniques based on
historical observations, there is a risk that these under or
relationships with the Group’s stakeholders including
overestimate exposure to the extent that future market
customers, staff and supervisors. Such damage may lead to
conditions deviate from historic norms. As a result, the Group
impacts on the Group’s capability to attract and retain
may experience material unexpected losses.
customers, attract, motivate and retain staff and engage
positively with supervisors. This may lead to impacts on the
The Group may incur losses as a result of inaccuracies in
Group’s ability to conduct its affairs and in turn on the financial
these models, the data used to build them or decisions made
performance of the Group.
based on incomplete understanding of these models.
If the Group’s models are not effective in estimating its
The Group manages its reputational risk through its
exposure to various risks or its models prove to be inaccurate,
management of other material risk types. For any risk, the
its business, financial condition and prospects could be
potential reputational impact is considered alongside the direct
materially adversely affected.
and indirect financial consequence. The Nominations and
Corporate Governance Committee is responsible for
The Group mitigates this risk by having comprehensive
overseeing the Group's management of reputational risk.
policies in place in relation to models, appropriate segregation
of duties between model build and validation, Senior executive
approval and oversight of models and on-going testing of the
performance of models.
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The Group has a relatively high level of criticised
loans on its statement of financial position which
require a significant level of monitoring and case-by
case resolution
The Group has a relatively high level of criticised loans, which
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.
are defined as loans requiring additional management attention
The Group’s business is dependent on processing and
over and above that normally required for the loan type.
reporting accurately and efficiently a high volume of complex
Criticised loans include “watch”, “vulnerable” and “impaired”
transactions across numerous and diverse products and
loans. The Group has been proactive in managing its criticised
services, which often includes personal customer data. Any
loans, in particular through restructuring activities and the
weakness in these systems or processes including failure of
development of a MARS, which built on and formalised the
third party processes infrastructure and services on which the
MARP it was required to introduce in order to comply with the
Group relies could have an adverse effect on the Group's
Central Bank’s CCMA. The Group has reduced the level of
results and on its ability to deliver appropriate customer
criticised loans, however, there can be no assurance that the
outcomes during the affected period and/or expose the Group
Group will continue to be successful in reducing the level of its
to investigative or enforcement actions by the relevant
criticised loans.
regulatory authorities. In addition, any breach in security of
the Group’s systems (for example from increasingly
The monitoring of such loans can be time consuming and
sophisticated cybercrime attacks), could disrupt its business,
typically requires case-by-case resolution, which may divert
result in the disclosure of confidential information or create
resources from other areas of the Group’s business.
significant financial and/or legal exposure and the possibility
of damage to the Group’s reputation and/or brand.
The Group’s ability to manage criticised loans may be adversely
affected by changes in the regulatory regime or changes in
The Group mitigates its operational risks by having detailed
government policy. If the Group is required to devote significant
risk assessment and internal control requirements in relation
resources over a prolonged period to the monitoring of criticised
to the management of its key people, process and systems
loans, it could have a material adverse effect on the Group’s
risk, and through comprehensive and robust business
business, financial condition and prospects.
continuity management arrangements. These are set out in
the Group's Operational Risk Framework which is described
The Group has extensive credit policies and strategies,
on page 162.
implementation guidelines and monitoring structures in place to
manage criticised loans. The Group regularly reviews these
credit policies as well as the performance of criticised loans
against financial plans.
The Group faces elevated operational risks –
including people, outsourcing, process and
systems risks
Operational risk is defined as risks arising from inadequate or
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 SSM. As a result of
these requirements banks in the EU have been, and could
continue to be required to increase the quantity and the
quality of their regulatory capital. Given this regulatory
failed internal processes, people and systems, or from
context, and the levels of uncertainty in the current economic
external events. The Group faces an elevated operational risk
environment, there is a possibility that the economic outturn
profile given the ongoing significant organisational changes.
over the Group's capital planning period may be materially
worse than expected and/or that losses on the Group’s credit
One of the Group's key operational risks is people risk. The
portfolio may be above forecast levels. Were such losses to
Group’s efforts to restore and sustain the stability of its
business on a long-term basis depend, in part, on the
be significantly greater than currently forecast, or capital
requirements for other material risks to increase significantly,
availability of skilled management and the continued service
there is a risk that the Group’s capital position could be
of key members of staff.
eroded to the extent that it would have insufficient capital to
meet its regulatory requirements. In particular, capital levels
Under the terms of the recapitalisation of the Group by the
may be negatively affected by volatility arising from the
Irish Government, the Group is required to comply with
defined benefit pension schemes and the AFS portfolio
certain executive pay and compensation arrangements. As a
values.
result of these restrictions, the Group cannot guarantee that it
would be able to attract, retain and remunerate highly skilled
This risk is mitigated by evaluating the adequacy of the
and qualified personnel in the highly competitive markets in
Group's capital under both forecast and stress conditions as
Ireland and the UK. Failure by the Group to staff its
part of the ICAAP. The ICAAP process includes the
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Risk management – 1. Principal risks and uncertainties
identification and evaluation of potential capital mitigants and
decline or their investment returns may decrease due to market
is undertaken bi-annually.
Credit ratings may not reflect all risks and
downgrades to the Group’s credit ratings and/or
outlook could impair the Group’s access to private
sector funding, trigger additional collateral
requirements and weaken its financial position
The Group’s senior unsecured debt not covered by the Credit
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. Furthermore, IAS
pension deficits are now a deduction from capital under CRD IV
which came into force on 1 January 2014.
Any failure by the Group to manage its pension deficit could
have a material adverse effect on its business, financial
Institutions (Eligible Liabilities Guarantees) Scheme (the “ELG
condition and prospects.
Scheme”) is rated Ba1 by Moody’s with a positive outlook and
its debt and deposits not covered by the ELG Scheme are
The Group through its Pensions department and its independent
rated BB with a positive outlook and BB+ with a stable outlook
actuarial advisers identifies and monitors all pension risks
by Fitch and S&P, respectively. Moody’s has rated the Group’s
subject to the Group’s Pensions Risk Framework and Pension
long-term deposits Baa3 and has assigned Counterparty Risk
Risk policy. This covers the three main measurements of the
Assessments (CR Assessment) of Baa2(cr)/P-2(cr) to the
Group defined benefit pension schemes, the Minimum Funding
Group. Downgrades in the credit ratings of the Group could
Standard (MFS) in Ireland, the IAS 19 (accounting standard),
have an adverse impact on the volume and pricing of its
and the Actuarial Valuations which are actively monitored and
wholesale funding and its financial position, restrict its access
action taken as required.
to the capital and funding markets, trigger material collateral
requirements or associated obligations in other secured
funding arrangements or derivative contracts, make ineligible
or lower the liquidity value of pledged securities and weaken
the Group’s competitive position in certain markets.
Furthermore, the availability of deposits is often dependent on
The Group’s deferred tax assets depend
substantially on the generation of future profits over
an extended number of years and the Group’s ability
to utilise these deferred tax assets could be affected
by changes in tax legislation
The Group’s business performance may not reach the level
credit ratings and downgrades of the Group’s debt could lead to
assumed in the projections supporting the carrying value of the
withdrawals of deposits, which could result in deterioration in the
deferred tax assets. Lower than anticipated profitability within
Group’s funding and liquidity position.
Ireland and the UK would lengthen the anticipated period over
which the Group’s Irish and UK tax losses could be used. The
Any of the foregoing could have a material adverse effect on the
value of the deferred tax assets relating to unused tax losses
Group’s business, financial condition and prospects.
constitutes substantially all of the deferred tax assets
The Group is subject to the risk that the funding
position of its defined benefit pension schemes could
deteriorate, requiring it to make additional
contributions
The Group maintains a number of defined benefit pension
recognised in the Group’s statement of financial position. A
significant reduction in anticipated profit, or changes in tax
legislation, regulatory requirements, accounting standards or
relevant practices, could adversely affect the basis for
recognition of the value of these losses, which would adversely
affect the Group’s results and financial condition, including
schemes for certain current and former employees. In relation to
capital and future prospects.
these schemes, the Group faces the risk that the funding position
of the schemes could deteriorate to such an extent that it would
The capital adequacy rules under the CRD IV, require the
be required to make additional contributions above what is
Group inter alia, to deduct from its common equity capital, the
already planned to cover its pension obligations towards current
value of most of the Group’s deferred tax assets, including all
and former employees. The Group received approval from the
deferred tax assets arising from unused tax losses. This
Pensions Authority in 2013 in relation to a funding plan up to
deduction from common equity capital is to be phased in
January 2018 with regard to the regulatory minimum funding
evenly over 10 years commencing in 2015, although this
standard requirements of the Group's Irish defined benefit
phasing may be subject to change.
scheme. For its defined benefit scheme in the UK, the Group
established an asset backed funding vehicle to provide the
The Group monitors this risk by regularly reviewing the basis
required regulatory funding. Nonetheless, a level of volatility
for recognition of its deferred tax assets.
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
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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
Standards (“IFRS”), the Group recognises at fair value:
(i) derivative financial instruments;
(ii) financial instruments at fair value through profit or loss;
(iii) certain hedged financial assets and financial liabilities; and
(iv) financial assets classified as AFS.
The best evidence of fair value is quoted prices in an active
market. Disruption to quoted prices increases reliance on
valuation techniques which requires the use of judgement in
the estimation of fair value. This judgement includes, but is
not limited to, evaluating available market information,
determining the cash flows for the instruments, identifying a risk
free discount rate and applying an appropriate credit spread.
Valuation techniques that rely to a greater extent on
non-observable data require a higher level of management
judgement to calculate fair value than those based on wholly
observable credit spread.
The choice of contributors, the quality of market data used for
pricing, and the valuation techniques used are all subject to
internal review and approval procedures.
Given the uncertainty and subjective nature of valuing financial
instruments at fair value, any change in these variables could
give rise to the financial instruments being carried at a different
value, with a consequent impact on the Group’s results, financial
condition and future prospects.
The Group mitigates this risk by having comprehensive
valuation and accounting policies and methodologies in place
for the valuation of certain financial assets, and in undertaking
control activities which provide assurance that these are being
adhered to.
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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
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
of risk that the Group is willing to accept or tolerate in order to
deliver on its strategic and business objectives. The Group
Risk Appetite Statement (“RAS”) is a blend of qualitative
statements and quantitative limits and triggers linked to the
activities. Risk is defined as any event that could damage the
Group's strategic objectives.
core earnings capacity of the Group, increase earnings or
cash flow volatility, reduce capital, threaten business reputation
The Group RAS is reviewed and approved by the Board at
or viability, and/or breach regulatory or legal obligations. AIB has
least annually or more often if required, in alignment with the
adopted an Enterprise Risk Management approach to identifying,
annual business and financial planning process. AIB’s
assessing and managing risks. To support this approach, a
authorised bank subsidiaries and business segments are
number of Board approved frameworks and policies are in place
required to document and align their own risk appetite
which set out the key principles, roles and responsibilities and
statements with the Group statement.
governance arrangements through which the Group's material
Risk Governance Structure
Board of Directors
Board Risk
Committee
Board 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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While the Board reviews the Group RAS, the Leadership Team is
policies, monitoring and reviewing the Group’s risk profile, risk
accountable for ensuring that risks remain within appetite. The
trends, risk concentrations and policy exceptions, and
Group’s risk profile is measured against its risk appetite and
monitoring adherence to approved risk appetite and other limits.
adherence to both the Group RAS and business segment risk
The ERC acts as the parent body of two other risk and control
appetite statements are reported on a monthly basis to the
committees, namely the Group Credit Committee (“GCC”) and
Executive Risk Committee (“ERC”) and Board Risk Committee
the Products and Conduct Committee (“PCC”). Principal
(“BRC”). Should any breaches of Group RAS limits arise, these,
responsibilities of the GCC include: the exercising of approval
together with associated management action plans, are
authority for exposure limits to customers of the Group;
escalated to the Board for review, and also reported to the
exercising approval authority for credit policies; considering
Central Bank of Ireland (“CBI”)/Single Supervisory Mechanism
quarterly provision levels, assurance reviews and credit review
(“SSM”), in line with the provisions of its Corporate Governance
reports; the approval of credit inputs to credit decisioning
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
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 Group’s
conduct risk management. The PCC plays a key role in
promoting and supporting a customer centric ethos and culture
across the Group.
‘three lines of defence’ framework in the delineation of
The role of the ALCo is to act as the Group’s strategic balance
accountabilities for risk governance. Under the three lines of
sheet management forum that combines a business-decisioning
defence model, primary responsibility for risk management lies
and risk governance mandate. It is a sub-committee of the
with business line management. The Risk Management
Leadership Team, chaired by the Director of Finance and its
function, headed by the Group Chief Risk Officer (“CRO”)
membership includes the CFO, the CRO and the heads of
together with Compliance and Finance provide the second line of
significant business areas. ALCo is tasked with decision-making
defence, providing independent oversight and challenge to
in respect of the Group’s balance sheet structure, including
business line managers. The third line of defence is the Group
capital, liquidity, funding, interest rate risk in the Banking Book
Internal Audit function, under the Head of Group Internal Audit
(“IRRBB”) from an economic value and net interest margin
(“GIA”), which provides independent assurance to the Board
perspective, foreign exchange hedging risks and other market
Audit Committee on the effectiveness of the system of internal
risks. In ensuring sound capital and liquidity management and
control.
2.3.2 Committees with risk management
responsibilities
planning, ALCo reviews and approves models for the valuation
of financial instruments, for the measurement of market and
liquidity risk, for regulatory capital (‘IRB models’), and for the
calculation of expected and unexpected credit losses and
The Board has delegated a number of risk governance
stress testing. In addition, ALCo directs the shape of the
responsibilities to various committees and key officers. The
balance sheet through funds transfer pricing, direction on
diagram on the previous page summarises the current risk
product pricing and review and analysis of risk adjusted returns
committee structure of the Group.
on capital. The UK ALCo is a sub-committee of ALCo and fulfils
a similar role for AIB Group (UK) p.l.c..
The role of the Board, the Board Audit Committee, and the BRC
is set out in Governance and oversight - Corporate Governance
The Group Disclosure Committee is responsible for reviewing
report on pages 177 to 191. The Leadership Team comprises the
compliance of Group financial information with legal and
Senior Executive managers of the Group who manage the
regulatory requirements prior to external publication, and for
strategic business risks of the Group. It establishes the business
exercising oversight of the Accounting Policies Forum, which
strategy and risk appetite within which the Risk Management
ensures that the accounting policies adopted by the Group
function operates.
conform to the highest standards in financial reporting.
The role of the ERC is to foster risk governance within the Group,
to ensure that risks within the Group are appropriately managed
2.4 Risk identification and assessment process
The Group uses a variety of approaches and methodologies to
and controlled, and to evaluate the Group's risk appetite against
identify and assess its principal risks and uncertainties. A
the Group’s strategy. It is a sub-committee of the Leadership
Material Risk Assessment (“MRA”) is undertaken on at least
Team chaired by the Chief Financial Officer (“CFO”) and its
an annual basis. The MRA identifies and assesses the most
membership includes the CEO, CRO, and Chief Operating Officer
material risks facing the Group in terms of their likelihood and
(“COO”).
impact, and separately evaluates whether an explicit amount
of capital is required to be held against them as part of the
The ERC's principal duties and responsibilities include
Group's ICAAP. Other assessments of risk are undertaken, as
reviewing the effectiveness of the Group’s risk frameworks and
required, by business areas, focussing on the nature of the
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Risk management – 2. Framework
risk, the adequacy of the internal control environment and
whether additional management action is required. Periodic risk
2.6 Risk culture
The Group seeks to promote a strong risk culture throughout
assessments are also undertaken in response to specific
the organisation which encourages the prompt identification
internal or external events. A monthly CRO Report is
and escalation of issues and fosters an environment of
presented to the ERC and BRC which sets out the risk profile
continuous improvement and ‘learning from mistakes’. Risk
of the Group and seeks to identify emerging threats.
training is an important part of fostering a sound risk culture.
2.5 Stress and scenario testing
The Group’s risk identification and assessment framework
A Risk Academy is in place which provides access to
recommended training and education for risk professionals as
well as supporting the on-going development of risk skills
described above is supported by a framework of stress
across the AIB organisation.
testing, scenario and sensitivity analysis and reverse stress
testing, the latter of which is performed as part of the Group’s
A Risk Culture Charter was approved by the BRC in June
recovery planning. The Group undertakes a regular
2015. It introduces the principles which underpin a robust risk
programme of stress testing across all its material risks to
culture and a key support to embedding the Brand Values
ensure that risk assessment is dynamic and forward looking
across the Group. The further embedding of these risk culture
and considers not only existing risks but also potential and
principles was progressed through their inclusion in the
emerging threats.
Group’s 2015 Code of Conduct. Various other initiatives were
also undertaken in 2015 so as to ensure that a strong risk
A stress testing exercise was conducted during the second
culture is maintained and continues to support the
half of 2015 based on the balance sheet as at 30 June 2015
achievement of the Group’s strategic objectives.
to inform and support the Group’s ICAAP process.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
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, financial investments held
to maturity 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 business 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 in the most part by experienced credit risk professionals operating within a defined delegated
authority framework. However, for certain selected retail portfolios, scorecards and automated strategies (together referred to as ‘score
enabled decisions’) are deployed to automate and to support credit decisions and credit management (e.g. score enabled auto-renewal
of overdrafts).
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”) and/or Board. 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Risk management – 3. Individual risk types
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. 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
estimated 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 2015, 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. As at 31 December 2015, 43% (31 December 2014: 42%) 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.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
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-defaulted credit exposures to customers in terms of EAD, PD, LGD and EL by
IRB portfolios at 31 December 2015 and 2014:
Residential mortgages
Owner-occupier
Buy-to-let
Corporate
SME
Total
Residential mortgages
Owner-occupier
Buy-to-let
Corporate
SME
Total
EAD
€ m
15,439
2,999
18,438
6,422
3,017
27,877
EAD
€ m
15,282
2,961
18,243
5,330
2,503
26,076
Average
PD
%
Average
LGD
%
1.08
2.21
1.26
1.04
5.61
1.68
27.30
29.97
27.74
45.26
45.00
33.64
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
2015
EL(1)
€ m
63
42
105
34
76
215
2014
EL(1)
€ m
71
41
112
50
59
221
(1)EL has been applied following the outcome of the 2013 Balance Sheet Assessment by the CBI.
The reduction in the average PD for the owner-occupier portfolio is due to the non-default population having a lower recent history of
poor account behaviour performance than was previously observed. The reduction in PD for the corporate portfolio primarily reflects
growth in the international lending portfolio and growth in the AIB Ireland corporate portfolio and the reduction in the number of cases in
the watch list grades.
For financial reporting purposes, impairment allowances are recognised only with respect to losses that have been incurred at the
reporting date based on objective evidence of impairment, accordingly, these will differ from amounts calculated from expected loss
models.
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Risk management – 3. Individual risk types
3.1 Credit risk
Measurement of credit risk (continued)
Control mechanisms for rating systems
The Group ALCo approves all material 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 relating to model governance, development and calibration, validation and deployment; and
– All models are subject to in-depth analysis and review, at least annually, supplemented by model tracking on a quarterly basis. 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, however, in circumstances where a breach occurs, it must be reported to
Senior Management and the Credit Risk function to assess any required remedial action. Credit Risk monitors credit performance
trends, reviews and challenges exceptions to planned outcomes and tracks 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
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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. This includes 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.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Risk management – 3. Individual risk types
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 at 31 December 2015 and 2014:
Maximum exposure to credit risk
Balances at central banks(3)
Items in course of collection
Derivative financial instruments
Loans and receivables to banks
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale(4)
Financial investments held to maturity
Included elsewhere:
Trade receivables
Accrued interest
Financial guarantees
Loan commitments and other credit
related commitments
Amortised
cost(1)
€ m
Fair
value(2)
€ m
4,415
153
–
2,339
63,240
5,616
–
–
1,698
–
–
–
2015*
Total
€ m
4,415
153
1,698
2,339
63,240
5,616
–
15,708
15,708
3,483
539
399
–
–
–
3,483
539
399
Amortised
cost(1)
€ m
Fair
value(2)
€ m
2014*
Total
€ m
4,879
146
2,038
1,865
63,362
9,423
–
–
2,038
–
–
–
19,772
19,772
–
–
–
–
73
426
4,879
146
–
1,865
63,362
9,423
–
–
73
426
80,184
17,406
97,590
80,174
21,810
101,984
1,375
9,747
11,122
–
–
–
1,375
9,747
11,122
1,246
9,082
10,328
–
–
–
1,246
9,082
10,328
Total
91,306
17,406
108,712
90,502
21,810
112,312
(1)All amortised cost items are ‘loans and receivables’ or ‘financial investments held to maturity’ per IAS 39 definitions.
(2)All items measured at fair value except financial investments available for sale and cash flow hedging derivatives are classified as ‘fair value through profit
or loss’.
(3)Included within cash and balances at central banks of € 4,950 million (31 December 2014: € 5,393 million).
(4)Excluding equity shares of € 781 million (31 December 2014: € 413 million).
*Forms an integral part of the audited financial statements
68
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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.
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*
Credit risk mitigation may include the requirement to obtain collateral as set out in the Group’s lending policies. Where collateral or
guarantees are required, they are usually taken as a secondary source of repayment in the event of the borrower’s default. The Group
maintains policies which detail 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.
• 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.
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.
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:
– Use of professional valuations;
– Use of internally developed residual value methodologies;
– Application of local knowledge in respect of the property and its location; and
– Use of internal guidelines.
Use of professional valuations represent circumstances where external firms are engaged to provide formal written valuations in respect
of the property. Up to date external professional valuations are sought in accordance with the Groups’ lending policies. 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.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Risk management – 3. Individual risk types
3.1 Credit risk – Credit exposure
Credit risk mitigants* (continued)
Methodologies for valuing collateral (continued)
The residual value methodology assesses the value of 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 represent circumstances where the local bank management familiar with the property concerned
and with local market conditions, and with knowledge of recent completed transactions 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.
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.
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.
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. unserviced 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.
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 five years but sometimes this time period is exceeded. These estimates
are periodically reassessed on a case by case basis.
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.
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 41% Dublin and 42% non-Dublin as a base. This reflects a collateral value buffer against the current CSO index which at
31 December 2015 showed a 34% fall from peak.
*Forms an integral part of the audited financial statements
70
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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.
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 2015 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 House Price Index (United Kingdom) 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 68.
Loans and receivables to customers – residential mortgages*
The following table shows the fair value of collateral held for the Group’s residential mortgage portfolio at 31 December 2015 and 2014:
Fully collateralised(1)
Loan-to-value ratio:
Less than 50%
50% - 70%
71% - 80%
81% - 90%
91% - 100%
Neither past
due nor
impaired
€ m
Past due
but not
impaired
€ m
7,116
6,858
4,109
3,616
2,634
24,333
237
235
114
114
101
801
Impaired
€ m
525
709
466
533
619
2015
Total Neither past
due nor
impaired
€ m
€ m
Past due
but not
impaired
€ m
Impaired
2014
Total
€ m
€ m
7,878
7,802
4,689
4,263
3,354
5,972
5,837
3,347
3,381
2,742
254
236
132
129
126
877
542
824
577
690
769
6,768
6,897
4,056
4,200
3,637
3,402
25,558
2,852
27,986
21,279
Partially collateralised
Collateral value relating to
loans over 100% loan-to-value
Total collateral value
4,631
28,964
206
1,007
2,356
5,208
7,193
35,179
6,380
355
27,659
1,232
3,634
7,036
10,369
35,927
Gross residential mortgages
29,796
1,056
5,966
36,818
29,014
1,323
8,509
38,846
Statement of financial position
specific provisions
Statement of financial position
IBNR provisions
Net residential mortgages
(2,045)
(2,045)
(2,877)
(2,877)
(277)
3,921
34,496
(550)
5,632
35,419
(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 financial year end.
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Risk management – 3. Individual risk types
3.1 Credit risk – Credit exposure
Credit risk mitigants* (continued)
Loans and receivables to customers - other
In addition to the credit risk mitigants outlined on the previous page, the Group holds reverse repurchase agreements amounting to
€ 226 million (31 December 2014: € 110 million) in its loans and receivables portfolio for which it had accepted collateral with a fair value
of € 222 million (2014: € 107 million).
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 2015 amounted to € 1,698 million (2014: € 2,038 million) and those with negative fair value
are reported as liabilities which at 31 December 2015 amounted to € 1,781 million (2014: € 2,334 million).
The enforcement of netting agreements would potentially reduce the statement of financial position carrying amount of derivative assets
and liabilities by € 1,052 million at 31 December 2015 (2014: € 1,221 million). The Group also has Credit Support Annexes (“CSAs”) in
place which provide collateral for derivative contracts. As at 31 December 2015, € 514 million (2014: € 843 million) of CSAs are included
within financial assets as collateral for derivative liabilities and € 201 million (2014: € 279 million) of CSAs are included within financial
liabilities as collateral for derivative assets (note 47 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 2015, repurchase agreements amounted to € 648 million (2014: Nil) for which the Group had accepted collateral with a
fair value of € 737 million (2014: Nil).
NAMA senior bonds*
NAMA senior bonds, which at 31 December 2015 had a carrying value of € 5,616 million (31 December 2014: € 9,423 million), are
guaranteed by the Irish Government as to principal and interest.
Financial investments available for sale*
At 31 December 2015, government guaranteed senior bank debt which amounted to € 174 million (2014: € 120 million) was held within
the available for sale portfolio.
*Forms an integral part of the audited financial statements
72
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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 information
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 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.
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Risk management – 3. Individual risk types
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:
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
the 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 the full capital
and agreed 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;
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; and
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.
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
74
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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 may 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 (t) ‘Impairment of financial assets’ in note 1 to the consolidated financial statements.
The effectiveness of the forbearance measures over the lifetime of the arrangements are subject to on-going management and review.
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.
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Risk management – 3. Individual risk types
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 the 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/or 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; and
– Country risk.
*Forms an integral part of the audited financial statements
76
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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 estimated 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 estimated
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 € 1,000,000 for AIB Ireland by customer connection (threshold is € 750,000 for EBS Limited) and
£ 500,000 for AIB UK. 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 period 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 69 to 70. 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 € 1,000,000 for AIB Ireland or € 750,000 for EBS Limited and £ 500,000
for AIB UK.
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. The 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 additional data sets.
Key model parameters at 31 December 2015 for owner-occupier mortgages are as follows: cure (6%) and disposal/forbearance (94%)
(2014: cure 4% and disposal/forbearance 96%).
The corresponding buy-to-let model parameters at 31 December 2015 are as follows: cure (3.5%) and disposal/forbearance (96.5%)
(2014: cure 0.5% and disposal/forbearance 99.5%).
The cure rate parameter in the individually insignificant model reflects the percentage of loans which were impaired/defaulted but have
exited impairment/default after a 12 month satisfactory performance and no loss to the Group.
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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).
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The model parameters are reviewed at the Group Credit Committee on a quarterly basis. The main parameter changes for the year end
31 December 2015 were an increase in the haircut on disposal for both Dublin and Outside Dublin in addition to the application of
updated house price fall from peak parameters again for both Dublin and Outside Dublin.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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3.1 Credit risk – Credit risk management
Loan loss provisioning* (continued)
Individually insignificant – Non-mortgage portfolio (Republic of Ireland)
A non-mortgage individually insignificant and IBNR model was introduced and implemented for the financial year end 31 December
2014. The model 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 occur 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. The estimation of IBNR also takes into consideration
re-default and execution risk for restructured loans.
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 the financial 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.
*Forms an integral part of the audited financial statements
78
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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 2015 and 2014:
Owner-occupier
Average
PD
%
Average
LGD
%
0.6
2.8
10.7
55.7
23.6
13.6
17.3
18.6
19.8
19.4
19.9
18.9
Exposure
€ m
1,160
1,312
414
216
394
617
Buy-to-let
Average
PD
%
2015
Average
LGD
%
1.2
4.4
16.8
56.7
34.4
22.1
17.6
21.2
23.0
21.9
24.6
23.5
2014
Owner-occupier
Average
PD
%
Average
LGD
%
0.9
2.8
15.6
81.6
37.9
23.9
18.9
20.4
21.7
20.6
19.6
19.9
Exposure
€ m
1,055
1,390
426
233
Buy-to-let
Average
PD
%
1.5
5.5
27.0
71.2
Average
LGD
%
15.6
19.3
20.4
20.2
197
446
54.5
30.6
21.5
21.3
Exposure
€ m
14,168
8,073
2,286
534
1,251
2,446
Exposure
€ m
12,928
8,386
2,546
764
477
1,798
Good upper(1)
Good lower(1)
Watch(1)
Vulnerable(1)
Included in the above are the following sub
portfolios which carry a higher level of IBNR:
Cured
Forborne – non-impaired
Good upper(1)
Good lower(1)
Watch(1)
Vulnerable(1)
Included in the above are the following sub
portfolios which carry a higher level of IBNR:
Cured
Forborne – non-impaired
(1)For definition – see page 122.
The parameters for Cured and Forborne non-impaired, are as follows:
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.
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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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 which excludes a number of portfolios, in particular: credit cards; property and construction; and
non-property business loans, is calculated using the individually insignificant and IBNR non-mortgage model as described above. The
table below sets out the parameters used in the calculation of IBNR for this portfolio at 31 December 2015 and 2014:
Exposure
€ m
103
5,940
1,155
3,057
375
591
Average
PD
%
2015
Average
LGD
%
0.1
1.1
4.3
12.3
12.0
11.3
45.3
45.9
38.1
37.4
36.8
32.6
Exposure
€ m
48
4,129
701
861
251
228
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
Good upper(1)
Good lower(1)
Watch(1)
Vulnerable(1)
Included within the above are:
> 90 days past due but not impaired
Cured in the past 12 months
(1)For definition – see page 122.
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.
*Forms an integral part of the audited financial statements
80
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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 and
requiring a provision; and
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 and 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 2015, there was no change made to the Republic of
Ireland emergence period for the mortgage (12 months) and non-mortgage (8 months) portfolios. The emergence period for credit cards
and corporate portfolios, also remained at 3 and 6 months respectively.
The average emergence period for UK mortgages is 12 months (increase from 8 months at 31 December 2014) with the non-mortgage
emergence period ranging from between 3 to 8 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 a designated Credit Risk
representative as outlined in the terms of reference for Credit Committees (approved by ERC), 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 including non-contracted 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 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 revised agreement and subsequent satisfactory performance.
Reversals of impairment
If the amount of an impairment loss decreases 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
portfolio at the reporting 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.
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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3.1 Credit risk – Credit risk management
Loan loss provisioning* (continued)
Impact of changes to key assumptions and estimates on impairment provisions (continued)
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 number of geographical areas.
Given the relative size of the Republic of Ireland mortgage portfolio, the key variables include house price fall from peak of 41% Dublin
and 42% 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 Republic of Ireland collective mortgage provisions would result in a reduction in
impairment provisions of 1.0% (blended rate of owner-occupier/buy-to-let) or c. € 14 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 Republic of Ireland collective mortgage provisions for 31 December
2015 is estimated to result in movements in provisions of c. € 20 million (€ 16 million specific provision and €4 million IBNR).
A 1% change in the haircut on disposal for Dublin properties would result in a movement in provisions of c. € 5 million (€ 4 million
specific provisions and € 1 million IBNR). A similar 1% change in the haircut on disposal for properties outside of Dublin would result in a
movement in provisions of c. €12 million (€ 10 million specific provisions and € 2 million IBNR).
An increase in the assumed repossession rate of 1% for the Republic of Ireland collective mortgage provisions would result in an
increase in provisions of 0.6% (blended rate of owner-occupier/buy-to-let) or c. € 9 million.
For € 5.7 billion of the total impaired loans (€ 1.5 billion mortgages and € 4.2 billion non-mortgages) for which systemised 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. € 49 million (c. € 18 million mortgages and c. € 31 million non-mortgages).
If anticipated cash receipt timelines moved out by 1 year, the impact on impairment provisioning would be an increase of
c. € 77 million (c. € 24 million mortgages and c. € 53 million non-mortgages).
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 would result in a decrease of c. € 19 million in IBNR provisions.
In the Republic of Ireland non-mortgage portfolio, an increase of one month in the loss emergence period for IBNR provisions would
result in an increase of c. € 27 million.
*Forms an integral part of the audited financial statements
82
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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 following tables show for the financial years ended 31 December 2015 and 2014 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.
Total
Analysed geographically(1)
2015
Republic
of Ireland
€ m
United
Kingdom
€ m
Rest of the
World
€ m
1,691
237
1,511
8,089
4,430
910
796
3,283
34,456
3,156
58,559
104
101
521
3,443
1,401
329
302
2,563
2,362
356
11,482
–
1
75
–
–
–
4
42
–
–
122
%
2.6
0.5
3.0
16.4
8.3
1.8
1.6
8.4
52.5
4.9
100.0
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.
€ m
1,795
339
2,107
11,532
5,831
1,239
1,102
5,888
36,818
3,512
70,163
55,060
2,018
13,085
70,163
(139)
48
(6,832)
63,240
The credit portfolio is diversified within each of its geographic markets by spread of locations, industry classification and individual
customer. At 31 December 2015, residential mortgages (49%) and property and construction (12%) in the Republic of Ireland represent
the largest concentrations within the total portfolio. No other industry or loan category in any geographic market accounts for more than
10% of the Group’s total loan portfolio.
Loans booked in the Republic of Ireland include € 1.8 billion US leveraged debt and € 0.3 billion European leveraged debt which is
described on page 121 of this report.
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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3.1 Credit risk – Credit profile of the loan portfolio
Total
Analysed geographically(1)
2014
Republic
of Ireland
€ m
United
Kingdom
€ m
Rest of the
World
€ m
1,747
239
1,271
11,220
5,055
819
589
2,969
36,324
3,429
63,662
71
25
462
4,317
1,198
191
295
2,634
2,522
408
12,123
–
1
–
–
–
–
3
43
–
–
47
%
2.4
0.3
2.3
20.5
8.2
1.3
1.2
7.5
51.2
5.1
100.0
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.
€ 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
*Forms an integral part of the audited financial statements
84
Allied Irish Banks, p.l.c. Annual Financial Report 2015
3.1 Credit risk – Credit profile of the loan portfolio
2015
Analysed geographically(1)
United
Kingdom
€ m
Rest of the
World
€ m
Republic
of Ireland
€ m
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.
Total
€ m
171
38
162
4,308
1,071
60
147
464
5,966
698
Total
€ m
302
83
233
8,836
2,109
100
183
763
8,509
1,044
13,085
11,401
1,684
Analysed geographically(1)
United
Kingdom
€ m
Rest of the
World
€ m
Republic
of Ireland
€ m
166
37
122
3,295
875
36
135
393
5,711
631
5
1
40
1,013
196
24
12
71
255
67
293
83
179
6,951
1,831
73
168
572
8,217
974
9
–
54
1,885
278
27
15
191
292
70
–
–
–
–
–
–
–
–
–
–
–
2014
–
–
–
–
–
–
–
–
–
–
–
22,162
19,341
2,821
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s
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c
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a
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
2015
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.
Total
€ m
76
15
102
2,475
551
57
60
291
2,045
486
6,158
674
6,832
Total
€ m
185
40
144
5,478
1,217
69
96
493
2,877
716
11,315
1,091
12,406
Analysed geographically(1)
United
Kingdom
€ m
Rest of the
World
€ m
Republic
of Ireland
€ m
73
15
78
1,790
458
33
56
252
1,930
436
5,121
3
–
24
685
93
24
4
39
115
50
1,037
–
–
–
–
–
–
–
–
–
–
–
2014
Analysed geographically(1)
United
Kingdom
€ m
Rest of the
World
€ m
Republic
of Ireland
€ m
178
40
115
4,326
1,072
44
90
391
2,724
663
9,643
7
–
29
1,152
145
25
6
102
153
53
1,672
–
–
–
–
–
–
–
–
–
–
–
*Forms an integral part of the audited financial statements
86
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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
financial years ended 31 December 2015 and 2014:
Gross loans and receivables
to customers*
Residential mortgages:
Owner-occupier
Buy-to-let
Other personal
Property and construction
Non-property business
AIB
Ireland
€ m
28,880
5,576
34,456
3,156
8,055
10,223
AIB
Group &
UK International
€ m
€ m
2,048
314
2,362
356
3,443
5,292
–
–
–
–
34
2,786
2015
Total
€ m
30,928
5,890
36,818
3,512
11,532
18,301
AIB
Ireland
€ m
29,631
6,693
36,324
3,430
11,137
10,808
AIB
Group &
UK International
€ m
€ m
2,177
345
2,522
407
4,395
4,884
–
–
–
–
5
1,920
2014
Total
€ m
31,808
7,038
38,846
3,837
15,537
17,612
Total
55,890
11,453
2,820
70,163
61,699
12,208
1,925
75,832
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 –
statement of financial position
Specific
IBNR
Total impairment provisions
Provision cover percentage
Specific provisions/impaired loans
Total provisions/impaired loans
Total provisions/total loans
Income statement – impairment
(credit)/charge
Specific
IBNR
Total impairment (credit)/charge
Impairment (credit)/charge/
average loans
34,461
8,132
2,757
45,350
3,277
6,781
11,371
21,429
%
38
20
€ m
5,109
596
5,705
%
45
50
10
986
667
1,668
3,321
%
29
15
€ m
1,027
71
1,098
%
62
66
10
€ m
(487)
(405)
(892)
%
€ m
(30)
(14)
(44)
%
17
–
46
63
%
2
2
€ m
22
7
29
%
48
63
1
€ m
9
2
11
%
4,280
7,448
13,085
24,813
%
35
19
€ m
6,158
674
6,832
%
47
52
10
32,969
3,914
5,598
19,218
28,730
%
47
31
€ m
9,563
1,001
10,564
%
50
55
17
7,051
1,222
1,049
2,886
5,157
%
42
24
€ m
1,718
85
1,803
%
60
62
15
€ m
(508)
(417)
(925)
%
€ m
(208)
(46)
(254)
%
€ m
129
(59)
70
%
1,831
41,851
36
–
58
94
%
5
3
5,172
6,647
22,162
33,981
%
45
29
€ m
€ m
34
5
39
%
59
67
2
€ m
4
2
6
%
11,315
1,091
12,406
%
51
56
16
€ m
(75)
(103)
(178)
%
(1.52)
(0.35)
0.50
(1.26)
(0.39)
0.54
0.25
(0.22)
(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 64.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
Gross loans and receivables to customers reduced by 7.5% or € 5.7 billion in 2015. The reduction was due to restructuring activity of
€ 5.4 billion (including the disposal of a portfolio of loans in the UK of €0.7bn), loan redemptions of €10.1 billion offset by new lending of
€ 8.7 billion and a weaker euro impact of € 1.1 billion.
The following summarises the key points affecting the credit profile of the loan portfolio:
– The Group is predominantly Republic of Ireland and United Kingdom focused with most sectors experiencing improved trading
conditions due to a stronger economic environment. The Group has material concentrations in residential mortgages (52% of gross
loans) and property and construction (16%). In addition, apart from a personal book (5%), there is the non-property business
lending book of 27% which is spread across a number of sub-sectors.
–
Improved demand for credit resulted in new lending of € 8.7 billion in 2015 (2014: € 5.9 billion) spread across most sectors and
included € 1.7 billion mortgage and € 3.3 billion non-mortgage in AIB Ireland, € 2.6 billion in AIB UK and € 1.1 billion in Group &
International.
– Continued progress in working with customers to restructure facilities, resulting in the quantum of impaired loans reducing by
€ 9 billion in the year (a decrease of 41%). The reduction reflects restructuring activity, write-offs (including non-contracted write-offs)
and redemptions and repayments due to customer asset sales.
– As a result of the restructuring activity and the reduction in impaired loans, the overall credit quality profile has shown a significant
improvement and criticised loans (including impaired) have reduced from 45% of total loans at 31 December 2014 down to 35% as
at 31 December 2015.
– A net writeback of impairment provisions of € 925 million in 2015 compared to a writeback of € 178 million in 2014. The key drivers
of the improvement were fewer new loans moving to impairment and a writeback of provisions due to significant restructuring
activity.
Restructuring
Restructuring the loans of customers in difficulty continues to be a key focus for the Group. Customer treatment strategies, as described
on pages 73 to 75 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.
For mortgage customers in difficulty the core objective is 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.
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.
This restructuring engagement with customers resulted in c. € 3.4 billion of loans restructured out of impairment during the year with a
further € 3.4 billion of impaired loans written off (including non-contracted write-offs).
Provision writebacks
There was a total provision net writeback of € 925 million in 2015 compared to a provision net write back of € 178 million in 2014.
Specific provision writebacks (net of top-ups) during the year were € 789 million (equivalent to c. 3.6% of opening impaired loans) and
was split into mortgages € 294 million, other personal € 47 million, property and construction € 270 million and non-property business
lending € 178 million. These writebacks were partially offset by specific provisions amounting to € 281 million on newly impaired loans.
The key drivers of these writebacks include:
–
–
–
increased security values and improved business cash flows due to the stronger economic environment;
cases cured from impairment without loss; and
additional security from the customer as part of the restructuring process.
The repayment of impaired loans remains dependent on significant levels of future collateral realisations in the near to medium term.
The IBNR provisions released during the year amounted to € 417 million (2014: € 103 million). The release was mainly driven by a
reduction in the probability of default in the portfolio reflecting the improved economic environment as well as changes in model
parameters.
88
Allied Irish Banks, p.l.c. Annual Financial Report 2015
3.1 Credit risk – Credit profile of the loan portfolio
Credit quality
Credit quality in the portfolio continues to improve. Criticised loans, including impaired, decreased by € 9.2 billion or 27%, and as a % of
total loans have decreased from 45% at 31 December 2014, to 35% at 31 December 2015. The improving credit quality is driven by the
level of new business in the year combined with the reduction in the criticised portfolio arising out of the restructuring process. Within
criticised loans, vulnerable loans increased by € 0.8 billion which was mainly due to restructuring of impaired loans in the year, as
following restructure individually significant loans are initially graded as vulnerable.
Residential mortgages
At 31 December 2015, residential mortgages accounted for 52% of gross loans and receivables to customers (€ 36.8 billion), with the
loans mainly located in the Republic of Ireland (94%) (see page 100) and the remainder in the United Kingdom (see page 110). The
portfolio consists of 84% owner-occupier loans and 16% buy-to-let.
Total loans in arrears by value decreased by 29% during 2015, a decrease of 25% in the owner-occupier portfolio and a decrease of
36% in the buy-to-let portfolio in the year. By number of customers, these decreases were 24%, 25% and 24% respectively. This
decrease in arrears can be mainly attributed to the restructuring of the portfolio and the improving economic conditions. The reduction in
arrears was evident in both the performance of early arrears (less than 90 days past due) and the late arrears (greater than 90 days
past due).
Further detailed disclosures in relation to the Republic of Ireland mortgage portfolio are provided on pages 100 to 109 and the United
Kingdom mortgage portfolio on pages 110 to 116.
Other personal
At 31 December 2015, the other personal portfolio amounted to € 3.5 billion (5% of gross loans and receivables to customers). 90% of
loans relate to AIB Ireland with the remainder of loans relating to AIB UK. The portfolio comprises € 2.6 billion in loans and overdrafts
and € 0.9 billion in credit card facilities. Loans in the portfolio rated as satisfactory increased by € 0.1 billion or 3% in the year driven by
new lending which has been facilitated by an expanded product offering, including on-line approval through internet, mobile and
telephone banking applications.
Further detailed disclosures in relation to the other personal portfolio are provided on page 117.
Property and construction
At 31 December 2015, the property and construction portfolio amounted to € 11.5 billion (16% of gross loans and receivables to
customers). 70% of loans relate to AIB Ireland and 30% to AIB UK. The portfolio comprises of 70% investment loans (€ 8.1 billion), 22%
land and development loans (€ 2.6 billion) and 8% other property and construction loans (€ 0.9 billion). Overall, the portfolio reduced by
€ 4 billion or 26% during 2015. This reduction is due primarily to the continuing impact of restructuring and to write-offs, amortisations
and repayments resulting from asset disposals by customers and which was offset by new business written of c. €1.4 billion. Activity in
the sector has been underpinned by improved economic performance and increased investment spending which has had a positive
impact on the residential and commercial land and development market.
Further detailed disclosures in relation to the property and construction portfolio are provided on pages 118 to 119.
Non-property business
At 31 December 2015, the non-property business portfolio amounted to € 18.3 billion (27% of gross loans and receivables to
customers). 56% of loans relate to AIB Ireland, 29% to AIB UK and with the remainder of 15% to Group & International. The portfolio is
concentrated in sub-sectors which are reliant on the respective domestic economies. It also includes corporate and leverage
exposures, some of which are dependent on international markets. Key sub-sectors include agriculture (10% of the portfolio), hotels
(13% of the portfolio), licensed premises (4% of the portfolio), retail/wholesale (13% of the portfolio) and other services (32% of the
portfolio). Satisfactory loans and receivables increased in 2015 by € 2.5 billion or 22%, continuing the positive trend experienced in
2014. The level of criticised loans reduced by 29%, mainly due to a reduction of € 1.7 billion in impaired loans.
Further detailed disclosures in relation to the non-property business portfolio are provided on pages 120 to 121.
Impairment provisions
Specific impairment provisions as a percentage of impaired loans decreased from 51% at 31 December 2014 to 47% at 31 December
2015. This was mainly driven by restructures, writebacks, and write-offs of loans (partially or fully) 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
Allied Irish Banks, p.l.c. Annual Financial Report 2015
89
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Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
Impairment provisions (continued)
with customers and also where further recovery is considered unlikely. The impairment provisions remain dependent on significant
levels of future collateral realisation.
IBNR provisions of € 0.7 billion were held at 31 December 2015 compared to € 1.1 billion at 31 December 2014, a reduction of
€ 0.4 billion. The level of IBNR reflects a conservative estimate of unidentified incurred loss within the portfolio.
The income statement provision writeback of € 925 million in 2015 compared to a provision writeback of € 178 million in 2014. Income
statement specific provisions included € 281 million from new impairments and a € 789 million writeback of provisions (net of top-ups)
as described above.
90
Allied Irish Banks, p.l.c. Annual Financial Report 2015
3.1 Credit risk – Credit profile of the loan portfolio
The following table profiles the asset quality of the Group’s loans and receivables at 31 December 2015 and 2014:
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
Gross loans and receivables less provisions
Unearned income
Deferred costs
Net loans and receivables
Asset quality*
Neither past due nor impaired
Past due but not impaired
Impaired – provisions held
Gross loans and receivables
Specific provisions
IBNR provisions
Total provisions for impairment
Gross loans and receivables less provisions
Unearned income
Deferred costs
Net loans and receivables
Residential
mortgages
Other
personal
€ m
29,796
1,056
5,966
36,818
(2,045)
(277)
(2,322)
34,496
€ m
2,665
149
698
3,512
(486)
(49)
(535)
2,977
Residential
mortgages
Other
personal
€ m
29,014
1,323
8,509
38,846
(2,877)
(550)
(3,427)
35,419
€ m
2,590
203
1,044
3,837
(716)
(52)
(768)
3,069
Property Non-property
business
and
construction
€ m
6,819
405
4,308
11,532
(2,475)
(174)
(2,649)
8,883
6,226
475
8,836
15,537
(5,478)
(174)
(5,652)
9,885
€ m
15,780
408
2,113
18,301
(1,152)
(174)
(1,326)
€ m
13,316
523
3,773
17,612
(2,244)
(315)
(2,559)
15,053
Property Non-property
business
and
construction
€ m
2015
Total
€ m
55,060
2,018
13,085
70,163
(6,158)
(674)
(6,832)
(139)
48
63,240
2014
Total
€ m
51,146
2,524
22,162
75,832
(11,315)
(1,091)
(12,406)
63,426
(123)
59
63,362
16,975
63,331
Gross loans and receivables reduced by 7.5% or € 5.7 billion in 2015. The reduction was due to restructuring activity of € 5.4 billion
(including the disposal of a portfolio of loans in AIB UK of € 0.7 billion), loan redemptions of € 10.1 billion offset by new lending of
€ 8.7 billion and a weaker euro impact of € 1.1 billion.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
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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 table analyses 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 2015, are classified as repayable within
one year. Approximately 9% 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.
Fixed
rate
Variable
rate
Total
€ m
Republic of Ireland ......................5,047 ..............53,512 ..............58,559
United Kingdom ..............................949 ..............10,533 ..............11,482
Rest of the World ................................– ..................122 ..................122
€ m
€ m
Total
5,996
64,167
70,163
year
Within 1 After 1 year
but within 5
years
€ m
€ m
16,380
2,721
15
19,116
8,977
3,829
107
After 5
years
€ m
33,202
4,932
–
12,913
38,134
Fixed
rate
€ m
Variable
rate
€ m
Total
€ m
Republic of Ireland ......................4,038 ..............59,624 ..............63,662
United Kingdom ..............................898 ..............11,225 ..............12,123
Rest of the World ................................– ....................47 ....................47
Total
4,936
70,896
75,832
Within 1
year
€ m
24,612
4,529
22
29,163
After 1 year
but within 5
years
€ m
6,773
2,826
25
9,624
After 5
years
€ m
32,277
4,768
–
37,045
2015
Total
€ m
58,559
11,482
122
70,163
2014
Total
€ m
63,662
12,123
47
75,832
92
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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
AIB Ireland
AIB UK
Group & International
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
AIB Ireland
AIB UK
Group & International
As a percentage of
total gross loans
1–30 days
€ m
31–60 days
€ m
55
1
29
127
63
4
3
30
536
30
40
918
808
110
–
918
%
21
–
2
54
14
–
1
20
151
5
19
287
249
38
–
287
%
61–90 days 91–180 days 181–365 days
€ m
€ m
€ m
2
–
–
15
10
–
1
7
86
3
6
130
112
18
–
130
%
8
–
1
54
13
–
1
11
73
2
12
175
142
33
–
175
%
5
–
1
45
6
–
1
8
65
1
7
139
130
9
–
139
%
> 365 days
€ m
39
2
2
110
31
2
1
13
145
–
24
369
358
11
–
369
%
2015
Total
€ m
130
3
35
405
137
6
8
89
1,056
41
108
2,018
1,799
219
–
2,018
%
1.31
0.41
0.18
0.25
0.20
0.53
2.88
1–30 days
€ m
31–60 days
€ m
50
–
21
140
69
6
12
69
552
30
50
999
881
118
–
999
%
1.32
10
–
4
37
18
1
1
26
259
7
14
377
341
36
–
377
%
0.50
61–90 days 91–180 days 181–365 days
€ m
€ m
€ m
3
–
1
28
7
–
–
3
151
4
13
210
182
28
–
210
%
0.28
9
–
1
58
28
–
2
10
116
3
18
245
218
27
–
245
%
0.32
15
–
2
58
35
–
–
11
127
1
15
264
244
20
–
264
%
0.35
> 365 days
€ m
40
3
8
154
31
3
–
24
118
–
48
429
415
14
–
429
%
0.57
2014
Total
€ m
127
3
37
475
188
10
15
143
1,323
45
158
2,524
2,281
243
–
2,524
%
3.33
93
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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 2015
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)
At 31 December 2015, loans past due but not impaired reduced by € 0.5 billion to € 2.0 billion or 2.9% of total loans and receivables to
customers (2014: € 2.5 billion or 3.3%).
Residential mortgage loans which were past due but not impaired at 31 December 2015, amounted to € 1.1 billion. This represents 52%
of total loans which were past due but not impaired (2014: € 1.3 billion or 52%). The level of residential mortgage loans in early arrears
(less than 30 days) continues to decrease which is 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 20% or € 0.4 billion of total loans
which were past due but not impaired (2014: 19% or € 0.5 billion), with other personal at 7% or € 0.1 billion (2014: 8% or € 0.2 billion).
*Forms an integral part of the audited financial statements
94
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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 at 31 December 2015 and 2014:
Gross loans
and
receivables
€ m
Impaired loans
Individually Collectively
assessed
assessed
Total
% of
total gross
loans
€ m
€ m
€ m
Retail
Residential mortgages
Other personal lending
Total retail
Commercial
Property and construction
Non-property business
Total commercial
Total
Specific impairment provisions
at 31 December 2015
Specific provision cover percentage
36,818
3,512
40,330
11,532
18,301
29,833
70,163
16
20
17
37
12
22
19
1,914
358
2,272
3,950
1,632
5,582
7,854
4,052
340
4,392
358
481
839
5,966
698
6,664
4,308
2,113
6,421
5,231
13,085
3,975
2,183
6,158
%
51
%
42
%
47
Gross loans
and
receivables
€ m
Impaired loans
Individually Collectively
assessed
assessed
Total
€ m
€ m
€ m
% of
total gross
loans
Retail
Residential mortgages
Other personal lending
Total retail
Commercial
Property and construction
Non-property business
Total commercial
Total
Specific impairment provisions
at 31 December 2014
Specific provision cover percentage
38,846
3,837
42,683
15,537
17,612
33,149
75,832
3,453
691
4,144
8,543
3,359
11,902
16,046
5,056
353
5,409
293
414
707
8,509
1,044
9,553
8,836
3,773
12,609
6,116
22,162
22
27
22
57
21
38
29
9,185
2,130
11,315
%
57
%
35
%
51
2015
Specific impairment
provisions
% of
impaired
loans
Total
€ m
2,045
486
2,531
2,475
1,152
3,627
6,158
34
70
38
57
55
56
47
2014
Specific impairment
provisions
% of
impaired
loans
Total
€ m
2,877
716
3,593
5,478
2,244
7,722
11,315
34
69
38
62
59
61
51
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Specific provisions as a percentage of impaired loans decreased from 51% at 31 December 2014 to 47% at 31 December 2015. The
reduction occurred in individually assessed loans, with cover reduced from 57% to 51%. This was mainly driven by restructures,
writebacks and write-offs of loans with higher provision cover. Provision write-offs are generated through both restructuring agreements
with customers and also where further recovery is considered unlikely (including non-contracted write-offs). The impact of the
non-contracted write-offs in 2015 accounted for the 6% decrease in the provision cover for individually assessed loans.
n
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The provision cover for the collectively assessed portfolio increased from 35% to 42%, driven by parameter changes to the individually
insignificant mortgage model, which was updated to reflect current data on loss history and portfolio development.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
Movements on impairment provisions
The following table sets out the movements on the Group impairment provisions for the financial years ended 31 December 2015 and
2014:
Property Non-property
business
and
construction
€ m
At 1 January
Exchange translation adjustments
Credit to income
statement – customers(1)
Amounts written off(2)
Disposals
Recoveries of amounts written off
in previous financial years(2)
At 31 December 2015
Total provisions are split as follows:
Specific
IBNR
Amounts include:
Residential
mortgages
Other
personal
€ m
3,427
16
(478)
(643)
–
–
2,322
2,045
277
2,322
€ m
768
2
(8)
(226)
(1)
–
535
486
49
535
Loans and receivables to customers (note 26 to the consolidated financial statements)
At 1 January
Exchange translation adjustments
(Credit to)/charge against income
statement – customers(1)
Credit to income statement – banks(3)
Amounts written off(2)
Recoveries of amounts written off
in previous financial years(2)
At 31 December 2014
Total provisions are split as follows:
Specific
IBNR
Amounts include:
Residential
mortgages
Other
personal
€ m
3,952
12
(76)
–
(461)
–
3,427
2,877
550
3,427
€ m
1,147
9
15
–
(403)
–
768
716
52
768
Loans and receivables to customers (note 26 to the consolidated financial statements)
5,652
102
(214)
(2,738)
(159)
6
2,649
2,475
174
2,649
8,460
97
(244)
–
(2,664)
3
5,652
5,478
174
5,652
Property Non-property
business
and
construction
€ m
2015*
Total
€ m
12,406
131
(925)
(4,593)
(195)
8
6,832
6,158
674
6,832
6,832
6,832
2014*
Total
€ m
17,090
150
(178)
(7)
(4,655)
€ m
2,559
11
(225)
(986)
(35)
2
1,326
1,152
174
1,326
€ m
3,531
32
127
(7)
(1,127)
3
6
2,559
12,406
2,244
315
2,559
11,315
1,091
12,406
12,406
12,406
(1)Geographic split :Republic of Ireland a credit of € 885 million (2014: a credit of € 205 million); United Kingdom a credit of € 40 million (2014: a charge of
€ 27 million) and Rest of the World Nil (2014: Nil).
(2)For geographical and sector split, see page 99.
(3)Geographic split: Republic of Ireland a credit of € 7 million; United Kingdom Nil; and Rest of the World Nil.
*Forms an integral part of the audited financial statements
96
Allied Irish Banks, p.l.c. Annual Financial Report 2015
3.1 Credit risk – Credit profile of the loan portfolio
Provisions – income statement
The following table analyses the income statement provision (credit)/charge split between individually significant, individually insignificant
and IBNR for loans and receivables for the financial years ended 31 December 2015 and 2014:
Specific provisions – Individually significant loans and receivables
– Individually insignificant loans and receivables
IBNR
Total provisions for impairment (credit)/charge on loans
and receivables to customers
Writeback of provisions for liabilities and commitments
Total
Specific provisions – Individually significant loans and receivables
– Individually insignificant loans and receivables
IBNR
Total provisions for impairment (credit)/charge 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
AIB
Ireland
€ m
(620)
133
(405)
(892)
AIB
Ireland
€ m
(151)
(57)
(46)
(254)
AIB
Group &
UK International
€ m
€ m
(22)
(8)
(14)
(44)
AIB
UK
€ m
97
32
(59)
70
9
–
2
11
Group &
International
€ m
4
–
2
6
2015*
Total
€ m
(633)
125
(417)
(925)
(11)
(936)
2014*
Total
€ m
(50)
(25)
(103)
(178)
(7)
(4)
1
(188)
In the table above, there is an offsetting element between the individually significant and the individually insignificant pools, that may
result in a case moving from one provision pool to another with a provision being recorded in one pool being partially offset by a
writeback in the other pool.
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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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 (credit)/charge for the financial years ended
31 December 2015 and 2014:
AIB Ireland
AIB UK
Group & International
Total
Residential
mortgages
€ m
(463)
(15)
–
Other
2015*
Total
€ m
€ m
(429)
(892)
(29)
11
(44)
11
Residential
mortgages
€ m
Other
2014*
Total
€ m
€ m
(93)
(161)
(254)
17
–
53
6
70
6
(478)
(447)
(925)
(76)
(102)
(178)
The following table analyses by segment the income statement impairment provision (credit)/charge as a percentage of average loans
and receivables to customers expressed as basis points (“bps”) for the financial years ended 31 December 2015 and 2014:
AIB Ireland
AIB UK
Group & International
Total
Residential
mortgages
bps
(131)
(59)
–
Other
2015*
Total
bps
bps
(182)
(152)
(29)
50
(35)
50
(126)
(125)
(126)
Residential
mortgages
bps
(25)
68
–
(19)
Other
bps
(57)
51
25
(26)
2014*
Total
bps
(39)
54
25
(22)
Writebacks increased from a net writeback of € 178 million in 2014, to a net writeback of € 925 million in 2015. The increased writeback
comprised of € 508 million in specific provision writebacks and a release of IBNR provisions of € 417 million (31 December 2014:
€ 75 million net writeback in specific provisions and release of IBNR provisions of € 103 million).
The specific provision writeback of € 508 million can be split into € 281 million new impairment provisions and a € 789 million writeback
(net of top-ups). New impairment provisions have continued to reduce quarter on quarter reflecting the continuing improved economic
conditions. The key drivers of the increased writebacks were fewer new loans moving to impairment and a writeback of provisions due
to significant restructuring activity.
In AIB Ireland, the 2015 income statement provision writeback of € 892 million comprises a specific provision writeback of € 487 million
and an IBNR release of € 405 million. This compares to an income statement specific provision writeback of € 208 million and an IBNR
release of € 46 million for 2014. The provision writeback was primarily due to the positive impact of debt restructuring activities and
lower levels of new impairments.
In AIB UK, the 2015 income statement provision writeback of € 44 million comprises a specific provision writeback of € 30 million and an
IBNR release of € 14 million. This compares to a specific provision charge of € 129 million and an IBNR release of € 59 million in 2014.
The impairment provision charge in Group & International of € 11 million compares to a provision charge of € 6 million in 2014.
The IBNR released in 2015 was € 417 million (2014: € 103 million). The increased release was mainly driven by a reduction in the
probability of default in the portfolio reflecting the improved economic environment as well as changes in model parameters.
*Forms an integral part of the audited financial statements
98
Allied Irish Banks, p.l.c. Annual Financial Report 2015
3.1 Credit risk – Credit profile of the loan portfolio
Loans written off and recoveries of loans previously written off
The following table analyses loans written off and recoveries of previously written off loans by geography and industry sector for the
financial years ended 31 December 2015 and 2014:
Loan
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
Other services
Loans written off
2015
€ m
74.2
24.8
38.7
2,218.9
536.2
13.6
28.5
135.7
604.3
214.0
2014
€ m
56.2
14.3
80.9
2,257.3
530.3
58.9
53.9
191.4
447.4
385.0
3,888.9
4,075.6
3.7
–
9.4
518.6
61.4
0.1
0.3
59.8
38.7
11.6
703.6
–
–
–
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
TOTAL
4,592.5
4,654.9
Recoveries of loans
previously written off
2014
€ m
2015
€ m
–
–
0.3
3.2
0.1
0.1
–
1.3
–
0.2
5.2
–
–
–
3.2
–
–
–
–
–
–
3.2
–
–
–
8.4
–
–
0.1
0.3
0.1
–
0.1
0.6
–
0.1
1.3
–
–
–
3.1
–
–
–
–
–
–
3.1
1.2
–
1.2
5.6
Write-offs in 2015, as a percentage of gross loans and receivables at 1 January 2015, was 6.1% compared to 5.6% in 2014. These
include all write-offs, both full and partial and write-offs not contracted with customers of c. € 1.7 billion.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
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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 – Residential mortgages
Residential mortgages amounted to € 36.8 billion at 31 December 2015, with the majority (94%) relating to residential mortgages in the
Republic of Ireland and the remainder relating to the United Kingdom. This compares to € 38.8 billion at 31 December 2014, of which
94% related to residential mortgages in the Republic of Ireland. The split of the residential mortgage portfolio was owner-occupier
€ 30.9 billion and buy-to-let € 5.9 billion (31 December 2014: owner-occupier € 31.8 billion and buy-to-let € 7.0 billion).
Statement of financial position provisions of € 2.3 billion were held at 31 December 2015, split € 2.0 billion specific and € 0.3 billion IBNR
(31 December 2014: € 3.4 billion split € 2.9 billion specific and € 0.5 billion IBNR).
There was an impairment provision credit of € 478 million to the income statement in 2015 comprising a € 204 million specific writeback
and a € 274 million IBNR release (31 December 2014: € 76 million provision credit comprising € 4 million specific charge and a
€ 72 million IBNR release).
This section provides the information listed below in relation to residential mortgages.
Republic of Ireland residential mortgages – pages 101 to 109
– Credit profile
– Origination profile
–
Loan-to-value profile:
Actual and weighted average indexed loan-to-value ratios of Republic of Ireland residential mortgages
Loan-to-value ratios of Republic of Ireland residential mortgages (index linked) that were neither past due nor impaired
Loan-to-value ratios of Republic of Ireland residential mortgages (index linked) that were greater than 90 days past due
and/or impaired
– Credit quality profile
– Republic of Ireland residential mortgages that were past due but not impaired
– Collateral value of Republic of Ireland residential mortgages that were past due but not impaired
– Republic of Ireland residential mortgages that were impaired
– Republic of Ireland properties in possession
– Repossessions disposed of
United Kingdom (“UK”) residential mortgages – pages 110 to 116
– 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
– Repossessions disposed of
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.
100
Allied Irish Banks, p.l.c. Annual Financial Report 2015
3.1 Credit risk – Credit profile of the loan portfolio
Loans and receivables to customers – Republic of Ireland residential mortgages
The following table analyses the Republic of Ireland residential mortgage portfolio showing impairment provisions for the financial years
ended 31 December 2015 and 2014:
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 (credit)/charge
Income statement specific provisions
Income statement IBNR provisions
Total impairment (credit)
(1)Includes all impaired loans whether past due or not.
Owner-
occupier
€ m
28,880
4,032
3,876
3,713
Buy-to-let
€ m
5,576
2,154
2,098
1,998
2015*
Total
€ m
34,456
6,186
5,974
5,711
Owner-
occupier
€ m
29,631
5,519
5,215
5,004
Buy-to-let
€ m
6,693
3,408
3,337
3,213
2014*
Total
€ m
36,324
8,927
8,552
8,217
1,159
771
1,930
1,394
1,330
2,724
188
%
31.2
€ m
(89)
(232)
(321)
76
264
420
112
532
%
38.6
€ m
(106)
(36)
(142)
%
33.8
€ m
(195)
(268)
(463)
%
27.9
€ m
17
(23)
(6)
%
41.4
€ m
(49)
(38)
(87)
%
33.2
€ m
(32)
(61)
(93)
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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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 € 34.5 billion at 31 December 2015 compared to € 36.3 billion at
31 December 2014. The decrease in the portfolio was driven by a reduction in the criticised grades due to restructuring, loan
repayments from customer asset sales, and write-offs. Total drawdowns in 2015 were €1.7 billion, of which 97% related to
owner-occupier, whilst the weighted average indexed loan-to-value for new residential mortgages was 71%.
The split of the residential mortgage portfolio is 84% owner-occupier and 16% buy-to-let and comprised 37% tracker rate, 52% variable
rate and 11% fixed rate mortgages. The proportion of the total residential mortgage portfolio in negative equity decreased from 34% at
31 December 2014 to 24% at 31 December 2015 reflecting the increase in residential property prices in Ireland during 2015 and loan
amortisation, whilst the quantum of negative equity in the portfolio reduced from € 2.7 billion to € 1.5 billion.
Residential mortgage arrears
Total loans in arrears by value decreased by 29% during 2015, a decrease of 25% in the owner-occupier portfolio and a decrease of
36% in the buy-to-let portfolio in the year. By number of customers, these decreases were 24%, 24% and 25% respectively. These
decreases in arrears can be mainly attributed to restructuring activity and improving economic conditions. The reduction was evident in
both the performance of early arrears (less than 90 days past due) and the late arrears (greater than 90 days past due). The amount of
loans which were new into arrears for the first time in 2015 fell by 51% compared to 2014.
Total loans in arrears greater than 90 days at 8.2% as at 31 December 2015 decreased from 11.3% at 31 December 2014 and remain
below the industry average of 10.2%(1). For the owner-occupier portfolio, loans in arrears greater than 90 days at 6.4% were below the
industry average of 8.7%. For the buy-to-let portfolio, loans in arrears greater than 90 days at 19.8% exceeded the industry average of
18.1%.
Forbearance
Residential mortgages subject to forbearance measures decreased by € 0.1 billion from 31 December 2014 to € 5.4 billion at
31 December 2015, compared to an increase of € 0.6 billion in 2014. 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.
In 2015, the Group has successfully met its Mortgage Arrears Resolution Targets (“MART”), as defined by historic MART parameters,
with sustainable solutions offered to 100% of loans greater than 90 days past due (as defined by MART), with 100% deemed concluded
of which 94% were meeting the terms of their agreement.
Details of forbearance measures are set out in Section 3.2 pages 129 to 140.
Impairment provisions
Impaired loans decreased from € 8.2 billion at 31 December 2014 to € 5.7 billion at 31 December 2015, mainly due to restructuring,
write-offs and repayments through customer asset sales. The level of newly impaired loans declined by 70% in 2015 compared to 2014.
There was a specific provision writeback of € 195 million in 2015 compared to a € 32 million writeback in 2014. This can be split into a
charge for new impairments of € 78 million and a writeback of provisions (net of top-ups) of € 273 million. The writeback was mainly due
to the impact of restructuring, loans curing from impairment, and changes in a number of assumptions in the mortgage model
(possession and cure rates). The specific provision cover level increased from 33% at 31 December 2014 to 34% at 31 December 2015.
The increase was mainly driven by individually assessed buy-to-let loans, updated for improved property valuations and the impact of
restructuring.
An IBNR release in 2015 of € 268 million compares to a release of € 61 million in 2014 mainly due to changes in the mortgage model
parameters and a reduction in probability of default for the portfolio.
Specific provisions of € 0.6 billion were held against the forborne impaired portfolio of € 2.2 billion providing cover of 28.4%. In relation
to the non-impaired forborne portfolio of € 3.3 billion, of which € 0.5 billion is on an interest only arrangement, IBNR impairment
provisions of € 0.1 billion were held at 31 December 2015.
(1)Source: Central Bank of Ireland (“CBI”) Residential Mortgage Arrears and Repossessions Statistics as at 30 September 2015, based on numbers of
accounts.
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3.1 Credit risk – Credit profile of the loan portfolio
Republic of Ireland 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 2015 and 2014:
Republic of Ireland
1996 and before
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Total
Total
Impaired
Total
Impaired
Number
Balance
€ m
Number
Balance
€ m
Number
Balance
€ m
Number
Balance
€ m
2015*
2014*
4,502
2,561
3,127
4,171
5,196
6,218
9,738
13,728
18,768
26,086
34,317
33,353
31,756
20,962
14,598
4,443
6,465
5,560
7,642
10,343
118
54
91
164
261
364
724
1,225
2,065
3,310
5,214
5,294
5,102
3,068
2,111
626
961
845
1,207
1,652
642
244
343
474
615
664
1,090
1,792
2,657
4,250
6,593
6,586
5,217
2,145
753
98
23
6
5
1
22
10
16
33
46
55
113
212
384
707
1,296
1,281
1,025
366
124
15
5
1
–
–
6,136
2,826
3,442
4,597
6,084
6,713
10,512
14,784
19,953
28,121
35,914
34,734
33,009
21,940
15,374
4,652
6,752
5,742
7,773
–
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
–
34
14
24
46
66
80
170
315
567
1,035
1,841
1,852
1,465
519
162
20
6
1
–
–
263,534
34,456
34,198
5,711
269,058
36,324
45,847
8,217
The majority (€ 18.9 billion or 55%) of the € 34.5 billion residential mortgage portfolio was originated between 2005 and 2008, of which
23% (€ 4.3 billion) was impaired at 31 December 2015. This was primarily driven by reduced household income and increased
unemployment for customers and mortgage business acquired during that period, coupled with the decrease in property prices since
their peak in 2007. 15% of the residential mortgage portfolio was originated before 2005 of which 18% was impaired at 31 December
2015, while the remaining 30% of the portfolio was originated since 2009 or after, of which 5% was impaired at 31 December 2015.
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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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 2015. The CSO Residential Property Price Index for November 2015 reported that national residential property prices were
34% lower than their highest level in early 2007 and reported an increase in residential property prices of 6.5% for the twelve months to
30 November 2015.
Actual and weighted average indexed loan-to-value ratios of Republic of Ireland 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 2015 and 2014:
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
Weighted average indexed loan-to-value(1):
Stock of residential mortgages at financial year end
New residential mortgages issued during year
Impaired residential mortgages
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
%
6,171
6,284
3,896
3,520
2,588
3,548
2,327
436
110
21.4
21.8
13.5
12.2
8.9
12.3
8.0
1.5
0.4
Buy-to-let
2015*
Total
€ m
991
1,047
540
543
622
841
553
359
80
%
17.8
18.8
9.7
9.7
11.2
15.1
9.9
6.4
1.4
€ m
7,162
7,331
4,436
4,063
3,210
4,389
2,880
795
190
%
20.8
21.3
12.9
11.8
9.3
12.7
8.3
2.3
0.6
28,880
100.0
5,576
100.0
34,456
100.0
76.1
71.1
101.4
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
87.4
59.1
104.8
Buy-to-let
%
12.0
13.4
8.1
8.8
10.2
17.1
17.4
11.7
1.3
77.9
70.7
102.6
2014*
Total
%
16.8
17.7
10.5
11.0
9.6
15.0
14.2
4.8
0.4
€ m
6,109
6,435
3,801
3,976
3,477
5,475
5,162
1,727
162
100.0
36,324
100.0
101.4
55.2
119.8
87.1
70.0
112.4
€ m
802
893
545
590
683
1,147
1,164
780
89
6,693
Total
Weighted average indexed loan-to-value(1):
29,631
100.0
Stock of residential mortgages at financial year end
New residential mortgages issued during the year
Impaired residential mortgages
83.6
70.5
107.0
(1)Weighted average indexed loan-to-values are the individual indexed loan-to-value calculations weighted by the mortgage balance against each property.
22% of the total owner-occupier and 31% of the total buy-to-let mortgages were in negative equity at 31 December 2015 (excluding
unsecured) compared to 31% and 46% respectively at 31 December 2014. The weighted average indexed loan-to-value for the total
residential mortgage portfolio was 78% at 31 December 2015 compared to 87.1% at 31 December 2014, with the reduction driven
primarily by the amortisation of the portfolio and the increase in property prices up to 31 December 2015.
*Forms an integral part of the audited financial statements
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3.1 Credit risk – Credit profile of the loan portfolio (continued)
Loan-to-value ratios of Republic of Ireland 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 2015 and 2014:
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%
Unsecured
Total
Owner-occupier
Buy-to-let
2015*
Total
€ m
5,678
5,672
3,513
3,101
2,147
2,768
1,444
89
11
%
€ m
23.3
23.2
14.4
12.7
8.8
11.3
5.9
0.4
0.0
766
757
373
336
365
416
198
114
11
%
23.0
22.7
11.2
10.1
10.9
12.5
5.9
3.4
0.3
€ m
6,444
6,429
3,886
3,437
2,512
3,184
1,642
203
22
%
23.2
23.2
14.0
12.4
9.0
11.5
5.9
0.7
0.1
24,423
100.0
3,336
100.0
27,759
100.0
Owner-occupier
Buy-to-let
2014*
Total
€ m
4,739
4,799
2,785
2,851
2,244
3,290
2,706
235
7
%
20.0
20.3
11.8
12.0
9.5
13.9
11.5
1.0
0.0
€ m
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
The proportion of residential mortgages that was neither past due nor impaired and in negative equity at 31 December 2015 (excluding
unsecured) decreased to 18% compared to 27% at 31 December 2014, reflecting residential property price increases during the
year, coupled with amortisation of the loan portfolio.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
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3.1 Credit risk – Credit profile of the loan portfolio
Loan-to-value ratios of Republic of Ireland 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 2015 and 2014:
Owner-occupier
Buy-to-let
Total
2015*
Total
residential
mortgage
portfolio
€ m
385
493
314
351
380
690
822
343
98
%
9.9
12.7
8.1
9.1
9.8
17.8
21.2
8.9
2.5
€ m
198
260
153
190
241
403
348
236
69
%
9.4
12.4
7.3
9.1
11.5
19.2
16.6
11.2
3.3
€ m
583
753
467
541
621
1,093
1,170
579
167
%
9.7
12.6
7.8
9.1
10.4
18.3
19.6
9.7
2.8
€ m
7,162
7,331
4,436
4,063
3,210
4,389
2,880
795
190
%
20.8
21.3
12.9
11.8
9.3
12.7
8.3
2.3
0.6
3,876
100.0
2,098
100.0
5,974
100.0
34,456
100.0
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
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%
Unsecured
Total
The proportion of residential mortgages (excluding unsecured) that was greater than 90 days past due and/or impaired and in negative
equity at 31 December 2015 (48%) decreased compared to 31 December 2014 (57%). This reflects the increase in residential property
prices during the year.
*Forms an integral part of the audited financial statements
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3.1 Credit risk – Credit profile of the loan portfolio
Credit quality profile of Republic of Ireland residential mortgages
The following table profiles the asset quality of the Republic of Ireland residential mortgage portfolio at 31 December 2015 and 2014:
Republic of Ireland
Neither past due nor impaired
Past due but not impaired
Impaired - provisions held
Gross residential mortgages
Provisions for impairment
Owner-
occupier
€ m
24,423
744
3,713
28,880
(1,347)
27,533
Buy-to-let
€ m
3,336
242
1,998
5,576
(847)
4,729
2015*
Total
€ m
27,759
986
5,711
34,456
(2,194)
32,262
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
The percentage of the portfolio which is neither past due nor impaired increased in 2015 to 81% from 74% at 31 December 2014.
Republic of Ireland 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 2015
and 2014:
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
425
103
53
42
37
84
744
Total gross residential mortgages
28,880
Buy-to-let
€ m
86
35
21
22
24
54
242
5,576
2015*
Total
€ m
511
138
74
64
61
138
986
Owner-
occupier
€ m
456
195
109
73
79
59
971
34,456
29,631
Buy-to-let
€ m
76
48
23
34
40
50
271
6,693
2014*
Total
€ m
532
243
132
107
119
109
1,242
36,324
The amount of loans past due but not impaired at 31 December 2015 decreased by 21% when compared to 31 December 2014, driven
by the improved economic environment and a continued increased focus on the management of early arrears.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
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3.1 Credit risk – Credit profile of the loan portfolio
Collateral value of Republic of Ireland 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 2015 and 2014:
Republic of Ireland
1 - 30 days
31 - 60 days
61 - 90 days
91 - 180 days
181 - 365 days
Over 365 days
Total
Owner-
occupier
€ m
409
99
50
40
37
83
718
Buy-to-let
€ m
82
29
19
21
22
49
222
2015*
Total
€ m
491
128
69
61
59
132
940
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
246
1,160
The collateral value for the past due but not impaired portfolio was 95% of the outstanding loan balances at 31 December 2015, an
increase from 93% at 31 December 2014.
Republic of Ireland residential mortgages that were impaired
The following table profiles the Republic of Ireland residential mortgages that were impaired at 31 December 2015 and 2014:
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
966
189
87
65
163
234
2,009
3,713
Total gross residential mortgages
28,880
Buy-to-let
€ m
453
50
37
28
80
137
1,213
1,998
5,576
2015*
Total
€ m
1,419
239
124
93
243
371
3,222
5,711
Owner-
occupier
€ m
1,174
267
125
101
306
536
2,495
5,004
34,456
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
36,324
Impaired loans decreased by € 2.5 billion during 2015 due to restructuring, cures and write-offs of provisions. In addition, the rate of new
impairment continues to slow significantly compared to 2014 driven by an improved economic environment. Of the residential mortgage
portfolio that was impaired at 31 December 2015, € 1.4 billion or 25% was not past due (31 December 2014: € 1.9 billion or 23%), of
which € 1.0 billion (31 December 2014: € 1.2 billion) was subject to forbearance measures at 31 December 2015.
*Forms an integral part of the audited financial statements
108
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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.
The number (stock) of properties in possession at 31 December 2015 and 2014 is set out below:
Owner-occupier
Buy-to-let
Total
2015*
Balance
outstanding
€ m
156
21
177
Stock
623
91
714
Stock
548
82
630
2014*
Balance
outstanding
€ m
145
19
164
(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 2015 relates to the addition of 523 properties (2014: 352 properties),
partly offset by the disposal of 439 properties (2014: 100 properties). There continues to be an increase in stock from 2014 due to the
continued focus on arrears management.
Republic of Ireland residential mortgages – repossessions disposed of
The following table analyses the disposals of repossessed properties for the financial years ended 31 December 2015 and 2014:
Number of Outstanding Gross sales
proceeds
balance at
disposals
on
repossession
disposal
date
€ m
€ m
390
49
439
108
12
120
46
5
51
Number of
disposals
Outstanding
balance at
repossession
date
€ m
Gross sales
proceeds
on
disposal
€ m
60
40
100
17
12
29
7
5
12
Costs
to
sell
€ m
4
–
4
Costs
to
sell
€ m
–
–
–
2015*
Loss on
sale(1)
€ m
66
7
73
2014*
Loss on
sale(1)-
€ m
10
7
17
Owner-occupier
Buy-to-let
Total
Owner-occupier
Buy-to-let
Total
(1)Before specific impairment provisions.
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The disposal of 439 residential properties in the Republic of Ireland resulted in a loss on disposal of € 73 million at 31 December 2015
(before specific impairment provisions) and compares to 2014 when 100 residential properties were disposed of resulting in a loss of
€ 17 million. Losses on the sale of such properties are recognised in the income statement as part of the specific provision charge.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
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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 financial years ended
31 December 2015 and 2014:
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 (credit)/charge
Income statement specific provisions
Income statement IBNR provisions
Total impairment (credit)/charge
(1)Includes all impaired loans whether past due or not.
Owner-
occupier
€ m
2,048
253
230
212
90
12
%
42.4
€ m
(7)
(5)
(12)
Buy-to-let
€ m
314
47
45
43
25
1
%
57.8
€ m
(2)
(1)
(3)
2015*
Total
€ m
2,362
300
275
255
115
13
%
45.0
2015
€ m
(9)
(6)
(15)
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
2014
€ m
28
(11)
17
The UK mortgage portfolio is predominantly based in Northern Ireland (73% of total) with the remainder located in Great Britain. The UK
mortgage portfolio has decreased in sterling terms by c.12% on the financial year end December 2014. However, due to a c.6% change
in the euro/sterling exchange rate, the portfolio has decreased by c.6% in euro terms.
UK economic growth (estimated at 2.2%) has been slower than expected in 2015, although the labour market has remained strong and
households continue to experience real growth in income as a result of a low inflation environment. The positive domestic economic
factors have had a positive impact on mortgage arrears in general. Total loans in arrears of greater than 90 days have improved to
11.6% (31 December 2014: 12.6%).
Statement of financial position specific provisions of € 115 million were held at 31 December 2015 and provided cover of 45.0% for
impaired loans (31 December 2014: € 153 million providing cover of 52.4%).
Statement of financial position IBNR provisions of € 13 million were held at 31 December 2015, down from €18 million at 31 December
2014, reflecting an improvement in estimated incurred loss in the non-impaired portfolio.
*Forms an integral part of the audited financial statements
110
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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 2015 and 2014:
United Kingdom
1996 and before
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Total
Total
Impaired
Total
Impaired
2015*
2014*
Number
Balance
€ m
Number
Balance
€ m
1,466
403
387
736
793
835
1,319
1,806
2,059
2,789
3,732
3,277
1,307
616
311
159
170
303
402
241
43
11
12
30
30
38
73
124
165
270
463
570
222
71
39
15
21
42
74
49
35
5
12
34
30
55
76
136
151
288
401
461
110
25
11
4
1
1
–
–
2
–
–
2
1
3
4
8
11
31
55
104
23
5
6
–
–
–
–
–
Number
1,742
444
456
795
909
897
1,453
1,964
2,263
3,025
4,002
3,531
1,428
702
370
178
196
326
409
–
Balance
€ m
Number
Balance
€ m
49
13
14
32
35
42
79
138
183
291
500
608
249
82
44
18
26
44
75
–
34
5
24
36
41
49
82
164
161
305
440
499
117
34
11
3
1
1
–
–
2
–
1
2
2
3
4
16
12
31
66
111
30
6
6
–
–
–
–
–
23,111
2,362
1,836
255
25,090
2,522
2,007
292
The majority (€ 1.5 billion or 65%) of the € 2.4 billion residential mortgage book in the UK was originated between 2005 and 2008, of
which 14% (€ 0.2 billion) was impaired at 31 December 2015 driven by reduced household income and reflecting the decrease in
property prices since their peak in 2007. 22% of the residential mortgage portfolio was originated before 2005 of which 6% was
impaired at 31 December 2015, while the remaining 13% of the portfolio was originated since 2009 of which 4% was impaired at
31 December 2015.
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
111
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Risk management – 3. Individual risk types
3.1 Credit risk – Credit profile of the loan portfolio
The property values 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 2015. The index for Quarter 3 2015 reported that
house prices across the UK increased by 4% for the 12 months to the end of Quarter 3 2015.
Northern Ireland (being 73% of the UK residential mortgage portfolio) reported an increase of 6.5% for the 12 months to the end of
Quarter 3 2015 but despite this increase house prices are 44% lower than pre-crisis peak.
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 2015 and 2014:
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 financial year end
New residential mortgages issued during the 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%
Unsecured
Owner-occupier
€ m
%
634
431
231
177
118
172
164
90
31
30.9
21.1
11.3
8.6
5.8
8.4
8.0
4.4
1.5
Buy-to-let
2015*
Total
€ m
82
40
22
23
26
47
51
8
15
%
26.3
12.9
7.0
7.2
8.2
14.9
16.3
2.5
4.7
€ m
716
471
253
200
144
219
215
98
46
%
30.3
20.0
10.7
8.5
6.1
9.3
9.1
4.1
1.9
2,048
100.0
314
100.0
2,362
100.0
73.4
60.6
117.8
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
81.3
50.7
111.3
Buy-to-let
%
22.9
11.4
6.7
6.3
5.4
14.1
17.7
10.5
5.0
€ m
79
39
23
22
19
49
61
36
17
74.4
60.5
116.9
2014*
Total
%
26.1
18.4
10.1
8.9
6.3
9.2
10.3
8.7
2.0
€ m
659
462
255
224
160
233
259
219
51
Total
Weighted average indexed loan-to-value(1):
2,177
100.0
345
100.0
2,522
100.0
Stock of residential mortgages at financial year end
New residential mortgages issued during the year
Impaired residential mortgages
81.2
68.9
129.9
91.6
50.1
129.6
82.6
68.8
129.9
(1)Weighted average indexed loan-to-values are the individual indexed loan-to-value calculations weighted by the mortgage balance against each property.
21% of the total owner-occupier and 34% of the total buy-to-let mortgages were in negative equity at 31 December 2015 (excluding
unsecured), compared to 26% and 42% respectively at 31 December 2014. The reduction was driven primarily by the increase in
property prices in the year, coupled with amortisation of the loan book. The weighted average indexed loan-to-value for the total
residential mortgage book was 74.4% at 31 December 2015 compared to 82.6% at 31 December 2014, reflecting the increase in
residential property prices in the period.
*Forms an integral part of the audited financial statements
112
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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 2015 and 2014:
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
592
392
203
159
103
147
132
44
%
33.4
22.1
11.5
9.0
5.8
8.3
7.4
2.5
€ m
80
37
20
20
19
43
43
3
%
30.0
14.0
7.7
7.4
7.1
16.2
16.3
1.3
2015*
Total
%
33.0
21.1
10.9
8.8
6.0
9.3
8.6
2.3
€ m
672
429
223
179
122
190
175
47
1,772
100.0
265
100.0
2,037
100.0
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
Residential mortgages that were neither past due nor impaired and in negative equity at 31 December 2015 decreased in comparison to
31 December 2014, reflecting the increases in residential property prices in the year. 20% of residential mortgages that were neither
past due nor impaired were in negative equity at 31 December 2015 compared to 25% at 31 December 2014.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
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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 2015 and 2014:
Owner-occupier
Buy-to-let
Total
€ m
25
26
25
13
12
24
30
44
31
%
11.0
11.3
10.9
5.8
5.2
10.3
13.0
19.2
13.3
230
100.0
€ m
2
3
1
3
7
3
7
4
15
45
%
5.1
6.0
2.8
6.1
15.0
6.8
15.7
9.5
33.0
€ m
27
29
26
16
19
27
37
48
46
%
10.0
10.4
9.6
5.8
6.8
9.8
13.5
17.6
16.5
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
2015*
Total
residential
mortgage
portfolio
€ m
716
471
253
200
144
219
215
98
46
%
30.3
20.0
10.7
8.5
6.1
9.3
9.1
4.1
1.9
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
100.0
275
100.0
2,362
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%
Unsecured
Total
100.0
318
100.0
2,522
100.0
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 2015, decreased in comparison to 31 December 2014, driven by a decrease in the amount of loans
greater than 90 days past due and/or impaired at financial year end coupled with an increase in property prices in the year.
*Forms an integral part of the audited financial statements
114
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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 at 31 December 2015 and 2014:
United Kingdom
Neither past due nor impaired
Past due but not impaired
Impaired - provisions held
Gross residential mortgages
Provisions for impairment
Owner-
occupier
€ m
1,772
64
212
2,048
(102)
1,946
Buy-to-let
€ m
265
6
43
314
(26)
288
2015*
Total
€ m
2,037
70
255
2,362
(128)
2,234
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
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 their 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 2015 and 2014:
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
2015*
Total
€ m
Owner-
occupier
€ m
23
12
11
7
4
7
64
2
1
1
2
–
–
6
25
13
12
9
4
7
70
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
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 2015
and 2014:
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
23
11
11
7
4
6
62
2
1
1
1
–
–
5
2015*
Total
€ m
25
12
12
8
4
6
67
Owner-
occupier
€ m
Buy-to-let
€ m
15
11
16
8
7
7
64
2
2
1
1
1
1
8
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
2014*
Total
€ m
17
13
17
9
8
8
72
115
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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 2015 and 2014:
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
Owner-
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€ m
Buy-to-let
€ m
2015*
Total
€ m
20
4
6
5
17
43
160
255
2014*
Total
€ m
16
3
8
9
22
47
187
292
2,522
13
3
6
8
19
34
156
239
3
–
2
1
3
13
31
53
345
17
3
5
4
15
31
137
212
3
1
1
1
2
12
23
43
314
Total gross residential mortgages
2,048
2,362
2,177
10.8% of residential mortgages were impaired at 31 December 2015, compared with 11.6% at 31 December 2014.
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 at 31 December 2015 and 2014 is set out below:
Owner-occupier
Buy-to-let
Total
2015*
Balance
outstanding
€ m
14
3
17
Stock
46
19
65
Stock
72
33
105
2014*
Balance
outstanding
€ m
26
5
31
(1)The number of residential properties in possession relates to those held as security for residential mortgages only.
The stock of residential properties continued to decrease in 2015, from 105 at December 2014 to 65 properties.
United Kingdom residential mortgages – repossessions disposed of
The disposal of 119 residential properties in possession resulted in a loss on disposal of € 15 million before specific impairment
provisions (31 December 2014: disposal of 234 properties resulting in a loss on disposal of € 28 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
116
Allied Irish Banks, p.l.c. Annual Financial Report 2015
3.1 Credit risk – credit profile of the loan portfolio
Loans and receivables to customers – Other personal
The following table analyses other personal lending by segment showing asset quality and impairment provisions for the financial years
ended 31 December 2015 and 2014:
AIB
Ireland
€ m
AIB
Group &
UK International
€ m
€ m
Analysed as to asset quality
Satisfactory
Watch
Vulnerable
Impaired
Total criticised loans
2,051
137
336
632
1,105
Total gross loans and receivables
3,156
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
%
35
20
€ m
437
44
481
%
69
76
15
247
23
20
66
109
356
%
31
19
–
–
–
–
–
–
%
–
–
€ m
€ m
49
5
54
%
74
82
15
–
–
–
%
–
–
–
2015
Total
€ m
2,298
160
356
698
1,214
3,512
%
35
20
€ m
486
49
535
%
70
77
15
AIB
Ireland
€ m
1,972
176
308
974
1,458
3,430
%
43
28
€ m
663
50
713
%
68
73
21
AIB
Group &
UK International
€ m
€ m
253
46
38
70
154
407
%
38
17
–
–
–
–
–
–
%
–
–
€ m
€ m
53
2
55
%
76
79
14
–
–
–
%
–
–
–
2014
Total
€ m
2,225
222
346
1,044
1,612
3,837
%
42
27
€ m
716
52
768
%
69
74
20
Income statement (credit)/charge
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
Specific
IBNR
Total impairment (credit)/charge
(7)
(7)
(14)
%
2
4
6
%
–
–
–
%
(5)
(3)
(8)
%
15
(1)
14
%
3
(2)
1
%
Impairment (credit)/charge
/average loans
(0.40)
1.52
–
(0.19)
0.37
0.39
–
–
–
%
–
18
(3)
15
%
0.38
The other personal lending portfolio at € 3.5 billion reduced by € 0.3 billion during the year and comprises € 2.6 billion in loans and
overdrafts and € 0.9 billion in credit card facilities.
During 2015, the level of loans and receivables with satisfactory credit quality increased by 3%, primarily driven by increased customer
demand for credit. This is in contrast to the decline in satisfactory grades experienced in 2012 and 2013 and stabilisation in 2014. An
increase in demand for personal loans which was observed during the year was due to both the improved economic environment and
an expanded product offering, including on-line approval through internet, mobile and telephone banking applications.
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The portfolio experienced a € 0.4 billion reduction in criticised loans in 2015, of which € 0.2 billion was written off. At 31 December 2015,
€ 1.2 billion or 35% of the portfolio was criticised of which impaired loans amounted to € 0.7 billion (2014: € 1.6 billion or 42% and
€ 1.0 billion).
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The specific provision cover increased slightly from 69% to 70%. The income statement provision writeback of € 8 million compares to a
€15 million charge in 2014.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
117
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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
The following table analyses property and construction lending by segment showing asset quality and impairment provisions for the
financial years ended 31 December 2015 and 2014:
AIB
Ireland
€ m
AIB
Group &
UK International
€ m
€ m
AIB
Ireland
€ m
AIB
Group &
UK International
€ m
€ m
Investment:
Commercial investment
Residential investment
Land and development:
Commercial development
Residential development
Contractors
Housing associations
5,154
1,002
6,156
583
1,142
1,725
174
–
1,453
456
1,909
69
758
827
227
480
Total gross loans and receivables
8,055
3,443
Analysed as to asset quality
Satisfactory
Watch
Vulnerable
Impaired
Total criticised loans
Total loans percentage
Criticised loans/total loans
Impaired loans/total loans
Impairment provisions –
statement of financial position
Specific
IBNR
Total impairment provisions
Provision cover percentage
Specific provisions/impaired loans
Total provisions/impaired loans
Total provisions/total loans
Income statement (credit)/charge
Specific
IBNR
Total impairment (credit)
2,435
486
1,839
3,295
5,620
%
70
41
€ m
1,790
151
1,941
%
54
59
24
€ m
(187)
22
(165)
%
1,683
487
260
1,013
1,760
%
51
29
€ m
685
23
708
%
68
70
21
€ m
(29)
(20)
(49)
%
–
–
–
–
–
–
34
–
34
34
–
–
–
–
%
–
–
€ m
–
–
–
%
–
–
–
€ m
–
–
–
%
2015
Total
€ m
6,607
1,458
8,065
652
1,900
2,552
435
480
6,411
1,435
7,846
911
2,185
3,096
195
–
2,012
798
2,810
84
902
986
154
445
11,532
11,137
4,395
4,152
973
2,099
4,308
7,380
%
64
37
€ m
2,475
174
2,649
%
57
61
23
€ m
(216)
2
(214)
%
2,233
488
1,487
6,929
8,904
%
80
62
€ m
4,312
129
4,441
%
62
64
40
€ m
(122)
(115)
(237)
%
1,357
681
450
1,907
3,038
%
69
43
€ m
1,166
45
1,211
%
61
64
28
€ m
32
(39)
(7)
%
Impairment (credit)/
average loans
(1.71)
(1.13)
–
(1.54)
(1.84)
(0.15)
2014
Total
€ m
8,423
2,233
10,656
995
3,087
4,082
354
445
15,537
3,595
1,169
1,937
8,836
11,942
%
77
57
€ m
5,478
174
5,652
%
62
64
36
€ m
(90)
(154)
(244)
%
(1.36)
–
–
–
–
–
–
5
–
5
5
–
–
–
–
%
–
–
€ m
–
–
–
%
–
–
–
€ m
–
–
–
%
–
118
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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 16% of total loans and receivables. The portfolio is comprised of 70% investment
loans (€ 8.1 billion), 22% land and development loans (€ 2.6 billion) and 8% other property and construction loans (€0.9 billion). AIB UK
accounts for 30% of the total property and construction portfolio.
Overall, the portfolio reduced by €4 billion or 26% during 2015, with all of the reduction coming from the criticised grades. This reduction
was due primarily to the continuing impact of restructuring activity as described on page 88 and to write-offs, amortisations and
repayments, resulting from asset disposals by customers within the criticised grades. Specific provisions attached to this sector have
reduced by €3 billion in 2015. The restructuring of impaired loans during the year resulted in an increase in vulnerable loans in the
sector as most individually assessed restructured loans are initially graded as vulnerable. This, in turn, resulted in impaired loans
reducing by € 4.5 billion which were partially offset by a € 0.6 billion growth in satisfactory loans. Accordingly, the rate of downward
grade migration and new impairments continued to decrease in 2015.
2015 proved to be another positive year in the Irish commercial property market, continuing the momentum of 2014. Transaction
volumes in the occupational and investment sectors of the market were strong with annual average volumes of activity well exceeded
before the year end in most sectors. The continued momentum was seen across all sectors driven by the sale of individual assets and
several large portfolios in 2015.
There was a writeback of specific provisions net of top-ups of € 270 million (c. 4.3% of opening impaired loans) mainly due to the
improved economic environment and the restructuring process described on page 88. This was partially off-set by provisions for new
impairments which amounted to € 54 million.
Investment
Investment property loans amounted to € 8.1 billion at 31 December 2015 (31 December 2014: € 10.7 billion) of which € 6.6 billion
related to commercial investment. The reduction was largely as a result of loan redemptions (asset sales by customers), restructures
within the criticised loan portfolio and write-offs of provisions. € 5.6 billion of the investment property portfolio related to loans for the
purchase of property in the Republic of Ireland, € 2.4 billion in the United Kingdom and € 0.1 billion in other geographical locations.
The domestic economic conditions continued to improve over the course of the year. This boosted the interest from real estate
investors in the Irish market and led to a recovery in yields being experienced across the board.
€ 4.9 billion or 61% of the investment property portfolio was criticised at 31 December 2015 compared with €7.8 billion or 73% at
31 December 2014. Included in criticised loans was € 2.4 billion loans which were impaired (31 December 2014: € 5.2 billion) and on
which the Group had € 1.2 billion in statement of financial position specific provisions, providing cover of 49% (31 December 2014:
€ 2.7 billion and 53%). Total impairment provisions as a percentage of total loans is 16%, down from 27% at 31 December 2014. The
impairment writeback to the income statement was € 140 million on the investment property element of the property and construction
portfolio compared to a writeback of € 193 million in 2014.
Land and development
At 31 December 2015, land and development loans amounted to € 2.6 billion (31 December 2014: € 4.1 billion). € 1.7 billion of this
portfolio related to loans in AIB Ireland and € 0.8 billion in AIB UK.
€ 2.2 billion of the land and development portfolio was criticised at 31 December 2015 (31 December 2014: € 3.8 billion), including
€ 1.8 billion of loans which were impaired (31 December 2014: € 3.5 billion) and on which the Group had € 1.2 billion in statement of
financial position specific provisions, providing cover of 68% (31 December 2014: 75%). The impairment writeback of € 74 million to the
income statement compares to a writeback of € 40 million in 2014.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
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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 – Non-property business
The following table analyses non-property business lending by segment showing asset quality and impairment provisions for the financial
years ended 31 December 2015 and 2014:
Agriculture
Distribution:
Hotels
Licensed premises
Retail/wholesale
Other distribution
Other services
Other
AIB
Ireland
€ m
1,681
1,458
594
1,959
144
4,155
2,492
1,895
Total gross loans and receivables
10,223
Analysed as to asset quality
Satisfactory
Watch
Vulnerable
Impaired
Total criticised loans
Total loans percentage
Criticised loans/total loans
Impaired loans/total loans
Impairment provisions –
statement of financial position
Specific
IBNR
6,576
567
1,347
1,733
3,647
%
36
17
€ m
952
137
Total impairment provisions
1,089
Provision cover percentage
Specific provisions/impaired loans
Total provisions/impaired loans
Total provisions/total loans
%
55
63
11
AIB
Group &
UK International
€ m
€ m
AIB
Group &
UK International
€ m
€ m
2015
Total
€ m
1,795
2,356
758
2,395
322
5,831
5,888
4,787
AIB
Ireland
€ m
1,738
1,635
817
2,253
170
4,875
2,437
1,758
10
43
63
–
169
275
827
1,674
2014
Total
€ m
1,818
2,355
963
2,659
277
6,254
5,646
3,894
71
720
146
309
20
1,195
2,608
1,010
4,884
9
–
–
97
87
184
601
1,126
2,786
18,301
10,808
1,920
17,612
104
855
101
436
9
1,401
2,569
1,218
5,292
4,510
2,723
13,809
299
149
334
782
%
15
6
€ m
178
30
208
%
53
62
4
17
–
46
63
%
2
2
€ m
22
7
29
%
48
63
1
883
1,496
2,113
4,492
%
25
12
€ m
1,152
174
1,326
%
55
63
7
€ m
(83)
(142)
(225)
%
5,821
791
1,098
3,098
4,987
%
46
29
€ m
1,864
290
2,154
%
60
70
20
€ m
(69)
131
62
%
3,637
1,826
11,284
399
231
617
1,247
%
26
13
€ m
346
20
366
%
56
59
7
36
–
58
94
%
5
3
€ m
34
5
39
%
59
67
2
€ m
€ m
66
(7)
59
%
4
2
6
%
1,226
1,329
3,773
6,328
%
36
21
€ m
2,244
315
2,559
%
59
68
15
€ m
1
126
127
%
Income statement (credit)/charge
€ m
€ m
€ m
Specific
IBNR
Total impairment (credit)/charge
Impairment (credit)/charge
/average loans
(98)
(152)
(250)
%
6
8
14
%
9
2
11
%
(2.36)
0.27
0.51
(1.24)
0.57
1.16
0.25
0.71
120
Allied Irish Banks, p.l.c. Annual Financial Report 2015
3.1 Credit risk – credit profile of the loan portfolio
Loans and receivables to customers – Non-property business (continued)
The non-property business portfolio mainly comprises of Small Medium Enterprises (“SME”) which are reliant on the domestic
economies in which they operate and larger corporate and institutional borrowers who are impacted by global economies. There was
increased activity across most sub-sectors in the portfolio due to increased credit demand resulting in new lending of c. € 4.8 billion in
2015. The portfolio amounted to 26% of total loans and receivables as at 31 December 2015. 56% of the portfolio is in AIB Ireland, 29%
in AIB UK with the remaining 15% in Group & International.
Satisfactory loans and receivables increased in 2015, continuing the positive trend experienced in 2014. In AIB Ireland, the satisfactory
portfolio increased by € 0.8 billion through a combination of new drawdowns exceeding amortisation and repayment coupled with
upward grade migration through improved performance. The AIB UK satisfactory portfolio increased by € 0.9 billion in 2015, due to both
the impact of sterling appreciation and growth. The level of criticised loans reduced from € 6.3 billion at 31 December 2014 to
€ 4.5 billion at 31 December 2015, mainly due to a reduction of € 1.7 billion in impaired loans.
The following are the key themes within the main sub-sectors of the non-property business portfolio:
– The agriculture sub-sector (10% of the portfolio) continued to perform well in 2015.
– The hotels sub-sector comprises 13% of the portfolio. The improvement observed in 2014 due to a stronger local economy and
increased number of tourists has continued into 2015. Valuations for hotels have continued to increase, with a number of foreign
investors and fund managers competing for available properties.
– The licensed premises sub-sector comprises 4% of the portfolio. There continues to be some weakness in this market. However,
some locations such as Dublin, central Cork and Galway are showing improved performances based on the improving economic
outlook.
– The retail/wholesale sub-sector (13% of the portfolio) has continued to improve in 2015 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 32% of the portfolio which includes businesses such as solicitors, accounting, audit, tax,
computer services, research and development, consultancy, hospitals, nursing homes and plant and machinery. This sub-sector
performed well in 2015 with an increase in drawdowns.
In the table on the preceding page there is a category of “Other” totalling € 4.8 billion. This category includes a broad range of
sub-sectors such as energy, manufacturing, transport and financial.
2015 was another year of strong economic growth in the Republic of Ireland. Notwithstanding this improved economic performance and
a positive outlook, there are still challenges in the domestic market, with many trading entities experiencing difficulties, particularly,
outside urban areas. The Group continues to strongly engage in restructuring existing facilities in order to sustain viable businesses as
described on page 88.
The Group & International business segment includes €2.2 billion (2014: €1.5 billion) in international leveraged lending exposures. The
Group has specialised leveraged lending teams in North America and Europe which are involved in participating in the provision of
finance to US and European corporations for mergers, acquisitions, buy-outs and general corporate purposes. Loans originated by
these teams, reported on the basis of the booking office are Ireland € 2.1 billion and Rest of the World € 0.1 billion.
At 31 December 2015, c. 70% of the portfolio had a facility credit rating of BB– or better, with € 13 million loans classified as impaired.
85% of the customers in this portfolio are domiciled in the USA, 3% in Canada, 4% UK, and 8% in the Rest of the World (31 December
2014: 92% domiciled in the USA, 4% in Canada and 4% in the Rest of the World respectively). The largest sub-sectors within the
portfolio include business services, healthcare, pharmaceuticals, media, telecoms, and manufacturing.
The income statement provision writeback in 2015 was € 225 million compared to a charge of € 127 million in 2014.
IBNR provisions reduced from € 315 million to € 174 million, or from 2.3% to 1.1% of non-impaired loans and receivables, in line with
improved impairment trends.
The specific provision cover decreased from 59% at 31 December 2014 to 55% at 31 December 2015 impacted by writebacks and
write-offs of provisions for loans with higher provision cover.
Specific provisions on new impairments amounted to € 95 million, and were off-set by a writeback of € 178 million (net of top-ups). This
writeback amounted to c. 4.7% of opening impaired loans and was driven by the improved economic environment and the restructuring
assessment process described on page 88.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
121
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Risk management – 3. Individual risk types
3.1 Credit risk – credit profile of the loan portfolio
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 2015, the Group’s top 50 exposures amounted to € 4.8 billion, and accounted for 6.9% (31 December 2014: € 5.1 billion
and 6.8%) of the Group’s on-balance sheet total gross loans and receivables to customers. In addition, these customers have undrawn
facilities amounting to € 266 million (31 December 2014: € 200 million). No single customer exposure exceeded regulatory requirements.
In addition, the Group holds NAMA senior bonds amounting to € 5.6 billion (31 December 2014: € 9.4 billion).
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 63 to 66. These lower credit quality loans are referred to as ‘Criticised
loans’ and include Watch, Vulnerable and Impaired, and are defined on page 64.
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.
*Forms an integral part of the audited financial statements
122
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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 2015 and 2014 is set out below:
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
14,894
10,106
1,972
2,824
29,796
5
86
292
673
1,056
5,966
36,818
Other Property and Non-property
business
€ m
personal construction
€ m
€ m
203
2,048
131
282
2,664
2
45
29
74
150
698
3,512
122
3,980
912
1,806
6,820
–
50
61
293
404
1,167
12,507
836
1,270
15,780
2
133
47
226
408
4,308
11,532
2,113
18,301
Residential
mortgages
€ m
Other
personal
€ m
Property and Non-property
business
construction
€ m
€ 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
812
10,332
1,146
1,026
13,316
10
130
80
303
523
8,836
15,537
3,773
17,612
2015
Total
€ m
16,386
28,641
3,851
6,182
55,060
9
314
429
1,266
2,018
13,085
70,163
(139)
48
(6,832)
63,240
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
The table above shows an increase in “Good” grades in the year, primarily in non-property business, which is offset by a reduction in
criticised grades (watch, vulnerable and impaired) as a result of on-going restructuring activities and paydowns. The total reduction in
loans in the year was € 5.7 billion representing an increase in “Good” loans of € 3.5 billion and a reduction in criticised of € 9.2 billion.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Risk management – 3. Individual risk types
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), financial investments available for sale (excluding equity shares) and financial investments held to maturity at
31 December 2015 and 2014 is set out below:
AAA/AA
A/A-
BBB+/BBB/BBB-
Sub investment
Unrated
Total
AAA/AA
A/A-
BBB+/BBB/BBB-
Sub investment
Unrated
Total
Bank
€ m
4,963
1,258
166
549
3
6,939
Bank
€ m
3,991
1,615
7
149
–
5,762
Corporate
€ m
Sovereign
€ m
2,758
14,716(1)
2,317
–
–
4,114
18,619(1)
2,462
–
–
–
–
–
86
1
87
–
–
–
–
3
3
Corporate
€ m
Sovereign
€ m
19,791(2)
329
27,146
Other
€ m
328
–
1
–
–
2015
Total
€ m
8,049
15,974
2,484
635
4
Other
€ m
99
–
–
1
–
2014
Total
€ m
8,204
20,234
2,469
150
3
25,195(2)
100
31,060
(1)Includes NAMA senior bonds which do not have an external credit rating and to which the Group has attributed a rating of A- at 31 December 2015 i.e. the
external rating of the Sovereign (31 December 2014: A-).
(2)Includes supranational banks and government agencies.
*Forms an integral part of the audited financial statements
124
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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 2015 and 2014:
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
Euro corporate securities
Non Euro corporate securities
Total debt securities
Equity securities(1)
Total financial investments
available for sale
Fair
value
€ m
5,406
3,033
245
2,008
328
1
4,600
30
57
15,708
781
2015*
Unrealised
Unrealised
gross gains gross losses
€ m
€ m
587
140
7
78
–
–
81
–
3
896
696
–
(3)
(1)
–
(3)
–
(8)
–
(2)
(17)
(2)
Fair
value
€ m
9,107
3,631
182
2,852
99
1
3,897
–
3
Unrealised
gross gains
€ m
1,327
170
9
119
–
–
105
–
–
19,772
413
1,730
338
16,489
1,592
(19)
20,185
2,068
2014*
Unrealised
gross losses
€ m
–
–
–
–
(1)
–
–
–
(1)
(2)
(3)
(5)
(1)Includes NAMA subordinated bonds with a fair value of € 432 million (2014: € 374 million) of which unrealised gains amount to € 385 million
(2014:€ 327 million).
The following tables categorise AIB Group’s available-for-sale debt securities by contractual residual maturity and weighted average
yield at 31 December 2015 and 2014:
Within 1 year
€ m Yield %
After 1 but
within 5 years
€ m Yield %
After 5 but
within 10 years
€ m Yield %
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and government agencies
Collateralised mortgage obligations
Other asset backed securities
Euro bank securities
Euro corporate securities
Non Euro corporate securities
816
8.1
3,889
–
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
687
136
1,545
–
–
3,602
20
35
Total ............................................................
817
8.1
9,914
4.1
1.6
2.0
1.1
–
–
0.9
4.1
5.2
2.3
414
2,346
109
437
–
–
998
10
21
4,335
1.8
1.5
0.8
1.3
–
–
0.8
2.8
5.9
1.3
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 ............................................................
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
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
2015
After 10 years
€ m Yield %
287
–
–
26
328
1
–
–
–
2.1
–
–
2.0
1.6
0.1
–
–
–
642
1.8
2014
After 10 years
€ m Yield %
542
–
–
27
99
1
–
–
669
3.3
–
–
2.0
1.5
0.3
–
–
3.0
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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 2015 and 2014:
Government securities
Republic of Ireland
Italy
France
Spain
Netherlands
Germany
Austria
United Kingdom
Finland
Slovakia
Czech Republic
Poland
Asset backed securities
United States of America
Spain
Bank securities
Republic of Ireland
France
Netherlands
United Kingdom
Australia
Sweden
Canada
Finland
Norway
Belgium
Germany
Denmark
New Zealand
Switzerland
Irish
Government
€ m
Euro
government
€ m
2015*
Non Euro
government
€ m
Irish
Government
€ m
Euro
government
€ m
2014*
Non Euro
government
€ m
5,406
–
–
–
–
–
–
–
–
–
–
–
–
1,164
275
1,153
260
96
30
–
–
55
–
–
5,406
3,033
–
–
–
–
–
–
–
89
–
–
36
120
245
9,107
–
–
–
–
–
–
–
–
–
–
–
–
1,253
468
1,209
294
225
102
–
26
54
–
–
9,107
3,631
2015*
Total
€ m
328
1
329
Euro
€ m
266
818
561
439
380
263
378
234
253
183
50
72
–
–
3,897
Euro
€ m
2015*
Non Euro
€ m
483
777
496
446
347
376
667
244
318
282
49
76
16
23
4,600
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
146
–
–
12
24
182
2014*
Total
€ m
99
1
100
2014*
Non Euro
€ m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
*Forms an integral part of the audited financial statements
126
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3.1 Credit risk – Financial investments available for sale
Debt securities
Debt securities available for sale (“AFS”) have decreased from a fair value of € 19.8 billion at 31 December 2014 to € 15.7 billion at
31 December 2015. Sales, maturities and redemptions of € 4.6 billion (nominal € 4.2 billion) were offset by purchases of € 4.3 billion
(nominal € 4 billion). Net unrealised gains in the portfolio decreased by € 0.8 billion which was made up of a reduction in fair value of
€ 0.3 billion and gains amounting to € 0.5 billion on Irish sovereign debt securities of € 3.5 billion fair value (€ 2.9 billion nominal)
transferred from the available for sale portfolio to the held to maturity (“HTM”) portfolio in December 2015.
Within the AFS portfolio, supranational banks and government agencies reduced by € 0.8 billion and euro government securities reduced
by € 0.6 billion as these holdings had moved to record low yields against a backdrop of ECB quantitative easing. Re-investment in euro
denominated securities issued by non-european banks (0.5 billion) was deemed to offer better relative value returns.
The decrease in fair value of the overall portfolio was due to a widening of Irish, Spanish and Italian sovereign spreads and the impact of
higher interest rates on fixed rate security holdings.
The external ratings profile remained relatively static with total investment grade ratings remaining at 99%. The breakdown by rating was
AAA: 29% (2014: 25%), AA: 17% (2014: 16%), A: 38% (2014: 46%), BBB: 15% (2014: 12%) and sub investment grade 1% (2014: 1%).
Republic of Ireland securities
The fair value of Irish debt securities in the AFS category amounted to € 5.9 billion at 31 December 2015 (2014: € 9.4 billion) and
consisted of sovereign debt € 5.4 billion (31 December 2014: € 9.1 billion), senior unsecured bonds of € 0.2 billion (2014: € 0.14 billion)
and covered bonds of € 0.3 billion (2014: € 0.13 billion). € 2.9 billion nominal (€ 3.5 billion fair value) of Irish Sovereign debt securities
were transferred from the AFS portfolio to the HTM portfolio in December 2015. The EBS Promissory Note which had been held in the
AFS portfolio was redeemed in December 2015 at its carrying value of € 0.2 billion as part of the Capital Reorganisation exercise.
Euro government securities
The fair value of government securities denominated in euro (excluding those issued by the Irish Government) decreased by € 0.6 billion
to € 3.0 billion (2014: € 3.6 billion). This decrease was largely due to net sales/maturities and included reductions in French Government
securities - € 0.2 billion, German - € 0.1 billion, Italian - € 0.1 billion and Austrian - € 0.1 billion.
Bank securities
At 31 December 2015, the fair value of bank securities of € 4.6 billion (2014: € 3.9 billion) included € 3.2 billion in covered bonds
(2014: € 2.9 billion), € 1.2 billion in senior unsecured bank debt (2014: € 0.9 billion) and € 0.2 billion in government guaranteed senior
bank debt (2014: € 0.1 billion). The bank debt was diversified across banks in 14 countries with the largest exposures being to French
banks (€ 0.8 billion) and Canadian banks (€ 0.7 billion).
Asset backed securities
Asset backed securities increased to € 0.3 billion (2014: € 0.1 billion). This was due to new purchases of AAA rated US collateralised
mortgage obligations.
Equity securities
Equity securities held as AFS increased by € 368 million with the increase being primarily attributable to an increase of € 294 million in fair
value of the Group’s holding in VISA Europe.
The fair value of the NAMA subordinated bonds which are also included within AFS increased to € 432 million at 31 December 2015
(2014: € 374 million). The estimated fair value was increased from 79.4% to 91.81% of nominal value due to continued improvements in
NAMA’s financial position and forecasts.
In addition to Irish Government securities outlined above, the Group holds NAMA senior debt amounting to € 5.6 billion (2014:
€ 9.4 billion), which is guaranteed by the Irish Government. However, this is classified as loans and receivables to customers and
accounted for at amortised cost.
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3.1 Credit risk – Financial investments held to maturity
In December 2015, following a Board decision to reduce the AFS portfolio, € 3.5 billion (€2.9 billion nominal) in Irish Government
securities were transferred to a new held to maturity (“HTM”) portfolio. The transfer covered a range of issues with maturities ranging
from 2018 to 2030. The reclassification reflects the Group’s positive intention and ability to hold these securities to maturity. On the date
of reclassification, the accumulated fair value gain held in other comprehensive income was c. € 0.5 billion. This unrealised gain will be
amortised to interest income using the effective income method over the remaining life of the bonds. There are no immediate plans to
increase this portfolio.
At 1 January
Transfers from available for sale securities (note 29 to the consolidated financial statements)
Amortisation of fair value gain
At 31 December
2015*
€ m
–
3,487
(4)
3,483
2014*
€ m
–
–
–
–
*Forms an integral part of the audited financial statements
128
Allied Irish Banks, p.l.c. Annual Financial Report 2015
3.2 Additional credit risk information – Forbearance*
The Group’s forbearance initiatives are detailed on pages 73 to 75.
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 2015:
Residential
mortgages
€ m
Other
personal
€ m
Property and Non-property
business
construction
€ m
€ m
2015
Total
€ m
15,817
27,558
3,222
2,705
49,302
1,221
9,381
1,166
12,334
733
501
14,734
300
1,500
16,534
59,904
1
173
103
769
1,046
108
613
569
1,083
629
3,477
5,758
797
3,704
1,767
10,259
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 gross loans and receivables
to customers
Weighted average interest rate of forborne
loans and receivables to customers
(1)Republic of Ireland: € 5,481 million and United Kingdom: € 51 million.
14,326
9,483
1,571
1,588
26,968
581
3,737
31,286
568
623
401
1,236
2,828
475
2,229
5,532(1)
203
1,849
105
134
2,291
95
476
2,862
–
199
26
148
373
55
222
650
122
3,892
813
482
5,309
245
3,668
9,222
–
88
99
1,324
1,511
159
640
2,310
36,818
3,512
11,532
18,301
70,163
%
2.5
%
6.4
%
3.1
%
3.7
%
3.1
The Republic of Ireland residential mortgage forbearance portfolio is profiled in more detail on pages 130 to 135 and further detail on the
non-mortgage forbearance portfolio is included on pages136 to 140.
Interest income is recognised, based on the original effective interest rate, on forborne loans in accordance with Accounting policy (f)
‘Interest income and expense recognition’ in note 1 to the consolidated financial statements and is included in ‘Interest and similar
income’ in the income statement. 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 € 244 million in 2015 (2014: € 329 million). At 31 December 2015, the net carrying
amount of impaired loans amounted to € 6,927 million (2014: € 10,847 million) which included forborne impaired mortgages of
€ 1,600 million (2014: € 2,421 million) and forborne impaired non-mortgages of € 623 million (2014: € 854 million).
*Forms an integral part of the audited financial statements
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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
personal
€ m
Property and Non-property
business
construction
€ m
€ m
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 gross loans and receivables
to customers
Weighted average interest rate of forborne
loans and receivables to customers
(1)Republic of Ireland: € 5,570 million and United Kingdom: € 75 million.
13,285
10,485
1,856
1,520
27,146
867
5,188
33,201
426
471
351
620
1,868
456
3,321
5,645(1)
180
1,750
153
117
2,200
141
788
96
3,362
1,041
446
4,945
354
7,888
811
10,076
1,000
585
12,472
391
3,073
3,129
13,187
15,936
1
239
39
111
390
62
256
708
–
71
74
1,136
1,281
121
948
2,350
1
256
146
441
844
132
700
1,676
10,379
38,846
3,837
15,537
17,612
75,832
%
2.8
%
6.5
%
3.1
%
3.9
%
3.3
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
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 74.
In the following forbearance tables, temporary forbearance solutions (e.g. interest only, reduced payment) are included in the
forbearance stock for as long as they are active, but are removed from the forbearance stock when the temporary agreement with the
customer expires.
*Forms an integral part of the audited financial statements
130
Allied Irish Banks, p.l.c. Annual Financial Report 2015
3.2 Additional credit risk information – Forbearance*
Republic of Ireland residential mortgages
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 2015 and 2014:
Republic of Ireland owner-occupier
At 1 January
Additions
Expired arrangements
Payments
Interest
Closed accounts(1)
Advanced forbearance arrangements - valuation adjustments
Write-offs(2)
Transfer between owner-occupier and buy-to-let
Number
27,714
6,778
(4,095)
–
–
(824)
–
(34)
(25)
2015
Balance
€ m
3,830
952
(578)
(199)
102
(58)
(17)
(37)
–
Number
19,848
12,561
(4,156)
–
–
(507)
–
–
(32)
2014
Balance
€ m
2,952
1,693
(639)
(219)
77
(30)
–
(2)
(2)
At 31 December
29,514
3,995
27,714
3,830
Republic of Ireland buy-to-let
At 1 January
Additions
Expired arrangements
Payments
Interest
Closed accounts(1)
Advanced forbearance arrangements - valuation adjustments
Write-offs(2)
Transfer between owner-occupier and buy-to-let
Number
7,936
1,868
(1,198)
–
–
(640)
–
(165)
25
2015
Balance
€ m
1,740
289
(240)
(123)
43
(82)
(2)
(139)
–
Number
8,309
1,893
(2,155)
–
–
(143)
–
–
32
2014
Balance
€ m
1,998
355
(480)
(125)
26
(26)
–
(10)
2
At 31 December
7,826
1,486
7,936
1,740
Republic of Ireland – Total
At 1 January
Additions
Expired arrangements
Payments
Interest
Closed accounts(1)
Advanced forbearance arrangements - valuation adjustments
Write-offs(2)
Number
2015
Balance
Number
2014
Balance
35,650
8,646
(5,293)
–
–
(1,464)
–
(199)
€ m
5,570
1,241
(818)
(322)
145
(140)
(19)
(176)
28,157
14,454
(6,311)
–
–
(650)
–
–
€ m
4,950
2,048
(1,119)
(344)
103
(56)
–
(12)
At 31 December
(1)Accounts closed during year due primarily to customer repayments and redemptions.
(2)Includes contracted and non-contracted write-offs in 2015. For 2014, contracted write-offs are included across other categories.
37,340
5,481
35,650
5,570
The stock of loans subject to forbearance measures decreased by € 0.1 billion from 31 December 2014 to € 5.5 billion at 31 December
2015 driven by lower numbers of customers seeking new forbearance solutions (i.e. new requests, renewals or extensions) and is
reflective of improving customer ability to meet their mortgage terms. A key feature of the forbearance portfolio is the continued 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 to
support customers in remaining in their family home – the number of customers (6,085) on advanced forbearance solutions increased
by 71% in the year to 31 December 2015 with ‘Interest Only’ customers (3,338) reducing by c.41% in the same period.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
131
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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
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 2015 and 2014:
Total
Number
Balance
€ m
Loans > 90 days
in arrears and/or
impaired
Number Balance
€ m
2015
Loans neither > 90
days in arrears
nor impaired
Number
Balance
€ m
2,017
754
426
15,664
4,850
2,872
453
1,241
1,221
16
29,514
338
157
61
2,122
510
450
24
195
134
4
3,995
909
454
133
7,184
444
1,169
244
108
96
–
10,741
165
107
18
1,032
49
177
17
20
11
–
1,596
1,108
300
293
8,480
4,406
1,703
209
1,133
1,125
16
18,773
173
50
43
1,090
461
273
7
175
123
4
2,399
Total
Number
Balance
€ m
Loans > 90 days
in arrears and/or
impaired
Number Balance
€ m
2015
Loans neither > 90
days in arrears
nor impaired
Number
Balance
€ m
1,321
646
256
1,184
3,190
931
30
240
9
19
7,826
291
158
34
185
657
128
5
24
2
2
1,486
539
327
181
99
2,095
138
14
104
1
3
3,501
127
74
26
16
443
24
2
20
–
–
732
782
319
75
1,085
1,095
793
16
136
8
16
4,325
164
84
8
169
214
104
3
4
2
2
754
Total
Number
Balance
€ m
Loans > 90 days
in arrears and/or
impaired
Number Balance
€ m
2015*
Loans neither > 90
days in arrears
nor impaired
Number
Balance
€ m
3,338
1,400
682
1,184
18,854
5,781
2,902
693
1,250
1,240
16
37,340
629
315
95
185
2,779
638
455
48
197
136
4
5,481
1,448
781
314
99
9,279
582
1,183
348
109
99
–
14,242
292
181
44
16
1,475
73
179
37
20
11
–
2,328
1,890
619
368
1,085
9,575
5,199
1,719
345
1,141
1,141
16
23,098
337
134
51
169
1,304
565
276
11
177
125
4
3,153
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 solutions
Other(1)
Total forbearance
Republic of Ireland buy-to-let
Interest only
Reduced payment (greater than interest only)
Payment moratorium
Fundamental restructure
Arrears capitalisation
Term extension
Split mortgages
Voluntary sale for loss
Low fixed interest rate
Positive equity solutions
Total forbearance
Republic of Ireland – Total
Interest only
Reduced payment (greater than interest only)
Payment moratorium
Fundamental restructure
Arrears capitalisation
Term extension
Split mortgages
Voluntary sale for loss
Low fixed interest rate
Positive equity solutions
Other(1)
Total forbearance
(1)Includes 15 negative equity trade downs (€ 4 million).
*Forms an integral part of the audited financial statements
132
Allied Irish Banks, p.l.c. Annual Financial Report 2015
3.2 Additional credit risk information – Forbearance*
Republic of Ireland residential mortgages (continued)
Residential mortgages subject to forbearance measures by type of forbearance (continued)
Total
Loans > 90 days
in arrears and/or
impaired
Number
Balance
€ m
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
Loans > 90 days
in arrears and/or
impaired
Number
Balance
€ m
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
–
–
2014
Loans neither > 90
days in arrears
nor impaired
Number
Balance
€ m
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
Loans > 90 days
in arrears and/or
impaired
Number
Balance
€ m
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
2,923
1,320
335
11,088
814
2,319
382
261
115
4
583
298
49
1,962
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
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 solutions
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
Voluntary sale for loss
Low fixed interest rate
Positive equity solutions
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 solutions
Other(1)
Total forbearance
(1)Includes 11 negative equity trade downs (€ 3 million).
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
133
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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)
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 € 840 million accounted for 15% of the total
forbearance portfolio as at 31 December 2015, compared to 9% (€ 510 million) as at 31 December 2014. Following restructure, loans
are reported as impaired for a probationary period of at least 12 months (unless a larger individually assessed case).
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 also include loans where a subsequent interest only or other
temporary arrangement had expired at 31 December 2015, but where an arrears capitalisation or term extension was awarded
previously.
Arrears capitalisation continues to be the largest category of forbearance solutions at 31 December 2015, accounting for 51% by value
of the total forbearance portfolio (31 December 2014: 49% of the total forbearance portfolio). While actually increasing year on year, a
high proportion of the arrears capitalisation portfolio (53% by value) is impaired or 90 days in arrears at 31 December 2015, reduced
from 72% at 31 December 2014. 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 significantly improved over the
last 2 years with the development of a suite of advanced forbearance products. This is reflected in the performance of the forbearance
portfolio where the proportion of the portfolio being 90 days in arrears and/or impaired reduced to 42% at 31 December 2015 from 62%
at 31 December 2014.
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 2015 and 2014:
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
199
52
25
17
19
40
352
Buy-to-let
€ m
49
22
11
10
9
18
2015
Total
€ m
248
74
36
27
28
58
Owner-
occupier
€ m
138
63
42
33
41
33
Buy-to-let
€ m
31
14
8
15
16
18
2014
Total
€ m
169
77
50
48
57
51
119
471
350
102
452
Loans subject to forbearance and past due but not impaired increased by € 19 million in 2015 with later arrears (greater than 90 days in
arrears) decreasing by € 43 million. The proportion of the portfolio past due but not impaired increased slightly to 8.6% at 31 December
2015 compared with 8.1% at 31 December 2014.
*Forms an integral part of the audited financial statements
134
Allied Irish Banks, p.l.c. Annual Financial Report 2015
3.2 Additional credit risk information – Forbearance*
Republic of Ireland residential mortgages (continued)
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 2015 and 2014:
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
736
146
62
41
96
97
342
1,520
Buy-to-let
€ m
229
29
17
14
31
57
318
695
2015
Total
€ m
965
175
79
55
127
154
660
Owner-
occupier
€ m
874
221
87
62
143
191
498
Buy-to-let
€ m
363
52
29
28
75
159
509
2,215
2,076
1,215
2014
Total
€ m
1,237
273
116
90
218
350
1,007
3,291
Impaired loans subject to forbearance reduced by € 1.1 billion during the year. Statement of financial position specific provisions of
€ 0.6 billion were held against the forborne impaired book at 31 December 2015 (2014: € 0.9 billion), providing cover of 28.4% (2014:
26.9%), while the income statement specific provision writeback was € 120 million for the year (2014: € 124 million).
Within the impaired portfolio of € 2.2 billion above, c.€ 1 billion is currently performing in accordance with agreed terms for forbearance
sustainable solutions and the continued compliance to these terms over a period of 12 months will result in an upgrade out of
impairment . The remaining € 1.2 billion in the table above includes loans that have been the subject of a temporary or short term
forbearance solution but will remain classified as impaired and in arrears until a sustainable solution has been put in place. Following
this, they will be required to maintain at least 12 months satisfactory performance before being considered for upgrade out of
impairment.
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 2015 and 2014:
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
703
805
449
454
398
627
481
54
24
Buy-to-let
€ m
195
242
128
135
156
272
201
133
24
2015
Total
€ m
898
1,047
577
589
554
899
682
187
48
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
3,995
1,486
5,481
3,830
1,740
2014
Total
€ m
683
812
519
548
552
962
1,023
417
54
5,570
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Negative equity in the residential mortgage portfolio in the Republic of Ireland that was subject to forbearance measures reduced to
29% of the owner-occupier and 41% of the buy-to-let mortgages at 31 December 2015 compared to 37% and 56% respectively at
31 December 2014, due primarily to the continued increase in property prices in 2015 and loan repayments.
n
o
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
135
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Risk management – 3. Individual risk types
3.2 Additional credit risk information – Forbearance*
Non-mortgage
The following tables analyse, at 31 December 2015, the movements in the stock of loans subject to forbearance in the Republic of
Ireland and the United Kingdom, excluding residential mortgages which are analysed on page 131:
Republic of Ireland
At 1 January
Additions
Fundamental restructures - valuation adjustments
Write-offs
Expired arrangements
Closed accounts
Other movements
At 31 December
United Kingdom
At 1 January
Additions
Write-offs
Expired arrangements
Closed accounts
Asset disposals
Exchange translation adjustments
Other movements
At 31 December
Total
At 1 January
Additions
Fundamental restructures - valuation adjustments
Write-offs
Expired arrangements
Closed accounts
Asset disposals
Exchange translation adjustments
Other movements
At 31 December
Other
personal
€ m
Property and
construction
€ m
Non-property
business
€ m
693
230
(10)
(20)
(151)
(72)
(24)
646
1,976
1,026
(38)
(167)
(129)
(430)
(56)
2,182
1,514
757
(18)
(29)
(270)
(226)
(49)
1,679
4,507
Other
personal
€ m
Property and
construction
€ m
Non-property
business
€ m
15
1
–
(1)
–
(11)
1
(1)
4
374
31
(10)
(161)
(11)
(107)
26
(14)
128
162
25
(8)
(83)
–
(16)
11
(3)
88
Other
personal
€ m
Property and
construction
€ m
Non-property
business
€ m
708
231
(10)
(20)
(152)
(72)
(11)
1
(25)
650
2,350
1,057
(38)
(177)
(290)
(441)
(107)
26
(70)
1,676
782
(18)
(37)
(353)
(226)
(16)
11
(52)
2,310
1,767
4,727
2015
Total
€ m
4,183
2,013
(66)
(216)
(550)
(728)
(129)
2015
Total
€ m
551
57
(18)
(245)
(11)
(134)
38
(18)
220
2015
Total
€ m
4,734
2,070
(66)
(234)
(795)
(739)
(134)
38
(147)
*Forms an integral part of the audited financial statements
136
Allied Irish Banks, p.l.c. Annual Financial Report 2015
3.2 Additional credit risk information – Forbearance*
Non-mortgage (continued)
The following tables set out an analysis of non-mortgage forbearance solutions at 31 December 2015 and 2014:
Total
Balance
€ m
Loans neither
> 90 days
in arrears
nor impaired
Balance
€ m
Loans >
90 days in
arrears but
not impaired
Balance
€ m
Impaired
Specific
loans provisions on
impaired
loans
Balance
€ m
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
Non-property business lending
Interest only
Reduced payment
(greater than interest only)
Payment moratorium
Arrears capitalisation
Term extension
Fundamental restructure
Restructure
Other
Total
Total non-mortgage forbearance
71
14
51
23
123
49
304
15
650
203
38
5
43
207
1,089
556
169
2,310
188
37
14
64
154
498
617
195
1,767
4,727
36
10
49
3
114
47
146
8
413
88
20
2
13
160
1,032
250
34
1,599
73
22
12
10
104
490
314
84
1,109
3,121
3
1
–
1
1
1
7
1
15
6
4
–
1
1
28
17
14
71
8
2
–
1
1
4
28
1
45
131
32
3
2
19
8
1
151
6
222
109
14
3
29
46
29
289
121
640
107
13
2
53
49
4
275
110
613
1,475
20
2
2
8
6
1
113
4
156
59
5
2
15
14
17
176
85
373
58
8
1
37
17
1
166
35
323
852
2015*
Specific
provision
cover %
%
63
62
74
42
69
59
75
71
70
54
39
74
53
30
58
61
70
58
54
59
33
70
34
27
60
32
52
58
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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3.2 Additional credit risk information – Forbearance*
Non-mortgage (continued)
Total
Balance
€ m
Loans neither
> 90 days
in arrears
nor impaired
Balance
€ m
Loans >
90 days in
arrears but
not impaired
Balance
€ m
Impaired
loans
Balance
€ m
Specific
provisions on
impaired
loans
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
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
Non-property business lending
Interest only
Reduced payment
(greater than interest only)
Payment moratorium
Arrears capitalisation
Term extension
Fundamental restructure
Restructure
Other
Total
Total non-mortgage forbearance
198
39
22
54
172
197
874
120
1,676
4,734
87
9
7
10
120
186
457
38
914
2,689
9
–
–
3
2
–
16
2
32
11
1
–
8
7
3
16
1
47
8
4
–
2
7
4
34
3
62
141
29
2
1
31
5
1
184
3
256
325
18
–
46
47
9
445
58
948
103
26
15
42
45
7
383
79
700
19
2
1
17
2
–
129
2
172
166
8
–
26
16
–
279
31
526
50
13
9
23
12
3
232
10
352
1,904
1,050
2014*
Specific
provision
cover %
%
66
100
100
55
40
–
70
67
67
51
44
–
57
34
–
63
53
55
49
50
60
55
27
43
61
13
50
55
*Forms an integral part of the audited financial statements
138
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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 74 to 75.
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 31 December 2015, non-mortgage loans reported as being subject to forbearance amounted to € 4.7 billion, of which € 1.5 billion
is impaired with specific provision cover of 58%. The majority of these forborne loans are in property and construction (€ 2.3 billion) and
non-property business (€ 1.8 billion).
Within non-mortgage forbearance categories, ’Fundamental restructure’ (€ 1.6 billion in total) includes long term solutions where
customers have been through a full review, have proven sustainable cash flows/repayment capacity (through business cash flow and/or
asset sales) and their debt has been restructured. Loans to borrowers that are fundamentally restructured typically result in the original
loans together with any related impairment provision being derecognised and new facilities being classified as loans and receivables
and recognised on day 1 at fair value (“main” and “secondary”) and being graded as “vulnerable”.
At the time the fundamental restructure is agreed, the size of the main facility reflects the estimated sustainable cash flows from the
customer such that the main facility will be repaid in full. Since no further cash flows are expected on the secondary facilities, the fair
value of secondary facilities at inception is considered immaterial. During 2015, approximately € 1.1 billion of main facilities were
recognised following the derecognition of c. € 2.5 billion of impaired loans with related impairment provisions of c. € 1.4 billion.
While the new facilities are subject to legal agreements, the repayment conditions attaching to each facility is different and usually
customer specific. Depending on the co-operation of the customer and the repayment of the main facilities, additional cash flows over
the initial cash flow estimation may subsequently arise. This could occur where the disposal of collateral is at higher values than
originally expected, stronger trading performance or new sources of income. There are incentives from a customer perspective to meet
the repayment terms of the main facility as doing so would result in some cases where the secondary facilities would be contractually
written off.
As part of its ongoing monitoring of fundamental restructure loans, AIB keeps under review the likelihood of any additional cash flows
arising on the secondary facilities. There remains significant uncertainties involved in the crystallisation of future additional cash flows (in
excess of the initial estimation) through asset sales over an extended period against a backdrop of a relatively illiquid property market
(in the case of property-related lending) that would be applied to secondary facilities. In the case of other lending, additional cash flows
materialising either through trading conditions or other sources of income are equally uncertain. In this regard, income of € 43 million
was received and recognised in 2015 (2014: € 24 million) and reported as ‘Other income’ following receipt of additional payments/
updated cash flows.
At 31 December 2015, the carrying value of the main facilities in fundamental restructures, including buy-to-let mortgages, amounted to
€ 1.8 billion.
Main facilities that rely principally on the realisation of collateral (property assets held as security) are as follows:
– Buy-to-let € 185 million which have associated contractual secondary facilities of € 215 million.
– Property and construction € 1,089 million which have associated contractual secondary facilities of € 2,013 million.
These are further analysed as:
– Commercial real estate primary facilities of € 927 million which have associated contractual secondary facilities of
€ 1,224 million.
–
Land and development primary facilities of € 162 million which have associated contractual secondary facilities of € 789 million.
Non-property business lending and other personal lending where fundamental restructures have been granted amount to € 547 million
which have associated secondary facilities of € 753 million.
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
139
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3.2 Additional credit risk information – Forbearance*
Non-mortgage (continued)
The ‘Restructure’ category (€ 1.5 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 who have received a term extension and 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.
During 2015 there was no material change in the stock of forborne non-mortgage loans with new forborne borrowers (€ 2.1 billion) being
offset by reductions due to expired and closed forbearance arrangements and repayments.
*Forms an integral part of the audited financial statements
140
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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 portfolio 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 published European Commission Delegated
Regulation (“the Delegated Act”) to supplement the CRR and which came into force on 1 October 2015.
Risk management and mitigation
The Group manages liquidity and funding risks through its Internal Liquidity Adequacy Assessment Process (“ILAAP”). The ILAAP
encompasses all aspects of funding and liquidity management, including planning, analysis, stress testing, control, governance, policy
and contingency planning. The ILAAP considers evolving regulatory standards and aims to ensure that the Group maintains sufficient
financial resources of appropriate quality for the Group’s funding profile. 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 the Sound Liquidity Risk Management and Supervision” as set out by the Basel Committee on Banking Supervision
(September 2008) and the Central Bank of Ireland’s (“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 Single Supervisory Mechanism (“SSM”)/CBI and also with the requirements of local overseas regulators
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 periods up to 1 month. Monitoring ratios also apply to longer periods for long term funding stability;
secondly, the Group aims to maintain a stock of high quality liquid assets to meet its obligations as they fall due. Discounts are
applied to these assets based upon their cash-equivalence and price sensitivity; and
finally, net inflows and outflows are monitored on a daily basis.
Risk monitoring and reporting*
In common with other areas of risk management, the Group operates a “three lines of defence” model. Liquidity risk management is
undertaken in the Treasury function. Reporting and monitoring is carried out by the Capital and Liquidity unit which reports to the Chief
Financial Officer (“CFO”). Management in these areas comprises the first line of defence. Control and assurance is provided by
Financial Risk reporting to the Chief Risk Officer (“CRO”). This area comprises the second line. 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 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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Allied Irish Banks, p.l.c. Annual Financial Report 2015
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3.3 Liquidity risk
At 31 December 2015, the Group held € 34 billion (31 December 2014: € 40 billion) in qualifying liquid assets/contingent funding
(including € 4 billion in liquid assets only available for use within AIB Group (UK) p.l.c.) of which approximately € 14 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 2015, the Group liquidity pool was € 16 billion (31 December 2014:
€ 17 billion). During 2015, the month-end liquidity pool ranged from € 15 billion to € 19 billion and the average balance was € 17 billion.
Composition of the Group liquidity pool
The following table shows the composition of the Group’s liquidity pool at 31 December 2015 and 2014:
Cash and deposits with central banks
Total government bonds
Other:
Covered bonds
Other including NAMA senior bonds
Total other
Total
Liquidity pool
available
(ECB eligible)
€ bn
2015
Liquidity pool of which
LCR eligible(1)
Level 1
€ bn
Level 2
€ bn
–
6.1
1.1
7.7
8.8
3.2
6.2
1.2
4.3
5.5
–
–
–
–
–
–
16.0
14.9
14.9
Liquidity pool(1)
€ bn
0.6
6.2
1.2
8.0
9.2
Cash and deposits with central banks
Total government bonds
Other:
Other including NAMA senior bonds
Total
(1)Basis of calculation for LCR differs to the Group’s basis.
Liquidity pool by currency
Liquidity pool at 31 December 2015
Liquidity pool at 31 December 2014
EUR
€ bn
15.9
16.7
Liquidity pool
available
(ECB eligible)
€ bn
2014
Liquidity pool of which
Basel III LCR eligible
Level 1
€ bn
Level 2
€ bn
–
4.5
11.3
15.8
USD
€ bn
0.1
0.1
2.9
4.5
7.5
14.9
Other
€ bn
–
–
–
–
–
–
Total
€ bn
16.0
16.8
Liquidity pool(1)
€ bn
0.9
4.5
11.4
16.8
GBP
€ bn
–
–
Level 1 - High Quality Liquidity 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 definitions are based on the CRR. The Delegated Act came into force in October 2015 and contained some changes in
relation to qualifying liquid assets.
*Forms an integral part of the audited financial statements
142
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3.3 Liquidity risk
Management of the Group liquidity pool*
AIB manages the liquidity pool on a centralised basis. The composition of the liquidity pool is subject to limits set by the Board and the
independent Risk functions. These pool assets primarily comprise government guaranteed bonds. AIB’s liquidity buffer decreased in
2015 by € 0.8 billion which was predominantly due to a decrease in customer accounts which were replaced by interbank repos.
Other contingent liquidity*
AIB has access to other unencumbered assets providing a source of contingent liquidity which 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 use as collateral for
secured funding or outright sale.
Liquidity regulation
AIB Group is required to comply with the liquidity requirements of the SSM/CBI and also with the requirements of local regulators in
jurisdictions in which it operates.
The Group also 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.
Based on the CRR regulatory LCR rules, AIB had a LCR of c.113% as at 31 December 2015 (31 December 2014: c.116%). The
minimum LCR requirement was 60%, rising to 100% by 1 January 2018. AIB Group have fully complied with the requirement.
Under the Delegated Act (implementing ‘Commission Delegated Regulation (EU) No 2015/61’) which came into effect on 1 October
2015 and is being reported in parallel with the CRR calculation, AIB Group had a LCR of c. 116%.
The minimum NSFR requirement is scheduled to be introduced in January 2018 at 100%. At 31 December 2015, the Group had an
estimated NSFR of c. 111% (31 December 2014: c.112%).
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
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3.3 Liquidity risk
The LCR table below has been produced in line with the Group’s interpretation of the 2014 Basel Committee on Banking Supervision
(“BCBS”) Guidelines. All figures included in the table are averages of the 12 month ends from January to December 2015 CRR
regulatory LCR rules.
High Quality Liquid Assets (“HQLA”)
Total HQLA
x
Cash outflows
Retail deposits and deposits from small business customers, of which:
Stable deposits
Less stable deposits
Unsecured wholesale funding of which:
Operational deposits (all counterparties) and deposits in networks
of co-operative banks
Non-operational deposits (all counterparties)
Unsecured debt
Secured wholesale funding
Additional requirements, of which:
Outflows related to derivative exposures and other
collateral requirements
Outflows related to loss of funding on debt products
Credit and liquidity facilities
Other contractual funding obligations
Other contingent funding obligations
Total cash outflows
Cash inflows
Secured lending (reverse repos)
Inflows from fully performing exposures
Other cash inflows
Total cash inflows
Total HQLA
Total net cash outflows
Liquidity coverage ratio (average)
Total
unweighted
value (average)
€ m
2015
Total
weighted
value (average)
€ m
19,865
10,869
–
15,885
404
–
452
71
9,564
–
1,326
756
1,999
252
3,007
15,322
993
1,711
–
8,131
404
438
452
71
969
–
1,326
14,495
42
788
252
1,082
€ m
15,322
13,413
%
114(1)
The month-end LCR ranged from 106% to 125% throughout 2015 being c. 113% as at 31 December 2015. The average HQLA for the
year ended 31 December 2015 were c. € 15,322 million of which government securities constituted about 78%. The outflows related to
derivative exposures (net of cash inflows) and undrawn commitments constituted about 0.1% and 6% respectively of average cash
outflows of € 13,413 million. Average inflows from assets were c. € 1,082 million.
(1)LCR = Total HQLA/total net cash outflows.
144
Allied Irish Banks, p.l.c. Annual Financial Report 2015
3.3 Liquidity risk
Liquidity risk stress testing
Stress testing is a key component of the liquidity risk management framework and ILAAP. The Group undertakes liquidity stress testing
and has established the Liquidity Contingency Plan (“LCP”) which is designed to ensure that the Group can manage its business in
stressed liquidity conditions and emerge from a temporary liquidity crisis as a creditworthy institution. The LCP is determined with
reference to net contractual and contingent outflows under a variety of stress scenarios and is used to size liquidity pool requirements.
Stress tests include both firm-specific and systemic risk events and a combination of both. Stressed assumptions are applied to the
Group’s liquidity buffer and liquidity risk drivers. These scenario events are reviewed in the context of the Group’s LCP, which details
corrective action options under various levels of stress events. European Banking Authority (“EBA”) prescribed stress scenarios are also
measured. Survival periods of various durations are measured as part of liquidity stress testing (i.e. the length of time the Group’s
liquidity buffer will remain positive in a stress scenario).
The purpose of these tests is to ensure the continued stability of the Group’s liquidity position, within the Group’s pre-defined liquidity
risk tolerance levels. These results are reported to 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. The LCP is a key element in the Group’s Recovery Plan in relation to funding and liquidity.
Under normal market conditions, the liquidity pool is managed to be at least 100% of anticipated net outflows under each of the stress
scenarios.
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
LCR
1 month to 1 year
30 days
NSFR
1 year
Liquid assets to
net cash outflows
Liquid assets to
Stable funding
net cash outflows
resources to
stable funding
requirements
At 31 December 2015, the Group held liquid assets in excess of minimum required levels for internal stress measurement purposes and
the CRD IV LCR requirement.
Compliance with regulatory stress tests at 31 December 2015 and 2014
Liquidity pool as percentage of anticipated net cash flows
Liquidity holding as % of one month stress requirement
CRR LCR
2015
%
234
113
2014
%
182
116
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Risk management - 3. Individual risk types
3.3 Liquidity risk
Funding structure*
The Group’s funding strategy is to deliver a sustainable, diversified and robust customer deposit base at economic pricing and to
continue building 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
Asset covered securities (“ACS”)
Asset backed securities (“ABS”)
Senior debt
Capital
Total source of funds
Other
Customer accounts
The following table analyses average deposits by customers for 2015 and 2014:
Current accounts
Deposits:
Demand
Time
Repurchase agreements
Total
x
31 December 2015
%
€ bn
31 December 2014
%
€ bn
64
14
–
–
5
–
2
15
100
63.4
13.4
0.5
0.1
4.7
0.6
1.6
14.4
98.7
4.4
103.1
64.0
16.4
0.4
–
3.8
0.8
3.3
13.0
101.7
5.8
107.5
Year to
2015
Total
€ m
23,753
11,165
27,711
1,219
63,848
63
16
–
–
4
1
3
13
100
Year to
2014
Total
€ m
19,710
9,504
31,032
4,890
65,136
Current accounts include both interest bearing and non-interest bearing cheque accounts raised through the 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:
Euro
US dollar
Sterling
Other currencies
Total
31 December
2015
Total
€ m
49,190
1,223
12,717
253
63,383
2014
Total
€ m
50,245
1,212
12,458
103
64,018
*Forms an integral part of the audited financial statements
146
Allied Irish Banks, p.l.c. Annual Financial Report 2015
3.3 Liquidity risk
Funding structure* (continued)
Customer deposits represent the largest source of funding for the Group, and the core retail franchises and accompanying deposit base
in both the Republic of Ireland and the UK provide a stable and reasonably predictable source of funds. Customer accounts have
decreased by € 0.6 billion in 2015, which was mainly due to a reduction in customer repos offset by sterling foreign exchange rate
movements. The Group’s loan to deposit ratio at 31 December 2015 was 100% (2014: 99%).
The Group maintains access to a variety of sources of wholesale funds, including those available from money markets, repo markets
and term investors.
The Group participates in CBI/ECB operations, the funding from which amounted to € 2.9 billion at 31 December 2015 (2014:
€ 3.4 billion). Included in the € 2.9 billion is € 1.9 billion of Targeted Longer-Term Refinancing Operations (“TLTRO”) which locks in low
cost term funding. CBI/ECB funding levels have returned to normalised operating levels compared to “Central Bank support” levels
experienced prior to 2014.
Wholesale funding markets have shown positive sentiment towards both AIB and Ireland in 2015. In the 12 months to December 2015,
AIB raised secured funding through two € 750 million covered bond issuances and unsecured funding through a € 500 million medium
term note issuance. This was executed against a backdrop where c. €0.6 billion of secured funding and c. € 2.2 billion of unsecured
issued debt matured in 2015.
The covered bond issuances were issued at spreads over mid-swaps of 27 bps and 22 bps whilst the unsecured funding was issued at
spreads over mid-swaps of 108 bps. This represented a price reduction of 65-75 bps compared to equivalent issuances in 2014.
Notwithstanding this net reduction in term wholesale funding, the Group continued to reduce CBI/ECB drawings in 2015. This was
predominantly due to continued balance sheet deleveraging as a result of NAMA senior bond redemptions.
In advance of the €1.36 billion partial redemption (repayment amount € 1.7 billion) of the 2009 Preference Shares, approved at the
Extraordinary General Meeting (“EGM”) on 16 December 2015, AIB issued € 750 million of Subordinated Tier 2 notes and € 500 million
of fixed rate reset Additional Tier 1 Perpetual Contingent Temporary Write-down Securities (“AT1s”).
Senior debt funding of € 1.6 billion at 31 December 2015 decreased from € 3.3 billion at 31 December 2014. This was due to
€ 2.2 billion of senior debt maturities in the first quarter of 2015 which was offset by the € 0.5 billion unsecured issuance outlined above.
The Group continues to engage with the markets in a measured and consistent manner extending the duration of funding transactions.
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. This is paramount to the Group’s overall
funding/liquidity strategy.
Composition of wholesale funding*
At 31 December 2015, total wholesale funding outstanding was € 23 billion (2014: € 26 billion). € 16 billion of wholesale funding matures
in less than one year (2014: € 17 billion) including € 1.9 billion of TLTRO drawings (2014: € 1.9 billion). € 7 billion of wholesale funding
had a residual maturity of over one year (2014: € 9 billion).
Outstanding wholesale funding comprised € 19 billion of secured funding (2014: € 21 billion) and € 4 billion of unsecured funding
(2014: € 5 billion).
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
147
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148
Allied Irish Banks, p.l.c. Annual Financial Report 2015
3.3 Liquidity risk
Currency composition of wholesale debt*
At 31 December 2015, 97% (31 December 2014: 99%) 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.
Deposits by central banks and banks
Certificate of deposits and commercial paper
Senior debt
ACS/ABS
Subordinated liabilities and other capital instruments
Total funding
% of total funding
Deposits by central banks and banks
Senior debt
ACS/ABS
Subordinated liabilities and other capital instruments
Total funding
% of total funding
EUR
€ bn
13.3
0.1
1.6
5.2
2.3
22.5
%
97
EUR
€ bn
16.6
3.3
4.4
1.4
25.7
%
99
GBP
€ bn
0.2
–
–
0.1
–
0.3
%
1
GBP
€ bn
0.1
–
0.2
–
0.3
%
1
USD
€ bn
0.4
–
–
–
–
0.4
%
2
USD
€ bn
0.1
–
–
–
0.1
%
–
Other
€ bn
–
–
–
–
–
–
%
–
Other
€ bn
–
–
–
–
–
%
–
2015
Total
€ bn
13.9
0.1
1.6
5.3
2.3
23.2
%
100
2014
Total
€ bn
16.8
3.3
4.6
1.4
26.1
%
100
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 redemptions. The Group includes two authorised mortgage banks, AIB Mortgage Bank and EBS Mortgage
Finance, that issue residential mortgage asset 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. Bonds held centrally contribute to the Group’s liquidity buffer and do not add to the Group’s
encumbrance level unless used in a secured transaction. Secured funding between the parent company and other Group entities
(e.g. EBS Limited, and AIB Group (UK) p.l.c.) is an element of the Group’s liquidity management processes.
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
149
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Risk management - 3. Individual risk types
3.3 Liquidity risk
Encumbrance (continued)
The following table analyses total assets by encumbered assets and unencumbered assets at 31 December 2015 and 2014:
Loans and receivables to banks
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale:
Debt securities
Equity securities
Financial investments held to maturity
Other
Total
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
2,339
63,240
5,616
15,708
781
3,483
11,955
€ m
1,518
13,487
1,240
9,227
–
1,570
222
2015
Unencumbered assets
Not readily
Readily
available available and
not available
for collateral
€ m
€ m
173
9,217
4,376
6,481
–
1,913
2,953
648
40,536
–
–
781
–
8,780
50,745
103,122
27,264
25,113
Assets
Encumbered
assets
€ m
1,865
63,362
9,423
19,772
413
12,620
€ m
1,727
11,102
1,405
14,893
–
175
2014
Unencumbered assets
Readily
Not readily
available and
available
not available
for collateral
€ m
€ m
138
13,523
8,018
4,879
–
2,650
–
38,737
–
–
413
9,795
107,455
29,302
29,208
48,945
The Group had an encumbrance ratio of 26% at 31 December 2015 (2014: 27%). 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. At 31 December
2015, € 9,217 million of residential loan mortgages are unencumbered but are regarded by the Group as readily available as they are
held in covered bond and securitisation structures (2014: € 13,523 million). The remaining loan assets in this category amounting to
€ 40,536 million, whilst unencumbered, are not regarded as being available in support of liquidity management at present
(2014: € 38,737 million). Other assets such as deferred tax assets, derivative assets, property, plant and equipment are not regarded as
encumberable.
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. The
potential for the creation of such funding structures is continually under review.
150
Allied Irish Banks, p.l.c. Annual Financial Report 2015
3.3 Liquidity risk
Encumbrance (continued)
The following table analyses the encumbrance of loans and receivables to customers as at 31 December 2015 and 2014:
Mortgages (residential mortgage backed securities)
Retail and SME (credit card issuance)
Other
Total
Mortgages (residential mortgage backed securities)
Retail and SME (credit card issuance)
Other
Total
Assets(1)
€ bn
21.4
0.3
1.0
22.7
Assets(1)
€ bn
23.3
0.3
1.0
24.6
Externally
issued
notes
€ bn
Other
secured
funding
€ bn
5.4(2)
–
–
5.4
3.2(3)
0.2(5)
–
3.4
Externally
issued
notes
€ bn
Other
secured
funding
€ bn
4.5(2)
–
–
4.5
3.1(3)
0.2(5)
–
3.3
2015
Retained(4)
notes
€ bn
3.1
–
–
3.1
2014
Retained(4)
notes
€ bn
4.3
–
–
4.3
(1)Loans and receivables which are both encumbered and readily available for encumbrance.
(2)Mortgage covered securities issued by the Group and held by third parties
(3)Mortgage covered securities issued and retained by the Group which were used in secured transactions at the reporting date.
(4)Mortgage covered securities retained by the Group and not used in secured transactions at the reporting date, were available as collateral.
(5)Funding arising from securitisation of credit card receivables.
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 2015, the Group had excess collateral within its asset backed funding
programmes that could readily be used to issue additional bonds of € 2.9 billion (2014: € 3.8 billion).
Interbank repurchase agreements and ECB refinancing operations
The following table analyses the interbank repurchase agreements and ECB refinancing operations as at 31 December 2015 and 2014:
Less than
1 month
€ bn
1 month to
3 months
€ bn
Over
3 months
€ bn
5
1
6
6
–
6
–
2
2
Highly liquid
Less liquid
Maturity profile
2015
Total
€ bn
11
3
14
Less than
1 month
€ bn
1 month to
3 months
€ bn
Over
3 months
€ bn
9
2
11
5
–
5
–
2
2
2014
Total
€ bn
14
4
18
Credit ratings
The Group’s debt ratings as at 2 March 2016 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 "BB+" and short-term "B"; and
– Moody's long-term "Baa3" for deposits and "Ba1" for senior unsecured debt and short-term “Prime 3” for deposits and "Not Prime"
for senior unsecured debt.
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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.
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151
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
Risk management - 3. Individual risk types
3.3 Liquidity risk
Financial assets and financial liabilities by contractual residual maturity*
Repayable
on demand
Financial assets
Derivative financial instruments(1)
Loans and receivables to banks(2)
Loans and receivables to customers(2)
NAMA senior bonds(3)
Financial investments available for sale(4)
Financial investments held to maturity
Other financial assets
Financial liabilities
Deposits by central banks and banks
Customer accounts
Trading portfolio financial liabilities(5)
Derivative financial instruments(1)
Debt securities in issue
Subordinated liabilities and other capital instruments
Other financial liabilities
Financial assets
Derivative financial instruments(1)
Loans and receivables to banks(2)
Loans and receivables to customers(2)
NAMA senior bonds(3)
Financial investments available for sale(4)
Other financial assets
Financial liabilities
Deposits by central banks and banks
Customer accounts
Derivative financial instruments(1)
Debt securities in issue
Subordinated liabilities and other capital instruments
Other financial liabilities
€ m
–
1,654
15,270
–
1
–
–
16,925
290
37,632
–
–
–
–
456
38,378
Repayable
on demand
€ m
–
1,828
25,078
–
3
–
26,909
366
31,678
–
–
–
443
32,487
62
685
1,086
5,616
–
–
938
8,387
11,471
14,666
86
85
100
–
–
26,408
96
–
2,760
–
816
–
–
3,672
1,902
7,436
–
74
1,055
1,524
–
11,991
3 months or
less but not
repayable
on demand
€ m
1 year
or less
but over
3 months
€ m
23
37
873
9,423
226
499
11,081
14,151
16,779
131
2,241
–
3
33,305
75
–
3,212
–
278
–
3,565
–
10,895
156
548
–
–
11,599
31 December 2015
Total
Over
5 years
€ m
€ m
881
–
38,134
–
4,977
1,279
–
1,698
2,339
70,163
5,616
15,708
3,483
938
45,271
99,945
–
53
–
885
1,721
794
–
3,453
13,863
63,383
86
1,781
7,001
2,318
456
88,888
31 December 2014
Total
Over
5 years
€ m
€ m
1,120
–
37,045
–
7,587
–
2,038
1,865
75,832
9,423
19,772
499
659
–
12,913
–
9,914
2,204
–
25,690
200
3,596
–
737
4,125
–
–
8,658
5 years
or less
but over
1 year
€ m
820
–
9,624
–
11,678
–
22,122
45,752
109,429
2,251
4,665
806
3,972
1,411
–
13,105
–
1
1,241
1,100
40
–
2,382
16,768
64,018
2,334
7,861
1,451
446
92,878
(1)Shown by maturity date of contract.
(2)Shown gross of provisions for impairment, unearned income and deferred costs.
(3)New notes will be issued at each maturity date, with the next maturity date being 1 March 2016. Upon maturity, the issuer has the option to settle in cash
or issue new notes and to date has issued new notes.
(4)Excluding equity shares.
(5)Trading portfolio financial liabilities are shown in the above table based on their contractual maturity. However, in the ‘Undiscounted contractual
maturity’ table trading portfolio liabilities are shown in the ‘on demand’ bucket reflecting their nature.
*Forms an integral part of the audited financial statements
152
Allied Irish Banks, p.l.c. Annual Financial Report 2015
3.3 Liquidity risk
Financial liabilities by undiscounted contractual maturity* (continued)
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 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 at 31 December 2015 and
2014:
Financial liabilities
Deposits by central banks and banks
Customer accounts
Trading portfolio financial liabilities(1)
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
290
37,660
86
–
–
–
456
38,492
Repayable
on demand
€ m
366
31,678
–
–
–
443
32,487
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
2015
Total
€ m
€ m
€ m
€ m
11,470
14,752
–
107
125
–
–
26,454
1,909
7,564
–
309
1,205
1,791
–
12,778
201
3,784
–
912
4,414
124
–
–
55
–
543
1,766
963
–
13,870
63,815
86
1,871
7,510
2,878
456
9,435
3,327
90,486
3 months
or less but
not repayable
on demand
€ m
14,156
16,961
139
2,342
–
3
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
7
11,070
415
726
160
–
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
33,601
12,378
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(1)Shown as ‘on demand’ reflecting their nature but by contractual maturity in the ‘Financial assets and financial liabilities by contractual residual
maturity’ table.
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Risk management - 3. Individual risk types
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
1,375
9,747
11,122
Payable on
demand
€ m
1,246
9,082
10,328
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
–
–
–
–
–
–
–
–
–
–
–
–
2015
Total
€ m
1,375
9,747
11,122
2014
Total
€ m
1,246
9,082
10,328
*Forms an integral part of the audited financial statements
154
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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 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 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. Changes in interest rates impact the
underlying value of the Group’s assets, liabilities and off-balance sheet instruments and, hence, its economic value (or capital position).
Similarly, interest rate changes will impact the Group’s net interest income through interest-sensitive income and expense effects.
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 that has been transferred to it by the customer facing businesses
and the Group’s Asset and Liability Management (“ALM”) function. Treasury also has 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 terms of the industry standard VaR metric, the Group
calculates a daily historical simulation VaR to a 95% confidence level, using a one day holding period and based on one year of
historic data. The Group’s VaR models are regularly back-tested to ensure robustness. VaR is augmented using stressed measures
where various portfolios are revalued using a range of severe but plausible market rate scenarios under alternative measurement
approaches and holding periods.
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.
The Group’s Capital and Liquidity unit, 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 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.
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Risk management - 3. Individual risk types
3.4 Market risk*
Risk management and mitigation
Market risk in the Group is transferred to and managed by Treasury, subject to Capital and Liquidity review and oversight by ALCo.
Treasury proactively manages the market risk on the Group’s balance sheet, as well as providing risk management solutions to the core
retail and corporate customers. Within Treasury, credit spread risk on the AFS portfolio, IRRBB and trading risk are managed by distinct
front office teams.
Market risk is managed against a range of limits approved at ALCo, which incorporate forward-looking measures such as VaR limits and
stress test limits and financial measures such as ‘stop-loss’ and embedded value limits. Treasury documents an annual Risk
Strategy and Appetite Statement as part of the annual financial planning cycle which ensures Treasury’s market risk aligns with the
Group’s strategic business plan.
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.
*Forms an integral part of the audited financial statements
156
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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 2015 and
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
Financial investments held to maturity
Liabilities subject to market risk
Deposits by central banks and banks
Customer accounts
Trading portfolio financial liabilities
Derivative financial instruments
Debt securities in issue
Subordinated liabilities and other capital instruments
Assets subject to market risk
Cash and balances at central banks
Trading portfolio financial assets
Carrying
amount
€ m
Market risk measures
Trading Non-trading
portfolios
€ m
portfolios
€ m
Risk factors
2015
4,950
1
1,698
2,339
63,240
5,616
16,489
3,483
13,863
63,383
86
1,781
7,001
2,318
Carrying
amount
€ m
5.393
1
–
1
877
–
–
–
–
–
–
–
86
933
–
–
4,950
Interest rate, foreign exchange
–
821
2,339
63,240
5,616
16,489
Equity
Interest rate, foreign exchange,
credit spreads
Interest rate, foreign exchange
Interest rate, foreign exchange
Interest rate
Interest rate, credit spreads,
equity
3,483
Interest rate, credit spreads
13,863
63,383
–
848
Interest rate
Interest rate
Interest rate, credit spreads
Interest rate, foreign exchange,
credit spreads, equity
7,001
2,318
Interest rate, credit spreads
Interest rate, credit spreads
2014
Market risk measures
Trading Non-trading
portfolios
€ m
portfolios
€ m
Risk factors
–
1
5,393
Interest rate, foreign exchange
–
Interest rate, foreign exchange,
credit spreads
Derivative financial instruments
2,038
1,024
1,014
Interest rate, foreign exchange,
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
1,865
63,362
9,423
20,185
16,768
64,018
2,334
7,861
1,451
–
–
–
–
–
–
1,150
–
–
1,865
63,362
9,423
20,185
16,768
64,018
1,184
credit spreads
Interest rate, foreign exchange
Interest rate, foreign exchange
Interest rate
Interest rate, credit spreads
equity
Interest rate
Interest rate
Interest rate, foreign exchange,
credit spreads, equity
7,861
1,451
Interest rate, credit spreads
Interest rate, credit spreads
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
157
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Risk management - 3. Individual risk types
3.4 Market risk*
Interest rate sensitivity
The net interest rate sensitivity of the Group at 31 December 2015 and 2014 is illustrated in the following table which sets 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 table shows the sensitivity of the statement of financial position at one point in time and is not necessarily
indicative of positions at other dates. In developing the classifications used in the table, 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 the table.
*Forms an integral part of the audited financial statements
158
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159
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A
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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 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
2015
€ m
99
(45)
2014
€ m
21
(35)(1)
31 December
(1)An assumption is made that rates will not fall below negative 0.50%. This is a change from the assumptions used in 2014 when it was assumed rates
would not fall below 0%. In 2014, this figure was reported as negative € 25 million under the former assumption that rates would not fall below 0%.
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 financial years ended 31 December 2015 and 2014. For VaR
measurement, AIB computes VaR using historical simulation to a 95% confidence level, with a 1 day holding period and a 1 year
sample period. AIB recognises the limitations of this VaR model, in particular the one year history means that events that did not occur
in the previous twelve months are not included in the set of events used to compute VaR. AIB supplements its VaR measures with
stress tests which draw from a longer set of historical data and also with sensitivity and stop loss risk measures.
Interest rate risk
1 day holding period:
Average
High
Low
At 31 December
VaR (trading book)
VaR (banking book)
Total VaR
2015
€ m
2014
€ m
2015
€ m
2014
€ m
2015
€ m
2014
€ m
0.3
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5.6
1.2
1.5
2.7
5.2
1.3
2.9
3.5
5.6
1.2
1.5
The following table sets out the VaR for foreign exchange rate and equity risk for the financial years ended 31 December 2015 and
2014:
1 day holding period:
Average
High
Low
At 31 December
Foreign exchange rate risk
Equity risk
VaR (trading book)
2015
€ m
2014
€ m
0.07
0.16
0.02
0.02
0.04
0.10
0.02
0.03
VaR (trading book)
2015
€ m
0.04
0.10
0.01
0.02
2014
€ m
0.05
0.11
0.02
0.02
The VaR position during 2015 is explained by the very low levels of open risk being run in Treasury across interest rate, foreign
exchange and equity positions.
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
161
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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 product and change risk, outsourcing, information security, cyber, 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 Group. 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
Group. 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 ORM 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, the Board 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 assurance programme.
*Forms an integral part of the audited financial statements
162
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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 a Group-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 Board Audit Committee, approves the Group’s compliance policy and the mandate for the Regulatory
Compliance function.
The Board is responsible for ensuring that the Group complies with its regulatory responsibilities. The Board’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. The Board 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 Board Audit Committee, on
the effectiveness of the processes established to ensure compliance with laws and regulations within its scope.
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163
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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 capital 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 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 13 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 active management
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
164
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Governance and oversight
– The Board
– The Leadership Team
– Group Directors’ report
– Schedule to the Group Directors’ report
– Corporate Governance report
– Report of the Board Audit Committee
– Report of the Board Risk Committee
– Report of the Nomination and Corporate Governance Committee
– Report of the Remuneration Committee
– Directors’ Remuneration report
– Viability statement
– Internal controls
– Other governance information
– Supervision and Regulation
Page
166
170
172
174
177
182
185
187
190
192
196
196
198
199
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165
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Governance and oversight –
The Board
Board of Directors
Non-Executive Chairman
Richard Pym, CBE
Background and experience:
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. Mr Pym 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 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 Director and
former Chairman of Nordax Bank AB (publ). He was also previously Chairman of the
Boards 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
Age: 66
Appointed: 13/10/2014 (Chairman Designate) Committee memberships:
Selfridges plc.
01/12/2014 (Chairman)
Chairman of the Nomination and Corporate Governance Committee
Remuneration Committee
Non-Executive Directors
Dr Michael Somers, B.Comm, M.Econ.Sc, Ph.D –Deputy Chairman
Background and experience:
Dr Somers is former Chief Executive Officer of the National Treasury Management
Agency. He is Chairman of Goodbody Stockbrokers, a Non-Executive Director of Fexco
Holdings Limited, 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
Age: 73
1989-1993 and of the European Community group that established the European Bank
Appointed: 14/10/2010 as a Nominee of the
for Reconstruction and Development. He was formerly a member of the Council of the
Minister for Finance under the Government’s
Dublin Chamber of Commerce and a Non-Executive Director of St. Vincent's
National Pensions Reserve Fund Act 2000
Healthcare Group Limited and Willis Group Holdings plc.
(as amended)
Committee memberships:
Board Risk Committee
Nomination and Corporate Governance Committee
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Non-Executive Directors
Catherine Woods, BA, Mod (Econ) – Senior Independent Non-Executive Director
Background and experience:
Ms Woods is a Non-Executive Director of AIB Mortgage Bank, and Chairman of EBS
Limited. She has been a Director of Beazley Re DAC since July 2015 and became a
Director of Beazley plc in January 2016. 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 JPMorgan European Banks
Equity Research Team, 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 was appointed Senior Independent Non-Executive Director in January 2015.
Age: 53
Committee memberships:
Appointed: 13/10/2010
Chairman of the Board Audit Committee
Board Risk Committee
Simon Ball, B.Sc (Econ), FCA
Background and experience:
Mr Ball has previously held roles as Non-Executive Deputy Chairman and Senior
Independent Director of Cable & Wireless Communications plc and has served as
Group Finance Director of 3i Group plc and the Robert Fleming Group. He has held a
series of senior finance and operational roles at Dresdner Kleinwort Benson and was
Director General, Finance, for HMG Department for Constitutional Affairs. He is
Chairman of Anchura Group Limited and a member of the Board of Commonwealth
Games England. Mr Ball 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
Age: 55
Appointed: 13/10/2011
Tom Foley, B.Comm, FCA
Chairman’s appointment.
Committee memberships:
Board Risk Committee
Remuneration Committee
Background and experience:
Mr Foley is a former Executive Director of KBC Bank Ireland, former CEO of KBC
Homeloans 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 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. He is a Non-Executive Director of AIB Group (UK) p.l.c. since April
2015 and of Intesa SanPaolo Life Limited, and he is a former Non-Executive Director of
BPV Finance (International) plc. He was appointed Non-Executive Director of EBS
Age: 62
Appointed: 13/09/2012
Limited in November 2012.
Committee memberships:
Board Audit Committee
Remuneration Committee
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Governance and oversight –
The Board
Non-Executive Directors
Peter Hagan, B.Sc, Dip BA
Background and experience:
Mr Hagan is former Chairman and CEO of Merrill Lynch’s US commercial banking
subsidiaries and was also a director of Merrill Lynch International Bank (London), Merrill
Lynch Bank (Swiss), ML Business Financial Services, FDS Inc & The Thomas Edison
State College Foundation. 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 179 East 70th Corp.
Age: 67
Committee memberships:
Appointed: 26/07/2012
Chairman of the Board Risk Committee
Board Audit Committee
Helen Normoyle, BBS
Background and experience:
Ms Normoyle is currently the Chief Marketing Officer at DFS, Britain’s leading
upholstered furniture retailer, responsible for all aspects of the company’s marketing
communications and PR, and is moving to take up a new role on 8 March 2016 as Chief
Marketing Officer with Countrywide, the UK’s largest estate agency group. Prior to
joining DFS, she was Director of Marketing & Audiences at the BBC, responsible for the
corporation’s marketing, research, planning and audience services. In 2003, she joined
Ofcom, the UK’s telecoms and communications regulator as Director of Market
Research where she established and led Ofcom’s market research and intelligence
team and, latterly, the Media Literacy team. Before joining Ofcom, she held a range of
posts over an eight year period at Motorola, including Director of Marketing and Director
Age: 48
of Global Consumer Insights and Product Marketing. She started her career working for
Appointed: 17/12/2015
one of Europe's leading market research agencies, Infratest+GfK, based in Germany.
Committee memberships:
None
Jim O’Hara
Background and experience:
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
Age: 65
Appointed: 13/10/2010
Committee memberships:
June 2012.
Chairman of the Remuneration Committee
Board Audit Committee
Nomination and Corporate Governance Committee
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Executive Directors
Bernard Byrne, FCA – Chief Executive Officer
Background and experience:
Mr Byrne was appointed Chief Executive Officer in May 2015. He joined AIB in May
2010 as Group Chief Financial Officer and member of the Bank’s Leadership Team and
was co-opted to the Board on 24 June 2011. Since then he has held a number of
leading director roles including Director of Personal, Business & Corporate Banking and
more recently Director of Retail & Business Banking. Mr Byrne was appointed to the
Board of EBS Limited in July 2011. In January 2015, he was appointed President of
Banking & Payments Federation Ireland (BPFI). A Chartered Accountant by profession,
Mr Byrne joined PricewaterhouseCoopers (PwC) in 1988 and moved to ESB
International in 1994, where he worked as Commercial Director for International
Investments. He later became Group Finance Director and Commercial Director with
Age: 47
parent company, ESB, until he left to join AIB. Prior to that, he was Finance Director,
Appointed: 24/06/2011
and later the Deputy CEO of IWP International plc.
Committee memberships:
None
Mark Bourke, B.E., ACA, AITI – Chief Financial Officer
Background and experience:
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: 49
Appointed: 29/05/2014
Committee memberships:
None
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Governance and oversight –
The Leadership Team
The Leadership Team(1) is the Bank’s most senior executive committee. The membership comprises the two Executive Directors and the
heads of the businesses and support and control functions, biographies for whom are included below. Two roles are currently subject to
executive searches, namely the Head of Wholesale and Institutional Banking and the Chief People Officer.
Dominic Clarke, LLB, ACA – Chief Risk Officer
Background and experience:
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 previously a Managing
Director in Deutsche Bank London, prior to that he worked for Barclays. He trained as a
chartered accountant in PricewaterhouseCoopers’ (PwC) Banking and Capital Markets
practice and also holds a Law degree. Mr Clarke is an external member of the audit
committee of the Department of Communications, Energy and Natural Resources and is
Chairman of Inter Alpha Governing Council, a cross bank educational forum.
Age: 43
Appointed: 01/11/2014
Helen Dooley, LLB – Group General Counsel
Background and experience:
Ms Dooley was appointed to her current role as Group General Counsel and as a
member of the Leadership Team in October 2012. 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
Limited 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: 47
Appointed: 10/10/2012
Tom Kinsella, B.Comm, FMII, CBD – Chief Marketing Officer
Background and experience:
Mr Kinsella joined AIB in November 2012 as Group Marketing Director and was
appointed to his current role as Chief Marketing Officer and to the Leadership Team in
November 2015. Prior to joining AIB, he worked in a variety of senior marketing roles in
Diageo, working locally and internationally across Europe, Asia and the Americas on a
wide variety of leading brands including Guinness and Baileys. In 2015 he was made a
Fellow of the Marketing Institute of Ireland in recognition of his contribution to the
profession in Ireland and his achievements in driving brand growth.
Age: 46
Appointed: 02/11/2015
(1)Ms. Orlagh Hunt, Chief People Officer and Mr. Stephen White, Chief Operating Officer, members of the Leadership Team at 31 December 2015 are
resigning from the Group in early 2016.
170
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Robert Mulhall – Managing Director, Retail, Corporate and Business Banking
Background and experience:
Mr Mulhall has over 20 years experience in financial services, with a career which has
included many roles up to senior executive management level in AIB in such areas as
Digital Channels Innovation and Management, Retail Banking Distribution Management,
Customer Relationship Management, Business Intelligence, Strategic Marketing,
Strategy Development, Operations and Sales Management. Mr Mulhall spent two years
building and leading the Distribution & Marketing Consulting Practice for Accenture in
Financial Services, North America. In this capacity he brought his industry experience to
build a rapidly growing consulting practice in the fast moving and innovative area of
financial services in North America. He returned to AIB in October 2015 as Managing
Director of Retail, Corporate and Business Banking.
Age: 42
Appointed: 19/10/2015
Brendan O’Connor, BA, MBA – Managing Director, AIB Group (UK) p.l.c.
Background and experience:
Mr O’Connor joined the Leadership Team in February 2013 as Head of Financial
Solutions Group and was appointed to his current role in October 2015. He joined AIB in
1984 and from 1988 to 2009 he worked in AIB Group Treasury in New York and Dublin
before moving to AIB Corporate Banking in 2009. Mr O’Connor has held a number of
senior roles throughout the organisation including Head of AIB Global Treasury
Services, Head of Corporate Banking International and Head of AIB Business Banking.
Age: 50
Appointed: 15/02/2013
Jim O’Keeffe, BA, H.Dip – Head of Financial Solutions Group
Background and experience:
Mr O’Keeffe has over 26 years banking experience with AIB. During his career, he has
worked across many aspects of banking from IT to the Retail Business. From 2004 to
2008 he relocated to AIB’s then subsidiary BZWBK in Poland as Head of Personal &
SME Business Development. Following his return to Ireland, from 2009 to 2011 he was
Head of AIB’s Direct Channels before taking up his previous role as Head of AIB’s
Mortgage Business in June 2011. He was appointed as Head of Financial Solutions
Group in November 2015.
Age: 48
Appointed: 02/11/2015
Tomás O’Midheach, B.Comm, MBS, FCCA – Chief Operating Officer
Background and experience:
Mr O’Midheach was appointed to the role of Chief Operating Officer in February 2016.
He has over 22 years experience in the Financial Services Industry. His experience has
spanned many diverse areas of banking including Finance, Data, Customer Analytics,
Direct Channels and Digital. He spent 11 years with Citibank in the UK, Spain and
Dublin where he held several senior positions in Finance. He joined AIB in June 2006 as
Business Lead Finance Operating Model and has since held a number of senior
executive positions including Head of Direct Channels and Analytics and Chief Digital
Officer.
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Appointed: 01/02/2016
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171
Governance and oversight –
Group Directors’ report for the financial year ended 31 December 2015
The Directors of Allied Irish Banks, p.l.c. (‘the Company’) present
– Ms. Helen Normoyle was appointed Non-Executive Director
their report and the audited financial statements for the financial
on 17 December 2015.
year ended 31 December 2015. A Statement of the Directors’
The names of the Directors, together with a short biographical
responsibilities is shown on page 202.
note on each Director, are shown on pages 166 to 169.
Results
The Group’s profit attributable to the ordinary shareholders of the
The appointment and replacement of Directors, and their
powers, are governed by law and the Constitution of the
Company amounted to € 1,380 million and was arrived at as
Company, and information on these is set out on pages 175
shown in the consolidated income statement on page 207.
to 176.
Dividend
There was no dividend paid to ordinary shareholders in 2015.
Going concern
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 2015 covering the period 2016 to 2018, the
Restructuring Plan approved by the European Commission in
May 2014, liquidity and funding forecasts, and capital resources
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 Directors’
Remuneration report on page 195.
Directors’ Remuneration
The Company’s policy with respect to Directors’ remuneration
is included in the Directors’ Remuneration report on page 192.
Details of the total remuneration of the Directors in office
during 2015 and 2014 are shown in the Remuneration report
on pages 193 to 194.
projections, all of which have been prepared under base and
stress scenarios. In addition, the Directors have considered the
Substantial Interests in the Share Capital
The following substantial interests in the Ordinary Share
outlook for the Irish, the eurozone and UK economies and the
Capital had been notified to the Company at 21 December
factors and uncertainties impacting their performance.
2015:
Capital
At an EGM held on 16 December 2015, shareholders approved a
capital reorganisation for the purpose of simplification and
Corporate Governance
The Directors’ Corporate Governance report set out on pages
rationalisation of the capital structure and to create a sound and
177 to 181 and forms part of this report. Additional
sustainable base on which to grow AIB’s business. All resolutions
information, being disclosed in accordance with the European
approved at the EGM were subsequently implemented.
Communities (Takeover Bids (Directive 2004/25/EC))
– Ireland Strategic Investment Fund 99.9%.
Regulations 2006, is included in the Schedule to the Report of
Information on the capital reorganisation and on the structure of
the Directors on pages 174 to 176.
the Company’s share capital, including the rights and obligations
attaching to each class of shares, is set out in the Schedule on
pages 174 to 176 and in note 42 to the consolidated financial
statements.
Accounting policies
The principal accounting policies, together with the basis of
preparation of the financial statements, are set out in note 1 to
the consolidated financial statements.
Review of activities
The Statement by the Chairman on pages 4 to 5, the review by
Political Donations
The Directors have satisfied themselves that there were no
political contributions during the year that require disclosure
under the Electoral Act 1997.
Accounting records
The measures taken by the Directors to secure compliance
with the Company's obligation to keep adequate accounting
records include the use of appropriate systems and
procedures, incorporating those set out in the Internal
controls section of the Corporate Governance report on pages
the Chief Executive Officer on pages 6 to 11 and the Operating
196 to 197, and the employment of competent persons. The
and financial review on pages 22 to 42 contain a review of the
accounting records are kept at the Company's Registered
development of the business of the Company during the
Office at Bankcentre, Ballsbridge, Dublin 4, Ireland; at the
year, of recent events, and of likely future developments.
principal offices of the Company's main subsidiary companies,
Directors
The following Board changes occurred with effect from the
dates shown:
– Mr David Duffy resigned as Chief Executive Officer and
as shown on page 410 and at the Company's other principal
offices, as shown on those pages.
Principal Risks and Uncertainties
Information concerning the principal risks and uncertainties
Executive Director on 29 May 2015; Mr Bernard Byrne was
facing the Company, as required under the terms of the
appointed Chief Executive Officer on 29 May 2015;
European Accounts Modernisation Directive (2003/51/EEC)
172
Allied Irish Banks, p.l.c. Annual Financial Report 2015
(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 50 to 59.
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.
Disclosure Notice under Section 33AK of the
Central Bank Act 1942
The Company did not receive a Disclosure Notice under
Section 33AK of the Central Bank Act 1942 during 2015.
Auditors
The Auditors, Deloitte, have signified willingness to continue in
office in accordance with Section 383(2) of the Companies Act
2014.
Richard Pym
Chairman
2 March 2016
Bernard Byrne
Chief Executive
Officer
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Governance and oversight –
Schedule to the Group Directors’ report
for the financial year ended 31 December 2015
Additional information required to be contained in the Directors’
share, and, if the shareholder holds 0.25% or more of the
Annual Report by the European Communities (Takeover Bids
issued Ordinary Shares, the Directors will be entitled to
(Directive 2004/25/EC)) Regulations 2006.
withhold payment of any dividend payable on such shares and
As required by these Regulations, the information contained
below represents the position as of 31 December 2015.
Capital Structure
The authorised share capital of the Company is € 2,500,000,000
divided into 4,000,000,000 Ordinary Shares of € 0.625 each
(‘Ordinary Shares’). The issued share capital of the company is
2,714,381,238 Ordinary 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 Auditors’ reports accompanied by
(a) copies of the balance sheet, profit and loss account and
other documents required by the Companies Act to be
annexed to the balance sheet or (b) such summary financial
statements as may be permitted by the Companies Act.
– 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
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.
Restrictions on the Transfer of Shares
Save as set out below, there are no limitations in Irish law or in
the Company’s Constitution 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.
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;
(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 2014.
– 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.
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
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
taken forthwith. A vote taken on a poll for the election of the
been longest in office since their last appointment. While
Chairman or on a question of adjournment is also taken forthwith
not obliged to do so, the Directors have, in recent years,
and a poll on any other question is taken either immediately, or at
adopted the practice of all (those wishing to continue in
such time (not being more than thirty days from the date of the
office) offering themselves for re-election at the Annual
meeting at which the poll was demanded or directed) as the
General Meeting.
chairman of the meeting directs. Where a person is appointed to
– A person is disqualified from being a Director, and their
vote for a shareholder as proxy, the instrument of appointment
office as a Director ipso facto vacated, in any of the
must be received by the Company not less than forty-eight hours
following circumstances:
before the time appointed for holding the meeting or adjourned
– if at any time the person has been adjudged bankrupt
meeting at which the appointed proxy proposes to vote, or, in the
or has made any arrangement or composition with his
case of a poll, not less than forty-eight hours before the time
or her creditors generally;
appointed for taking the poll.
– if found to be mentally disordered in accordance with
law;
Rules Concerning Amendment of the Company’s
Constitution
As provided in the Companies Act 2014, the Company may, by
– if the person be prohibited or restricted by law from
being a Director;
– if, without prior leave of the Directors, he or she be
special resolution, alter or add to its Constitution. A resolution is a
absent from meetings of the Directors for six
special resolution when it has been passed by not less than
successive months (without an alternate attending)
three-fourths of the votes cast by shareholders entitled to vote
and the Directors resolve that his or her office be
and voting in person or by proxy, at a general meeting at which
vacated on that account;
not less than twenty-one clear days’ notice specifying the
– if, unless the Directors or a court otherwise determine,
intention to propose the resolution as a special resolution, has
he or she be convicted of an indictable offence;
been duly given. A resolution may also be proposed and passed
– if he or she be requested, by resolution of the Directors,
as a special resolution at a meeting of which less than twenty-
to resign his or her office as Director on foot of a
one clear days’ notice has been given if it is so agreed by a
unanimous resolution (excluding the vote of the
majority in number of the members having the right to attend and
Director concerned) passed at a specially convened
vote at any such meeting, being a majority together holding not
meeting at which every Director is present (or
less than ninety per cent in nominal value of the shares giving
represented by an alternate) and of which not
that right.
Rules Concerning the Appointment and Replacement
of Directors of the Company
– Other than in the case of a casual vacancy, Directors are
less than seven days’ written notice of the intention to
move the resolution and specifying the grounds
therefor has been given to the Director; or
– if he or she has reached an age specified by the
Directors as being that at which that person may not be
appointed on a resolution of the shareholders at a general
appointed a Director or, being already a Director, is
meeting, usually the Annual General Meeting.
required to relinquish office and a Director who reaches
– No person, other than a Director retiring at a general meeting
the specified age continues in office until the last day of
is eligible for appointment as a Director without a
the year in which he or she reaches that age.
recommendation by the Directors for that person’s
– In addition, the office of Director is vacated, subject to any
appointment unless, not less than forty-two days before the
right of appointment or reappointment under the
date of the general meeting, written notice by a shareholder,
Company’s Constitution, if:
duly qualified to be present and vote at the meeting, of the
– not being a Director holding for a fixed term an
intention to propose the person for appointment and notice in
executive office in his or her capacity as a Director, if
writing signed by the person to be proposed of willingness to
he or she resigns their office by a written notice given
act, if so appointed, shall have been given to the Company.
to the Company, upon the expiry of such notice; or
– A shareholder may not propose himself or herself for
– being the holder of an executive office other than for a
appointment as a Director.
fixed term, the Director ceases to hold such executive
– The Directors have power to fill a casual vacancy or to
office on retirement or otherwise; or
appoint an additional Director (within the maximum number
– the Director tenders his or her resignation to the
of Directors fixed by the Company in general meeting) and
Directors and the Directors resolved to accept it; or
any Director so appointed holds office only until the
– he or she ceases to be a Director pursuant to any
conclusion of the next Annual General Meeting following his
provision of the Company’s Constitution.
appointment, when the Director concerned shall retire, but
– Notwithstanding anything in the Company’s Constitution
shall be eligible for reappointment at that meeting.
or in any agreement between the Company and a Director,
– One-third of the Directors for the time being (or if their
the Company may, by Ordinary Resolution of which
number is not three or a multiple of three, not less than
extended notice has been given in accordance with the
one-third), are obliged to retire from office at each Annual
Companies Act, remove any Director before the expiry of
General Meeting on the basis of the Directors who have
his or her period of office.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
175
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Governance and oversight –
Schedule to the Group Directors’ report
for the financial year ended 31 December 2015
– 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 Company’s Constitution, 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 Act, the Constitution of the Company and to any
directions given by special resolution of a general meeting. The
Company’s Constitution further provides 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 Act, the Directors are
unconditionally authorised until 16 December 2020 to exercise all
the powers of the Company to allot relevant securities up to the
aggregate nominal amount of € 1,191,314,686. By such
authority, the Directors may make offers or agreements which
would, or might, require the allotment of such securities after
16 December 2020.
176
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Governance and oversight –
Corporate Governance report
Corporate Governance arrangements and practices
AIB’s Governance Framework (‘the Framework’) encompasses
2010 Code imposed minimum core standards upon all credit
institutions and insurance undertakings licensed or authorised
the leadership, direction and control of AIB and its subsidiaries
by the Central Bank of Ireland (the ‘Central Bank’). The Directors
(collectively referred to as ‘AIB’, the ‘Group’ or the ‘Company’).
believe that the Company materially complied with the provisions
The Framework reflects best practice standards, guidelines and
of the 2010 Code throughout 2015.
statutory obligations and ensures that organisation and control
arrangements are appropriate to governance of the Group’s
During December 2015, the Central Bank published revised
strategy, operations and mitigation of related material risks. The
Corporate Governance Requirements for Credit Institutions 2015
Framework underpins effective decision making and
(‘the 2015 Requirements’ are available on www.centralbank.ie),
accountability and is the basis on which the Group conducts its
which became effective for all credit institutions on 11 January
business and engages with customers and stakeholders.
2016. AIB is now subject to the 2015 Requirements, including
requirements which specifically relate to ‘high impact institutions’,
The Framework reflects Irish company law, various corporate
and additional corporate governance obligations on credit
governance codes and regulations, the Listing Rules of the
institutions which are deemed significant for the purposes of the
Enterprise Securities Market of the Irish Stock Exchange,
European Union (Capital Requirements) Regulations 2014
European Banking Authority (“EBA”) Guidelines, Basel Committee
(“CRD IV”) [S.I. 158/2014].
on Banking Supervision Guidelines on Corporate Governance
Principles for Banks, and other relevant EU best practice
The Company has also adopted the provisions of the UK
guidelines and, in relation to the UK businesses, UK company
Corporate Governance Code (‘the UK Code’ which is available
law. Further detail on AIB’s governance practices is available on
on www.frc.org.uk). The Directors believe the Company is in
http://investorrelations.aib.ie.
compliance with the provisions of the UK Code, other than in the
following instances:
The Group’s governance arrangements include:
–
provision B.7.1 which requires that all directors should be
–
a Board of Directors of sufficient size and expertise, the
subject to annual election by shareholders; Dr Michael
majority of whom are independent Non-Executive Directors, to
Somers was appointed Non-Executive Director in 2010 as
oversee the operations of the Group;
a nominee of the Minister for Finance under the Irish
–
a Chief Executive Officer to whom the Board has delegated
Government’s National Pensions Reserve Fund Act 2000
responsibility for the day-to-day running of the Group,
(as amended), the terms of which do not require him to
ensuring an effective organisation structure, the appointment,
stand for election or regular re-election by shareholders;
motivation and direction of Senior Executive Management,
–
provision D.2.2 with regard to the Remuneration Committee’s
and for the operational management, compliance and
performance of all the Group’s businesses;
delegated responsibility for setting remuneration for all
Executive Directors and the Chairman, including pension
an Executive Leadership Team comprising strong and diverse
rights and any compensation payments; under the terms of
management capabilities;
capital agreements with the Irish Government and the
a clear organisational structure with well defined, transparent
Relationship Framework agreed with the Minister, neither
and consistent lines of responsibility;
a well-documented and executed delegation of authority
framework;
a framework and policy architecture which comprises a
the Committee nor the Board has autonomy in that regard.
The Board of Directors
The Board is responsible for corporate governance,
–
–
–
–
comprehensive and coherent suite of frameworks, policies,
encompassing leadership, direction and control of the Group,
procedures and standards covering business and financial
and is accountable to shareholders for financial performance.
planning, corporate governance and risk management;
–
effective structures and processes to identify, manage,
While arrangements have been made by the Directors for
monitor and report the risks to which the Group is or might be
delegation of the management, organisation and administration
exposed;
of the Company’s affairs, the following matters are specifically
–
adequate internal control mechanisms, including sound
reserved for decision by the Board:
administrative and accounting procedures, IT systems and
–
to retain primary responsibility for corporate governance
controls, and remuneration policies and practices which are
within the Company at all times and oversee the efficacy of
consistent with and promote sound and effective risk
governance arrangements;
management; and
–
to determine the Company's strategic objectives and policies,
–
strong and functionally independent internal and external
and to ensure that the necessary financial and human
audit functions.
resources and operational capabilities are in place for the
Company to meet its objectives;
AIB has been subject to the provisions of the Central Bank of
–
to approve the annual financial plan, interim and annual
Ireland’s 2010 Corporate Governance Code for Credit Institutions
financial statements, operating and capital budgets, major
and Insurance Undertakings (‘the 2010 Code’ which is available
acquisitions and disposals, and risk appetite limits,
on www.centralbank.ie), including compliance with requirements
designated frameworks and relevant policies;
which specifically relate to ‘major/high impact institutions’. The
–
to appoint the Chairman of the Board, Board Directors,
Allied Irish Banks, p.l.c. Annual Financial Report 2015
177
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Governance and oversight –
Corporate Governance report
Chief Executive Officer and Members of the Leadership
Team, to address related succession planning, and to
Chairman
The Chairman’s responsibilities include the leadership of the
approve, where appropriate, the removal of persons in charge
Board, ensuring its effectiveness, setting its agenda, ensuring
of Control Functions;
that the Directors receive adequate, accurate and timely
–
to endorse the appointment of people who may have a
information, facilitating the effective contribution of the Non-
material impact on the risk profile of the Company and
Executive Directors, ensuring the proper induction of new
monitor on an ongoing basis their appropriateness for the
directors, the on-going training and development of all directors,
–
–
role;
to render an account of the Company's activities to its
shareholders;
and reviewing the performance of individual directors.
Mr Richard Pym was appointed Chairman Designate on
to protect the assets of the Company taking into account the
13 October 2014 and assumed the role of Non-Executive
interests of the shareholders and the employees in general
Chairman with effect from 1 December 2014. In addition to his
with appropriate regard for the interests of other stakeholders;
role as Chairman, Mr Pym is Chairman of the Nomination and
and
Corporate Governance Committee and a Member of the
–
to put in place and monitor procedures designed to ensure
Remuneration Committee.
that the Company complies with the law and good corporate
citizenship.
Mr Pym was formerly Chairman of Nordax Bank AB (publ). He
stood down from this role on 15 October 2015, and remains a
The Board is responsible for approving high level policy and
Non-Executive Director of that company. There have been no
strategic direction in relation to the nature and scale of risk that
other changes to Mr Pym’s commitments during 2015. Mr Pym’s
AIB is prepared to assume in order to achieve its strategic
biographical details are available on page 166.
objectives. The Board ensures that an appropriate system of
internal controls is maintained and that effectiveness is reviewed.
The role of the Chairman is separate from the role of the Chief
Specifically the Board:
sets the Group’s Risk Appetite, incorporating risk limits;
approves designated Risk Frameworks, incorporating risk
strategies, policies, and principles;
–
–
–
Executive Officer, with clearly-defined responsibilities attaching
to each; these are set out in writing and agreed by the Board.
Deputy Chairman
Dr Michael Somers was appointed as Deputy Chairman in June
approves stress testing and capital plans under the Group’s
2010. In addition to this role, Dr Somers is a Member of the
Internal Capital Adequacy Assessment Process (“ICAAP”);
Nomination and Corporate Governance Committee and the
and
Board Risk Committee. Dr Somers was Chairman of the Board
–
approves other high-level risk limits as required by Credit,
Risk Committee from 10 November 2010 until 27 January 2016.
Capital, Liquidity and Market policies.
Dr Somers’ biographical details are available on page 166.
The Board receives regular updates on the Group’s risk profile
through the Chief Risk Officer’s monthly report, and relevant
Senior Independent Non-Executive Director
The Senior Independent Non-Executive Director is available to
updates from the Chairman of the Board Risk Committee. An
shareholders if they have concerns which contact through the
overview of the Board Risk Committee’s activities is detailed on
normal channels of Chairman or Chief Executive Officer have
pages 185 and 186.
failed to resolve, or for which such contact is considered by the
shareholder(s) concerned to be inappropriate. Ms Catherine
AIB has received significant support from the Irish State (‘the
Woods was appointed Senior Independent Non-Executive
State’) in the context of the financial crisis because of its systemic
Director with effect from 30 January 2015.
importance to the Irish financial system, as a result of which the
State holds c. 99.9% of the issued ordinary shares of the
Company. The relationship between AIB and the State as
In addition to her role as Senior Independent Non-Executive
Director, Ms Woods is Chairman of the Board Audit Committee
shareholder is governed by a Relationship Framework. Within the
and Member of the Board Risk Committee. Ms Woods’
Relationship Framework, with the exception of a number of items
biographical details are available on page 167.
requiring advanced consultation with or approval by the State, the
Board retains full responsibility and authority for all of the
operations and business of the Group in accordance with its legal
Independent Non-Executive Directors
As an integral component of the Board, Independent Non-
and fiduciary duties and retains responsibility and authority for
Executive Directors represent a key layer of oversight of the
ensuring compliance with the regulatory and legal obligations of
activities of the Company. It is essential for Independent Non-
the Group. The Relationship Framework is available on the
Executive Directors to bring an independent viewpoint to the
website at http://investorrelations.aib.ie.
deliberations of the Board that is objective and independent of
the activities of the management and of the Company.
The names of the Directors, with brief biographical notes, are
Biographical details for each of the Independent Non-Executive
shown on pages 166 to 169.
Directors are available on page 167 and 168.
178
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Executive Directors
Executive Directors have executive functions in the Company in
Board Membership
It is the policy of the Board that a majority of the Directors
addition to their Board duties. The role of Executive Directors, led
should be Non-Executive. At 31 December 2015, there were
by the Chief Executive Officer, is to propose strategies to the
8 Non-Executive Directors and 2 Executive Directors. The
Board and following challenging Board scrutiny, to execute the
Board deems the appropriate number of Directors to meet the
agreed strategies to the highest possible standards. Biographical
requirements of the business to be between 10 and 14.
details for each of the Executive Directors are available on page
169.
Chief Executive Officer
The Chief Executive Officer is responsible for the day-to-day
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
running of the Group, ensuring an effective organisation structure,
in the course of their duties.
the appointment, motivation and direction of Senior Executive
Management, and for the operational management of all the
Group’s businesses. Mr Bernard Byrne was appointed Chief
Balance and Independence
Responsibility has been delegated by the Board to the
Executive Officer on 29 May 2015, succeeding Mr David Duffy
Nomination and Corporate Governance Committee for ensuring
who resigned with effect from that date.
Leadership Team
The Leadership Team is the most senior executive committee of
the Group and is accountable to the Chief Executive Officer.
an appropriate balance of experience, skills and independence
on the Board. Non-Executive Directors are appointed so as to
provide strong and effective leadership and appropriate
challenge to executive management.
Subject to financial and risk limits set by the Board, and excluding
The independence of each Director is considered by the
those matters which are reserved specifically for the Board, the
Nomination and Corporate Governance Committee prior to
Leadership Team under the stewardship of the Chief Executive
appointment and reviewed annually thereafter. In reviewing the
Officer has responsibility for the day-to-day management of the
independence of Directors, the Committee considers the
Group’s operations. It assists and advises the Chief Executive
independence criteria contained in the 2010 Code, 2015
Officer in reaching decisions on the Group’s strategy, governance
Requirements and the UK Code.
and internal controls, and performance and risk management.
Company Secretary
The Directors have access to the advice and services of the
The Board has determined that all Non-Executive Directors in
office at December 2015, namely Mr Simon Ball, Mr Tom Foley,
Mr Peter Hagan, Ms Helen Normoyle, Mr Jim O’Hara,
Company Secretary, Mr David O’Callaghan, who is responsible
Mr Richard Pym, Dr Michael Somers and Ms Catherine Woods
for advising the Board through the Chairman on all governance
are independent in character and judgement and free from any
matters, ensuring that Board procedures are followed and that
business or other relationship with the Company or the Group
applicable rules and regulations are complied with. The Company
that could affect their judgement. In 2011, the Central Bank of
Secretary facilitates information flows within the Board and its
Ireland confirmed that Dr Somers should be considered
Committees and between Senior Executive Management and
independent for the purposes of the 2010 Code.
Non-Executive Directors, as well as facilitating induction and
assisting with professional development as required.
Notwithstanding Dr Somers’ designation as non-independent
Board Meetings
The Chairman sets the agenda for each Board meeting. The
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
Directors are provided with relevant papers in advance of the
duties as a Non-Executive Director.
meetings to enable them to consider the agenda items, and are
encouraged to participate fully in the Board’s deliberations.
Conflicts of Interest
The Board approved Code of Conduct and Conflicts of Interest
The Board held 13 scheduled meetings and 6 additional out-of-
Policy sets out how actual, potential or perceived conflicts of
course meetings during 2015. Attendance at Board meetings and
interest are to be evaluated, reported and managed to ensure
meetings of Committees of the Board is reported on below. During
that Directors act at all times in the best interests of the
a number of Board meetings, the Non-Executive Directors met in
Company and its stakeholders.
the absence of the Executive Directors, in accordance with good
governance standards. A number of Non-Executive Directors of
Executive Directors, as employees of AIB, are also subject to
Allied Irish Banks, p.l.c. are also Non-Executive Directors of the
the organisation’s Code of Conduct and Conflicts of Interests
Company’s major regulated subsidiary companies, namely AIB
Policy for employees.
Group (UK) p.l.c., AIB Mortgage Bank and EBS Limited.
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179
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Governance and oversight –
Corporate Governance report
Performance Evaluation
There is a formal process in place for the annual evaluation of
process had been adequately addressed. The Board agreed on
the Board’s own performance and that of its principal Committees
its priority areas of focus for the year ahead, the Non-Executive
and individual Directors. In accordance with the 2010 Code, 2015
Director skillset and experience required to enhance the
Requirements and the UK Code, an external evaluation is
current Board skillset, diversity and experience profile, and a
conducted at least every three years, with internal evaluations in
number of actions to enhance the functioning of the Board,
the intervening years. The objective of these evaluations is to
its Committees, and its training and development and to
review past performance with the aim of identifying any
increase the Board’s exposure to the Group’s customers and
opportunities for improvement, determining whether the Board
staff.
and its Committees are as a whole effective in discharging their
responsibilities and, in the case of individual Directors, to
determine whether each Director continues to contribute
effectively and to demonstrate commitment to the role.
Attendance at Board and Committee meetings is one of a
number of important factors considered in evaluating Directors’
performance, and a table showing each Board Member’s
attendance at such meetings is shown below and separately
An external independent evaluation was conducted by Boardroom
within the commentary on each of the Board Committees on
Review Limited during 2014. On the basis of the outcome of that
subsequent pages.
evaluation, and in accordance with the 2010 Code, 2015
Requirements and the UK Code, an internal evaluation was
The Chairman meets annually with each Director to review their
undertaken during 2015. This self-evaluation process, which was
performance. These reviews include discussion of, inter alia, the
led by the Chairman and supported by the Company Secretary,
Director’s individual contributions and performance at the Board
included the completion of questionnaires including written
and relevant Board Committees, the conduct of Board meetings,
evaluations by each Director (covering areas such as Board
the performance of the Board as a whole and its committees,
composition, Board meetings and the effectiveness thereof,
compliance with Director-specific provisions of the relevant
information quality and flows, and Board priorities), one to one
Central Bank Code, the requirements of the Central Bank’s
discussions between the Chairman and each Director, and Board
Fitness and Probity Regulations, and other specific matters
discussion of the outcome of the evaluation process and agreed
which the Chairman and/or Directors may wish to raise.
actions.
On reviewing the outcome of the evaluation process, the Board
December 2014. Consideration of the Chairman’s leadership
concluded that each individual Director continued to make a
was incorporated into the 2015 Board evaluation process.
valuable contribution to the deliberations of the Board and
During 2016, the Senior Independent Non-Executive Director
demonstrated continuing commitment to the role, and that the
will lead an evaluation of the Chairman’s performance with the
recommendations identified during the 2014 external evaluation
other Directors for consideration by the Board and the Chairman.
Mr Pym was appointed to the role of Chairman during
Attendance at Board and Board Committee Meetings
Name
Directors
Richard Pym
Simon Ball
Mark Bourke
Bernard Byrne
David Duffy
(resigned 29 May 2015)
Tom Foley
Peter Hagan
Helen Normoyle
(appointed 17 December 2015)
Jim O’Hara
Dr Michael Somers
Catherine Woods
Board
(scheduled)
(out of course)
Board Board Audit
Committee
Board Risk Remuneration
Committee
Committee
A
13
13
13
13
6
13
13
1
13
13
13
B
13
13
13
13
6
13
13
1
12
13
13
A
B
A
B
A
B
6
6
6
6
2
6
6
6
6
6
6
6
6
6
2
6
5
5
4
6
10
10
10
10
10
10
10
10
12
12
12
12
12
11
12
12
A
10
B
10
10
10
10
10
10
10
Nomination
and Corporate
Governance
Committee
A
13
13
B
13
13
13
13
13
13
13
13
Column A indicates the number of scheduled meetings held during 2015 which the Director was eligible to attend; Column B indicates
the number of meetings attended by each Director during 2015.
180
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Terms of appointment
Non-Executive Directors are generally appointed for a three year
term, with the possibility of renewal for a further three years on
the recommendation of the Nomination and Corporate
Governance Committee. Any additional term beyond six years
will be subject to annual review and approval by the Board.
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. He was subsequently reappointed a Non-
Executive Director for a further two year period from December
2015, on foot of a direction to the National Treasury Management
Agency by the Minister for Finance pursuant to section 43(1) of
the National Treasury Management (Amendment) Act 2014.
Following appointment, in accordance with the requirements of
the Company’s Constitution, 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 reappointment 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
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 terms of
appointment and appointees’ responsibilities, stipulate that a
specific time commitment is required from Directors. A copy of the
standard terms of Non-Executive Directors letter of appointment
is available on request from the Company Secretary.
Directors disclose details of their other significant commitments
along with a broad indication of the time absorbed by such
commitments before appointment. Before accepting any
additional external commitments, including other directorships
that might impact on the time available to devote to their role, the
agreement of the Chairman and the Company Secretary, and in
certain cases the Central Bank, must be sought.
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. Each
Committee operates under terms of reference approved by
the Board. 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 Board Audit
Committee, the Board Risk Committee, the Nomination and
Corporate Governance Committee and the Remuneration
Committee are available on AIB’s website at
http://investorrelations.aib.ie.
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.
Reports from the Board Audit Committee, the Board Risk
Committee, the Nomination and Corporate Governance
Committee and the Remuneration Committee are presented
on the following pages.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
181
Governance and oversight –
Report of the Board Audit Committee
Letter from Catherine Woods, Chairman of the Board Audit
Committee
–
the adequacy of loan impairment provisions, with focus
applied on the governance and process supporting the
provisioning process deployed throughout the Group and, in
particular, the judgements and methodology applied; and
–
the process to address the first of the Central Bank directed
enhanced audit assurance reviews of the governance
arrangements performed by the Board and Senior Executive
Management in order to comply with the EBA Guidelines on
Internal Governance (“GL44”) in the areas of New Lending
and System Security with respect to external threats
(Cyber-Crime). The final report was submitted to the Central
Bank during June 2015. The Central Bank has directed that
the areas of Outsourcing and Regulatory Reporting be
Dear Shareholder,
reviewed by May 2016.
On behalf of the Board Audit Committee, I am pleased to
Throughout the reporting period, through discussion and
introduce the Board Audit Committee Report on the Committee’s
deliberation with Management, the Committee satisfied itself
activities for the financial year ended 31 December 2015.
that the key accounting decisions, risks and significant
The Members of the Committee and a record of their meeting
statements were appropriate. The Committee reviewed the
attendance during 2015, are outlined in the full report below.
findings of the Auditors and, where applicable, other experts
The Committee has oversight responsibility for:
about these judgements and estimates were transparent and
and concluded that disclosures in the financial statements
Management judgements that underlie the financial
–
–
–
–
the quality and integrity of the Group’s accounting policies,
appropriate.
financial statements and disclosure practices;
compliance with relevant laws, regulations, taxation
More detail on the Committee’s activities is outlined in the
obligations and relevant Codes of Conduct;
Committee’s full report.
the independence and performance of the External Auditors
(“the Auditors”) and the Group Internal Auditor; and
As Chairman of the Board Audit Committee, I reported after
the adequacy and performance of systems of internal control
each meeting to the Board on the principal matters discussed
and the management of financial and non-financial risks.
to ensure all Directors were fully informed of the Committee’s
work. I would like to extend my appreciation to my colleagues
These responsibilities are discharged through meetings with and
on the Committee for their effective contribution to the
the receipt of reports from the Auditors, the Chief Financial
Committee’s performance during 2015. I am firmly of the view
Officer, the Group Internal Auditor, the Chief Risk Officer, the
that the balance of skills and experience amongst the
Group General Counsel and the Head of Compliance, each of
Committee Members has ensured a careful balance between
whom attend the Committee’s meetings by invitation. Other
independent oversight and challenge and support to
senior executives also attend by invitation, where appropriate.
Management.
The objective of delivering a more simplified, effective and
accountable organisation is at the forefront of the Committee’s
considerations, and the Committee continues to constructively
challenge Management in that regard.
Catherine Woods,
Chairman of the Board Audit Committee
The Committee also recognises the importance of an effective
three lines of defence model in strengthening internal controls
across the organisation and, in conjunction with the Board Risk
Committee, exercises oversight of the effectiveness of risk
management and internal control systems.
During 2015, key areas of focus for the Committee included:
–
the monitoring of the integrity of the Group’s 2014 full
financial year and 2015 half year financial statements,
focusing in particular on the quality and transparency of
disclosure, and to support the ongoing strengthening of the
internal control environment;
182
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Report of the Board Audit Committee
Membership and meetings
The Board Audit Committee comprises 4 Independent Non-
The Committee:
–
reviewed the Group’s annual and interim financial
statements prior to approval by the Board, including: the
Executive Directors. The Board is satisfied that the Committee is
Group’s accounting policies and practices; the minutes of
appropriately constituted in the context of the UK Code and other
the Group Disclosure Committee (an Executive Committee
requirements regarding recent and relevant financial experience
whose role is to ensure the compliance of AIB Group
and competence. Mr Peter Hagan and Ms Catherine Woods are
financial information with legal and regulatory requirements
also Members of the Board Risk Committee, the common
membership of which is considered to facilitate effective
prior to external publication); reports on compliance;
effectiveness of internal controls; and the findings,
governance across all finance and risk issues. Biographical
conclusions and recommendations of the Auditors and
details of each of the Members are outlined on page 167 and
Group Internal Auditor;
168.
A total of 12 scheduled meetings of the Committee were held
during 2015. Meetings are attended by the Chief Financial
Officer and relevant Internal Audit, Finance, Legal and
–
in the context of reviewing the financial statements,
engaged with Management in respect of accounting
matters, and considered matters where Management
judgement was important to the results and financial
position of the Group, the most significant of which
Compliance executives along with the Auditors. At least twice a
related to:
year the Committee meets in private session with the Auditors
–
the level of provisions for impairment on loans and
and separately with Internal Audit management.
receivables and other liabilities and commitments as
at 31 December 2015;
The Chairman and Members of the Committee, together with
–
the accounting considerations and treatments relating
their attendance at scheduled meetings, are shown below.
to engagement with customers in financial difficulty
and associated loan restructuring activity;
Members: Ms Catherine Woods (Chairman), Mr Tom Foley,
– Management’s assessment of the appropriateness of
Mr Peter Hagan, Mr Jim O’Hara
Member attendance during 2015:
Tom Foley
Peter Hagan
Jim O’Hara
Catherine Woods
A
12
12
12
12
B
12
12
11
12
preparing the financial statements of the Group for the
financial year ended 31 December 2015 on a going
concern basis;
the basis of recognition of deferred tax assets in Ireland
and the UK;
retirement benefit obligations and related accounting
treatment and disclosure requirements.
–
–
Column A indicates the number of Committee meetings held
In addressing these issues, the Committee considered the
during 2015 which the Member was eligible to attend; Column B
appropriateness of Management’s judgements and
indicates the number of meetings attended by each Member
during 2015.
Performance Evaluation
An evaluation of the Committee’s effectiveness was incorporated
in the external Board evaluation conducted by Boardroom
estimates. The Auditors were present during such
discussion and, where appropriate, the views of the
Auditors on Management’s approach were sought. The
Committee satisfied itself that Management’s estimates,
judgements and disclosures were appropriate and in
compliance with financial reporting standards. A detailed
Review Limited during 2014. The evaluation report highlighted
analysis of the significant matters is provided in note 2 to
matters relating to cross-membership between the risk and audit
the consolidated financial statements;
committees which has since been rectified.
–
provided advice to the Board in respect of the Annual
Financial Report, confirming that the Committee is satisfied
An internal performance evaluation of the Committee was
conducted during 2015. Overall the review concluded that the
that the Annual Financial Report for the financial year
ended 31 December 2015, taken as a whole, is fair,
Committee continued to operate effectively. The outcome of the
balanced and understandable and provides the information
evaluation was shared with the Board.
Role and responsibilities
The Committee’s primary responsibilities are set out in its terms
of reference which are reviewed annually by the Committee and
–
–
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 Auditors;
satisfied itself through regular reports from the Group
approved by the Board. The terms of references are available on
Internal Auditor, the Chief Financial Officer, the Chief Risk
the website at http://investorrelations.aib.ie.
Officer, the Auditors and the Head of Compliance that the
system of internal controls over financial reporting was
Activities
The following, whilst not intended to be exhaustive, is a summary
effective;
–
received regular updates from Group Internal Audit,
of the activities undertaken by the Committee in the past year in
including monthly reports detailing Internal Audit reports
the discharge of its responsibilities.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
183
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Governance and oversight –
Report of the Board Audit Committee
issued during the previous month, control issues identified
policy on the engagement of the Auditors to supply non-audit
and related remediating actions;
services outlines the types of non-audit service for which the
–
received rolling updates from the Group General Counsel
use of the Auditors is pre-approved, for which specific approval
and the Head of Compliance to satisfy itself that the Group
from the Committee is required before they are contracted,
was in compliance with all regulatory and compliance
and from which the external auditor is excluded. (see note 17
obligations and considered key developments and emerging
to the consolidated financial statements). Further detail can be
issues, the operation of the Speak-Up process, through
found on the company’s website at http://investorrelations.aib.ie
The Committee considered the detailed audit plan in respect of
the annual and interim financial statements, and the Auditors’
findings, conclusions and recommendations arising from the
half-yearly and annual audits. The Committee, through
consideration of the work undertaken, confidential discussions
with the Auditors, feedback received from Management in
respect of the audit process, and through its annual evaluation
of the Committee’s effectiveness, which incorporated
questions regarding the external audit process, satisfied
itself with regard to the Auditors’ effectiveness, independence
and objectivity.
The Committee met with the Auditors in confidential session
twice during 2015, in the absence of Management, and the
Committee Chairman met with the Auditors between scheduled
meetings of the Committee to discuss material issues arising.
On the basis of all of the above, and the Committee’s
determination of the Auditors’ effectiveness, independence
and objectivity, the Committee recommended that Deloitte
should be reappointed as the Auditors at the Annual General
Meeting on 24 May 2016.
which staff of the company may, in confidence, raise
concerns about possible improprieties in matters of financial
reporting or other matters, 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 AIB UK Audit
Committee chairman; and
–
held formal confidential consultations during the year
separately with the Auditors, the Chief Risk Officer, the Head
of Compliance and the Group Internal 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 annual
audit plan and the adequacy of resources allocated to the
function. Throughout the year, the Chairman of the Committee
met with Group Internal Audit management 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 2015, in the absence of Management. The
Group Internal Auditor has unrestricted access to the Chairman
of the Board 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. Mr Gareth Cronin was appointed to the
role of Group Internal Auditor in October 2015, following the
appointment of the previous incumbent to the role of Chief Risk
Officer in November 2014. During the intervening period, two
senior representatives of the Group Internal Audit function
represented the Group Internal Audit function and ensured
delivery of the 2015 Plan and the efficiency and effectiveness of
the audit process.
External Audit
Deloitte were appointed Auditors by shareholders at the
Company’s AGM in 2013 following a competitive tender process
which was overseen by the Members of the Board Audit
Committee.
The Committee provided oversight in relation to the Auditors’
effectiveness and relationship with the Group, including agreeing
the Auditors’ terms of engagement, remuneration, and monitoring
the independence and objectivity of the Auditors. To help ensure
the objectivity and independence of the Auditors, the Committee
184
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Governance and oversight –
Report of the Board Risk Committee
Letter from Dr Michael Somers, Chairman of the Board Risk
Throughout the reporting period, through discussion and
Committee (up to 27 January 2016)
Dear Shareholder,
deliberation with Management, the Committee satisfied itself that
the key risks facing the organisation were being appropriately
managed with relevant mitigants in place and apposite actions
taken where necessary.
Further detail on the Committee’s activities is provided in the
Committee’s full report.
To ensure that all Directors are aware of the Committee’s work,
I provided an update to Board each month on the key topics
considered by the Committee. I am satisfied that the balance of
skills and experience amongst the Committee Members has
ensured a careful balance between independent risk oversight
and challenge and support to Management.
On behalf of the Board Risk Committee, I am pleased to report
on the Committee’s activities during the financial year ended
I wish to express my gratitude to my fellow Members for their
31 December 2015.
effective contribution to the working of the Committee during
2015 and also for their support during my five year tenure as
The Members of the Committee, and their record of attendance
Chairman, which concluded on 27 January 2016. I wish my
at meetings during 2015, are outlined in the full report below.
successor as Chairman, Mr Peter Hagan, every success in the
role.
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
Dr Michael Somers,
infrastructure;
Chairman of the Board Risk Committee during 2015
– 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, commissioning, receiving and considering reports from
the Chief Risk Officer, the Chief Credit Officer, the Chief Financial
Officer and the Group Internal Auditor, all of whom attend each
meeting of the Committee. Other members of Senior
Management also attend meetings by invitation as appropriate.
Key areas of focus for the Committee during 2015 included
consideration of:
–
–
–
–
the trend and status of the overall risk profile of the Group
and of individual risk categories;
the risk appetite statement and the ongoing monitoring of
performance against agreed risk metrics;
the review of risk related policies and frameworks;
the Group’s capital and liquidity position, with particular
reference to the Internal Capital Adequacy Assessment
Process (“ICAAP”) and Internal Liquidity Adequacy
Assessment Process (“ILAAP”);
–
updates received on significant credit activity across the
organisation.
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Governance and oversight –
Report of the Board Risk Committee
Report of the Board Risk committee
Membership and meetings
The Board Risk Committee comprises 4 independent Non-
Role and responsibilities
The Board Risk Committee assists the Board in proactively
fostering sound risk governance within the Group through
Executive Directors whom the Board has determined have the
ensuring that risks are appropriately identified and managed,
collective skills and relevant experience to enable the Committee
and that the Group’s strategy is informed by, and aligned with,
to discharge its responsibilities. To ensure co-ordination of the
the Board approved risk appetite. The Committee’s Terms of
work of the Board Risk Committee with the risk related
Reference are available on the Group’s website at
considerations of the Board Audit Committee, Mr Peter Hagan
http://investorrelations.aib.ie.
and Ms Catherine Woods are also Members of the Board Audit
Committee and this common membership provides effective
oversight across relevant risk and finance issues. In addition, to
Activities
The following, while not intended to be exhaustive, is a
ensure that remuneration policies and practices are consistent
summary of the key items considered, reviewed and/or
with and promote sound and effective risk management,
approved or recommended by the Committee during the year:
common membership between the Board Risk Committee and
− monthly reports from the Chief Risk Officer which provide
the Remuneration Committee is maintained, with Mr Peter
an overview of key risks including liquidity and funding,
Hagan having been a member of both Committees during 2015.
capital adequacy, credit risk, market risk, regulatory risk,
With Mr Peter Hagan stepping down as a Member of the
business risk, conduct risk and related mitigants;
Remuneration Committee on 28 January 2016, common
−
periodic reports and presentations from Management and
membership continues through the appointment to the
the Chief Credit Officer regarding the credit quality,
Remuneration Committee of Mr Simon Ball. Biographical details
performance, provision levels and outlook of key credit
of each of the Members are outlined on pages 166 to 168.
portfolios within the Group;
−
items of a risk related nature, including:
The Committee met on ten occasions during 2015 and all
(a) governance and organisational frameworks;
meetings were attended by the Auditors, the Chief Financial
(b) the risk appetite framework and risk appetite statement;
Officer, the Chief Risk Officer, the Chief Credit Officer, and Group
(c) the funding and liquidity policy, strategy and related
Internal Audit and on occasion by the Chief Executive Officer.
stress tests;
Other senior executives also attended by invitation where
(d) risk frameworks and policies, including those relating
appropriate. The Committee meets individually, on an annual
to (i) credit and credit risk, (ii) capital management,
basis, with the Chief Risk Officer, the Group Internal Auditor and
(iii) financial risk, including market risk, and (iv) conduct
the Chief Credit Officer in confidential session, in the absence of
risk;
Management. The Chief Risk Officer has unrestricted access to
(e) capital planning, including consideration of the Group
the Chairman of the Board Risk Committee.
ICAAP and ILAAP reports and related firm wide stress
The Chairman and Members of the Committee, together with
their attendance at scheduled meetings, are shown below.
Members: Mr Peter Hagan, Chairman (with effect from
28 January 2016), Mr Simon Ball, Dr Michael Somers (Chairman
up to 27 January 2016), Ms Catherine Woods.
Member attendance during 2015:
Simon Ball
Peter Hagan
Dr Michael Somers
Catherine Woods
A
10
10
10
10
B
10
10
10
10
Column A indicates the number of Committee meetings held
during 2015 which the Member was eligible to attend; Column B
indicates the number of meetings attended by each Member
during 2015.
Performance Evaluation
An internal evaluation of the Committee’s performance was
conducted in 2015. While identifying some areas for potential
enhancement, the overall results concluded that the Committee
continued to operate in an effective manner.
test scenarios; and
(f) macro-economic scenarios for financial planning;
− 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 monthly
overview of significant credit transactions;
(d) structure and operation of the Compliance function; and
(e) regulatory developments, including business
preparedness for the introduction of IFRS 9 Financial
Instruments and the Capital Requirements Directive
(“CRD IV”)
− Recovery and Resolution planning;
− Management’s plans and progress in meeting actions
required under 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.
186
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Governance and oversight – Report of the Nomination
and Corporate Governance Committee
Letter from Richard Pym, Chairman of the Nomination and
–
the search for a new Non-Executive Director with a
Corporate Governance Committee
Dear Shareholder,
particular skillset identified by the Board, resulting in the
subsequent appointment of Ms Helen Normoyle on
17 December 2015;
–
consideration of appointments to the Leadership Team,
and Leadership Team development and succession
planning;
–
the Group’s compliance with corporate governance
requirements and related policies and practices.
More detail on the Committee’s activities is outlined in the
Committee’s full report.
As Chairman of the Nomination and Corporate Governance
Committee, I reported after each meeting to the Board on the
On behalf of the Nomination and Corporate Governance
principal matters discussed to ensure all Directors were fully
Committee, I am pleased to introduce the Nomination and
informed of the Committee’s work. I would like to extend my
Corporate Governance Committee (the “Committee”) Report on
appreciation to my colleagues on the Committee for their
the Committee’s activities for the financial year ended
effective contribution to the Committee’s performance during
31 December 2015.
2015.
The Members of the Committee and a record of their meeting
attendance during 2015, are outlined in the full report below.
The Nomination and Corporate Governance Committee has
oversight responsibility for:
Richard Pym,
–
reviewing the size, structure and composition of the Board,
Chairman of the Nomination and Corporate Governance
including its numerical strength, the ratio of executive to
Committee
non-executive directors, the balance of skills, knowledge and
experience of individual Members of the Board and of the
Board collectively, and the diversity and service profiles of
the Directors, and making recommendations to the Board
with regard to any changes considered appropriate;
–
identifying persons who, having regard to the criteria laid
down by the Board, appear suitable for appointment to the
Board, evaluating the suitability of such persons and making
recommendations to the Board;
–
reviewing the size, structure, composition, diversity and skills
of the Board Committees and subsidiary company Boards
and the independence of Non-Executive Directors;
–
reviewing Board and Senior Executive succession planning;
– monitoring the Group’s corporate social responsibilities and
activities concerning customers, staff, the marketplace, the
environment and the community;
–
reviewing and assessing the adequacy of the Company's
corporate governance policies and practices.
Discharge of these responsibilities is supported by meetings with
and the receipt of reports from the Company Secretary and
various other members of Senior Executive Management,
including the Chief People Officer and the Chief Executive
Officer, who attend Committee meetings by invitation.
Key areas of focus for the Nomination and Corporate
Governance Committee during 2015 included:
–
the search process to identify a suitable successor to the
role of Chief Executive Officer, following notification from
Mr David Duffy on 19 January 2015 of his decision to step
down to pursue a career opportunity overseas;
Allied Irish Banks, p.l.c. Annual Financial Report 2015
187
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Governance and oversight – Report of the Nomination
and Corporate Governance Committee
Report of the Nomination and Corporate Governance
Committee
Membership and meetings
The Nomination and Corporate Governance Committee currently
comprises 4 Independent Non-Executive Directors whom the
Board has determined have the collective skills and experience
to enable the Committee to discharge its responsibilities. Mr
Peter Hagan stood down as a Member of the Committee on 28
January 2016. Biographical details of each of the Members are
outlined on pages 166 to 168.
–
–
–
–
–
–
reviewed the schedule of matters reserved for the Board;
considered Board skills and succession planning;
recommended to the Board appointments to key executive
positions;
considered compliance with the Central Bank of Ireland
and UK Corporate Governance Codes and other corporate
governance requirements;
reviewed the independence of individual Directors and the
Board;
considered the outcome of the leadership development
review programme for the Leadership Team;
The Committee met on thirteen occasions during 2015.
– monitored progress against the Board Diversity Policy and
related targets;
The Chairman and Members of the Committee, together with
–
reviewed corporate governance related policies, including
their attendance at scheduled meetings, are shown below.
the Code of Conduct and Conflict of Interest Policy for
Directors,
the Board Governance Handbook, and the
Members: Mr Richard Pym (Chairman), Mr Simon Ball, Mr Peter
Policy for the Assessment of the Suitability of Members of
Hagan (Member to 28 January 2016), Mr Jim O’Hara, Dr Michael
the Board, and recommended their approval to the Board.
Somers
Member attendance during 2015:
Richard Pym
Simon Ball
Jim O’Hara
Dr Michael Somers
Former member:
Peter Hagan
A
13
13
13
13
13
B
13
13
13
13
13
Column A indicates the number of Committee meetings held
during 2015 which the Member was eligible to attend; Column B
indicates the number of meetings attended by each Member
during 2015.
Performance Evaluation
An internal performance evaluation of the Committee was
conducted during 2015. Overall, the review concluded that the
Committee continued to operate effectively. The outcome of the
evaluation was shared with the Board.
Role and responsibilities
The Committee’s primary responsibilities are set out in its terms
of reference which are reviewed annually by the Committee and
approved by the Board. The terms of references are available on
the website at http://investorrelations.aib.ie.
Activities
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:
–
considered and recommended to the Board the appointment
of a successor as Chief Executive Officer, following an
extensive candidate search and evaluation process;
–
led the search process for the identification of a new Non-
Executive Director with the requisite skillset for appointment
to the Board;
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
to the collective skills, experience and diversity requirements
of the Board.
In addressing appointments to the Board, a role profile for the
proposed new Board Member is prepared by the Chief People
Officer and the Company Secretary on the basis of the criteria
laid down by the Board or the Nomination and Corporate
Governance Committee, taking into account the existing skills
and expertise of the Board and the anticipated time
commitment required.
The services of experienced third party professional search
firms are retained for Non-Executive Director appointments at
the discretion of the Nomination and Corporate Governance
Committee. The typical process involves a series of meetings
and interviews with potential candidates, at different stages in
the process by 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.
188
Allied Irish Banks, p.l.c. Annual Financial Report 2015
On the recommendation of the Committee, the Board
approved a formal Policy for the Assessment of the Suitability
of Members of the Board, which outlines the board
appointments process, in accordance with European Banking
Authority Guidelines.
JCA Group were retained to assist with our Non-Executive
Director search during 2015. JCA Group have no other
connection with AIB, other than to provide executive recruitment
services. Open advertising was not used in 2015 for
Non-Executive Board positions as the Committee believes that
targeted recruitment, based on the agreed role and skills profile
specification, is the optimal way of recruiting for these positions.
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. A copy of the
Board Diversity Policy is available on the website at
http://investorrelations.aib.ie.
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 is reviewed annually by the Committee in
conjunction with Board succession and skills planning.
Notwithstanding the lengthy approval process required to be
undertaken prior to appointment to the Board, the Committee is
satisfied that adequate progress is being made in addressing the
underrepresentation of female members on the Board, with the
percentage of females on the Board currently at 20%. Details of
performance relative to targets outlined therein will be published
during 2016 on the Company’s website.
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Governance and oversight –
Report of the Remuneration Committee
Letter from Jim O’Hara, Chairman of the Remuneration
Further detail on the Committee’s activities during 2015 is
Committee
included in the Committee’s full report.
As Chairman, I have ensured that all Directors are kept up to
date on the work of the Committee through the provision of
periodic updates at Board meetings. I would like to acknowledge
the valuable input of my colleagues on the Committee to its
effective operation and thank them for their endeavours during
2015.
Jim O’Hara
Chairman of the Remuneration Committee
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Dear Shareholder,
As Chairman of the Remuneration Committee, I am pleased to
introduce this report on the Committee’s activities during 2015.
The Members of the Committee, and their record of attendance
at meetings during 2015, are outlined in the full report below.
The Remuneration Committee has responsibility for:
–
–
–
recommending Group remuneration policies and practices to
the Board:
the remuneration of the Chairman of the Board (which matter
is considered in his absence);
determining the remuneration of the Chief Executive Officer,
other Executive Directors, and the other members of the
Leadership Team, under advice to the Board;
–
reviewing 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”);
–
performance-related and share-based incentive schemes,
when appropriate.
AIB’s Remuneration Policy continues to be governed by the
Subscription and Placing Agreements in place with the Irish State
and encompasses all financial benefits available to employees
across the Group.
The Committee’s responsibilities are discharged through regular
meetings which consider relevant submissions and reports from
Senior Management and ongoing interaction and consultation
with the Chief People Officer.
During 2015, key areas of focus for the Committee included:
the remuneration of the incoming Chief Executive Officer and
newly appointed members of the Leadership Team;
ongoing compliance with relevant statutory and regulatory
remuneration requirements and guidelines;
the appointment of new external independent remuneration
consultants;
the overall reward strategy for the Group;
the resignation of certain senior executives.
–
–
–
–
–
190
Report of the Remuneration Committee
Membership and Meetings
The Remuneration Committee comprises 4 Independent Non-
Performance Evaluation
The Committee undertakes an annual review of its effectiveness
and the review completed in 2015 concluded that the Committee
Executive Directors whom the Board is satisfied possess the
continued to operate in an effective manner.
required knowledge and experience to enable the Committee to
operate effectively. To ensure that remuneration policies and
practices are consistent with and promote sound and effective
Role and responsibilities
The Committee’s primary responsibilities are described in its
risk management, common membership between the
terms of reference which are reviewed annually with any
Remuneration Committee and the Board Risk Committee is
proposed amendments submitted to the Board for approval. A
maintained, with Mr Peter Hagan having been a member of both
copy of the terms of reference is available on the Group’s
Committees during 2015. Mr Simon Ball was appointed to the
website at http://investorrelations.aib.ie
Committee on 17 December 2015 and Mr Peter Hagan stood
down as a Member of the Committee on 28 January 2016. The
appointment of Mr Simon Ball to the Remuneration Committee
Activities
The following, while not intended to be exhaustive, is a
ensures that common membership between the Remuneration
summary of the key items considered, reviewed and/or
Committee and the Board Risk Committee continues.
approved or recommended by the Committee during 2015:
–
the proposed remuneration of the incoming Chief Executive
Biographical details of each of the Members are outlined on
Officer and that of newly appointed members of the
pages 166 to 168.
Leadership team;
–
the overall remuneration strategy for the organisation,
The Committee met on ten occasions during 2015. Meetings are
including consideration of proposals regarding a general
attended by the Chief Executive Officer, the Chief People Officer,
pay review implemented during 2015;
the Head of Pensions and Reward and, where relevant, by other
–
ongoing compliance with relevant provisions of the
Senior Management on the invitation of the Chairman.
Capital Requirements Directive (“CRD IV”) and the
Central Bank of Ireland’s guidelines on the remuneration
The Chairman and Members of the Committee, together with
of sales staff;
their attendance at scheduled meetings, are shown below.
–
the appointment of external independent remuneration
consultants and consideration of reports prepared by
Members: Mr Jim O’Hara (Chairman), Mr Simon Ball (Member
them;
from 17 December 2015) Mr Tom Foley, Mr Peter Hagan
–
the 2014 Annual Financial Report remuneration
(Member to 28 January 2016), Mr Richard Pym.
disclosures and the 2014 Remuneration Disclosure
Member attendance during 2015: A
10
Tom Foley
Simon Ball
Jim O’Hara
Richard Pym
Former member:
Peter Hagan
–
10
10
10
B
10
–
10
10
10
Column A indicates the number of Committee meetings held
during 2015 which the Member was eligible to attend; Column B
indicates the number of meetings attended by each Member
during 2015.
Report;
–
the resignation of certain senior executives.
Directors’ remuneration
Details of the total remuneration of the Directors in office
during 2015 and 2014 are shown in the Directors’
Remuneration report on the following pages 193 to 194.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Governance and oversight –
Directors’ Remuneration report
Remuneration Policy and Governance
The Remuneration Policy is the governing framework which
underpins AIB’s remuneration policies, procedures and practices.
The scope of the Remuneration Policy includes all financial
benefits available to employees and extends to all areas of the
Group. The key objectives of the Remuneration Policy are to
support the achievement of the Group’s long term objectives, to
provide employees with fair and competitive remuneration, to
promote effective risk management and to maintain and support
strong capital and liquidity levels of the Group. The Remuneration
Policy is governed by the Remuneration Committee on behalf of
the Board. The Remuneration Committee’s governance role in
this respect is contained in the Committee’s terms of reference.
The terms of reference of the Remuneration Committee were
reviewed in 2015 by the Committee.
Capital Requirements Directive and European
Banking Authority Guidelines
During 2014, the Remuneration Policy was updated to
incorporate the newly introduced provisions of the Capital
providers across the Group. The Board recognises the need to
attract, retain and embed the right skill-sets and behaviours
which reflect AIB’s Brand Values and which will enable AIB to
deliver long term sustainable growth within the parameters of
AIB’s Risk Appetite Statement and the State Agreements. The
remuneration of Senior Executives within the Group was
determined by the Remuneration Committee in accordance
with these State Agreements.
On 6 August 2015, the Labour Relations Commission (LRC)
issued a number of recommendations in relation to current and
future pay arrangements. These included a 2% base pay
increase for employees earning up to €100,000 or £80,000,
effective from 1 January 2015. This was paid to eligible
employees in September 2015.
The LRC further recommended that future salary increases be
entirely performance based using an agreed performance
matrix and determined by such factors as cost of living, the
Group’s financial performance, market movement and other
relevant considerations. It was also recommended that the next
Requirements Directive (“CRD”) and accompanying Capital
pay review would be due from 1 April 2016.
Requirements Regulations (“CRR”) which came into force with
effect from 1 January 2014. There were no changes made to the
Notwithstanding the general pay increase above, remuneration
Remuneration Policy in 2015. In December 2015, the
continued to be closely monitored in line with financial
European Banking Authority (“EBA”) issued its final guidelines on
performance and the constraints arising under State
sound remuneration policies (the ‘Guidelines’). The Guidelines
Agreements. Out-of-course salary increases were managed
within tight budgetary parameters with increases 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.
Remuneration across the Group was principally comprised of
fixed pay and pension provisions. Following the closure of all
defined benefit schemes to future accrual on 31 December
2013, all employees were migrated to a new defined
contribution scheme. There were no bonus schemes or share
incentive schemes in operation in 2015.
are due to come into effect from 1 January 2017 and will
replace the existing guidelines issued by the EBA’s predecessor,
the Committee of European Banking Supervisors (“CEBS”), in
December 2010. The Remuneration Policy will be updated in
2016 to reflect the new Guidelines.
Disclosure
In May 2015, AIB published its Remuneration Disclosure Report
for 2014 as part of the Group’s Pillar III Disclosures. These are
available on the Group’s website. The Disclosure Report
provided a summary of AIB’s 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 key components of AIB’s
remuneration structure. The Remuneration Disclosure Report for
2015 will be published in 2016 and will be available on the Group
website. Furthermore, in accordance with EBA remuneration
benchmarking requirements, AIB disclosed the remuneration
data for 2014 in respect of Identified Staff and High Earners
(those earning above €1 million) to the Central Bank of Ireland.
There were no individuals whose earnings exceeded €1 million.
Remuneration Review
AIB’s remuneration practices operate under a number of
constraints arising from State ownership, principally from the
provisions of Placing and Subscription Agreements and through
commitments provided by AIB to the Minister for Finance in
respect of remuneration practices. These constraints cover the
remuneration of directors, executives, employees and service
192
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Directors’ remuneration*
The following tables detail the total remuneration of the Directors in office during 2015 and 2014:
Remuneration
Executive Directors
Mark Bourke
Bernard Byrne
David Duffy (Resigned 29 May 2015)
Non-Executive Directors
Simon Ball
Tom Foley(2)
Peter Hagan
Helen Normoyle
(Appointed 17 December 2015)
Jim O’Hara
Richard Pym(1(a))
(Chairman)
Dr Michael Somers(1(b))
(Deputy Chairman)
Catherine Woods
Former Directors
Declan Collier(2)
Stephen L Kingon(2)
Anne Maher(5)
David Pritchard(2)
Other(6)
Total
Directors’ fees
Parent and Irish
subsidiary
companies(1)
€ 000
Directors’
fees
AIB Group
(UK) p.l.c.(2)
Salary
Annual
taxable
benefits(3)
Pension
contribution(4)
2015
Total
€ 000
€ 000
€ 000
€ 000
€ 000
450
479
177
1,106
30
12
3
45
90
96
27
570
587
207
213
1,364
80
90
95
3
100
365
120
143
996
39
31
31
61
63
110
80
121
95
3
100
365
120
143
1,027
61
63
39
110
10
2,674
(1 ) Fees paid to Non-Executive Directors in 2015 were as follows:
(a) Mr Richard Pym, Chairman, was paid a non-pensionable flat fee of € 365,000, which includes remuneration for all services as a director of Allied
Irish Banks, p.l.c.;
(b) Dr Michael Somers, Deputy Chairman and former Chairman of the Board Risk Committee, was paid a non-pensionable flat fee of € 120,000 which
includes remuneration for all services as a director of Allied Irish Banks, p.l.c. (Note – Dr Somers resigned as Board Risk Committee Chairman in
January 2016 and was replaced by Mr Peter Hagan);
(c) All other Non-Executive Directors were 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 role of 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 independently agreed and paid by AIB UK, in respect of their service as a Director of that company. In that regard,
Messrs Foley, Collier, Kingon and Pritchard earned fees as quoted during 2015;
(3)
(4)
‘Annual taxable benefits’ represents a non-pensionable cash allowance in lieu of company car, medical insurance and other contractual benefits;
’Pension contribution’ represents agreed payments to a defined contribution scheme to provide post-retirement pension benefits for Executive Directors
from normal retirement date. The fees of the Chairman, Deputy Chairman and Non-Executive Directors are non-pensionable;
(5) 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;
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*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Governance and oversight –
Directors’ Remuneration report
Directors’ remuneration* (continued)
Remuneration
Executive Directors
Mark Bourke (Appointed 29 May 2014)
Bernard Byrne
David Duffy
Non-Executive Directors
Simon Ball
Tom Foley
Peter Hagan
David Hodgkinson
(Chairman to 30 November 2014,
retired on 18 December 2014)
Jim O’Hara
Richard Pym
(Appointed 13 October 2014,
Chairman from 1 December 2014)
Dr Michael Somers
(Deputy Chairman)
Dick Spring
(retired on 18 December 2014)
Tom Wacker
(retired on 12 October 2014)
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.
€ 000
Salary
Annual
taxable
benefits
Pension
contribution
2014
Total
€ 000
€ 000
€ 000
€ 000
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
59
115
1,079
41
44
44
56
50
64
108
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
194
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Directors’ remuneration* (continued)
Interests in shares
Following consolidation of the Company’s ordinary shares on 21
Directors’ remuneration* (continued)
Share options
No share options were granted or exercised during 2015 and
December 2015, on foot of shareholder approval, the beneficial
there were no options to subscribe for ordinary shares
interests of the Directors and the Secretary in office at
outstanding in favour of the Executive Directors or Company
31 December 2015, and of their spouses and minor children, in
Secretary at 31 December 2015.
the Company’s ordinary shares are as follows:
Ordinary shares
Directors:
Simon Ball
Mark Bourke
Bernard Byrne
Tom Foley
Peter Hagan
Helen Normoyle
Jim O’Hara
Richard Pym
Dr Michael Somers
Catherine Woods
Secretary:
David O’Callaghan
31 December
2015
1 January
2015**
–
–
–
1
–
–
–
–
55
–
31
–
–
–
100
–
–
–
–
13,437
–
7,490
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 2015 in the
names of Executive Directors and members of the Leadership
Team was Nil as follows:
Outstanding as at 31 December 2014:
Add: Options held by Senior Executive
Officers appointed during 2015
Add: Options granted during 2015
Less: Options exercised during 2015
Less: Options lapsed during 2015
Less: Options held by Senior Executive
Officers who left office during 2015
Options outstanding as at 31 December 2015
5,000
–
–
–
(5,000)
–
–
**or date of appointment, if later
Performance shares
There were no conditional grants of awards of ordinary shares
The following table sets out the beneficial interests of the
outstanding to Executive Directors or the Company Secretary
Directors and Leadership Team (Senior Executive Officers)
at 31 December 2015.
members of AIB as a group (including their spouses and minor
children) at 31 December 2015.
Title of
class
Ordinary
shares
Identity of
person or group
Number
owned
Percent
of class
Directors and
Leadership Team
members of AIB
as a group
115
***
***The total shares in issue at 31 December 2015, was
2,714,381,238.
Apart from the interests set out above, the Directors and
Secretary in office at 31 December 2015, 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 2015 and
2 March 2016.
The year-end closing price, on the Enterprise Securities
Market of the Irish Stock Exchange, of the Company’s
ordinary shares was € 6.66 per share; during the year, the
price ranged from € 0.04 to € 0.11 prior to the share
consolidation completed on 21 December 2015 and from
€ 8.50 to € 6.66 between then and the year end.
Service contracts
There are no service contracts in force for any Director with
the Company or any of its subsidiaries.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Governance and oversight –
Viability statement / Internal controls
Viability statement
In accordance with provision C.2.2 of the 2014 revision of the UK Corporate Governance Code, the Directors have assessed the viability
of the Group taking into account its current position and the principal risks facing the Group over the next three years to 31 December
2018. The Directors concluded that a three year time span was an appropriate period for the annual assessment given that this is the key
period of focus within the Group’s strategic planning process. The strategic plan is considered annually and is subject to stress testing to
reflect the potential impact of plausible yet severe scenarios which take account of the principal risks and uncertainties facing the Group.
The assessment considered the current financial performance, funding and liquidity management and capital management of the Group,
as set out in the Business review section on pages 22 to 42 and the governance and organisation framework through which the Group
manages and seeks, where possible, to mitigate risk, as described on pages 60 to 62. A robust assessment of the principal risks facing
the Group including those that would threaten the business operations, governance and internal control systems was also undertaken
and considered, the details of which are included on pages 50 to 59.
The Directors have a reasonable expectation, taking into account the Group’s current position, and subject to the identified principal risks,
that the Group will be able to continue in operation and meet its liabilities as they fall due over the three year period of assessment.
Internal controls
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 controls 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 controls 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, error, loss or
fraud. This process includes an assessment of the effectiveness
of internal controls, 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”), a Board 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 Board 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 Board 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 Board 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.
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.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
Governance and oversight –
Internal controls
Internal controls (continued)
– There is a centralised risk control function headed by the
Code of conduct
In June 2012, the Group adopted a new Code of Conduct in
CRO who is responsible for ensuring that risks are identified,
relation to business ethics that applies to all employees (the
measured, monitored and reported on, and for reporting on
“Code of Conduct”). The Code of Conduct sets out the key
risk mitigation actions.
standards for behaviour and conduct that apply to all
– The Risk function is responsible for establishing and
employees, and includes particular requirements regarding
embedding risk management frameworks, ensuring that
responsibilities of Management for ensuring that business and
material risk policies are reviewed, and reporting on
support activities are carried out to the highest standards of
adherence to risk limits as set by the Board of Directors.
behaviour. The application of the Code of Conduct is
– The Group’s risk profile is measured against its risk appetite
underpinned by policies, practices and training which are
on a monthly basis and exceptions are reported to the ERC
designed to ensure that the Code is understood and that all
and BRC via the monthly CRO report. Material breaches of
employees act in accordance with it. The Code of Conduct is
risk appetite are escalated to the Board and reported to the
reviewed and re-launched annually, with the most extensive
Central Bank of Ireland/SSM.
revisions to the Code taking place in September 2014.
– The centralised Credit function is headed by a Chief Credit
Officer who reports to the CRO.
The Code of Conduct is supported by the Group’s Speak-Up
– There is an independent Compliance function which provides
policy which encourages its employees to raise any concerns
advisory services to the Group and which monitors and
of wrongdoing through a number of channels, both internal and
reports on conduct of business and financial crime
external. One such channel includes a confidential external
compliance and forthcoming regulations across the Group,
helpline. Employees are assured that if they raise a concern in
and on Management’s focus on compliance matters.
good faith, the Group will not tolerate any victimisation or unfair
– There is an independent Group Internal Audit function which
treatment of the employee as a result.
is responsible for independently assessing the effectiveness
of the Group’s corporate governance, risk management and
The Protected Disclosure Act 2014 (Republic of Ireland) came
internal controls and which reports directly to the Chairman
into law in July 2014 and provides statutory protection for
of the Board Audit Committee.
whistleblowers in relation to reporting potential wrongdoing in
– AIB employees who perform Pre-Approved Controlled
the workplace. An extensive review of the Speak-Up policy in
functions/Controlled functions meet the required standards
2014 addressed the requirements of the Protected Disclosure
as outlined in AIB’s Fitness and Probity programme.
Act 2014, as well as the UK Public Interest Disclosure Act 1998
(as amended 2013) and the recommendations of the UK
For further information on the Risk management framework of the
Whistleblowing Commission (2013). The Speak-Up policy
Group see pages 60 to 62 of this report.
is reviewed at least annually to ensure that it continues to
address all legislative requirements within the jurisdictions in
In the event that material failings or weaknesses in the systems
which the Group operates and continues to promote industry
of risk management or internal control are identified, the relevant
practice.
Leadership Team member is required to attend the relevant
Board forum to provide an explanation of the issue and to
The Code of Conduct and supporting policies are subject to
present a proposed remediation plan. Agreed remediation plans
annual review and update to the Board.
are tracked to conclusion, with regular status updates provided to
the relevant Board forum.
Given the work of the Board, BRC, Board Audit Committee and
representations made by the Leadership Team during the year,
the Board is satisfied that the necessary actions to address any
material failings or weaknesses identified through the operation
of the Group’s risk management and internal control framework
have been taken, or are currently being undertaken. In addition,
the Board has considered the identification in 2015 of failings that
originated in prior years that require customer redress.
Taking this and all other information into consideration as
outlined above, the Board is satisfied that there has been an
effective system of control in place throughout the year.
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Governance and oversight –
Other governance information
Relations with shareholders
The Group has a number of procedures in place to allow its
Annual General Meeting (“AGM”)
All shareholders are invited to attend the AGM and to
shareholders and other stakeholders to stay informed about
participate in the proceedings. At the AGM, it is practice to give
matters affecting their interests. In addition to this Annual
a brief update on the Group’s performance and developments
Financial Report, which is available on the Company’s website at
of interest for the year to date. Separate resolutions are
http://investorrelations.aib.ie and is sent in hard copy to those
proposed on each separate issue and voting is conducted by
shareholders who request it, the following communication tools
way of poll. The votes for, against, and withheld, on each
are used by the Group:
Shareholders’ Report
The Shareholders’ Report (‘the Report’) is a summary version of
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
AIB’s Annual Financial Report. This Report, which covers AIB’s
meet shareholders before and after the meeting. The Chairmen
performance in the previous year, is sent to shareholders who
of the Board Committees are available to answer questions
have opted to receive it instead of the full Annual Financial
about the Committees’ activities. A help desk facility is available
Report. This summary report does not form part of the Annual
to shareholders attending. The Company’s 2016 AGM is
Financial Report and is referred to for reference purposes only.
scheduled to be held on 24 May 2016, at the RDS Concert Hall,
Website
The website, http://investorrelations.aib.ie, contains, for the
Merrion Road, Ballsbridge, Dublin 4 and it is intended that the
Notice of the Meeting will be posted to shareholders at least
20 working days before the meeting, in accordance with UK
previous five years, the Annual Financial Report, the Interim
Code requirements.
Report/Half-yearly Financial Report, and the Annual Report on
Form 20-F for relevant years. In accordance with the
Transparency (Directive 2004/109/EC)(Amendment)(No.2)
Regulations 2015, this and all future Annual and Half-Yearly
Financial Reports will remain available to the public for at least
ten years. For the period 2008 to 2013, the Annual Financial
Report and the Annual Report on Form 20-F were combined.
The Group’s presentation to fund managers and analysts of
annual and interim financial results are also available on the
Company’s website. None of the information on the website is
incorporated in, or otherwise forms part of, this Annual Financial
Report.
198
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Governance and oversight –
Supervision and Regulation
Current climate of regulatory change
The level of regulatory risk remained high in 2015 as the
regulatory landscape for the banking sector continued 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 timely implementation of regulatory change.
Throughout 2015, projects were mobilised within the Group to
prepare for the significant regulatory change horizon as outlined
below.
The level of regulatory change is expected to continue in 2016.
Conduct risk
The Group is exposed to many forms of conduct risk, which
may arise in a number of ways. The Group needs to be able to
demonstrate how it delivers fair treatment and transparency
to, and uphold the best interests of customers. The evidential
standards required by the Group’s regulators in this regard are
very high. The Group may 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. The Group may also be subject to
allegations of overcharging and breach of contract and/or
regulation. Any of the foregoing 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.
Ireland
Overview of financial services legislation in 2015
The development of the banking union framework (committed
to at European Union (“EU”) level by heads of state and
governments in 2012) progressed in 2015 with the
implementation of the EU Single Resolution Mechanism
(“SRM”) which became fully operational on 1 January 2016
and with the implementation and transposition of the Bank
Recovery and Resolution Directive (Directive 2014/59 EU)
(“BRRD”) during 2015. In addition, the recast Deposit
Guarantee Schemes Directive (Directive 2014/49/EU)
(“DGSD”) was transposed into national law.
During 2015 the Group’s key areas of focus included:
(i) at a European level, the SRM; BRRD; DGSD; Capital
Requirements Regulation (Regulation (EU)
No 575/2013) and the Capital Requirements Directive
IV (Directive 2013/36/EU) (together “CRD IV”);
European Markets Infrastructure Regulation
(Regulation (EU) 648/2012) (“EMIR”); the directive on
credit agreements relating to residential immovable
property (Directive 2014/17/EU), known as the
Mortgage Credit Directive (“MCD”); the 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”); and
(ii) at a national level, the Credit Reporting Act 2013;
Central Bank (Supervision and Enforcement) Act 2013
(Section 48) (Housing Loan Requirements) Regulations
2015 (S.I. 47 of 2015) (“Housing Loan Requirements
Regulations”); the Regulation of Lobbying Act 2015
(No. 5/2015) (the “Lobbying Act”); and the Companies
Act 2014 (No. 38/2014) (the “Companies Act”).
BRRD
BRRD was published in June 2014 and came into effect in
2015. The overarching goal of BRRD is to break the linkages
between national banking systems and member states. 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.
During 2015, the Group further updated its recovery plan and
will continue to work with the Central Bank on resolution
planning in 2016.
DGSD
Throughout 2015, the Group worked on the implementation of
DGSD. The DGSD requires the harmonisation of deposit
guarantee schemes across Europe concentrating on faster
pay-out, improved financing and enhanced customer
information. In November 2015, the DGSD was transposed into
national legislation.
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 2015, the Group
continued to implement CRD IV to ensure the timely alignment
with its new requirements.
EMIR
EMIR increased the stability and transparency of over-the-
counter derivative markets in the EU and during 2015 the Group
continued to introduce processes to ensure compliance with the
new regulatory obligations.
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 pre-contractual information to be
provided to customers, 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, notwithstanding the absence
of national legislation, the Group continues to prepare for
implementation.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Governance and oversight –
Supervision and Regulation
MiFID II and MiFIR
MiFID II and MiFIR were published in the official journal of the
Strengthening accountability in banking
A key focus for the Prudential Regulation Authority (“PRA”) and
EU in May 2014. MiFID II covers investor protection,
the Financial Conduct Authority (“FCA”) in 2015 has been to
transparency rules and organisational requirements. MiFIR
strengthen the framework by which they can hold senior
covers pre- and post-trade transparency. MiFID II and MiFIR
management in banks accountable for their decisions and
must be implemented in all EU Member States by Quarter 1 2017
actions. Final rules have now been published in respect of the
though there are indications from Europe that this date
Senior Managers and Certification Regimes which comes into
may be delayed. Much of the detailed requirements of MiFID II
force in March 2016. The new regime involves new conduct
and MiFIR are set out in the regulatory and implementing
requirements that will apply to all in-scope staff, clearer
technical standards published by the European Securities
accountability mapping at both individual senior manager and
Market Authority (“ESMA”) which the Group will focus on during
organisational level and a requirement to certify a wider range
2016.
of staff to carry out their roles.
Central Bank Regulations and other national legislation
On a national level, the Group addressed the regulatory
Culture, Conduct and Competition
The FCA continued to drive its “principles-based” regulation in
obligations set out in the Central Bank’s publication of the
2015 with an ongoing focus on how institutions conduct
Housing Loan Requirements Regulations and the enactment of
business, particularly with regard to the delivery of fair
the Lobbying Act and the Companies Act. In addition, the Group
outcomes for customers and orderly transparent markets.
continued to liaise with the Central Bank in relation to the
There have been ongoing regulatory reviews to assess the
implementation of the Credit Reporting Act 2013 with regard to
conduct culture within banks in the UK. There has also been a
the central credit register.
Regulatory change horizon 2016 - Ireland
Throughout 2016, as further regulatory reform continues to
emerge from our regulators, the Group will continue to focus on
the management of regulatory change and its compliance
obligations.
In particular, the Group will focus on the implementation of EU
regulation such as: the MCD; the Directive of the European
Parliament and of the Council on the prevention of the use of
the financial system for the purpose of money laundering and
terrorist financing (known as the 4th AML Directive); the recast
directive on payment services in the internal market (known as
PSD2); the Market Abuse Regulation and Directive on Criminal
Sanctions for Market Abuse (together known as MAD2); and
the EBA Guidelines on Product Oversight and Governance
Arrangements for Retail Banking Products.
Furthermore, the Group will focus on the implementation of key
Central Bank regulations and codes such as the Central Bank
(Supervision and Enforcement) Act 2013 (Section 48) (Lending
drive to promote effective competition in the interests of
consumers.The Competition and Markets Authority (“CMA”) has
been running a Retail Banking Market Investigation into the
Personal Current Account and SME Banking markets in the UK.
The provisional report which was issued in October 2015,
identified a number of adverse effects on competition and
proposed draft remedies to address these. The final report is
expected in Quarter 1 2016. Other regulatory interventions to
improve competition include the FCA Cash Savings Remedies
which aims to provide greater transparency on rates of interest
to depositors, due to be implemented in Quarter 4 2016 and the
Small Business Enterprise and Employment Act which, among
other things, will create a platform to enable lenders to quote for
SME lending opportunities that other lenders have declined.
United States
Applicable federal and state securities laws and
regulations
On 9 December 2014, AIB filed a certificate under Form 15F with
the SEC. This filing enabled 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
to Small and Medium-Sized Enterprises) Regulations 2015
reporting obligations under Section 13(a) and Section 15(d) of
(S.I. 585 of 2015) which will become effective on 1 July 2016
the Exchange Act with the SEC. Upon such filing, AIB’s reporting
and the expected revisions to the Consumer Protection Code
obligations with the SEC were immediately suspended. AIB did
2012.
United Kingdom
During 2015, 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
2016.
not file its 2014 Annual Report on Form 20F with the SEC and
will no longer file any such report with the SEC.
Compliance with federal and state banking laws and
regulations
During 2015, 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 2016.
AIB Group (UK) p.l.c. is subject to most of the European
In particular, it will continue to monitor ongoing business
Regulation described in 6.3 and 6.4 above and works closely
activities with regard to the Dodd Frank Act 2010.
with Group to ensure the requirements are implemented
compliantly taking into consideration UK regulatory guidance.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
Financial statements
1. Statement of Directors’ responsibilities
2.
Independent Auditors’ Report
3. Consolidated financial statements
4. Notes to the consolidated financial statements
5. Parent company financial statements
6. Notes to the parent company financial statements
Page
202
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345
350
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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 Auditors in
relation to the financial statements.
The Directors are responsible for preparing the Annual Financial 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 prepare the Group and Company financial statements in accordance with International Financial Reporting Standards
(“IFRSs”) as adopted by the EU and in the case of the Company financial statements in accordance with IFRSs as adopted by the EU
and as applied in accordance with the provisions of the Companies Act 2014. The Directors have also elected to prepare the Group
financial statements in accordance with IFRSs as issued by the International Accounting Standards Board ("lASB").
In preparing both 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 adequate accounting records 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 Act 2014. 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 2015 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 2015;
– the Directors' report, Business review and Risk management sections, contained in the Annual Financial Report provide 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 Financial 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
Richard Pym
Chairman
2 March 2016
Bernard Byrne
Chief Executive Officer
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
Independent Auditors’ Report
Independent Auditors’ Report to the members of Allied Irish Banks, p.l.c.
Opinion on the financial statements of Allied Irish Banks, p.l.c.
In our opinion the financial statements:
– give a true and fair view of the assets, liabilities and financial position of the Group and the parent company as at
31 December 2015 and of the Group’s profit for the financial year then ended; and
– have been properly prepared in accordance with the relevant financial reporting framework and in particular, with the
requirements of the Companies Act 2014 and, as regards the Group financial statements, Article 4 of the IAS Regulation.
The financial statements comprise 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 statement of financial position, the parent company statement of cash flows, and the parent company
statement of changes in equity; and the related notes to the financial statements. The financial reporting framework that has been
applied in the preparation of the Group and parent company financial statements is Irish law and IFRSs as adopted by the European
Union.
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
Loan impairment and restructuring
The risk that provisions for impairment of loans and receivables
How the scope of our audit responded 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 cash flows on
restructuring cases is not appropriately measured. The
We tested credit management processes and controls over:
determination of appropriate provisions requires a significant
new lending and restructuring transactions; and front line credit
amount of Management judgement and relies on available data.
monitoring and assessment. Furthermore, we conducted a
review of the operations and controls over collective and latent
Please refer to the Report of the Board Audit Committee on page
models; and the work of the credit review function.
185, Accounting policy ‘Impairment of financial assets’ on pages
229 to 230, note 2 ‘Critical accounting judgements and estimates’
In examining both sample loan cases and models we
on page 244 and note 27 ‘Provisions for impairment on loans and
challenged Management on the judgements made regarding the
receivables’ on page 277.
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. As such, we
tested samples of the data used in the models together with the
calculations involved 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. This allowed us to
determine whether appropriate valuation methodologies were
employed.
Deferred tax
The risk relates to the incorrect recognition or measurement of
We reviewed the plans and the model used by Management to
deferred taxation. Deferred tax assets are recognised for unused
assess the likelihood of future profitability and challenged
tax losses to the extent that it is probable that there will be
Management’s assessment of a range of positive and negative
sufficient future taxable profits against which the losses can be
evidence for the projection of long-term future profitability. We
used. The assessment of the conditions for the recognition of a
reviewed Management’s analysis of their consideration of the
deferred tax asset is a critical judgement given the inherent
“more likely than not” test and reviewed the sensitivity analysis
uncertainties associated with projecting profitability over a long
disclosed.
time period.
Please refer to the Report of the Board Audit Committee on page
183, Accounting policy ‘Income tax, including deferred
income tax’ on page 222, note 2 ‘Critical accounting judgements
and estimates’ on pages 245 to 246 and note 34 ‘Deferred
taxation’ on page 286.
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Independent Auditors’ Report (continued)
Risk
IT controls
The Group’s IT environment is complex with financial accounting
How the scope of our audit responded to the risk
We examined the design and execution of IT controls including
systems dependent on IT. Deficiencies in the privileged user
those relating to system access, IT operations and program
access controls over a number of significant applications could
change, including mitigating controls where relevant.
have had a significant impact on financial reporting controls and
systems, with a potential risk over the recording of transactions.
Where we identified deficiencies in controls, we reported the
deficiency to Management and either identified compensating
Please refer to the Report of the Board Audit Committee on page
controls upon which we relied, or extended our substantive
183, and the Internal controls disclosure on pages 196 to 197.
testing to obtain the required audit evidence.
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.
Please refer to the Report of the Board Audit Committee on page
182, Accounting policy ‘Employee benefits’ on page 221, note 2
We used Deloitte actuarial specialists to assist the audit team
‘Critical accounting judgements and estimates’ on page 247 and
to challenge Management in relation to the assumptions
note 13 ‘Retirement benefits’ on page 258.
applied, including benchmarking to external data as appropriate.
Additionally, we tested the calculation of the asset and liability
which determine the retirement benefit obligation.
Conduct risk provisions
The risk that the recognition, measurement and disclosure of
We tested the design of the Group’s key controls over the
provisions in respect of allegations of mis-selling of financial
identification and measurement of the provision and the
products, allegations of overcharging and breach of contract
disclosure of exposures.
and/or regulation are inappropriate.
Please refer to the Report of the Board Audit Committee on page
the provisioning calculations. We met with Group General
182, Accounting policy ‘Non-credit risk provisions’ on page 235,
Counsel and Group Compliance and reviewed correspondence
note 2 ‘Critical accounting judgements and estimates’ on page
with regulators and legal advice.
We challenged the key assumptions used by Management in
248, and note 40 ‘Provisions for liabilities and commitments’ on
page 291.
The description of risks above should be read in conjunction with the significant issues considered by the Board Audit Committee
which are discussed on page 182.
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 application 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 € 60 million, which we determined at less than 1% of shareholders’ equity and 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 Board Audit Committee that we would report to the Committee all audit differences in excess of € 3 million as well as
differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Board Audit
Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
204
Allied Irish Banks, p.l.c. Annual Financial Report 2015
An overview of the scope of our audit
Our audit of the Group was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and
assessing the risks of material misstatement at Group level.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed by us, as the
Group engagement team, or by auditors within Deloitte network firms operating under our instruction (‘component auditors’). Where the
work was performed by component auditors, we determined the level of involvement we needed to have in their audit work in order to
conclude whether sufficient and appropriate audit evidence had been obtained as a basis for our opinion on the consolidated financial
statements as a whole.
Based on that assessment, we focussed our Group audit scope primarily on the four legal entities, as disclosed on page 307, note 49 to
the consolidated financial statements, all of which were subject to individual statutory audits. The remaining legal entities were subject to
specified audit procedures. 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. These audits and specified audit procedures covered over 95% of the Groups’
total assets. In addition, audits are performed for statutory purposes for all legal entities. We also tested the consolidation process and
carried out analytical procedures to confirm our conclusion that there were no significant risks of material misstatement arising from the
aggregated financial information of the remaining entities not subject to audit or specified audit procedures.
Opinion on other matters prescribed by the Companies Act 2014
Group Directors’ report and Corporate Governance report
In our opinion the information given in the Group Directors’ report is consistent with the financial statements and based on the work
undertaken in the course of the audit the description in the Corporate Governance report of the main features of the internal control and risk
management systems in relation to the financial reporting process is consistent with the financial statements and has been
prepared in accordance with section 1373 Companies Act 2014. Based on our knowledge and understanding of the company and its
environment obtained in the course of the audit, we have not identified any material misstatements in this information. In our opinion, the
information required pursuant to section 1373(2)(a), (b), (e) and (f) of the Companies Act 2014 is contained in the Group’s Corporate
Governance report.
Adequacy of explanations received and accounting records
– We have obtained all the information and explanations which we consider necessary for the purposes of our audit.
–
–
In our opinion, the accounting records of the company were sufficient to permit the financial statements to be readily and properly
audited.
In our opinion, information and returns adequate for our audit have been received from branches of the company not visited by us.
– The parent company statement of financial position is in agreement with the accounting records and returns.
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;
–
–
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.
In particular, we are required to consider whether we have identified any inconsistencies between the knowledge acquired during our
audit and the Directors’ statement that they consider the Annual Financial Report is fair, balanced and understandable and whether the
Annual Financial Report appropriately discloses those matters that we communicated to the Board Audit Committee which we consider
should have been disclosed. We confirm that we have not identified any such inconsistencies or misleading statements.
Directors’ remuneration
Under the Companies Act 2014, we are required to report to you if, in our opinion, the disclosures of Directors’ remuneration and
transactions specified by law are not made. We have nothing to report arising from our review of these matters.
Corporate Governance report
We reviewed the Corporate Governance report for compliance with the following provisions of Section C “Accountability” of the UK
Corporate Governance Code: C1.1; C.2.1 and C3.1 – C3.7. We have nothing to report arising from our review of these matters.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
205
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Independent Auditors’ Report (continued)
Matters on which we are required to report by exception (continued)
Going concern and the Directors’ assessment of the principal risks that would threaten the solvency or liquidity of the Group
We have reviewed the Directors’ statement contained within note 1 to the consolidated financial statements that the Group is a going
concern.
As a result of our audit work, we have nothing material to add or draw attention to in relation to:
–
–
–
the Directors' confirmation on page 172 that they have carried out a robust assessment of the principal risks facing the Group,
including those that would threaten its business model, future performance, solvency or liquidity;
the disclosures on pages 54 to 59 that describe those risks and explain how they are being managed or mitigated;
the Directors’ statement in note 1 to the consolidated financial statements about whether they considered it appropriate to adopt the
going concern basis of accounting in preparing the financial statements and their identification of any material uncertainties to the
Group’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; and
–
the Director's explanation on page 196 as to how they have assessed the prospects of the Group, over what period they have done
so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that
the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including
any related disclosures drawing attention to any necessary qualifications or assumptions.
We agreed with the Directors’ adoption of the going concern basis of accounting and we did not identify any such material uncertainties.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to
continue as a going concern.
Respective responsibilities of directors and auditors
As detailed in the Statement of Directors’ responsibilities, the Directors are responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view and otherwise comply with the Companies Act 2014. 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 391 of the Companies Act 2014. 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
auditors’ 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, as a result of 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 with our audit of the financial statements we consider the implications for our report.
Gerard Fitzpatrick
For and on behalf of Deloitte
Chartered Accountants and Statutory Audit Firm
Dublin 2
2 March 2016
206
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Consolidated income statement
for the financial year ended 31 December 2015
Continuing operations
Interest and similar income
Interest expense and similar charges
Net interest income
Dividend income
Fee and commission income
Fee and commission expense
Net trading income/(loss)
(Loss)/profit 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 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
Notes
4
5
6
7
7
8
9
10
11
32
33
27
40
14
31
15
16
18
19
20(a)
20(a)
20(b)
20(b)
2015
€ m
2,955
(1,028)
1,927
26
449
(44)
95
(22)
197
701
2,628
(1,604)
(39)
(35)
2014
€ m
3,090
(1,403)
1,687
25
430
(40)
(1)
52
379
845
2,532
(1,527)
(65)
(46)
(1,678)
(1,638)
950
925
11
–
894
185
4
(1)
2013
€ m
3,321
(1,973)
1,348
4
414
(36)
102
(226)
104
362
1,710
(1,359)
(73)
(51)
(1,483)
227
(1,916)
(17)
9
1,886
1,082
(1,697)
25
3
–
1,914
(534)
1,380
–
1,380
1,380
–
1,380
44.0c
–
44.0c
43.0c
–
43.0c
23
6
–
1,111
(230)
881
34
915
881
34
915
42.2c
1.6c
43.8c
40.9c
1.2c
42.1c
7
2
1
(1,687)
90
(1,597)
–
(1,597)
(1,597)
–
(1,597)
(76.8c)
–
(76.8c)
(76.8c)
–
(76.8c)
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207
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Consolidated statement of comprehensive income
for the financial year ended 31 December 2015
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 gains/(losses) in retirement benefit schemes, net of tax
Total items that will not be reclassified to profit or loss
Items that are or may be reclassified subsequently to profit or loss:
Net change in foreign currency translation reserves
Net change in cash flow hedges, net of tax
Net change in fair value of available for sale securities, net of tax
Total items that may be reclassified subsequently to profit or loss
Notes
18
18
18
18
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
2015
€ m
1,380
–
743
743
31
(29)
103
105
848
2,228
2,228
–
2,228
2014
€ m
915
(1)
(939)
(940)
27
348
728
1,103
163
1,078
1,044
34
1,078
2013
€ m
(1,597)
(1)
251
250
(9)
(18)
513
486
736
(861)
(861)
–
(861)
208
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Consolidated statement of financial position
as at 31 December 2015
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
Financial investments held to maturity
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
Trading portfolio financial liabilities
Derivative financial instruments
Debt securities in issue
Current taxation
Other liabilities
Accruals and deferred income
Retirement benefit liabilities
Provisions for liabilities and commitments
Subordinated liabilities and other capital instruments
Total liabilities
Shareholders’ equity
Share capital
Share premium
Other equity interests
Reserves
Total shareholders’ equity
Total liabilities and shareholders’ equity
Notes
53
22
23
24
25
26
28
29
30
31
32
33
34
13
35
36
37
24
38
39
13
40
41
42
42
44
2015
€ m
4,950
153
8
1
1,698
2,339
63,240
5,616
16,489
3,483
70
289
344
785
35
2,897
503
222
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
103,122
107,455
13,863
63,383
86
1,781
7,001
31
1,108
653
368
382
2,318
90,974
1,696
1,386
494
8,572
12,148
103,122
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
Richard Pym
Chairman
2 March 2016
Bernard Byrne
Chief Executive Officer
Mark Bourke
Chief Financial Officer
David O’Callaghan
Company Secretary
Allied Irish Banks, p.l.c. Annual Financial Report 2015
209
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Consolidated statement of cash flows
for the financial year ended 31 December 2015
Cash flows from operating activities
Profit/(loss) before taxation for the year from continuing operations
1,914
1,111
(1,687)
Notes
2015
€ m
2014
€ m
2013
€ m
Adjustments for:
– Non-cash and other items
– Change in operating assets
– Change in operating liabilities
– Taxation (paid)/refund
Net cash (outflow)/inflow from operating activities
Cash flows from 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(2)
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
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Net proceeds on issue of Additional Tier 1 Securities
Net proceeds on issue of € 750 million Tier 2 Notes due 2025
Redemption of 2009 Preference Shares
Interest paid on subordinated liabilities and other capital instruments
Dividends paid on 2009 Preference Shares
Net cash outflow from financing activities
Change in cash and cash equivalents
Opening cash and cash equivalents
Effect of exchange translation adjustments
Closing cash and cash equivalents
53
53
53
29
33
22
32
31
44
41
42
53
(875)
4,230
(5,353)
(9)
(93)
–
(4,270)
4,624
(89)
16
(156)
–
–
24
149
494
750
(1,700)
(160)
(446)
(1,062)
(1,006)
6,384
294
5,672
(573)
9,449
(11,161)
(26)
(1,200)
1,779
7,852
(4,101)
40
3,883
–
(325)(1)
(7,336)
(6,666)
8,791
3,040
(47)
9
(60)
2
336(4)
11
(32)
15
(62)
10
190(3)
3
1,706
(3,827)
–
–
–
(160)
–
(160)
346
5,730
308
6,384
–
–
–
(160)
–
(160)
(104)
5,926
(92)
5,730
(1)Acquisition of Ark Life Assurance Company Limited.
(2)Transfer from financial investments available for sale to financial investments held to maturity € 3,487 million not reflected in cash flows (note 30).
(3)Disposal of Aviva Life Holdings Ireland Limited.
(4)Disposal of Ark Life Assurance Company Limited.
210
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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212
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Notes to the consolidated financial statements
Page
214
Note
34 Deferred taxation
Note
1
2
3
4
5
6
7
8
9
Accounting policies
Critical accounting judgements
and estimates
Segmental information
Interest and similar income
Interest expense and similar charges
Dividend income
Net fee and commission income
Net trading income/(loss)
(Loss)/profit on disposal/transfer of loans
and receivables
10 Other operating income
11
12
Administrative expenses
Share-based compensation schemes
13 Retirement benefits
14
15
16
17
18
(Provisions)/writeback for impairment on
financial investments available for sale
Profit on disposal of property
Profit on disposal of businesses
Auditors’ fees
Taxation
19 Discontinued operations
20
Earnings per share
21 Distributions on equity shares
22 Disposal groups and non-current assets
held for sale
23
Trading portfolio financial assets
24 Derivative financial instruments
25
26
Loans and receivables to banks
Loans and receivables to customers
27 Provisions for impairment on loans and
receivables
28 NAMA senior bonds
29
30
31
32
33
Financial investments available for sale
Financial investments held to maturity
Interests in associated undertakings
Intangible assets
Property, plant and equipment
244
249
254
254
254
255
255
255
256
256
257
258
263
263
263
264
265
267
268
270
270
270
271
276
276
277
278
279
282
282
284
285
35 Deposits by central banks and banks
36 Customer accounts
37
Trading portfolio financial liabilities
38 Debt securities in issue
39 Other liabilities
40
41
Provisions for liabilities and commitments
Subordinated liabilities and other capital
instruments
42
Share capital
43 Own shares
44 Other equity interests
45 Capital reserves and capital redemption
reserves
46 Capital contributions
47 Offsetting financial assets and financial
liabilities
Page
286
289
290
290
290
290
291
292
294
298
299
300
301
301
48 Memorandum items: contingent liabilities
and commitments, and contingent assets
305
49
Subsidiaries and consolidated
structured entities
50 Off-balance sheet arrangements and
transferred financial assets
51 Classification and measurement of
financial assets and financial liabilities
Fair value of financial instruments
Statement of cash flows
52
53
54 Related party transactions
55 Commitments
56
Employees
57 Regulatory compliance
58
59
Financial and other information
Average balance sheets and interest rates
60 Non-adjusting events after the reporting
period
61 Dividends
62
Approval of financial statements
307
308
313
315
324
326
340
341
342
342
343
344
344
344
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
213
l
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Notes to the consolidated financial statements
Accounting policies index
(a) Reporting entity
(b)
(c)
(d)
(e)
(f)
Statement of compliance
Basis of preparation
Basis of consolidation
Foreign currency translation
Interest income and expense recognition
(g) Dividend income
(h)
(i)
(j)
Fee and commission income
Net trading income
Employee benefits
(k) Operating leases
(l)
Income tax, including deferred income tax
(m) Financial assets
(n)
(o)
Financial liabilities
Leases
(p) Determination of fair value of financial instruments
(q)
Sale and repurchase agreements (including
stock borrowing and lending)
(r)
NAMA senior bonds
(s) Derivatives and hedge accounting
(t)
Impairment of financial assets
(u) Collateral and netting
(v)
Financial guarantees
(w) Property, plant and equipment
(x)
(y)
(z)
Intangible assets
Impairment of property, plant and equipment,
goodwill and intangible assets
Non-current assets held for sale
and discontinued operations
(aa) Non-credit risk provisions
(ab) Shareholders’ equity
(ac) Cash and cash equivalents
(ad) Segment reporting
(ae) Prospective accounting changes
*Forms an integral part of the audited financial statements.
214
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Allied Irish Banks, p.l.c. Annual Financial Report 2015
1 Accounting policies
The significant accounting policies that the Group applied in the preparation of the financial statements are set out in this section.
(a) 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.
(b) 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 financial year ended
31 December 2015. The consolidated financial statements also comply with those parts of the Companies Act 2014 applicable to
companies reporting under IFRS, the European Union (Credit Institutions: Financial Statements) Regulations, 2015 and the Asset
Covered Securities Acts 2001 and 2007. The accounting policies have been consistently applied by Group entities and are
consistent with the previous year, unless otherwise described.
(c) 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; retirement benefit obligations; and provisions for
liabilities and commitments. 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.
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A description of these judgements and estimates is set out in ‘Critical accounting judgements and estimates’ on pages 244 to 248.
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Notes to the consolidated financial statements
1 Accounting policies (continued)
(c) Basis of preparation (continued)
Going concern
The financial statements for the financial year ended 31 December 2015 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 2016 to 2018 approved by the Board in December 2015, 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.
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 50 to 59.
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 43 to 48.
The Group funding and liquidity profile is outlined on page 141 to 154. 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
During the financial year to 31 December 2015, the Group adopted amendments to standards and interpretations which had an
insignificant impact on these annual financial statements.
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1 Accounting policies (continued)
(d) Basis of consolidation
Subsidiary undertakings
A subsidiary undertaking is an investee controlled by the Group. The Group controls an investee when it has power over the investee, is
exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its
power over the investee. Subsidiaries are consolidated in the Group’s financial statements from the date on which control commences
until the date that control ceases.
The Group reassesses whether it controls a subsidiary when facts and circumstances indicate that there are changes to one or more
elements of control.
Loss of control
If the Group loses control of a subsidiary, the Group:
(i) derecognises the assets (including any goodwill) and liabilities of the former subsidiary at their carrying amounts at the date control
is lost;
(ii) derecognises the carrying amount of any non-controlling interests in the former subsidiary at the date control is lost (including any
attributable amounts in other comprehensive income);
(iii) recognises the fair value of any consideration received and any distribution of shares of the subsidiary;
(iv) recognises any investment retained in the former subsidiary at its fair value at the date when control is lost; and
(v) recognises any resulting difference of the above items as a gain or loss in the income statement.
The Group subsequently accounts for any investment retained in the former subsidiary in accordance with IAS 39 Financial Instruments:
Recognition and Measurement, or when appropriate, IAS 28 Investments in Associates and Joint Ventures.
Structured entities
A structured entity is an entity designed so that its activities are not governed by way of voting rights. The Group assesses whether it
has control over such an entity by considering factors such as the purpose and design of the entity; the nature of its relationship with the
entity; and the size of its exposure to the variability of returns of the entity.
Business combinations
The Group accounts for the acquisition of businesses using the acquisition method except for those businesses under common control.
Under the acquisition method, the consideration transferred in a business combination is measured at fair value, which is calculated as
the sum of:
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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:
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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.
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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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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
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Notes to the consolidated financial statements
1 Accounting policies (continued)
(d) Basis of consolidation (continued)
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
(ab) ‘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.
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.
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1 Accounting policies (continued)
(e) 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.
(f) 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.
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Notes to the consolidated financial statements
1 Accounting policies (continued)
(g) 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.
(h) 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 has 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.
(i) 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.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
1 Accounting policies (continued)
(j) 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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Notes to the consolidated financial statements
1 Accounting policies (continued)
(k) 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.
(l) 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.
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.
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1 Accounting policies (continued)
(m) Financial assets
The Group classifies its financial assets into the following categories: - financial assets at fair value through profit or loss; loans and
receivables; available for sale financial assets; and financial investments held to maturity.
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.
Held to maturity
Held to maturity investments are non-derivative financial assets with fixed or determinable payments that the Group’s management
has the intention and ability to hold to maturity. If the Group was to sell other than an insignificant amount of held to maturity assets,
the remainder would be required to be reclassified as available for sale. Held to maturity investments are initially recognised at fair
value including direct and incremental transaction costs and are carried on an amortised cost basis using the effective interest method.
Any available for sale financial investments reclassified into the held to maturity category are transferred at fair value and are
subsequently carried at amortised cost using the effective interest rate method. Unrealised gains or losses held in equity in respect of
such reclassified assets are amortised to the income statement using the effective interest rate method.
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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Notes to the consolidated financial statements
1 Accounting policies (continued)
(n) 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.
Issued financial instruments are classified as equity when the Group has no contractual obligation to transfer cash, or other financial
assets or to issue a variable number of its own equity instruments. Incremental costs directly attributable to the issue of equity
instruments are shown as a deduction from the proceeds of issue, net of tax.
(o) 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.
(p) 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.
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1 Accounting policies (continued)
(p) Determination of fair value of financial instruments (continued)
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.
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.
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Notes to the consolidated financial statements
1 Accounting policies (continued)
(p) Determination of fair value of financial instruments (continued)
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.
(q) 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.
(r) 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
policies (m), (f) and (t)).
At initial recognition, the bonds were measured at fair value. The bonds carry a guarantee of the Irish Government, however, they are not
marketable instruments. The only secondary market activity in the instruments is their sale and repurchase (‘repo’) to the European Central
Bank (“ECB”) within the regular Eurosystem open market operations. The bonds are not traded in the market and there are no comparable
bonds trading in the market.
The fair value on initial recognition was determined using a valuation technique. The absence of quoted prices in an active market required
increased use of management judgement in the estimation of fair value. This judgement included but was not limited to: evaluating
available market information; evaluating relevant features of the instruments which market participants would factor into an appropriate
valuation technique; determining the cash flows generated by the instruments including cash flows from assumed repo transactions;
identifying a risk free discount rate; and applying an appropriate credit spread.
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.
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1 Accounting policies (continued)
(s) Derivatives and hedge accounting
Derivatives, such as interest rate swaps, options and forward rate agreements, currency swaps and options, and equity index options
are used for trading purposes while interest rate swaps, currency swaps, cross currency interest rate swaps and credit derivatives are
used for hedging purposes.
The Group maintains trading positions in a variety of financial instruments including derivatives. Trading transactions arise both as a
result of activity generated by customers and from proprietary trading with a view to generating incremental income.
Non-trading derivative transactions comprise transactions held for hedging purposes as part of the Group’s risk management strategy
against assets, liabilities, positions and cash flows.
Derivatives
Derivatives are measured initially at fair value on the date on which the derivative contract is entered into and subsequently remeasured
at fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and from
valuation techniques using discounted cash flow models and option pricing models as appropriate. Derivatives are included in assets
when their fair value is positive, and in liabilities when their fair value is negative, unless there is the legal ability and intention to settle
an asset and liability on a net basis.
The best evidence of the fair value of a derivative at initial recognition is the transaction price (i.e. the fair value of the consideration
given or received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions
in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose variables include only data
from observable markets.
Profits or losses are only recognised on initial recognition of derivatives when there are observable current market transactions or
valuation techniques that are based on observable market inputs.
Embedded derivatives
Some hybrid contracts contain both a derivative and a non-derivative component. In such cases, the derivative component is termed an
embedded derivative. Where the economic characteristics and risks of embedded derivatives are not closely related to those of the host
contract, and the hybrid contract itself is not carried at fair value through profit or loss, the embedded derivative is treated as a separate
derivative, and reported at fair value with gains and losses being recognised in the income statement.
Hedging
All derivatives are carried at fair value and the accounting treatment of the resulting fair value gain or loss depends on whether the
derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Where derivatives are held for risk
management purposes, and where transactions meet the criteria specified in IAS 39 Financial Instruments: Recognition and
Measurement, the Group designates certain derivatives as either:
–
–
–
hedges of the fair value of recognised assets or liabilities or firm commitments (‘fair value hedge’); or
hedges of the exposure to variability of cash flows attributable to a recognised asset or liability, or a highly probable forecasted
transaction (‘cash flow hedge’); or
hedges of a net investment in a foreign operation.
When a financial instrument is designated as a hedge, the Group formally documents the relationship between the hedging instrument
and hedged item as well as its risk management objectives and its strategy for undertaking the various hedging transactions. The Group
also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in fair values or cash flows of the hedged items.
The Group discontinues hedge accounting when:
a)
b)
c)
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.
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Notes to the consolidated financial statements
1 Accounting policies (continued)
(s) Derivatives and hedge accounting (continued)
In certain circumstances, the Group may decide to cease hedge accounting even though the hedge relationship continues to be highly
effective by no longer designating the financial instrument as a hedge.
Fair value hedge accounting
Changes in fair value of derivatives that qualify and are designated as fair value hedges are recorded in the income statement, together
with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. If the hedge no longer meets the
criteria for hedge accounting, the fair value hedging adjustment cumulatively made to the carrying value of the hedged item is, for items
carried at amortised cost, amortised over the period to maturity of the previously designated hedge relationship using the effective
interest method. For available for sale financial assets, the fair value adjustment for hedged items is recognised in the income statement
using the effective interest method. If the hedged item is sold or repaid, the unamortised fair value adjustment is recognised immediately in
the income statement.
Cash flow hedge accounting
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is initially
recognised directly in other comprehensive income and included in the cash flow hedging reserve in the statement of changes in equity.
The amount recognised in other comprehensive income is reclassed to profit or loss as a reclassification adjustment in the same period
as the hedged cash flows affect profit or loss, and in the same line item in the statement of comprehensive income. Any ineffective
portion of the gain or loss on the hedging instrument is recognised in the income statement immediately.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain
or loss recognised in other comprehensive income from the time when the hedge was effective remains in equity and is reclassified to
the income statement as a reclassification adjustment as the forecast transaction affects profit or loss. When a forecast transaction is no
longer expected to occur, the cumulative gain or loss that was recognised in other comprehensive income from the period when the
hedge was effective is reclassified to the income statement.
Net investment hedge
Hedges of net investments in foreign operations, including monetary items that are accounted for as part of the net investment, are
accounted for similarly to cash flow hedges. The effective portion of the gain or loss on the hedging instrument is recognised in other
comprehensive income and the ineffective portion is recognised immediately in the income statement. The cumulative gain or loss
previously recognised in other comprehensive income is recognised in the income statement on the disposal or partial disposal of the
foreign operation. Hedges of net investments may include non-derivative liabilities as well as derivative financial instruments.
Derivatives that do not qualify for hedge accounting
Certain derivative contracts entered into as economic hedges do not qualify for hedge accounting. Changes in the fair value of these
derivative instruments are recognised immediately in the income statement.
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1 Accounting policies (continued)
(t) 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.
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
impairment provision represents an interim step pending the identification of impairment losses on an individual asset in a group of financial
assets. As soon as information is available that specifically identifies losses on individually impaired assets in a group, those assets are
removed from the group. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be,
recognised are not included in a collective assessment of impairment.
Collective evaluation 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.
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For loans and receivables and assets held to maturity, the amount of impairment loss is measured as the difference between the asset’s
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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.
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Notes to the consolidated financial statements
1 Accounting policies (continued)
(t) Impairment of financial assets (continued)
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.
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.
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1 Accounting policies (continued)
(t) Impairment of financial assets (continued)
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
cash flows 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.
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.
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Notes to the consolidated financial statements
1 Accounting policies (continued)
(u) 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.
(v) 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.
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1 Accounting policies (continued)
(w) 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.
(x) 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.
(y) 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Notes to the consolidated financial statements
1 Accounting policies (continued)
(z) 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.
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.
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1 Accounting policies (continued)
(aa) 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.
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Notes to the consolidated financial statements
1 Accounting policies (continued)
(ab) 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.
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 end of
the reporting date are disclosed in note 61.
Dividends on preference shares accounted for as equity are recognised in equity when approved for payment by the Board of Directors.
Other equity interests
Other equity interests relate to Additional Tier 1 Perpetual Contingent Temporary Write-down Securities (AT1) issued on 3 December
2015 which are accounted for as equity instruments in the statement of financial position (note 44).
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
In 2015, the capital redemption reserves arose from the redemption of 2,140 million 2009 Preference Shares whereby on redemption,
the nominal value of shares redeemed was transferred from the share capital account to the capital redemption reserve account. In
addition, the nominal value of treasury shares cancelled was transferred from the share capital to the capital redemption reserve
account.
In 2014, the capital redemption 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.
In addition, unrealised gains/losses on financial assets transferred from available for sale to held to maturity are held in this caption.
Unrealised gains or losses held in equity in respect of such reclassified assets are amortised to the income statement using the effective
interest rate method.
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.
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1 Accounting policies (continued)
(ab) Shareholders’ equity (continued)
Capital contributions
Capital contributions represent the receipt of non-refundable considerations arising from transactions with the Irish Government
(note 46). 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(1).
The capital contribution from the EBS transaction is treated as non-distributable as the related net assets received were 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 41) where the proceeds of issue amounting to
€1.6 billion exceeded the fair value of the instruments issued. This excess was 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.
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.
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.
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(ac) 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.
(1)Transferred to the Ireland Strategic Investment Fund (“ISIF”) on 22 December 2014. Ownership of ISIF vests with the Minister for Finance and is
controlled and managed by the NTMA.
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Notes to the consolidated financial statements
1 Accounting policies (continued)
(ad) 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.
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1 Accounting policies (continued)
(ae) Prospective accounting changes
The following new standards and amendments to existing standards which have been approved by the IASB, but not early adopted by the
Group, will impact the Group’s financial reporting in future periods. The Group is currently considering the impacts of these 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
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.
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 will not impact on AIB Group consolidated
financial statements.
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
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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
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Notes to the consolidated financial statements
1 Accounting policies (continued)
(ae) Prospective accounting changes
Pronouncement
Nature of change
IASB effective date
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 January 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.
Amendments to IAS 7 Statement
The amendments to IAS 7 Statement of Cash Flows, which were
Annual periods
of Cash Flows
issued in January 2016, require that the following changes in
beginning on or after
liabilities arising from financing activities be disclosed to the extent
1 January 2017
necessary:
– Changes from financing cash flows;
– Changes arising from obtaining or losing control of subsidiaries
or other businesses;
– The effect of changes in foreign exchange rates; and
– Other changes.
It also stresses that the new disclosure requirements also relate to
changes in financial assets if they meet the definition.
These amendments are not expected to have a significant impact on
AIB Group.
The amendments are subject to EU endorsement.
Amendments to IAS 12 Income
The amendments in Recognition of Deferred Tax Assets for
Annual periods
Taxes: Recognition of Deferred
Unrealised Losses, which were issued in January 2016, clarify
beginning on or after
Tax Assets for Unrealised Losses
the following aspects:
1 January 2017
– Unrealised losses on debt instruments measured at fair value
and measured at cost for tax purposes give rise to a deductible
temporary difference regardless of whether the debt instrument's
holder expects to recover the carrying amount of the debt
instrument by sale or by use;
– The carrying amount of an asset does not limit the estimation of
probable future taxable profits;
– Estimates for future taxable profits exclude tax deductions resulting
from the reversal of deductible temporary differences; and
– An entity assesses a deferred tax asset in combination with other
deferred tax assets. Where tax law restricts the utilisation of tax
losses, an entity would assess a deferred tax asset in combination
with other deferred tax assets of the same type.
These amendments are not expected to have a significant impact on
AIB Group.
The amendments are subject to EU endorsement.
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1 Accounting policies (continued)
(ae) Prospective accounting changes
Pronouncement
Nature of change
IASB effective date
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 2018
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.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments was issued in July 2014 and will replace
Annual periods
IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9
beginning on or after
includes a revised classification and measurement model, a forward
1 January 2018
looking ‘expected credit loss’ impairment methodology and modifies the
approach to hedge accounting. Unless early adopted, the standard is
effective for accounting periods beginning 1 January 2018. The key
changes under the standard are:
Classification and measurement
–
Financial assets are classified on the basis of the business model
within which they are held and their contractual cash flow
characteristics. The classification and measurement categories are
amortised cost, fair value through other comprehensive income
and fair value through profit and loss;
– A financial asset is measured at amortised cost if two criteria are
met: a) the objective of the business model is to hold the financial
asset for the collection of the contractual cash flows, and b) the
contractual terms give rise on specified dates to cash flows that
are solely payments of principal and interest;
–
If a financial asset is eligible for amortised cost measurement, an
entity can elect to measure it at fair value if it eliminates or
significantly reduces an accounting mismatch;
–
Interest is calculated on the gross carrying amount of a financial
assets, except where the asset is credit impaired in which case
interest is calculated on the carrying amount after deducting the
impairment provision;
–
There is no separation of an embedded derivative where the
instrument is a financial asset;
– Equity instruments must be measured at fair value, however, an
entity can elect on initial recognition to present fair value changes,
including any related foreign exchange component on non-trading
equity investments directly in other comprehensive income. There
is no subsequent recycling of fair value gains and losses to profit or
loss; however dividends from such investments will continue to be
recognised in profit or loss;
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Notes to the consolidated financial statements
1 Accounting policies (continued)
(ae) Prospective accounting changes
Pronouncement
Nature of change
IASB effective date
IFRS 9 Financial Instruments
(continued)
Impairment
– Requires more timely recognition of expected credit losses using
Annual periods
a three stage approach. For financial assets where there has been
beginning on or after
no significant increase in credit risk since origination, a provision
1 January 2018
for 12 months expected credit losses is required. For financial
assets where there has been a significant increase in credit risk or
where the asset is credit impaired, a provision for full lifetime
expected losses is required;
–
The assessment of whether credit risk has increased significantly
since origination is performed for each reporting period by
considering the change in risk of default occurring over the
remaining life of the financial instrument, rather than by considering
an increase in expected credit loss.
–
The assessment of credit risk, and the estimation of expected
credit loss, are required to be unbiased and probability-weighted,
and should incorporate all available information which is relevant to
the assessment, including information about past events, current
conditions and reasonable and supportable forecasts of future
events and economic conditions at the reporting date. In addition,
the estimation of expected credit loss should take into account the
time value of money. As a result, the recognition and measurement
of impairment is more forward-looking than under IAS 39 and the
resulting impairment charge will tend to be more volatile. It will also
tend to result in an increase in the total level of impairment
allowances, since all financial assets will be assessed for at least
12-month expected credit loss and the population of financial
assets to which lifetime expected credit loss applies is likely to be
larger than the population for which there is objective evidence of
impairment in accordance with IAS 39.
Financial liabilities
–
The classification of financial liabilities is essentially unchanged,
except that, for certain liabilities measured at fair value, gains or
losses relating to changes in the entity’s own credit risk are to be
included in other comprehensive income;
Hedge accounting
–
The general hedge accounting requirements aim to simplify hedge
accounting, creating a stronger link with risk management strategy
and permitting hedge accounting to be applied to a greater variety
of hedging instruments and risks. The standard does not explicitly
address macro hedge accounting strategies, which are being
considered in a separate project. To remove the risk of any conflict
between existing macro hedge accounting practice and the new
general hedge requirements, IFRS 9 includes an accounting policy
choice to remain with IAS 39 hedge accounting.
Transition
A Group-wide Programme, led jointly by Risk and Finance, commenced
work during 2015 to oversee delivery of the requirements for
implementation of IFRS 9.
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1 Accounting policies (continued)
(ae) Prospective accounting changes
Pronouncement
Nature of change
IASB effective date
IFRS 9 Financial Instruments
(continued)
Transition (continued)
The governance structure includes a Steering Committee mandated to
Annual periods
beginning on or after
oversee implementation in accordance with the standard, a Technical
1 January 2018
Approval Group to approve key accounting policy change decisions
and an Operating Model Design Authority to approve operating model
specifications.
Detailed planning was completed during 2015 and the Design Phase
commenced thereafter, with a number of key decisions required over
the course of the first few months in 2016. The Programme is structured
with various work streams responsible for designing and implementing
the end state target operating model, technical accounting interpretations,
building and validating IFRS 9 provision models and assessing data and
systems requirements.
Classification and measurement of financial assets is not expected to
result in any significant changes for the Group. Given that the Group
does not fair value its own debt, there is no impact as a result of changes
required under IFRS 9.
In relation to impairment, due to the complexity of decisions required, it is
not possible at this stage to quantify the potential impact.
The Group is evaluating its approach to the hedge accounting requirements
given that the macro hedge accounting requirements have not yet been
finalised by the IASB.
This standard is subject to EU endorsement
IFRS 16 Leases
IFRS 16, which was issued in January 2016, replaces IAS 17 Leases.
Annual periods
The new standard brings most leases on-balance sheet for lessees
beginning on or after
under a single model, eliminating the distinction between operating
1 January 2019
and finance leases. Under IFRS 16, a lessee recognises a right-of-use
asset and a lease liability. The right-of-use asset is treated similarly to
other non-financial assets and depreciated accordingly. The lease
liability is initially measured at the present value of the lease payments
payable over the lease term, discounted at the rate implicit in the lease
if that can be readily determined. If that rate cannot be readily determined,
the lessee shall use their incremental borrowing rate.
Lessor accounting remains largely unchanged and the distinction between
operating and finance leases is retained.
These amendments will impact AIB Group. However, this impact has not yet
been determined but will be in due course.
This standard is subject to EU endorsement
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Notes to the consolidated financial statements
2 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 financial year ended 31 December 2015 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 January 2016 covering the period 2016 to 2018; the Restructuring Plan approved by the
European Commission in May 2014; liquidity and funding forecasts, and capital resources projections. These 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 (t) in note 1. The provisions for impairment on
loans and receivables at 31 December 2015 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.
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
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2 Critical accounting judgements and estimates (continued)
Specific provisions (continued)
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 81 to 82 of the Risk management section of this report.
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 81 to 82 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 81 to 82 of the Risk management section of this report.
Forbearance
The Group’s accounting policy for forbearance is set out in accounting policy (t) ‘Impairment of financial assets’ in note 1 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 and on the future cashflows arising
from restructured loans. 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 (l) in note 1. Details of the Group’s deferred tax assets and
liabilities are set out in note 34.
Deferred tax assets are recognised for unused tax losses to the extent that it is probable (defined for this purpose as more likely than
not) that there will be sufficient future taxable profits against which the losses can be used. For a company with a history of recent
losses, there must be convincing other evidence to underpin this assessment. The recognition of the deferred tax asset relies on the
assessment of future profitability and the sufficiency of those profits to absorb losses carried forward. It requires significant judgements
to be made about the projection of long-term future profitability because of the period over which recovery extends.
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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.
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Among this evidence, the principal positive factors include:
–
–
–
the financial support provided to the Irish State under the EU/IMF programme and the fact that Ireland successfully exited the
three-year bailout programme in December 2013;
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;
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Notes to the consolidated financial statements
2 Critical accounting judgements and estimates (continued)
Deferred taxation (continued)
–
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;
– Management actions taken in 2012 to 2014 in returning the Group to a normalised earnings path, the benefits of which have
–
–
–
become apparent in the past year with the Group returning to profitability;
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 changes to the UK tax rates and the utilisation of deferred tax assets) 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 has continued during 2015. Growth thereafter has been reaffirmed in the
annual planning exercise covering the period 2016 to 2018 undertaken by the Group in the second half of 2015. 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 2016-2018. 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 billion) to be utilised. Furthermore, under this scenario, it is
expected that 60% of the deferred tax asset will be utilised by 31 December 2030 with 92% utilised by 31 December 2035.
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 4 years.
The Group’s analysis of the results of the scenarios examined would not alter the basis of recognition or the current carrying value.
Notwithstanding the absence of any expiry date for tax losses in the UK, AIB has concluded that the recognition of deferred tax assets in
its UK subsidiary be limited to the amount projected to be realised within a time period of 15 years. This is the timescale within which the
Group believes that it can assess the likelihood of its UK profits arising as being more likely than not.
Furthermore, in March 2015, legislation was enacted in the UK, effective from 1 April 2015, whereby only fifty per cent of a bank’s
annual trading profits can be offset by unused tax losses arising before that date. This resulted in an immediate reduction of
£178 million (€ 242 million) in the Group’s UK deferred tax asset.
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 € 3,203 million of which € 3,015 million relates to Irish tax losses and € 188 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.
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 (p) in note 1..
The best evidence of fair value is quoted prices in an active market. The absence of quoted prices increases reliance on valuation
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Determination of fair value of financial instruments (continued)
techniques and requires the use of judgement in the estimation of fair value. This judgement includes but is not limited to: evaluating
available market information; determining the cash flows for the instruments; identifying a risk free discount rate and applying an
appropriate credit spread.
Valuation techniques that rely to a greater extent on non-observable data require a higher level of management judgement to calculate a
fair value than those based wholly on observable data.
The choice of contributors, the quality of market data used for pricing, and the valuation techniques used are all subject to internal review
and approval procedures. Given the uncertainty and subjective nature of valuing financial instruments at fair value, any change in these
variables could give rise to the financial instruments being carried at a different valuation, with a consequent impact on shareholders’ equity
and, in the case of derivatives and contingent capital instruments, the income statement.
NAMA senior bonds designation and valuation
The Group’s accounting policy for NAMA senior bonds is set out in accounting policy (r) in note 1. 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 (m). (f)) and (t) in note 1). 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.
AIB continually reviews 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. If the revised assumptions when reassessed prove to be different, this will impact the carrying value and income
statement in future periods. Following reviews, in particular, 2014 and 2013, AIB adjusted the carrying value of the bonds and reflected the
difference between the previous carrying value and new carrying value (2014: € 132 million and 2013: € 62 million) in the income
statement.
NAMA senior bonds are subject to the same credit review processes and procedures as for loans and receivables (accounting policy
(t) in note 1).
Retirement benefit obligations
The Group’s accounting policy for retirement benefit plans is set out in accounting policy (j) in note 1.
The Group provides a number of defined benefit and defined contribution retirement benefit schemes in various geographic locations,
the majority of which are funded. All defined benefit schemes were closed to future accrual with effect from 31 December 2013.
Scheme assets are valued at fair value. Scheme liabilities are measured on an actuarial basis, using the projected unit method and
discounted at the current rate of return on a high quality corporate bond of equivalent term and currency to the liability. Actuarial gains
and losses are recognised immediately in the statement of comprehensive income.
In calculating the scheme liabilities and the charge to the income statement, the Directors have chosen a number of financial and
demographic assumptions within an acceptable range, under advice from the Group’s actuaries which include price inflation, pension
increases, earnings growth and the longevity of scheme members. The impact on the income statement and statement of financial
position could be materially different if a different set of assumptions were used or when it was deemed an inability to fund discretionary
increases to members. The assumptions adopted for the Group's pension schemes are set out in note 13 to the financial
statements, together with a sensitivity analysis of the scheme liabilities to changes in those assumptions.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Notes to the consolidated financial statements
2 Critical accounting judgements and estimates (continued)
Provisions for liabilities and commitments
The Group’s accounting policy for provisions for liabilities and commitments is set out in accounting policy number (aa) ‘Non-credit risk
provisions’ in note 1.
The Group recognises liabilities where it has present legal or constructive obligations as a result of past events and it is more likely than not
that these obligations will result in an outflow of resources to settle the obligations and the amount can be reliably estimated. Details of the
Group’s liabilities and commitments are shown in note 40 to the financial statements.
The recognition and measurement of liabilities, in certain instances, may involve a high degree of uncertainty, and thereby, considerable time
is expended on research in establishing the facts, scenario testing, assessing the probability of the outflow of resources and estimating the
amount of any loss. This process will, of its nature, require significant management judgement and will require revisions to earlier
judgements and estimates as matters progress towards resolution. However, at the earlier stages of provisioning, the amount provided for
can be very sensitive to the assumptions used and there may be a wide range of possible outcomes in particular cases. Accordingly, in such
cases, it is often not practicable to quantify a range of possible outcomes. In addition, it is also not practicable to measure ranges of
outcomes in aggregate in a meaningful way because of the diverse nature of these provisions and the differing fact patterns.
In this regard, the Central Bank of Ireland (‘CBI’) in December 2015, requested the Irish banking industry, including AIB, to conduct a broad
examination of tracker mortgage related issues, comprising of a review of mortgage loan books (including both PDH and Buy-to- Let
properties and loans that have been redeemed and/or sold), to assess compliance with both contractual and regulatory requirements. These
regulatory requirements require the Group to demonstrate that the customers’ interest are protected, that customers are being treated fairly,
and in the context of customers’ understanding with regard to their entitlement to a tracker rate, to consider information provided and the
disclosures made to such customers over time. In situations where customer detriment is identified from this examination, AIB is required to
provide appropriate redress and compensation in line with the CBI ‘Principles for Redress’. The CBI has also indicated that any tax liability
that impacted customers may incur, in respect of redress, compensation or other payment by the lender, is to be discharged by the lender.
This examination is required to cover the period of time from when AIB, including EBS, commenced offering tracker interest rates to
31 December 2015.
The Group has instigated a project which is on-going to identify all mortgage loans where customer detriment may have occurred and to
determine appropriate redress and compensation in such cases. The recognition of provisions for customer redress and related matters
which are included in ‘provisions for liabilities and commitments’ requires significant levels of judgement and estimation in such cases. The
project involves determining the population potentially subject to redress, reviewing the relevant contractual documentation, determining
changes that have occurred in the interest rates and computing the financial impact and related accounting of such redress.
To date, the Group has identified areas where redress is relevant. In one area, interest rates have been applied that are not in
accordance with the relevant contractual documentation. In other areas, where customers identified as no longer having a tracker rate
applied to their account, the Group is reviewing whether the circumstances that led to the mortgage account ceasing to be subject to a
tracker interest rate met relevant regulatory standards. In a limited number of cases where relevant regulatory standards were not met,
notwithstanding that the Group is in compliance with contractual requirements, the Group has determined it appropriate to offer revised
terms on such mortgages.
At 31 December 2015, the Group has provided € 105 million where either the interest rates are not in accordance with the relevant
contractual documentation or where the Group will offer revised terms on mortgage accounts. This mainly relates to the refund of interest
(difference in interest charged to customers compared to the interest that would have been charged when the tracker rate is applied). The
provision also includes amounts for compensating customers, such as reimbursement for the time value of money and other compensation
amounts.
Furthermore, the Group has recognised a provision of € 85 million for (a) the accounting impact of a constructive obligation under IAS 37 for
fair value remeasurement losses that will be recognised in areas where the Group will offer revised terms on mortgage accounts; (b) tax
liabilities arising from redress or other compensation which the Group may be required to discharge on behalf of impacted customers; and
(c) other costs associated with the examination.
Validation of the examination process is currently being undertaken by the Group and the resultant final redress is subject to independent
third party assurance and also subject to assessment and challenge by the CBI.
Given the uncertainty attaching to certain of the assumptions and judgements underpinning the above provisions, it is possible that the
eventual outcome may differ from the current estimates with a resultant charge/credit to the income statement in future periods.
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.
248
Allied Irish Banks, p.l.c. Annual Financial Report 2015
3 Segmental information
The Group has reorganised its business in 2015 to enable a customer focused, profitable and low risk enterprise which is well
positioned to support the economic recovery in Ireland while seeking to generate sustainable shareholder returns. This change focuses
on the needs of its customers, so as to combine customer groups with similar needs into franchises able to deliver co-ordinated
services. Previously the Group’s loan restructuring activity was reported within the Financial Solutions Group (“FSG”) segment and has
now been integrated back into business as usual. Customers are included in respective segments regardless of the credit quality of the
customer.
The Group reported the following key segments in the Half-Yearly Financial Report 2015: Retail & Business Banking (“RBB”), Corporate
& Institutional Banking (“CIB”), AIB UK and Group. Reporting on this segment basis commenced in 2015.
Following further enhancements to the Group structure, Corporate Ireland was moved from CIB to RBB, forming a new segment called
AIB Ireland. Wholesale Treasury and the International businesses were moved from CIB to Group to form the new segment Group &
International. In the Annual Financial Report 2015, the Group reports the following key segments: AIB Ireland, AIB UK, and Group &
International:
– AIB Ireland;
– AIB UK; and
– Group & International.
The years to 31 December 2015, 2014 and 2013 have been presented in the new operating structure. These segments reflect the
internal reporting structure which is used by management to assess performance and allocate resources. A description of each segment
is set out below as follows:
AIB Ireland
AIB Ireland comprises Personal, Business and Corporate Banking. It is the leading franchise bank across key segments and products in
the domestic market and is well positioned for growth. With an integrated customer focussed approach, from product design to
distribution, AIB Ireland has over 2.3 million customers. AIB Ireland is divided into the following sub-segments: Retail Ireland, which
consists of personal and business, and Corporate Ireland, which consists of corporate and property lending.
AIB UK
AIB UK comprises of two long established and distinct businesses offering full banking services operating as Allied Irish Bank (GB) in
Great Britain and First Trust Bank in Northern Ireland.
Group & International
Group & International includes the businesses outside Ireland and the UK. It also includes wholesale treasury activities, central control
and support functions (business and customer services, risk, audit, finance, general counsel, human resources and corporate affairs).
Certain overheads related to these activities are managed and reported in the Group & International segment.
Segment allocations
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 Group & International. 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 attributable to capital is allocated to segments based on each segment’s capital requirement.
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Bank Exceptional(2)
levies(1)
€ m
Notes to the consolidated financial statements
3 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
Bank levies
Writeback/(provisions) for impairment
on loans and receivables
Writeback/(provisions) for liabilities
and commitments
Total writeback/(provisions)
Operating profit/(loss)
Associated undertakings
Profit on disposal of property
Profit/(loss) before taxation from
AIB
Ireland
€ m
AIB UK
€ m
Group &
International
€ m
Total
€ m
1,445
443
1,888
(462)
(251)
(42)
(755)
1,133
–
892
9
901
297
50
347
(96)
(63)
(3)
(162)
185
–
44
–
44
2,034
229
21
3
3
–
185
203
388
(167)
(183)
(29)
(379)
9
(68)
1,927
696
2,623
(725)
(497)
(74)
(1,296)
1,327
(68)
(11)
925
(11)
(22)
(81)
1
–
(2)
923
2,182
25
3
continuing operations
2,058
232
(80)
2,210
–
–
–
–
(68)
–
(68)
(68)
68
–
–
–
–
–
–
–
2015
Total
€ m
1,927
701
2,628
(763)
(841)
(74)
items
€ m
–
5(3)
5
(38)(4)(5)
(276)(5)(6)
–
(314)
(1,678)
(309)
–
–
13(5)
13
950
–
925
11
936
(296)
1,886
–
–
25
3
(296)
1,914
(1)In the consolidated financial statements, bank levies are shown as part of general and administrative expenses, They are disclosed separately in the
‘Operating and Financial Review’ - see page 22.
(2)Exceptional and one-off items are shown separately above. These are items that Management believes obscures the underlying performance trends in the
business. Exceptional items include:
(3)Gain on transfer of financial instruments;
(4)Termination benefits;
(5)Restitution and restructuring expenses; and
(6)Other exceptional items.
For further information on these items see page 23.
250
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Bank
levies(1)
€ m
Exceptional(2)
items
€ m
3 Segmental information (continued)
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
Bank levies
Writeback/(provisions) for impairment
on loans and receivables
Writeback of provisions for liabilities
and commitments
Provisions for impairment on
financial investments available for sale
Total writeback/(provisions)
Operating profit/(loss)
Associated undertakings
Profit on disposal of property
Profit/(loss) before taxation from
continuing operations
AIB
Ireland
€ m
1,298
436
1,734
(488)
(291)
(49)
(828)
906
–
254
3
–
257
1,163
18
3
1,184
AIB UK
€ m
246
68
314
(101)
(58)
(3)
(162)
152
–
(70)
–
–
(70)
82
5
3
90
Group &
International
€ m
143
339
482
(178)
(202)
(33)
(413)
69
(60)
1
1
(1)
1
10
–
–
10
Total
€ m
1,687
843
2,530
(767)
(551)
(85)
(1,403)
1,127
(60)
185
4
(1)
188
1,255
23
6
1,284
–
–
–
–
(60)
–
(60)
(60)
60
–
–
–
–
–
–
–
–
2014
Total
€ m
1,687
845
2,532
(791)
(736)
(111)
–
2(3)
2
(24)(4)
(125)(5)
(26)
(175)
(1,638)
(173)
–
–
–
–
–
894
–
185
4
(1)
188
(173)
1,082
–
–
23
6
(173)
1,111
(1)In the consolidated financial statements, bank levies are shown as part of general and administrative expenses, They are disclosed separately in the
‘Operating and Financial Review’ - see page 22.
(2)Exceptional and one-off items are shown separately above. These are items that Management believes obscures the underlying performance trends in the
business. Exceptional items include:
(3)Profit on transfer of financial instruments to NAMA;
(4)Termination benefits; and
(5)Restitution and restructuring expenses.
For further information on these items see page 23.
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Notes to the consolidated financial statements
3 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)/writeback for impairment on loans
and receivables
(Provisions)/writeback for liabilities
and commitments
(Provisions)/writeback 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
(Loss)/profit before taxation from
continuing operations
AIB
Ireland
€ m
AIB UK Group &
International
€ m
€ m
949
384
1,333
(541)
(272)
(61)
(874)
459
170
70
240
(120)
(52)
(3)
(175)
65
(1,698)
(226)
(8)
(9)
(1,715)
(1,256)
8
1
–
10
–
(216)
(151)
2
–
–
226
125
351
(190)
(195)
(36)
(421)
(70)
8
1
18
27
(43)
(3)
–
1
Total
Exceptional(1)
2013
Total
€ m
1,348
362
1,710
(704)
(655)
(124)
items
€ m
3
(217)(2)
(214)
147(3)
(136)(4)
(24)
(13)
(1,483)
(227)
227
€ m
1,345
579
1,924
(851)
(519)
(100)
(1,470)
454
(1,916)
–
(1,916)
3
9
(1,904)
(1,450)
7
1
1
(20)
(17)
–
9
(20)
(1,924)
(247)
(1,697)
–
1
–
7
2
1
(1,247)
(149)
(45)
(1,441)
(246)
(1,687)
(1)Exceptional and one-off items are shown separately above. These are items that Management believes obscures the underlying performance trends in the
business. Exceptional items include:
(2)Loss on disposal of loans/loss on transfer of financial instruments.
(3)Termination benefits/retirement benefit curtailment; and
(4)Restitution and restructuring expenses and capital restructuring costs.
For further information on these items see page 23.
Other amounts – statement of financial position
Loans and receivables to customers
Customer accounts
Loans and receivables to customers
Customer accounts
AIB
Ireland
€ m
50,077
50,250
AIB
Ireland
€ m
51,108
48,525
AIB UK
€ m
10,343
11,665
Group &
International
€ m
2,820
1,468
AIB UK
€ m
10,374
11,504
Group &
International
€ m
1,880
3,989
2015
Total
€ m
63,240
63,383
2014
Total
€ m
63,362
64,018
252
Allied Irish Banks, p.l.c. Annual Financial Report 2015
3 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)(2)
Gross external revenue
Inter-geographical segment revenue
Total revenue
Republic of
Ireland
€ m
United
Kingdom
€ m
Rest of the
World
€ m
2,218
(43)
2,175
397
47
444
13
(4)
9
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)
Revenue from external customers comprises interest and similar income (note 4) interest expense and similar charges (note 5)
and all other items of income (notes 6 to 10).
Geographic information
Non-current assets(3)
Geographic information
Non-current assets(3)
Republic of
Ireland
€ m
United
Kingdom
€ m
Rest of the
World
€ m
608
24
1
Republic of
Ireland
€ m
441
United
Kingdom
€ m
19
Rest of the
World
€ m
1
(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.
2015
Total
€ m
2,628
–
2,628
2014
Total
€ m
2,532
–
2,532
2013
Total
€ m
1,710
–
1,710
2015
Total
€ m
633
2014
Total
€ m
461
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Notes to the consolidated financial statements
4 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
Interest on financial investments held to maturity
2015
€ m
2,381
24
1
31
514
4
2014
€ m
2,421
22
–
80
567
–
2013
€ m
2,520
19
–
130
652
–
2,955
3,090
3,321
Interest income includes a credit of € 150 million (2014: a credit of € 138 million; 2013: a credit of € 138 million) transferred from other
comprehensive income in respect of cash flow hedges.
Interest income of € 2,954 million (2014: € 3,090 million; 2013: € 3,321 million), included in ‘Interest and similar income’ 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 € 244 million (2014: € 329 million; 2013: € 373 million).
5 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
2015
€ m
4
539
207
278
1,028
2014
€ m
46
766
335
256
1,403
2013
€ m
123
1,265
344
241
1,973
Interest expense includes a charge of € 86 million (2014: a charge of € 92 million; 2013: a charge of € 133 million) transferred from other
comprehensive income in respect of cash flow hedges.
Included within interest expense is a charge of € 30 million (2014: a charge of € 59 million; 2013: a charge of € 173 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.
6 Dividend income
Dividend income relates to income from equity shares held as financial investments available for sale and amounts to € 26 million
(2014: € 25 million; 2013: € 4 million). € 25 million of this dividend income was received on NAMA subordinated bonds (2014: € 25 million;
2013: Nil).
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
7 Net fee and commission income
Retail banking customer fees
Credit related fees
Insurance commissions
Fee and commission income
Fee and commission expense(1)
2015
€ m
381
38
30
449
(44)
405
2014
€ m
373
30
27
430
(40)
390
2013
€ m
351
31
32
414
(36)
378
(1)Fee and commission expense includes ATM expenses of € 6 million (2014: € 5 million; 2013: € 5 million) and credit card commissions of € 28 million
(2014: € 26 million; 2013: € 23 million).
Fees and commissions which are an integral part of the effective interest rate are recognised as part of interest and similar income
(note 4) or interest expense and similar charges (note 5).
8 Net trading income/(loss)
Foreign exchange contracts
Interest rate contracts and debt securities
Credit derivative contracts
Equity securities, index contracts and warrants
(1)Includes a gain of € 17 million (2014: loss of € 76 million) in relation to XVA adjustments.
(2)€ 8 million (2014: € 24 million) mark to market gain on equity warrants
(3)Includes a gain of € 10 million arising on disposal of ALH (note 19).
2015
€ m
2014
€ m
41
52(1)
(6)
8(2)
95
45
(68)(1)
(2)
24(2)
(1)
2013
€ m
37
53
–
12(3)
102
The total hedging ineffectiveness on cash flow hedges reflected in the income statement amounted to Nil (2014: Nil; 2013: a credit
of € 7 million).
9 (Loss)/profit on disposal/transfer of loans and receivables
The following table sets out details of the (loss)/profit on disposal/transfer of loans and receivables:
(Loss)/profit on disposal of loans and receivables to customers
Gain/(loss) on transfer of loans and receivables to NAMA
Total
2015
€ m
(27)
5
(22)
2014
€ m
50
2
52
2013
€ m
(201)(1)
(25)
(226)
(1)In 2013, a loss of € 193 million included in the (loss)/profit on disposal of loans and receivables to customers related to the deleveraging of non-core
assets.
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 40).
NAMA has continued to resolve certain issues in relation to loans and receivables which had transferred in 2010 and 2011. This resulted
in a net release of provisions in the current year as set out above.
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Notes to the consolidated financial statements
10 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
Acceleration/ re-estimation of the timing of cash flows on NAMA senior bonds (note 28)
Net gains/(losses) on buy back of debt securities in issue
Miscellaneous operating income(2)
2015
€ m
158
(81)
8
6
8
98
197
2014
€ m
369
(208)
20
132
(1)
67
379
2013
€ m
30
(10)
11
62
–
11
104
(1)The majority of the loss on termination relates to the disposal of available for sale debt securities. In addition, it includes € 5 million transferred from other
comprehensive income in respect of cash flow hedges (2014: Nil; 2013: Nil).
(2)Miscellaneous operating income includes:
– Foreign exchange gains € 15 million (2014: a gain of € 11 million; 2013; a gain of € 1 million).
– Income on settlement of claims of € 38 million (2014: € 27 million; 2013: Nil).
– Effect of realisation/re-estimation of cash flows on loans and receivables previously restructured - credit of € 45 million (2014: a credit of € 24 million;
2013: Nil).
11 Administrative expenses
Personnel expenses:
Wages and salaries
Termination benefits(1)
Retirement benefits(2) (note 13)
Social security costs
Other personnel expenses(3)
Total personnel expenses
General and administrative expenses:
Irish banking levy
Bank Recovery and Resolution Directive levy
Other general and administrative expenses
Total general and administrative expenses
2015
€ m
2014
€ m
2013
€ m
562
37
106
58
–
763
60
8
773
841
599
24
91
66
11
791
60
–
676
736
653
86
(112)
77
–
704
–
–
655
655
1,604
1,527
1,359
(1)At 31 December 2015, a charge of € 37 million (2014: a charge of € 24 million; 2013: a charge of € 86 million) was made to the income
statement in respect of termination benefits arising from the voluntary severance programme. This amount comprises Nil (2014: Nil; 2013: € 23 million)
in respect of past service costs relating to the early retirement scheme and € 37 million (2014: € 24 million; 2013: € 92 million) relating to the voluntary
severance scheme (note 13) and Nil (2014: Nil; 2013: a credit of € 29 million) in respect of a pension curtailment gain for voluntary severance
employees.
(2)Comprises a charge of € 21 million relating to defined benefit expense (2014: credit of € 3 million; 2013: credit of € 131 million), a defined contribution
expense charge of € 79 million (2014: charge of € 86 million; 2013: € 13 million) and a long term disability payments expense charge of € 6 million
(2014: € 8 million; 2013: € 6 million) (note 13).
(3)Other personnel expenses include other compensation costs of Nil (2014: Nil; 2013: Nil).
Personnel expenses of € 34 million (2014: € 10 million; 2013: € 14 million) were capitalised as part of the cost of intangible assets.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
12 Share-based compensation schemes
The Group has operated 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 has operated 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; and
(iii) AIB Group Performance Share Plan 2005.
(i) AIB Group Share Option Scheme
Options were last granted under this scheme in 2005. This scheme terminated in April 2015 with all outstanding options either being
forfeited or lapsed.
The following table summarises the share option scheme activity over each of the financial years ended 31 December 2015, 2014 and
2013:
Number
of
options
’000
1,205.0
–
1,205.0
–
–
2015
Weighted
average
exercise
price
€
16.20
–
16.20
–
–
Number
of
options
’000
3,490.7
–
(2,285.7)
1,205.0
1,205.0
2014
Weighted
average
exercise
price
€
Number
of
options
’000
13.85
5,746.5
–
12.62
16.20
16.20
–
(2,255.8)
3,490.7
3,490.7
2013
Weighted
average
exercise
price
€
13.64
–
13.30
13.85
13.85
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
There were no awards of performance shares in the years 2015, 2014 or 2013. This plan terminated in April 2015.
Income statement expense
The total expense arising from share-based payment transactions amounted to Nil for the financial year ended 31 December 2015 (2014: Nil;
2013: Nil).
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Notes to the consolidated financial statements
13 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 Group 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%.
For the two years from 1 January 2014 to 31 December 2015, the employer contribution was 12%, 15% or 18% for each employee who
was employed on or before 31 December 2013, irrespective of whether the staff member made a contribution.
The total cost in respect of the Irish DC scheme, the EBS DC scheme and the UK DC scheme for 2015 was € 79 million (2014:
€ 86 million; 2013: € 13 million) and is included in administrative expenses (note 11).
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. 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, together with the additional risk reserve requirements, 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 three annual contributions of € 40 million remaining at 31 December 2015.
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 164 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 2014 respectively
using Projected Unit Methods. The next actuarial valuations of the Irish and UK schemes as at 30 June 2015 and 31 December 2017,
will be completed by 31 March 2016 and 31 December 2018 respectively. Actuarial valuations are available for inspection by the
members of the schemes.
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 was based on the market value of
the assets at 30 June in each relevant year, or as at the end of the preceding financial 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 was based
on the market value of the assets at 30 June in each relevant year, or as at the end of the preceding financial year.
In 2015, a levy of € 6.7 million (2014: € 30.3 million) was paid in respect of the Irish defined benefit schemes and a levy of € 0.7 million
(2014: € 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.
258
Allied Irish Banks, p.l.c. Annual Financial Report 2015
13 Retirement benefits (continued)
Contributions
The total contributions to all the defined benefit pension schemes operated by the Group in the year ended 31 December 2016 are
estimated to be € 68 million. Payments in the year to 31 December 2015 amounted to € 84 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.
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 2015 and 2014. 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 2 years and 1.50% per annum thereafter.
2015
%
1.45(1)
2.70
1.50
3.00
3.90
3.00
2014
%
1.40
2.20
1.75
3.00
3.70
3.00
0.00 – 3.00
2.70 – 4.35
1.50 – 3.00
0.00 – 3.00
2.20 – 4.00
1.75 – 3.00
Mortality assumptions
The life expectancies underlying the value of the scheme liabilities for the Irish and UK schemes at 31 December 2015 and 2014 are
shown in the following table:
Life expectancy - years
Retiring today age 63
Retiring in 10 years at age 63
Males
Females
Males
Females
2015
24.8
26.8
26.0
28.1
2015
25.6
27.8
26.7
29.0
24.8
26.2
26.1
27.3
26.3
28.6
27.5
29.8
Irish scheme
2014
UK scheme
2014
The mortality assumptions for the Irish and UK schemes were updated in 2015 to reflect emerging market experience. The table shows
that a member of the Irish scheme retiring at age 63 on 31 December 2015 is assumed to live on average for 24.8 years for a male
(25.6 years for the UK scheme) and 26.8 years for a female (27.8 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 2015 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
13 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 2015 and 2014:
Defined Fair value
benefit of scheme
obligation
€ m
2015
Net defined
benefit
assets (liability) asset
€ m
€ m
Defined Fair value
benefit of scheme
obligation
€ m
2014
Net defined
benefit
assets (liability) asset
€ m
€ m
At 1 January
Included in profit or loss
Past service cost
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
Benefits paid
(7,071)
6,007
(1,064)
(5,336)
5,242
(94)
(1)
(177)
–
(178)
(60)
(10)
863
–
(87)
706
–
200
200
_
158
(1)
157
–
–
–
53
95
148
84
(199)
(115)
(1)
(19)
(1)
(21)
(60)
(10)
863
53
8
854
84
1
85
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
At 31 December
(6,343)
6,197
(146)
(7,071)
6,007
(1,064)
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.
203
19
222
(293)
(55)
(20)
(368)
(146)
164
11
175
(1,125)
(97)
(17)
(1,239)
(1,064)
260
Allied Irish Banks, p.l.c. Annual Financial Report 2015
13 Retirement benefits (continued)
Scheme assets
The following table sets out an analysis of the scheme assets at 31 December 2015 and 2014:
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
Total investment funds
Mortgage backed securities(2)
Structured debt
Fair value of scheme assets
(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 2015
2015
€ m
169
62
206
166
91
330
172
178
169
53
47
1,474
10
1,484
1,021
1,031
2,052
53
–
53
2,105
255
14
14
421
23
91
95
36
728
318
1
1,727
1,727
434
9
6,197
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
261
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Notes to the consolidated financial statements
13 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 at
31 December 2015.
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
(240)
211
136
253
(238)
(136)
(58)
21
32
62
(20)
(32)
Maturity of the defined benefit obligation
The weighted average duration of the Irish scheme at 31 December 2015 is 21 years and of the UK scheme at 31 December 2015 is
19 years.
Asset-liability matching strategies
The Irish Scheme continues to review 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 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 258, 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. The asset
backed funding plan will grant the UK scheme annual payments from 1 January 2016 to 31 December 2032. Based on the results of
the December 2014 valuation, the asset backed funding plan will pay the UK scheme £ 19 million in 2016. 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 50).
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 the event of illness or injury resulting in the employee’s long term absence from work.
In 2015, the Group contributed € 6 million (2014: €8 million; 2013: € 6 million) towards insuring this benefit. This amount is included in
administrative expenses (note 11).
262
Allied Irish Banks, p.l.c. Annual Financial Report 2015
14 (Provisions)/writeback for impairment on financial investments available for sale
Debt securities (note 29)
Equity securities (note 29)
2015
€ m
–
–
–
2014
€ m
(1)
–
(1)
2013
€ m
18
(9)
9
15 Profit on disposal of property
The sale of properties surplus to requirements in 2015 gave rise to profit on disposal of € 3 million (2014: € 6 million; 2013: € 2 million).
16 Profit on disposal of businesses
In 2015, there was no profit on disposal of businesses (2014: Nil; 2013: € 1 million relating to an additional consideration which had
been deferred in 2012 following the disposal of an offshore subsidiary).
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263
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Notes to the consolidated financial statements
17 Auditors’ fees
The disclosure of Auditors’ fees is in accordance with Section 322 of the Companies Act 2014. This mandates disclosure of fees
paid/payable to the Group Auditors only (Deloitte Ireland) for services to the parent company in the categories set out below. All years
presented are on that basis.
Auditors’ fees (excluding VAT):
Audit of Group financial statements
Other assurance services
Taxation advisory services
Other non-audit services
2015
€ m
3.4(1)
4.7(2)
–
2.1
10.2
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 Auditors, for services provided to other Group companies:
–
–
–
–
audit € 0.3 million (2014: € 0.3 million; 2013*: € 0.1 million);
other assurance services € 0.07 million (2014: € 0.05 million; 2013*: Nil);
taxation advisory services Nil (2014: Nil; 2013*: € 0.01 million); and
other non–audit services Nil (2014: 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 Auditors, 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 Board Audit Committee of the engagement of the Auditors for non-audit work.
The Board Audit Committee has reviewed the level of non-audit services fees and is satisfied that it has not affected the independence
of the Auditors. It is Group policy to subject all large consultancy assignments to competitive tender, where appropriate.
The following table shows fees paid to overseas auditors (excluding Deloitte Ireland)
Auditors’ fees excluding Deloitte Ireland (excluding VAT)(3):
2015
€ m
1.9
2014
€ m
4.8
2013*
€ m
3.2
(1)Includes fee related to the audit of the Half-Yearly Financial Report 2015.
(2)In anticipation of an application to list on the Main Securities Market of the Irish Stock Exchange, Deloitte have been appointed as Reporting Accountant
for the Group. Work commenced during 2015 and fees paid are included in “Other assurance services”.
(3)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 2015, € 1.3 million was paid to Deloitte LLP as this review has continued throughout the year (2014: € 4.3 million; 2013*: € 2.8 million).
*Amounts paid in 2013 are from 20 June 2013 (date of appointment of Deloitte as Group Auditors).
264
Allied Irish Banks, p.l.c. Annual Financial Report 2015
18 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
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
Impact of change in tax legislation on deferred tax asset(1)
Total tax (charge)/credit for the year
Effective tax rate
2015
€ m
2014
€ m
2013
€ m
(12)
1
(11)
(8)
(2)
(10)
(21)
(26)
(11)
(234)
(242)
(513)
(534)
(1)
–
(1)
–
34
34
33
6
(21)
(248)
–
(263)
(230)
–
17
17
(32)
1
(31)
(14)
88
16
–
–
104
90
27.9%
20.7%
5.3%
Factors affecting tax charge
The following table explains the difference between the tax charge that would result from applying the standard corporation tax rate in
Ireland of 12.5% and the actual tax charge for the year:
Profit/(loss) before tax from continuing operations
Tax (charge)/credit at standard corporation tax rate
in Ireland of 12.5%
Effects of:
Foreign profits/(losses) taxed at other rates
Expenses not deductible for tax purposes
Exempted income, income at reduced rates
and tax credits
Share of results of associates shown post tax in
the income statement
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
Impact of change in tax legislation on deferred tax asset(1)
Tax (charge)/credit
(1)See note 34.
`
Allied Irish Banks, p.l.c. Annual Financial Report 2015
2015
%
€ m
1,914
€ m
1,111
2014
2013
%
€ m
%
(1,687)
(239)
12.5
(139)
12.5
211
12.5
2
(20)
(0.2)
1.8
29
(30)
1.7
(1.8)
(0.2)
13
0.8
(21)
(20)
1
4
(25)
43
–
(23)
(12)
(242)
(534)
1.1
1.1
(0.1)
(0.2)
1.3
(2.2)
–
1.2
0.6
12.6
27.9
2
3
–
(95)
4
–
13
–
(0.3)
–
8.6
(0.3)
–
(1.2)
–
(230)
20.7
–
(27)
(47)
4
(75)
12
–
90
–
(1.6)
(2.8)
0.3
(4.5)
0.7
–
5.3
265
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Notes to the consolidated financial statements
18 Taxation (continued)
Analysis of selected other comprehensive income
Continuing operations
Retirement benefit schemes
Actuarial gains/(losses) 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) transferred
to income statement
Fair value gains taken to other
comprehensive income
Total
Gross
€ m
Tax
€ m
2015
Net
€ m
Gross
€ m
Tax
€ m
2014
Net
€ m
Gross
€ m
Tax
€ m
2013
Net
€ m
846
846
(103)
(103)
743
743
(1,067)
(1,067)
128
128
(939)
(939)
(292)
(292)
41
41
(251)
(251)
31
31
(59)
30
(29)
–
–
7
(7)
–
31
31
(52)
23
(29)
27
27
–
–
27
27
(9)
(9)
(46)
5
(41)
(5)
445
399
(56)
(51)
389
348
(15)
(20)
–
–
–
2
2
(9)
(9)
(5)
(13)
(18)
(166)
17
(149)
(388)
48
(340)
(51)
10
(41)
352
186
(100)
(83)
252
103
1,223
(155)
1,068
835
(107)
728
631
580
(77)
(67)
554
513
266
Allied Irish Banks, p.l.c. Annual Financial Report 2015
19 Discontinued operations
2015
There were no discontinued operations in 2015.
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 8).
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 11).
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 accounting policy (z) in note 1. 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.
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Notes to the consolidated financial statements
20 Earnings per share
The calculation of basic earnings per unit of ordinary shares is based on the profit attributable to ordinary shareholders divided by the
weighted average number of ordinary shares in issue, excluding treasury shares and own shares held.
The calculation of the weighted average number of ordinary shares in issue for each of the years presented has been adjusted for the
share consolidation which occurred on 21 December 2015. All ordinary shares of nominal value € 0.0025 each were consolidated into
one ‘new ordinary share’ with a nominal value € 0.625 for every 250 shares held (note 42). In addition, in calculating the diluted earnings
per share, the number of ordinary shares that would be issuable on conversion of the CCNs has, likewise, been adjusted resulting in
640 million shares being included in the calculation below.
On 17 December 2015, AIB issued 155,147 million ordinary shares of € 0.0025 each nominal value to the NTMA (for the ISIF) on
conversion of 2,140 million 2009 Preference Shares (note 42).
The diluted earnings per share is based on the profit 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 equity holders of the parent from continuing operations
Dividend on the 2009 Preference Shares
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
2015
€ m
1,380
(446)(1)
934
–
934
2014
€ m
881
–
881
34
915
2013
€ m
(1,597)
–
(1,597)
–
(1,597)
Number of shares (millions)
Weighted average number of ordinary shares in issue during the year
2,119.3
2,090.6
2,079.0
Earnings/(loss) per share from continuing operations – basic
EUR 44.0c
EUR 42.2c
EUR (76.8c)
Earnings per share from discontinued operations – basic
–
EUR 1.6c
–
(b) Diluted
Profit/(loss) attributable to ordinary shareholders of the parent
from continuing operations (note 20 (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
2015
€ m
934
252
1,186
–
1,186
2014
€ m
881
234
1,115
34
1,149
2013
€ m
(1,597)
–
(1,597)
–
(1,597)
Number of shares (millions)
2,119.3
–
640.0
2,759.3
2,090.6
2,079.0
–
640.0
–
–
2,730.6
2,079.0
Earnings/(loss) per share from continuing operations - diluted
EUR 43.0c
EUR 40.9c
EUR (76.8c)
Earnings per share from discontinued operations - diluted
–
EUR 1.2c
–
(1)Includes the annual dividend to 13 May 2015 and a dividend paid for the period from 13 May 2015 to 17 December 2015 i.e. date of conversion/
redemption of the 2009 Preference Shares.
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20 Earnings per share (continued)
– Bonus shares in lieu of the dividend on the 2009 Preference Shares were issued to the NPRFC(1) in both 2014 and 2013, amounting
to 2,177,293,934 and 4,144,055,254 ordinary shares respectively (note 42). These bonus shares were 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 were not included in calculating the diluted per share amounts
because they were anti-dilutive. All outstanding options lapsed or were forfeited during the year to 31 December 2015.
–
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 € 2.50 resulting in 640 million
new ordinary shares (note 41), if the Core Tier 1 capital ratio falls below 8.25%. These incremental shares have been included in
calculating the diluted per share amounts in the years to 31 December 2015 and 2014 because they were dilutive. However, the
impact is minimal.
The ordinary shares are included in the weighted average number of shares on a time apportioned basis.
(1)Transferred to the Ireland Strategic Investment Fund (“ISIF”) on 22 December 2014. Ownership of ISIF vests with the Minister for Finance and is
controlled and managed by the NTMA.
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Notes to the consolidated financial statements
21 Distributions on equity shares
Dividends were not paid in either 2015 or 2014 on the ordinary equity shares. A dividend amounting to € 280 million was paid on
13 May 2015 on the 2009 Preference Shares and a dividend amounting to € 166 million was paid on 17 December 2015 on
conversion/redemption of the 2009 Preference Shares. In 2014 and 2013, bonus ordinary shares were issued in lieu of dividend to the
2009 Preference Shareholders (note 42).
22 Disposal groups and non-current assets held for sale
Total disposal groups and non-current assets held for sale
2015
€ m
8
2014
€ m
14
Disposal groups and non-current assets held for sale comprise property surplus to requirements and repossessed assets.
23 Trading portfolio financial assets
Equity shares
Of which unlisted:
Equity shares
2015
€ m
2014
€ m
1
1
1
1
1
1
1
1
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 2015 was € 39 million (2014: € 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 2015 would have included unrealised fair value gains on reclassified trading portfolio financial assets
of € 2 million (2014: gains € 15 million; 2013: gains € 112 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
2015
€ m
1
–
2014
€ m
2
(1)
2013
€ m
11
–
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).
270
Allied Irish Banks, p.l.c. Annual Financial Report 2015
24 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.
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 2015 and 2014 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
2015
€ m
70,300
1,540
(1,622)
6,805
67
(64)
2,398
91
(89)
340
–
(6)
79,843
1,698
(1,781)
2014
€ m
73,230
1,852
(2,136)
4,816
48
(73)
3,010
138
(117)
340
–
(8)
81,396
2,038
(2,334)
(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)69% of fair value relates to exposures to banks (2014: 70%).
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Notes to the consolidated financial statements
24 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
2015
Total
€ m
< 1 year
€ m
1 < 5 years
€ m
5 years +
€ m
2014
Total
€ m
Residual maturity
Notional principal amount
Positive fair value
23,196
34,912
158
659
21,735
881
79,843
1,698
30,037
33,844
98
820
17,515
1,120
81,396
2,038
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
2015
€ m
77,071
2,428
344
79,843
2014
€ m
78,035
2,886
475
81,396
Positive fair value
2014
2015
€ m
€ m
1,273
402
23
1,698
1,542
469
27
2,038
272
Allied Irish Banks, p.l.c. Annual Financial Report 2015
24 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. The Group is 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
interest 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 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 2015 and 2014, are presented within this note.
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Notes to the consolidated financial statements
24 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 2015 and 2014. A description of how the fair values of derivatives are determined is set out in note 52.
Notional
principal
amount
€ m
2015
Fair values
Assets
Liabilities
€ m
€ m
Notional
principal
amount
€ m
2014
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 bought and sold
Total interest rate derivatives – OTC
Interest rate derivatives – OTC – central clearing
Interest rate swaps
Total interest rate derivatives – central clearing
Interest rate derivatives – exchange traded
Interest rate futures
Total interest rate derivatives – exchange traded
15,114
432
670
16,216
100
100
2,184
2,184
661
56
2
719
–
–
–
–
(716)
(55)
(3)
(774)
–
–
–
–
17,182
629
677
18,488
–
–
1,706
1,706
789
46
3
838
–
–
–
–
(905)
(42)
(5)
(952)
–
–
–
–
Total interest rate derivatives
18,500
719
(774)
20,194
838
(952)
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
6,736
69
6,805
2
2,396
2,398
340
340
66
1
67
2
89
91
–
–
(64)
–
(64)
–
(89)
(89)
(6)
(6)
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)
Total derivatives held for trading
28,043
877
(933)
28,360
1,024
(1,150)
Derivatives held for hedging
Derivatives designated as fair value hedges – OTC
Interest rate swaps
16,503
Total derivatives designated as fair value hedges
16,503
Derivatives designated as cash flow hedges – OTC
Interest rate swaps
Cross currency interest rate swaps
Total interest rate cash flow hedges – OTC
32,872
2,371
35,243
Interest rate cash flow hedges – OTC – central clearing
Interest rate swaps
Total interest rate cash flow hedges – central clearing
54
54
Total derivatives designated as cash flow hedges
35,297
Total derivatives held for hedging
Total derivative financial instruments
51,800
79,843
321
321
475
24
499
1
1
500
821
(424)
(424)
(319)
(105)
(424)
–
–
(424)
(848)
1,698
(1,781)
17,130
17,130
32,792
3,114
35,906
–
–
35,906
53,036
81,396
500
500
511
3
514
–
–
514
1,014
2,038
(587)
(587)
(380)
(217)
(597)
–
–
(597)
(1,184)
(2,334)
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24 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
5
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
26
12
155
44
233
63
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
2015
Total
€ m
441
124
2014
Total
€ m
240
151
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
29
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
26
31
155
78
233
84
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
2015
Total
€ m
441
222
2014
Total
€ m
240
261
For AIB Group, the ineffectiveness reflected in the income statement that arose from cash flow hedges is Nil (2014: Nil).
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 in respect of cash flow hedges was a charge of € 29 million
(2014: a gain of € 348 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 52. The net mark to market on fair value hedging derivatives, excluding accrual and risk adjustments is negative € 147 million
(2014: negative € 161 million) and the net mark to market on the related hedged items is positive € 146 million
(2014: positive € 157 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 47.
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Notes to the consolidated financial statements
25 Loans and receivables to banks
Funds placed with central banks
Funds placed with other banks
Provision for impairment
Amounts include:
Reverse repurchase agreements
Loans and receivables to banks by geographical area(1)
Republic of Ireland
United Kingdom
United States of America
2015
€ m
779
1,560
–
2,339
648
2015
€ m
1,030
1,305
4
2,339
2014
€ m
664
1,201
–
1,865
–
2014
€ m
402
1,461
2
1,865
(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 € 475 million (2014: € 773 million) placed with derivative counterparties in
relation to net derivative positions and placed with repurchase agreement counterparties (notes 24 and 47).
Under reverse repurchase agreements, the Group accepted collateral 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 € 737 million (2014: Nil). The fair value of collateral sold or repledged amounted to € 43 million (2014: € 16 million). These
transactions were conducted under terms that are usual and customary to standard reverse repurchase agreements.
26 Loans and receivables to customers
Loans and receivables to customers
Reverse repurchase agreements
Amounts receivable under finance leases and hire purchase contracts (see below)
Unquoted debt securities
Provisions for impairment (note 27)
Of which:
Repayable on demand or at short notice
Amounts include:
Due from associated undertakings
2015
€ m
68,578
226
1,049
219
(6,832)
63,240
2014
€ m
74,651
110
860
147
(12,406)
63,362
15,270
25,078
–
–
The unwind of the discount on the carrying amount of impaired loans amounted to € 244 million (2014: € 329 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 € 222 million (2014: € 107 million) 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 € 73 million (2014: € 72 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.
276
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26 Loans and receivables to customers (continued)
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 27).
2015
€ m
164
918
67
1,149
(104)
4
1,049
162
831
56
1,049
58
593
2014
€ m
347
578
29
954
(97)
3
860
339
499
22
860
80
462
27 Provisions for impairment on loans and receivables
The following table shows provisions for impairment on loans and receivables both to banks and customers. Further information on
provisions for impairment is disclosed in 3.1 Risk management.
At 1 January
Exchange translation adjustments
Credit to income statement – customers
Credit to 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 customers (note 26)
2015
€ m
12,406
131
(925)
–
(4,593)
(195)
8
6,832
6,158
674
6,832
6,832
6,832
2014
€ m
17,090
150
(178)
(7)
(4,655)
–
6
12,406
11,315
1,091
12,406
12,406
12,406
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Notes to the consolidated financial statements
28 NAMA senior bonds
During 2010 and 2011, AIB received NAMA senior bonds and NAMA subordinated bonds as consideration for loans and receivables
transferred to NAMA.
The senior bonds carry a guarantee of the Irish Government with interest payable semi-annually each March and September at a rate of
six month Euribor, subject to a 0% floor. The bonds were issued on 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
Acceleration/re-estimation of the timing of cash flows
At 31 December
2015
€ m
9,423
21
(3,834)
6
5,616
2014
€ m
15,598
36
(6,343)
132
9,423
On initial recognition of the NAMA senior bonds, AIB made certain assumptions as to the timing of expected repayments. The
assumptions underpinning the repayments and their timing are subject to continuing review. Accordingly, in 2015, a gain of € 6 million
has been recognised following the acceleration of repayments by NAMA (2014: a gain of € 132 million was recognised on re-estimation
of expected timing of repayments). These gains were accounted for as adjustments to the carrying value of the bonds and were
reflected in ‘Other operating income’.
The estimated fair value of the bonds at 31 December 2015 is € 5,626 million (2014: € 9,479 million). The nominal value of the bonds is
€ 5,643 million (31 December 2014: € 9,477 million). Whilst these bonds do not have an external credit rating, the Group has attributed
to them a rating of A– (2014: A–) i.e. the external rating of the Sovereign.
At 31 December 2015, € 1,257 million (2014: € 1,805 million) of NAMA senior bonds have been pledged to central banks and banks
(note 35).
278
Allied Irish Banks, p.l.c. Annual Financial Report 2015
29 Financial investments available for sale
The following table sets out at 31 December 2015 and 2014, the carrying value (fair value) of financial investments available for sale by
major classifications together with the unrealised gains and losses.
Debt securities
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and government
agencies
Collateralised mortgage obligations
Other asset backed securities
Euro bank securities
Euro corporate securities
Non Euro corporate securities
Fair
value
€ m
5,406
3,033
245
2,008
328
1
4,600
30
57
Total debt securities
15,708
Equity securities
Equity securities – NAMA subordinated bonds
Equity securities – other
Total equity securities
Total financial investments
available for sale
Debt securities
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and government
agencies
Collateralised mortgage obligations
Other asset backed securities
Euro bank securities
Non Euro corporate securities
Total debt securities
Equity securities
Equity securities – NAMA subordinated bonds
Equity securities – other
Total equity securities
Total financial investments
available for sale
432
349
781
Fair
value
€ m
9,107
3,631
182
2,852
99
1
3,897
3
19,772
374
39
413
Unrealised
gross
gains
€ m
Unrealised
gross
losses
€ m
Net unrealised
gains/
(losses)
€ m
Tax
effect
€ m
2015
Net
after
tax
€ m
514
120
5
68
(2)
–
64
–
1
(73)
(17)
(1)
(10)
1
–
(9)
–
–
(109)
770
(48)
(98)
(146)
337
211
548
587
140
7
78
–
–
81
–
3
896
385
311
696
–
(3)
(1)
–
(3)
–
(8)
–
(2)
(17)
–
(2)
(2)
587
137
6
78
(3)
–
73
–
1
879
385
309
694
16,489
1,592
(19)
1,573
(255)
1,318
Unrealised
gross
gains
€ m
Unrealised
gross
losses
€ m
Net unrealised
gains/
(losses)
€ m
Tax
effect
€ m
2014
Net
after
tax
€ m
1,327
170
9
119
–
–
105
–
1,730
327
11
338
–
–
–
–
(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
20,185
2,068
2,063
(259)
1,804
n
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m
e
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a
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a
m
k
s
R
i
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s
r
e
v
o
d
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a
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c
n
a
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r
e
v
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Notes to the consolidated financial statements
29 Financial investments available for sale (continued)
Analysis of movements in financial
investments available for sale
At 1 January
Exchange translation adjustments
Purchases
Sales
Maturities
IAS 39 reclassifications out(1) (note 30)
Provision 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
2015
Total
€ m
Debt
securities
€ m
Equity
securities
€ m
19,772
27
4,257
(4,296)
(323)
(3,487)
–
(97)
(145)
15,708
15,708
–
15,708
413
20,185
–
13
(8)
–
–
–
–
363
781
–
781
781
27
4,270
(4,304)
(323)
(3,487)
–
(97)
218
16,489
15,708
781
16,489
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
(1)During the year, certain financial investments available for sale amounting to €3,487 million were reclassified to the held to maturity category. The Group
has the ability and intention to hold these securities to maturity. At reclassification date, the accumulated fair value gain held in other comprehensive income
was € 549 million.
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29 Financial investments available for sale (continued)
The following table sets out at 31 December 2015 and 2014, 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
Euro government securities
Non Euro government securities
Collateralised mortgage obligations
Euro bank securities
Non Euro corporate securities
Total debt securities
Equity securities
Equity securities – other
Total
471
43
241
1,241
–
1,996
5
2,001
–
–
65
–
1
66
18
84
Investments
with
unrealised losses
of less than
12 months
€ m
Investments
with
unrealised losses
of more than
12 months
€ m
70
–
70
11
81
–
3
3
5
8
Debt securities
Collateralised mortgage obligations
Non Euro corporate securities
Total debt securities
Equity securities
Equity securities – other
Total
Fair value
Total
€ m
471
43
306
1,241
1
2,062
23
2,085
Unrealised
losses
of less
than
12 months
€ m
(3)
(1)
(2)
(8)
–
(14)
–
(14)
Fair value
Total
€ m
70
3
73
16
89
Unrealised
losses
of less
than
12 months
€ m
(1)
–
(1)
(2)
(3)
2015
Unrealised losses
Total
Unrealised
losses
of more
than
12 months
€ m
€ m
(3)
(1)
(3)
(8)
(2)
(17)
(2)
(19)
€ m
(1)
(1)
(2)
(3)
(5)
–
–
(1)
–
(2)
(3)
(2)
(5)
–
(1)
(1)
(1)
(2)
2014
Unrealised losses
Total
Unrealised
losses
of more
than
12 months
€ m
Available for sale financial investments with unrealised losses have been assessed for impairment based on the credit risk profile of the
counterparties involved. Impairment losses on debt securities of Nil (2014: € 1 million) and Nil (2014: Nil) on equity securities have been
recognised as set out in note 14.
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Notes to the consolidated financial statements
30 Financial investments held to maturity
Government bonds
Total financial investment held to maturity
Analysis of movements in financial investments held to maturity
At 1 January
IAS 39 reclassifications in 2015 (note 29)
Amortisation of fair value gain
At 31 December
2015
€ m
3,483
3,483
2015
€ m
–
3,487
(4)
3,483
2014
€ m
–
–
2014
€ m
–
–
–
–
Following a review of the Group’s investment strategy, a decision was taken to reclassify a portfolio of Irish Government securities to held
to maturity from the available for sale asset portfolio. Government bonds with a fair value of € 3,487 million were reclassified from
available for sale to held to maturity in 2015. The reclassification reflects the Group’s positive intention and ability to hold these securities
to maturity. On the date of reclassification, the accumulated fair value gain held in other comprehensive income was € 549 million.
This unrealised gain will be amortised to interest income using the effective income method over the remaining life of the bonds.
Financial investments held to maturity are listed on a recognised stock exchange. Their maturity profile is set out in ‘Risk management’
3.3 Liquidity risk.
31 Interests in associated undertakings
Included in the income statement is the contribution net of tax from investments in associated undertakings as follows:
Income statement
Share of results of associated undertakings(1)
Impairment of associated undertakings
Gain/(loss) on disposal of investment in associated undertakings
Share of net assets including goodwill
At 1 January
Exchange translation adjustments
Income for the year – Continuing operations
Dividends received from associates
Impairment on associated undertakings – Continuing operations
At 31 December(4)
Disclosed in the statement of financial position within:
Interests in associated undertakings
Of which listed on a recognised stock exchange
2015
€ m
25
–
–
25
2014
€ m
23
(2)
2(2)
23
2013
16
(8)
(1)(3)
7
2015
€ m
2014
€ m
69
–
25
(24)
–
70
70
–
58
1
23
(11)
(2)
69
69
–
(1)Includes AIB Merchant Services € 21 million profit (2014: € 21 million profit; 2013: € 10 million), Aviva Health Insurance Ireland Limited € 4 million
(2014: € 2 million; 2013: € 6 million) and other associates Nil (2014: Nil; 2013: Nil).
(2)Spire Holdings was disposed of during 2014 with € 2 million gain on disposal.
(3)LaGuardia Hotel was disposed of during 2013 with € 1 million loss on disposal.
(4)Includes the Group’s investments in AIB Merchant Services and Aviva Health Insurance Ireland Limited.
282
Allied Irish Banks, p.l.c. Annual Financial Report 2015
31 Interests in associated undertakings (continued)
The following are the principal associates of the Group at 31 December 2015 and 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
2015
%
2014
%
(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 Sections 316 and 348 of the Companies Act 2014 and the European Communities (Credit Institutions: Financial
Statements) Regulations 2015, 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 2015 or 2014.
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
32 Intangible assets
Cost
At 1 January
Additions – internally generated
– externally purchased
Amounts written off(1)
Exchange translation adjustments
At 31 December
Amortisation/impairment
At 1 January
Amortisation for the year
Impairment for the year
Amounts written off(1)
At 31 December
Carrying value at 31 December
Software
€ m
Other
€ m
768
119
37
(33)
1
892
597
39
–
(33)
603
289
3
–
–
–
–
3
3
–
–
–
3
–
2015
Total
€ m
771
119
37
(33)
1
895
600
39
–
(33)
606
289
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
(1)Relates to assets which are no longer in use with a Nil carrying value.
Internally generated intangible assets under construction amounted to € 107 million (2014: € 40 million).
The cost of internally generated software amounted to € 479 million (2014: € 442 million).
Future capital expenditure in relation to both intangible assets and property, plant and equipment is set out in note 55.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
33 Property, plant and equipment
Cost
At 1 January 2015
Additions
Transfers
Disposals
Amounts written off(1)
Exchange translation adjustments
At 31 December 2015
Depreciation/impairment
At 1 January 2015
Depreciation charge for the year
Disposals
Amounts written off(1)
Exchange translation adjustments
At 31 December 2015
Carrying value at 31 December 2015
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
Carrying value at 31 December 2014
Equipment
2015
Total
Freehold
€ m
175
47
–
–
–
1
223
68
4
–
–
1
73
150
Property
Long
Leasehold
leasehold under 50 years
€ m
€ m
88
2
3
–
–
–
93
32
2
–
–
–
34
59
126
16
(6)
–
(6)
1
131
80
7
–
(6)
1
82
49
€ m
473
24
3
(2)
(2)
2
498
392
22
(2)
(2)
2
412
86
Property
Equipment
Freehold
Long
Leasehold
leasehold under 50 years
€ m
173
(4)
9
(1)
(4)
2
175
68
(2)
4
1
–
–
(4)
1
68
107
€ m
99
(10)
1
–
(2)
–
88
32
(2)
4
2
(2)
–
(2)
–
32
56
€ m
142
–
10
–
(28)
2
126
€ m
469
–
27
(4)
(22)
3
473
93
389
–
8
5
–
–
(28)
2
80
46
–
20
4
–
(2)
(22)
3
392
81
€ m
862
89
–
(2)
(8)
4
945
572
35
(2)
(8)
4
601
344
2014
Total
€ m
883
(14)
47
(5)
(56)
7
862
582
(4)
36
12
(2)
(2)
(56)
6
572
290
(1)Relates to assets which are no longer in use with a Nil carrying value.
The carrying value of property occupied by the Group for its own activities was € 237 million (2014: € 199 million), excluding those held as
disposal groups and non-current assets held for sale. Property leased to others by AIB Group had a carrying value of € 3 million
(2014: € 2 million). Property and equipment includes €25 million for items in the course of construction (2014: € 8 million). Future capital
expenditure in relation to both property plant and equipment and intangible assets is set out in note 55.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
285
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a
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s
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o
d
n
a
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c
n
a
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r
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o
G
s
t
n
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m
e
t
a
t
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i
a
c
n
a
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i
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o
i
t
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e
G
Notes to the consolidated financial statements
34 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
Other
Total gross deferred tax liabilities
Net deferred tax assets
Represented on the statement of financial position as follows:
Deferred tax assets
2015
€ m
1
15
9
3,201
–
50
3,276
(54)
(18)
(14)
(280)
(13)
(379)
2014
€ m
4
128
12
3,670
1
46
3,861
(54)
(22)
(12)
(197)
–
(285)
2,897
3,576
2,897
3,576
For each of the years ended 31 December 2015 and 2014, 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 18)
At 31 December
2015
€ m
3,576
20
(186)
(513)
2,897
2014
€ m
3,828
41
(30)
(263)
3,576
Comments on the basis of recognition of deferred tax assets on unused tax losses are included in note 2 ‘Critical accounting
judgements and estimates’. Information on the regulatory capital treatment of deferred tax assets is included in ‘Principal risks and
uncertainties’ on page 50.
At 31 December 2015, recognised deferred tax assets on tax losses and other temporary differences, net of deferred tax liabilities,
totalled € 2,897 million (2014: € 3,576 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 € 2,722 million (2014: € 3,463 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 assess 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.
286
Allied Irish Banks, p.l.c. Annual Financial Report 2015
34 Deferred taxation (continued)
Following legislation enacted in the UK on 1 April 2015, whereby only fifty per cent of a bank’s annual trading profits can be sheltered by
unused tax losses arising before that date, the Group’s UK deferred tax asset was reduced by € 242 million (£ 178 million).
Under UK legislation enacted in November 2015, the UK corporation tax rate will be reduced to 19% from April 2017 and will be further
reduced to 18% from April 2020. In addition, an 8% corporation tax surcharge will apply to banking profits from January 2016, subject to
an annual exemption for the first £ 25 million of profits. Taxable profits for the purpose of the surcharge cannot be reduced by pre-2016
tax losses. These changes have been reflected in the carrying value of deferred tax assets and liabilities at 31 December 2015.
The Group has not recognised deferred tax assets in respect of Irish tax on unused tax losses of € 305 million (2014: € 226 million) and
overseas tax (UK and USA) on unused tax losses of € 3,475 million (2014: € 2,439 million), and foreign tax credits for Irish tax
purposes, of € 3 million (2014: € 5 million). Of these tax losses totalling € 3,780 million for which no deferred tax is recognised,
€ 34 million expire in 2032, € 40 million in 2033, € 28 million in 2034 and € 6 million in 2035.
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 (2014: Nil).
Deferred tax recognised directly in equity amounted to Nil (2014: Nil).
Analysis of income tax relating to other comprehensive income
Gross
Tax
Net of tax
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 gains in retirement benefit schemes
Total comprehensive income for the year
Attributable to:
Owners of the parent
Profit for the year – continuing operations
Profit for the year – discontinued operations
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
2015
Net amount
attributable
to owners of
the parent
€ m
1,380
31
(29)
103
743
€ m
1,380
31
(29)
103
743
2,228
2,228
€ m
1,914
31
(29)
186
846
2,948
€ m
(534)
–
–
(83)
(103)
(720)
2,948
(720)
2,228
2,228
Gross
Tax
Net of tax
€ m
1,111
34
27
399
835
(1,067)
(1)
1,338
€ m
(230)
–
–
(51)
(107)
128
–
(260)
€ m
881
34
27
348
728
(939)
(1)
1,078
2014
Net amount
attributable
to owners of
the parent
€ m
881
34
27
348
728
(939)
(1)
1,078
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e
r
s
s
e
n
s
u
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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
1,338
(260)
1,078
1,078
n
o
i
t
a
m
r
o
n
f
i
Allied Irish Banks, p.l.c. Annual Financial Report 2015
287
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Notes to the consolidated financial statements
34 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
€ m
(1,687)
(9)
(20)
580
292
(1)
(845)
(845)
€ m
90
–
2
(67)
(41)
–
(16)
(16)
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)
288
Allied Irish Banks, p.l.c. Annual Financial Report 2015
35 Deposits by central banks and banks
Central banks
Eurosystem refinancing operations(1)
Other borrowings
Banks
Securities sold under agreements to repurchase
Other borrowings – secured
– unsecured
Amounts include:
Due to associated undertakings
2015
€ m
2,900
50
2,950
2014
€ m
3,400
–
3,400
10,153
12,653
350
410
10,913
13,863
350
365
13,368
16,768
–
–
(1)Eurosystem refinancing operations are credit facilities from the Eurosystem secured by a fixed charge over securities.
Securities sold under agreements to repurchase (note 50) and Eurosystem refinancing operations, with the exception of € 1.9 billion
funded through the ECB two year Targeted Long Term Refinancing Operation (“TLTRO”) mature within six months and are secured by
Irish Government bonds, NAMA senior bonds, other marketable securities and eligible assets. These agreements are completed under
market standard Global Master Repurchase Agreements. Repurchase agreements with the ECB are completed under a Master
Repurchase Agreement.
In addition, the Group has granted a floating charge over certain residential mortgage pools, the drawings against which were Nil
(2014: Nil).
Deposits by central banks and banks include cash collateral of € 182 million (2014: € 318 million) received from derivative
counterparties in relation to net derivative positions (note 47) and also from repurchase agreement counterparties.
Financial assets pledged
(a) Financial assets pledged under existing agreements to repurchase, for secured borrowings, 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
5,357
10,829
16,186
Central
banks
€ m
Banks
€ m
2015
Total
€ m
Central
banks
€ m
5,337
Banks
€ m
2014
Total
€ m
13,857
19,194
Of which:
Government securities(1)
Other securities
20
5,337(2)
8,364
2,465
8,384
7,802
1,084
4,253(2)
9,479
4,378
10,563
8,631
(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 € 292 million (2014: € 297 million) as described in note 50.
Funding received from external investors is included above as ‘other borrowings -secured’ and has been secured on these and
future credit card receivables.
i
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s
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m
e
g
a
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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
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e
m
e
t
a
t
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a
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Notes to the consolidated financial statements
36 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
Amounts include:
Due to associated undertakings
2015
€ m
25,955
11,698
24,825
905
63,383
21,907
41,476
63,383
2014
€ m
21,665
10,004
30,196
2,153
64,018
18,260
45,758
64,018
54
75
(1)The Group pledged government available for sale securities with a fair value of € 627 million (2014: € 2,941 million) and non-government available for
sale securities with a fair value of € 302 million (2014: Nil) as collateral for these facilities and providing access to future funding facilities (see note 47
for further information).
At 31 December 2015, the Group’s five largest customer deposits amounted to 5% (2014: 9%) of total customer accounts.
37 Trading portfolio financial liabilities
Debt securities:
Government securities
For contractual residual maturity see ‘Risk management’ - 3.3 Liquidity risk.
38 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
2015
€ m
86
86
2015
€ m
1,555
5,346
6,901
100
7,001
2014
€ m
–
–
2014
€ m
3,293
4,518
7,811
50
7,861
Debt securities issued during the year amounted to € 3,522 million (2014: € 3,198 million) of which € 1,500 million relates to covered
bond issuances (2014: € 500 million), a € 500 million EMTN bond issuance (2014: € 500 million), with the balance relating to issuances
under the short-term commercial paper programme. Debt securities matured or repurchased amounted to € 4,397 million
(2014: € 4,091 million) of which € 129 million (2014: € 937 million) relates to securities repurchased as part of a debt buyback
programme.
39 Other liabilities
Notes in circulation
Items in transit
Creditors
Fair value of hedged liability positions
Other
290
2015
€ m
425
163
10
203
307
2014
€ m
422
126
12
325
340
1,108
1,225
Allied Irish Banks, p.l.c. Annual Financial Report 2015
40 Provisions for liabilities and commitments
At 1 January
Transfer in
Exchange translation adjustments
Charged to income statement
Released to income statement
Provisions utilised
At 31 December 2015
At 1 January
Transfers out
Exchange translation adjustments
Charged to income statement
Released to income statement
Provisions utilised
At 31 December 2014
Liabilities
and
charges
€ m
60
–
–
11(4)
(22)(4)
–
49
Liabilities
and
charges
€ m
72
–
(1)
1(4)
(5)(4)
(7)
60
NAMA(1)
provisions
Onerous(2)
contracts
Legal
claims
€ m
33
14
–
7(1)
(12)(1)
(3)
39
€ m
51
–
3
–
(11)
(30)
13
€ m
32
–
–
4
(3)
(1)
32
provisions
Other(3) Voluntary
severance
scheme
€ m
€ m
81
–
4
201
(9)
(28)
249
1
–
–
4
–
(5)
–
NAMA(1)
provisions
Onerous(2)
contracts
Legal
claims
Other(3)
provisions
€ m
35
–
–
6(1)
(8)(1)
–
33
€ m
€ m
36
–
1
29
(9)
(6)
51
14
–
–
21
(2)
(1)
32
€ m
139
(5)
5
34
(3)
(89)
81
Voluntary
severance
scheme
€ m
3
–
–
1
–
(3)
1
2015
Total
€ m
258
14
7
227
(57)
(67)
382(5)
2014
Total
€ m
299
(5)
5
92
(27)
(106)
258(5)
Provisions for customer redress and related matters (included in ‘Other provisions’)
In December 2015, the Central Bank of Ireland (‘CBI’), requested the Irish banking industry, including AIB, to conduct a broad
examination of tracker mortgage related issues, comprising of a review of mortgage loan books (including both PDH and Buy-to- Let
properties and loans that have been redeemed and/or sold), to assess compliance with both contractual and regulatory requirements. In
situations where customer detriment is identified from this examination, AIB is required to provide appropriate redress and
compensation in line with the CBI ‘Principles for Redress’. The Group has instigated a project which is on-going to identify all mortgage
loans where customer detriment may have occurred and to determine appropriate redress and compensation in such cases.
At 31 December 2015, the Group has provided € 105 million where either the interest rates are not in accordance with the relevant
contractual documentation or where the Group will offer revised terms on mortgage accounts. This mainly relates to the refund of interest
(difference in interest charged to customers compared to the interest that would have been charged when the tracker rate is applied). The
provision also includes amounts for compensating customers, such as reimbursement for the time value of money and other compensation
amounts.
Furthermore, the Group has recognised a provision of € 85 million for (a) the accounting impact of a constructive obligation under IAS 37 for
fair value remeasurement losses that will be recognised in areas where the Group will offer revised terms on mortgage accounts; (b) tax
liabilities arising from redress or other compensation which the Group may be required to discharge on behalf of impacted customers; and
(c) other costs associated with the examination.
Given that the grounds on which the provisions have been estimated could prejudice the position of the Group, further information as
required by IAS 37 Provisions, Contingent Liabilities and Contingent Assets is not disclosed.
(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 which are surplus to requirements.
(3)Includes € 232 million (2014: € 58 million) provisions for customer restitution. These relate to payment protection insurance in both Ireland
and the UK, interest rate hedge products in the UK, credit card insurance, redress provisions under the Central Bank of Ireland “Principles for Redress”
(see above) and other miscellaneous provisions.
(4)Included in writeback of provisions for liabilities and commitments in income statement.
(5)The total provisions for liabilities and commitments expected to be settled within one year amount to € 290 million (2014: € 147 million).
Allied Irish Banks, p.l.c. Annual Financial Report 2015
291
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e
g
a
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s
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i
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h
g
s
r
e
v
o
d
n
a
e
c
n
a
n
r
e
v
o
G
s
t
n
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m
e
t
a
t
s
l
i
a
c
n
a
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Notes to the consolidated financial statements
41 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:
€ 750 million Subordinated Tier 2 Notes due 2025, Callable 2020
€ 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 £ 1 million (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
2015
€ m
2014
€ m
1,600
(447)
371
1,524
750
8
35
1
794
2,318
2015
€ m
794
1,600
(447)
258
1,411
–
8
32
–
40
1,451
2014
€ m
40
€ 1.6bn Contingent Capital Tier 2 Notes due 2016
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 46). 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 € 2.50 per share. The conversion price was
adjusted, in accordance with the terms of the notes, for the consolidation of the ordinary shares whereby one new ordinary share of
nominal value € 0.625 was issued in exchange for every 250 existing ordinary shares of € 0.0025 each (note 42).
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.
(a) € 750 million Subordinated Tier 2 Notes due 2025, Callable 2020
On 26 November 2015, AIB issued € 750 million Subordinated Tier 2 Notes due 2025, Callable 2020.
These notes mature on 26 November 2025 but can be redeemed in whole, but not in part, at the option of AIB on the optional
redemption date on 26 November 2020, subject to the approval of the Financial Regulator, with approval being conditional on meeting
the requirements of the EU Capital Requirements Regulation.
The notes will bear interest on the outstanding nominal amount at a fixed rate of 4.125%, payable annually in arrears on 26 November
each year. The interest rate will be reset on 26 November 2020 to Eur 5 year Mid Swap rate plus the initial margin of 395 basis points.
292
Allied Irish Banks, p.l.c. Annual Financial Report 2015
41 Subordinated liabilities and other capital instruments (continued)
Dated loan capital
(b) Other dated subordinated loan capital
Following the liability management exercises in 2011 and the Subordinated Liabilities Order (“SLO”) in April 2011, residual balances
remained on the dated loan capital instruments above. The SLO, which was effective from 22 April 2011, changed the terms of all of
those outstanding dated loan agreements. 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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h
g
s
r
e
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o
d
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a
e
c
n
a
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r
e
v
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Notes to the consolidated financial statements
42 Share capital
Authorised
Ordinary share capital
Ordinary shares of € 0.625 each
(2014: € 0.0025)
Preference share capital
2009 Non–cumulative preference
shares of € 0.01 each
Issued
Ordinary share capital
Ordinary shares of € 0.625 each
(2014: € 0.0025)
Preference share capital
2009 Non–cumulative preference
shares of € 0.01 each
Number of
shares
m
2015
€ m
Number of
shares
m
2014
2014
€ m
4,000.0
2,500
702,000.0
1,755
–
–
3,500.0
35
2,714.4
1,696
523,474.1
1,309
–
–
3,500.0
35
2015
Capital reorganisation
Ordinary shares and 2009 Preference shares
Arising from, inter alia, a requirement to return State aid to the Irish Government in line with AIB’s obligations under the EU
Restructuring Plan, to create a sound and sustainable capital base on which to grow its business and to meet regulatory requirements
under CRD IV and the BRRD, AIB implemented a number of measures in order to reorganise its capital following resolutions passed at
the EGM of shareholders held on 16 December 2015 (‘the EGM’). These measures impacted ordinary share capital, 2009 Preference
Share capital, share premium and revenue reserves and are outlined below under the following key steps:
–
–
2009 Preference Share conversion;
2009 Preference Share redemption;
– Ordinary share consolidation; and
– Changes to authorised share capital.
2009 Preference Shares
On 13 May 2009, AIB issued 3,500 million non-cumulative redeemable preference shares to the Minister for Finance for a subscription
price of € 3.5 billion (nominal price of € 0.01 per share). The shares carried a fixed non-cumulative dividend at a rate of 8% per annum,
payable annually in arrears at the discretion of AIB. On 13 May 2015, this dividend, amounting to € 280 million was paid in cash.
Under the terms of the agreement with the Minister for Finance, these 2009 Preference Shares were redeemable at the option of AIB
from distributable profits and/or the proceeds of an issue of shares constituting core tier 1 capital (now CET 1) which if redeemed more
than five years after issue, at a price of € 1.25 per share i.e. a 25 per cent step up on the subscription price.
On 20 November 2015, in connection with the Capital Reorganisation, the 2009 Preference Share Conversion and Redemption
Agreement was made between AIB, the Minister for Finance and the NTMA and was approved at the EGM held on 16 December 2015.
Under this agreement, AIB agreed to convert 2,140 million of the 2009 Preference Shares into ordinary shares at their subscription price
of € 2,140 million plus a 25 per cent step-up (€ 2,675 million in total).
On 17 December 2015, in accordance with the terms of the 2009 Preference Shares in the Constitution of the Company, AIB redeemed
the remaining 2009 Preference Shares (1,360 million shares) for cash at their subscription price of € 1,360 million plus the 25 per cent
step-up (total € 1,700 million).
294
Allied Irish Banks, p.l.c. Annual Financial Report 2015
42 Share capital (continued)
2009 Preference Share conversion
For the purpose of converting € 2,675 million into ordinary shares, AIB and the Minister for Finance agreed a fair value of € 0.01724176
per € 0.0025 ordinary share. This required 155,146,574,363 ordinary shares to satisfy the conversion.
In order to convert the 2009 Preference Shares of € 0.01 per share (paid up to € 1.00, inclusive of premium paid upon issue) into
ordinary shares of € 0.0025 each, each converting preference share was sub-divided into four 2009 Preference Shares of € 0.0025
each which resulted in 8,560 million new ‘sub-divided Preference shares’ in issue.
Each sub-divided Preference Share was re-designated as one ordinary share of € 0.0025 in part satisfaction for the conversion. This
re-designation of the 2009 Preference Shares to ordinary shares amounted to € 21.4 million.
In addition, bonus ordinary shares with a nominal value € 0.0025 were issued to the NTMA for the residual number of shares due on
conversion. The number of bonus shares was calculated as the total entitlement in respect of converting shares i.e. 155,146,574,363
less the number of shares re-designated from 2009 Preference Shares to ordinary shares i.e. 146,586,574,363 shares.
The bonus shares issue resulted in a transfer of the nominal value of each ordinary share issued from share premium to ordinary share
capital which totalled € 366 million.
The effective date for the 2009 Preference Share conversion was 17 December 2015.
2009 Preference Share redemption
Immediately following the conversion on 17 December 2015 of 2,140 million of the 2009 Preference Shares into ordinary shares, AIB
redeemed the remaining 1,360 million of the 2009 Preference Shares (nominal value of € 13.6 million) at a price equal to 125 per cent of
the subscription price per share on issue. Total cost of redemption was € 1,700 million. This transaction was reflected as a reduction in
revenue reserves and, in accordance with the Companies Act 2014, the nominal value of the shares redeemed was transferred from the
share capital account to capital redemption reserves.
Dividend paid on conversion/redemption
A dividend for the period from the last dividend payment date of 13 May 2015 up to the date of conversion/redemption of the 2009
Preference Shares, amounting to € 166 million, was paid in cash to the NTMA (for the ISIF) on 17 December 2015.
Ordinary share consolidation
At 17 December 2015, following the issue of ordinary shares to the NTMA (for the ISIF) on conversion of the 2009 Preference Shares as
outlined above, the total number of ordinary shares with a nominal value of €0.0025 per share in issue amounted to 678,585,019,800
(after deduction of 35,680,114 treasury shares which were cancelled on 17 December 2015 (note 43)).
A Consolidation Resolution, passed at the EGM, resolved that all ordinary shares with a nominal value of € 0.0025 (‘existing ordinary
shares’) be consolidated so that for every 250 shares held by a shareholder, that shareholder will hold one ‘new’ ordinary share with a
nominal value of € 0.625 after the consolidation. In addition, where residual fractions remained following the division of a shareholder’s
holding into ‘new ordinary shares’, the shareholding was rounded up by the allotment of new shares to shareholders by way of bonus
issue to ensure that no fractions remained following consolidation.
On 21 December 2015, AIB allotted 10,289,700 ordinary shares with a nominal value of € 0.0025 per share (total € 25,724) as bonus
shares on the rounding up of shareholdings resulting in a transfer from share premium account to ordinary share capital.
The total number of new shares of nominal value € 0.625 each arising from consolidation amounted to 2,714,381,238 (€ 1,696 million)
which was effective on 21 December 2015.
The rights attaching to the ‘new ordinary shares’ are identical in all respects to the ‘existing ordinary shareholders’ including voting and
dividend rights and rights on a return of capital.
Changes to authorised share capital
All authorised but unissued 2009 Preference Shares and authorised but unissued sub-divided 2009 Preference Shares were cancelled
following the conversion/redemption of the 2009 Preference Shares and the completion of the ordinary share consolidation.
In addition, the authorised share capital of the Company was increased by the creation of such new ordinary shares of € 0.625 each as
was necessary to result in the authorised share capital being 4,000 million shares (€ 2,500 million).
Allied Irish Banks, p.l.c. Annual Financial Report 2015
295
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Notes to the consolidated financial statements
42 Share capital (continued)
2014
Ordinary shares
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) held 522,558,712,910 ordinary shares in AIB (99.8% of the issued ordinary share capital).
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 45). This resulted in a transfer from
these reserve accounts (€ 5 billion) to revenue reserves.
2009 Preference Shares
On 13 May 2009, in implementing the Government’s recapitalisation of AIB, the Company issued € 3.5 billion of core tier 1 securities in
the form of non-cumulative redeemable preference shares (the ‘2009 Preference Shares’) for an aggregate subscription price of
€ 3.5 billion.
The 2009 Preference Shares carried 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 was not paid, AIB was required to issue bonus ordinary shares to the holders of the 2009 Preference
Shares by capitalising its reserves. 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 equal to the nominal value of the
shares issued, was transferred from the share premium account to the ordinary share capital account. In May 2015, this dividend,
amounting to € 280 million, was paid in cash.
These 2009 Preference Shares were converted to ordinary shares/redeemed on 17 December 2015, as set out above under ‘Capital
reorganisation’.
(1)Transferred to the Ireland Strategic Investment Fund (“ISIF”) on 22 December 2014. Ownership of ISIF vests with the Minister for Finance and is
controlled and managed by the NTMA.
296
Allied Irish Banks, p.l.c. Annual Financial Report 2015
42 Share capital (continued)
Movements in share capital
The following tables show the movements in share capital in the statement of financial position during the financial year:
Issued share capital
At 1 January:
Ordinary shares
Preference shares
Ordinary shares in lieu of dividend
2009 Preference Shares subdivision into € 0.0025 each nominal
for conversion to ordinary shares
2009 Preference Shares redemption for cash
Ordinary shares issued on conversion of 2009 Preference Shares
Bonus ordinary shares issued on conversion of 2009 Preference Shares
Issue of bonus shares in lieu of fractions
Consolidation of ordinary shares of nominal value € 0.0025 each into
ordinary shares of nominal value € 0.625 each
Cancellation of ordinary shares of nominal value € 0.0025 each
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
Bonus ordinary shares issued on conversion of 2009 Preference Shares
At 31 December
2015
€ m
1,309
35
1,344
–
1,344
(21)
(14)
(35)
21
366
–
1,696
(1,696)
–
–
–
–
1,696
1,696
–
1,696
2015
€ m
1,752
–
–
(366)
1,386
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
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Notes to the consolidated financial statements
42 Share capital (continued)
Structure of the Company’s share capital as at 31 December 2015
Class of share
Ordinary share capital
The following table shows the Group’s capital resources at 31 December 2015 and 2014:
Capital resources
Shareholders’ equity
Contingent capital notes (note 41)
Dated capital notes (note 41)
Total capital resources
Authorised
share
capital
%
Issued
share
capital
%
100
100
2015
€ m
12,148
1,524
794
14,466
2014
€ m
11,572
1,411
40
13,023
43 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
2015
2014
Number of
shares
€ m
Number of
shares
–
–
35,680,114
€ m
462
Following approval by the Board on 17 December 2015, AIB cancelled all its outstanding treasury shares and in accordance with
Section 106 of the Companies Act 2014, the nominal value of the shares cancelled, amounting to € 89,200, was transferred from the
ordinary share capital account to the capital redemption reserve account. The balance on the treasury shares account was transferred
to revenue reserves account.
The company did not reissue any ordinary shares from its pool of treasury shares since 2008.
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 2015, 5,820 shares(1) (2014: 5,820 shares) were held by trustees with a book value of € 23 million (2014: € 23 million), and
a market value of € 0.039 million (2014: € 0.1 million). The book value is deducted from revenue reserves while the shares continue to be
held by the Group.
(1) On 21 December 2015, all outstanding ordinary shares of nominal value € 0.0025 were consolidated so that for every 250 shares held one new ordinary
share of nominal value € 0.625 was issued.
298
Allied Irish Banks, p.l.c. Annual Financial Report 2015
44 Other equity interests
At 1 January
Additional tier 1 securities issued
Transaction costs(1)
At 31 December
(1)Taxation Nil.
2015
€ m
–
500
(6)
494
2014
€ m
–
–
–
–
Additional Tier 1 Perpetual Contingent Temporary Write-down Securities
On 3 December 2015, as part of its capital reorganisation, AIB issued € 500 million nominal value of Additional Tier 1 Perpetual
Contingent Temporary Write-down Securities (‘AT1s’). The securities, which are accounted for as equity in the statement of financial
position, are included in AIB’s capital base as fully CRD IV compliant additional tier 1 capital on a fully loaded basis.
Interest on the securities, at a fixed rate of 7.375% per annum, is payable semi-annually in arrears on 3 June and 3 December,
commencing on 3 June 2016. On the first reset date on 3 December 2020, in the event that the securities are not redeemed, interest will
be reset to the relevant 5 year rate plus a margin of 7.339 %. AIB has sole and absolute discretion at all times to cancel (in whole or in
part) any interest payment that would otherwise be payable on any interest payment date. In addition, there are certain limitations on the
payment of interest if such payments are prohibited under Irish banking regulations or regulatory capital requirements, if AIB has
insufficient reserves available for distribution or if AIB fails to satisfy the solvency condition as defined in the securities’ terms. Any
interest not paid on an interest payment date by reason of the provisions as to cancellation of interest or by reason of the solvency
condition set out in the terms and conditions, will not accumulate or be payable thereafter.
The securities are perpetual securities with no fixed redemption date. AIB may, in its sole and full discretion, redeem all (but not some
only) of the securities on the first call date or on any interest payment date thereafter at the prevailing principal amount together with
accrued but unpaid interest. However, redemption is subject to the permission of the Single Supervisory Mechanism/Central Bank of
Ireland who has set out certain conditions in relation to redemption, purchase, cancellation and modification of these securities. In
addition, the securities are redeemable at the option of AIB for certain regulatory or tax reasons.
The securities, which do not carry voting rights, rank pari passu with holders of other tier 1 instruments (excluding the Company’s
ordinary shares) and with the holders of preference shares, if any, which have a preferential right to a return of assets in a winding-up
of AIB. They rank ahead of the holders of ordinary share capital of the Company but junior to the claims of senior creditors.
If the CET1 ratio of Allied Irish Banks p.l.c. or the Group at any time falls below 7% (a Trigger Event) and is not in winding-up, subject to
certain conditions AIB may write down the AT1s by the lower of the amount necessary to generate sufficient common equity tier 1 capital
to restore the CET1 ratio to 7% or the amount that would reduce the prevailing principal amount to zero. To the extent permitted in order
to comply with regulatory capital and other requirements, AIB may at its sole and full discretion reinstate any previously written down
amount.
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Notes to the consolidated financial statements
45 Capital reserves and capital redemption reserves
Capital reserves
At 1 January
Transfer to revenue reserves:
Anglo business transfer
CCNs issuance (note 41)
Disposal of Ark Life(1)
At 31 December
Capital
contribution
reserves
€ m
Other
capital
reserves
€ m
1,780
178
(285)
(113)
–
(398)
1,382
–
–
–
–
178
1,560
2015
Total
€ m
1,958
(285)
(113)
–
(398)
Capital
contribution
reserves
€ m
Other
capital
reserves
€ m
2014
Total
€ m
2,344
253
2,597
(470)
(94)
–
(564)
1,780
–
–
(75)
(75)
(470)
(94)
(75)
(639)
178
1,958
(1)Arising from the disposal of Ark Life in May 2014, an amount of € 75 million, previously accounted for as capital reserves, was transferred to revenue
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 (ab) in note 1. The transfers to
revenue reserves relate to the capital contributions being deemed distributable.
Capital redemption reserves
Capital redemption reserves
At 1 January
Transfer from ordinary share capital (note 42)
Reduction and transfer to revenue reserves
Transfer from 2009 Preference Share capital (note 42)
Treasury shares cancellation
At 31 December
2015
€ m
–
–
–
14
–
14
2014
€ m
–
3,926
(3,926)
–
–
–
2015
On 17 December 2015, AIB redeemed 1,360 million of the 2009 Preference Shares (nominal value € 13.6 million) which was reflected
as a transfer to the capital redemption reserve account from the 2009 Preference Share capital account in accordance with the
Companies Act 2014 (note 42).
On 17 December 2015, AIB cancelled its holding of treasury shares (note 43). This resulted in the transfer of the nominal value of
shares cancelled (€ 89,200) from the ordinary share capital account to capital redemption reserves (note 45).
2014
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 45).
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.
300
Allied Irish Banks, p.l.c. Annual Financial Report 2015
46 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
capital 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)Transferred to the Ireland Strategic Investment Fund (“ISIF”) on 22 December 2014. Ownership of ISIF vests with the Minister for Finance and is
controlled and managed by the NTMA.
47 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 cover 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 € 1,052 million
(2014: € 1,221 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 2015, € 514 million (2014: € 843 million) of CSAs
are included within financial assets and € 201 million (2014: € 279 million) of CSAs are included within financial liabilities.
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Notes to the consolidated financial statements
47 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 table shows financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and
similar agreements at 31 December 2015 and 2014:
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
1,245
648
226
2,119
–
–
–
–
1,245
(1,052)
(201)
648
(737)
226
2,119
(222)
(2,011)
_
–
(201)
Gross
Net
amounts of amounts of
financial
recognised
financial
liabilities
presented
assets
amounts of offset in the
in the
statement
statement
recognised
financial of financial of financial
position
liabilities
€ m
€ m
Gross
Related amounts not
offset in the statement
of financial position
Financial
collateral
(including
cash
collateral)
pledged
€ m
Financial
position instruments
€ m
€ m
2015
Net
amount
€ m
(8)
(89)
4
(93)
2015
Net
amount
€ m
10,153
905
1,605
12,663
–
–
–
–
10,153
(10,571)
(20)
(438)
905
1,605
(928)
(1,052)
12,663
(12,551)
(1)
(514)
(535)
(24)
39
(423)
Financial assets
Derivative financial instruments
Loans and receivables to banks –
Reverse repurchase agreements
Loans and receivables to customers –
Reverse repurchase agreements
Note
24
25
26
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
35
36
24
Total
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
47 Offsetting financial assets and financial liabilities (continued)
Financial assets
Derivative financial instruments
Note
24
Loans and receivables to customers –
Reverse repurchase agreements
26
Total
Gross
amounts of
recognised
financial
assets
€ m
1,490
110
1,600
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
2014
Net
amount
€ m
1,490
(1,221)
(279)
(10)
–
–
–
110
1,600
(107)
(1,328)
–
(279)
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
Financial liabilities
Deposits by central banks and banks –
Note
Securities sold under agreements
to repurchase
Customer accounts –
35
12,653
Securities sold under agreements
to repurchase
Derivative financial instruments
36
24
Total
2,153
2,140
16,946
–
–
–
–
12,653
(13,164)
51
(460)
2,153
2,140
(2,206)
(1,221)
16,946
(16,591)
2
(843)
(790)
(51)
76
(435)
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.
3
(7)
2014
Net
amount
€ m
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a
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303
303
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Notes to the consolidated financial statements
47 Offsetting financial assets and financial liabilities (continued)
The following table reconciles 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 2015 and
2014:
Net amounts
of financial
assets presented
in the statement
of financial position
€ m
Line item in
statement of
financial position
1,245
Derivative financial instruments
Carrying
amount in
the statement
of financial
position
€ m
1,698
2,339
2015
Financial
assets not
in scope of
offsetting
disclosures
€ m
453
1,691
Loans and receivables to banks
648
226
Loans and receivables to customers
63,240
63,014
Net amounts
of financial
assets presented
in the statement
of financial position
€ m
Line item in
statement of
financial position
Carrying
amount in
the statement
of financial
position
€ m
2015
Financial
liabilities not
in scope of
offsetting
disclosures
€ m
10,153
Deposits by central banks and banks
13,863
3,710
905
1,605
Customer accounts
Derivative financial instruments
63,383
1,781
62,478
176
Financial assets
Derivative financial instruments
Loans and receivables to banks –
Reverse repurchase agreements
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
Carrying
amount in
the statement
of financial
position
€ m
2014
Financial
assets not
in scope of
offsetting
disclosures
€ m
Financial assets
Derivative financial instruments
1,490
Derivative financial instruments
2,038
548
Loans and receivables to customers –
Reverse repurchase agreements
110
Loans and receivables to customers
63,362
63,252
Net amounts
of financial
assets presented
in the statement
of financial position
€ m
Line item in
statement of
financial position
Carrying
amount in
the statement
of financial
position
€ m
2014
Financial
liabilities not
in scope of
offsetting
disclosures
€ m
12,653
Deposits by central banks and banks
16,768
4,115
2,153
2,140
Customer accounts
Derivative financial instruments
64,018
2,334
61,865
194
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
304
Allied Irish Banks, p.l.c. Annual Financial Report 2015
48 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
2015
€ m
2014
€ m
735
640
1,375
739
507
1,246
39
14
7,206
2,502
9,747
11,122
6,837
2,231
9,082
10,328
(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
2015
€ m
673
544
158
2014
€ m
629
480
137
1,375
1,246
2015
€ m
8,030
1,710
7
9,747
2014
€ m
7,580
1,480
22
9,082
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Notes to the consolidated financial statements
48 Memorandum items: contingent liabilities and commitments, and contingent assets (continued)
The credit ratings of contingent liabilities and commitments as at 31 December 2015 and 2014 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
2015
€ m
3,166
5,425
258
164
366
1,743
11,122
2014
€ m
3,544
3,527
730
196
488
1,843
10,328
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 cash flows 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 benefit may result to the Group (notes 40 and 50).
(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.
306
Allied Irish Banks, p.l.c. Annual Financial Report 2015
48 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.
49 Subsidiaries and consolidated structured entities
The following are the material companies of AIB Group at 31 December 2015 and 2014:
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 where this would breach such
ratios 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 m to the parent company’s financial statements.
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Notes to the consolidated financial statements
49 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 50.
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 19).
Further details on AIB’s principal subsidiaries are set out in note m to the parent company’s financial statements.
50 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.
308
Allied Irish Banks, p.l.c. Annual Financial Report 2015
50 Off-balance sheet arrangements and transferred financial assets (continued)
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 12 ‘Share-based compensation schemes’.
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/securities lending
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
with banks and customers. The obligation to pay the repurchase price is recognised within ‘Deposits by central banks and banks’ (note
35) and ‘Customer accounts’ (note 36). As the Group sells the contractual rights to the cash flows of the financial assets, it does not
have the ability to use or pledge the transferred assets during the term of the sale and repurchase agreement. The Group remains
exposed to credit risk and interest rate risk on the financial assets sold. Details of sale and repurchase activity are set out in notes 35
and 36. The obligation arising as a result of sale and repurchase agreements together with the carrying value of the financial assets
pledged are set out in the table below.
The Group enters into securities lending in the form of collateral swap agreements with other parties. The Group continues to recognise
the financial assets (Government bonds) in full in the statement of financial position as it retains substantially all the risks and rewards of
ownership. As a result of these transactions, the Group is unable to use, sell or pledge the transferred assets for the duration of the
transactions. A fee is generated for the Group under these transactions.
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 38). 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 € 5 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.
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 38) or in ‘Deposits by central banks and banks’ (note 35). Under the terms of the
securitisations, the rights of the investors are limited to the assets in the securitised portfolios and any related income generated by the
portfolios, without 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.
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Notes to the consolidated financial statements
50 Off-balance sheet arrangements and transferred financial assets (continued)
Special purpose entities
In 2012, the Group securitised € 533 million of the AIB Group (UK) p.l.c. residential mortgage portfolio.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 38) on the
statement of financial position. At 31 December 2015, the carrying amount of the assets which the Group continues to recognise is
€ 294 million (2014: € 332 million) and the carrying amount of the associated liabilities is € 135 million (2014: € 178 million).
In 2013, the Group securitised part of its credit card receivables portfolio. 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 2015,
the carrying amount of the receivables which the Group continues to recognise is € 292 million (31 December 2014: € 297 million). The
liability in respect of cash received by Goldcrest from external investors is included within ‘Deposits by central banks and banks’
(note 35) on the statement of financial position.
Arising from the acquisition of EBS on 1 July 2011, the Group controls three special purpose entities which had previously been set up
by EBS: Emerald Mortgages No. 4 Public Limited Company; Emerald Mortgages No. 5 Limited; and Mespil 1 RMBS Limited.
Emerald Mortgages No. 4 Public Limited Company
The total carrying value of the original residential mortgages transferred by EBS Limited to Emerald Mortgages No. 4 Public Limited
Company (‘Emerald 4’) as part of the securitisation amounted to € 1,500 million. The carrying amount of transferred secured loans that
the Group has recognised at 31 December 2015 is € 677 million (2014: € 735 million). The carrying amount of the bonds issued by
Emerald 4 to third party investors amounts to € 446 million (2014: € 575 million) and is included within ‘Debt securities in issue’
(note 38).
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 carrying amount of transferred secured loans that the Group has recognised
at 31 December 2015 is € 1,304 million (2014: € 1,420 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 at 31 December 2015 is € 780 million (2014: € 814 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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Allied Irish Banks, p.l.c. Annual Financial Report 2015
50 Off-balance sheet arrangements and transferred financial assets (continued)
The following table summarises as at 31 December 2015 and 2014, the carrying value and fair value of financial assets which did not
qualify for derecognition together with their associated financial liabilities:
Carrying
amount of
transferred
assets
Carrying
amount of
associated
liabilities held
by third parties
€ m
€ m
Carrying
amount of
associated
liabilities held
by Group
companies
€ m
Fair
value of
transferred
assets
Fair value
of associated
liabilities
held by third
parties
€ m
€ m
Fair value
of associated
liabilities
held by
Group
companies
€ m
Sale and repurchase agreements/
similar products
12,398(1) (2)
11,208(1)
Covered bond programmes
Residential mortgage backed
Securitisations
9,219(3)
1,263
4,765
781
–
–
558
12,398
11,208
8,169
1,210
4,990
752
–
–
533
Carrying
amount of
transferred
assets
€ m
Sale and repurchase agreements
16,798(1)
Covered bond programmes
Residential mortgage backed
Securitisations
7,379(3)
1,365
Carrying
amount of
associated
liabilities held
by third parties
€ m
14,806(1)
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
16,798
6,387
1,286
€ m
14,806
4,103
902
Fair value
of associated
liabilities
held by
Group
companies
€ m
–
–
478
2015
Net
fair value
position
€ m
1,190
3,179
(75)
2014
Net
fair value
position
€ m
1,992
2,284
(94)
(1)See notes 35 and 36.
(2)Includes € 640 million of assets pledged in relation to securities lending arrangements at 31 December 2015 (2014: Nil).
(3)The asset pools € 18 billion (2014: € 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 € 9,219 million (2014: € 7,379 million) above refers to those assets
apportioned to external investors.
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 entitled the UK scheme to expected annual payments in the range of £ 15 million to £ 35 million from
2016 until 2033, with a potential termination payment in 2032 of up to £ 60 million. Following the approval of the recent triennial
valuation in December 2015, the current annual payments will be £ 19 million commencing 1 April 2016 but are subject to review
following each tri-annual valuation.
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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
n
o
i
t
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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Notes to the consolidated financial statements
50 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 an SPE 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 2015, the Group recognised € 1.1 million
(cumulative € 4.3 million) (2014: € 1.2 million (cumulative € 3.2 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 was 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 2015, the Group recognised € 13 million (cumulative
€ 82 million) (2014: € 16 million (cumulative € 69 million)) in the income statement for the servicing of financial assets transferred to
NAMA.
312
Allied Irish Banks, p.l.c. Annual Financial Report 2015
51 Classification and measurement of financial assets and financial liabilities
Financial assets and financial liabilities are measured on an ongoing basis either at fair value or at amortised cost. The accounting
policy for financial assets ((m) in note 1) and financial liabilities ((n) in note 1), describes how the classes of financial instruments are
measured, and how income and expenses, including fair value gains and losses, are recognised. The following table analyses the
carrying amounts of the financial assets and financial liabilities by category as defined in IAS 39 Financial Instruments: Recognition
and Measurement and by statement of financial position heading at 31 December 2015 and 2014:
At fair value through
profit and loss
Held for
trading
€ m
Fair value
hedge
derivatives
€ m
At fair value
through equity
Cash flow Available
for sale
derivatives securities
€ m
hedge
€ m
At amortised
cost
Loans
and
Held
to
receivables maturity
€ m
€ m
2015
Total
Other
€ m
€ m
Financial assets
Cash and balances at central banks
Items in the course of collection
Trading portfolio financial assets
–
–
1
–
–
–
–
–
–
Derivative financial instruments
877
321
500
Loans and receivables to banks
Loans and receivables to
customers
NAMA senior bonds
Financial investments available
for sale
Financial investments held
to maturity
Other financial assets
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16,489
–
–
4,415
153
–
–
2,339
63,240
5,616
–
–
–
–
–
–
–
–
–
–
–
3,483
535(1)
–
–
–
–
–
–
–
–
–
938
4,950
153
1
1,698
2,339
63,240
5,616
16,489
3,483
938
878
321
500
16,489
75,763
3,483
1,473
98,907
Financial liabilities
Deposits by central banks and banks
Customer accounts
Trading portfolio financial liabilities
Derivative financial instruments
Debt securities in issue
Subordinated liabilities and
other capital instruments
Other financial liabilities
–
–
86
933
–
–
–
–
–
–
–
–
–
424
424
–
–
–
–
–
–
(1)Comprises cash on hand.
1,019
424
424
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13,863
63,383
–
–
7,001
2,318
456
13,863
63,383
86
1,781
7,001
2,318
456
87,021
88,888
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Notes to the consolidated financial statements
51 Classification and measurement of financial assets and financial liabilities (continued)
At fair value through
profit and loss
Held for
trading
€ m
Fair value
hedge
derivatives
€ m
At fair value
through equity
At amortised
cost
2014
Total
Cash flow
hedge
derivatives
€ m
Available
for sale
securities
€ m
Loans
and
receivables
€ m
Other
€ m
€ m
Financial assets
Cash and balances at central banks
Items in the course of collection
Trading portfolio financial assets
–
–
1
–
–
–
–
–
–
Derivative financial instruments
1,024
500
514
Loans and receivables to banks
Loans and receivables to
customers
NAMA senior bonds
Financial investments available
for sale
Other financial assets
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20,185
–
4,879
146
–
–
1,865
63,362
9,423
–
–
514(1)
–
–
–
–
–
–
–
499
5,393
146
1
2,038
1,865
63,362
9,423
20,185
499
1,025
500
514
20,185
79,675
1,013
102,912
Financial liabilities
Deposits by central banks and banks
Customer accounts
–
–
Derivative financial instruments
1,150
Debt securities in issue
Subordinated liabilities and
other capital instruments
Other financial liabilities
(1)Comprises cash on hand.
–
–
587
–
–
–
–
–
597
–
–
–
–
–
–
1,150
587
597
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16,768
64,018
–
7,861
1,451
446
16,768
64,018
2,334
7,861
1,451
446
90,544
92,878
314
Allied Irish Banks, p.l.c. Annual Financial Report 2015
52 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 (p) in note 1.
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 2015.
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 2015 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 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
315
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Notes to the consolidated financial statements
52 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.
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 322. 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.
The combination of CVA and FVA is referred to as XVA.
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 by 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. 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. An adjustment is made for credit risk which at 31 December
2015 took account of the Group’s expectations on credit losses over the life of the loans.
The fair value of mortgage products, including tracker mortgages, is calculated by discounting expected cash flows using discount rates
that reflect the interest rate/credit risk in the portfolio.
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.
Financial investments held to maturity
The Group’s holding of financial investments held to maturity consists of Irish Government Securities. These have been fair valued
based on quoted market prices.
316
Allied Irish Banks, p.l.c. Annual Financial Report 2015
52 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 other receivables and payables. 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 48. 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 2015 and 2014:
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Notes to the consolidated financial statements
52 Fair value of financial instruments (continued)
Financial assets measured at fair value
Trading portfolio financial assets
Equity securities
Derivative financial instruments
Interest rate derivatives
Exchange rate derivatives
Equity derivatives
Financial investments available for sale
Government securities
Supranational banks and government agencies
Asset backed securities
Bank securities
Corporate securities
Equity securities
Financial assets not measured at fair value
Cash and balances at central banks
Items in the course of collection
Loans and receivables to banks
Loans and receivables to customers
Mortgages(2)
Non-mortgages
Total loans and receivables to customers
NAMA senior bonds
Financial investments held to maturity
Other financial assets
Financial liabilities measured at fair value
Trading portfolio financial liabilities
Debt securities
Derivative financial instruments
Interest rate derivatives
Exchange rate derivatives
Equity derivatives
Credit derivatives
Financial liabilities not measured at fair value
Deposits by central banks and banks
Other borrowings
Secured borrowings
Customer accounts
Current accounts
Demand deposits
Time deposits
Securities sold under agreements to repurchase
Debt securities in issue
Bonds and medium term notes
Other debt securities in issue
Subordinated liabilities and other capital instruments
Other financial liabilities
Carrying amount
Fair value
Fair value hierarchy
€ m
Level 1
€ m
Level 2
€ m
Level 3
€ m
1
1,540
67
91
8,684
2,008
329
4,600
87
781
–
–
–
–
8,533
2,008
328
4,600
76
–
1
1,069
67
50
151
–
1
–
–
1
–
471
–
41
–
–
–
–
11
780
2015
Total
€ m
1
1,540
67
91
8,684
2,008
329
4,600
87
781
18,188
15,545
1,340
1,303
18,188
4,950
153
2,339
34,667
28,573
63,240
5,616
3,483
938
80,719
86
1,622
64
89
6
1,867
810
13,053
25,955
11,698
24,825
905
6,901
100
2,318
456
87,021
535(1)
–
–
–
–
–
–
3,479
–
4,014
86
–
–
–
–
86
–
–
–
–
–
–
6,479
–
758
–
7,237
4,415
–
779
–
–
–
–
–
–
5,194
–
1,369
64
51
6
1,490
–
2,903
–
–
–
–
670
100
1,778
–
5,451
–
153
1,560
32,181
28,192
60,373
5,626
–
938
68,650
–
253
–
38
–
291
810
10,153
25,955
11,698
25,067
905
–
–
–
456
4,950
153
2,339
32,181
28,192
60,373
5,626
3,479
938
77,858
86
1,622
64
89
6
1,867
810
13,056
25,955
11,698
25,067
905
7,149
100
2,536
456
75,044
87,732
(1)Comprises cash on hand.
(2)Includes residential and commercial mortgages.
318
Allied Irish Banks, p.l.c. Annual Financial Report 2015
52 Fair value of financial instruments (continued)
Carrying amount
Fair value
Fair value hierarchy
Level 2
€ m
Level 1
€ m
Level 3
€ m
22,224
19,386
1,782
€ m
1
1,852
48
138
12,920
2,852
100
3,897
3
413
5,393
146
1,865
35,973
27,389
63,362
9,423
499
80,688
2,136
73
117
8
2,334
715
16,053
21,665
10,004
30,196
2,153
7,811
50
1,451
446
–
–
–
–
12,538
2,852
99
3,897
–
–
1
1,295
48
53
382
–
1
–
–
2
514(1)
–
–
–
–
–
–
–
4,879
–
664
–
–
–
–
–
514
5,543
–
–
–
–
–
–
–
–
–
–
–
7,214
–
–
–
1,897
73
56
8
2,034
–
3,400
–
–
–
–
965
50
1,831
–
6,246
–
557
–
85
–
–
–
–
3
411
1,056
–
146
1,201
31,845
27,319
59,164
9,479
499
70,489
239
–
61
–
300
715
12,653
21,665
10,004
30,613
2,153
–
–
–
446
2014
Total
€ m
1
1,852
48
138
12,920
2,852
100
3,897
3
413
22,224
5,393
146
1,865
31,845
27,319
59,164
9,479
499
76,546
2,136
73
117
8
2,334
715
16,053
21,665
10,004
30,613
2,153
8,179
50
1,831
446
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s
l
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n
a
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F
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t
a
m
r
o
n
f
i
Financial assets measured at fair value
Trading portfolio financial assets
Equity securities
Derivative financial instruments
Interest rate derivatives
Exchange rate derivatives
Equity derivatives
Financial investments available for sale
Government securities
Supranational banks and government agencies
Asset backed securities
Bank securities
Corporate securities
Equity securities
Financial assets not measured at fair value
Cash and balances at central banks
Items in the course of collection
Loans and receivables to banks
Loans and receivables to customers
Mortgages(2)
Non-mortgages
Total loans and receivables to customers
NAMA senior bonds
Other financial assets
Financial liabilities measured at fair value
Derivative financial instruments
Interest rate derivatives
Exchange rate derivatives
Equity derivatives
Credit derivatives
Financial liabilities not measured at fair value
Deposits by central banks and banks
Other borrowings
Secured borrowings
Customer accounts
Current accounts
Demand deposits
Time deposits
Securities sold under agreementsto repurchase
Debt securities in issue
Bonds and medium term notes
Other debt securities in issue
Subordinated liabilities and other capital instruments
Other financial liabilities
(1)Comprises cash on hand.
(2)Includes residential and commercial mortgages.
90,544
7,214
78,249
91,709
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Notes to the consolidated financial statements
52 Fair value of financial instruments (continued)
Significant transfers between Level 1 and Level 2 of the fair value hierarchy
The following table shows transfers between Level 1 and Level 2 of the fair value hierarchy for the financial years ended 31 December
2015 and 2014:
Group
Transfer into Level 2 from Level 1
Financial assets
Trading
portfolio
€ m
–
Debt
securities
€ m
–
2015
Total
€ m
–
Financial assets
Trading
portfolio
€ m
–
Debt
securities
€ m
1
2014
Total
€ m
1(1)
(1)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 opening balances to the closing balances for fair value measurements in Level 3 of
the fair value hierarchy for 2015 and 2014:
Group
At 1 January 2015
Transfers out of Level 3(1)
Total gains or (losses) in:
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
Settlements(2)
At 31 December 2015
Derivatives
€ m
642
(8)
–
–
–
–
–
(122)
512
Financial assets
Available for sale
Debt
securities
€ m
Equity
securities
€ m
3
–
(2)
–
(2)
10
–
–
11
411
–
363
–
363
13
(7)
–
780
Financial liabilities
Total Derivatives
Total
2015
€ m
1,056
(8)
361
–
361
23
(7)
(122)
1,303
€ m
300
–
–
20
20
–
–
(29)
291
€ m
300
–
–
20
20
–
–
(29)
291
(1)Transfers between levels of the fair value hierarchy are recognised at the end of the reporting period during which the change occurred.
(2)Includes gains and losses recognised in ‘Net trading income/(loss)’ (note 8). In addition, for unrealised gains or losses at 31 December 2015, see table on
the following page.
Transfers out of level 3 arose as a result of the ability to measure financial instruments using observable data for their fair value
measurement either directly or indirectly.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
52 Fair value of financial instruments (continued)
Reconciliation of balances in Level 3 of the fair value hierarchy
Group
At 1 January 2014
Transfers into Level 3(1)
Total gains or (losses) in:
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
Settlements(2)
At 31 December 2014
Derivatives
€ m
419
114
–
2
2
–
–
107
642
Financial assets
Available for sale
Debt
securities
€ m
Equity
securities
€ m
12
3
–
–
–
–
(12)
–
3
104
–
307
–
307
12
(12)
–
411
2014
Financial liabilities
Total Derivatives
Total
€ m
535
117
307
2
309
12
(24)
107
€ m
125
119
–
30
30
–
–
26
€ m
125
119
–
30
30
–
–
26
1,056
300
300
(1)Transfers between levels of the fair value hierarchy are recognised at the end of the reporting period during which the change occurred.
(2)Includes gains and losses recognised in ‘Net trading income/(loss)’ (note 8). In addition, for unrealised gains or losses at 31 December 2014, see table
below.
Transfers into Level 3 arose as a result of the unobservable inputs becoming significant to the fair value measurement of these
instruments.
The table below sets out the 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 2015 and 2014:
Net trading income
Total
2015
€ m
61
61
2014
€ m
193
193
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Notes to the consolidated financial statements
52 Fair value of financial instruments (continued)
Significant unobservable inputs
The table below sets out information about significant unobservable inputs used for the financial years ended 31 December 2015 and
2014 in measuring financial instruments categorised as Level 3 in the fair value hierarchy:
Fair Value
Range of estimates
Financial
instrument
Uncollateralised Asset
customer
Liability
derivatives
2015
€ m
512
291
2014 Valuation
€ m technique
Significant
unobservable
inputs
642 CVA
LGD
300
PD
2015
47% – 79%
(Base 55%)
0.9% – 1.5%
2014
46% – 82%
(Base 55%)
0.9% – 1.4%
(Base 1.2% 1 year PD)
(Base 1.1% 1 year 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
(1)The fair value measurement sensitivity to unobservable inputs ranges at 31 December 2015 from negative € 57 million to positive € 26 million
(31 December 2014: negative € 53 million to positive € 25 million).
FVA
Funding spreads
(0.4%) – 0.5%
(0.3%) – 0.8%
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.
NAMA
Asset
432
374 Discounted
NAMA
Discount rate of 9%
Discount rate of 12%
subordinated
bonds
cash flows
profitability i.e.
applicable to base
applicable to base
ability to generate
asset price. The
asset price. The
cash flow for
estimates range from
estimates range from:
repayment
(a) NAMA making
(a) NAMA making 50%
full 5.26% coupon
of full 5.26% coupon
payments; to (b) an
payments; to (b) an
early full repayment
early full repayment
of coupons plus capital
of coupons plus capital
(March 2019).
(March 2018) at a
reduced discount rate.
Visa Europe: In relation to the proposed sale of 100% shares of Visa Europe to Visa Inc., and based on information received from Visa
Europe, the Group, as holder of shares in Visa Europe, will receive consideration with an estimated fair value of €294 million, comprising
cash (59%) and preferred stock in Visa Inc (41%), which has resulted in a fair value gain of €294 million. The amount of consideration is
not yet final and can be amended as a consequence of transaction costs, contractual clauses and successful members’ appeals. The
preferred stock will be convertible into Class A Common Stock of Visa Inc at some point in the future. The conversion is subject to
certain Visa Europe litigation risks that may affect the ultimate conversion rate.
The transaction is expected to be finalised by June 2016, at which stage the fair value gains will be taken to the income statement.
Financial
instrument
Visa Europe
Asset
2015
€ m
294
2014 Valuation
€ m technique
Significant
unobservable
inputs
Range of estimates 2015
– Estimated
Fair value of
Estimated
Estimated
proceeds after
preferred stock of
proceeds with no
proceeds after
applying a
Visa Inc.
discount for the
applying a 50%
discount for the
illiquidity and the
conversion rate
variability of the
preferred stock
of Visa Inc.
illiquidity and the
discount for the
conversion rate
illiquidity and the
variability of the
conversion rate
preferred stock of
Visa Inc.
variability of the
preferred stock of
Visa Inc.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
52 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
2015
Effect on income
statement
Favourable Unfavourable
€ m
€ m
Effect on other
comprehensive income
Favourable Unfavourable
€ m
€ m
87
–
87
14
14
(71)
–
(71)
(63)
(63)
–
26
26
–
–
–
(105)
(105)
–
–
2014
Level 3
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)
–
–
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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Notes to the consolidated financial statements
53 Statement of cash flows
Non-cash and other items included in profit before taxation
Non-cash items
Profit on disposal of businesses
Profit on disposal of property, plant and equipment
Loss/(profit) 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 expense
Termination benefits
Depreciation, amortisation and impairment
Interest on subordinated liabilities and other capital instruments
Net losses/(gains) on buy back of debt securities in issue
Profit on disposal of financial investments available for sale
Loss on termination of hedging swaps
Remeasurement of NAMA senior bonds
Amortisation of premiums and discounts
Fair value gain on realisation/re-estimation of cash flows on loans
and receivables previously restructured
Income from settlement of claim
Change in prepayments and accrued income
Change in accruals and deferred income
Effect of exchange translation and other adjustments(1)
Total non-cash items
Contributions to defined benefit pension schemes
Dividends received from equity securities
Total other items
Non-cash and other items for the year ended 31 December
2015
€ m
2014
€ m
2013
€ m
(1)
(2)
226
–
(3)
(7)
1,916
17
(9)
84
(131)
(3)
124
241
–
(41)
10
(62)
(57)
–
–
(51)
(316)
78
2,013
(234)
–
(234)
–
(6)
(52)
(25)
(11)
(23)
(185)
(5)
1
70
(3)
(2)
111
256
1
(389)
208
(132)
31
–
–
87
(220)
(223)
(511)
(87)
25
(62)
–
(3)
22
(26)
(24)
(25)
(925)
(11)
_
177
21
4
74
278
(8)
(166)
81
(6)
79
(3)
(38)
25
(84)
(259)
(817)
(84)
26
(58)
(875)
(573)
1,779
(1)The impact of foreign exchange translation for each line of the statement of financial position is removed in order to show the underlying cash impact.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
53 Statement of cash flows (continued)
Change in operating assets(1)
Change in loans and receivables to customers
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 other assets
Change in operating liabilities(1)
Change in deposits by central banks and banks
Change in customer accounts(3)
Change in trading portfolio financial liabilities
Change in debt securities in issue
Change in notes in circulation
Change in other liabilities
2015
€ m
1,546
3,834
(709)
–
(328)
(2)
(111)
2014
€ m
3,736
6,343
(420)
1
(271)
24
36
2013
€ m
5,078(2)
1,916
567
21
249
26
(5)
4,230
9,449
7,852
2015
€ m
(2,927)
(1,539)
86
(867)
3
(109)
2014
€ m
(6,395)
(3,586)
–
(886)
5
(299)
(5,353)
(11,161)
2013
€ m
(5,309)
3,397
–
(1,875)
(50)
(264)
(4,101)
(1)The impact of foreign exchange translation for each line of the statement of financial position is removed in order to show the underlying cash impact.
(2)Also includes loans and receivables to customers within disposal groups and non-current assets held for sale.
(3)Includes deposits placed by NTMA of € 399 million ( 2014: € 3,305 million; 2013: € 6,703 million).
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
2015
€ m
4,950
722
5,672
2014
€ m
5,393
991
6,384
2013
€ m
4,132
1,598
5,730
The Group is required to maintain balances with the Central Bank of Ireland which at 31 December 2015 amounted to € 121 million
(2014: € 120 million; 2013: € 115 million).
The Group is required by law to maintain reserve balances with the Bank of England. At 31 December 2015, these amounted to
€ 658 million (2014: € 544 million; 2013: € 542 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.
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Notes to the consolidated financial statements
54 Related party transactions
Related parties of the Group and Allied Irish Banks, p.l.c. (“AIB”) include subsidiary undertakings, associate undertakings and joint
arrangements, post-employment benefits, Key Management Personnel and connected parties. The Irish Government is also considered
a related party by virtue of its effective control of AIB.
(a) Transactions with subsidiary undertakings
AIB is the ultimate parent company of the Group. Banking transactions are entered into by AIB with its subsidiaries in the normal course
of business. These include loans, deposits, provision of derivative contracts, foreign currency transactions and the provision of
guarantees on an ‘arm’s length’ basis. Balances between AIB and its subsidiaries are detailed in notes g, h,k, m, q and r 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 h 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 50).
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 entity 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 50).
(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 166 to 171).
The figures shown below include the figures separately reported in respect of Directors’ remuneration in the Directors’ Remuneration
report on pages 192 to 195.
Short-term compensation(1)
Post-employment benefits(2)
Termination benefits(3)
Total
2015
€ m
6.7
0.8
0.2
7.7
Group
2014
€ m
Allied Irish Banks, p.l.c.
2014
€ m
2015
€ m
6.6
0.7
–
7.3
6.2
0.8
0.2
7.2
6.0
0.7
–
6.7
(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 including, where relevant, payment in lieu of notice, 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 contribution pension schemes for Executive Directors and Senior Executive Officers. The defined benefit schemes closed
for future accrual with effect from 31 December 2013. The fees of the Non-Executive Directors are non-pensionable.
(3)Comprises severance payment made to a Senior Executive Officer who left during 2015 under the voluntary severance programme.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
54 Related party transactions (continued)
(e) Transactions with Key Management Personnel
As at 31 December 2015, deposit and other credit balances held by Key Management Personnel, namely Executive and Non-Executive
Directors and Senior Executive Officers, who were in office during the year amounted to € 5.77 million (2014: € 4.56 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. The aggregate balance of loans and
guarantees held by Key Management Personnel, at the beginning and end of the financial year, represented 0.0003% of the net assets
of the Company.
Details of transactions with Key Management Personnel, and connected parties where indicated, for the years ended 31 December
2015 and 2014 are as follows:
(i) Current Directors
Mark Bourke:
Loans
Overdraft/credit card*
Total
Interest charged during the year
Maximum debit balance during the year**
Tom Foley:
Loans
Overdraft/credit card*
Total
Interest charged during the year
Maximum debit balance during the year**
Jim O’Hara:
Loans
Overdraft/credit card*
Total
Interest charged during the year
Maximum debit balance during the year**
Dr Michael Somers:
Loans
Overdraft/credit card*
Total
Interest charged during the year
Maximum debit balance during the year**
Balance at
31 December
2014
€ 000
Amounts
advanced
during
2015
Amounts
repaid
during
2015
Balance at
31 December
2015
€ 000
611
–
611
–
–
–
–
–
–
–
3
3
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
48
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
563
–
563
7
611
–
–
–
–
1
–
–
–
–
11
–
3
3
–
6
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.
*Amounts advanced and repaid are not shown for overdraft/credit card facilities as these are revolving in nature (i.e. they may be drawn,
repaid and redrawn up to their limit over the course of the year).
**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 2015
327
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Notes to the consolidated financial statements
54 Related party transactions (continued)
(e) Transactions with Key Management Personnel
(i) Current Directors (continued)
Catherine Woods:
Loans
Overdraft/credit card*
Total
Interest charged during the year
Maximum debit balance during the year**
Balance at
31 December
2014
€ 000
Amounts
advanced
during 2015
€ 000
Amounts
repaid
during 2015
€ 000
Balance at
31 December
2015
€ 000
79
–
79
–
n/a
n/a
10
n/a
n/a
69
–
69
1
79
As at 31 December 2015, guarantees entered into by Catherine Woods in favour of the Group amounted to € 0.05 million. No amounts
were paid or liability incurred in fulfilling the guarantee.
Mr Richard Pym has a credit card facility which had an opening, closing and maximum debit balance during 2015 of less than €500 and
no interest was incurred during the year.
Simon Ball, Bernard Byrne, Peter Hagan and Helen Normoyle had no facilities with the Group during 2015
(ii) Former Directors who were in office during the year
David Duffy:
Loans
Overdraft/credit card*
Total
Interest charged during the year
Maximum debit balance during the year**
(iii) Senior Executive Officers in office during the year
(Aggregate of 9 persons (2014: 7)):
Loans
Overdraft/credit card
Total
Interest charged during the year
Maximum debit balance during the year**
Balance at
31 December
2014
€ 000
Amounts
advanced
during 2015
€ 000
Amounts
repaid
during 2015
€ 000
Balance at
31 December
2015
€ 000
1,171
4
1,175
–
n/a
n/a
92
n/a
n/a
1,079
9
1,088
8
1,214
Balance at
31 December
2015
€ 000
Balance at
31 December
2014
€ 000
1,607
50
1,657
2,218
10
2,228
37
2,456
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.
*Amounts advanced and repaid are not shown for overdraft/credit card facilities as these are revolving in nature (i.e. they may be drawn,
repaid and redrawn up to their limit over the course of the year).
**The maximum debit balance is calculated by aggregating the maximum debit balance drawn on each facility during the year.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
54 Related party transactions (continued)
(e) Transactions with Key Management Personnel
(iv) Aggregate amounts outstanding at year end
Directors (2015:6 persons; 2014: 7 persons)
Senior Executive Officers (2015:9 persons; 2014: 7 persons)
Loans, overdrafts/credit cards
31 December 2015
€ 000
31 December 2014
€ 000
1,723
2,228
3,951
1,868
1,657
3,525
As at 31 December 2015, guarantees entered into by 1 Director in favour of the Group amounted to € 0.05 million in aggregate
(2014: € 0.1 million by 1 Director). No amounts were paid or liability incurred in fulfilling the guarantee. As at 31 December 2015, no
Senior Executive Officer held guarantees in favour of the Group.
(v) Connected persons
The aggregate of loans to connected persons of Directors in office as at 31 December 2015, as defined in Section 220 of the Companies
Act 2014, are as follows (aggregate of 20 persons; 2014: 19 persons):
Loans
Overdraft/credit card
Total
Interest charged during the year
Maximum debit balance during the year**
Balance at
31 December
2015
€ 000
Balance at
31 December
2014
€ 000
1,322
58
1,380
914
89
1,003
20
1,591
As at 31 December 2014, deposit and other credit balances held by Key Management Personnel, namely Executive and Non-Executive
Directors and Senior Executive Officers, who were in office during the year amounted to € 4.56 million (2013: € 5.04 million). The
aggregate balance of loans and guarantees held by Key Management Personnel, at the beginning and end of the financial year,
were 0.0004% and 0.0003% respectively of the net assets of the Company.
(i) Directors in office during 2014
Mark Bourke:
Loans
Overdraft/Credit card*
Total
Interest charged during 2014
Maximum debit balance during 2014**
David Duffy:
Loans
Overdraft/Credit card*
Totall
Interest charged during 2014
Maximum debit balance during 2014**
Balance at
31 December
2013
€ 000
Amounts
advanced
during 2014
€ 000
Amounts
repaid
during 2014
€ 000
Balance at
31 December
2014
€ 000
622
–
622
1,261
12
1,273
–
n/a
n/a
–
n/a
n/a
11
n/a
n/a
90
n/a
n/a
611
–
611
8
622
1,171
4
1,175
10
1,301
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.
*Amounts advanced and repaid are not shown for overdraft/credit card facilities as these are revolving in nature (i.e. they may be drawn,
repaid and redrawn up to their limit over the course of the year).
**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 2015
329
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Notes to the consolidated financial statements
54 Related party transactions (continued)
(e) Transactions with Key Management Personnel
(i) Directors in office during 2014 (continued)
Balance at
31 December
2013
€ 000
Amounts
advanced
during 2014
€ 000
Amounts
repaid
during 2014
€ 000
Balance at
31 December
2014
€ 000
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**
Catherine Woods:
Loans
Overdraft/Credit card*
Total
Interest charged during 2014
Maximum debit balance during 2014**
–
–
–
–
–
–
–
–
–
88
–
88
–
n/a
n/a
–
n/a
n/a
n/a
n/a
–
n/a
n/a
–
n/a
n/a
–
n/a
n/a
n/a
n/a
9
n/a
n/a
–
–
–
–
1
–
–
–
–
13
–
3
3
–
6
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. No amounts
were paid or liability incurred in fulfilling the guarantee.
Simon Ball, Bernard Byrne and Peter Hagan had no facilities with the Group during 2014.
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.
*Amounts advanced and repaid are not shown for overdraft/credit card facilities as these are revolving in nature (i.e. they may be drawn,
repaid and redrawn up to their limit over the course of the year).
**The maximum debit balance is calculated by aggregating the maximum debit balance drawn on each facility during the year,
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
54 Related party transactions (continued)
(e) Transactions with Key Management Personnel
(ii) Former Directors who were in office during 2014
Dick Spring:
Loans
Overdraft/Credit card*
Total
Interest charged during 2014
Maximum debit balance during 2014**
Balance at
31 December
2013
€ 000
Amounts
advanced
during 2014
€ 000
Amounts
repaid
during 2014
€ 000
Balance at
31 December
2014
€ 000
–
4
4
–
n/a
n/a
–
n/a
n/a
–
5
5
–
12
David Hodgkinson and Tom Wacker had no facilities with the Group during 2014.
(iii) Senior Executive Officers in office during 2014
(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
Directors (2014:7 persons; 2013: 6 persons)
Senior Executive Officers (2014:7 persons; 2013: 7 persons)
Balance at
31 December
2014
€ 000
Balance at
31 December
2013
€ 000
1,399
13
1,412
1,343
5
1,348
42
1,431
Loans, overdrafts/credit cards
31 December 2014
€ 000
31 December 2013
€ 000
1,873
1,348
3,221
1,987
1,412
3,399
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. No amounts were paid or liability incurred in fulfilling the guarantee.
(v) Connected persons
The aggregate of loans to connected persons of Directors in office as at 31 December 2014, as defined in Section 220 of the Companies
Act 2014, 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
2014
€ 000
Balance at
31 December
2013
€ 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.
*Amounts advanced and repaid are not shown for overdraft/credit card facilities as these are revolving in nature (i.e. they may be drawn,
repaid and redrawn up to their limit over the course of the year).
**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 2015
331
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Notes to the consolidated financial statements
54 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 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.
(1)Transferred to the Ireland Strategic Investment Fund (“ISIF”) on 22 December 2014. Ownership of ISIF vests with the Minister for Finance and is
controlled and managed by the NTMA.
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 management section of this report.
The relationship of the Irish Government with AIB is outlined under the following headings:
– Capital investments;
– Capital reorganisation;
– 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.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
54 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. All the 2009 Preference Shares were either converted to ordinary shares or
redeemed on 17 December 2015 (see below).
Ordinary shares
At 31 December 2015, the Irish Government through the NTMA, held 2.7 billion ordinary shares in AIB representing 99.9% of the
issued ordinary share capital (2014: 99.8%). The number of shares held was impacted by the capital reorganisation outlined below
and in note 42.
2009 Preference Shares
On 17 December 2015, the 2009 Preference Shares held by the Irish Government through the NTMA, were either converted to
ordinary shares or redeemed for cash. This transaction is outlined below under ‘Capital reorganisation’ and in note 42.
A cash dividend amounting to € 280 million was paid on 13 May 2015, and a dividend from 13 May 2015 to the conversion/
redemption date amounting to € 166 million was paid in cash on 17 December 2015.
At 31 December 2014, the Irish Government through the NTMA, held € 3.5 billion capital in the form of non-cumulative preference
shares (‘2009 Preference Shares’).
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 41.
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 46.
– Capital reorganisation
AIB implemented a number of measures in order to reorganise its capital following resolutions passed at an EGM of shareholders
held on 16 December 2015. These measures were designed to enable AIB: return State aid to the Irish Government in line with its
obligations under its EU restructuring plan; create a sound and sustainable capital base on which to grow its business; meet
regulatory capital requirements under CRD IV; allow the future payment of dividends on ordinary shares; and position itself for a
return to private ownership over time.
The measures outlined below impacted on the Irish Government as a related party to AIB:
(a) 2009 Preference Shares (aggregate subscription price of € 3.5 billion):
(i) Conversion of € 2,140 million 2009 Preference Shares into ordinary shares.
(ii) Redemption of € 1,360 million of the 2009 Preference Shares.
On 17 December 2015, AIB converted 2,140 million of the 2009 Preference Shares into ordinary shares. In accordance with the
Constitution of the Company, each share was redeemed at a price equal to 125 per cent of the original subscription price of
€ 1.00 per share. The total number of ordinary shares of € 0.0025 issued on conversion amounted to 155,146,574,363 shares.
Immediately following the conversion on 17 December 2015 of € 2,140 million of the 2009 Preference Shares into ordinary shares,
AIB redeemed the remaining 1,360 million of the 2009 Preference Shares (nominal value of € 13.60 million) at a price equal to
125 per cent of the subscription price per share on issue. Total cost of redemption was € 1,700 million.
A dividend for the period from the last dividend payment date of 13 May 2015 up to the date of conversion/redemption of the 2009
Preference Shares, amounting to € 166 million, was paid in cash to the NTMA (for the ISIF) on 17 December 2015.
For further details of the 2009 Preference Shares conversion/redemption, see note 42.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
333
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Notes to the consolidated financial statements
54 Related party transactions (continued)
(f) Summary of relationship with the Irish Government
(b) Consolidation of ordinary shares
The Irish Government, through the ISIF, held a total of 677,705,287,273 ordinary shares in AIB with a nominal value of € 0.0025
per share as a result of the conversion of € 2,140 million of the 2009 Preference Shares into ordinary shares outlined above.
On 21 December 2015, all ordinary shares with a nominal value of € 0.0025 were consolidated into one ordinary share with a
nominal value of € 0.625 for every 250 shares held following a Consolidation Resolution passed at the EGM on 16 December 2015.
For details of this consolidation, see note 42.
The Irish Government, through the ISIF, held 2,710,821,147 ordinary shares with a nominal value of € 0.625 per share at
31 December 2015 (99.9 % of total issued ordinary share capital).
(c) Issue of warrants to the Minister for Finance (or another State Entity nominated by the Minister for Finance)
In recognition of the significant financial support provided to AIB by the Irish Government since 2008 and as consideration for its
supporting and participating in the Capital Reorganisation, AIB received shareholder approval, at the EGM held on 16 December
2015, to enter into a Warrant Agreement with the Minister for Finance (or another State Entity nominated by the Minister for
Finance). Under the terms of this Warrant Agreement, as part of a Regulated Market Event, the Minister for Finance will be entitled
to issue a Warrant Notice to AIB, subject to certain conditions, requiring AIB to issue warrants for nil consideration to the Minister for
Finance (or another State Entity nominated by the Minister for Finance). On the occurrence of a Regulated Market Event, the
warrants would entitle the the Minister for Finance (or another State Entity nominated by the Minister for Finance) to subscribe for
AIB ordinary shares with a nominal value of € 0.625 per share, subject to a maximum of 9.99 per cent of the issued ordinary share
capital. The warrant exercise price will be not less than 200 per cent of the Initial Regulated Market price and the warrants will be
exercisable for a period of ten years after the date of the Regulated Market Event.
Since the Regulated Market Event had not occurred at 31 December 2015, no notice has issued to AIB for the issue of warrants,
accordingly, these warrants have not been accounted for in the financial statements.
(d) Redemption of Promissory Note
On 20 November 2015, the EBS Promissory Note Termination Agreement was entered into between the Minister for Finance, the
NTMA, EBS and AIB which provided for the redemption and subsequent cancellation of the EBS Promissory Note in conjunction
with the 2009 Preference Shares redemption. This promissory note was issued by the Minister for Finance to EBS in 2010. The
promissory note which was held as an available for sale security was redeemed at its carrying value on 17 December 2015. Fair
value movements amounting to € 33 million held in the ‘Available for sale securities reserves’ account in equity were reclassified to
the Income statement on its redemption and reported within ‘Other operating income’.
– 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, AIB 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 2015 amounted to € 1.8 billion (2014: € 4.6 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 2015 and 2014, are set out in note 5. 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.
– 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 9, 28 and 29. In addition, AIB acquired NAMA senior bonds in 2011 as part of the Anglo transaction
(€ 11,854 million fair value at acquisition date) and the EBS transaction (€ 301 million carrying value at acquisition date). AIB also
acquired € 6 million in subordinated NAMA bonds, as part of the EBS transaction. The NAMA senior bonds are guaranteed by the
Irish Government.
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54 Related party transactions (continued)
(f) Summary of relationship with the Irish Government
Following on the transfer of financial assets to NAMA, a contingent liability/contingent asset arises in relation to:
–
–
–
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.
Details of the contingent liability/asset are set out in note 48.
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 2015: € 10 million; 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 provides direct funding as follows:
– AIB has borrowings from the Central Bank as part of Eurosystem. These borrowings are under ECB Monetary Policy Operations
and at 31 December 2015 amount to € 2.9 billion (2014: € 3.4 billion) of which € 1.9 billion was in the Targeted Long Term
Refinancing Operation (“TLTRO”).
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
2015 was 0.05 %, being the current ECB refinancing rate. The facilities mature within 1 week, apart from the TLTRO which will
mature between September 2016 and September 2018 depending on eligible lending activities in excess of specific benchmarks.
At 31 December 2015, the amounts outstanding, totalling € 2.9 billion (2014: € 3.4 billion) are included within ‘Deposits by central
banks and banks’ in the table below. See note 35 for details of collateral.
These facilities, together with other assets and liabilities with Irish Government entity counterparties, are set out below.
– PCAR/PLAR
On 31 March 2011, the Central Bank published the ‘Financial Measures Programme Report’ which detailed the outcome
of its review of the capital (PCAR) and funding requirements (PLAR) of the domestic Irish banks. The PCAR/PLAR assessments
followed the announcement of the EU-IMF Programme for Ireland in November 2010, in which the provision of an overall amount of
€ 85 billion in financial support for the sovereign was agreed in principle. Up to € 35 billion of this support was earmarked for the
banking system, € 10 billion of which was for immediate recapitalisation of the banks with the remaining € 25 billion to be provided
on a contingency basis. Arising from the 2011 PCAR and PLAR assessments, AIB, including EBS, was required to raise
€ 14.8 billion in total capital (including €1.6 billion in contingent capital), all of which was subsequently raised.
– Credit Institutions (Stabilisation) Act 2010
The Credit Institutions (Stabilisation) Act 2010, 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.
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54 Related party transactions (continued)
(f) Summary of relationship with the Irish Government
– 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 30 September 2014, the Minister for Finance made
Regulations – the Credit Institutions Resolution Fund Levy Regulations, 2014 (“2014 Regulations”) – which amend and update
the 2012 Regulations and provide for contributions by authorised credit institutions to the Credit Institutions’ Resolution Fund
(“Resolution Fund”) pursuant to Section 15 of the Central Bank and Credit Institutions (Resolution) Act 2011. The 2012 Regulations
(as updated by the 2014 Regulations) require every person who, on 1 October 2014, is an authorised credit institution described in
the Schedule to the 2012 Regulations to pay a levy in respect of the levy period to the Central Bank of Ireland (“Central Bank”) for
the account of the Resolution Fund. This includes all banks, building societies and credit unions licensed in Ireland with the
exception of institutions covered by the Credit Institutions (Stabilisation) Act, 2010. 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 already 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.
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54 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 2015 and 2014 together with the highest
balances held at any point during the year:
Balance
2015
Highest(2)
Balance
Reference
balance held
€ m
€ m
Assets
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
Financial investments held to maturity
Total assets
Liabilities
Deposits by central banks and banks
Customer accounts
Trading portfolio financial liabilities
Derivative financial instruments
a
b
c
d
e
f
g, h
Subordinated liabilities and other capital instruments
i
Total liabilities
2014
Highest(2)
balance held
€ m
2,496
–
10
122
86
15,605
10,715
–
€ m
560
–
3
120
73
9,423
9,481
–
19,660
41
–
3
121
81
5,616
5,839
3,483
15,184
2,830
391
4
121
168
9,427
10,019
3,487
Balance
2015
Highest(2)
balance held
€ m
€ m
Balance
2014
Highest(2)
balance held
€ m
€ m
2,950
688
86
69
1,523
5,316
5,300
3,856
551
142
1,523
3,400
3,349
–
93
1,411
8,253
13,480
8,993
–
93
1,411
(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 also included.
(2)The highest balance during the year, together with the outstanding balance at the year end, 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 2015 was € 513 million (2014: € 511 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 € 5,406 million (2014: € 9,107 million) in Irish Government securities held in the
normal course of business and NAMA subordinated bonds which have a fair value at 31 December 2015 of € 432 million
(2014: € 374 million) detailed above under ‘NAMA’.
e On 21 December 2015, AIB transferred € 3,487 million from financial investments available for sale to financial investments held to
f
g
h
maturity. These comprise Irish Government securities.
This relates to funding received from the Central Bank which is detailed under ‘Funding Support’ above.
Includes Nil (2014: € 1,575 million) received from an Irish Government body under a repurchase agreement (note 36). The Group
has pledged Irish Government securities with a fair value of Nil (2014: € 1,619 million) for this borrowing.
Includes € 160 million borrowed from the Strategic Banking Corporation of Ireland (“SBCI”), the ordinary share capital of which is
owned by the Minister for Finance. The SBCI was set up in 2014 with the core purpose of enhancing the supply of credit to SMEs. It
will achieve this by using its capital to lend to SMEs via other financial institutions called ‘on-lenders’. Benefits arising from reduced
rates on funding sourced from the SBCI are passed on in their entirety to the SMEs in accordance with the terms of the borrowing
agreements.
i 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 41).
All other balances, both assets and liabilities are carried out in the ordinary course of banking business on normal terms and conditions.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
337
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Notes to the consolidated financial statements
54 Related party transactions (continued)
(f) Summary of relationship with the Irish Government
Local government(1)
During 2015 and 2014, 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 2015 and 2014, 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 2015 and 2014, 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)
2015
Balance
€ m
2014
Balance
€ m
10
494
483
29
7
17
20
4
267
9
17
19
(1)The highest balance in loans and receivables to banks amounted to € 616 million in respect of funds placed during the year (2014: € 108 million).
(2)The highest balance in deposits by central banks and banks amounted to € 395 million in respect of funds received during the year (2014: € 509 million).
(3)The highest balance in customer deposits amounted to € 22 million in respect of funds received during the year (2014: € 48 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.
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54 Related party transactions (continued)
(f) Summary of relationship with the Irish Government
Irish bank levy
In 2014, following the enactment in December 2013 of the Finance Bill (no.2) 2013, a bank levy was introduced on certain financial
institutions, including the Group. This levy is recognised in the income statement on the date on which all the criteria set out in the
legislation are met. The levy equals 35% of each financial institution’s Deposit Interest Retention Tax payment for 2011 and is
chargeable on this basis for 2014-2016 inclusive. The annual levy paid by the Group and reflected in the income statement amounted
to € 60 million (2014: € 60 million).
In the October 2015 budget, the Minister for Finance announced that this levy will be extended to 2021, with the total amount to be
collected from all financial institutions remaining at its current level of € 150 million per annum, however, the basis for calculating an
individual financial institution’s share of the levy is subject to review. Legislation bringing this budget measure into effect was enacted
on 23 December 2015.
(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.
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Notes to the consolidated financial statements
55 Commitments
Estimated outstanding commitments for capital expenditure
not provided for in the financial statements
Capital expenditure authorised but not yet contracted for
2015
€ m
7
38
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
2015
€ m
59
54
51
49
48
342
603
2014
€ m
17
35
2014
€ m
57
61
58
56
55
394
681
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 8 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
€ 3 million (2014: € 2 million).
Operating lease payments recognised as an expense for the year were € 58 million (2014: € 67 million). Sublease income amounted to
Nil (2014: € 4 million).
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
56 Employees
The following table shows the geographical analysis of average employees for 2015 and 2014 as follows:
Average number of staff (Full time equivalents)
Republic of Ireland
United Kingdom
United States of America
Total
The following table shows the segmental analysis of average employees for 2015 and 2014 as follows:
AIB Ireland
AIB UK
Group & International(2)
Total
2015
5,754
1,138
3,771
10,663
DCB
AIB UK
FSG
Group
2015
9,145
1,463
55
2014
9,689
1,641
54
10,663
11,384
2014(1)
5,339
1,266
1,534
3,245
11,384
(1)As reported in 2014.
(2)Group & International includes the businesses outside Ireland and the UK. It also includes wholesale treasury activities, central control and support
functions (business and customer services, risk, audit, finance, general counsel, human resources and corporate affairs).
The average number of employees by segment for 2015 and 2014 is set out above (excluding employees on career breaks and other
unpaid long term leaves).
The 12 month average of 10,663 employees is lower than the average figure for 2014 of 11,384 due to the impact of voluntary
severance. Actual full time equivalent numbers fell to the 31 December 2015 level of 10,204 from 11,047 at 31 December 2014,
reflecting the impact of voluntary severance and selective outsourcing of some back-office and support functions during the financial
year.
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Notes to the consolidated financial statements
57 Regulatory compliance
During the years ended 31 December 2015 and 2014, AIB Group, and Allied Irish Banks, p.l.c. and its regulated subsidiaries complied
with their externally imposed capital ratios.
58 Financial and other information
Operating ratios
Operating expenses/operating income
Operating expenses/operating income before exceptional items
Other income/operating income
Other income/operating income before exceptional items
Net interest margin(1)
Performance measures
Return on average total assets
Return on average ordinary shareholders’ equity(2)
2015
%
2014
%
2013
%
63.9
49.4
26.7
26.5
1.94
1.3
12.4
64.7
55.5
33.4
33.3
1.63
0.8
8.0
86.7
76.4
21.2
30.1
1.21
(1.3)
(21.8)
(1)Represents net interest income as a percentage of average interest earning assets.
(2)Profit attributable to ordinary shareholders after deduction of the annual dividend on the 2009 Preference Shares as a percentage of average ordinary
shareholders’ equity (i.e. excludes the € 3.5 billion in 2009 Preference Shares which were redeemed/converted in December 2015).
Rates of exchange
€ /$*
Closing
Average
€ /£*
Closing
Average
*Throughout this report, Pound sterling is denoted by £ and US dollar by $.
Currency information
Euro
Other
2015
2014
2013
1.0887
1.1097
0.7340
0.7260
1.2141
1.3286
0.7789
0.8062
1.3791
1.3282
0.8337
0.8494
Assets
2015
€ m
82,053
21,069
2014
€ m
86,771
20,684
Liabilities and equity
2014
€ m
2015
€ m
85,268
17,854
88,395
19,060
103,122
107,455
103,122
107,455
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
59 Average balance sheets and interest rates(1)
The following table shows interest rates prevailing at 31 December 2015 and 2014 together with average prevailing interest rates, gross
yields, spreads and margins for the years ended 31 December 2015, 2014 and 2013:
31 December
Average interest rates for years
ended 31 December
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
ECB refinancing rate
Gross yields, spreads and margins(2)
Gross yields(3)
Interest rate spread(4)
Net interest margin(5)
2015
%
0.25
(0.20)
(0.13)
0.50
0.50
0.59
0.05
2014
%
0.50
0.02
0.08
0.50
0.50
0.56
0.05
2015
%
0.43
(0.07)
(0.02)
0.50
0.51
0.57
0.05
2.81
1.43
1.94
2014
%
2013
%
0.64
0.13
0.21
0.50
0.49
0.54
0.16
2.81
1.13
1.63
0.63
0.13
0.22
0.50
0.49
0.51
0.55
2.82
0.75
1.21
(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
59 Average balance sheets and interest rates(1) (continued)
The following table shows the average balances and interest rates of interest earning assets and interest bearing liabilities for the years
ended 31 December 2015, 2014 and 2013. 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
less liabilities
Loans and receivables to banks
Loans and receivables to customers
NAMA senior bonds
Financial investments available for sale
Financial investments held to maturity
Average interest earning assets
Net interest on swaps
Average
balance
€ m
38
7,143
64,868
7,614
19,503
106
Total average interest earning assets
Non-interest earning assets
99,272
7,557
Year ended
31 December 2015
Interest Average
rate
%
€m
Year ended
31 December 2014
Average Interest Average
rate
balance
%
€ m
€ m
Year ended
31 December 2013
Average Interest Average
rate
%
€ m
€ m
1
24
2,214
31
514
4
81
2,869
2.6
0.3
3.4
0.4
2.6
3.8
2.8
–
5,966
–
22
65,391
2,237
12,569
19,444
–
80
567
–
103,370
2,906
91
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
2.9
103,370
2,997
2.9
111,120
3,166
2.9
8,237
9,635
99,272
2,788
Total average assets
106,829
2,869
2.7
111,607
2,997
2.7
120,755
3,166
2.6
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
15,734
43,777
7,475
1,625
68,611
25,985
94,596
12,233
4
453
207
278
942
0.03
1.0
2.8
17.1
1.4
18,515
48,944
8,921
1,401
46
673
335
256
0.3
1.4
3.8
18.3
26,242
51,728
8,623
1,311
123
1,110
344
241
77,781
1,310
1.7
87,904
1,818
22,426
22,031
0.5
2.1
4.0
18.4
2.1
942
1.0
100,207
1,310
1.3
109,935
1,818
1.7
11,400
10,820
shareholders’ equity
106,829
942
0.9
111,607
1,310
1.2
120,755
1,818
1.5
(1)The average balance sheets and interest rates are presented on a continuing operations basis.
For 2015 and 2014, negative interest income and expense are negligible. The amounts are offset against interest income and interest
expense respectively.
60 Non-adjusting events after the reporting period
No significant non-adjusting events have taken place since 31 December 2015.
61 Dividends
No final dividend on ordinary shares will be paid in respect of the financial year ended 31 December 2015.
62 Approval of financial statements
The financial statements were approved by the Board of Directors on 2 March 2016.
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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
Note
a
b
c
d
e
f
g
h
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k
l
Accounting policies
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
Provisions for impairment on loans and receivables
NAMA senior bonds
Financial investments available for sale
Financial investments held to maturity
m Investments in Group undertakings
n
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p
q
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x
y
z
Intangible assets
Property, plant and equipment
Deferred taxation
Deposits by central banks and banks
Customer accounts
Trading portfolio financial liabilities
Debt securities in issue
Other liabilities
Provisions for liabilities and commitments
Subordinated liabilities and other capital instruments
Share capital
Other equity interests
Capital reserves and capital redemption reserves
aa Capital contributions
ab Offsetting financial assets and financial liabilities
ac Memorandum items: Contingent liabilities and commitments, and contingent assets
ad
Transferred financial assets
ae Classification and measurement of financial assets and financial liabilities
af
Fair value of financial instruments
ag Statement of cash flows
ah Related party transactions
ai
aj
ak
Commitments
Credit risk information
Liquidity risk information
al Market risk information
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Parent company statement of financial position
as at 31 December 2015
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
Financial investments held to maturity
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
Trading portfolio financial liabilities
Derivative financial instruments
Debt securities in issue
Current taxation
Other liabilities
Accruals and deferred income
Retirement benefit liabilities
Provisions for liabilities and commitments
Subordinated liabilities and other capital instruments
Total liabilities
Shareholders’ equity
Share capital
Share premium
Other equity interests
Reserves
Total shareholders’ equity
Total liabilities and shareholders’ equity
Notes
ag
2015
€ m
2014
€ m
1,333
1,396
d
e
f
g
h
j
k
l
m
n
o
p
q
r
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f
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c
v
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x
x
y
67
2
1
1,718
21,311
29,500
5,616
17,510
3,483
3
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278
299
249
1
2,421
435
89,453
19,651
49,129
86
2,032
1,600
16
265
407
310
205
2,318
76,019
1,696
1,386
494
9,858
13,434
89,453
66
13
1
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23,111
29,658
9,423
20,980
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158
248
152
2
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450
95,585
23,137
50,169
–
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2,622
17
317
468
1,143
222
1,451
82,232
1,344
1,752
–
10,257
13,353
95,585
Richard Pym
Chairman
2 March 2016
346
Bernard Byrne
Chief Executive Officer
Mark Bourke
Chief Financial Officer
David O’Callaghan
Company Secretary
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Parent company statement of cash flows
for the financial year ended 31 December 2015
Cash flows from operating activities
Profit before taxation for the year from continuing operations
Adjustments for:
– Non-cash and other items
– Change in operating assets
– Change in operating liabilities
– Taxation refund
Net cash inflow/(outflow) from operating activities
Cash flows from investing activities
Purchase of financial investments available for sale
Proceeds from sales and maturity of financial investments
available for sale(1)
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
Dividends received from subsidiary companies
Net cash (outflow)/inflow from investing activities
Cash flows from financing activities
Net proceeds on issue of Additional Tier 1 Securities
Net proceeds on issue of € 750 million Tier 2 Notes due 2025
Redemption of 2009 Preference Shares
Repayment of preference shares
Interest paid on subordinated liabilities and other capital instruments
Dividend paid on 2009 Preference Shares
Net cash outflow from financing activities
Change in cash and cash equivalents
Opening cash and cash equivalents
Effect of exchange translation adjustments
Closing cash and cash equivalents
Notes
ag
ag
ag
k
o
d
n
y
w
x
ag
2015
€ m
1,096
(741)
6,540
(6,184)
3
714
2014
€ m
745
(565)
10,153
(10,540)
–
(207)
(4,257)
(8,474)
4,386
(82)
14
(155)
–
–
13
–
(81)
494
750
(1,700)
–
(160)
(446)
(1,062)
(429)
2,242
59
1,872
8,771
(45)
1
(58)
–
336(2)
5
1
537
–
–
–
(45)
(160)
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(205)
125
2,066
51
2,242
(1)Transfer from financial investments available for sale to financial investments held to maturity of € 3,487 million not reflected in cash flows (note l).
(2)Disposal of Ark Life Assurance Company Limited.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
349
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Notes to the parent company financial statements
a Accounting policies
Where applicable, the accounting policies adopted by Allied Irish Banks, p.l.c. (the parent company) are the same as those of AIB Group
as set out in note 1 to the consolidated financial statements on pages 215 to 243.
The parent company financial statements and related notes set out on pages 345 to 402 have been prepared in accordance with
International Financial Reporting Standards (collectively “IFRSs”) as issued by the IASB and IFRSs as adopted by the EU and
applicable for the financial year ended 31 December 2015. They also comply with those parts of the Companies Act 2014 applicable to
companies reporting under IFRS and with the European Union (Credit Institutions: Financial Statements) Regulations 2015.
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.
A description of the critical accounting judgements and estimates is set out in note 2 to the consolidated financial statements on pages
244 to 248.
Parent Company Income statement
In accordance with Section 304(2) of the Companies Act 2014, the parent company is availing of the exemption to omit the income
statement, statement of comprehensive income and related notes from its financial statements; from presenting them to the Annual
General Meeting; and from filing them with the Registrar of Companies. The parent company’s profit after tax for the financial year
ended 31 December 2015 is € 946 million.
b Administrative expenses
Personnel expenses:
Wages and salaries
Termination benefits(1)
Retirement benefits(2)
Social security costs
Other personnel expenses(3)
Total personnel expenses
General and administrative expenses:
Irish banking levy
Bank Recovery and Resolution Directive levy
Other general and administrative expenses
Total general and administrative expenses
2015
€ m
2014
€ m
475
24
97
53
(81)
568
45
6
394
445
515
19
85
56
(80)
595
45
–
443
488
1,013
1,083
(1)At 31 December 2015, a charge of € 24 million (2014: a charge of € 19 million) was made to the income statement in respect of termination benefits
arising from the voluntary severance programme.
(2)Comprises a charge of € 25 million relating to defined benefit expense (2014: a charge of € 6 million), a defined contribution expense of € 66 million
(2014: € 71 million) and a long term disability payments expense of € 6 million (2014: € 8 million) (see note c).
(3)Other personnel expenses include other compensation costs of Nil (2014: Nil).
Personnel expenses of € 33 million (2014: € 10 million) were capitalised as part of the cost of intangible assets.
350
Allied Irish Banks, p.l.c. Annual Financial Report 2015
c 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 13). The total cost in respect of the DC scheme for 2015 was € 66 million (2014: € 71 million) and is included in
administrative expenses (note b).
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 13).
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 13 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 13).
Movement in defined benefit obligation and scheme assets
The following table sets out the movement in the defined benefit obligation and scheme assets during 2015 and 2014:
Defined
Fair value
benefit of scheme
obligation
€ m
2015
Net defined
benefit
assets (liability) asset
€ m
€ m
Defined Fair value
benefit of scheme
obligation
€ m
2014
Net defined
benefit
assets (liability) asset
€ m
€ m
At 1 January
Included in profit or loss
Past service cost
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
Benefits paid
At 31 December
(1)Includes payment of pension levy.
(5,473)
4,330
(1,143)
(4,071)
3,930
(141)
(1)
(119)
–
(120)
(72)
(47)
769
–
(4)
646
–
134
134
–
96
(1)
95
–
–
–
127
2
129
82
(133)
(51)
(1)
(23)
(1)
(25)
(72)
(47)
769
127
(2)
775
82
1
83
(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
(4,813)
4,503
(310)
(5,473)
4,330
(1,143)
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Notes to the parent company financial statements
c Retirement benefits (continued)
Scheme assets
The following table sets out an analysis of the schemes assets at 31 December 2015 and 2014:
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
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.
2015
€ m
135
62
206
166
91
330
172
178
169
53
47
1,474
10
1,484
294
1,031
1,325
53
–
53
1,378
255
23
421
7
12
36
318
794
794
434
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
4,503
4,330
352
Allied Irish Banks, p.l.c. Annual Financial Report 2015
c Retirement benefits (continued)
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 the event of illness or injury resulting in the employee’s long term
absence from work. In 2015, Allied Irish Banks, p.l.c. contributed € 6 million (2014: € 8 million) towards insuring this benefit. This amount
is included in administrative expenses (note b).
d Disposal groups and non-current assets held for sale
Total disposal groups and non-current assets held for sale
Disposal groups and non-current assets held for sale comprise property surplus to requirements.
e Trading portfolio financial assets
Equity shares
Of which unlisted:
Equity securities
2015
€ m
2
2014
€ m
13
2015
€ m
2014
€ m
1
1
1
1
1
1
1
1
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353
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Notes to the parent company financial statements
f Derivative financial instruments
Details of derivative transactions entered into and their purpose are described in note 24 to the consolidated financial statements.
The following table presents the total notional principal amount of interest rate, exchange rate, equity and credit derivative contracts
for 2015 and 2014 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
2015
€ m
2014
€ m
103,431
1,561
(1,873)
104,693
1,876
(2,487)
6,825
68
(64)
2,396
89
(89)
340
–
(6)
4,834
48
(74)
3,010
138
(117)
340
–
(8)
112,992
112,877
1,718
(2,032)
2,062
(2,686)
(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
2015
Total
€ m
< 1 year
€ m
1 < 5 years
€ m
5 years +
€ m
2014
Total
€ m
Residual maturity
Notional principal amount
Positive fair value
27,892
61,950
23,150
112,992
35,196
38,737
38,944
112,877
168
673
877
1,718
125
837
1,100
2,062
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
2015
€ m
111,211
1,437
344
112,992
2014
€ m
110,487
1,915
475
112,877
2015
€ m
1,411
284
23
1,718
2014
€ m
1,714
321
27
2,062
354
Allied Irish Banks, p.l.c. Annual Financial Report 2015
f 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 2015 and 2014. A description of how the fair values of derivatives are determined is set out in note 52 to
the consolidated financial statements.
Notional
principal
amount
€ m
2015
Fair values
Assets
Liabilities
€ m
€ m
Notional
principal
amount
€ m
2014
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 bought and sold
Total interest rate derivatives – OTC
Interest rate derivatives – OTC – central clearing
Interest rate swaps
Total interest rate derivatives – central clearing
Interest rate derivatives – exchange traded
Interest rate futures bought and sold
Total interest rate derivatives – exchange traded
44,236
432
689
45,357
100
100
2,184
2,184
912
56
2
970
–
–
–
–
(944)
(55)
(3)
46,657
1,134
(1,225)
629
692
46
3
(42)
(4)
(1,002)
47,978
1,183
(1,271)
–
–
–
–
–
–
1,706
1,706
–
–
–
–
–
–
–
–
Total interest rate derivatives
47,641
970
(1,002)
49,684
1,183
(1,271)
Foreign exchange derivatives – OTC
Foreign exchange contracts
Currency options bought and sold
Total foreign exchange derivatives
Equity derivatives – OTC
Equity warrants
Equity index options bought and sold
Total equity derivatives
Credit derivatives – OTC
Credit derivatives
Total credit derivatives
6,756
69
6,825
–
2,396
2,396
340
340
67
1
68
–
89
89
–
–
(64)
–
(64)
–
(89)
(89)
(6)
(6)
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)
Total derivatives held for trading
57,202
1,127
(1,161)
57,868
1,369
(1,470)
Derivatives held for hedging
Derivatives designated as fair value hedges – OTC
Interest rate swaps
11,738
Total derivatives designated as fair value hedges
11,738
Derivatives designated as cash flow hedges – OTC
Interest rate swaps
Cross currency interest rate swaps
Total interest rate cash flow hedges – OTC
41,627
2,371
43,998
Interest rate cash flow hedges – OTC – central clearing
Interest rate swaps
Total interest rate cash flow hedges – central clearing
54
54
Total derivatives designated as cash flow hedges
44,052
Total derivatives held for hedging
Total derivative financial instruments
55,790
112,992
64
64
502
24
526
1
1
527
591
(418)
(418)
(348)
(105)
(453)
–
–
(453)
(871)
12,724
12,724
39,171
3,114
42,285
–
–
42,285
55,009
151
151
539
3
542
–
–
542
693
(587)
(587)
(412)
(217)
(629)
–
–
(629)
(1,216)
1,718(1)
(2,032)(2)
112,877
2,062(1)
(2,686)(2)
(1)Includes exposure to subsidiary undertakings of € 172 million (2014: € 202 million).
(2)Includes amounts due to subsidiary undertakings of € 289 million (2014: € 388 million)
Allied Irish Banks, p.l.c. Annual Financial Report 2015
355
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Notes to the parent company financial statements
f 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
29
22
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
27
29
160
90
234
101
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
2015
Total
€ m
450
242
2014
Total
€ m
246
153
The table below sets out the hedged cash flows, including amortisation of terminated cas hflow 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
29
47
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
27
49
160
126
234
123
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
2015
Total
€ m
450
345
2014
Total
€ m
246
263
356
Allied Irish Banks, p.l.c. Annual Financial Report 2015
g Loans and receivables to banks
Funds placed with central banks
Funds placed with other banks
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
2015
€ m
102
21,209
21,311
1,293
20,018
21,311
2014
€ m
101
23,010
23,111
950
22,161
23,111
4,896
3,376
2015
€ m
20,748
560
3
2014
€ m
22,238
871
2
21,311
23,111
(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 € 848 million (2014: € 1,206 million) placed with derivative counterparties in
relation to net derivative positions (note ab).
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 € 5,728 million (2014: € 3,494 million). The fair value of collateral sold or repledged
amounted to € 4,532 million (2014: € 3,192 million). These transactions were conducted under terms that are usual and customary to
standard reverse repurchase agreements.
h Loans and receivables to customers
Loans and receivables to customers
Reverse repurchase agreements
Amounts receivable under finance leases and hire purchase contracts
Unquoted debt securities
Provisions for impairment (note i)
Of which:
Due from third parties
Due from subsidiary undertakings(1)
Of which repayable on demand or at short notice
Amounts include:
Due from associated undertakings
(1)Amounts due from subsidiary undertakings may include repurchase agreements.
2015
€ m
32,129
226
488
219
(3,562)
29,500
19,630
9,870
29,500
17,169
2014
€ m
36,558
110
423
131
(7,564)
29,658
19,880
9,778
29,658
23,273
–
–
Under reverse repurchase agreements, AIB has accepted collateral with a fair value of € 222 million (2014: € 107 million) that it is
permitted to sell or repledge in the absence of default by the owner of the collateral.
For details of credit quality, refer to note aj ‘Credit risk information’.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
357
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Notes to the parent company financial statements
h Loans and receivables to customers (continued)
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).
2015
€ m
2014
€ m
69
439
31
539
(55)
4
488
67
395
26
488
30
274
120
334
12
466
(46)
3
423
118
295
10
423
45
219
358
Allied Irish Banks, p.l.c. Annual Financial Report 2015
i Provisions for impairment on loans and receivables
The following table shows provisions for impairment on loans and receivables (both to banks and customers). The classification below
aligns to the asset classes disclosed in the ‘Risk management’ section.
At 1 January 2015
Exchange translation adjustments
Credit to income statement – customers
Amounts written off
Recoveries of amounts written off
in previous years
At 31 December 2015
Total provisions are split as follows:
Specific
IBNR
Amounts include:
Loans and receivables to customers (note h)
At 1 January 2014
Exchange translation adjustments
Charge against/(credit to) income
statement – customers
Credit to income statement – 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 h)
Other Property and Non-property
business
€ m
construction
€ m
personal
€ m
Residential
mortgages
€ m
198
1
(41)
(22)
–
136
125
11
136
713
1
(14)
(220)
–
480
436
44
480
4,458
15
(196)
(2,425)
3
1,855
1,707
148
1,855
2
5
1,091
3,562
Residential
mortgages
€ m
Other
personal
€ m
Property and
construction
€ m
Non-property
business
€ 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
2015
Total
€ m
7,564
27
(501)
(3,533)
3,223
339
3,562
3,562
2014
Total
€ m
11,271
36
(142)
(7)
(3,596)
2,195
10
(250)
(866)
955
136
1,091
3,018
10
105
(7)
(933)
2
2
2,195
7,564
1,899
296
2,195
7,066
498
7,564
7,564
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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
Amortisation of discount
Repayments
Acceleration/re-estimation of the timing of cash flows
At 31 December
2015
€ m
9,423
21
(3,834)
6
5,616
2014
€ m
15,598
36
(6,343)
132
9,423
On initial recognition of the NAMA senior bonds, AIB made certain assumptions as to the timing of expected repayments. These
assumptions underpinning the repayments and their timing are subject to continuing review. Accordingly, in 2015, a gain of € 6 million
has been recognised following the acceleration of repayments by NAMA (2014: a gain of € 132 million was recognised on re-estimation
of expected timing of repayments). These gains were accounted for as adjustments to the carrying value of the bonds and were
reflected in ‘Other operating income’.
The estimated fair value of the bonds at 31 December 2015 is € 5,626 million (2014: € 9,479 million). The nominal value of the bonds is
€ 5,643 million (31 December 2014: € 9,477 million). Whilst these bonds do not have an external credit rating, the Group has attributed
to them a rating of A– (2014: A–) i.e. the external rating of the Sovereign.
At 31 December 2015, € 1,257 million (2014: € 1,805 million) of NAMA senior bonds have been pledged to central banks and banks
(note q).
k Financial investments available for sale
The following table sets out at 31 December 2015 and 2014, 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
Fair value
€ m
5,406
3,033
245
2,008
328
1
5,720(1)
30
57
16,828
414
268
682
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
Euro corporate 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
587
140
7
78
–
–
81
–
3
896
369
267
636
–
(3)
(1)
–
(3)
–
(38)
–
(2)
(47)
–
–
–
2015
Net
after tax
€ m
514
120
5
68
(2)
–
38
–
1
587
137
6
78
(3)
–
43
–
1
(73)
(17)
(1)
(10)
1
–
(5)
–
–
849
(105)
744
369
267
636
(46)
(88)
(134)
323
179
502
17,510
1,532
(47)
1,485
(239)
1,246
(1)Includes € 1,120 million in respect of subsidiary undertakings.
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k Financial investments available for sale (continued)
Debt securities
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and government agencies
Collateralised mortgage obligations
Other asset backed securities
Euro bank securities
Non Euro 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
Unrealised
gross gains
€ m
Unrealised
gross losses
€ m
Net unrealised
gains/(losses)
€ m
Tax effect
€ m
2014
Net
after tax
€ m
–
–
–
–
(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.
Available for sale financial investments with unrealised losses have been assessed for impairment based on the credit risk profile of the
counterparties involved. Impairment losses on debt securities of Nil (2014: € 1 million) and Nil (2014: € 7 million) on equity securities
have been recognised.
Analysis of movements in financial investments available for sale
Debt
securities
€ m
Equity
securities
€ m
2015
Total
€ m
Debt
securities
€ m
Equity
securities
€ m
At 1 January
Exchange translation adjustments
Purchases
Sales
Maturities
IAS 39 Reclassification out(1)
Provisions for impairment
Amortisation of discounts net of premiums
Movement in unrealised gains
At 31 December
Of which:
Listed
Unlisted
20,620
27
4,257
(4,077)
(309)
(3,487)
–
(98)
(105)
16,828
16,828
–
16,828
360
20,980
27
4,257
(4,077)
(309)
(3,487)
–
(98)
217
20,049
14
8,474
(8,035)
(721)
–
(1)
(74)
914
17,510
20,620
16,828
682
17,510
20,620
–
20,620
–
–
–
–
–
–
–
322
682
–
682
682
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
(1)Irish Government Securities with a carrying value of € 3,487 million were reclassified from financial investments available for sale to financial investments
held to maturity.
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Notes to the parent company financial statements
l Financial investments held to maturity
Government bonds
Total financial investment held to maturity
Analysis of movements in financial investments held to maturity
At 1 January
IAS 39 reclassifications in 2015 (note k)
Amortisation of fair value gain
At 31 December
2015
€ m
3,483
3,483
2014
€ m
–
–
Debt securities
2015
€ m
–
3,487
(4)
3,483
2014
€ m
–
–
–
–
Following a review of the Group’s investment strategy, a decision was taken to reclassify a portfolio of Irish Government securities to held
to maturity from the available for sale asset portfolio. Government bonds with a fair value of € 3,487 million were reclassified from
available for sale to held to maturity in 2015. The reclassification reflects the Group’s positive intention and ability to hold these securities
to maturity. On the date of reclassification, the accumulated fair value gain held in other comprehensive income was € 549 million.
This unrealised gain will be amortised to interest income using the effective income method over the remaining life of the bonds.
Financial investments held to maturity are listed on a recognised stock exchange. Their maturity profile is set out in note ak.
362
Allied Irish Banks, p.l.c. Annual Financial Report 2015
m Investments in Group undertakings
Equity
At 1 January
Liquidations
Reversal of impairment
At 31 December
Subordinated debt
At 1 January and 31 December
Total
Of which:
Credit institutions
Other
Total – all unquoted
2015
€ m
4,806
–
120
4,926
300
5,226
4,397
829
5,226
2014
€ m
4,559
(45)(1)
292
4,806
300
5,106
4,397
709
5,106
(1)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 2015, the total amount of principal outstanding in respect of mortgage covered securities issued by AIB Mortgage
Bank was € 7.2 billion (2014: € 7.7 billion) of which € 4.8 billion was held by external debt investors (2014: € 3.8 billion), € 1.1 billion by
Allied Irish Banks, p.l.c. (2014: 1.1 billion) and € 1.3 billion was self-issued to AIB Mortgage Bank (2014: € 2.8 billion). The mortgage
covered securities issued to Allied Irish Banks, p.l.c. and to AIB Mortgage Bank were held in an Allied Irish Banks, p.l.c. account subject
to a fixed charge in favour of the Central Bank of Ireland in support of Eurosystem refinancing operations. As at 31 December 2015, the
total amount of principal outstanding of mortgage loans (mortgage credit assets) and cash comprised in AIB Mortgage Bank’s cover
assets pool was € 13.9 billion (2014: € 15.1 billion).
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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m Investments in Group undertakings (continued)
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 € 13.1 billion as at 31 December 2015. 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.
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
directors and the autonomy to grow and establish its business around the needs of its customer (the intermediary). Haven offers a full
range of prime mortgages.
In December 2008, EBS established EBS Mortgage Finance, a wholly owned subsidiary which is regulated by the Central Bank of
Ireland/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. Between December 2008 and 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 € 8.44 billion. As at 31 December 2015, the total
amount of principal outstanding of mortgage loans (mortgage credit assets) and cash comprised in EBS Mortgage Finance’s cover
assets pool was € 4.2 billion (2014: € 4.7 billion).
In December 2008, EBS Mortgage Finance launched a € 6 billion Mortgage Covered Securities Programme. As at 31 December 2015,
the total amount of principal outstanding in respect of mortgage covered securities issued by EBS Mortgage Finance was € 2.4 billion
(2014: € 1.85 billion) of which Nil (2014: Nil) was held by external debt investors. EBS held € 2.4 billion (2014: € 1.85 billion).
Prior to its acquisition by AIB, EBS had set up a number of special purpose entities (“SPEs”), 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 € 2,961 million
(2014: € 3,120 million). For further details on these SPEs, see note 50 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
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 billion at 31 December 2015. 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.
364
Allied Irish Banks, p.l.c. Annual Financial Report 2015
m Investments in Group undertakings (continued)
Principal subsidiary undertaking incorporated outside the Republic of Ireland
Great Britain (GB)
In this market, the segment operates as Allied Irish Bank (GB) (“AIB GB”) out of 16 locations in key cities across Great Britain. AIB
GB’s strategy is to be a leading provider of full banking services to owner-managed businesses and small corporates who value a
high-service relationship in local geographies and in selected sectors. In addition, AIB GB has a committed and unique focus on British
Irish trade.
Northern Ireland (NI)
In this market, the segment operates as First Trust Bank (“FTB”) which operates out of 30 branches and outlets throughout Northern
Ireland. FTB offers a full banking service, including online, mobile and telephone banking to business and personal customers across
the range of customer segments, including professionals, high net worth individuals, SMEs, as well as 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 357 of the Companies Act 2014. In accordance with the Act, Allied Irish Banks, p.l.c. has
irrevocably guaranteed the liabilities of these subsidiaries.
AIB Capital Markets Limited
AIB Corporate Banking Limited
AIB Corporate Finance Limited
AIB Holdings (Ireland) Limited
AIB Finance Limited
AIB International Leasing Limited
AIB Leasing Limited
AIB Services Limited
Skonac
Skobar
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
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 Commercial Finance Limited
AIB Debt Management Limited
In presenting details of the principal subsidiary undertakings, the exemption permitted by sections 316 and 348 of the Companies Act
2014 and by the European Union (Credit Institutions: Financial Statements) Regulations 2015, has been availed of and Allied Irish
Banks, p.l.c. will annex all relevant information, including a full listing of subsidiary undertakings, to its annual return to the Companies
Registration Office in accordance with these regulations and the Companies Act 2014.
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m Investments in Group undertakings (continued)
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
AIB Corporate Leasing Limited
AIB Capital Markets Holdings (UK) Limited
EBS Limited
EBS Mortgage Finance
AIB Holdings (NI) Limited
AIB Film Distribution
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 2015, the carrying value of investments in the following subsidiary undertakings of the parent company were reviewed
for the reversal of impairment:
– AIB Holdings (N.I.) Limited; and
– AIB UK Loan Management Limited.
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 shareholder reserves in this subsidiary. 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 remained negative shareholder reserves in this company. Following a review in 2015, it was considered that there were not
sufficient grounds for reversing previous impairment amounts due to continued negative shareholder reserves.
AIB UK Loan Management Limited
The carrying value of the investment in AIB UK Loan Management Limited, € 965 million (£805 million), 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 with some
selective disposals. Against this backdrop, a review at 31 December 2015 was carried out. As a result of positive shareholder reserves
in the subsidiary and future expectations, it was considered that there were sufficient indicators to suggest that the reversal of a portion
of the previous impairment loss was appropriate. Accordingly, € 120 million (£100 million) of the previous impairment provision was
reversed.
2014
EBS Limited (“EBS”)
AIB carried out an impairment reversal assessment of its investment in EBS at 31 December 2014. A review of the actual performance
and the planning outturn of EBS confirmed that there were strong indications that previous impairments should be 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.
This assessment led to the write back of the remaining impairment provision of € 292 million.
366
Allied Irish Banks, p.l.c. Annual Financial Report 2015
n 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
Carrying value at 31 December
Software
€ m
Other
€ m
2015
Total
€ m
Software
€ m
Other
€ m
714
118
37
(25)
844
556
35
–
(25)
566
278
3
–
–
–
3
3
–
–
–
3
–
717
118
37
(25)
847
559
35
–
(25)
569
278
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
(1)Relates to assets which are no longer in use with a Nil carrying value.
Internally generated intangible assets under construction amounted to: € 106 million (31 December 2014: € 40 million).
The cost of internally generated software amounted to: € 438 million (31 December 2014: € 396 million).
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367
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Notes to the parent company financial statements
o Property, plant and equipment
Cost
At 1 January 2015
Additions
Transfers
Disposals
At 31 December 2015
Depreciation/impairment
At 1 January 2015
Depreciation charge for the year
Disposals
At 31 December 2015
Carrying value at 31 December 2015
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
Freehold
€ m
121
47
–
–
168
40
3
–
43
125
Freehold
€ m
114
(2)
9
–
–
121
36
3
1
–
–
–
40
81
Property
Long
leasehold
€ m
Leasehold
under 50
years
€ m
73
1
2
–
76
24
1
–
25
51
92
14
(5)
–
101
50
6
–
56
45
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
2015
Total
€ m
434
20
3
(2)
455
358
21
(2)
377
78
€ m
720
82
–
(2)
800
472
31
(2)
501
299
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
The carrying value of property occupied by Allied Irish Banks, p.l.c. for its own activities was €201 million (2014: € 162 million).
Property and equipment includes € 22 million for items in the course of construction (2014: € 7 million).
368
Allied Irish Banks, p.l.c. Annual Financial Report 2015
p 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
Other
Total gross deferred tax liabilities
Net deferred tax assets
Represented on the balance sheet as follows:
Deferred tax assets
2015
€ m
–
45
–
2,684
–
46
2,775
(49)
–
(15)
(277)
(13)
(354)
2014
€ m
–
149
–
2,807
–
54
3,010
(44)
–
(13)
(197)
–
(254)
2,421
2,756
2,421
2,756
For each of the years ended 31 December 2015 and 2014, 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
2015
€ m
2,756
(2)
(183)
(150)
2,421
2014
€ m
2,839
1
(4)
(80)
2,756
Comments on the basis of recognition of deferred tax assets on unused tax losses are included in note 2 ‘Critical accounting
judgements and estimates’ on pages 244 to 248. Information on the regulatory capital treatment of deferred tax assets is included in
‘Principal risks and uncertainties’ on page 58.
At 31 December 2015, recognised deferred tax assets on tax losses and other temporary differences, net of deferred tax liabilities,
totalled € 2,421 million (2014: € 2,756 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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369
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Notes to the parent company financial statements
q Deposits by central banks and banks
Central banks
Eurosystem refinancing operations(1)
Other borrowings
Banks
Securities sold under agreements to repurchase
Other borrowings
Of which:
Due to third parties
Due to subsidiary undertakings(2)
Amounts include:
Due to related party
2015
€ m
2,900
50
2,950
10,153
6,548
16,701
19,651
13,637
6,014
19,651
2014
€ m
3,400
–
3,400
12,733
7,004
19,737
23,137
16,560
6,577
23,137
–
–
(1)Euorsystem refinancing operations are credit facilities from the Eurosystem secured by a fixed charge over securities.
(2)Amounts due to subsidiary undertakings may include repurchase agreements.
Details of AIB’s sale and repurchase activity are set out in note 50 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 2015 (2014: Nil).
Financial assets pledged
(a) Financial assets pledged under existing agreements to repurchase, for secured borrowings, 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
5,357
10,829
16,186
5,257
13,937
19,194
Central
banks
€ m
Banks
€ m
2015
Total
€ m
Central
banks
€ m
Banks
€ m
2014
Total
€ m
Of which:
Government securities(1)
Other securities
(1)Includes NAMA senior bonds.
20
5,337
8,364
2,465
8,384
7,802
1,004
4,253
9,559
4,378
10,563
8,631
(b) The Group has securitised credit card receivables with a carrying value of € 292 million (2014: € 297 million) as described in note ad.
Funding of € 200 million was received from external investors and is included above as ‘other borrowings’ and has been secured on
these and future credit card receivables.
370
Allied Irish Banks, p.l.c. Annual Financial Report 2015
r 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
2015
€ m
19,390
8,123
20,532
1,084
49,129
19,082
30,047
49,129
45,045
4,084
49,129
2014
€ m
16,191
6,589
25,198
2,191
50,169
15,847
34,322
50,169
45,562
4,607
50,169
52
75
(1)AIB pledged government available for sale securities with a fair value of € 663 million (2014: € 2,941 million) and non-government available for sale
securities with a fair value of € 545 million (2014: € 53 million) as collateral for these facilities and providing access to future funding facilities.
(2)Amounts due to subsidiary undertakings may include repurchase agreements.
s Trading portfolio financial liabilities
Debt securities:
Government securities
For contractual residual maturity – see note ak ‘Liquidity risk information’.
t Debt securities in issue
Bonds and medium term notes
European medium term note programme
Other debt securities in issue
Commercial paper
2015
€ m
86
86
2014
€ m
–
–
2015
€ m
2014
€ m
1,500
2,572
100
1,600
50
2,622
Debt securities issued during the year amounted to € 2,022 million (31 December 2014: € 2,697 million) of which € 500 million relates to
an EMTN issuance (31 December 2014: € 500 million) with the balance relating to issuances under the short-term commercial paper
programme. Debt securities matured or repurchased amounted to € 3,045 million (31 December 2014: € 3,348 million) of which
Nil (31 December 2014: € 370 million) relates to securities repurchased as part of a debt buyback programme.
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371
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Notes to the parent company financial statements
u Other liabilities
Items in transit
Creditors
Fair value of hedged liability positions
Other
v Provisions for liabilities and commitments
2015
€ m
16
8
21
220
265
At 1 January
Transfers in
Exchange translation adjustments
Charged to income statement
Released to income statement
Provisions utilised
At 31 December
At 1 January
Exchange translation adjustments
Charged to income statement
Released to income statement
Provisions utilised
At 31 December
Liabilities
and
charges
€ m
60
–
–
11(4)
(22)(4)
–
49
Liabilities
and
charges
€ m
72
(1)
1(4)
(5)(4)
(7)
60
NAMA(1)
provisions
Onerous(2)
contracts
Legal
claims
€ m
33
14
–
7(1)
(12)(1)
(3)
39
€ m
16
–
–
–
(5)
(9)
2
€ m
23
–
–
3
(2)
(1)
23
provisions
Other(3) Voluntary
severance
scheme
€ m
€ m
90
–
5
5
–
(8)
92(5)
–
–
–
–
–
–
–
NAMA(1)
provisions
Onerous(2)
contracts
Legal
claims
Other(3)
provisions
€ m
35
–
6(1)
(8)(1)
–
33
€ m
€ m
22
–
3
(4)
(5)
16
5
–
20
(1)
(1)
23
€ m
78
5
12
(2)
(3)
90(5)
Voluntary
severance
scheme
€ m
3
–
–
–
(3)
–
2014
€ m
9
7
55
246
317
2015
Total
€ m
222
14
5
26
(41)
(21)
205
2014
Total
€ m
215
4
42
(20)
(19)
222
(1)NAMA income statement charge/(credit) relates to on-going 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 € 82 million (2014: € 76 million) due to a subsidiary undertaking.
The total provisions for liabilities and commitments expected to be settled within one year amount to € 55 million (31 December 2014:
€ 72 million).
372
Allied Irish Banks, p.l.c. Annual Financial Report 2015
w 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 41 to the consolidated financial statements.
x Share capital
The share capital and share premium of Allied Irish Banks, p.l.c. are detailed in note 42 to the consolidated financial statements, all of
which relates to Allied Irish Banks, p.l.c..
y Other equity interests
Other equity interests comprise Additional Tier 1 Securities which were issued by Allied Irish Banks, p.l.c. on 3 December 2015. These
are detailed in note 44 to the consolidated financial statements.
z Capital reserves and capital redemption reserves
Capital reserves
At 1 January
Transfer to revenue reserves:
Anglo business transfer
CCNs issuance (note w)
At 31 December
Capital
contribution
reserves
€ m
Other
capital
reserves
€ m
825
156
(285)
(113)
(398)
427
–
–
–
156
2015
Total
€ m
981
(285)
(113)
(398)
583
Capital
contribution
reserves
€ m
Other
capital
reserves
€ m
2014
Total
€ m
1,389
156
1,545
(470)
(94)
(564)
825
–
–
–
156
(470)
(94)
(564)
981
The capital contribution reserves which arose from the acquisition of Anglo deposit business and EBS and the issue of CCNs are
non-distributable on initial recognition but may become distributable as outlined in accounting policy (ab) in note 1 to the consolidated
financial statements. 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 45 to the consolidated financial statements.
aa Capital contributions
Capital contributions from the Minister for Finance and the NPRFC(1) to Allied Irish Banks p.l.c. are detailed in note 46 to the
consolidated financial statements.
(1)Transferred to the Ireland Strategic Investment Fund (“ISIF”) on 22 December 2014. Ownership of ISIF vests with the Minister for Finance and is
controlled and managed by the NTMA.
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373
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Notes to the parent company financial statements
ab 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 47 to the consolidated financial statements and apply equally to Allied Irish Banks, p.l.c..
The following table shows financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and
similar agreements at 31 December 2015 and 2014:
2015
Net
amount
€ m
(832)
4
(849)
2015
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
1,399
(1,079)
(341)
(21)
1,399
4,896
226
6,521
–
–
–
–
4,896
(5,728)
226
6,521
(222)
(7,029)
–
–
(341)
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
Related amounts not
offset in the statement
of financial position
Financial
collateral
(including
cash
collateral)
pledged
€ m
Financial
position instruments
€ m
€ m
10,153
1,084
1,894
13,131
–
–
–
–
10,153
(10,571)
(20)
(438)
1,084
1,894
(1,208)
(1,079)
13,131
(12,858)
(1)
(888)
(909)
(125)
(73)
(636)
Financial assets
Derivative financial instruments
Loans and receivables to banks –
Reverse repurchase agreements
Loans and receivables to customers –
Reverse repurchase agreements
Note
f
g
h
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
q
r
f
Total
374
Allied Irish Banks, p.l.c. Annual Financial Report 2015
ab Offsetting financial assets and financial liabilities (continued)
Financial assets
Derivative financial instruments
Loans and receivables to banks –
Reverse repurchase agreements
Loans and receivables to customers –
Reverse repurchase agreements
Note
f
g
h
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
q
r
f
Total
Gross
amounts of
recognised
financial
assets
€ m
1,665
3,376
110
5,151
Gross
amounts of
recognised
financial
liabilities
€ m
12,733
2,191
2,475
17,399
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
2014
Net
amount
€ m
1,665
(1,221)
(450)
(6)
–
–
–
–
3,376
(3,494)
110
5,151
(107)
(4,822)
–
–
(450)
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
–
–
–
–
12,733
(13,243)
51
(459)
2,191
2,475
(2,259)
(1,221)
17,399
(16,723)
2
(1,276)
(1,223)
(66)
(22)
(547)
(118)
3
(121)
2014
Net
amount
€ m
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.
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375
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Notes to the parent company financial statements
ab Offsetting financial assets and financial liabilities (continued)
The following table reconciles 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 2015 and
2014:
Net amounts
of financial
assets presented
in the statement
of financial position
€ m
Line item in
statement of
financial position
Carrying
amount in
the statement
of financial
position
€ m
2015
Financial
assets not
in scope of
offsetting
disclosures
€ m
1,399
Derivative financial instruments
1,718
319
4,896
Loans and receivables to banks
21,311
16,415
226
Loans and receivables to customers
29,500
29,274
Net amounts
of financial
assets presented
in the statement
of financial position
€ m
Line item in
statement of
financial position
Carrying
amount in
the statement
of financial
position
€ m
2015
Financial
liabilities not
in scope off
offsetting
disclosures
€ m
10,153
Deposits by central banks and banks
19,651
9,498
1,084
1,894
Customer accounts
Derivative financial instruments
49,129
2,032
48,045
138
Net amounts
of financial
assets presented
in the statement
of financial position
€ m
Line item in
statement of
financial position
Carrying
amount in
the 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
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
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
assets presented
in the statement
of financial position
€ m
Line item in
statement of
financial position
Carrying
amount in
the statement
of financial
position
€ m
2014
Financial
liabilities not
in scope of
offsetting
disclosures
€ m
12,733
Deposits by central banks and banks
23,137
10,404
2,191
2,475
Customer accounts
Derivative financial instruments
50,169
2,686
47,978
211
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
376
Allied Irish Banks, p.l.c. Annual Financial Report 2015
ac 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 m).
Details of contingent liabilities and commitments entered into by AIB Group are set out in note 48 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 48 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(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
2015
€ m
2014
€ m
497
334
831
37
5,992
1,590
7,619
8,450(5)
475
292
767
11
6,023
1,210
7,244
8,011(5)
(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.
(5)Included in exposures are amounts relating to Group subsidiaries of € 239 million (2014: € 265 million).
Concentration of exposure
Republic of Ireland
United Kingdom
United States of America
Total
Contingent liabilities
2014
2015
€ m
€ m
673
1
157
831
629
1
137
767
Credit ratings
The credit ratings of contingent liabilities and commitments as at 31 December 2015 and 2014 are set out in the following table:
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s
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a
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e
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o
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s
t
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e
m
e
t
a
t
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l
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a
c
n
a
n
F
i
n
o
i
t
a
m
r
o
n
f
i
Commitments
2015
€ m
7,597
15
7
7,619
2015
€ m
2,838
4,348
199
141
311
613
2014
€ m
7,160
62
22
7,244
2014
€ m
3,150
3,635
134
161
422
509
8,450
8,011
l
a
r
e
n
e
G
Good upper
Good lower
Watch
Vulnerable
Impaired
Unrated
Total
Allied Irish Banks, p.l.c. Annual Financial Report 2015
377
Notes to the parent company financial statements
ad 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 50 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
12,677
Securitisations:
€ m
€ m
11,387(1)
Credit card receivables
292
200
Carrying
amount of
associated
liabilities held
by Group
companies
€ m
–
92
Fair
value of
transferred
assets
Fair value
of associated
liabilities
held by third
parties
€ m
12,677
€ m
11,387
292
200
Fair value
of associated
liabilities
held by
Group
companies
€ m
–
92
Carrying
amount of
transferred
assets
€ m
Sale and repurchase agreements
16,931
Securitisations:
Carrying
amount of
associated
liabilities held
by third parties
€ m
14,924(1)
Credit card receivables
297
200
(1)See notes q and r.
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
16,931
€ m
14,924
297
200
Fair value
of associated
liabilities
held by
Group
companies
€ m
–
97
2015
Net
fair value
position
€ m
1,290
–
2014
Net
fair value
position
€ m
2,007
–
(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 50 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 2015, Allied Irish Banks, p.l.c. recognised € 13 million (cumulative € 82 million) (2014: € 16 million (cumulative € 69 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
2015, Allied Irish Banks, p.l.c. recognised € 60 million (cumulative € 456 million) (2014: € 58 million (cumulative € 396 million)) in the
income statement for the provision of services under this agreement.
378
Allied Irish Banks, p.l.c. Annual Financial Report 2015
ae Classification and measurement of financial assets and financial liabilities
Financial assets and financial liabilities are measured on an ongoing basis either at fair value or at amortised cost. The accounting
policy for financial assets ((m) in note 1 to the consolidated financial statements) and financial liabilities ((n) in note 1 to the
consolidated financial statements), describes how the classes of financial instruments are measured, and how income and expenses,
including fair value gains and losses, are recognised. The following table analyses the carrying amounts of the financial assets and
financial liabilities by category as defined in IAS 39 Financial Instruments: Recognition and Measurement and by statement of financial
position heading.
At fair value through
profit and loss
Held for
trading
€ m
Fair value
hedge
derivatives
€ m
At fair value
through equity
Cash flow Available
for sale
derivatives securities
€ m
hedge
€ m
At amortised
cost
Loans
and
Held
to
receivables maturity
€ m
€ m
2015
Total
Other
€ m
€ m
Financial assets
Cash and balances at central banks
Items in the course of collection
Trading portfolio financial assets
Derivative financial instruments(2)
Loans and receivables to banks(3)
Loans and receivables to
customers(4)
NAMA senior bonds
Financial investments available
for sale(5)
Financial investments held
to maturity
Other financial assets
–
–
1
1,127
–
–
–
–
–
–
–
–
–
64
–
–
–
–
–
–
–
–
–
527
–
–
–
–
–
–
–
–
–
–
–
–
–
17,510
–
–
840
67
–
–
21,311
29,500
5,616
–
–
–
–
–
–
–
–
–
–
–
3,483
–
Financial liabilities
Deposits by central banks and
banks(6)
Customer accounts(7)
Trading portfolio financial liabilities
Derivative financial instruments(8)
Debt securities in issue(9)
Subordinated liabilities and
other capital instruments
Other financial liabilities
1,128
64
527
17,510
57,334
3,483
–
–
86
–
–
–
–
–
–
1,161
418
453
–
–
–
–
–
–
–
–
–
1,247
418
453
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
493(1)
–
–
–
–
–
–
–
–
452
945
19,651
49,129
–
–
1,600
2,318
229
1,333
67
1
1,718
21,311
29,500
5,616
17,510
3,483
452
80,991
19,651
49,129
86
2,032
1,600
2,318
229
72,927
75,045
(1)Comprises cash on hand.
(2)Includes exposure to subsidiary undertakings of € 172 million.
(3)Includes exposure to subsidiary undertakings of € 20,018 million.
(4)Includes exposure to subsidiary undertakings of € 9,870 million.
(5)Includes exposure to subsidiary undertakings of € 1,120 million.
(6)Includes amounts due to subsidiary undertakings of € 6,014 million.
(7)Includes amounts due to subsidiary undertakings of € 4,084 million.
(8)Includes amounts due to subsidiary undertakings of € 289 million.
(9)Includes amounts due to subsidiary undertakings of Nil.
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c
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a
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o
G
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t
n
e
m
e
t
a
t
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a
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
379
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Notes to the parent company financial statements
ae Classification and measurement of financial assets and financial liabilities (continued)
At fair value through
profit and loss
Held for
trading
€ m
Fair value
hedge
derivatives
€ m
At fair value
through equity
At amortised
cost
2014
Total
Cash flow
hedge
derivatives
€ m
Available
for sale
securities
€ m
Loans
and
receivables
€ m
Other
€ m
€ m
–
–
–
–
–
–
–
20,980
–
928
66
–
–
23,111
29,658
9,423
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
468(1)
–
–
–
–
–
–
–
412
880
23,137
50,169
–
2,622
1,451
244
1,396
66
1
2,062
23,111
29,658
9,423
20,980
412
87,109
23,137
50,169
2,686
2,622
1,451
244
77,623
80,309
–
–
–
–
–
–
–
629
–
–
–
542
20,980
63,186
–
–
1
–
–
–
–
–
–
1,369
151
542
Financial assets
Cash and balances at central banks
Items in the course of collection
Trading portfolio financial assets
Derivative financial instruments(2)
Loans and receivables to banks(3)
Loans and receivables to
customers(4)
NAMA senior bonds
Financial investments available
for sale(5)
Other financial assets
Financial liabilities
Deposits by central banks and banks(6)
Customer accounts(7)
Derivative financial instruments(8)
Debt securities in issue(9)
Subordinated liabilities and
other capital instruments
Other financial liabilities
–
–
–
–
–
1,370
–
–
1,470
–
–
–
–
–
–
–
–
151
–
–
587
–
–
–
1,470
587
629
(1)Comprises cash on hand.
(2)Includes exposure to subsidiary undertakings of € 202 million.
(3)Includes exposure to subsidiary undertakings of € 22,161 million.
(4)Includes exposure to subsidiary undertakings of € 9,778 million.
(5)Includes exposure to subsidiary undertakings of € 1,085 million.
(6)Includes amounts due to subsidiary undertakings of € 6,577 million.
(7)Includes amounts due to subsidiary undertakings of € 4,607 million.
(8)Includes amounts due to subsidiary undertakings of € 388 million.
(9)Includes amounts due to subsidiary undertakings of Nil.
380
Allied Irish Banks, p.l.c. Annual Financial Report 2015
af 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 2015.
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o
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a
e
c
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a
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e
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s
t
n
e
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e
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a
t
s
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a
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i
Allied Irish Banks, p.l.c. Annual Financial Report 2015
381
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Notes to the parent company financial statements
af Fair value of financial instruments (continued)
Carrying amount
Fair value
Fair value hierarchy
€ m
Level 1
€ m
Level 2
€ m
Level 3
€ m
Financial assets measured at fair value
Trading portfolio financial assets
Equity securities
Derivative financial instruments
Interest rate derivatives
Exchange rate derivatives
Equity derivatives
Financial investments available for sale
Government securities
Supranational banks and government agencies
Asset backed securities
Bank securities
Corporate securities
Equity securities
Financial assets not measured at fair value
Cash and balances at central banks
Items in the course of collection
Loans and receivables to banks
Loans and receivables to customers
NAMA senior bonds
Financial investments held to maturity
Other financial assets
Financial liabilities measured at fair value
Trading portfolio financial liabilities
Debt securities
Derivative financial instruments
Interest rate derivatives
Exchange rate derivatives
Equity derivatives
Credit derivatives
Financial liabilities not measured at fair value
Deposits by central banks and banks
Other borrowings
Secured borrowings
Customer accounts
Current accounts
Demand deposits
Time deposits
Securities sold under agreements to repurchase
Debt securities in issue
Bonds and medium term notes
Other debt securities in issue
Subordinated liabilities and other capital instruments
Other financial liabilities
(1)Comprises cash on hand.
1
1,561
68
89
8,684
2,008
329
5,720
87
682
–
–
–
–
8,533
2,008
328
4,600
76
–
19,229
15,545
1,333
67
21,311
29,500
5,616
3,483
452
61,762
86
1,873
64
89
6
2,118
6,598
13,053
19,390
8,123
20,532
1,084
1,500
100
2,318
229
72,927
493(1)
–
–
–
–
3,479
–
3,972
86
–
–
–
–
86
–
–
–
–
–
–
1,542
–
758
–
2,300
1
1,237
68
50
151
–
1
1,120
–
–
2,628
840
–
102
–
–
–
–
942
–
1,655
64
51
6
1,776
–
2,903
–
–
–
–
–
100
1,778
–
4,781
2015
Total
€ m
1
1,561
68
89
8,684
2,008
329
5,720
87
682
–
324
–
39
–
–
–
–
11
682
1,056
19,229
–
67
21,209
29,283
5,626
–
452
56,637
–
218
–
38
–
256
6,598
10,153
19,390
8,123
20,623
1,084
–
–
–
229
66,200
1,333
67
21,311
29,283
5,626
3,479
452
61,551
86
1,873
64
89
6
2,118
6,598
13,056
19,390
8,123
20,623
1,084
1,542
100
2,536
229
73,281
382
Allied Irish Banks, p.l.c. Annual Financial Report 2015
af Fair value of financial instruments (continued)
Carrying amount
Fair value
Fair value hierarchy
Level 2
€ m
Level 1
€ m
Level 3
€ m
Financial assets measured at fair value
Trading portfolio financial assets
Equity securities
Derivative financial instruments
Interest rate derivatives
Exchange rate derivatives
Equity derivatives
Financial investments available for sale
Government securities
Supranational banks and government agencies
Asset backed securities
Bank securities
Corporate securities
Equity securities
Financial assets not measured at fair value
Cash and balances at central banks
Items in the course of collection
Loans and receivables to banks
Loans and receivables to customers
NAMA senior bonds
Other financial assets
Financial liabilities measured at fair value
Derivative financial instruments
Interest rate derivatives
Exchange rate derivatives
Equity derivatives
Credit derivatives
Financial liabilities not measured at fair value
Deposits by central banks and banks
Other borrowings
Secured borrowings
Customer accounts
Current accounts
Demand deposits
Time deposits
Securities sold under agreements to repurchase
Debt securities in issue
Bonds and medium term notes
Other debt securities in issue
Subordinated liabilities and other capital instruments
Other financial liabilities
(1)Comprises cash on hand.
.
23,043
19,386
2,835
€ m
1
1,876
48
138
12,683
2,852
100
4,982
3
360
1,396
66
23,111
29,658
9,423
412
64,066
2,487
74
117
8
2,686
7,004
16,133
16,191
6,589
25,198
2,191
2,572
50
1,451
244
–
–
–
–
12,537
2,852
99
3,898
–
–
1
1,501
48
53
146
–
1
1,084
–
1
468(1)
–
–
–
–
–
928
–
101
–
–
–
468
1,029
–
–
–
–
–
–
–
–
–
–
–
2,600
–
–
–
2,277
74
56
8
2,415
–
3,400
–
–
–
–
24
50
1,831
–
5,305
–
375
–
85
–
–
–
–
3
359
822
–
66
23,010
29,586
9,479
412
62,553
210
–
61
–
271
7,004
12,733
16,191
6,589
25,412
2,191
–
–
–
244
77,623
2,600
70,364
78,269
2014
Total
€ m
1
1,876
48
138
12,683
2,852
100
4,982
3
360
23,043
1,396
66
23,111
29,586
9,479
412
64,050
2,487
74
117
8
2,686
7,004
16,133
16,191
6,589
25,412
2,191
2,624
50
1,831
244
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
383
Notes to the parent company financial statements
af Fair value of financial instruments (continued)
Significant transfers between Level 1 and Level 2 of the fair value hierarchy
The following table shows transfers between Level 1 and Level 2 of the fair value hierarchy for the years ended 31 December 2015
and 2014:
Financial assets
Transfer into Level 2 from Level 1
Trading
portfolio
€ m
–
Debt
securities
€ m
–
2015
Total
€ m
–
Trading
portfolio
€ m
–
Debt
securities
€ m
1
2014
Total
€ m
1(1)
(1)Transfers into Level 2 from Level 1 occurred due to reduced availability of reliable quoted market prices.
384
Allied Irish Banks, p.l.c. Annual Financial Report 2015
af 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 2015 and 2014:
Financial assets
Financial liabilities
2015
Derivatives
Available for sale
Total Derivatives
Total
At 1 January 2015
Total gains or (losses) in:
Other comprehensive income
– Net change in fair value of financial
investments available for sale
– Net change in fair value of cash flow hedges
Purchases
Settlements(2)
At 31 December 2015
€ m
460
–
–
–
(97)
363
Debt
securities
€ m
Equity
securities
€ m
3
359
€ m
822
321
–
10
(97)
323
–
–
–
682
1,056
€ m
271
–
19
–
(34)
256
€ m
271
–
19
–
(34)
256
(2)
–
10
–
11
Financial assets
Derivatives
€ m
279
104
–
2
–
75
460
Available for sale
Debt
securities
€ m
Equity
securities
€ m
12
3
–
–
(12)
–
3
70
–
294
–
(5)
–
359
2014
Financial liabilities
Total
Derivatives
Total
€ m
361
107
294
2
(17)
75
822
€ m
84
119
–
30
–
38
271
€ m
84
119
–
30
–
38
271
At 1 January 2014
Transfers into Level 3(1)
Total gains or (losses) in:
Other comprehensive income
– Net change in fair value of financial
investments available for sale
– Net change in fair value of cash flow hedges
Sales
Settlements(2)
At 31 December 2014
(1)Transfers between levels of the fair value hierarchy are recognised at the end of the reporting period during which the change occurred.
(2)Includes gains and losses recognised in ‘Net trading income/(loss)’. In addition, for unrealised gains or losses at 31 December 2015, see table below.
Transfers into Level 3 arose as a result of the unobservable inputs becoming significant to the fair value measurement of these
instruments.
The following table shows total gains or losses included in profit or loss that is attributable to the change in unrealised gains
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or losses relating to those assets and liabilities held at 31 December 2015 and 2014:
Net trading income
Total
2015
€ m
54
54
2014
€ m
124
124
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385
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Notes to the parent company financial statements
af Fair value of financial instruments (continued)
Significant unobservable inputs
The table below sets out information about significant unobservable inputs used at the years ended 31 December 2015 and 2014 in
measuring financial instruments categorised as Level 3 in the fair value hierarchy:
Fair Value
2015
€ m
363
256
2014
€ m
460
271
Financial
instrument
Uncollaterised
Asset
customer
Liability
derivatives
Valuation
technique
Significant
unobservable
inputs
CVA
LGD
PD
Range of estimates
2015
47% – 73%
(Base 55%)
1.0% – 1.6%
2014
46% – 73%
(Base 55%)
0.9% – 1.4%
(Base 1.3% 1 year PD)
(Base 1.1% 1 year 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
FVA
Funding spreads
(0.4%) – 0.5%
(0.3%) – 0.8%
(1)The fair value measurement sensitivity to unobservable inputs ranges from negative € 44 million to positive € 23 million (2014: negative € 37 million to
positive € 21 million).
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.
NAMA
subordinated
bonds
Asset
414
358
Discounted
NAMA
Discount rate of 9%
Discount rate of 12%
cash flows
profitability i.e.
applicable to base
applicable to base
ability to generate
asset price. The
asset price. The
cash flow for
estimates range from:
estimates range from:
repayment
(a) NAMA making
(a) NAMA making 50%
full 5.26% coupon
of total 5.26% coupon
payments; to (b) an
payments; to (b) an
early full repayment
early full repayment
of coupons plus capital
of coupons plus capital
(March 2019).
(March 2018) at a
reduced discount rate.
Visa Europe: In relation to the proposed sale of 100% shares of Visa Europe to Visa Inc., and based on information received from Visa
Europe, Allied Irish Banks, p.l.c., as holder of shares in Visa Europe, will receive consideration with an estimated fair value of
€266 million, comprising cash (59%) and preferred stock in Visa Inc (41%), which has resulted in a fair value gain of €266 million. The
amount of consideration is not yet final and can be amended as a consequence of transaction costs, contractual clauses and successful
members’ appeals. The preferred stock will be convertible into Class A Common Stock of Visa Inc at some point in the future. The
conversion is subject to certain Visa Europe litigation risks that may affect the ultimate conversion rate.
The transaction is expected to be finalised by June 2016, at which stage the fair value gains will be taken to the income statement.
Financial
instrument
Visa Europe
Asset
2015
€ m
266
2014 Valuation
€ m technique
Significant
unobservable
inputs
Range of estimates 2015
– Estimated
Fair value of
Estimated
Estimated
proceeds after
preferred stock
proceeds with no
proceeds after
applying a
of Visa Inc.
discount for the
applying a 50%
discount for the
illiquidity and the
conversion rate
variability of the
preferred stock
of Visa Inc.
illiquidity and the
discount for the
conversion rate
illiquidity and the
variability of the
conversion rate
preferred stock of
Visa Inc.
variability of the
preferred stock of
Visa Inc.
386
Allied Irish Banks, p.l.c. Annual Financial Report 2015
af 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 at 31 December 2015 and 2014:
Level 3
2015
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
29
–
29
2
2
(43)
–
(43)
(9)
(9)
–
25
25
–
–
–
(98)
(98)
–
–
2014
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
25
–
25
2
2
(46)
–
(46)
(7)
(7)
–
57
57
–
–
–
(53)
(53)
–
–
Day 1 gain or loss:
No difference existed between the fair value of financial instruments at initial recognition 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 2015
387
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Notes to the parent company financial statements
ag Statement of cash flows
Non-cash and other items included in profit before taxation
Non-cash items
Profit on disposal of property, plant and equipment
Profit on disposal/transfer of loans and receivables
Dividends received from equity securities
Dividends received from subsidiary companies
Dividends received from associated undertakings
Writeback for impairment of subsidiary undertakings
Writeback of provisions for impairment on loans and receivables
Writeback of provisions for liabilities and commitments
Provisions/(writeback) for impairment on financial investments
available for sale
Change in other provisions
Retirement benefits – defined benefit expense
Termination benefits
Depreciation, amortisation and impairment
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 hedging swaps
Remeasurement of NAMA senior bonds
Amortisation of premiums and discounts
Fair value gain on realisation/re-estimation of cash flows on loans
and receivables previously restructured
Income from settlement of claim
Change in prepayments and accrued income
Change in accruals and deferred income
Effect of exchange translation and other adjustments(1)
Total non-cash items
Contributions to defined benefit pension schemes
Dividends received from equity securities
Total other items
Non-cash and other items for the year
2015
€ m
(3)
(18)
(24)
–
(13)
(120)
(501)
(11)
–
10
25
–
66
278
–
(126)
81
(6)
81
(1)
(38)
16
(67)
(311)
(682)
(83)
24
(59)
(741)
2014
€ m
(3)
(52)
(24)
(1)
(5)
(292)
(149)
(4)
8
28
6
(3)
97
256
9
(352)
208
(132)
38
–
–
85
(170)
(53)
(505)
(84)
24
(60)
(565)
(1)The impact of foreign exchange translation for each line of the statement of financial position is removed in order to show the underlying cash impact.
388
Allied Irish Banks, p.l.c. Annual Financial Report 2015
ag Statement of cash flows (continued)
Change in operating assets(1)
Change in loans and receivables to customers
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 other assets
Change in operating liabilities(1)
Change in deposits by central banks and banks
Change in customer accounts(2)
Change in trading portfolio financial liabilities
Change in debt securities in issue
Change in other liabilities
2015
€ m
1,369
3,834
1,721
–
(330)
(1)
(53)
2014
€ m
3,038
6,343
1,069
1
(305)
13
(6)
6,540
10,153
2015
€ m
(3,759)
(1,443)
86
(1,022)
(46)
(6,184)
2014
€ m
(6,388)
(3,420)
–
(649)
(83)
(10,540)
(1)The impact of foreign exchange translation for each line of the statement of financial position is removed in order to show the underlying cash impact.
(2)Includes deposits placed by NTMA of € 399 million (2014: € 3,324 million).
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
2015
€ m
1,333
539
1,872
2014
€ m
1,396
846
2,242
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
389
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Notes to the parent company financial statements
ah Related party transactions
Related parties of Allied Irish Banks, p.l.c. (“AIB”) include subsidiary undertakings, associate undertakings and joint undertakings,
post-employment benefits, Key Management Personnel and connected parties. The Irish Government is also considered a related party
by virtue of its effective control of AIB. Related party transactions are detailed in note 54 to the consolidated financial statements.
ai Commitments
Capital expenditure
Estimated outstanding commitments for capital expenditure
not provided for in the financial statements
Capital expenditure authorised but not yet contracted for
2015
€ m
7
34
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
2015
€ m
45
32
16
16
15
113
237
2014
€ m
16
33
2014
€ m
49
45
31
17
16
130
288
Operating lease payments recognised as an expense for the year were € 51 million (2014: € 46 million). Sublease income amounted to
Nil (2014: Nil). Included in the lease payments to other Group subsidiaries is € 37 million (2014: € 35 million). Future minimum lease
payments due to subsidiaries of Allied Irish Banks, p.l.c. amount to € 41 million excluding VAT (2014: € 77 million excluding VAT) and are
included in the total of € 237 million in 2015 (2014: € 288 million).
390
Allied Irish Banks, p.l.c. Annual Financial Report 2015
aj 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 2015
and 2014:
Maximum exposure to credit risk
Balances at central banks(3)
Items in course of collection
Derivative financial instruments(4)
Loans and receivables to banks(5)
Loans and receivables to customers(6)
NAMA senior bonds
Financial investments available for sale(7)
Financial investments held to maturity
Other assets:
Trade receivables
Accrued interest(8)
Financial guarantees
Loan commitments and other credit
related commitments
Total
Amortised
cost(1)
€ m
Fair
value(2)
€ m
840
67
–
21,311
29,500
5,616
–
–
1,718
–
–
–
2015
Total
€ m
840
67
1,718
21,311
29,500
5,616
–
16,828
16,828
3,483
100
352
–
–
–
3,483
100
352
Amortised
cost(1)
€ m
Fair
value(2)
€ m
2014
Total
€ m
928
66
2,062
23,111
29,658
9,423
–
–
2,062
–
–
–
20,620
20,620
–
–
–
–
46
366
928
66
–
23,111
29,658
9,423
–
–
46
366
61,269
18,546
79,815
63,598
22,682
86,280
831
7,619
8,450
_
–
–
831
767
7,619
8,450(9)
7,244
8,011
–
–
–
767
7,244
8,011(9)
69,719
18,546
88,265
71,609
22,682
94,291
(1)All amortised cost items are ‘loans and receivables’ per IAS 39 Financial Instruments: Recognition and Measurement 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 € 1,333 million (2014: € 1,396 million).
(4)Exposures to subsidiary undertakings of € 172 million (2014: € 202 million) have been included.
(5)Exposures to subsidiary undertakings of € 20,018 million (2014: € 22,161 million) have been included.
(6)Exposures to subsidiary undertakings of € 9,870 million (2014: € 9,778 million) have been included.
(7)Excluding equity shares of € 682 million (2014: € 360 million).
(8)Exposures to subsidiary undertakings of € 12 million (2014: € 8 million) have been included.
(9)Exposures to subsidiary undertakings of € 239 million (2014: € 265 million) have been included.
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
391
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Notes to the parent company financial statements
aj 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 69. The information contained in this note relates only to third party exposures arising within Allied Irish Banks,
p.l.c..
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
estimated 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, Allied Irish Banks, p.l.c. 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. Allied Irish Banks, p.l.c. 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 2015 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.
Summary of risk mitigants by selected portfolios
Set out below are details of risk mitigants used by Allied Irish Banks, p.l.c. in relation to financial assets detailed in the maximum
exposure to credit risk table on page 391.
Loans and receivables to customers - residential mortgages
The following table shows the fair value of collateral held for the residential mortgages portfolio at 31 December 2015 and 2014:
Neither past
due nor
impaired
€ m
Past due
but not
impaired
€ m
Impaired
2015
Total
€ m
€ m
Neither past
due nor
impaired
€ m
Past due
but not
impaired
€ m
Impaired
2014
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
193
192
126
139
150
800
410
1,210
1,282
6
6
3
2
8
15
25
22
33
58
25
153
214
223
151
174
216
978
12
37
39
121
274
298
543
1,521
1,619
(125)
(125)
(11)
173
1,483
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
(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.
392
Allied Irish Banks, p.l.c. Annual Financial Report 2015
aj Credit risk information (continued)
Loans and receivables to customers - other
In addition to the credit risk mitigants outlined above, Allied Irish Banks, p.l.c. holds reverse repurchase agreements amounting to
€ 226 million (2014: € 110 million) in its loans and receivables portfolio for which it had accepted collateral of € 222 miilion
(2014: € 107 million).
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 2015, repurchase agreements amounted to € 649 million (2014: Nil) for which Allied Irish Banks, p.l.c. had accepted
collateral of € 737 million (2014: Nil).
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 2015 have
a carrying value of € 5,616 million (2014: € 9,423 million).
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 2015 amounted to € 1,718 million (2014: € 2,062 million) and those with negative fair value
are reported as liabilities which at 31 December 2015 amounted to € 2,032 million (2014: € 2,686 million).
The enforcement of netting agreements would potentially reduce the statement of financial position carrying amount of derivative assets
and liabilities by € 1,079 million at 31 December 2015 (2014: € 1,221 million). Allied Irish Banks, p.l.c. also has Credit Support Annexes
(“CSAs”) in place which provide collateral for derivative contracts. As at 31 December 2015, € 888 million (2014: € 1,276 million) of
CSAs are included within financial assets as collateral for derivative liabilities and € 341 million (2014: € 450 million) of CSAs are
included within financial liabilities as collateral for derivative assets (note ab). Additionally, Allied Irish Banks, p.l.c. has agreements in
place which may allow it to net the termination values of cross currency swaps upon occurrence of an event of default.
Financial investments available for sale
At 31 December 2015, government guaranteed senior bank debt amounting to € 174 million (2014: € 120 million) was held within the
available for sale portfolio.
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Notes to the parent company financial statements
aj Credit risk information (continued)
The information contained in this note relates only to third party exposures arising within Allied Irish Banks, p.l.c..
The following table shows loans and receivables to customers by industry sector and geography at 31 December 2015 and 2014:
Total
Analysed geographically(1)
2015
Republic
of Ireland
€ m
United
Kingdom
€ m
Rest of the
World
€ m
1,644
198
792
7,818
4,064
575
695
2,422
1,619
3,142
22,969
–
15
9
–
23
13
79
48
–
–
–
1
75
–
–
–
4
41
–
–
187
121
%
7.1
0.9
3.8
33.6
17.5
2.5
3.3
10.8
7.0
13.5
100.0
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
(1)Based on booking office.
(2)Excludes intercompany balances of € 9,870 million.
€ m
1,644
214
876
7,818
4,087
588
778
2,511
1,619
3,142
23,277
16,609
832
5,836
23,277
(89)
4
(3,562)
19,630(2)
394
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Total
Analysed geographically(1)
2014
Republic
of Ireland
€ m
United
Kingdom
€ m
Rest of the
World
€ m
1,700
203
740
10,943
4,708
538
514
2,343
1,801
3,423
26,913
–
17
19
224
116
36
91
66
–
–
569
–
1
–
–
–
–
3
43
–
–
47
%
6.2
0.8
2.8
40.6
17.5
2.1
2.2
8.9
6.5
12.4
100.0
aj Credit risk information (continued)
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
(1)Based on booking office.
(2)Excludes intercompany balances of € 9,778 million.
€ m
1,700
221
759
11,167
4,824
574
608
2,452
1,801
3,423
27,529
14,967
1,073
11,489
27,529
(88)
3
(7,564)
19,880(2)
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 2015
395
l
a
r
e
n
e
G
n
o
i
t
a
m
r
o
n
f
i
Notes to the parent company financial statements
aj 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
2015 and 2014:
Total
Analysed geographically(1)
2015
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
(1)Based on booking office.
Republic
of Ireland
€ m
United
Kingdom
€ m
Rest of the
World
€ m
€ m
164
36
117
164
36
117
3,160
3,160
868
54
135
373
298
631
868
36
135
373
298
631
5,836
5,818
–
–
–
–
–
18
–
–
–
–
18
–
–
–
–
–
–
–
–
–
–
–
Total
€ m
291
80
176
6,936
1,816
90
168
562
397
973
2014
Analysed geographically(1)
Republic
of Ireland
€ m
United
Kingdom
€ m
Rest of the
World
€ m
291
80
176
6,795
1,816
66
168
562
397
973
–
–
–
141
–
24
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11,489
11,324
165
396
Allied Irish Banks, p.l.c. Annual Financial Report 2015
aj 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 2015 and 2014:
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)
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)
51
1
5
88
50
4
1
24
12
30
34
300
1.3%
21
–
2
34
14
–
–
16
5
5
17
114
0.5%
2
–
–
11
8
–
–
6
2
3
5
37
0.1%
8
–
1
35
12
–
–
8
6
2
11
83
0.4%
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%
(1)Total loans (excluding intercompany) are gross of impairment provisions and unearned income.
1 – 30
days
€ m
31 – 60
days
€ m
61 – 90
days
€ m
91 – 180
days
€ m
181 – 365
days
€ m
> 365
days
€ m
73
0.3%
225
1.0%
832
3.6%
2015
Total
€ m
126
3
10
313
121
6
2
74
39
41
97
2014
Total
€ m
123
3
33
367
166
9
2
130
47
44
149
5
–
–
42
6
–
1
7
5
1
6
39
2
2
103
31
2
–
13
9
–
24
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%
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 2015
397
l
a
r
e
n
e
G
n
o
i
t
a
m
r
o
n
f
i
Notes to the parent company financial statements
aj Credit risk information (continued)
Provisions for impairment by geographic location and industry sector
The following table presents by industry sector an analysis of provisions for impairment on loans and receivables to customers for Allied
Irish Banks, p.l.c. at 31 December 2015 and 2014:
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
(1)Based on booking office.
Total
€ m
71
14
72
1,707
451
51
55
241
125
436
3,223
339
3,562
2015
Analysed geographically(1)
Republic
of Ireland
€ m
United
Kingdom
€ m
Rest of the
World
€ m
71
14
72
1,707
451
33
55
241
125
436
3,205
339
3,544
–
–
–
–
–
18
–
–
–
–
18
–
18
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
Analysed geographically(1)
2014
Republic
of Ireland
€ m
United
Kingdom
€ m
Rest of the
World
€ m
176
37
108
4,243
1,058
39
90
368
173
663
6,955
498
7,453
–
–
–
88
–
23
–
–
–
–
111
–
111
–
–
–
–
–
–
–
–
–
–
–
–
–
€ m
176
37
108
4,331
1,058
62
90
368
173
663
7,066
498
7,564
398
Allied Irish Banks, p.l.c. Annual Financial Report 2015
aj 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 2015 and 2014 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
(1)Excludes intercompany loans.
Residential
mortgages
€ m
585
471
105
123
1,284
–
4
6
29
39
298
1,621
Other Property and Non-property
business
€ m
construction
€ m
personal
€ m
203
1,792
109
267
2,371
2
39
28
69
138
631
3,140
92
2,274
395
1,584
4,345
–
33
38
242
313
3,160
7,818
1,030
5,985
493
1,101
8,609
1
91
43
207
342
1,747
5,836
10,698
23,277
Residential
mortgages
€ m
Other
personal
€ m
Property and
construction
€ m
Non-property
business
€ 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
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
2015
Total
€ m
1,910
10,522
1,102
3,075
16,609
3
167
115
547
832
(89)
4
(3,562)
19,630(1)
2014
Total
€ m
1,515
9,712
1,442
2,298
686
5,301
707
795
7,489
14,967
10
120
66
270
466
3,183
11,138
11
217
138
707
1,073
11,489
27,529
(88)
3
(7,564)
19,880(1)
399
Details of the rating profiles and lending classifications are set out on page 122.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
Notes to the parent company financial statements
aj 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), financial investments available for sale (excluding equity shares) and financial investments held to maturity for Allied
Irish Banks, p.l.c. at 31 December 2015 and 2014 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
Corporate
€ m
Sovereign
€ m
Bank(1)
€ m
4,215
988
160
527
3
5,893
–
–
–
86
1
87
Bank(1)
€ m
Corporate
€ m
Sovereign
€ m
2,758
14,716(2)
2,317
–
–
4,114
18,382(2)
2,462
–
–
3,632
1,059
7
149
–
4,847
–
–
–
–
3
3
Other
€ m
328
–
1
–
–
2015
Total
€ m
7,301
15,704
2,478
613
4
Other
€ m
99
–
–
1
–
2014
Total
€ m
7,845
19,441
2,469
150
3
19,791(3)
329
26,100
24,958(3)
100
29,908
(1)Excludes balances with subsidiaries of € 21,103 million (2014: € 23,246 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- (2014: A-) i.e. the
external rating of the Sovereign.
(3)Includes supranational banks and government agencies.
400
Allied Irish Banks, p.l.c. Annual Financial Report 2015
ak 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
31 December 2015
Total
Over
5 years
€ m
€ m
Financial assets
Derivative financial instruments(1)
Loans and receivables to banks(2)
Loans and receivables to customers(2)
NAMA senior bonds(3)
Financial investments available for sale(4)
Financial investments held to maturity
Other financial assets
Financial liabilities
Deposits by central banks and banks
Customer accounts
Derivative financial instruments(1)
Debt securities in issue
Subordinated liabilities and other
capital instruments
Trading debt securities
Other financial liabilities
Financial assets
Derivative financial instruments(1)
Loans and receivables to banks(2)
Loans and receivables to customers(2)
NAMA senior bonds(3)
Financial investments available for sale(4)
Other financial assets
Financial liabilities
Deposits by central banks and banks
Customer accounts
Derivative financial instruments(1)
Debt securities in issue
Subordinated liabilities and other
capital instruments
Other financial liabilities
–
20,653
17,169
–
1
–
–
37,823
6,278
31,537
–
–
–
–
229
38,044
Repayable
on demand
€ m
–
23,100
23,273
–
3
–
71
658
920
5,616
–
–
452
7,717
11,471
11,965
87
100
–
86
–
97
–
2,161
–
816
–
–
673
–
877
–
7,248
5,649
–
10,396
2,204
–
–
5,615
1,279
–
1,718
21,311
33,147
5,616
16,828
3,483
452
3,074
20,521
13,420
82,555
1,902
4,267
86
500
1,524
–
–
–
1,307
965
1,000
–
–
–
–
53
894
–
19,651
49,129
2,032
1,600
794
2,318
–
–
86
229
23,709
8,279
3,272
1,741
75,045
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
31 December 2014
Total
Over
5 years
€ m
€ m
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
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
(1)Shown by maturity date of contract.
(2)Shown gross of provisions for impairment, unearned income and deferred costs.
(3)New notes will be issued at each maturity date, with the next maturity date being 1 March 2016. Upon maturity, the issuer has the option to settle in cash
or issue new notes and to date has issued new notes.
(4)Excluding equity shares.
The balances shown above include exposures to/by subsidiary undertakings.
Allied Irish Banks, p.l.c. Annual Financial Report 2015
401
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
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F
i
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o
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a
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r
o
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f
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l
a
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n
e
G
Notes to the parent company financial statements
ak Liquidity risk information (continued)
Financial liabilities by undiscounted contractual maturity
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
831
7,619
8,450(1)
Payable on
demand
€ m
767
7,244
8,011(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
–
–
–
–
–
–
–
–
–
–
–
–
2015
Total
€ m
831
7,619
8,450
2014
Total
€ m
767
7,244
8,011
(1)Includes € 239 million (2014: € 265 million) relating to Group subsidiaries.
al Market risk information
Market risk profile
The following table sets out the VaR for Allied Irish Banks, p.l.c. at 31 December 2015 and 2014:
Interest rate risk
1 day holding period:
Average
High
Low
31 December
VaR (trading book)
2014
€ m
2015
€ m
VaR (banking book)
2014
€ m
2015
€ m
Total VaR
2015
€ m
2014
€ m
0.3
1.1
–
1.1
0.1
0.5
–
0.1
2.7
3.6
1.3
3.0
3.5
5.6
1.2
1.5
2.7
5.2
1.3
2.9
3.5
5.6
1.2
1.5
The following table sets out the VaR for foreign exchange rate and equity risk for the years ended 31 December 2015 and 2014:
1 day holding period:
Average
High
Low
31 December
Foreign exchange
rate risk
VaR (trading book)
2014
€ m
2015
€ m
0.06
0.15
0.01
0.05
0.04
0.09
0.02
0.02
Equity risk
VaR (trading book)
2015
€ m
0.04
0.09
0.01
0.02
2014
€ m
0.36
0.72
0.02
0.02
402
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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;
view any outstanding payments, change their address and view their shareholding by signing into Investor Centre on
http://www.computershare.com/ie/InvestorCentre They will need their unique user ID and password which they created during
registration. Or register at http://www.computershare.com/ie/investor/register to become an Investor Centre member. To register
they will be required to enter the name of the company in which they hold shares, their Shareholder Reference Number (“SRN”),
their family or company name and security code (provided on screen); 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 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, was 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 Ireland Strategic Investment Fund holds 2,710,821,147 ordinary shares of € 0.625 each in the share capital of Allied Irish
Banks,p.l.c..
Financial calendar
Annual General Meeting: 24 May 2016, at the RDS Concert Hall, Merrion Road, Ballsbridge, Dublin 4.
Interim results
The unaudited Half-Yearly Financial Report 2016 will be announced towards the end of July/early August 2016 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
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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Glossary of terms
Additional Tier 1
In the context of CRD IV, additional Tier 1 Capital (“AT1”) is a measure of a bank’s financial strength as defined by the Capital
Capital
Arrears
Requirements Regulation.
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.
Asset backed
securities
Asset backed securities (“ABS”) 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.
Available for
sale
Bank Recovery
and Resolution
Directive
Available for sale (“AFS”) financial assets are non-derivative financial investments that are designated as available for sale and are
not or are not classified as a) loans and receivables b) held-to-maturity investments or c) financial assets at fair value through profit
or loss.
The Bank Recovery and Resolution directive (“BRRD”) is a European legislative package issued by the European Commission and
adopted by EU Member States. The directive was finalised in July 2014 with the majority of provisions coming into effect 1 January
2015. The BRRD introduces a common EU framework for how authorities should intervene to address banks which are failing or are
likely to fail. The framework includes early intervention and measures designed to prevent failure and in the event of bank failure for
authorities to ensure an orderly resolution.
Banking
book
A regulatory classification to support the regulatory capital treatment that applies to all exposures which are not in the trading book.
Banking book positions tend to be structural in nature and, typically, arise as a consequence of the size and composition of a bank's
balance sheet. Examples include the need to manage the interest rate risk on fixed rate mortgages or rate insensitive current
account balances. The banking book portfolio will also include all transactions/positions which are accounted for on an interest
accruals basis or, in the case of financial instruments, on an available for sale or hold to maturity basis (e.g. AFS Securities
portfolios).
Basis point
One hundredth of a per cent (0.01%), so 100 basis points is 1%. Used in quoting movements in interest rates or yields on securities.
Basis risk
A type of market risk that refers to the possibility that the change in the price of an instrument (e.g. asset, liability, derivative, etc)
may not match the change in price of the associated hedge, resulting in losses arising in the Group's portfolio of financial
instruments.
Buy-to-let
mortgage
Capital
Requirements
Directive
Capital
Requirements
Directive IV
A residential mortgage loan approved for the purpose of purchasing a residential investment property to rent out.
Capital Requirements Directive (“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 and give effect in the
EU to the Basel II proposals which came into force on 20 July 2006.
Capital Requirements Directive IV (“CRD IV”), which came into force on 1 January 2014, comprises a recast Capital Requirements
Directive and a new Capital Requirements Regulation which implements the Basel III capital proposals together with transitional
arrangements for some of its requirements. The Regulation contains the detailed prudential requirements for credit institutions and
investment firms. Requirements Regulation (No. 575/2013) (“CRR”) and the Capital Requirements Directive (2013/36/EU).
Collateralised
bond obligation/
collateralised debt
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
obligation
CBOs/CDOs).
Collectively
assessed
impairment
Commercial
paper
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.
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Commercial
property
Common equity
tier 1 ratio
Concentration
risk
Contractual
maturity
Core tier 1
capital
Credit default
swaps
Credit
derivatives
Credit risk
Credit risk
mitigation
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.
Common equity tier 1 ratio (“CET 1”) – A measurement of a bank’s core equity capital compared with its total risk-weighted assets.
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.
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.
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
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.
Credit support
annex
Credit support annex (“CSA”) provides credit protection by setting out the rules governing the mutual posting of collateral. CSAs
are used in documenting collateral arrangements between two parties that trade over-the-counter derivative securities. The trade is
documented under a standard contract called a master agreement, developed by the International Swaps and Derivatives
Association (“ISDA”). The two parties must sign the ISDA master agreement and execute a credit support annex before they trade
derivatives with each other.
Credit valuation
adjustment
Credit valuation adjustment (“CVA “) is an adjustment to the valuation of OTC derivative contracts to reflect the creditworthiness of
derivative counterparties.
Criticised loans
Loans requiring additional management attention over and above that normally required for the loan type.
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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
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Debt securities
Assets on the Group’s balance sheet representing certificates of indebtedness of credit institutions, public bodies and other
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Glossary of terms
Debt securities
in issue
Liabilities of the Group which are represented by transferable certificates of indebtedness of the Group to the bearer of the
certificates.
Default
When a customer breaches a term and/or condition of a loan agreement, a loan is deemed to be in default for case management
purposes. Depending on the materiality of the default, if left unmanaged it can lead to loan impairment. Default is also used in Basel
II context when a loan is either 91+ days past due or impaired, and may require additional capital to be set aside.
Derecognition
The removal of a previously recognised financial asset or financial liability from the Group’s statement of financial position.
ECB refinancing
The main refinancing rate or minimum bid rate is the interest rate which banks have to pay when they borrow money from the ECB
rate
under its main refinancing operations. Banks borrow from the ECB through its refinancing operations for liquidity management
purposes.
Economic
capital
The amount of capital which the Group needs to protect against extreme losses from a material risk it is running (e.g. credit risk,
market risk). It is based on internally developed calculation methodologies and estimates, as opposed to regulatory capital, which
uses a methodology determined by the Basel Accord and imposed by the Regulator.
Eurozone
The eurozone consists of the following nineteen European Union countries that have adopted the euro as their common currency:
Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta,
Netherlands, Portugal, Slovakia, Slovenia and Spain.
Exposure at
default
First/second
lien
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
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/
unfunded
exposures
Funding value
adjustment
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.
Funding value adjustment (“FVA”) is an adjustment to the valuation of OTC derivative contracts due to a bank’s funding rate
exceeding the risk-free rate.
Held to maturity
Held to maturity (“HTM”) investments as those which are non-derivative financial assets with fixed or determinable payments and
fixed maturity that an entity has the positive intention and ability to hold to maturity other than:
(a)
(b)
(c)
Those that the entity upon initial recognition designates as at fair value through profit or loss;
Those that the entity designates as available for sale; and
Those that meet the definition of loans and receivables.
Guarantee
An undertaking by the Group/other party to pay a creditor should a debtor fail to do so.
Home loan
A loan secured by a mortgage on the primary residence or second home of a borrower.
Internal liquidity
The internal liquidity adequacy assessment processes (“ILAAP”) is a key element of the risk management framework for credit
adequacy
assessment
process
Internal Capital
Adequacy
Assessment
Process
institutions. ILAAP is defined in the EBA’s SREP Guidelines as “the processes for the identification, measurement, management and
monitoring of liquidity implemented by the institution pursuant to Article 86 of Directive 2013/36/EU”. It thus contains all the
qualitative and quantitative information necessary to underpin the risk appetite, including the description of the systems, processes
and methodology to measure and manage liquidity and funding risks.
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.
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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.
Internal Ratings
Based Approach
ISDA Master
Agreements
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”).
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
Liquidity Coverage Ratio (“LCR”): The ratio of the stock of high quality liquid assets to expected net cash outflows over the next 30
Ratio
Leverage
ratio
Leveraged
lending
days under a stress scenario. CRD IV requires that this ratio exceed 60% on 1 January 2015 and 100% on 1 January 2018.
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.
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.
Loss Given Default
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.
Loan to deposit
ratio
This is the ratio of loans and receivables compared to customer accounts as presented in the statement of financial position.
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 optimise the level of recovery by the Group.
Loan to Value
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.
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.
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Medium term
notes
National Asset
Management
Agency
Net interest
income
Net interest
margin
Medium term notes (“MTNs”) are notes issued by the Group across a range of maturities under the European Medium Term Note
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.
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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.
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Glossary of terms
Net Stable Funding Net Stable Funding Ratio (“NSFR”): The ratio of available stable funding to required stable funding over a 1 year time horizon.
Ratio
Off balance sheet
Off balance sheet items include undrawn commitments to lend, guarantees, letters of credit, acceptances and other items as listed
items
in Annex I of the CRR.
Offsetting
Offsetting, or ‘netting’, is the presentation of the net amounts of financial assets and financial liabilities in the statement of financial
position as a result of Group’s rights of set-off.
Optionality
risk
Principal
components
analysis
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.
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.
Private equity
investments
Equity securities in operating companies not quoted on a public exchange, often involving the investment of capital in private
companies.
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.
Probability of
Default
Regulatory
capital
Probability of Default (“PD”) is the likelihood that a borrower will default on an obligation to repay.
Regulatory capital which AIB holds, determined in accordance with rules established by the SSM/ECB for the consolidated Group
and by local regulators for individual Group companies.
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.
Repurchase
Agreement
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.
Risk weighted
assets
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.
Residential
Residential mortgage-backed securities (“RMBS”) are debt obligations that represent claims to the cash flows from pools of
mortgage-backed
mortgage loans, most commonly on residential property.
Securities
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.
Single Supervisory
The Single Supervisory Mechanism ("SSM") is a system of financial supervision comprising the European Central Bank ("ECB") and
Mechanism
the national competent authorities of participating EU countries which in 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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Special purpose
entity
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).
Stress testing
Stress testing is a technique used to evaluate the potential effects on an institution’s financial condition of an exceptional but
plausible event and/or movement in a set of financial variables.
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.
Subordinated
Liabilities Order
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 certain subordinated liabilities and other capital instruments.
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.
Value at Risk
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.
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409
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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
Principal addresses
Ireland & Britain
Group Headquarters
Bankcentre, PO Box 452,
Ballsbridge, Dublin 4.
Telephone: + 353 1 660 0311
Website: group.aib.ie
AIB Bank – Wholesale &
Institutional Banking,
Bankcentre, Ballsbridge,
Dublin 4.
Telephone: + 353 1 660 0311
Facsimile: + 353 1 660 6575
AIB – Retail, Corporate & Business
Banking
Bankcentre, Ballsbridge,
Dublin 4.
Telephone: + 353 1 660 0311
Facsimile: + 353 1 660 6575
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
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 Bank from the Republic of Ireland.
410
Allied Irish Banks, p.l.c. Annual Financial Report 2015
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
Auditor’s fees
Average balance sheets and
interest rates
B
Board Audit Committee
Board Committees
Board and Executive Officers
C
Capital management
Capital reserves
Capital redemption reserves
Capital reorganisation
Chairman’s statement
Chief Executive’s review
Commitments
Company secretary
Contingent liabilities
and commitments
Capital contributions
Corporate Governance report
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 report
Discontinued operations
Disposal groups and non-current
assets held for sale
Disposal of businesses
Disposal of property
Distributions on equity shares
215
256
403
345
344
282
264
343
182
181
166
44
300
300
43
4
6
340
179
291
301
177
122
63
244
342
290
290
286
289
271
166
195
192
267
270
263
263
270
D
Dividend income
Dividends
E
Earnings per share
Employees
Exchange rates
F
Fair value of financial instruments
Finance leases and hire purchase
contracts
Financial and other information
Financial assets and financial
liabilities by contractual
residual maturity
Financial calendar
Financial investments
254
344
268
341
342
M
Market risk
155
Memorandum items: contingent
liabilities and commitments
and contingent assets
305
N
NAMA senior bonds
NAMA subordinated bond
Net fee and commission income
Net trading income
278
279
255
255
315
Nomination and Corporate
Governance Committee
188
Non-adjusting events after the
reporting period
344
Notes to the financial statements 213
277
342
153
403
308
301
22
162
299
290
256
298
391
164
410
263
285
239
263
277
291
O
Off balance sheet arrangements
available for sale
125 and 279
Offsetting financial assets and
Financial investments
held to maturity
financial liabilities
282
Operating and financial review
Financial liabilities by undiscounted
Operational risk
Other equity interests
Other liabilities
Other operating income
Own shares
P
Parent company risk information
Pension risk
Principal addresses
Profit on disposal of property
Property, plant and equipment
Prospective accounting changes
Provision for impairment on
financial investments
available for sale
Provisions for impairment on
loans and receivables
Provisions for liabilities
and commitments
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 in the banking book
Interest rate sensitivity
Investments in Group undertakings
Irish Government
L
Liquidity risk
Loans and receivables to banks
Loans and receivables to customers
(Loss)/profit on disposal/transfer
of loans and receivables
154
201
129
164
2
404
216
165
183
207
203
284
254
254
155
159
363
332
141
276
276
255
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Allied Irish Banks, p.l.c. Annual Financial Report 2015
411
Index (continued)
R
Regulatory capital and capital ratios
Regulatory compliance
Regulatory compliance risk
Related party transactions
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
V
Viability statement
W
Website
46
342
163
326
172
258
60
60
60
61
49
196
174
249
257
294
210
208
211
202
209
403
292
307
199
286
270
308
196
403
412
Allied Irish Banks, p.l.c. Annual Financial Report 2015