BACKING OUR
CUSTOMERS
Annual Financial Report
for the financial year ended
31 December 2019
AIB Group plc
Gruig, Co Antrim, one of two wind farms acquired
by Foresight Group LLP in 2019 with finance
provided by AIB.
OUR PURPOSE
IS TO BACK OUR
CUSTOMERS TO
ACHIEVE THEIR
DREAMS AND
AMBITIONS
AIB is a financial services group operating predominantly in Ireland
and the United Kingdom. We provide a range of services to retail,
business and corporate customers, with market-leading positions
in key segments. AIB is our principal brand across all geographies.
In Ireland, EBS is our challenger brand and Haven is our mortgage
broker channel.
With over 2.8 million customers, we are committed to backing
sustainable communities. We pledge to do more to support the
transition to a low-carbon economy.
ANNUAL
FINANCIAL
REPORT 2019
02
BUSINESS
REVIEW
52 Operating and
Financial Review
67 Capital
03
RISK
MANAGEMENT
72 Framework
79 Individual Risk Types
01
ANNUAL
REVIEW
04 Financial Highlights
06 AIB at a Glance
10 Chairman’s Statement
14 Chief Executive’s Review
20 2019 Highlights
22 Overview of the Irish Economy
24 Our Strategy
32 Governance in AIB
38 Risk Summary
44 Board of Directors
46 Executive Committee
48 Our Non-Financial Statement
ON OUR COVER
Oweninny Wind Farm in Co Mayo,
an AIB customer.
Read more in our
Detailed Sustainability
Report 2019:
aib.ie/sustainability
We pledge to
DO MORE.
Detailed Sustainability Report
for the financial year ended
31 December 2019
AIB Group plc
05
FINANCIAL
STATEMENTS
224 Directors’ Responsibility Statement
225 Independent Auditor’s Report
237 Consolidated Financial Statements
243 Notes to the Consolidated
Financial Statements
366 AIB Group plc Company
Financial Statements
369 Notes to AIB Group plc
Company Financial Statements
06
GENERAL
INFORMATION
375 Shareholder Information
376 Forward Looking Statements
377 Glossary of Terms
383 Principal Addresses
384 Index
04
GOVERNANCE
AND OVERSIGHT
172 Group Directors’ Report
175 Schedule to the Group
Directors’ Report
178 Corporate Governance Report
194 Report of the Board Audit
Committee
200 Report of the Board Risk
Committee
204 Report of the Nomination &
Corporate Governance Committee
208 Report of the Remuneration
Committee
212 Corporate Governance
Remuneration Statement
219 Viability Statement
220 Internal Controls
221 Other Governance Information
222 Supervision and Regulation
This Annual Financial Report contains forward looking statements with respect to certain of the Group’s plans and its
current goals and expectations relating to its future financial condition, performance, results, strategic initiatives and
objectives. See page 376.
4
Financial Highlights
FINANCIAL HIGHLIGHTS
OUR FINANCIAL
PERFORMANCE
IN 2019
NET
INTEREST
MARGIN
2.37%
STABLE CUSTOMER LOAN YIELDS
Stable customer loan yields. Impact of excess
liquidity and higher cost of MREL issuances
driving lower net interest margin (NIM) of
2.37%. Interest income in line with 2018.
COST
INCOME
RATIO1
PROFIT
BEFORE
TAX
56%
RENEWED FOCUS ON
COST DISCIPLINE
Higher costs and lower income driving
increase in cost income ratio (CIR).
Renewed focus on cost discipline.
€499m
PROFIT BEFORE TAX IMPACTED BY
EXCEPTIONAL ITEMS OF €592M
2019 impacted by exceptional items, including
provision for tracker mortgage examination, while
2018 benefited from impairment writebacks and
gain on disposal of loan portfolios. Profit before
exceptional items in 2019 is €1,091m (2018: €1,414m).
2.37%
2.47%
2019
2018
56%
53%2
2019
2018
€1,247m
€499m
2019
2018
1. Before bank levies, regulatory fees and exceptional items, cost income ratio (CIR) including these items is 82% in 2019 (2018: 63%). For exceptional items see pages 56 and 65.
2. Other regulatory levies and charges are now presented as bank levies and regulatory fees (€17m in 2018 previously included in operating expenses has been re-presented as bank
levies and regulatory fees).
AIB Group plc Annual Financial Report 2019Annual Review Financial Highlights
5
NEW
LENDING
NON-
PERFORMING
EXPOSURES3
NET
LOANS
CET1
FULLY
LOADED
€12.3bn
MODERATE GROWTH
IN NEW LENDING
New lending up 2% with growth
of 8% in mortgages in Ireland and
strong lending to the energy sector
offset by lower syndicated lending.
€3.3bn
SIGNIFICANT REDUCTION,
5.4% OF GROSS LOANS
Significant progress in reducing non-performing
exposures (NPEs) with a 45% reduction from
€6.1bn (9.6% of gross loans) to €3.3bn to reach
our milestone of c. 5% by end of 2019.
€60.9bn
STABLE NET LOANS AS GROSS
PERFORMING LOANS GROW 3%
Excluding disposal of loan portfolios and
FX impact, growth in net loan book is €0.7bn.
Gross performing loans of €58.8bn increased
by 3% (up 2% excluding FX impact).
17.3%
STRONG CAPITAL BASE
Strong capital base with solid underlying
capital generation. Proposed ordinary
dividend of €217m (8c per share).
Pro forma CET1 including TRIM4 indicative
impact of 90bps is 16.4%.
€12.3bn
€12.1bn
2019
2018
€6.1bn
€3.3bn
2019
2018
€60.9bn
€60.9bn
2019
2018
17.3%
17.5%
2019
2018
3. Non-performing exposures (NPEs) refers to non-performing loans (NPLs) and excludes €162m of off-balance sheet commitments. For further information see pages 105 and 106.
4. For further information on TRIM see page 68.
123456AIB Group plc Annual Financial Report 2019Annual Review 6
AIB at a Glance
AIB AT A GLANCE
HOW WE
BACK OUR
CUSTOMERS
OUR BUSINESS
STRUCTURE
We back our customers through two core segments – Retail Banking
and Corporate, Institutional & Business Banking – together with our
AIB UK business and Group control and support functions.
RETAIL
BANKING
CORPORATE,
INSTITUTIONAL &
BUSINESS BANKING
AIB
UK
BUSINESS &
CUSTOMER
SERVICES
LEGAL &
CORPORATE
GOVERNANCE
FINANCE
RISK
HUMAN
RESOURCES
CORPORATE
AFFAIRS &
STRATEGY
GROUP INTERNAL AUDIT – REPORT TO BOARD AUDIT COMMITTEE
Business structure in operation from 11 November 2019.
AIB Group plc Annual Financial Report 2019Annual Review AIB at a Glance
7
RETAIL BANKING
Retail Banking’s core business lines include: mortgages,
consumer lending, SME lending, asset-backed lending,
wealth management, daily banking and general insurance,
as well as our Financial Solutions Group.
58%
OF NET LOANS
2.5m
CUSTOMERS
296LOCATIONS
Leading retail banking franchise
in Ireland with over 2.5 million
personal and SME customers.
Largest physical distribution
network in Ireland, with 296 AIB
and EBS locations and a further
c. 950 locations through the
An Post network.
1.5m
DIGITAL CUSTOMERS
No. 1 digital bank in Ireland,
with over 1.5 million active digital
customers and 1.3 million active
mobile customers.
€4.9bn
NEW LENDING
€35.5bn
NET LOANS
€707m
OPERATING CONTRIBUTION1
CORPORATE,
INSTITUTIONAL
& BUSINESS
BANKING (CIB)
27%
OF NET LOANS
Established, diversified business with market-leading positions in core domestic
markets and extensive experience in US and European syndicated loan markets.
RELATIONSHIP
DRIVEN MODEL
CUSTOMER-FOCUSED
SOLUTIONS
SECTOR
SPECIALIST TEAMS
Trusted strategic long-term partner
for Irish businesses, with primary
focus on senior debt lending.
Complementing traditional debt
offering through specialised finance,
commercial finance, syndicated
finance and corporate finance
advisory services, as well as Private
Banking services and advice.
Centre of Excellence approach
to management of key sectors to
bring sector-specific insights and
expertise to our customers.
€5.0bn
NEW LENDING
€16.2bn
NET LOANS
€443m
OPERATING CONTRIBUTION1
1. Operating contribution before impairments and exceptional items.
123456AIB Group plc Annual Financial Report 2019Annual Review 8
AIB at a Glance
AIB UK
AIB UK operates in two distinct markets: providing corporate and
commercial banking services in Great Britain, trading as Allied Irish
Bank (GB); and retail and business banking services in Northern
Ireland, trading as AIB (NI).
15%
OF NET LOANS
294k
CUSTOMERS
294k retail, corporate and
business customers across
the United Kingdom.
29
LOCATIONS
14 business centres in Great Britain
along with 15 branches in Northern
Ireland, including six business centres
co-located in branches and one centre
for small and micro business.
126k
DIGITAL CUSTOMERS
126k customers actively engaging
across our digital channels.
£2.1bn
NEW LENDING
£7.7bn
NET LOANS
£140m
OPERATING CONTRIBUTION1
GROUP
Group comprises wholesale treasury activities and
Group control and support functions.
OPERATING
CONTRIBUTION1
BY SEGMENT
TREASURY
12%
AIB UK
Part of our Finance function, Treasury manages the
Group’s liquidity and funding position while providing
customer treasury services and economic research.
54%
Retail
Banking
CONTROL
AND SUPPORT
Group control and support functions are:
Business & Customer Services; Finance; Risk;
Legal & Corporate Governance; Human
Resources; Corporate Affairs & Strategy;
and Group Internal Audit.
34%
Corporate,
Institutional
& Business
Banking
€1.3bn2
FY 2019 TOTAL
For a detailed report on our performance,
read the ‘Operating and financial review’
section on pages 52 to 66.
1. Operating contribution before impairments and exceptional items
2. Excludes Group segment operating loss €0.2bn.
AIB Group plc Annual Financial Report 2019Annual Review AIB at a Glance
9
Since 2001, AIB has sponsored Dublin Chamber’s Annual Dinner,
which brings over 1,600 business leaders together
123456AIB Group plc Annual Financial Report 2019Annual Review 10
Chairman’s Statement
CHAIRMAN’S STATEMENT
A GREAT INSTITUTION
WITH A STRONG
CUSTOMER FRANCHISE
At the end of his term, the Chairman reflects on
significant NPE reduction, culture development
and continued customer success in 2019.
Richard Pym, AIB’s Chairman
AIB Group plc Annual Financial Report 2019Annual Review Chairman’s Statement
11
This annual report details the results for
2019 and the progress being made in the
bank. Allied Irish Banks is a great institution
with a strong and profitable customer
franchise and against that background it
is particularly regrettable that the Board is
recommending a reduction in the ordinary
dividend.
In February 2020 we made a market
announcement concerning a preliminary
decision of the Financial Services and
Pensions Ombudsman (FSPO) regarding
compensation due to a customer who
was in a previously identified group within
the tracker mortgage review, but where
the Group had concluded no financial
detriment had been incurred. The Group
is continuing to engage and consider its
position. However it is unpredictable how
these matters turn out, so we have made
additional provisions for €300m to reflect
the combined impact of application of the
compensation in that individual preliminary
decision to a wider group of around
5,900 customers in similar circumstances,
together with related potential additional
charges. This is a hit to 2019 profits and
reduced earnings per share (EPS) to 12.1c
and as a result we are recommending an
ordinary dividend of 8c per share, down
from 17c last year. However the Group
concluded the year in a strong capital
position with fully-loaded CET1 ratio of
16.4%.
In 2019 banks have been experiencing
a challenging economic environment of
negative interest rates in the Eurozone
which we expect to continue and, because
we have sheltered the vast majority of our
customers from negative deposit rates, this
has reduced the net interest margin.
There were many achievements in the year,
top of which is reducing non-performing
exposures (NPEs) down to the c. 5% level
we targeted for the end of 2019. When I
joined the bank in 2014, we had seen NPEs
peak at over €30bn, they are now down
to €3.3bn. The efforts and professionalism
of over 1,000 staff who achieved this
fantastic result is appreciated by the Board.
Additionally, the well documented tracker
mortgage remediation has, other than
the new group referred to above, been
operationally completed, with customers
repaid and put into the position they
should always have been in.
In April we announced the establishment
of a joint venture to acquire Payzone, a
leading branded provider of specialised
payment services in Ireland facilitating
WHEN I JOINED THE BANK IN
2014, WE HAD NPES PEAK AT
OVER €30BN, THEY ARE NOW
DOWN TO €3.3BN
123456AIB Group plc Annual Financial Report 2019Annual Review 12
Chairman’s Statement
THERE IS NOTHING
MORE FULFILLING IN
THE LIFE OF A BANKER
THAN TO SEE YOUR
CUSTOMERS SUCCEED
Rosy Temple of Magee, an AIB customer, which
has been in operation for 150 years in Co Donegal
consumer payments by cash, card and
card-not-present for everyday consumer
needs. This acquisition, which closed in
October 2019, will enhance AIB’s fintech
capability and strengthen our position as
Ireland’s leading digitally-enabled bank.
This annual report describes the strategic
refresh and the associated targets which
the Board has agreed, reflecting the
economic and competitive environment.
There are two updated core strategic
targets on capital levels and return on
equity, which provide the corporate
financial framework within which the
bank will operate. In parallel, there is
a specific absolute cost target which is
there to provide focus for the operational
management of the bank. In a challenging
economic environment getting value from
every cent we spend is essential.
Although much progress has been made
in advancing the culture of the bank over
the decade since the financial crisis, the
Board recognises that the evolution of
culture is a continuous journey. AIB is
committed to playing a leading role in
advancing this agenda across the industry
and we welcome the establishment of the
Irish Banking Culture Board (IBCB) and
are committed to ensuring its success. We
are similarly committed to expanding our
sustainability agenda where we are the
leading bank in Ireland and more details
follow in this report.
There has been major Board rotation
during the year with four Non-Executive
Directors leaving and five arriving, and
the departure early in the year of the CEO
and CFO which was announced in 2018. I
would like to record my thanks to Catherine
Woods, Peter Hagan, Jim O’Hara and
Simon Ball for their great contributions.
They joined the bank when things were
extremely difficult and served with
distinction. I extend a welcome to Sandy
Kinney Pritchard, Ann O’Brien, Raj Singh,
Elaine MacLean and Basil Geoghegan who
are already contributing at a high level.
The non-executive group on the Board
is now 50% female and Colin’s Executive
Committee composition will shortly be the
same.
My term as Chairman has now come to
an end and my thanks go to all my Board
colleagues who have contributed hugely
to AIB and put massive amounts of time,
energy and thoughtful considerations into
our work. I thank all colleagues across the
bank for their contributions during the
year and record particular appreciation to
the Executive Directors who have been
my partners and friends over the past five
AIB Group plc Annual Financial Report 2019Annual Review Chairman’s Statement
13
years: the brilliant Colin, Tomás, Bernard
and Mark; and to the other members of
the leadership group who have displayed
commitment and professionalism in
difficult circumstances and transformed
the capabilities and performance of the
bank. They are a talented team and I hope
the bank can retain their services for many
years to come.
In the course of my work at AIB I have had
many enjoyable and memorable meetings
with the leaders of Irish business who are a
hugely ambitious and innovative group and
serve the country with distinction, creating
employment, opportunity and prosperity.
I have observed many examples of where
AIB has backed small ideas and seen them
grow into major businesses, and there is
nothing more fulfilling in the life of a banker
than to see your customers succeed. I
extend thanks to all our customers for their
support to us.
It has been a privilege to serve as your
Chairman since 2014 and my last act is
to sign this report but I know that much
remains to be done. I am confident that
with the current strategy, the oversight of
our refreshed Board and the leadership
of Colin and the rest of the executive
team, AIB, its customers and committed
employees will enjoy ever greater success.
Go n-éirí an t-ádh libh go léir.
RICHARD PYM CBE
Chairman
5 March 2020
The two co-chairs of AIB’s Women Matters Employee
Resource Group: Annette O’Brien and Mary Kennedy
123456AIB Group plc Annual Financial Report 2019Annual Review 14
Chief Executive’s Review
RESTORING TRUST IN
THE ORGANISATION IS
A WORK-IN-PROGRESS
AND EVERY DAY I AM
REMINDED OF THE
IMPORTANCE OF
THE TASK
COLIN HUNT
AIB’s Chief Executive Officer
AIB Group plc Annual Financial Report 2019Annual Review Chief Executive’s Review
15
CHIEF EXECUTIVE’S REVIEW
AT THE HEART
OF IRELAND’S
ECONOMY
In 2019, AIB further enhanced services for our customers, increased new
lending, reduced NPEs and consolidated operations.
In my first review, as Chief Executive
Officer, of AIB’s annual financial
performance, I am glad to report that the
fundamentals of the Group remain strong
with sustainable underlying profits and a
robust capital base. We are proud to be
Ireland’s leading digital bank and continue
to hold a No. 1 position across a number
of markets including mortgages and
personal loans. Further enhancing service
to our c. 2.8 million customers, increasing
our new lending volumes to €12.3bn to
support economic growth, reducing non-
performing exposures (NPEs) significantly,
addressing the challenges in the cost base
and proposing a dividend of 8c per share
to shareholders were all achieved as we
consolidated our operations to confront the
principal risks and uncertainties ahead.
Our profit performance should be
understood in the context of the current
low-interest environment that is prevailing
globally, together with the impact of
ongoing potential regulatory obligations
arising from legacy issues. We are dealing
with the latter in a transparent and
speedy manner and we will continue
to work closely with the Central Bank of
Ireland until these issues are concluded
comprehensively.
As we face into considerable headwinds
including a cooling global economy,
a still-uncertain outcome to the Brexit
trade talks, the reality of climate change,
tariff discussions in global trade and
more recently the potential impact of the
Coronavirus on markets, it is imperative
that Ireland has a robust, well-functioning
banking industry. As a financial institution
at the heart of Ireland’s economy, AIB must
be put on the strongest possible footing
with a solid balance sheet, a robust capital
structure and a controlled cost base.
We worked assiduously through 2019 to
ensure that sustainability became more
deeply ingrained in all our business
decisions. We are prepared, at every
level, to drive efficiencies throughout
our operations, pursue simplification of
products, build for a digital future and
provide trusted service to our customers.
Ultimately, when market conditions allow,
AIB wants to be in a position that enables
our major shareholder, the Government, to
recover maximum return for the taxpayer’s
investment.
One of my early priorities as Chief
Executive Officer has been to work with
our Board on the development of a multi-
year culture enhancement programme.
Restoring trust in the organisation is a work
in progress and every day I am reminded
of the importance of the task. However,
my management team, the Board and
everyone across the Group are aware
of the urgency of rebuilding a positive
reputation. This can only be done by
implementing a strict customer-first ethos
in all aspects of our business, by putting
ourselves in our customers’ shoes.
Financial performance
In 2019, our core business segments have
contributed positively to our financial
performance and we have delivered an
operating profit of €1,091m excluding
exceptionals. Profit before tax of €499m
was impacted by exceptional items. This
includes €300m additional provisions
taken to cover a range of possible
123456AIB Group plc Annual Financial Report 2019Annual Review 16
Chief Executive’s Review
outcomes and related potential additional
charges following a preliminary decision
by the Financial Services and Pensions
Ombudsman relating to a previously
identified group of customers who had an
option of a prevailing tracker rate.
While net interest income of €2,076m was
stable and loan yields remained strong, the
Group’s net interest margin (NIM) reduced
to 2.37%. This reduction was due to a
combination of factors such as the cost of
98%
IN 2019, MORE THAN 98% OF
OUR NEW LENDING WAS OF
STRONG OR SATISFACTORY
CREDIT QUALITY
MREL-eligible issuances, lower yields on
our investment securities and the weight of
excess liquidity.
Total operating expenses for 2019 were
€1,504m1. Exceptional items of €592m
included restitution costs and the provision
to which I referred earlier. Our cost income
ratio was 56%1. A renewed focus on cost
discipline is a key management priority and
will continue to feature through 2020 and
beyond.
It was a busy and successful year in debt
capital markets with four transactions
totalling €2.6bn of MREL-eligible issuances
(HoldCo Senior $1bn, HoldCo Senior
€750m, AT1 €500m and Tier 2 €500m).
Every transaction was oversubscribed
by a multiple and order books were
characterised by geographically diverse
quality institutions. This now brings
our MREL eligible issuances to €4.3bn
which represents 86% of our total MREL
requirements. In September, we launched
our green bond framework showing our
intent to our investors to lead the way in
funding sustainable businesses. In 2019,
we had two upgrades from credit rating
agencies Moody’s and Fitch bringing
the AIB Group plc ratings to Baa2 and
BBB respectively. The key drivers of the
upgrades were the consistent delivery of
NPE reduction and the successful MREL
issuances. We are well positioned to
complete our MREL issuance requirement
and improve the efficiency of our capital
structure.
We have a strong capital base with a
robust pro forma fully-loaded CET1 ratio
(reflecting indicative 90bps TRIM impact) of
16.4% at 31 December 2019, well in excess
of regulatory requirements.
Non-performing exposures
AIB cannot countenance facing another
economic downturn carrying high levels
of NPEs that relate to the last crisis.
Addressing NPEs in a sustainable way
continued to be a top priority for the Group
and we made enormous headway in this
regard throughout the year. Two loan
portfolios with a combined NPE value of
c. €1.8bn, characterised by deep arrears,
were sold in 2019. Our core preference has
always been to offer a range of sustainable
solutions to our customers. In 2019, case-
by-case resolution resulted in a reduction
in NPEs of €1.0bn through cash payments.
Perhaps inevitably, the pace of reduction of
these NPEs has begun to moderate as we
deal with more difficult cases.
Overall our NPEs fell by 45% since year-
end 2018 to €3.3bn such that NPEs as a
percentage of gross loans amounted to
5.4% at year end 2019, thereby meeting our
IPO target of c. 5% by end 2019. Having
reached this significant milestone, we are
committed to further reducing NPEs given
the impact on cost, capital requirements
and balance sheet resilience.
Lending
In 2019, more than 98% of our new
lending was of strong or satisfactory credit
quality. This has contributed to 89% of AIB’s
loan book being of strong / satisfactory
quality at December 2019 (up from 83% at
2018 year-end).
New lending of €12.3bn in 2019 was
up from €12.1bn in 2018. Across our
core segments, new mortgage lending
increased 8% to €3.0bn and personal
lending increased by 15% to €1.0bn. With
the Irish economy continuing to perform
well, corporate credit demand remained
solid. We saw increased lending to the
renewable energy sector, offset by lower
syndicated and international lending.
Notwithstanding the fact that Brexit
1. Before bank levies, regulatory fees and exceptional items. CIR including these items was 82% in 2019 (2018: 63%). For exceptional items see pages 56 and 65.
AIB Group plc Annual Financial Report 2019Annual Review Chief Executive’s Review
17
uncertainty remained an ongoing theme in
the SME sector, new lending to the sector
increased by 7%. In the UK, new lending of
£2.1bn, an increase of 7% on the previous
year, was focused on our chosen defensive
sectors such as renewable energy and
healthcare.
Structure
In order to further simplify AIB’s operations,
we have reorganised our structure around
two core segments: Retail Banking and
Corporate, Institutional & Business Banking.
I have also made a number of changes
to our Executive Committee in recent
months, including the announcement
of Jim O’Keeffe as the new Managing
Director of Retail Banking. Cathy Bryce
returned to the Group in August 2019 to
lead the Corporate, Institutional & Business
Banking segment. In the UK Brendan
O’Connor, Managing Director of AIB UK
will leave the Group later in 2020 and I
thank him sincerely for his dedicated work
in AIB over 35 years. Robert Mulhall has
been announced as Managing Director
Designate for AIB’s UK business. Mary
Whitelaw has been appointed Director of
Corporate Affairs and Strategy. Geraldine
Casey was appointed AIB’s Chief People
Officer in January 2020. I believe that the
executive team has the right blend of skills
and experience to deliver our strategy and
back our customers over the coming years.
The latest appointment to our Executive
Committee in January 2020 means that
our Executive Committee will be gender
balanced in 2020. In addition, AIB was
recognised in the second ‘Balance for
Better Business’ report for having one of
the most gender-balanced boardrooms in
Ireland, with five women on its 10-strong
non-executive board.
Culture and our people
With nothing short of transformation
required in banking’s reputation, the AIB
Board has set a cultural ambition for the
organisation. This consists of adopting
evolved values and articulated behaviours
that involve the delivery of high quality
service and fair outcomes to our customers.
Our people are the heartbeat of
this business, and their support and
engagement is critical for our success.
A three year Wellbeing Programme was
developed by our employees for our
employees. The Wellbeing Programme has
trained 100 Wellbeing Advocates across
the business to locally lead and promote
programme initiatives and activities.
In terms of our employee engagement,
our iConnect results showed an 88%
participation rate, which is a 1% reduction
from 2018, and our employee engagement
levels moved from the 72nd to the 64th
percentile of companies in the Gallup
global database. We have been reflecting
on the messages conveyed by the survey
and are committed to continuing to focus
on making AIB an even better place to
work over the years ahead.
AIB Executive Committee
123456AIB Group plc Annual Financial Report 2019Annual Review 18
Chief Executive’s Review
OUR NEW THREE-YEAR STRATEGY
TO 2022 SEES THE INTRODUCTION
OF AN ADDITIONAL STRATEGIC
PILLAR – SUSTAINABLE COMMUNITIES
AIB customer, Oweninney Wind Farm in Co Mayo.
Digital
As Ireland’s leading digital bank, we
provide the broadest, and most used
array of digital customer offerings to help
make our customers’ lives easier while
also providing leading security features to
ensure their peace of mind. Our levels of
active users and their levels of usage of our
platforms demonstrate how popular and
effective our digital channels truly are.
We listen to our customer feedback and
always monitor industry developments
to ensure we are up to date and are also
constantly adding to and enhancing our
digital offering. We will continue to invest
in our digital technology to allow us to
drive further efficiencies and deliver an
exceptional customer experience.
Sustainability strategy
We continue to describe our strategy
through the pillars – Customer First,
Simple & Efficient, Risk & Capital and
Talent & Culture. Our refreshed three-year
strategy to 2022 sees the introduction of
an additional strategic pillar – Sustainable
Communities – which sets out a clear
direction for this important agenda. In
essence, sustainable finance and climate
action now have an elevated position as
core strategic priorities and this is reflected
right across our agenda for business and
investment.
Further details on the progress made
in 2019 against our strategic pillars are
contained in a later section of this report.
We have now published our fourth
Sustainability Report which outlines the
progress AIB is making in response to the
key social, environmental and economic
issues.
In 2019, we made a meaningful
contribution to the communities in which
we operate by providing better banking
experiences for our customers through
focusing on continuous improvement. For
example, we completed the roll-out of the
Express Mortgage Journey. As regards
investing to support economic progress
and social issues, we funded multiple
projects which will deliver new housing
units as well as sponsoring community
investment through our AIB Together
Programme.
We recognise that supports are needed
to help change all our behaviours,
individually and societally, as we transition
to a lower-carbon economy. Reinforcing
our support for Ireland’s programme to
address climate change, we sponsored
Climate Finance Week Ireland in November
2019. We also launched a new 5-year fixed
green mortgage. Our green mortgage
complements our existing customer
proposition of choice and value, offering
low variable rates as well as highly
competitive fixed rates, providing longer
term value and certainty. We launched
a green bond framework, became a
Founding Signatory of the United Nations
Environment Programme - Finance
Initiative (UNEP FI). We also became a
Supporter of the Task Force on Climate-
related Financial Disclosures (TCFD). I look
forward to further aligning our activities to
the UN Sustainable Development Goals
and the Paris Agreement.
Outlook
The Irish economy enjoyed another strong
year in 2019, despite the challenges posed
by a slowdown in the global economy
and persistent uncertainty around Brexit
that weighed on business investment. We
remain alert to the threat of Brexit and its
possible negative outcomes. Agri-business,
farms and companies that rely on the UK
export market are of course unsettled and,
as their bank, AIB will continue to support
these customers.
Against this backdrop, our strategy to
2022 seeks to find the appropriate
balance between investing to sustain
AIB Group plc Annual Financial Report 2019Annual Review Chief Executive’s Review
19
WE REMAIN ALERT TO THE THREAT
OF BREXIT AND ITS POSSIBLE
NEGATIVE OUTCOMES
competitiveness while delivering attractive
returns.
I very much look forward to working with
them to deliver our refreshed three-year
strategy and financial targets for AIB.
In effect, our strategy over the next three
years will allow us to further underpin a
robust balance sheet, grow our lending
and defend our mortgage business where
we already hold a 31.4% market share,
reduce our organisational complexity,
and cost control our organisation. We will
continue to be the go-to bank for digital
offerings.
The Group’s performance in the strategic
and tactical management of cost will be
a critical determinant of AIB’s ability to
generate equity returns. Further details
on our refreshed strategy and targets are
outlined on pages 25 to 31. Following
a large amount of change across the
Group, I am satisfied that AIB is now well-
organised to deliver our strategy and meet
our new three-year targets.
As Chief Executive Officer, another key
priority is to see the full recovery of the
investment made by the State as the bank
returns, over time, to full private ownership.
We will ensure AIB remains positioned
to allow the Government recoup its
investment when markets are more
buoyant and at a time of their choosing.
Meanwhile I would like to thank my fellow
Board and Executive Committee members,
and all my colleagues across the Group for
the support I have received since taking
over as Chief Executive Officer a year ago.
I want to give special thanks to our
Chairman Richard Pym who is stepping
down as Non-Executive Chairman of AIB
Group plc. Richard has served AIB Group
with great distinction over the course
of the past five years. He has used his
vast pool of experience and wisdom to
guide the Group’s development and has
carried out all his duties with energy and
professionalism. Under his chairmanship,
AIB has gained in strength and stability and
is well positioned for the challenges and
opportunities that lie ahead. At a personal
level, Richard has been a vitally important
guide since I re-joined AIB in 2016 and in
particular since my appointment as Chief
Executive Officer in March of last year. The
Group is in the process of identifying the
next Chair and an announcement will be
made in due course.
I am extremely honoured to be Chief
Executive Officer of a bank that is
dedicated to playing a practical role
in supporting the economy and our
citizens to whom we owe so much. Our
stakeholder expectations are high and we
will strive to ensure we do not disappoint.
Thank you.
COLIN HUNT
Chief Executive Officer
5 March 2020
DAILY USER INTERACTIONS
DAILY USER
INTERACTIONS
ATM
INTERACTIONS
MOBILE
INTERACTIONS
INTERNET
BANKING
LOGINS
CONTACT
CENTRE
CALLS
BRANCH
TRANSACTIONS
KIOSK
/TABLET
LOGINS
1.93m 199k
2019
1.54m
90k
17k
91.5k
12k
2013
880k
432k
148k
208k
18k
77k
123456AIB Group plc Annual Financial Report 2019Annual Review 20
2019 Highlights
2019 HIGHLIGHTS
AIB IN 2019
PRINCIPLES FOR
RESPONSIBLE
BANKING
In September AIB became a Founding Signatory of the
United Nations Environment Programme – Finance
Initiative (UNEP FI), committing to align our business
with the Sustainable Development Goals and the Paris
Agreement on Climate Change. In that same month,
AIB also became a supporter of the Task Force on
Climate-Related Financial Disclosures (TCFD).
SUPPORTING
HOUSING SUPPLY
In 2019, AIB invested in development projects to deliver an
expected 8,200 housing units. Of these, over 900 units will be
newly built social housing. One example of the kind of projects
we backed is the landmark finance package AIB funded in
December for the Circle Voluntary Housing Association, which
plans to deliver 250 social and affordable housing units over the
next 12 months.
SUSTAINABLE
COMMUNITIES
FRAMING
THE FUTURE
AIB Together is our Group-wide community programme.
Each member of staff has two volunteer days a year to
support local charities of their choice including FoodCloud
and Soar, our official Community Partners. In July, EBS
became the main sponsor of the inaugural Volunteer in
Sport Awards.
In September, we launched a Green Bond Framework
in line with the globally recognised International Capital
Markets Association (ICMA) green bond principles. The
bond will support lending to projects in energy-efficient
building, renewable energy, CO2 reduction and other
climate-related initiatives.
BACKING CLUB
AND COUNTY
In 2019 we entered our 29th year supporting the
#Toughest players, clubs and communities across
the island of Ireland. AIB’s partnership with the
GAA incorporates title sponsor of the AIB GAA Club
Championships in hurling, football and camogie,
across Junior, Intermediate and Senior levels as well as
sponsor of the Senior Football Championship.
SUPPORT FOR
VULNERABLE
CUSTOMERS
Every day we support customers who are impacted by difficult
issues including financial abuse, dementia, mental health,
accessibility and more. In 2019, we enhanced our Vulnerable
Customer Programme, providing more support to our customer
-facing colleagues and establishing a Vulnerable Customer Support
Team to assist with complex cases and liaise with advocacy groups.
We also published a guide for customers dealing with bereavement;
‘What to do When Someone Dies’ provides clear, step-by-step advice.
AIB Group plc Annual Financial Report 2019Annual Review 2019 Highlights
21
SUPPORTING CLIMATE FINANCE
WEEK IRELAND 2019
AIB was the main sponsor of Climate Finance Week Ireland (CFWI19), which took place on 4-8 November. The annual AIB
Sustainability Conference featured as a key event of the week’s schedule, with keynote speakers Jeff Furman (Ben & Jerry’s
Foundation), Sue Garrard (formerly Unilever) and Sir David King (University of Cambridge) addressing an audience of over
400 business leaders. We also launched our DO MORE campaign during CFWI19.
FINTECH
CAPABILITY
AIB and First Data Corporation received regulatory
approval to acquire a 95.9% stake in payments firm
Payzone in October. AIB holds a 75% stake in the
joint acquisition with First Data Corporation taking
the remaining 25%. Payzone is the largest consumer
payments network in Ireland, with more than 7,000
retail agents and more than 300,000 registered users.
GREEN
LENDING
In June, we committed to making €5bn available to
support Ireland’s transition to a lower-carbon economy.
And in November we offered a competitive five-year
fixed rate mortgage to new and existing AIB private
dwelling house (PDH) mortgage customers whose
property has a building energy rating (BER) between
A1 and B3.
MARKET-LEADING
DIGITAL INNOVATION
AIB’s Mobile Banking App is the No. 1 Irish mobile banking app.
In June 2019 we hit the 1 million active mobile customer milestone
in Ireland, which increased to 1.3 million by year-end. With our
customers making 2.9 million secure transactions a month on
mobile, the introduction of card freeze/unfreeze in 2019 provided
even more flexibility.
SUCCESSFUL YEAR IN
DEBT CAPITAL MARKETS
In 2019, AIB successfully issued four bonds in Debt Capital Markets
totalling €2.6bn (HoldCo Senior $1bn and €750m, AT1 €500m
and Tier 2 €500m). Every transaction was oversubscribed and
order books were characterised by geographically diverse quality
institutions. The year closed with total MREL eligible issuance of
€4.3bn, which represents 86% of our MREL requirements. Along
with two credit rating upgrades this year (Fitch, Moody’s), this
positions AIB well for further bond issuances.
AIB EXPRESS
MORTGAGE
A CONVERSATION
ABOUT CULTURE
Following enhancements to our mortgage offering, six
out of every 10 new mortgage applications nationwide
were on our Express Mortgage journey by the end
of 2019. This new digital journey gives customers an
approval in principle within one hour and the ability to
progress their application online.
In September, over 800 members of our staff, representing all
business areas and career levels, had their say about the existing
culture in AIB. An initiative of the Diagnostic phase of our Group-
wide multi-year Culture Evolution Programme, the results of these
‘Culture Conversations’ provided a foundation for the Board and
Executive Committee to formulate a Cultural Ambition for AIB.
123456AIB Group plc Annual Financial Report 2019Annual Review 22
Overview of the Irish Economy
OVERVIEW OF THE IRISH ECONOMY
EXPECT CONTINUED
GROWTH, DESPITE
UNCERTAINTY
Rising employment, spending and exports
made for a strong year of growth in 2019.
+18%
HOUSING
COMPLETIONS
+2.9%
EMPLOYMENT
+4.3%
CORE RETAIL SALES
The Irish economy performed
strongly again in 2019, despite
the challenges posed by ongoing
uncertainty in relation to Brexit and a
marked slowdown in global growth.
Latest National Accounts data show
that GDP grew by 6% in the first three
quarters of the year.
The labour market
Labour market data for 2019 also
paint a very encouraging picture
of the economy. They show that
employment rose by 2.9% for the third
consecutive year, with the number at
work increasing by 80,000 over the
course of 2019.
Consumer spending continued
to grow at a solid pace in 2019,
underpinned by rising employment
and wages. Core retail sales
(excluding the motor trade) rose by
4.3% in the year. Total car registrations
(new and second-hand imports)
in 2019 matched the high levels
achieved in the previous year.
Business investment was subdued
in 2019, held back by the uncertainty
around Brexit and slowdown in the
global economy. Nevertheless, a
good measure of domestic economic
activity, modified final domestic
demand, grew by 3.5% year-on-year
in Q3 2019.
Exports also performed well in 2019.
Notably, service exports rose by
almost 14% in the first three quarters
of the year.
Meanwhile, the unemployment
rate continues to decline, albeit at
a somewhat slower pace than in
recent years. The jobless rate fell
to 4.7% in the final quarter of 2019,
down from 5.6% a year earlier.
Most encouragingly, the long-term
unemployment rate fell to just 1.6%
in 2019. The economy, therefore, is
getting very close to full employment.
The housing market
Construction output was up by 2.4%
in the first three quarters of the year,
driven by the continuing pick-up in
house-building activity. New house
completions rose by 18% to 21,241
in 2019, up from 17,952 in 2018. This
is still well short of annual housing
demand, which is widely estimated at
circa 35,000 units.
House price inflation decelerated
sharply last year despite the ongoing
shortage of houses, falling to 0.9%
year-on-year in December, well
below the peak rate seen in 2018 of
over 13%. Indeed, house prices fell in
Dublin during 2019. Rents, though,
continued to rise and were up by
4.3% year-on-year in December.
Lending activity
The ongoing recovery in housing
activity was reflected in further
growth in mortgage lending. It grew
by 9.5% to over €9.5bn in 2019, up
from €8.7bn 2018 and €7.3bn in 2017.
New lending in the SME sector was
subdued in 2019, held back by the
uncertainty around Brexit. Central
Bank data show new lending to the
SME sector amounted to €2.5bn to
end September, virtually unchanged
from the same period in 2018.
Total household debt continued to
decline in 2019, falling to €135bn by
the third quarter, from €137.5bn at
end 2018. Household indebtedness
has fallen by one-third from its
peak of €203bn at end 2008. Not
surprisingly then, there has also been
a marked decline in the household
debt/disposable income ratio in the
past decade. It stood at 116% in Q3
AIB Group plc Annual Financial Report 2019Annual Review Overview of the Irish Economy
23
THE ONGOING RECOVERY
IN HOUSING ACTIVITY
WAS REFLECTED IN
FURTHER GROWTH IN
MORTGAGE LENDING
2019, down from 123% at end 2018 and its peak
of 212% seen at the start of the decade. The
ratio has now returned to 2003 levels, when the
rapid growth in credit in Ireland was just getting
underway.
Brexit
The UK left the EU on 31 January 2020 after
Parliament approved a revised Withdrawal
Agreement. This includes a transition period to
end 2020, during which time the existing EU
trading rules will remain in place. The UK hopes
to conclude a trade deal with the EU before
end 2020 that will frame the basis for its future
trading relationship with Europe. These trade
talks are likely to prove very difficult. Considerable
uncertainty will persist about Brexit until the
future trading relationship is finalised.
UK economy overview and outlook
The pace of activity remained subdued in the
UK last year, with the uncertainty around Brexit
holding back investment in particular. GDP rose
by 1.4% in 2019 after growth of 1.3% in 2018, the
slowest growth rates seen since the financial
crisis a decade ago. Continuing uncertainty about
the future trading relationship with the EU could
dampen economic activity again in 2020.
Outlook for the Irish economy
Leading indicators of Irish activity softened in
2019 as the world economy lost momentum.
Nonetheless, the prospects remain favourable
for the Irish economy in 2020. Growth should be
underpinned by continuing low interest rates,
rising employment and incomes, the ongoing
rebound in housing activity, as well as a mildly
expansive stance to fiscal policy. This should result
in a solid rise in new lending activity in 2020.
Finally, the coronavirus is a new downside risk
for global growth this year. The measures to
contain the virus are already disrupting supply
chains and having a negative impact on some
sectors of the world economy. Ireland as a small
open economy will be impacted by these global
trends. It is hoped that the measures to contain
the virus prove successful, which would allow
activity in impacted sectors to rebound as the year
progresses.
Core Retail Sales (YoY, %)
2013
2014
2015
2016
2017
2018
2019
Modified Final Domestic Demand (3 Qrt Mov Avg, YoY, %)
8
7
6
5
4
3
2
1
0
6
5
4
3
2
1
0
2013
2014
2015
2016
2017
2018
2019
Service Exports
Service Exports (3 Qrt Mov Avg, YoY, %)
20
15
10
5
0
16
12
8
4
250
200
150
100
2013
2014
2015
2016
2017
2018
2019
Employment (‘000) & Unemployment Rate (%)
2,400
2,200
2,000
1,800
2013
2014
2015
2016
2017
2018
2019
RHS: Employment (‘000)
LHS: Unemployment Rate (%)
Household Debt / Disposable Income Ratio %
2002
2004
2006
2008
2010
2012
2014
2016
2018
2003
2005
2007
2009
2011
2013
2015
2017
2019
123456AIB Group plc Annual Financial Report 2019Annual Review 24
Our Strategy
OUR STRATEGY
2019 OUTCOMES
In 2017, we set a number of targets for both financial and
non-financial activities.
CUSTOMER FIRST
MEASURE
RELATIONSHIP
NET PROMOTER
SCORE (NPS)
TRANSACTION
NET PROMOTER
SCORE (NPS)
A measure of our customers’ overall
AIB relationship experience
Measured after customer
transactions for key touch points
OUTCOMES
2019
34 Personal
20 SME
53 Homes
60 SME
SIMPLE & EFFICIENT
CHANNEL TRENDS
% of our active customers transacting
via digital and direct channels
59.1%
COST INCOME
RATIO (CIR)2
Financial benchmark of efficiency 56%
RISK & CAPITAL
RETURN
ON TANGIBLE
EQUITY (ROTE)2,3
A measure of how well the bank
deploys capital to generate earnings
growth
3.6%
CET1 RATIO
(FULLY LOADED)2,4
A measure of our ability to withstand
financial stress and remain solvent
17.3%
NON-PERFORMING
EXPOSURES
Lower NPEs are a measure of
improving asset quality
€3.3bn (5.4%)
FINANCIAL &
NON-FINANCIAL
TARGETS1
50+
50+ Homes
60+ SME
62%+
<50%
10%+
>13%
c. 5%
NET INTEREST
MARGIN (NIM)2
A measure of the difference between
the interest income generated and
the amount of interest paid out
relative to interest-earning assets
2.37%
2.40%+
TALENT & CULTURE
DIVERSITY
Women as % of management
ENGAGEMENT
Employee engagement relative
to worldwide Gallup client
population
41.5%
64th
Percentile
1. All targets are long-term, with the exception of medium-term financial targets communicated to the market on 9 March 2017.
2. Medium-term financial targets communicated to the market on 9 March 2017; CIR <50% by end 2019.
3. See the ‘Capital’ section on page 70 for further information.
4. See the ‘Capital’ section on page 67 for further information.
40%
Top
quartile
AIB Group plc Annual Financial Report 2019Annual Review Our Strategy
25
OUR STRATEGY
A NEW
STRATEGIC
CYCLE
2020 marks the beginning of a new strategic cycle for AIB Group, having examined
macroeconomic developments, industry trends and our own business priorities.
Our strategic ambition is to be at the heart of our customers’ financial lives by
responsibly and comprehensively meeting their life-stage needs, aiming to be a
sustainable, capital-generative and efficient business. We describe our business
and strategy through five strategic pillars. The following pages contain further
information on our strategy to 2022.
CUSTOMER
FIRST
SIMPLE &
EFFICIENT
RISK &
CAPITAL
TALENT &
CULTURE
SUSTAINABLE
COMMUNITIES
123456AIB Group plc Annual Financial Report 2019Annual Review 26
Our Strategy
OUR STRATEGY
STRATEGY 2022
Our business strategy aims to achieve a balance between investing
to sustain competitiveness while delivering attractive returns.
A FIVE-PILLAR
STRATEGY
In refreshing our strategy to 2022 we set both a strategic and financial ambition for AIB Group, both of
which speak to our ambition to provide a broad range of financial services.
In an evolution of our four-pillar 2017-2019 strategy, we have added Sustainable Communities as a fifth
pillar, reflecting our ambition to be both a leading financial institution in climate action and a meaningful
part of the communities in which we operate. Our primary objectives to 2022 are: to simplify our business
in order to increase efficiency; to defend our income in an increasingly competitive environment; to diversify
our products and services; and to further control our business costs.
Our purpose remains: to back our customers to achieve their dreams and ambitions.
PURPOSE
To back our customers to achieve their dreams and ambitions.
STRATEGIC
AMBITION
We will be at the heart of our customers’ financial lives by
responsibly and comprehensively meeting their life-stage needs.
CUSTOMER
FIRST
SIMPLE
& EFFICIENT
RISK
& CAPITAL
TALENT
& CULTURE
SUSTAINABLE
COMMUNITIES
STRATEGIC
PILLARS
FINANCIAL
AMBITION
FINANCIAL
TARGETS
A sustainable, capital-generative and efficient business.
Cost1: €1.5bn
CET1: >14%
RoTE2: >8%
1. Costs before bank levies and regulatory fees and exceptional items.
2. See the ‘Capital’ section on page 70 for further information.
For more information on the governance
of our strategy 2022 development, see page 35.
AIB Group plc Annual Financial Report 2019Annual Review Our Strategy
27
STRATEGIC
OUTCOMES 2022
In line with our strategic and financial ambitions, we anticipate eight outcomes of our three-year strategy to
2022, as listed below. With a continued focus on significantly enhancing the experience of all our customers,
we aim to grow our business organically and diversify our income to reflect the challenging interest rate
environment. And as the No. 1 digital bank in Ireland, we can leverage our market-leading platform by
enhancing and integrating more key customer journeys.
In all our actions, we will maintain a mindset that takes into account the expectations of all our stakeholders.
A ROBUST
BALANCE SHEET
We will maintain a high-
quality balance sheet in
order to back our customers
through potentially more
challenging economic times.
MEETING LIFE-STAGE
NEEDS
We will develop life-stage appropriate products and services to
continually meet our business and personal customers’ needs and
maintain a competitive advantage.
REDUCED ORGANISATIONAL
COMPLEXITY
We will simplify the business and digitise where appropriate for the
benefit of our customers.
STRONG MORTGAGE
ADVANTAGE
A COST-CONTROLLED
ENVIRONMENT
We will invest to maintain our No. 1 position in the Irish
mortgage market, with a particular focus on digital.
We will address costs in a structured manner,
driving efficiency and innovation in our business.
A SIGNIFICANT SUSTAINABILITY
CONTRIBUTION
We will support the transition to a low-carbon economy and make a
meaningful contribution to the communities in which we operate.
DIVERSIFIED INCOME GROWTH
We will organically diversify our income to sustain underlying
profitability, particularly in the current interest rate environment.
A STAKEHOLDER
MINDSET
We will build a world-class
culture and consistently
meet expectations across
our five stakeholder groups:
customers, employees,
investors, society and
regulators.
A CONTINUED FOCUS ON
SIGNIFICANTLY ENHANCING THE
EXPERIENCE OF OUR CUSTOMERS
123456AIB Group plc Annual Financial Report 2019Annual Review 28
Our Strategy
OUR STRATEGY
STRATEGIC
TARGETS
We have set a number of financial and non-financial
targets for both the medium-term and long-term in
line with our strategy.
MEDIUM-TERM (END 2022)
LONG-TERM
CUSTOMER FIRST
We put our customers at the heart of our organisation, providing the full range of their
financial needs conveniently and responsibly. We use technology to personalise our product
and service offerings.
MEASURE
RELATIONSHIP NET
PROMOTER SCORE (NPS)
A measure of our personal customers’
overall AIB relationship experience
TRANSACTION NET
PROMOTER SCORE (NPS)
Measured after customer
transactions for key touch points
LONG-TERM
TARGETS
50+
60+
HOMES
70+
SME
SIMPLE & EFFICIENT
Our organisation, technology and partnering strategies drive efficiency in our
back-, middle- and front-office operations. We foster a culture of cost-awareness and
accountability, simplifying our processes and ways of working.
MEASURE
ABSOLUTE COST1 BASE
Cost of running the business,
excluding exceptional costs
ACTIVE MOBILE USERS
Number of active users on mobile
platform
MEDIUM- AND
LONG-TERM TARGETS
€1.5bn
>2 million
1. Costs before bank levies and regulatory fees and exceptional items.
AIB Group plc Annual Financial Report 2019Annual Review Our Strategy
29
RISK & CAPITAL
We maintain a strong risk management framework, high asset quality and robust capital
levels. We deploy our capital efficiently through effective risk model development, evolved
risk pricing and our strategic business model choices.
MEASURE
MEDIUM-TERM
TARGETS
RETURN ON
TANGIBLE EQUITY1
A measure of how well capital is
deployed to generate earnings growth >8%
CET1 RATIO
(FULLY LOADED)
A measure of our ability to withstand
financial stress and remain solvent
>14%
TALENT & CULTURE
We ensure that we have the right talent, skills and capabilities within the organisation
to fulfill our purpose and execute our strategy. We enable talent effectiveness through a
diverse and inclusive culture that is built on accountability, collaboration and trust.
MEASURE
DIVERSITY
Women as % of management
LONG-TERM
TARGETS
GENDER BALANCED
ENGAGEMENT
Employee engagement relative to
worldwide Gallup client population
TOP QUARTILE
SUSTAINABLE COMMUNITIES
We play a leadership role in creating innovative propositions and partnerships to help
our customers in the transition to a low-carbon economy. We make a meaningful
contribution to the sustainability of the societies where we operate.
MEASURE
REDUCTION IN EMISSIONS
% proportion of our emissions
reduction versus 2014 baseline
ESG RATING
Composite measure based on
selected ESG rating agencies
MEDIUM- AND
LONG-TERM TARGETS
50% BY 2030
ABOVE AVERAGE
1. See the ‘Capital’ section on page 70 for further information.
123456AIB Group plc Annual Financial Report 2019Annual Review 30
Our Strategy
OUR STRATEGY
FOCUS ON
SUSTAINABILITY
We pledge to DO MORE.
Climate change continues to emerge as the greatest challenge of our time. We recognise
the important responsibility financial institutions have to support the transition to a low-
carbon economy. While this issue requires a long-term outlook, action is necessary now.
This is why AIB has placed sustainability at the heart of our strategy.
Our detailed Sustainability Report outlines the progress AIB Group made in 2019, including
the launch of products such as our green mortgage and commitments such as becoming
a Founding Signatory of the United Nations Environment Programme – Finance Initiative
(UNEP FI). You can read this report, as well as related accreditations, codes and policies on
www.aib.ie/sustainability
We will support the transition to a low-carbon economy and make a meaningful
contribution to the communities in which we operate.
CLIMATE
ACTION
BETTER BANKING
EXPERIENCE
ECONOMIC & SOCIAL
INCLUSIVITY
RESPONSIBLE &
RESILIENT TECHNOLOGY
Leading Ireland’s
transition to become a
low-carbon economy.
Building better
banking experiences
and products with a
focus on continuous
improvement and
learning from our
mistakes.
Actively investing to
support economic
progress and social
issues.
Protecting the privacy,
security and integrity of
our data and systems
to ensure responsible
practices and resilient
technology.
CULTURE & ACCOUNTABILITY
Build a world-class culture that is underpinned by our values, behaviours and actions.
Read more in our
Detailed Sustainability
Report 2019:
aib.ie/sustainability
We pledge to
DO MORE.
Detailed Sustainability Report
for the financial year ended
31 December 2019
AIB Group plc
AIB Group plc Annual Financial Report 2019Annual Review Our Strategy
31
In 2019,
we launched our
DO MORE campaign
Our pledge to Do More.
Over the last number of years at AIB we have been
working to build a more sustainable business.
We’ve invested in wind energy projects,
launched a €5 billion Climate Action Fund
and created a Green Mortgage.
And yet, it’s still not enough.
And we will keep telling ourselves that every day.
AIB alone is not the solution to climate change, but
we are doing everything we can to be a part of it.
AIB. We pledge to DO MORE.
Our Green
Mortgage
is NOT
enough.
We pledge to DO MORE.
AIB Sustainability
AIB Sustainability
Our investment
in wind farms
is NOT enough.
Lending criteria, terms and conditions apply. Over 18s only, security may be required. Allied Irish Banks, p.l.c. is an authorised agent and servicer of AIB Mortgage Bank in relation to the
origination and servicing of mortgage loans and mortgages. Allied Irish Banks, p.l.c. and AIB Mortgage Bank are regulated by the Central Bank of Ireland.
Our €5 billion
Climate Action Fund
is NOT enough.
We pledge to DO MORE.
We pledge to DO MORE.
AIB Sustainability
AIB Sustainability
Lending criteria, terms and conditions apply. Credit facilities are subject to repayment capacity and financial
status and are not available to persons under 18 years of age. Security may be required. Allied Irish Banks, p.l.c. is
regulated by the Central Bank of Ireland.
Lending criteria, terms and conditions apply. Credit facilities are subject to repayment capacity and financial
status and are not available to persons under 18 years of age. Security may be required. Allied Irish Banks, p.l.c. is
regulated by the Central Bank of Ireland.
123456AIB Group plc Annual Financial Report 2019Annual Review 32
Governance in AIB
GOVERNANCE IN AIB
CORPORATE
GOVERNANCE IN
ACTION
As new members joined in 2019, AIB’s Board oversaw
matters such as culture, strategy and Brexit preparedness.
Through a year of substantial change
on the Board, the role of corporate
governance in ensuring effective Board
decision-making has been of paramount
importance.
The Board is committed to upholding
high standards and seeking continual
enhancements. AIB’s corporate governance
standards are implemented by way of
a comprehensive suite of frameworks,
policies, procedures and standards. Such
standards are overseen by the Nomination
& Corporate Governance Committee
and are further detailed in the Corporate
Governance Report within the ‘Governance
and oversight’ section of this Annual
Financial Report on pages 178 to 192.
Below are a number of examples
which, at a high level, demonstrate our
strong corporate governance standards
throughout the year.
Succession planning and induction
Succession planning for both the Board
of Directors and Executive Committee
(ExCo) was a key focus of the Nomination
and Corporate Governance Committee,
and the Board as a whole, in 2019. This
was coupled with rolling out induction
programmes for five new Non-Executive
Directors appointed during the year.
In anticipation of Ms Catherine Woods’
retirement in October 2019 and Mr
Richard Pym indicating his intention to
AIB was recognised in the 2019 Balance for Better Business report
as having the joint-most gender balanced boardroom in Ireland
AIB Group plc Annual Financial Report 2019Annual Review Governance in AIB
33
retire in March 2020, a search process was
undertaken to identify the next Deputy
Chair, Senior Independent Director and
Chair Designate. The Group is in the
process of identifying the next Chair and an
announcement will be made in due course.
Following a review of our current Board
composition, Mr Brendan McDonagh was
appointed as Deputy Chair and Mr Tom
Foley as Senior Independent Director.
Director searches are underway to ensure
the Board skills and experience remain at
their current high standard.
Led by the Chief Executive Officer in
conjunction with our Human Resources
function, succession planning at Executive
level was also a key focus in 2019. A
number of new appointments were made
to our Executive Committee as detailed
DIVERSITY IS AN IMPORTANT
FACTOR IN SUCCESSION PLANNING –
BOTH AT BOARD AND EXECUTIVE LEVEL
The Nomination & Corporate Governance
Committee, on behalf of the Board, has
identified a number of key skills required of
its directors. In considering its succession
planning, the Committee refers to that skills
matrix to ensure the Board is comprised of
a strong cross-section of experience and
knowledge and an appropriate balance of
skills. The key skills comprise, but are not
limited to, retail and commercial banking,
risk management, strategy development,
stakeholder management, digital focus,
customer focus, culture, leadership and
governance. In light of a review of the
skills matrix, two additional Non-Executive
in the biography section of this Annual
Financial Report on pages 46 to 47.
Moreover, external mapping of role profiles
and identification of potential successors in
comparable industry roles was completed
for a number of Executive Committee
roles. As a result, the succession plan is
well positioned to ensure the strength of
leadership of the Group going forward.
Diversity is an important factor in
succession planning both at Board and
Executive level. Positively, it has resulted in
both the Board and Executive Committee
reaching the highest levels of gender
AIB GROUP BOARD
BOARD AUDIT
COMMITTEE
BOARD
RISK COMMITTEE
REMUNERATION
COMMITTEE
NOMINATION &
CORPORATE
GOVERNANCE
COMMITTEE
SUSTAINABLE
BUSINESS ADVISORY
COMMITTEE
Quality and integrity
of accounting policies,
financial reporting and
disclosure, internal
control framework
and audit.
See page 194 for
further information.
Risk management and
compliance frameworks,
risk appetite profile,
concentrations and trends.
See page 200 for
further information.
Remuneration policies and
practices, remuneration of
Chair, CEO, Executive
Directors, ExCo and other
senior management
Board composition,
committee membership,
corporate governance
policies and practices, and
succession planning.
See page 208 for further
information.
See page 204 for
further information.
Support the Group with its
sustainable business strategy.
which includes the
development and
safeguarding of the bank’s
social licence to operate.
See pages 37 and 185
for further information.
BOARD COMMITTEE
BOARD COMMITTEE
BOARD COMMITTEE
BOARD COMMITTEE
ADVISORY COMMITTEE
123456AIB Group plc Annual Financial Report 2019Annual Review 34
Governance in AIB
balance in the Group’s history. To ensure
consistent oversight, diversity in gender at
management level was included as part of
the 2019 balanced scorecard delivered to
the Board on a quarterly basis.
Culture development
The current culture across the Group and
its cultural ambitions were front and centre
of the Board’s mind in 2019. The Board
is committed to creating and nurturing
the right culture in AIB in order to fulfill
our purpose and achieve our strategic
objectives.
The Board were fully engaged in the
culture programme in 2019, dedicating
significant agenda time for discussion,
debate and providing overall direction
to the development of the programme.
The Board attended a session as part of a
deep dive on the topic of culture, where
the Board was briefed, inter alia, on the
intrinsic links between culture and strategy
and the development of cultural ambitions.
Following this session, consideration of the
topic continued through an open forum
discussion between the Board, Executive
Committee, and staff representatives from
across the Group who shared their direct
and personal views of, and experiences in,
the Group to date.
It was acknowledged that a long-term
programme was needed to enhance
the Group’s reputation and culture and
’prove by doing’ to rebuild trust with our
customers and wider society. The Board’s
ambition, and that of the Executive
Committee, is to be the leader on culture
across the industry. The Chairman noted
that, while enhancing the culture and
reputation of the Group was a lengthy and
challenging journey, commitment levels are
high and the results would be immense.
As such, the Culture Evolution Programme
was set up with a view to creating a multi-
year programme of activity to enhance the
culture in AIB. In September, employees
were invited to take part in live ‘Culture
Conversations’, the results of which
provided a solid foundation for the Board
to formulate AIB’s cultural ambition.
Through the work on cultural evolution,
the Board aimed to dissect and truly
understand the issues emerging from
employees, agree tangible actions for
execution and assess progress. The
AIB NON-EXECUTIVE DIRECTORS
GENDER DIVERSITY
AGE
Female: 5
Male: 5
46-55: 4
56-65: 4
66-75: 2
BOARD TENURE
NATIONALITIES
0-2 years: 5
2-4 years: 3
4-6 years: 1
6-8 years: 1
Irish: 7
British: 2
American: 1
AIB Group plc Annual Financial Report 2019Annual Review Governance in AIB
35
Board took part in a number of ‘Out
and Abouts’ where they met with, and
received feedback from employees across
the business in both office and branch
environments.
2020-2022 strategy development
2019 saw the conclusion of our 2017-19
strategy and the development of the
2020-22 strategic plan which was robustly
reviewed and challenged at the Board and
Executive Committee offsite in November
and formally approved in early 2020.
Prior to that, the Board reviewed and
challenged the strategic plans at various
points throughout the year as detailed
below. Further details of the 2020-22
strategic plan are contained in the “Our
Strategy” section earlier in this Annual
Financial Report.
February 2019
Strategy framework review
and approval
March 2019
Ambition framework review
and approval
April 2019
External environment review
July 2019
Strategy update (ambition, strategic
alignment, plan for November offsite)
November 2019
Strategy offsite to include ambition
and strategy, strategic calls, targeted
outcomes, financial plan, risk review,
strategy into action
December 2019
2020-22 group strategy
and financial plan review
January/February 2020
Group strategy and financial
plan approval
Brexit
Whilst the likely outcome and impact
of Brexit was unknown for much of the
year, the Board requested that an update
be provided at regular intervals, with as
much time being devoted by the Board as
necessary.
A Brexit Steering Group was set up and
provided regular updates directly to the
Board, including: an assessment of the
macroeconomic environment; an update
on the approval and withdrawal process
as relevant; and an assessment of the
impact on key UK and Ireland Brexit
Economic Indicators. Such indicators
included the EUR/GBP exchange rate, the
Purchasing Managers Index, retail sales,
the unemployment rate and tax receipts.
To further assure themselves of the
Group’s readiness, the Board requested
a deep dive as to principles to be applied
and actions which would be taken to
manage the business risk in a hard Brexit
environment. As a result of same, operating
principles were established which included
a playbook for a vast array of individual
scenarios that could potentially occur in
a hard Brexit. The Board also endorsed
additional governance steps to bolster
management’s ability to support at-risk
customers and to ensure credit was
provided in a timely manner to sustainable
customers.
The Board received updates on the
internal operational contingency plan
and the capability of the Group to serve
our customers post any Brexit-associated
deadlines. Through such updates from
the Brexit Steering Group, the Board was
satisfied that all possible contingency
actions had been taken to ensure
customers faced minimal disruption and
the sustainability of the business could
be maintained through a wide range of
potential outcomes. Further information on
Brexit and its presence as a key theme on
our risk agenda is detailed on page 77.
123456AIB Group plc Annual Financial Report 2019Annual Review 36
Governance in AIB
GOVERNANCE IN AIB
ENGAGING WITH
OUR STAKEHOLDERS
The Board regularly engages with each of AIB’s five stakeholder groups in order to
understand their views and take them into consideration when making decisions.
The approach of the Board to stakeholder engagement aligns with the UK Corporate Governance Code 2018,
which applies to the Group by virtue of its premium listing on the London Stock Exchange. Whilst not directly
applicable to the Group due to it being a provision of UK company law, the Board welcomes the fresh stance
on stakeholder engagement introduced in 2019 under section 172 of the UK Companies Act 2006. The Board
acknowledges the benefits of considering the spirit intended by such provisions as part of its decision making
process. Further detail on how the Board engages with its stakeholders is set out below.
WHO
WHY
HOW
OUR
CUSTOMERS
Our purpose is to back our
customers to achieve their
dreams and ambitions.
Our 2.8 million customer
relationships are managed by
dedicated teams across Retail
Banking, CIB and AIB UK.
One size does not fit all, however,
we acknowledge that all our
customers desire simple and
efficient services and interactions
across all our channels. To this end,
the Board strives to make decisions
that foster that simple and efficient
approach.
Focus on the Customer First pillar
in decision-making. Minimise and
effectively limit conduct related issues
to quickly resolve customer impact.
Regular Board oversight of Net
Promoter Scores, complaint metrics,
RepTrak metrics and, importantly in
2019, potential Brexit impacts.
As at 31 December 2019,
AIB employed 9,520 people
across Ireland, the United
Kingdom and the United
States of America.
OUR
EMPLOYEES
We have a diversified
range of institutional and
individual investors. The
Irish State is a significant
shareholder of the Group.
OUR
INVESTORS
The Board is acutely mindful that
our people are the key resource and
enabler for the Group to deliver its
overall ambitions. Ensuring we have
an engaged workforce of strong
calibre and reputation is critical to
delivery for all of our stakeholders,
as well as ensuring our employees
are satisfied in work.
In order to ensure maximum
potential investor return, the Board
aims to lead the Group in meeting
its financial and non-financial
targets, while fostering a culture of
cost awareness and accountability
to ensure maximum potential
investor return.
SOCIETY
Society as a whole permeates
all of our stakeholder
considerations and also
forms a large part of our
sustainability agenda.
In our general business practice,
targeted lending activities and
societal endeavours, we strive
to make a meaningful contribution
to the sustainability of the
communities in which we operate.
REGULATORS
Including the Central Bank
of Ireland (CBI), European
Central Bank (ECB), European
Commission, Prudential
Regulation Authority (PRA),
Financial Conduct Authority
(FCA), Federal Reserve Bank
of New York (New York Fed).
The Board strives to ensure financial
stability, consumer protection and
market integrity across the banking
industries in the regions we operate.
Additionally, strong engagement
with our regulators ensures the
Group is well positioned to comply
with regulation.
Internal structures, on which the
Board receive updates include:
Speak Up, ongoing engagement with
Financial Services Union, Workplace
Options, Employee Resource Groups,
iConnect engagement, Culture
Evolution Programme. Meetings of
the Board and employees, formally
by invitation to Board events and
informally in ‘Out and Abouts’.
Ensuring continued compliance with
relevant legislation, regulations etc.
Meeting our shareholders at our
AGM. Information on our website.
Regular updates on our investor
relations programme including
investor engagement and feedback.
Board training session on market
views of an institutional investor.
Focus on the Group sustainability
agenda includes the work of the
Sustainable Business Advisory
Committee (SBAC) and the production
of the Sustainability Report. Addition
of Sustainable Communities as a fifth
strategic pillar.
Ongoing supervisory engagement,
including on-site inspections on
specific items, thematic reviews
and regular engagements with the
Board and Senior Executives.
AIB Group plc Annual Financial Report 2019Annual Review
Governance in AIB
37
EXAMPLES OF
STAKEHOLDER
CONSIDERATION
CULTURAL AMBITION
2019 saw the Board develop the cultural ambition for
the organisation and it is committed to playing a leading
role in enhancing culture across the industry. In addition
to the internal steps detailed on page 34, in 2019, the
Board supported the set-up of the Irish Banking Culture
Board (IBCB). The important work conducted by the IBCB,
which the Group supports, should drive better outcomes
for our customers, employees and society as a whole,
rebuilding trust and strengthening our reputation for
high standards of business conduct and a positive culture
across the Group. Robert Mulhall, member of the Executive
Committee, was designated as Executive Sponsor for
Culture across the Group and is a member of the IBCB
Board. In addition, the Group seconded a number of
individuals to assist the IBCB in its set-up phase.
IMPACTED
STAKEHOLDERS:
MODERN SLAVERY ACT
In December 2019 the Board reviewed the Modern
Slavery Statement as required under the UK Modern
Slavery Act 2015, which applies to the Group as it
carries on business in the UK. The Board considered
the requirements of the Act to ensure organisations do
not put profit above the welfare and wellbeing of its
employees and those working on its behalf. The Board
considered that the Statement would also provide
customers with greater confidence in the services
provided by AIB. The Act requires transparency as to how
the Group mitigates Modern Slavery risk and aims to
protect workers from exploitation.
IMPACTED
STAKEHOLDERS:
STRATEGY DEVELOPMENT
Strategy 2020-22 was subject to a comprehensive review of the Group’s
activities and the material risks facing the Group. The Board considered all
elements of the strategy in terms of the level of impact on each stakeholder,
whether that impact may be positive or negative and the risk mitigants to
each. As part of our strategy consideration, it was agreed that the proposed
strategy broadly supported the considerations of our key stakeholders. Further
details on the Board’s role in strategy development is detailed on page 35.
IMPACTED
STAKEHOLDERS:
CORPORATE DEVELOPMENT
The Board considered the acquisition of Payzone by way of a joint venture
with First Data Corporation at length and concluded that the proposed
acquisition was consistent with the Group’s strategy to evolve our customer
service and product proposition in our core market and enhance our fintech
capability. Considerations of investor return, improved offerings to customers
and impact on employees of both AIB Group and Payzone were all included
in Board discussions. Additionally, the European Commission, being the
regulator for such transactions, was consulted as appropriate.
IMPACTED
STAKEHOLDERS:
SUSTAINABLE COMMUNITIES
The Sustainable Business Advisory Committee (SBAC) supports the Board
in overseeing the Group’s sustainability strategy. Through the year, SBAC
received updates and oversaw many sustainable initiatives such as the Green
Bond Framework which would allow AIB to issue green bonds and meet the
demands of investors who are increasingly seeking to invest in green bonds.
Additionally SBAC considered the Group becoming Founding Signatory of the
UNEP FI Principles for Responsible Banking at the UN General Assembly and
a supporter of the Task Force on Climate-related Financial Disclosures (TCFD)
which cumulatively position the Group strongly to deliver on its aims of long-
term sustainable growth for the benefit of our stakeholders.
IMPACTED
STAKEHOLDERS:
123456AIB Group plc Annual Financial Report 2019Annual Review 38
Risk Summary
RISK SUMMARY
HOW WE
MANAGE RISK
We use effective risk management and control, aligned to
our strategy, to guide and protect AIB.
AIB implements a strong risk
management approach to protect
our business. We identify the principal
risks and uncertainties including the
key external risk drivers that could
adversely impact our customers,
our business and the delivery of our
strategic objectives. Risk is defined
as any event that could damage
the core earnings capacity of the
Group, increase cash flow volatility,
reduce capital, threaten business
reputation or viability, result in breach
of regulatory or legal obligations
or give rise to poor customer
outcomes. A cornerstone of the risk
management approach is the Three
Lines of Defence model. The First
Line of Defence owns the risks and is
responsible for identifying, reporting
and managing them. They are also
responsible for ensuring that the right
controls are in place to mitigate the
risks. The Second Line of Defence
sets the frameworks and policies for
managing specific risk areas, provides
advice and guidance in relation to the
risk and provides independent review
and challenge and reporting on AIB’s
risk profile. The Third Line of Defence
is the Group Internal Audit function
which provides independent and
objective assurance of the adequacy of
the design and operational effectiveness
of the risk and control environment.
The design and implementation of
the Three Lines of Defence model is
underpinned by eight principles that
define the key risk accountabilities.
This is set out in the chart below.
Risk governance structure
The Board has ultimate responsibility
for the governance of risk-taking
activity at AIB. This is achieved
through a risk governance structure
designed to facilitate the reporting,
evaluation and escalation of risk
concerns from business areas and
control functions upwards to the
Board. The Board is assisted in its risk
governance responsibilities by the
delegated sub-committees of the
Board and the Executive Committee:
• Board Risk Committee;
• Board Audit Committee;
• Group Risk Committee;
• Asset & Liability Committee.
THREE LINES OF DEFENCE MODEL AND PRINCIPLES
FIRST LINE OF DEFENCE
PRINCIPLES
SECOND LINE OF
DEFENCE PRINCIPLES
THIRD LINE OF
DEFENCE PRINCIPLE
Frontline, operational and
support activities
Risk
Group Internal Audit
Principle 2
Provide risk ownership and oversight
responsibilities
Principle 1
Sets the frameworks and policies
for managing specific risk types
Principle 3
Identifies, records, reports and
manages the risks
Principle 5
Provides advice and guidance
in relation to the risk
Principle 8
Provides independent
and objective assurance
of the adequacy of the
design and operational
effectiveness of the risks
and control environment
Principle 4
Ensures the right controls and
assessments are in place to mitigate
the risks
Principle 6
Provides independent oversight and
reporting on the Group’s risk profile
Principle 7
Provides challenge to the effectiveness
of the risk management and control
processes
See the AIB Group business structure on page 6.
AIB Group plc Annual Financial Report 2019Annual Review Risk Summary
39
Linking risk management to strategy
The Group’s approach to risk
management directly supports the
achievement of the Group’s purpose
and strategic objectives. In the first
instance the strategic objectives are
established and approved by the
Board. A Material Risk Assessment
(MRA) is performed annually to
identify the principal risks to which the
Group is exposed. The Board then sets
out the risk appetite for the Group to
ensure that the strategic objectives are
executed in line with the Board’s risk
appetite. The Risk Appetite Statement
is then cascaded to business
segments (Retail Banking, CIB and AIB
UK) and licenced subsidiaries. The Risk
Appetite Statement is a key part of
embedding risk culture and fostering
responsible risk-taking and risk
management behaviours throughout
the Group. Risk appetite limits are
monitored on an ongoing basis and
the Group’s compliance with limits is
reported to the Board on a monthly
basis, as well as the subsidiary Boards
on a quarterly basis, as part of Chief
Risk Officer (CRO) reporting. In each
of the Principal Risks, pages 40 to
43, a description is given as to how
the Principal Risk is managed, the
mitigating actions and the alignment
with the Group’s strategic pillars.
Top and emerging risk drivers in 2019
The CRO prepares a report for the
Group Risk Committee and Board
Risk Committee setting out the risk
profile of the Group and emerging risk
themes. The key themes considered
by the risk governance committees
during 2019 are outlined below.
These interact with the Principal
Risks to varying degrees. In the ‘Risk
Management’ section in this Report,
‘Individual risk types’, pages 79 to 170,
sets out the key risk drivers impacting
each Principal Risk.
REGULATORY AND LEGAL CHANGE
CYBER
•
•
AIB may be adversely affected by
unexpected or complex changes in
regulation, accounting standards and
legislation. AIB may also be affected by
changes in tax requirements, including
changing interpretation by tax authorities
A failure to meet regulatory requirements
could have a financial and/or reputational
impact. Embedding a robust and
sustainable risk culture is key to ongoing
compliance.
FINANCIAL, MACROECONOMIC AND GEOPOLITICAL VOLATILITY
•
•
AIB may be adversely affected by changes
in the macroeconomic outlook, changes
in financial and credit markets, increasing
geopolitical tensions and changes in
expectations of central banks’ monetary
policies
The continued global macroeconomic
uncertainty and the lower-for-longer
central bank interest rate policies
contribute to downward pressure on
credit quality and net interest income. See
1.6.1 (page 77) for further details on Brexit.
PACE OF CHANGE IN COMPETITION, LABOUR MARKETS
AND CUSTOMER EXPECTATIONS
•
•
AIB may be adversely affected by
the pace of change of industry best
practice, competitive landscape, labour
market including availability of skills,
demographics and/or societal behaviours
and expectations
The rapidly changing environment
requires significant investment in order
for AIB to remain competitive, including
responding to competition from new
entrants (e.g. fintechs).
TREND
IN 2019
TREND
IN 2019
TREND
IN 2019
•
•
AIB may be adversely affected by cyber attacks. The
volume and sophistication of cyber attacks continues
to increase, as online transactions become more
prevalent
A successful attack would result in a monetary and/
or reputational impact. See section 1.6.3 (page 78) for
more detail on Cyber risk.
TREND
IN 2019
TREND
IN 2019
CLIMATE CHANGE
•
•
AIB may be adversely affected through the
manifestation of physical risks (such as the impact on
property from weather-related events) and transition
risks (the financial risks as a result of the transition to
a low-carbon economy)
Failure to manage these risks would result in either
financial and/or reputational impact from a lack of
adherence to sustainable principles. See section 1.6.2
(page 78) for more details on Climate risk.
CHANGING EXTERNAL PERCEPTIONS OF AIB
•
•
AIB may be adversely affected by a change in
customer and market perceptions of the Group
TREND
IN 2019
Changing perceptions could result in withdrawals
of customer deposits, an unwillingness of
customers to apply for credit and difficulty in
attracting and retaining the right talent, skills
and capabilities within the Group.
TREND IN 2019
Improving
Stable
Deteriorating
Risk profile improved
during 2019
Risk profile remained
stable during 2019
Risk profile deteriorated
during 2019
123456AIB Group plc Annual Financial Report 2019Annual Review 40
Risk Summary
RISK SUMMARY
OUR
PRINCIPAL
RISKS
We manage the most significant risks which could
impact on achieving our strategic objectives.
Listed in alphabetical order
Business Model Risk
Capital Adequacy Risk
Conduct Risk
The risk of not achieving the Group’s
strategy or approved business plan,
either as a result of an inadequate
implementation plan, or failure to
execute on the strategy as a result
of an inability to secure the required
investment, or due to external factors.
Example
More intense price-based competition
from incumbent providers and/or new
entrants from the fintech sector.
Key mitigating
considerations and controls
•
Annual Board review of strategy
•
•
•
The Board receives regular
updates on performance against
strategic objectives via a quarterly
performance scorecard
Comprehensive reports setting out
the current financial performance
against budget, multi-year financial
projections, capital plans and
economic updates
A CRO report is produced monthly
and reviewed by the Board and
Group Risk Committees.
Alignment to strategic
priorities and pillars
• We achieve sustainable growth
by delivering long-term value to
customers and stakeholders, by
being efficient in our operations
and by pricing appropriately.
(Simple & Efficient)
• We create long-term shared
value in a sustainable way for our
customers, stakeholders and the
communities in which we live and
work. (Customer First)
• We conduct our business by putting
the customer first and doing the
right thing. (Customer First).
+ Read more: pages 168 to 169
Capital adequacy risk is the risk that
the Group does not maintain sufficient
capital to achieve our business strategy,
support our customers or to meet
regulatory capital requirements.
Example
A worsening macroeconomic
environment could lead to adverse
financial performance, which could
deplete capital resources and/or
increase capital requirements due to
a deterioration in customers’ credit
worthiness.
Key mitigating
considerations and controls
•
Board approved and monitored
risk appetite limits covering key
regulatory and internal capital
requirements
•
•
Comprehensive Internal Capital
Adequacy Assessment Process
(ICAAP) Framework and Capital
Adequacy Policy
Regular forward-looking
assessment of capital adequacy
via annual ICAAP and quarterly
internal stress testing, which
considers a number of scenarios
including a base case, moderate
downside and severe but
plausible stress
• Monthly reporting of the Group’s
capital metrics to ALCo
•
Capital contingency and recovery
planning activities.
Alignment to strategic
priorities and pillars
• We have sufficient quantity and
quality of capital to support
the Group in both normal and
stressed economic conditions and
to maintain an appropriate buffer
to minimum regulatory ratios and
to meet market and rating agency
expectations. (Risk & Capital).
+ Read more: page 154
The risk that inappropriate actions or
inactions by the Group cause poor and
unfair customer outcomes.
Example
Customer complaints outstanding without
proper investigation would lead to unfair
customer outcomes.
Key mitigating
considerations and controls
•
Board approved and monitored
risk appetite limits covering
key dimensions of regulatory
compliance risk
•
•
The Group has a Conduct Risk
Framework, which is embedded
in the organisation and provides
oversight at Executive and Board
level via the Group Conduct
Committee and the Group Product
and Proposition Committee
A suite of policy standards that
clearly define expected standards
of behaviour including how we
lend responsibly and how we deal
with vulnerable customers
• Mandatory conduct-related
training required to be completed
by all staff.
Alignment to strategic
priorities and pillars
• We conduct our business in a fair
and transparent manner in line
with our purpose, values and
strategic ambition. (Customer First,
Talent & Culture)
• We ensure processes are in place
to minimise the systemic risk of
unfair customer outcomes arising
from inadequate product design,
sales and lifecycle processes or
market abuse. (Risk & Capital).
+ Read more: pages 166 to 167
AIB Group plc Annual Financial Report 2019Annual Review
Risk Summary
41
Credit Risk
Financial Risk
Funding and Liquidity Risk
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.
Example
Earnings are impacted by changes in
interest rates and/or market prices.
Key mitigating
considerations and controls
•
Board approved and monitored
risk appetite limits covering key
dimensions of financial risk policies,
systems, controls and monitoring
•
•
The Group substantially reduces
our market risk through hedging in
external markets
Regular oversight and monitoring
by the Group’s Asset & Liability
Management Committee (ALCo)
of market risk positions and
exposures, including review of
hedging strategy.
Alignment to strategic
priorities and pillars
• We are exposed to financial
risks as a result of discretionary
and non-discretionary activities
including Credit Spread Risk, IRRBB
and Trading Book. These financial
risks are managed to limit income
volatility and their impact on
capital. (Risk & Capital, Simple
& Efficient).
+ Read more: pages 155 to 163
The risk that the Group will not be
able to fund our assets and meet our
payment obligations as they fall due
without incurring unacceptable costs
or losses.
Example
A deterioration in either the Group’s
credit rating or a sudden and significant
withdrawal of customer deposits would
adversely impact the Group’s funding
and liquidity position.
Key mitigating
considerations and controls
•
Board approved and monitored
risk appetite limits covering key
dimensions of funding and liquidity
risk
• Group funding and liquidity
strategy, policies, systems, controls
and monitoring
•
•
•
Annual forward-looking Internal
Liquidity Adequacy Assessment
Process (ILAAP)
ALCo reviews the Group’s
funding and liquidity risk position
and makes decisions on the
management of the Group’s assets
and liabilities
Liquidity contingency and recovery
planning activities.
Alignment to strategic
priorities and pillars
• We ensure that our liquidity and
funding profile is managed to
deliver a sustainable supply of
funding for the Group’s activities
and that this profile exceeds Board
and regulatory requirements.
(Risk & Capital).
+ Read more: pages 145 to 153
The risk that the Group will incur losses
as a result of a customer or counterparty
being unable or unwilling to repay a
credit exposure or commitment that it has
entered into.
Example
Changes in the economic environment
(for example Brexit uncertainty) could
impact profitability due to higher-than
-expected credit losses.
Key mitigating
considerations and controls
•
Board approved and monitored
risk appetite limits covering the key
dimensions of credit risk
•
•
•
•
The Group Credit Risk Framework
and Group Credit Risk Policy are
overarching Board-approved
documents which set out, at a high
level, the principles of how the Group
identifies, assesses, approves, monitors
and reports credit risk to ensure robust
credit risk management is in place
The Group implements and operates
policies to govern the identification,
assessment, approval, monitoring and
reporting of credit risk
Second line assurance to monitor
compliance with policies and limits
A specialised recovery function
focuses on managing the majority
of criticised loans and deals with
customers in default, collection or
insolvency.
Alignment to strategic
priorities and pillars
• We build long-term lending
relationships with customers that
are resilient through the cycle.
(Customer First)
• Our core market is in Ireland.
(Simple & Efficient)
• We provide credit to high-quality
renewable energy and energy-
efficiency projects. (Sustainable
Communities).
+ Read more: pages 79 to 144
123456AIB Group plc Annual Financial Report 2019Annual Review
42
Risk Summary
Model Risk
Operational Risk
The Group may incur a loss as a
consequence of decisions principally
based on the output of models
due to errors in the development,
implementation or use of such models.
Example
The consequences of inadequate
models include: inappropriate levels of
capital or impairments; inappropriate
credit or pricing decisions; and adverse
impacts on funding, liquidity and profits.
Key mitigating
considerations and controls
•
Board approved and monitored
risk appetite limits covering key
dimensions of model risk
•
•
A Group Model Risk Framework
and supporting policies, including
model validation
Senior Executive committees
monitor and maintain oversight of
the performance of the Group’s
models.
Alignment to strategic
priorities and pillars
• Models should be logical and
efficient with clearly understood
and interpreted aims. (Simple &
Efficient)
• We only use appropriately
designed, deployed and
maintained models for
decision-making. (Risk & Capital)
• We develop and maintain highly
competent and skilled teams,
supported by appropriate data
governance structures and
frameworks. (Talent & Culture).
+ Read more: page 169 to 170
The risk arising from inadequate or failed
internal processes, people and systems, or
from external events; including the potential
for loss arising from the uncertainty of legal
proceedings and potential legal proceedings.
Example
The dynamic threat posed by cyber risk to the
confidentiality and integrity of electronic data
or the availability of systems. The Group has
a low risk appetite for loss of confidentiality,
integrity or availability of our information assets
as a result of cyber events.
Key mitigating
considerations and controls
•
Board approved and monitored risk
appetite limits covering key dimensions
of operational risk
• Operational Risk Framework and suite
of policies, setting out principles, roles
and responsibilities and governance
arrangements for the management of
operational risk across the Group
•
•
The Group continues to invest
significantly in technology, including
cyber deterrents and defences with
controls to predict, prevent, detect and
respond to cyber risk
The Group operates a risk and control
assessment of our processes and people
to deliver objectives and keep customers
safe.
Alignment to strategic
priorities and pillars
• We design and manage controls,
processes and systems according
to our risk frameworks and policies.
(Risk & Capital)
• We ensure the management of critical
IT delivers exemplary levels of customer
access to our services as and when they
need it. (Customer First)
• We ensure that we have the right
talent, skills and capabilities within the
organisation to support accountable,
collaborative and trusted ways of
working. (Talent & Culture)
• We ensure that “Green” products are
appropriately designed. (Sustainable
Communities).
+ Read more: pages 163 to 164
AIB Group plc Annual Financial Report 2019Annual Review
Risk Summary
43
People and Culture Risk
Regulatory Compliance Risk
The risk to achieving the Group’s
strategic objectives as a result of an
inability to recruit, retain or develop
people, or as a result of behaviours
associated with low levels of
employee engagement.
Example
Inability to attract or retain staff
with key skills could impact the
achievement of business objectives.
Key mitigating
considerations and controls.
•
Board approved and monitored
risk appetite limits covering
key dimensions of people and
culture risk
•
•
•
Revised career model to
empower our people to drive
their career journeys and
champion AIB’s purpose
Focused action to attract,
retain and develop high-calibre
people
Senior leader development
programmes are in place.
Alignment to strategic
priorities and pillars
• We retain and recruit talented
staff to support our future
strategic plans. (Talent & Culture)
• Our values and Code of
Conduct contain clear
statements of the behaviours
we expect from everyone in AIB
and we place great emphasis
on the integrity of staff and
accountability for both in-action
and actions taken. (Customer
First).
+ Read more: page 167 to 168
The risk of legal or regulatory sanctions
or failure to protect market integrity
could result in material financial loss or
reputational damage. Failure to comply
with laws, regulations, or rules, for
example Anti-Money Laundering,
Countering Terrorist Financing and
modern slavery, as well as self regulatory
standards and codes of conduct, could
result in regulatory sanction.
Example
Failure to deliver key regulatory changes
or to comply with ongoing requirements
could result in a regulatory sanction or
fine.
Key mitigating
considerations and controls
•
Board approved and monitored
risk appetite limits covering
key dimensions of regulatory
compliance risk
•
•
•
Training is provided to staff on the
Group’s frameworks and policies
for regulatory compliance and
reporting
Business policies, procedures,
systems and training in place
to help ensure compliance with
relevant regulatory requirements
Identification, assessment and
monitoring of new or changing
laws and regulations, including
collaboration with industry bodies.
Alignment to strategic
priorities and pillars
• We have no appetite for deliberate
or systemic breaches of internal
policies, standards and compliance
obligations or the untimely
reporting and resolution of such
incidents. (Customer First, Risk &
Capital)
• We do not have relationships with,
or knowingly process transactions
involving, companies or individuals
operating from/residing in an
Extreme High Risk Country.
(Risk & Capital).
+ Read more: page 165 to 166
123456AIB Group plc Annual Financial Report 2019Annual Review
44
Board of Directors
OUR BOARD
OF DIRECTORS
RICHARD
PYM
BRENDAN
MCDONAGH
TOM
FOLEY
BASIL
GEOGHEGAN
SANDY KINNEY
PRITCHARD
CAROLAN
LENNON
Independent Non-Executive
Director and Deputy Chair
Senior Independent Non-
Executive Director
Independent
Non-Executive Director
Independent
Non-Executive Director
Independent
Non-Executive Director
Non-Executive Chairman
Independent on
appointment
NATIONALITY
British
Irish
Irish
Irish
Irish
Irish
DATE OF APPOINTMENT
13 October 2014:
Chairman designate
1 December 2014: Chairman
27 October 2016
13 September 2012
4 September 2019
22 March 2019
27 October 2016
24 October 2019:
Deputy Chair
12 October 2019:
Senior Independent Director
COMMITTEE MEMBERSHIP (as at 31 December 2019)
• Remuneration
• Nomination & Corporate
Governance (Chair).
EXPERTISE
• Board Risk (Chair)
• Board Audit
• Remuneration
• Nomination & Corporate
Governance.
Richard is a Chartered
Accountant with extensive
experience in financial
services. He is a former
Chairman of UK Asset
Resolution Limited, Nordax
Bank AB (publ), The
Co-operative Bank plc,
Brighthouse Group plc and
Halfords Group plc. He is
a former Non-Executive
Director of The British Land
Company plc, Old Mutual
plc and Selfridges plc.
Richard was appointed as
Chairman in 2014. In 2019,
Richard announced his
intention to step down as
Chairman of AIB Group in
March 2020.
Brendan started his
banking career with HSBC
in 1979, working across
Asia, Europe and North
America, where he held
various roles such as
Group Managing Director
for HSBC Holdings Inc,
membership of the HSBC
Group Management
Board and CEO of
HSBC North America
Holdings Inc. Brendan
is a former Director of
Ireland’s National Treasury
Management Agency.
He was previously the
Executive Chairman of
Bank of N.T. Butterfield &
Son Limited.
KEY EXTERNAL APPOINTMENTS
None
Non-Executive Director and
Chair of Audit Committee of
UK Asset Resolution Limited
Chair of the Trinity Business
School Advisory Board
Serves on the Board of
The Ireland Funds, Ireland
Chapter
Chairman, PEAL Investment
Partners Limited
• Board Audit
• Nomination & Corporate
Governance.
• Board Risk
• Board Audit.
• Board Audit (Chair)
• Board Risk.
• Board Risk
• Sustainable Business
Advisory.
Tom qualified as a
Chartered Accountant with
PricewaterhouseCoopers.
He is a former Executive
Director of KBC Bank
Ireland and held a variety
of senior management
and board positions with
KBC. During the financial
crisis, Tom was a member
of the Nyberg Commission
of Investigation into the
Banking Sector and the
Department of Finance
Expert Group on Mortgage
Arrears and Personal Debt.
Basil is a partner in
PJT Partners, London.
Previously Basil was a
Managing Director at
Goldman Sachs, Deutsche
Bank and Citigroup in
London and New York. He
has broad M&A, corporate
finance and strategic
advisory experience in
the US, UK, Ireland and
internationally. He qualified
as a solicitor with Slaughter
and May. Basil is Chairman
of daa plc and Patron of
the Ireland Fund of Great
Britain. He holds an LLB
from Trinity College, Dublin
and an LLM from European
University Institute.
Sandy is a University
College Dublin graduate,
with a distinguished
career across the financial
services industry. She is an
accountant who previously
was a senior partner at
PricewaterhouseCoopers
LLP and has held a
number of Non-Executive
Directorship roles,
including at Irish Life &
Permanent Plc, Skipton
Building Society, the FSCS,
TSB Bank Plc and MBNA
Ltd.
Prior to her current role of
CEO of Eir, Carolan held a
variety of executive roles
in Eir Limited, including
Managing Director of
Open Eir, Acting Managing
Director Consumer and
Chief Commercial Officer.
Prior to joining Eir, she held
a number of senior roles in
Vodafone Ireland, including
Consumer Director and
Marketing Director. Carolan
is a former Non-Executive
Director of the Dublin
Institute of Technology
Foundation and the Irish
Management Institute.
Non-Executive Director,
Intesa Sanpaolo Life d.a.c.
Non-Executive Director,
GCM Grosvenor Alternative
Funds Master ICAV GCM
and Grosvenor Alternative
Funds ICAV
Chairman, daa plc
Partner, PJT Partners
Patron of IFGB (Ireland Fund
of Great Britain)
Non-Executive Director and
Chair of Audit Committee of
Credit Suisse (UK) LTD
Non-Executive Chair of the
Board of London & Country
Mortgages Ltd
Chief Executive Officer of Eir
Sits on the Council of
Patrons for Special Olympics
Ireland
AIB Group plc Annual Financial Report 2019Annual Review
Board of Directors
45
ELAINE
MACLEAN
HELEN
NORMOYLE
ANN
O’BRIEN
RAJ
SINGH
COLIN
HUNT
Independent
Non-Executive Director
Independent
Non-Executive Director
NATIONALITY
Chief Executive Officer
Independent Non-Executive
Director
Nominee of the Minister
for Finance under the
Relationship Framework in
respect of the relationship
between the Minister and
AIB Group
Independent Non-Executive
Director
Nominee of the Minister
for Finance under the
Relationship Framework in
respect of the relationship
between the Minister and
AIB Group
TOMÁS
O’MIDHEACH
Chief Operating
Officer and
Deputy Chief Executive
Officer
British
Irish
Irish
American
Irish
Irish
DATE OF APPOINTMENT
4 September 2019
17 December 2015
25 April 2019
25 April 2019
8 March 2019
13 March 2019
COMMITTEE MEMBERSHIP (as at 31 December 2019)
• Remuneration (Chair)
• Nomination & Corporate
Governance.
• Sustainable Business
Advisory (Chair).
• Remuneration
• Sustainable Business
Advisory.
• Board Risk
• Sustainable Business
Advisory.
None
None
EXPERTISE
Elaine is a highly
experienced human
resources director
whose career began in
retail, working in human
resources roles at Harrods
and Windsmoor before
joining the Arcadia Group
as Retail Operations
Director and HR Director.
Since then, Elaine has
enjoyed a very successful
senior HR leadership
career culminating in her
appointment as Group
Human Resources Director
for Legal and General plc
in 2006. Elaine holds an
MA in English Literature
and Psychology from the
University of Glasgow.
Helen is currently
Marketing Director of
Boots UK and Ireland. She
is also Chair and Director of
the Boots Charitable Trust.
Helen started her career
working for Infratest+GfK,
based in Germany. Helen
moved to Motorola, as
Director of Marketing and
then Director of Global
Consumer Insights and
Product Marketing and
thereafter to Ofcom
as Director of Market
Research. Helen also
held the roles of Chief
Marketing Officer at
Countrywide, Chief
Marketing Officer at DFS
and Director of Marketing
and Audiences at the BBC.
KEY EXTERNAL APPOINTMENTS
Ann has over 30 years’
experience in the financial
services industry. A
graduate of both University
College Dublin and Trinity
College Dublin, for the
past 30 years, Ann has led
complex management
consulting engagements
at many of the world’s
largest global banking and
securities organisations.
Her most recent role was
as a Principal with Deloitte
in New York where she was
based for 10 years.
Raj has 34 years’ business,
risk and governance
experience gained in
large complex financial
services organisations.
Raj previously served as a
non-executive director of
a national credit bureau
and two publicly traded
financial institutions in
addition to serving on
the Boards of many
of the major banking,
insurance, reinsurance
and asset management
subsidiaries of the firms
where he has worked.
He is currently the Chief
Risk Officer and Executive
Committee member of
EFG International, a Swiss
private banking group.
In March 2019, Colin
was appointed Chief
Executive Officer. He
joined AIB in August 2016
as Managing Director,
Wholesale, Institutional
& Corporate Banking.
Prior to joining AIB, he
was Managing Director
at Macquarie Capital in
Ireland. Previously, he
was a Policy Adviser at the
Departments of Transport
and Finance, Research
Director at Goodbody
Stockbrokers, Head of
Trading Research at Bank
of Ireland Group Treasury
and a country risk analyst
at NatWest. He has a Phd
in Economics from Trinity
College Dublin.
Tomás has 25 years’
experience in the
financial services industry.
He spent 11 years with
Citibank in the UK, Spain
& Dublin where he held
several senior positions
in Finance. He joined AIB
in June 2006 to lead a
finance operating model
transformation project
and has since held
a number of senior
executive positions
including Head of Direct
Channels & Analytics
and Chief Digital Officer.
In 2019 Tomás was
appointed Deputy
Chief Executive Officer
and Executive Director.
None
Marketing Director, Boots
UK and Ireland
None
Chief Risk Officer of EFG
International
Serves on the Board
None
of The Ireland Funds,
Ireland Chapter
123456AIB Group plc Annual Financial Report 2019Annual Review
46
Executive Committee
EXECUTIVE
COMMITTEE
GERALDINE
CASEY
Chief People Officer
HELEN
DOOLEY
Group General
Counsel
DONAL
GALVIN
Chief Financial
Officer
DEIRDRE
HANNIGAN
Chief Risk Officer
ROBERT
MULHALL
Managing Director
Designate of AIB Group
(UK) plc
CATHY
BRYCE
Managing
Director of Corporate,
Institutional & Business
Banking (CIB)
EXPERTISE
Cathy joined AIB from
Geraldine joined AIB in
Helen has over 25 years’
Donal joined AIB as Group
Deirdre joined AIB from
Robert was announced
her most recent role at
January 2020 from her
experience in legal
Treasurer in September
the National Treasury
as Managing Director
the National Treasury
most recent role as director
financial services, having
2013 and was appointed
Management Agency
Designate for AIB Group
Management Agency
of People, Communications
worked in private practice
Chief Financial Officer in
where she was Chief Risk
(UK) subject to regulatory
where she held the
position of Director,
and IT at Tesco Ireland.
in the City of London, Hong
March 2019. Donal has
Officer and chaired the
approval in November
She was also a member
Kong and Dublin, before
worked in domestic and
Executive Risk Committee.
2019, prior to which he
NewERA and NDFA. As
of the Executive Board
taking up an in-house role
international financial
She has held a number
was the bank’s Managing
well as her time in AIB
of Tesco for the past 5
as Head of Legal in EBS
markets over the last 20
of senior international
Director of Consumer
previously, where she
years and has a wealth of
Building Society in 2005.
years. He was Managing
risk management roles
Banking. Robert’s career in
gained over 20 years’
experience working closely
EBS became part of the
Director in Mizuho
with GE Capital and
AIB has spanned almost 25
experience in a range
with internal and external
AIB Group in 2011 and
Securities Asia, the
progressively senior roles
years, covering a variety of
of capital markets and
stakeholders. Geraldine has
Helen was subsequently
investment banking arm
in Bank of Ireland, primarily
roles up to senior executive
commercial banking
led large teams through
appointed as AIB Group
of Japanese bank Mizuho,
in Strategy and Risk
management level.
roles, Cathy has worked
Culture, Process and
General Counsel in 2012.
where he was responsible
Management. Previous to
Outside of AIB, he held
in investment banking
Organisational change.
Over the last 15 years,
for Asian Global Markets.
that, she worked in Retail
the position of Managing
in London with Morgan
She is an accomplished
in addition to her legal
Before that, he was
and Corporate Banking
Director, Distribution &
Stanley and ABN AMRO in
business leader, having run
role, Helen has also held
Managing Director
with AIB and Rabobank.
Marketing Consulting,
Dublin. She is a business
Tesco’s retail operations
the Company Secretary
in Dutch Rabobank,
In 2010, she was admitted
and Financial Services
graduate of Trinity College
at national level before
position and managed
managing its London and
as a Chartered Director to
with Accenture in North
Dublin and holds an MBA
taking up her current role.
the regulatory compliance
Asian Global Financial
the Institute of Directors in
America from 2013 to 2015.
from INSEAD.
Geraldine is a business
and HR functions. Helen
Markets business and
London.
graduate from UCC.
is currently responsible
Treasurer of Rabobank
for the Legal & Corporate
International.
Governance function.
AIB Group plc Annual Financial Report 2019Annual Review
Executive Committee
47
BRENDAN
O’CONNOR
JIM
O’KEEFFE
MARY
WHITELAW
Managing Director of AIB
Group (UK) plc
Managing Director
of Retail Banking
Director of Corporate Affairs
& Strategy
EXPERTISE
Brendan joined AIB in 1984
Jim has worked across
Mary joined AIB in 2007
and has held a number of
many aspects of Retail
and her experience
senior roles throughout
Banking including
has spanned the retail,
the organisation, both
leadership roles in IT, Direct
corporate and treasury
in New York and Dublin,
Channels, Mortgages
businesses. She has
including Head of AIB
and BZWBK (now
held a number of senior
Global Treasury Services,
Santander) in Poland. He
leadership roles across the
Head of Corporate Banking
was appointed Head of
bank including Chief of
International and Head
Financial Solutions Group
Staff, Head of Strategy &
of AIB Business Banking.
in 2015 with responsibility
Business Performance for
He joined the Leadership
for developing a strategy
Corporate and Institutional
Team as Head of Financial
to support customers in
Banking and Head of
Solutions Group before
financial difficulty, which
Corporate Treasury Sales.
moving to his current role
resulted in a significant
Prior to joining AIB, Mary
as Managing Director
reduction in NPEs. He
trained as a Chartered
of AIB Group (UK) plc in
was Chief Customer &
Accountant and Chartered
November 2015. He will
Strategic Affairs Officer
Tax Adviser with PwC. She
step down from this role in
from November 2018 to
is a graduate of University
September 2020.
November 2019, when he
College Dublin.
was appointed Managing
Director of Retail Banking.
Colin Hunt (CEO) and Tomas O’Midheach (COO)
are also on the Executive Committee.
Their biographies can be found on page 45.
123456AIB Group plc Annual Financial Report 2019Annual Review
48
Our Non-Financial Statement
OUR
NON-FINANCIAL
STATEMENT
Our non-financial statement is intended to comply with the European
Union (Disclosure of Non-Financial and Diversity Information by certain
large undertakings and groups) Regulations 2017.
The tables below offer a guide to the relevant information on key non-financial matters, including
sections of both this report and our Detailed Sustainability Report 2019. Our Detailed Sustainability
Report 2019 is published in accordance with the Global Reporting Initiative (GRI) Standards.
ENVIRONMENTAL
MATTERS
POLICIES
Environmental policy
Energy policy
SOCIAL AND
EMPLOYEE MATTERS
POLICIES
Code of Conduct
Diversity & Inclusion code, Board Diversity policy, policies
on leave and flexible working and volunteering policy1
Selection policy1
Grievance policy1
Speak Up policy
Disciplinary policy1
INFORMATION ABOUT OUR ACTIVITIES,
POLICY OUTCOMES AND APPROACH
TO RISK MANAGEMENT
2019 Highlights, pages 20 to 21
INFORMATION ABOUT OUR ACTIVITIES,
POLICY OUTCOMES AND APPROACH
TO RISK MANAGEMENT
Our Strategy 2019 Outcomes ‘Talent & Culture’ page 29
Engaging with our Stakeholders, pages 36 to 37
Engaging with our Stakeholders, pages 36 to 37
Focus on Sustainability, page 30
How we Manage Risk, pages 38 to 43
See also our Detailed Sustainability Report 2019:
• Responding, ‘Climate Action’
• Risk.
Focus on Sustainability, page 30
Report of the Board Audit Committee, page 194
How we Manage Risk, pages 38 to 43
See also our Detailed Sustainability Report 2019:
• Responding, ‘Culture’
• Risk.
1. These policies are not published externally.
AIB Group plc Annual Financial Report 2019Annual Review Our Non-Financial Statement
49
RESPECT FOR
HUMAN RIGHTS
POLICIES
Code of Conduct
Data Protection policy1
Third Party Management Risk policy1
INFORMATION ABOUT OUR ACTIVITIES,
POLICY OUTCOMES AND APPROACH
TO RISK MANAGEMENT
Focus on Sustainability, page 30
Engaging with our Stakeholders, pages 36 to 37
Data Protection Notice: https://aib.ie/dataprotection
AIB Group plc Modern Slavery Statement 2019: https://
group.aib.ie/content/dam/aib/group/Docs/modern-slavery-
statement.pdf
How we Manage Risk, pages 38 to 43
See also our Detailed Sustainability Report 2019:
• Responding, ‘Culture’
• Risk.
BRIBERY AND
CORRUPTION
POLICIES
Code of Conduct
Anti-Bribery & Corruption policy
Conflicts of Interests policy
Anti-Money Laundering & Countering the Financing
of Terrorism policy1
INFORMATION ABOUT OUR ACTIVITIES,
POLICY OUTCOMES AND APPROACH
TO RISK MANAGEMENT
Engaging with our Stakeholders, pages 36 to 37
General Statement on Anti-Money Laundering and
Counter Terrorism Financing: https://group.aib.ie/legal
How we Manage Risk, pages 38 to 43
See also our Detailed Sustainability Report 2019:
• Responding, ‘Culture’
• Risk.
DESCRIPTION OF OUR
BUSINESS MODEL
KEY INFORMATION
See inside front cover
PRINCIPAL RISKS RELATING TO:
Environmental matters
Social and employee matters
SEE INDIVIDUAL RISKS:
Credit risk, page 79 - 144, Operational risk page 163 - 164
People and culture risk, page 167 - 168
Respect for human rights
People and culture risk, page 167 - 168, Operational risk page 163 - 164,
Regulatory compliance risk, page 165 - 166
Bribery and corruption
Regulatory compliance risk, page 165 - 166, Conduct risk, page 166 - 167
See also our Detailed Sustainability Report 2019:
• Risk.
POLICY DUE DILIGENCE
Risk Management Framework, pages 72 - 78
Environmental matters
Strategic Targets ‘Reduction in Emissions’ measure,
page 29
Social and employee matters
Strategic Targets ‘Diversity’ and ‘Engagement’ measures,
page 29
Respect for human rights
Bribery and corruption
Mandatory requirement for annual completion of Code
of Conduct training: see our 2019 Detailed Sustainability
Report: Responding ‘Culture’, Code of Conduct
Mandatory requirement for annual completion of Code
of Conduct training: see our Detailed Sustainability Report
2019: Responding, ‘Culture’, Code of Conduct
For a copy of our Detailed Sustainability Report 2019 and
more information, including policies we publish externally,
see: aib.ie/sustainability
We pledge to
DO MORE.
Detailed Sustainability Report
for the financial year ended
31 December 2019
AIB Group plc
NON-FINANCIAL KEY
PERFORMANCE INDICATORS
1. These policies are not published externally.
123456AIB Group plc Annual Financial Report 2019Annual Review 50
OUR PURPOSE IS TO
BACK OUR CUSTOMERS
TO ACHIEVE THEIR DREAMS
AND AMBITIONS
2.8m
CUSTOMERS
325
LOCATIONS ACROSS
IRELAND AND THE UK
9,520
EMPLOYEES
3,800
SUPPLIERS
1.5m
ACTIVE DIGITAL
CUSTOMERS
1.3m
ACTIVE MOBILE
CUSTOMERS
1.9m
DAILY
INTERACTIONS
€12.3bn
NEW LENDING
€1.2bn
GREEN LENDING
#1
IN IRELAND FOR
PERSONAL
LOANS1
PERSONAL MAIN
CURRENT ACCOUNT
€1.6bn
SME LENDING2
14,462
MORTGAGE
DRAWDOWNS
NEW
MORTGAGE
LENDING
PERSONAL
CREDIT CARDS
RELATIONSHIP –
SME
OUR
FOOTPRINT
TONNES
OF CO2
PER EMPLOYEE
3.6
ELECTRICITY
14,316
TONNES
OF CO2
WASTE
OF CO282
TONNES
20% REDUCTION DELIVERED
SINCE 2014
Scope 1 and 2 emissions
Information as at December 2019. Sources: Company information and independent market research.
1. No. 1 among banks, personal lending excl. car finance.
2. SME lending in ROI.
AIB Group plc Annual Financial Report 2019Annual Review Business review
1. Operating and financial review
2. Capital
51
Page
52
67
AIB Group plc Annual Financial Report 2019Business Review 123456 52
Basis of presentation
The operating and financial review is prepared using IFRS and non-IFRS measures to analyse the Group’s performance, providing
comparability year on year. These performance measures are consistent with those presented to the Board and Executive Committee.
Non-IFRS measures include management performance measures which are considered Alternative Performance Measures (“APMs”).
APMs arise where the basis of calculation is derived from non-IFRS measures. A description of the Group’s APMs and their calculation
is set out on page 65. These measures should be considered in conjunction with IFRS measures as set out in the consolidated financial
statements from page 237. A reconciliation between the IFRS and management performance summary income statements is set out on
page 66.
Figures presented in the operating and financial review may be subject to rounding and thereby differ to the risk management section
and the consolidated financial statements.
In 2019, the Group implemented the requirements of IFRS 16 Leases for the first time. As a result, operating lease rental costs
(2018: € 63 million) in General and administrative expenses have been replaced by depreciation charges on right-of-use assets
(2019: € 58 million) reported in Depreciation, impairment and amortisation and interest expense on lease liabilities (2019: € 14 million)
reported in Net interest income. For further information on basis of presentation see note 1 (n) ‘Accounting policies: Leases’ and note 3
‘Transition to IFRS 16’ in the consolidated financial statements.
Basis of calculation
Percentages are calculated on exact numbers and therefore may differ from the percentages based on rounded numbers. The impact
of currency movements is calculated by comparing the results for the current reporting period to results for the comparative reporting
period retranslated at exchange rates for the current reporting period.
Management performance – summary income statement
Net interest income
Business income
Other items
Other income(1)
Total operating income(1)
Personnel expenses(1)
General and administrative expenses(1)(2)
Depreciation, impairment and amortisation(1)
Total operating expenses(1)
Bank levies and regulatory fees(1)(2)
Operating profit before impairment losses and exceptional items(1)
Net credit impairment (charge)/ writeback
Operating profit before exceptional items(1)
Associated undertakings
Profit on disposal of property(1)
Profit before exceptional items(1)
Property strategy
Restitution costs
Provision for regulatory fines
Termination benefits
(Loss)/ gain on disposal of loan portfolios
Restructuring costs
Gain on transfer of financial instruments
IFRS 9 costs
Loss on disposal of business activities
Total exceptional items(1)
Profit before taxation
Income tax charge
Profit for the year
2019
€ m
2,076
491
128
619
2,695
(774)
(501)
(229)
2018
€ m
2,100
501
125
626
2,726
(730)
(563)
(138)
(1,504)
(1,431)
(104)
1,087
(16)
1,071
20
–
1,091
8
(416)
(78)
(48)
(40)
(18)
–
–
–
(592)
499
(135)
364
(99)
1,196
204
1,400
12
2
1,414
(81)
(120)
–
(21)
147
(20)
1
(51)
(22)
(167)
1,247
(155)
1,092
%
change
-1
-2
2
-1
-1
6
-11
65
5
5
-9
–
-23
67
-100
-23
–
–
–
–
–
–
–
–
–
–
-60
-13
-67
(1) Performance has been adjusted to exclude items viewed as exceptional by management and which management view as distorting comparability of
performance year on year. The adjusted performance measure is considered an APM.
(2) Other regulatory levies and charges are now presented as bank levies and regulatory fees (€ 17 million in 2018 previously included in operating expenses
has been re-presented as bank levies and regulatory fees).
Business review – 1. Operating and financial reviewAIB Group plc Annual Financial Report 2019Business Review 53
Net interest income
Net interest income
Net interest margin
€2,076m 2.37%
Net interest income
Interest income(1)
Interest expense(1)
Net interest income
2019
€ m
2,334
(258)
2,076
2,330
(230)
2,100
Average interest earning assets
87,479
84,846
2018
%
€ m change
Interest expense
Interest expense of € 258 million in 2019 increased by
–
12
-1
3
€ 28 million compared to 2018. The lower cost of customer
accounts was offset by an increase in cost of MREL-related
issuances and interest expense on lease liabilities under
IFRS 16. Interest expense on deposits by banks in 2018 included
€ 16 million income received on TLTRO funding.
Net interest margin (NIM)
Net interest income
€2,076m
stable compared to 2018.
%
2.37
% Change
2.47
-0.10
Net interest margin
2.37%
2.47% in 2018 due to higher average interest earning assets
2.37% in 2019 compared to
NIM decreased 10 bps to
Net interest income of
€ 2,076 million was broadly
driven by excess liquidity, and the higher cost of funding including
MREL-related costs.
Interest income
Interest income of € 2,334 million in 2019 was in line with
2018. An increase in interest income on loans and advances to
customers, driven by higher average customer loan volumes and
yields reflecting the positive impact of new lending, was offset
by lower income on investment securities due to maturities and
disposals of higher yielding securities and reinvestment at lower
yields.
Average interest earning assets of € 87.5 billion in 2019
increased by € 2.6 billion from 2018 primarily due to higher
volumes of investment securities and funds placed with banks.
This was driven by excess liquidity mainly due to higher customer
account balances and proceeds from MREL-related issuances
partly offset by a reduction in deposits by banks.
Average balance sheet
Assets
Loans and advances to customers
Investment securities
Loans and advances to banks
Average interest earning assets
Non-interest earning assets
Total average assets
Liabilities & equity
Deposits by banks
Customer accounts
Other debt issued
Subordinated liabilities
Lease liability
Trading portfolio financial liabilities less assets
Average interest earning liabilities
Non-interest earning liabilities
Equity
Total average liabilities & equity
Year ended
31 December 2019
Year ended
31 December 2018
Average
balance
€ m
61,405
16,755
9,319
87,479
8,108
95,587
957
38,765
6,488
856
446
–
47,512
33,881
14,194
95,587
Average
rate
%
3.45
1.17
0.24
2.67
1.15
0.28
1.41
3.82
3.06
–
0.54
Interest(1)
€ m
2,117
195
22
2,334
2,334
11
109
91
33
14
–
258
258
Average
rate
%
3.42
1.47
0.26
2.75
0.06
0.41
0.87
3.98
–
–
0.51
Average
balance
€ m
60,879
15,313
8,654
84,846
7,176
92,022
2,771
36,670
5,220
794
–
3
45,458
32,986
13,578
92,022
Interest(1)
€ m
2,082
226
22
2,330
2,330
2
151
45
32
–
–
230
230
Net interest income
2,076
2.37
2,100
2.47
(1) Negative interest income on assets amounting to € 16 million in 2019 (2018: € 11 million) is offset against interest income. Negative interest expense on
liabilities amounting to € 20 million in 2019 (2018: € 25 million) is offset against interest expense.
AIB Group plc Annual Financial Report 2019Business Review 123456 54
Other income
Other income(1)
€619m
Other income(1)
Net fee and commission income
Dividend income
Net trading (loss)/ income
2018 % change
Business
income
€ m
Other
items
€ m
472
26
(8)
–
–
1
–
–
(49)
74
62
41
2019
Total
€ m
472
26
(57)
74
62
42
Business
income
€ m
Other
items
€ m
457
26
17
–
–
1
–
–
(13)
41
84
13
Total
€ m
457
26
4
41
84
14
491
128
619
501
125
626
Total
3
-1
–
81
-26
203
-1
Net gain on equity investments (FVTPL)
Net gain on loans and advances to customers (FVTPL)
Other operating income
Other income
Other income(1)
€619m
2018 with decreased business income of € 10 million partly offset
was broadly stable compared to
Other income of € 619 million
by increased other items of € 3 million.
Other items
€128m
€ 125 million in 2018.
Other items were € 128 million
in 2019 compared to
A net gain on equity investments (FVTPL) of € 74 million in 2019
(2018: € 41 million), offset by a net loss of € 49 million on a partial
Business income
€491m
to € 501 million in 2018.
Business income was
hedge of the equity investments (2018: net loss of € 14 million),
€ 491 million in 2019 compared
resulted in net income from equity investments of € 25 million in
2019, compared to € 27 million in 2018.
Net gain on loans and advances to customers (FVTPL) of
€ 62 million in 2019 (2018: € 84 million) represents income
recognised on previously restructured loans carried at fair value
through profit and loss.
Other operating income of € 41 million in 2019
(2018: € 13 million) includes a gain on disposal of investment
securities of € 45 million (2018: € 15 million).
IFRS basis
On an IFRS basis other income, including a net loss of
€ 40 million on exceptional items(1), was € 579 million in 2019
compared to € 774 million in 2018.
2018
%
€ m change
Net fee and commission income
Customer accounts
Card income
Lending related fees
Customer related foreign exchange
Other fees and commissions
2019
€ m
214
84
50
71
53
211
85
45
71
45
Net fee and commission income
472
457
1
-1
10
–
18
3
Net fee and commission income of € 472 million in 2019
increased by € 15 million compared to 2018, primarily driven by
increased lending related fees and other fees and commissions.
Dividend income was € 26 million in 2019 including € 23 million
received on NAMA subordinated bonds.
Net trading loss of € 8 million in 2019 compared to net trading
income of € 17 million in 2018 mainly due to a reduction in
income on non-customer foreign exchange contracts and credit
derivative contracts.
(1) Other income before exceptional items. A net loss of € 40 million on exceptional items in 2019 (2018: € 148 million gain) comprises: Net trading income
of Nil (2018: € 1 million), Net gain on loans and advances to customers (FVTPL) € 4 million (2018: € 21 million) and Other operating income (loss on
disposal of loan portfolios) € 44 million (2018: gain on disposal of loan portfolios € 126 million).
Business review – 1. Operating and financial reviewAIB Group plc Annual Financial Report 2019Business Review 55
Total operating expenses(1)
Cost income ratio(1)
€1,504m 56%
Cost income ratio(1)
56%
resulted in a cost income ratio of 56% in 2019 compared to 53%
income of € 2,695 million
Costs of € 1,504 million and
in 2018.
Bank levies and regulatory fees
€104m
Bank levies and regulatory fees
Irish bank levy
Deposit Guarantee Scheme
Single Resolution Fund/ BRRD(5)
Other regulatory levies and charges(3)
Bank levies and regulatory fees
2019
€ m
2018
€ m
35
33
16
20
104
49
16
18
16
99
The Irish bank levy of € 35 million in 2019 decreased by
€ 14 million compared to 2018 due to a revision of the basis on
which the levy is calculated. The Deposit Guarantee Scheme in
2018 included the benefit of writebacks of € 13 million in relation
to the legacy scheme.
IFRS basis
On an IFRS basis total costs, including bank levies and
regulatory fees of € 104 million and the cost of exceptional
items(2) of € 573 million, were € 2,181 million in 2019 compared to
€ 1,823 million in 2018. This results in a cost income ratio (IFRS
basis) of 82% in 2019, compared to 63% in 2018.
Operating expenses(1)(2)
Personnel expenses
General and administrative expenses(3)
Depreciation, impairment and
amortisation
Total operating expenses
Staff numbers at period end(4)
Average staff numbers(4)
Total operating expenses(1)
2019
€ m
774
501
2018
%
€ m change
730
563
229
138
1,504
1,431
9,520
9,831
9,855
9,801
6
-11
65
5
-3
1
€1,504m
€ 73 million compared to 2018, driven by increased depreciation,
€ 1,504 million increased by
Total operating expenses of
impairment and amortisation of € 91 million and higher personnel
expenses of € 44 million partly offset by lower general and
administrative expenses of € 62 million.
Personnel expenses
Personnel expenses increased by € 44 million compared to 2018
primarily due to the impact of salary inflation.
General and administrative expenses
General and administrative expenses decreased by
€ 62 million compared to 2018 as operating lease rental costs
(2018: € 63 million) are no longer reported in general and
administrative expenses.
Depreciation, impairment and amortisation
Depreciation, impairment and amortisation increased by
€ 91 million compared to 2018 due to the depreciation of
right-of-use assets of € 58 million now reported in depreciation,
impairment and amortisation, and an increase in depreciation
as assets created under investment programmes were
commissioned to operational use.
(1)Before bank levies and regulatory fees and exceptional items.
(2) The cost of exceptional items of € 573 million in 2019 (2018: € 293 million) comprises: Personnel expenses € 56 million (2018: € 34 million), General and
administrative expenses € 500 million (2018: € 235 million) and Depreciation, impairment and amortisation € 17 million (2018: € 24 million).
(3) Other regulatory levies and charges are now presented as bank levies and regulatory fees (€ 17 million in 2018 previously included in operating expenses
has been represented as bank levies and regulatory fees).
(4) Staff numbers are on a full time equivalent (“FTE”) basis. Staff numbers at 31 December 2019 include 91 FTEs following the recent acquisition of Payzone.
(5)Bank Recovery and Resolution Directive (“BRRD”).
AIB Group plc Annual Financial Report 2019Business Review 123456 56
Net credit impairment (charge)/ writeback
Total exceptional items
(€16m)
There was a net credit impairment charge of € 16 million in 2019
€592m
comprising of a € 27 million charge on loans and advances
to customers (net re-measurement of ECL allowance charge
of € 117 million, offset by recoveries of amounts previously
written-off of € 90 million) and a € 11 million writeback on
off-balance sheet exposures. There was a net credit impairment
Total exceptional items
Property strategy
Restitution costs
Provision for regulatory fines
writeback of € 204 million in 2018. This included recoveries of
Termination benefits
amounts previously written-off of € 120 million and writeback on
(Loss)/ gain on disposal of loan portfolios
loans and advances to customers of € 89 million.
Restructuring costs
See page 287 of the consolidated financial statements for more
IFRS 9 costs
Gain on transfer of financial instruments
2019
€ m
8
2018
€ m
(81)
(416)
(120)
(78)
(48)
(40)
(18)
–
–
–
–
(21)
147
(20)
1
(51)
(22)
information.
Income tax charge
€135m
The income tax charge was € 135 million in 2019 compared to a
charge of € 155 million in 2018.
The effective rate was 27.1% in 2019 compared to 12.4% in
2018. The effective tax rate is influenced by the geographic
mix of profit streams which may be taxed at different rates.
In addition, the 2019 rate reflects a reduction of € 25 million in the
deferred tax asset recognised for UK tax losses, tax provided on
unrealised gains on certain equity investments and expenses not
deductible for tax purposes.
For further information see note 19 ‘Taxation’ of the consolidated
financial statements.
Loss on disposal of business activities
Total exceptional items
(592)
(167)
These gains/ costs were viewed as exceptional by management.
Property strategy relates to the continued implementation
of the Group property strategy including the acquisition and
development of various office locations across Dublin and the
exit from Bankcentre. 2019 includes gain on disposal of land at
Bankcentre of € 21 million.
Restitution costs include a provision of € 265 million for
additional redress that may be due to a group of customers
who had an option of a prevailing tracker rate. This follows a
recent preliminary decision issued by the Financial Services and
Pensions Ombudsman. Total potential impact is € 300 million,
including a provision of € 35 million for the impact of monetary
penalties from the Central Bank of Ireland included in Provision
for regulatory fines. See note 2 ‘Critical accounting judgements
and estimates’ in the consolidated financial statements for further
information.
Restitution costs also include a further provision for customer
redress and compensation in relation to the tracker mortgage
examination of € 12 million and other personal/ SME lending
customer redress of € 61 million, along with associated costs.
Provision for regulatory fines includes a provision of € 70 million
for the potential impact of monetary penalties arising from
the Central Bank of Ireland investigation in respect of tracker
mortgages.
Termination benefits relate to the cost of the voluntary severance
programme.
(Loss)/ gain on disposal of loan portfolios reflects the disposal
of loan portfolios, resulting in a net loss of € 40 million in
2019 (includes € 4 million net gain on loans and advances to
customers measured at FVTPL).
Restructuring costs include the impairment of assets in the year.
IFRS 9 costs in 2018 represent IFRS 9 implementation costs.
Loss on disposal of business activities in 2018 relates to the
recycling of cumulative unrealised foreign currency gains and
losses following repatriation of part of the capital of foreign
subsidiaries which had ceased trading.
Business review – 1. Operating and financial reviewAIB Group plc Annual Financial Report 2019Business Review 57
Non-performing loans
Non-performing loans ratio
€3.3bn
Non-performing loans decreased by 45% to € 3.3 billion at
5.4%
31 December 2019, primarily reflecting the disposal of distressed
loan portfolios of € 1.8 billion and redemptions of € 1.0 billion.
Non-performing loans ratio
Non-performing loans as a percentage of gross loans to
customers was 5.4% at 31 December 2019 compared to 9.6% at
31 December 2018.
ECL allowance
Non-performing loans cover
€1.2bn
The ECL allowance of € 1.2 billion at 31 December 2019
27%
decreased from € 2.0 billion at 31 December 2018 primarily
reflecting the impact of the disposal of distressed loan portfolios.
Non-performing loans cover
The ECL allowance cover rate on non-performing loans of 27% at
31 December 2019 was in line with 31 December 2018.
Assets
Net loans to customers
New lending
€60.9bn
€12.3bn
Assets
Gross loans to customers
ECL allowance
Net loans to customers
Investment securities
Loans and advances to banks
Other assets
Total assets
Net loans to customers
2019
€ bn
62.1
%
2018
€ bn change
62.9
(1.2)
(2.0)
60.9
17.3
13.5
6.9
60.9
16.9
8.0
5.7
98.6
91.5
-1
-39
–
3
69
20
8
€60.9bn
€ 0.6 billion, decreased by € 0.6 billion compared to
of currency movements of
Net loans, excluding the impact
31 December 2018 reflecting the disposal of distressed loan
portfolios of net € 1.3 billion. New lending of € 12.3 billion
exceeded redemptions of € 11.7 billion (including € 1.0 billion
redemptions on non-performing loans).
New lending
€12.3bn
than in 2018. Personal lending was up 13% and mortgage
2019 was € 0.2 billion higher
New lending of € 12.3 billion in
lending was up 8% driven by a growing Irish mortgage market.
Non-property lending fell 4% with strong new lending to the
energy sector offset by lower syndicated lending. New lending
comprises € 10.8 billion term lending in 2019 (€ 10.7 billion in
2018) and € 1.5 billion transaction lending (€ 1.4 billion in 2018).
Summary of movement in loans to customers
The table below sets out the movement in loans to customers from 1 January 2019 to 31 December 2019.
Loans to customers
Gross loans (opening balance 1 January 2019)
New lending
Redemptions of existing loans
Portfolio disposals
Write-offs and restructures
Net movement to non-performing
Foreign exchange movements
Other movements
Gross loans (closing balance 31 December 2019)
ECL allowance
Net loans (closing balance 31 December 2019)
Performing
loans
€ bn
Non-performing
loans
€ bn
Loans to
customers
€ bn
56.8
12.3
(10.7)
–
–
(0.3)
0.6
0.1
58.8
(0.3)
58.5
6.1
–
(1.0)
(1.8)
(0.3)
0.3
–
–
3.3
(0.9)
2.4
62.9
12.3
(11.7)
(1.8)
(0.3)
–
0.6
0.1
62.1
(1.2)
60.9
AIB Group plc Annual Financial Report 2019Business Review 123456 58
Assets (continued)
The tables below summarise the credit profile of the loan portfolio by asset class and include a range of credit metrics that the Group
uses in managing the portfolio. Further information on the Group’s risk profile and non-performing loans is available in the Risk
management section on pages 71 to 170.
Loan portfolio profile
31 December 2019
Gross loans to customers
Of which: Stage 3
Total ECL allowance
Non-performing loans
Total ECL allowance non-performing loans
ECL allowance cover non-performing loans (%)
31 December 2018
Gross loans to customers
Of which: Stage 3
Total ECL allowance
Non-performing loans
Total ECL allowance non-performing loans
ECL allowance cover non-performing loans (%)
Residential
mortgages
€ bn
Other
personal
€ bn
Property and
construction
€ bn
Non-property
business
€ bn
31.5
2.1
0.6
2.3
0.5
22%
€ bn
32.3
3.0
0.7
3.3
0.6
20%
3.0
0.2
0.1
0.2
0.1
60%
€ bn
3.1
0.3
0.2
0.4
0.2
50%
7.3
0.4
0.2
0.4
0.1
35%
€ bn
7.9
1.2
0.5
1.4
0.4
29%
20.3
0.4
0.3
0.4
0.2
32%
€ bn
19.6
1.0
0.6
1.0
0.4
36%
Non-performing loans
31 December 2019
Collateral disposals
Unlikely to pay (including > 90 days past due)
Non-performing loans probation
Total non-performing loans
Residential
mortgages
€ bn
Other
personal
€ bn
Property and
construction
€ bn
Non-property
business
€ bn
0.1
1.9
0.3
2.3
0.0
0.2
0.0
0.2
0.1
0.3
0.0
0.4
0.0
0.3
0.1
0.4
Total
€ bn
62.1
3.1
1.2
3.3
0.9
27%
€ bn
62.9
5.5
2.0
6.1
1.6
27%
Total
€ bn
0.2
2.7
0.4
3.3
Total non-performing loans/ Total loans (%)
7.4%
6.4%
5.1%
2.2%
5.4%
31 December 2018
Collateral disposals
Unlikely to pay (including > 90 days past due)
Non-performing loans probation
Total non-performing loans
€ bn
0.2
2.7
0.4
3.3
€ bn
0.1
0.3
0.0
0.4
€ bn
0.4
0.9
0.1
1.4
Total non-performing loans/ Total loans (%)
10.1%
11.2%
17.9%
€ bn
0.1
0.7
0.2
1.0
5.2%
€ bn
0.8
4.6
0.7
6.1
9.6%
Investment securities
Investment securities of € 17.3 billion, primarily held for
liquidity purposes, have increased by € 0.4 billion from
31 December 2018.
Other assets
Other assets of € 6.9 billion comprised:
•
Deferred tax assets of € 2.7 billion(1), in line with
31 December 2018.
Loans and advances to banks
Loans and advances to banks of € 13.5 billion, including
•
Derivative financial instruments of € 1.3 billion, € 0.4 billion
increase from 31 December 2018.
•
Remaining assets of € 2.9 billion, € 0.8 billion increase from
€ 12.0 billion of cash and balances at central banks, were
31 December 2018 mainly due to recognition of right-of-use
€ 5.5 billion higher than 31 December 2018. The increased
assets under IFRS 16 of € 0.4 billion and proceeds awaiting
placement with banks was due to excess liquidity driven by
settlement from a loan portfolio disposal of € 0.4 billion.
increased customer account balances and the proceeds from
MREL-related issuances and loan portfolio disposals.
(1)For further information see note 2 Critical accounting judgements and estimates ‘Deferred taxation’ in the consolidated financial statements.
Business review – 1. Operating and financial reviewAIB Group plc Annual Financial Report 2019Business Review Liabilities & equity
Customer accounts
Equity
€71.8bn
€14.2bn
31 Dec 31 Dec
2018
%
€ bn change
2019
€ bn
71.8
67.7
0.8
6.8
1.3
3.7
0.8
5.7
0.8
2.6
84.4
77.6
14.2
98.6
13.9
91.5
6
-2
19
63
42
9
2
8
%
85
% Change
90
-5
Liabilities & equity
Customer accounts
Deposits by banks
Debt securities in issue
Subordinated liabilities
Other liabilities
Total liabilities
Equity
Total liabilities & equity
Loan to deposit ratio
Customer accounts
€71.8bn
movements of € 0.6 billion, increased by € 3.5 billion compared to
the impact of currency
Customer accounts, excluding
31 December 2018. Current accounts increased by € 3.4 billion
reflecting the continued strong Irish macroeconomic backdrop.
59
Debt securities in issue
Debt securities of € 6.8 billion increased by € 1.1 billion from
31 December 2018 following the issuance of US $ 1 billion and
€ 0.75 billion MREL-related medium term notes. This was partly
offset by the maturity of medium term notes of € 0.5 billion.
Subordinated liabilities
Subordinated liabilities of € 1.3 billion increased by € 0.5 billion
from 31 December 2018 following the issuance of € 0.5 billion
Subordinated Tier 2 Notes in November 2019.
Other liabilities
Other liabilities of € 3.7 billion comprised:
•
Derivative financial instruments of € 1.2 billion, € 0.3 billion
increase from 31 December 2018.
•
Remaining liabilities of € 2.5 billion, € 0.8 billion increase from
31 December 2018 driven by recognition of lease liabilities
under IFRS 16 of € 0.4 billion and an increase in provisions
for liabilities of € 0.3 billion.
Equity
€14.2bn
€ 13.9 billion at 31 December 2018, including the issuance of
to € 14.2 billion compared to
Equity increased by € 0.3 billion
Loan to deposit ratio
The loan to deposit ratio decreased to 85% at 31 December 2019
€ 0.5 billion Additional Tier 1 securities in October 2019.
compared to 90% at 31 December 2018 driven by increased
The table below sets out the movements in the year.
levels of customer accounts.
Deposits by banks
Deposits by banks of € 0.8 billion were in line with
31 December 2018.
Equity
Opening balance (1 January 2019)
Profit for the year
Other comprehensive income:
Cash flow hedging reserves/ other(1)
Pension reserve
Dividends/ distributions paid
Issue of Additional Tier 1 securities
Closing balance (31 December 2019)
€ bn
13.9
0.4
0.1
(0.2)
(0.5)
0.5
14.2
(1)Of which € 184 million relates to movements in the cash flow hedging reserves in the year due to reductions in market interest rates.
AIB Group plc Annual Financial Report 2019Business Review 123456 60
Segment reporting
Segment overview
Following changes to the Group’s operating model in 2019 performance is now managed and reported across Retail Banking,
Corporate, Institutional & Business Banking (“CIB”), AIB UK and Group segments. The allocation of costs by segment has been
amended to reflect the revised operating model. In addition the Group has revised the methodology used to allocate funding and liquidity
income/ charges by segment. Figures for the prior year have been restated on a comparative basis. Segment performance excludes
exceptional items.
Retail Banking
Retail Banking comprises Homes & Consumer, SME and Financial Solutions Group (“FSG”) in a single integrated segment, focused on
meeting the current, emerging and future needs of our personal and SME customers.
•
Homes & Consumer is responsible for meeting the homes needs of customers in Ireland across the AIB, EBS and Haven brands
and delivering innovative and differentiated products, propositions and services to meet our customers’ everyday banking needs
through an extensive range of physical and digital channels. Our purpose is to achieve a seamless, transparent and simple
customer experience in all of our propositions across current accounts, personal lending, payments and credit cards, deposits,
insurance and wealth to maintain and grow our market leading position.
•
SME is a leading provider of financial services to micro and small SMEs through our sector-led strategy and local expertise with
an extensive product and proposition offering across a number of channels. Our purpose is to help our customers create and build
sustainable businesses in their communities.
•
FSG is a standalone dedicated workout unit to which the Group has migrated the management of the majority of its non-performing
exposures (“NPEs”), predominantly consisting of homes, consumer and SME products, with the objective of delivering the Group’s
NPE strategy to reduce NPEs in line with European norms.
Corporate, Institutional & Business Banking (“CIB”)
CIB provides institutional, corporate and business banking services to the Group’s larger customers and customers requiring specific
sector or product expertise. CIB’s relationship driven model serves customers through sector specialist teams including: corporate
banking; real estate finance; business banking and energy; climate action and infrastructure. In addition to traditional credit products,
CIB offers customers foreign exchange and interest rate risk management products, cash management products, trade finance,
mezzanine finance, structured and specialist finance, equity investments and corporate finance advisory services, as well as Private
Banking services and advice. CIB also has syndicated and international finance teams based in Dublin and in New York.
AIB UK
AIB UK offers retail and business banking services in two distinct markets, a sector-led corporate and commercial bank supporting
businesses in Great Britain (“Allied Irish Bank (GB)”), and a retail and business bank in Northern Ireland (“AIB (NI)”).
Group
Group comprises wholesale treasury activities and Group control and support functions. Treasury manages the Group’s liquidity and
funding positions and provides customer treasury services and economic research. The Group control and support functions include
Business & Customer Services, Risk, Group Internal Audit, Finance, Legal & Corporate Governance, Human Resources and Corporate
Affairs & Strategy.
Segment allocations
The segments’ performance statements include all income and directly related costs, excluding overheads which are managed centrally
and the costs of which are included in the Group segment. Funding and liquidity income/ 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.
Business review – 1. Operating and financial reviewAIB Group plc Annual Financial Report 2019Business Review 61
Retail Banking
Retail Banking
contribution statement
Net interest income
Other income
Total operating income
Total operating expenses(1)
Bank levies and regulatory fees(1)
Operating contribution before
impairments and exceptional items
Net credit impairment writeback
Operating contribution before
exceptional items
Associated undertakings
Contribution before exceptional items
2019
€ m
2018
€ m
%
change
Retail Banking
balance sheet metrics
31 Dec 31 Dec
2018
%
€ bn change
2019
€ bn
1,234
1,335
398
390
1,632
1,725
(923)
(875)
(2)
(1)
707
17
724
17
741
849
247
1,096
10
1,106
-8
2
-5
5
36
-17
-93
-34
66
-33
Mortgages
Personal
Property
Non-property business
New lending
Mortgages
Personal
Property
Non-property business
Gross loans
ECL allowance
Net loans
Current accounts
Deposits
Customer accounts
2.9
1.0
0.1
0.9
4.9
2.7
0.9
0.1
0.8
4.5
29.6
30.4
2.8
0.9
3.3
36.6
(1.1)
35.5
25.5
23.1
48.6
2.8
1.8
4.1
39.1
(1.8)
37.3
22.9
22.4
45.3
10
-6
-35
-5
11
3
7
Net interest income
€1,234m Net interest income has decreased by
€ 101 million compared to 2018 reflecting the impact on income
New lending
€4.9bn
increases across all business lines as market share remained
New lending of € 4.9 billion was up 10% with
of the continued deleveraging of non-performing loans and the
stable in a competitive environment.
Net loans
€35.5bn Net loans decreased by € 1.8 billion mainly
reflecting the disposal of portfolios of distressed loans of
€ 1.3 billion and redemptions in the non-performing loan book of
€ 0.8 billion.
ECL allowance
€1.1bn
31 December 2019 decreased by € 0.7 billion from € 1.8 billion at
The ECL allowance of € 1.1 billion at
31 December 2018 primarily reflecting the portfolio disposals of
distressed loans.
Customer accounts
€48.6bn Customer accounts increased by € 3.3 billion
compared to 31 December 2018 with increased current
accounts of € 2.6 billion reflecting the continued strong Irish
macroeconomic backdrop.
increased cost of MREL-related debt funding. This was partially
offset by the positive impact of new lending growth.
Other income
€398m
to 2018, with increased net fee and commission income partly
Other income increased by € 8 million compared
offset by lower income recognised on previously restructured
loans. Net fee and commission income includes € 2 million
following the completion of the acquisition of Payzone in
November 2019.
Total operating expenses
€923m
€ 48 million compared to 2018, driven by an increase in
Total operating expenses increased by
depreciation as assets created under investment programmes
were commissioned to operational use and higher personnel
costs due to the impact of salary inflation and Payzone
acquisition.
Net credit impairment writeback
€17m
€ 17 million in 2019 comprising of a € 10 million writeback on
There was a net credit impairment writeback of
loans and advances to customers and a € 7 million writeback
on off-balance sheet exposures. The € 10 million writeback
comprises recoveries of amounts previously written-off of
€ 87 million, offset by net re-measurement of ECL allowance
charge of € 77 million. There was a net credit impairment
writeback of € 247 million in 2018.
(1) Other regulatory levies and charges are now presented as bank levies and regulatory fees (€ 1 million in 2018 previously included in operating expenses
has been represented as bank levies and regulatory fees).
AIB Group plc Annual Financial Report 2019Business Review 123456 62
Corporate, Institutional & Business Banking (“CIB”)
CIB contribution statement
Net interest income
Other income
Total operating income
Total operating expenses
Operating contribution before
impairments and exceptional items
Net credit impairment charge
Contribution before exceptional items
2019
€ m
471
87
558
387
115
502
(115)
(108)
443
(18)
425
394
(22)
372
2018
%
€ m change
CIB balance sheet metrics
31 Dec 31 Dec
2018
%
€ bn change
2019
€ bn
22
-25
11
6
13
-18
14
Mortgages
Personal
Property
Non-property business
New lending
Mortgages
Personal
Property
Non-property business
Gross loans
ECL allowance
Net loans
0.1
0.1
1.3
3.5
5.0
0.6
0.1
4.3
11.2
16.2
0.0
16.2
0.1
0.0
1.4
3.9
5.4
0.6
0.1
4.0
10.5
15.2
0.0
15.2
-8
7
7
Net interest income
€471m
compared to 2018 reflecting higher average loan volumes.
Net interest income increased by € 84 million
Other income
€87m
compared to 2018 primarily due to a one-off gain in 2018 on
Other income decreased by € 28 million
loans and advances to customers measured at FVTPL and a
reduction in net gain on equity investments measured at FVTPL
in 2019.
Total operating expenses
€115m
compared to 2018. The increase was primarily driven by
Total operating expenses increased by € 7 million
increased personnel costs to support business growth.
Investment securities
0.7
0.4
61
Current accounts
Deposits
Customer accounts
7.4
3.9
7.0
3.8
11.3
10.8
6
3
5
New lending
€5.0bn
lower than 2018. The reduction was primarily driven by lower
New lending of € 5.0 billion was € 0.4 billion
syndicated lending partly offset by an increase in lending to the
energy, climate action and infrastructure sectors.
Net loans
€16.2bn Net loans of € 16.2 billion at 31 December 2019
increased by € 1.0 billion compared to € 15.2 billion at
31 December 2018. The growth in net loans was primarily driven
by the property and energy, climate action and infrastructure
sectors.
Investment securities
€0.7bn
€ 0.3 billion higher than 31 December 2018.
Investment securities of € 0.7 billion were
Net credit impairment charge
€18m
€ 18 million in 2019 comprising of a € 21 million charge on
There was a net credit impairment charge of
loans and advances to customers and a € 3 million writeback on
Customer accounts
€11.3bn Current accounts of € 7.4 billion were € 0.4 billion
higher than 31 December 2018. Deposits of € 3.9 billion were
off-balance sheet exposures. There was a net credit impairment
broadly in line with 31 December 2018.
charge of € 22 million in 2018.
Business review – 1. Operating and financial reviewAIB Group plc Annual Financial Report 2019Business Review 63
2019
£ m
2018
%
£ m change
AIB UK balance sheet metrics
31 Dec 31 Dec
2018
%
£ bn change
2019
£ bn
235
59
294
226
45
271
(154)
(135)
–
1
140
(13)
137
(18)
127
119
3
–
130
2
2
123
138
4
32
9
15
–
2
-29
7
64
–
6
7
AIB GB
AIB NI
New lending
AIB GB
AIB NI
Gross loans
ECL allowance
Net loans
Current accounts
Deposits
Customer accounts
1.8
0.3
2.1
5.6
2.2
7.8
(0.1)
7.7
5.8
3.0
8.8
1.6
0.4
2.0
5.4
2.2
7.6
(0.2)
7.4
5.8
3.1
8.9
18
-30
7
3
1
3
-36
4
-1
-2
-1
AIB UK
AIB UK contribution statement
Net interest income
Other income
Total operating income
Total operating expenses
Bank levies and regulatory fees
Operating contribution before
impairments and exceptional items
Net credit impairment charge
Operating contribution before
exceptional items
Associated undertakings
Profit on disposal of property
Contribution before exceptional items
Contribution before exceptional items € m 148
New lending
£2.1bn
£ 0.1 billion compared to 2018.
New lending of £ 2.1 billion in 2019 increased by
Net loans
£7.7bn
compared to 31 December 2018 primarily driven by net lending
Net loans of £ 7.7 billion increased by £ 0.3 billion
growth.
Customer accounts
£8.8bn
31 December 2019 were broadly in line with 31 December 2018.
Customer accounts of £ 8.8 billion at
Net interest income
£235m
compared to 2018, with 2019 benefiting from the impact of the
Net interest income increased by £ 9 million
base rate rise in August 2018.
Other income
£59m
to 2018 primarily driven by an increase in net trading income.
Other income increased by £ 14 million compared
Loss on disposal of loans was Nil in 2019 compared to £ 4 million
in 2018. Net fee and commission income was in line with 2018.
Total operating expenses
£154m
£ 19 million compared to 2018 due to an increase in depreciation
Total operating expenses increased by
as assets created under investment programmes were
commissioned to operational use.
Net credit impairment charge
£13m
£ 13 million in 2019 primarily driven by a net re-measurement
There was a net credit impairment charge of
charge on a small number of cases. There was a net credit
impairment charge of £ 18 million in 2018.
AIB Group plc Annual Financial Report 2019Business Review 123456 64
Group
Group contribution statement
Net interest income
Other income
Total operating income
Total operating expenses(1)
Bank levies and regulatory fees(1)
Contribution before exceptional items
2019
€ m
103
66
169
(290)
(102)
(223)
2018
%
€ m change
123
70
193
(296)
(99)
(202)
-16
-5
-12
-2
3
10
Group balance sheet metrics
Gross loans
Investment securities
Customer accounts
31 Dec 31 Dec
2018
%
€ bn change
2019
€ bn
0.1
16.6
1.5
0.1
16.5
1.7
22
–
-16
Net interest income
€103m
compared to 2018 primarily driven by interest expense on lease
Net interest income decreased by € 20 million
Investment securities
€16.6bn
primarily held for liquidity purposes were broadly in line with
Investment securities of € 16.6 billion
liabilities under IFRS 16 reported in Group.
31 December 2018.
Customer accounts
€1.5bn
compared to 31 December 2018.
Customer accounts decreased by € 0.2 billion
Other income
€66m
to 2018 driven by an increase in net trading loss partly offset
Other income decreased by € 4 million compared
by an increase in net gain on equity investments measured at
FVTPL and an increase in other operating income including gain
on disposal of investment securities.
Total operating expenses
€290m
decreased by € 6 million compared to 2018.
Total operating expenses of € 290 million
Bank levies and regulatory fees
€102m
in 2019 include the Irish bank levy of € 35 million, the Deposit
Bank levies and regulatory fees of € 102 million
Guarantee Scheme of € 33 million, the Single Resolution
Fund € 16 million, and other regulatory levies and charges of
€ 18 million.
(1) Other regulatory levies and charges are now presented as bank levies and regulatory fees (€ 16 million in 2018 previously included in operating expenses
has been represented as bank levies and regulatory fees).
Business review – 1. Operating and financial reviewAIB Group plc Annual Financial Report 2019Business Review 65
Alternative performance measures
The following is a list, together with a description, of APMs used in analysing the Group’s performance, provided in accordance with the
European Securities and Markets Authority (“ESMA”) guidelines.
Average rate
Average balance
Interest income/ expense for balance sheet categories divided by corresponding average balance.
Average balances for interest-earning assets are based on daily balances for all categories with
the exception of loans and advances to banks, which are based on a combination of daily/ monthly
balances. Average balances for interest-earning liabilities are based on a combination of daily/
monthly balances, with the exception of customer accounts which are based on daily balances.
Cost income ratio
Total operating expenses excluding exceptional items, bank levies and regulatory fees divided by
Cost income ratio (IFRS basis)
Total operating expenses divided by total operating income.
total operating income excluding exceptional items.
Exceptional items
Performance measures have been adjusted to exclude items viewed as exceptional by
management and which management view as distorting comparability of performance year on year.
The adjusted performance measure is considered an APM. A reconciliation between the IFRS and
management performance summary income statements is set out on page 66. Exceptional items
include:
–
Property strategy relates to the implementation of the Group property strategy including the exit
from Bankcentre and the acquisition and development of various office locations across Dublin.
–
Restitution costs include provision for potential customer redress and compensation in relation
to the tracker mortgage examination, and other personal/ SME lending customer redress, along
with associated costs.
–
Provision for regulatory fines includes a provision for the potential impact of monetary penalties
arising from the Central Bank of Ireland investigation in respect of tracker mortgages.
–
Termination benefits reflect costs associated with the reduction in employees arising from the
voluntary severance programme.
–
(Loss)/ gain on disposal of loan portfolios includes net (loss)/ gain on disposals and net gain on
–
–
–
loans and advances to customers measured at FVTPL.
Restructuring costs include the impairment of assets in the year.
IFRS 9 costs in 2018 represent IFRS 9 implementation costs.
Loss on disposal of business activities in 2018 relates to the recycling of cumulative unrealised
foreign currency gains and losses following repatriation of part of the capital of foreign
subsidiaries which have ceased trading.
Loan to deposit ratio
Net loans and advances to customers divided by customer accounts.
Net interest margin
Net interest income divided by average interest-earning assets.
Non-performing exposures
Non-performing exposures as defined by the European Banking Authority, include loans and
advances to customers (non-performing loans) and off-balance sheet commitments such as loan
commitments and financial guarantee contracts.
Non-performing loans cover
ECL allowance on non-performing loans as a percentage of non-performing loans.
Non-performing loans ratio
Non-performing loans as a percentage of total gross loans.
Return on Tangible Equity (RoTE) Details of the Group’s RoTE is set out in the Capital Section on page 70.
Management performance -
The following line items in the management performance summary income statement are
summary income statement
considered APMs:
•
•
•
•
•
•
•
Other income
Total operating income
Personnel expenses
General and administrative expenses
Depreciation, impairment and amortisation
Total operating expenses
Bank levies and regulatory fees
•
Operating profit before impairment losses
and exceptional items
Operating profit before exceptional items
Profit on disposal of property
Profit before exceptional items
Total exceptional items
•
•
•
•
AIB Group plc Annual Financial Report 2019Business Review 123456 66
Reconciliation between IFRS and management performance summary income statements
Performance has been adjusted to exclude items viewed as exceptional by management and which management view as distorting
comparability of performance year on year. The adjusted performance measure is considered an APM. A reconciliation of management
performance measures to the directly related IFRS measures, providing their impact in respect of specific line items and the overall
summary income statement, is set out below.
IFRS – summary income statement
Net interest income
Other income
Total operating income
Total operating expenses
Operating profit before impairment losses
Net credit impairment (charge)/ writeback
Operating profit
Associated undertakings
Profit/ (loss) on disposals
Profit before taxation
Income tax charge
Profit for the year
Adjustments – between IFRS and management performance
Other income
of which: exceptional items
Gain on transfer of financial instruments
Loss/ (gain) on disposal of loan portfolios
Total operating expenses
of which: bank levies and regulatory fees
of which: exceptional items
Restitution costs
Provision for regulatory fines
Termination benefits
Restructuring costs
Property strategy
IFRS 9 costs
Profit/ (loss) on disposals
of which: exceptional items
Property strategy
Loss on disposal of business activities
Management performance – summary income statement
Net interest income
Other income(1)
Total operating income(1)
Total operating expenses(1)
Bank levies and regulatory fees(1)
Operating profit before impairment losses and exceptional items(1)
Net credit impairment (charge)/ writeback
Operating profit before exceptional items(1)
Associated undertakings
Profit on disposal of property(1)
Profit before exceptional items(1)
Total exceptional items(1)
Profit before taxation
Income tax charge
Profit for the year
–
40
416
78
48
18
13
–
(21)
–
2019
€ m
2,076
579
2,655
(2,181)
474
(16)
458
20
21
499
(135)
364
40
104
573
(21)
2,076
619
2,695
(1,504)
(104)
1,087
(16)
1,071
20
–
1,091
(592)
499
(135)
364
(1)
(147)
120
–
21
20
81
51
–
22
2018
€ m
2,100
774
2,874
(1,823)
1,051
204
1,255
12
(20)
1,247
(155)
1,092
(148)
99
293
22
2,100
626
2,726
(1,431)
(99)
1,196
204
1,400
12
2
1,414
(167)
1,247
(155)
1,092
(1) Performance has been adjusted to exclude items viewed as exceptional by management and which management view as distorting comparability of
performance year on year. The adjusted performance measure is considered an APM.
Business review – 1. Operating and financial reviewAIB Group plc Annual Financial Report 2019Business Review Business review – 2. Capital
67
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.
Detail on the management of capital and capital adequacy risk can be found in ‘Risk management 2.3’ on page 154.
Regulatory capital and capital ratios
CRD lV
transitional basis
CRD lV
fully loaded basis
31 December
2019
€ m
31 December
2018
€ m
31 December
2019
€ m
31 December
2018
€ m
Equity
Less: Additional Tier 1 Securities
Proposed ordinary dividend
Regulatory adjustments:
Intangible assets
Cash flow hedging reserves
IFRS 9 CET1 transitional add-back
Pension
Deferred tax
Expected loss deduction
Other
Total common equity tier 1 capital
Additional tier 1 capital
Additional Tier 1 issuance
Instruments issued by subsidiaries that are given
recognition in additional tier 1 capital
Total additional tier 1 capital
Total tier 1 capital
Tier 2 capital
Subordinated debt
Instruments issued by subsidiaries that are given
recognition in tier 2 capital
Total tier 2 capital
Total capital
Risk-weighted assets
Credit risk
Market risk
Operational risk
Credit valuation adjustment
Total risk-weighted assets
Common equity tier 1 ratio
Tier 1 ratio
Total capital ratio
*Forms an integral part of the audited financial statements
14,230
(990)
(217)
(798)
(469)
251
(31)
13,858
(494)
(461)
(682)
(285)
298
(183)
(1,334)
(1,079)
(8)
(45)
(2,434)
10,589
496
129
625
(21)
(42)
(1,994)
10,909
–
235
235
11,214
11,144
500
426
926
–
415
415
12,140
11,559
46,811
473
4,700
137
52,121
%
20.3
21.5
23.3
46,209
371
4,624
392
51,596
%
21.1
21.6
22.4
14,230
(990)
(217)
(798)
(469)
–
(31)
(2,667)
(8)
(45)
(4,018)
9,005
496
159
655
9,660
500
507
1,007
10,667
46,689
473
4,700
137
51,999
%
17.3
18.6
20.5
13,858
(494)
(461)
(682)
(285)
–
(183)
(2,697)
(21)
(42)
(3,910)
8,993
–
316
316
9,309
–
531
531
9,840
46,052
371
4,624
392
51,439
%
17.5
18.1
19.1
AIB Group plc Annual Financial Report 2019Business Review 123456 68
Capital requirements
The table below sets out the capital requirements at
31 December 2019 and the pro forma requirements for 2020
and 2021. The table does not include Pillar 2 Guidance (“P2G”)
which is not publicly disclosed.
Regulatory Capital
Requirements
CET1 Requirements
Pillar 1
Actual
31 Dec
2019
Pro Forma
31 Dec
2020
31 Dec
2021
4.50% 4.50% 4.50%
Pillar 2 requirement (P2R)
3.15% 3.00% 3.00%
Combined buffer requirement
3.90% 4.60% 5.10%
Capital Conservation Buffer (CCB)
2.50% 2.50% 2.50%
O-SII buffer
0.50% 1.00% 1.50%
Countercyclical buffer (CCYB) Impact
Irish exposures
UK exposures
CET1 Requirement
Pillar 1 AT1 / Tier 2
0.70% 0.70% 0.70%
0.20% 0.40% 0.40%
11.55% 12.10% 12.60%
3.50% 3.50% 3.50%
Total Capital Requirement
15.05% 15.60% 16.10%
The Group’s minimum CET1 requirement was 11.55% in 2019
and is expected to be 12.1% by the end of 2020.
The Other Systemically Important Institution (“O-SII”) buffer of
0.5% will rise to 1.0% on 1 July 2020 and 1.5% on 1 July 2021.
The countercyclical capital buffer (CCyB) for Irish exposures
of 1.0% equates to a 0.7% Group capital requirement. The
CCyB requirement for UK exposures is currently 1% and
equates to a 0.2% Group capital requirement. This will rise
to 2% from 16 December 2020 which will equate to a 0.4%
Group requirement. Other jurisdictional CCyB in place have a
negligible impact on Group capital requirements.
The Minister for Finance has agreed to a Central Bank of
Ireland request to transpose the Systemic Risk Buffer (“SyRB”)
into Irish Law. The timing of introduction, quantum and the inter-
relationship of the SyRB with other buffers is not yet known.
The minimum requirement for the total capital ratio was 15.05%
at 31 December 2019 and will increase to 15.6% by the end of
2020.
Capital ratios at 31 December 2019
Fully Loaded Ratio
The fully loaded CET1 ratio decreased to 17.3% at
31 December 2019 from 17.5% at 31 December 2018 with
profit for the year attributable to equity holders of the parent
less proposed ordinary dividend (+0.3%) offset by the increase
in RWA following the implementation of IFRS 16 (-0.2%),
an increase in intangible assets of (-0.2%) and other capital
adjustments (-0.1%).
The fully loaded total capital ratio increased to 20.5% at
31 December 2019 from 19.1% at 31 December 2018.
The increase in the ratio was driven by the CET1 movements
outlined above and two new capital issuances in late 2019
comprising € 0.5 billion AT1 and € 0.5 billion Tier 2 securities.
Transitional Ratio
The transitional CET1 ratio decreased to 20.3% at
31 December 2019 from 21.1% at 31 December 2018.
This decrease was mainly driven by the movements detailed
above and an additional year’s phasing out of the deferred tax
asset deduction.
At 31 December 2019, the transitional total capital ratio
increased to 23.3% from 22.4% at 31 December 2018.
Targeted Review of Internal Models (TRIM)
The table below shows the pro forma impact of the draft AIB
mortgage TRIM outcome, which is not expected to be materially
different from the final decision.
TRIM adjusted capital metrics
Fully Loaded
CET1 impact
RWA impact
CET1 ratio
Expected
Impact
€ m
2019 Pro
Forma
€ m
(90)
2,200
(0.9)%
8,915
54,199
16.4%
The ECB’s TRIM process with respect to AIB’s Irish mortgages
is nearing completion with the final decision expected to be
received in the coming months.
The pro forma capital impact at 31 December 2019 is 90 basis
points which would reduce the fully loaded CET1 ratio to 16.4%
from the reported 17.3% and the total capital ratio to 19.6%
from the reported 20.5%.
Business review – 2. CapitalAIB Group plc Annual Financial Report 2019Business Review 69
Leverage ratio
Based on the full implementation of CRD IV, the fully loaded
leverage ratio, under the Delegated Act implemented in January
2015, was 9.7% at 31 December 2019 (10.1% at 31 December
2018).
Dividends
The Board proposes to pay an ordinary dividend of € 0.08
cent per share totalling € 217 million from 2019 profits. This is
subject to shareholder approval at the Annual General Meeting
in April 2020.
Total leverage exposures (transitional) basis increased by
€ 7.0 billion in the year, mainly driven by increases in cash
and balances at central banks € 5.4 billion, property plant and
equipment € 0.5 billion, investment securities € 0.4 billion and
derivative financial instruments € 0.4 billion.
Leverage Ratio Metrics
Total Exposure (Transitional Basis)
Total Exposure (Fully Loaded)
Tier 1 Capital (Transitional Basis)
Tier 1 Capital (Fully Loaded)
Leverage Ratio (Transitional Basis)
Leverage Ratio (Fully Loaded)
2019
€ m
101,126
99,548
11,214
9,660
11.1%
9.7%
2018
€ m
94,086
92,467
11,144
9,309
11.8%
10.1%
Finalisation of Basel III
The Group continues to closely monitor regulatory
developments to ensure that the Group maintains a strong
capital position.
One of the key areas of regulatory development is the
finalisation of Basel III reforms, exact implementation
details will be confirmed once the finalised requirements are
transposed into law over the course of the next few years.
Initial assessments signal upward pressure on RWAs, mostly in
relation to operational risk.
In relation to RWA floors, the Group’s high RWA density make it
less likely to be severely impacted by their introduction.
Minimum Requirement for Own Funds and Eligible
Liabilities (“MREL”)
The Group continues to work towards its MREL target to ensure
that there is sufficient loss absorption and re-capitalisation
capability. The Group has completed issuances of € 4.3 billion
of the € 5 billion MREL eligible liabilities needed to meet its
MREL issuance target, of which € 2.6 billion was issued in
2019.
The Single Resolution Board (“SRB”) has set the Group’s MREL
target at 16.76% of Total Liabilities and Own Funds (“TLOF”)
(representing 28.22% of RWA at 31 December 2017) to be met
by 1 January 2021.
At 31 December 2019, the Group had an actual MREL ratio of
16.27% of Total Liabilities and Own Funds and 28.50% of RWA.
The Group estimates issuances of approximately € 1 billion per
annum to meet and maintain MREL targets.
The Group continues to monitor changes in MREL requirements
together with developments in the SRB’s MREL Policy which
has the potential to impact on the Group’s MREL target.
Ratings
AIB Group plc and Allied Irish Banks, p.l.c. are rated at
investment grade with all three rating agencies, Moody’s, Fitch
and Standard & Poor’s (S&P). Moody’s upgraded AIB Group plc
Tier 2 to Baa3/Investment Grade.
AIB Group plc
During 2019, Moody’s upgraded the credit rating by one notch
to Baa2, remaining on positive outlook. This upgrade reflects
the significant reduction in non-performing loans, strengthened
capital and stable funding profile. Fitch upgraded its credit rating
by one notch to BBB, stable outlook. This upgrade reflects the
significant improvement in asset quality over the last two years.
Long term Ratings
Long term
Outlook
Investment grade
Long term Ratings
Long term
Outlook
Investment grade
Moody’s
Baa2
Positive
31 December 2019
Fitch
S&P
BBB-
Stable
BBB
Stable
Moody’s
Baa3
Positive
31 December 2018
Fitch
S&P
BBB-
Stable
BBB-
Positive
Allied Irish Banks, p.l.c.
Moody’s upgraded its rating by one notch to A2, with stable
outlook. This upgrade is driven by the significant improvements
in asset quality. Fitch upgraded its rating by two notches to
BBB+, with stable outlook. These upgrades reflect, inter alia,
AIB Group plc MREL issuances which, when downstreamed to
Allied Irish Banks, p.l.c., create an additional buffer for senior
creditors.
Long term Ratings
Long term
Outlook
Investment grade
Long term Ratings
Long term
Outlook
Investment grade
Moody’s
A2
Stable
31 December 2019
Fitch
S&P
BBB+
Stable
BBB+
Stable
Moody’s
A3
Positive
31 December 2018
Fitch
S&P
BBB+
Stable
BBB-
Positive
AIB Group plc Annual Financial Report 2019Business Review 123456 70
Return on Tangible Equity (“RoTE”)*
The table below sets out the calculation of RoTE for 2019 and
2018 under the methodology that was adopted in 2017 when
RoTE was set as a medium term financial target (i.e. 10% for
the period 2017-2019).
Return on Tangible Equity (RoTE)
Profit after tax
AT1 coupons paid
Reduction in carrying value of deferred tax
assets in respect of carried forward losses
Attributable earnings (numerator)
2019
364
(37)
2018
1,092
(37)
16
343
114
1,169
Target CET1 - 13% of risk-weighted assets
(average)
Deferred tax assets - unutilised tax losses
(average)
Tangible equity (denominator)
6,723
6,712
2,682
9,405
2,730
9,442
Return on Tangible Equity
3.6% 12.4%
* RoTE is considered an Alternative Performance Measure.
As part of Strategy 2020-2022, the Group has now set a revised
financial target for RoTE of greater than 8% in the medium term
(i.e. over the period to 2022). In addition, the Group has also
revised its approach to the calculation of RoTE.
This is now calculated as follows: Profit after tax less AT1
coupons paid divided by the CET1 target capital on a fully
loaded basis.
This revised RoTE calculation is seen as more appropriate on
a go forward basis as it reflects the internal measurement for
the deployment of capital and is more in line with the calculation
commonly used by investors and analysts in the marketplace.
The Group has revised its CET1 target to greater than 14% in
2020 (previously 13%).
The pro forma RoTE under the revised methodology together
with a CET1 of 14% is 4.5% for 2019.
Business review – 2. CapitalAIB Group plc Annual Financial Report 2019Business Review Risk management
1
Framework
1.1
Risk management principles
1.2
Three lines of defence model
1.3
Risk governance and oversight
1.4
Risk strategy
1.5
Risk management lifecycle
1.6
Risk management in operation
2
Individual risk types
2.1
Credit risk
2.2
Funding and liquidity risk
2.3
Capital adequacy risk
2.4
Financial risks
(a) Market risk
(b) Pension risk
2.5 Operational risk
2.6
Regulatory compliance risk
2.7
Conduct risk
2.8
People and culture risk
2.9
Business model risk
2.10 Model risk
71
Page
72
72
73
74
75
77
79
145
154
155
162
163
165
166
167
168
169
AIB Group plc Annual Financial Report 2019Risk Management 123456 72
Risk management – 1. Framework
1. Introduction
Risk management is central to how the Group conducts its business and how it helps its customers to achieve their dreams and
ambitions while safeguarding the Group. The following sections outline the Risk Management Framework in place throughout 2019.
The risk management structure in the Group includes defined lines of authority and accountability, effective processes to identify,
manage, monitor and report the risks to which the Group is or might be exposed to. Clear responsibilities for risk are defined across the
Group through a three lines of defence model which ensures effective independent oversight and assurance in respect of key decisions.
The Group’s Risk Management Framework sets out how risk is managed and articulates the integrated approach to risk management
within the Group including its licenced subsidiaries. The Risk Management Framework supports the Group in achieving its strategic
ambitions by providing a clear, concise and comprehensive approach to the governance, implementation and embedding of risk
management practices. The Risk Management Framework is reviewed and approved annually by the Board.
1.1 Risk management principles
The twelve principles below governing the design and operation
of effective risk management within the Group.
Strategy and appetite
1.
2.
The Board has ultimate responsibility for the governance
of all risk taking activity in the Group
The Group’s Risk Appetite Statement defines the amount
of risk that the Group is willing to accept or tolerate in
order to deliver on its strategic and business objectives
3.
The Group has adopted a three lines of defence model
Identification and assessment
4.
5.
6.
The Group identifies, assesses and reports all its material
risks
Risk management is embedded in the strategic planning,
performance management and strategic decision making
processes of the Group
The Group develops and uses models across a range of
risks and activities to inform key strategic business and
financial processes
Monitoring, escalating and reporting
1.2 Three lines of defence model
The Group operates a three lines of defence model where
each line plays a distinct role within the Group’s wider
risk governance, management, oversight and assurance
responsibilities. The Board, Board Risk Committee (“BRC”) and
Board Audit Committee (“BAC”) are ultimately responsible for
ensuring the effective operation of the three lines of defence
model. They are supported by the Executive Committees
(“ExCo”) and its sub-committees.
The following high level principles have been defined across the
three lines of defence for risk management:
Three lines of defence model high level principles
First line of
defence –
Frontline,
operational
and support
activities
7.
8.
The Group understands, manages, measures, monitors
and reports all risk it takes or originates
Second line of
defence – Risk
The Group aims to provide clarity in all its communications
which will help to better inform business decisions
Risk culture
9. The Group supports the delivery of a strong risk culture
10. Risk management capabilities are valued, encouraged
and developed
Control environment
11. The Group has a system of internal controls designed to
mitigate rather than eliminate risk
12. The Group has implemented and embedded a
comprehensive, fit-for-purpose risk management
framework and policy architecture
Third line of
defence – Group
Internal Audit
Provides risk ownership and
oversight responsibilities
Identifies, records, reports and
manages the risks
Ensures that the right controls
and assessments are in place to
mitigate the risks
Sets the frameworks and policies
for managing specific risk types
Provides advice and guidance in
relation to the risk
Provides independent oversight
and reporting on the Group’s risk
profile
Provides challenges to the
effectiveness of the risk
management and control
processes
Provides independent and
objective assurance on the
adequacy of the design and
operational effectiveness of the
risks and control environment
AIB Group plc Annual Financial Report 2019Risk Management 73
1.2.1 Roles and responsibilities across the
three lines of defence
The high level roles each line of defence play in risk
management adopted by the Group and its licenced
subsidiaries are described below. Although the licenced
subsidiaries are separate legal entities, the risk assessment,
measurement and control procedures of the Group are also
applied to the subsidiaries. The Board and its sub-committees;
Board Risk Committee and Board Audit Committee are
ultimately responsible for ensuring the effective operation of the
lines of defence model.
1.3 Risk governance and oversight
The Group’s Governance and Organisation Framework
encompasses the leadership, direction and control of the
Group, reflecting guidelines, statutory obligations and ensures
that control arrangements provide appropriate governance
of the Group’s strategy, operations and mitigation of related
material risks. This is achieved through a risk governance
structure designed to facilitate the reporting, evaluation and
escalation of risk concerns, from business segments and
control functions upwards to the Board and its appointed
committees and sub-committees.
First line of defence
The first line of defence lies with the business line managers
who own the risk and are required to establish effective
governance and controls for their business areas to be
compliant with Group policy requirements, to maintain
appropriate risk management skills, mechanisms and toolkits,
and to act within Group risk appetite parameters set and
approved by the Board.
Second line of defence
The second line of defence comprises the Risk function and
oversees the first line, setting the frameworks, policies and
limits, consistent with the risk appetite of the Group. The second
line of defence is responsible for providing independent
oversight and challenge to business line managers with regard
to risk management. In the case of credit risk, independent
oversight includes credit risk’s role in credit sanctioning.
Oversight involves regular monitoring of business unit’s risk
management activities and reporting. Challenge requires
proactive engagement with business line managers to test
and confirm the integrity and effectiveness of first line risk
management.
Nominated ‘second line risk accountable executives’ are
responsible for ensuring the formulation of risk strategy; that
a Risk policy and framework is in place for the risks assigned
to them; that the exposure to the risk is correctly identified and
assessed according to the Group’s materiality criteria; reporting
is appropriate; identified risk events are appropriately managed
or escalated; and that independent objective analysis of the risk
is undertaken.
In setting the Risk policy, the second line of defence consult
with the first line of defence as appropriate and provide advice
and guidance to ensure the risk is sufficiently understood.
Third line of defence
Group Internal Audit’s primary responsibility is to the Board
through the Board Audit Committee. Group Internal Audit
helps the Board to carry out their corporate governance
responsibilities by providing an independent view on the key
risks facing the Group, and the adequacy and effectiveness
of governance, risk management and the internal control
environment in managing these risks. All activities undertaken
on behalf of the Group are within the scope of Group Internal
Audit.
1.3.1 Board of Directors
The Board of Directors is ultimately responsible and
accountable for the effective management of risks and for the
system of internal controls in the Group. The system of internal
control is designed to ensure thorough and regular evaluation
of the nature and extent of risks, and the ability of the Group
to react accordingly. The Board is supported by a Board Risk
Committee on risk oversight matters, and by a Board Audit
Committee in relation to the effectiveness of internal control
systems designed and implemented to manage risk and by
the Executive Committee in relation to strategic risk oversight
matters.
Board Audit Committee
The Board Audit Committee is composed of Non-Executive
Directors and operates under Board approved Terms of
Reference. The Chair of the Board and the Chief Executive
Officer are not permitted to be members of the Board Audit
Committee. The Board Audit Committee is appointed by the
Board to assist the Board in fulfilling its oversight responsibilities
in relation to:
(i)
the quality and integrity of the Group’s accounting policies,
financial and narrative reports, and disclosure practices;
(ii) the effectiveness of the Group’s internal control, risk
management, and accounting and financial reporting
systems;
(iii) the adequacy of arrangements by which staff may, in
confidence, raise concerns about possible improprieties in
matters of financial reporting or other matters; and
(iv) the independence and performance of the internal and
external auditors.
Board Risk Committee
The Board Risk Committee is composed of Independent Non-
Executive Directors and operates under Board approved Terms of
Reference. The Board Risk Committee is appointed by the Board
to assist in fulfilling its oversight responsibilities in relation to:
(i)
fostering sound risk governance across all of the Group’s
entities and operations;
(ii) discharging its responsibilities in ensuring that risks within
the Group are appropriately identified, managed and
controlled;
(iii) ensuring that the Group’s strategy is informed by and
aligned with the Group’s Risk Appetite Statement taking
account of the overall risk appetite, the current financial
position of the Group and the capacity of the Group to
manage and control risks within the agreed strategy; and
AIB Group plc Annual Financial Report 2019Risk Management 123456 74
Risk management – 1. Framework
(iv) promoting a risk awareness culture within the Group.
The Board Risk Committee oversees the risk management
function which is managed on a day-to-day basis by the
Chief Risk Officer, and liaises regularly with the Chief
Risk Officer to ensure that the development and on going
maintenance of a risk management system within the
Group is effective and proportionate to the nature, scale
and complexity of the risks inherent in the business.
1.3.2 Executive Committee
The Executive Committee is the most senior management
committee of the Group. The Executive Committee has primary
authority and responsibility for the day-to-day operations of,
and the development of strategy for the Group. The Executive
Committee works with and advises the CEO, ensuring a
collaborative approach to decision making and collective
ownership of strategy development and implementation,
including promoting action to address performance issues
as required. Certain powers and authorities of the Board
have been delegated to a number of subordinate executive
committees. While the Executive Committee has delegated
certain of its powers and authorities to these committees,
it retains ultimate accountability for the functions delegated.
Group Risk Committee
The Group Risk Committee is a sub-committee of the Executive
Committee and is chaired by the Chief Risk Officer.
•
•
•
•
The roles and responsibilities of the Group Risk Committee are:
Approving risk frameworks, risk appetite statements, risk
•
policies and limits to manage the risk profile of the Group;
Reviewing the Group’s risk profile (enterprise wide);
Periodically reviewing the effectiveness of the Group’s risk
management policies for identifying, evaluating, monitoring,
managing, and measuring significant risks;
Providing oversight and challenge of regulatory, operational
and conduct risk related matters;
Providing oversight and challenge of credit risk
management related matters and periodically review the
credit portfolio exposures and trends;
Providing oversight and challenge of risk measurement
matters;
Overseeing the development of the Group’s risk
management culture;
Monitoring and reviewing the Group’s risk profile for equity
risk and the business segment limits for equity risk;
Advising the Executive Committee on the risk impact of
strategic initiatives that the Group may be considering and
determining whether the initiatives are within risk appetite;
and
Providing advice to the Board Risk Committee on risk
governance, current and future risk exposures and risk
appetite.
•
•
•
•
•
The sub-committees of the Group Risk Committee include
the Group Credit Committee, the Regulatory and Conduct
Risk Committee, the Risk Measurement Committee and the
Operational Risk Committee:
•
The Group Credit Committee is responsible for the approval
of all large credit transactions in line with credit approval
authorities, exercising approval authority for credit policies
and recommending estimated credit loss outcomes across
the Group for onward review by the Board Audit Committee.
It approves credit inputs to credit decisioning models, as
well as reviewing and approving other credit related matters
as they occur;
The Regulatory and Conduct Risk Committee is responsible
for the governance and oversight of regulatory and conduct
risks;
The Operational Risk Committee is responsible for the
governance and oversight of operational risks;
The Risk Measurement Committee is responsible for
the governance, oversight and approval of all aspects of
the Group’s risk measurement systems, material model
methodologies as well as the maintenance of existing
material models.
•
•
•
Group Asset and Liability Management Committee
(“ALCo”)
ALCo is the Group’s strategic and business decision making
forum for balance sheet management matters. It is responsible
for effective balance sheet management and its alignment to
Group strategy for funding and liquidity risk, market risk and
capital adequacy risk. ALCo monitors the external economic
environment, markets and the performance of the Group and
makes commercial decisions on pricing, investments and
funding in response. The Committee was established by, and is
accountable to the Executive Committee.
1.4 Risk strategy
Integration of key risk management processes
The following section sets out at a high level the connection of
key risk management activities within the Group. It illustrates
the integration of the Group strategy through to recovery and
resolution planning.
Group strategy
The Group’s strategic ambition is to be at the heart of our
customers’ financial lives by responsibly and comprehensively
meeting their life-stage needs, aiming to be a sustainable,
capital-generative and efficient business. The Group’s strategy
is driven by the five strategic pillars that determine the areas
of focus and drive investment. The strategy is defined within
the boundaries of the Group’s Risk Appetite Statement and
approved by the Board. The Group’s Risk Appetite Statement,
defines the amount and type of risk that is willing to accept in
pursuit of its strategic goals.
AIB Group plc Annual Financial Report 2019Risk Management Risk strategy setting
The risk strategy, articulated through the annual risk plan and
the risk objectives, is a key element in informing the Board on
how risk is to be managed. The Group has a set of strategic risk
objectives which support the delivery of the Group’s strategy
with a specific focus on the Risk and Capital pillar.
Risk culture
A strong risk culture is vital for the Group to achieve its strategic
objectives. The risk culture defines how risk is managed
and owned throughout the Group. It is the values, beliefs,
knowledge, attitudes and understanding of risk shared by
people. It sets the foundation for how the Group manages risk
in a consistent and coherent manner. Risk culture is one of the
key elements of the Group’s Risk Management Framework;
it is through the risk framework and policy documents that an
awareness of risk and control is set and cascaded throughout
the Group.
1.5 Risk management lifecycle
The key processes which support the Group’s approach to risk
management are set out below:
•
Identification and assessment – through various
assessments and processes including analysis and testing
across material risks;
Measurement and management – management selects an
appropriate risk response: avoiding, accepting, reducing,
or sharing risk and develops a set of management
actions. These actions are activities initiated to improve
management of specific risks or in response to a risk event;
Monitoring, escalating and reporting – the continuous
monitoring of risks to ensure that the key risks remain within
risk appetite; and
Testing and assurance – an objective examination of
evidence for the purpose of providing an independent
assessment of governance, risk management and control
processes for the Group in relation to all risk types.
•
•
•
Identification
and
assessment
Testing and
assurance
Measurement
and
management
75
1.5.1 Identification and assessment
Risk is identified and assessed in the Group through a
combination of the following:
• Material risk assessment;
• Risk and control assessment;
• Setting risk appetite;
•
• Stress testing;
•
•
• Recovery and resolution planning.
Linking to the Annual Financial Plan;
Internal Capital Adequacy Assessment Process (“ICAAP”);
Internal Liquidity Adequacy Assessment Process (“ILAAP”);
Material risk assessment
The material risk assessment is a top down process performed
on an annual basis for the Group which identifies the key
material risks. This assessment takes into account its strategic
objectives and incorporates both internal and external risk
information. The Board Risk Committee is responsible for the
annual approval of the Group material risk assessment whilst
the Group Risk Committee is responsible for the annual review
of the Group material risk assessment.
Risk and control assessment
First line of defence is responsible for ensuring that detailed
bottom up risk and control assessments are undertaken
for all businesses or business processes falling under their
responsibility. These assessments are performed regularly and
whenever there is a material change in organisation, business
processes or business environment.
Setting risk appetite
The Board sets the risk appetite for the Group informed by the
material risk assessment. Risk appetite is the nature and extent
of risk that the Group is willing to take, accept, or tolerate in
pursuit of its business objectives and strategy. It also informs
the Group’s strategy, and as part of the Risk Management
Framework, is a boundary condition to strategy and guides
the Group in its risk taking and related business activities.
The financial plan is tested to ensure it is within the risk appetite.
The Group Risk Appetite Statement is an articulation of the
Group’s appetite for, and tolerance of risk expressed through
qualitative statements and quantitative limits and thresholds.
The Group Risk Appetite Statement seeks to encourage
appropriate risk taking to ensure that risks are consistent with
the Group strategy and risk appetite. The Group Risk Appetite
Statement cascades into key business segments with separate
Risk Appetite Statements for each licenced subsidiary reflecting
the risk appetite of the subsidiary as a standalone entity.
Monitoring,
escalating
and reporting
•
The Group’s risk appetite statement is built on the following
overarching qualitative statements:
•
We aim to grow our business by identifying, understanding
and managing all the risks that impact us, ensuring
appropriate returns for risks and by building long term
sustainable relationships with our customers which are
resilient through the cycle;
We have a low appetite for income volatility and target
steady, sustainable earnings to enable appropriate regular
dividend payments;
AIB Group plc Annual Financial Report 2019Risk Management 123456 76
Risk management – 1. Framework
•
•
•
•
•
•
•
•
•
We do not have an appetite for large proprietary market risk
positions in our trading book;
We accept the concentration risk arising from our focus on
markets in Ireland and the UK. Within these markets we
seek to avoid excessive concentrations to sectors or single-
names and test repayment capacity in stress conditions;
We seek to attract and retain skilled staff and place great
emphasis on the integrity of staff and accountability for both
inaction and actions taken, rewarding behaviours consistent
with our brand values and code of conduct;
We offer our customers transparent, consistent and fair
products and services and seek always to deliver fair
customer outcomes;
We seek to maintain the highest level of availability of key
services for our customers;
We seek to comply with all relevant laws and regulations,
our business is underpinned by a strong control framework;
We seek to maintain a strong capital base that generates
returns in line with stakeholder and market expectations;
We consider opportunities for inorganic growth that would
support the Group in terms of scale and/or capability, where
the Group has proven competence and capacity, and that
maintains alignment with our qualitative Risk Appetite
Statements; and
We seek resilient, diversified funding relying significantly on
retail deposits.
Linking to the Annual Financial Plan
The financial plan is integral to how the Group manages its
business and monitors performance. It informs the delivery
of the Group’s strategy and is aligned to the Risk Appetite
Statement. It enables realistic business objectives to be set for
management, identifies accountability in the Group’s delivery
of planning targets and identifies the risks to the delivery of
the Group’s strategic goals and the mitigants of those risks.
The plan is produced under base and moderate downside
scenarios. It is the basis for assessment of business model risk
and internal capital adequacy.
Stress testing
The Group’s risk identification and assessment processes
described above are supported by a framework of stress
testing, scenario and sensitivity analysis and reverse stress
testing. It seeks to ensure that risk assessment is dynamic
and forward looking, and considers not only existing risks but
also potential and emerging threats. This enhances the overall
risk management of the Group by informing risk appetite,
capital and contingency planning and strategy formulation.
Interdependencies between the Group’s material risks are also
considered as part of the stress testing scenario impact analysis.
In addition, ad hoc stress tests are undertaken as required
to inform strategic decision making. Reverse stress testing is
undertaken as part of the Group’s recovery planning i.e. the
means by which the Group assesses the key threats to its
viability and the available mitigants to address them.
The results of internal stress tests are challenged quarterly by
the Risk function and reviewed by ALCo.
Internal Capital Adequacy Assessment Process (“ICAAP”)
It is the Group’s policy to maintain adequate capital resources at
all times, having regard to the nature and scale of its business
and the risks arising from its operations. The Internal Capital
Adequacy Assessment Process (“ICAAP”) is the process by
which the Group performs a formal and rigorous assessment
of its balance sheet, business plans, risk profile and risk
management processes to determine whether it holds adequate
capital resources to meet both internal objectives and external
regulatory requirements. Multiple scenarios are considered for
each ICAAP including both systemic and idiosyncratic stress
tests ranging from moderate to extreme and are applied to the
Group’s material risks as identified through its material risk
assessment. The time horizon of three years is aligned with the
planning horizon.
Internal Liquidity Adequacy Assessment Process (“ILAAP”)
The Internal Liquidity Adequacy Assessment Process (“ILAAP”)
is the process by which the Group performs a formal and
rigorous assessment of its balance sheet, business plans,
risk profile and risk management processes to determine
whether it holds sufficient financial resources of appropriate
quality to meet both internal objectives and external regulatory
requirements. Multiple scenarios are considered for each
ILAAP including both firm specific and systemic risk events and
a combination of both to ensure the continued stability of the
Group’s liquidity position within the Group’s pre-defined liquidity
risk tolerance levels. The stress time horizon of three years is
aligned with the planning horizon.
Recovery planning
The Group’s recovery plan sets out the arrangements and
measures that the Group could adopt in the event of severe
financial stress to restore the Group to long term viability.
The recovery plan contains a suite of recovery triggers which
identify the points at which the recovery escalation process
would be activated.
Resolution planning
Resolution is the restructuring of a group, that has failed or
is likely to fail, by a resolution authority through the use of
resolution tools in order to:
•
•
•
safeguard the public interest;
ensure the continuity of the group’s critical functions;
ensure financial stability in the economy in which it
operates; and
• minimise costs to taxpayers.
The Single Resolution Board is the Group’s resolution authority.
National resolution authorities in Ireland and the UK input to
the annual resolution college (chaired by the Single Resolution
Board) to arrive at resolution decisions and a preferred
resolution strategy for the Group.
AIB Group plc Annual Financial Report 2019Risk Management The resolution college has stated that the preferred resolution
strategy for the Group is a single point of entry bail-in via AIB
Group plc. The resolution college sets the loss absorbing
capacity requirements for Minimum Required Eligible Liabilities
and the critical functions of the Group as well as work
programmes to be implemented to mitigate any perceived
impediments to resolvability.
Senior management are responsible for implementing the
measures that are needed to make the Group resolvable.
A wide-ranging programme is in place to address the
requirements of the resolution authorities. As well as numerous
subject matter working groups, the Resolution Planning Project
Board and Resolution Steering provide key governance around
resolution planning.
1.5.2 Measurement and management
Risk measurement
Each of the material risks has a specific approach to how the
risk is measured. The Group Risk Appetite Statement and the
separate risk appetite statements for the licensed subsidiaries
contain metrics which are measured on a monthly basis against
the limits set.
Risk management
The material risk types are actively managed and measured
against their respective frameworks, policies and processes
on an ongoing basis. Risk models are used to measure credit,
market, liquidity and funding risk, and where appropriate,
capital is allocated (taking account of risk concentrations) to
mitigate material risks. The management and measurement of
the Group’s risk profile also informs the Group’s strategic and
operational planning processes.
1.5.3 Monitoring, escalating and reporting
The Group has designed risk appetite statement metrics for
each of its material risk categories. Material risks are actively
monitored under their respective frameworks and policies to
ensure material risks are managed effectively in line with the
Group’s Risk Appetite Statement. The material risk frameworks
and policies set out the process for the escalation of the
relevant risk appetite statement limit breaches.
Risk reporting
Risk reporting facilitates management decision-making and
is a critical component of risk governance and oversight. Risk
reporting processes are in place for each of the material risks
under the relevant risk frameworks and policies. This enables
management, governance committees and other stakeholders
to oversee: the effectiveness of the risk management
processes, adherence to risk policies, and (where relevant)
adherence to regulatory requirements.
Should a breach of a risk appetite statement limit occur, it
is reported to the Board and the Group’s regulator. On a
monthly basis the CRO reports actual performance against risk
appetite statements and key risk indicators to the Board Risk
Committee.
77
1.5.4 Testing and assurance
The material risk types are continuously tested and assured in
line with the Group assurance methodology, which distinguishes
between risk management, risk control and risk assurance.
Testing
As the Group operates the three line of defence model, each
line of defence is responsible for preparing an assurance/
business controls testing plan for the year ahead, with
consideration of the adequacy of the risk identified and the
design and effectiveness of the controls in place.
Integrated assurance
Integrated assurance is the alignment of governance, risk and
assurance activities, linked with the Group’s strategy to better
co-ordinate efforts and risk reporting, with the aim of improving
performance and resilience.
1.6 Risk management in operation
During 2019, there was increased focus around three key
risk themes, Brexit, climate risk and cyber risk. This section
describes the risk management approach adopted by the Group.
1.6.1 The UK exit from the European Union (“Brexit”)
This section outlines the steps undertaken by the Group
to manage the risks associated with Brexit. Four working
groups were established to identify any potential risks with
representatives attending from areas across the Group to
provide their subject matter expertise.
The Group manages the uncertainty and risk posed by Brexit
through a number of Brexit Readiness and Response working
groups:
• Risk Top Down Working Group
• Business Response Working Group
• Operational Continuity Working Group
• Product and Customer Readiness Working Group
Oversight of these groups is executed via the Brexit Steering
Group which provides a quarterly Brexit update to the Board.
The Group’s response to the potential impact of Brexit on
its material risks is coordinated through the Risk Top Down
Working Group, its responsibilities include:
•
Reviewing and recommending action plans across both
the first and second line as contingency planning for a hard
Brexit outcome;
• Reviewing and challenging first line readiness; and
•
Reviewing reports on leading Brexit risk indicators and
delivering recommendations to the CRO of any change in
the risk profile arising from Brexit.
The Board received monthly updates throughout 2019 on the
preparedness of the Group. It considered Brexit in the context
of the overall Group strategy and financial planning cycle.
This incorporates financial and risk scenarios that capture the
potential Brexit outcomes.
In a Brexit event, where there was the likelihood of a severe
stress scenario or significant customer impact, a forum called
‘the Brexit Taskforce’, would be mobilised to immediately
co-ordinate the Group’s operational response.
A ‘dry run’ of the Brexit Taskforce was conducted during 2019.
AIB Group plc Annual Financial Report 2019Risk Management 123456 78
Risk management – 1. Framework
1.6.3 Cyber risk
This section outlines how the Group manages Cyber risk, as
a sub-risk within the Operational Risk Framework. Information
security risk is concerned with managing the risk of harm being
caused to the Group or its customers as a result of a loss of
the confidentiality, integrity or information. Cyber risk affects all
industry sectors including international banks.
The Group operates its cyber defences in line with international
standards combining controls that help predict, prevent, detect
and respond to attacks. The Group continues to improve its
defences and control environment which have proven robust
to date. Nonetheless, the Group’s cyber threat profile remains
elevated, with the threat landscape becoming more diverse, and
attacks increasing in sophistication and volume. Attackers are
using a range of advanced tools and techniques in an attempt
to disrupt the Group’s activities including:
•
Hacking – unauthorised individuals attempting to
intentionally access information and cause harm;
Malware – targeted malicious emails purportedly from
legitimate sources with the goal of installing malicious
software on a staff member’s computer;
Social engineering – employing deception, manipulation
and intimidation to exploit staff members in order to obtain
information, e.g. phishing; and
Distributed Denial of Service (“DDoS”) – attempting to
make an online service unavailable by overwhelming it with
requests from multiple sources.
•
•
•
The Group’s exposure to cyber risk is monitored by the Board
through its regular risk reporting and focused updates on
specific cyber-related topics. Key cyber risk indicators were
monitored during 2019 which included:
•
•
Investment in cyber security defences; and
The number of high-impact cyber security incidents.
In light of the threat profile, the Group continues to classify and
manage cyber as a high risk, informed by the annual Material
Risk Assessment.
1.6.4 Coronavirus outbreak
The recent coronavirus outbreak (COVID-19) is an emerging
risk that the Group is monitoring closely. Should the outbreak
impact on the economies or markets to which the Group or
our customers are exposed, it could potentially impact on the
Group’s performance. The Group has established a monitoring
group to assess the range of possible impacts and will continue
to respond to the situation as it evolves. Any impact will depend
on future developments, which are highly uncertain.
1.6.2 Climate risk
The Group has identified climate change as a key risk driver for
the business model, credit risk and operational risk.
•
In 2019, the Risk function conducted initial research on the
subject of climate risk and its impact on overall risk and
integration into total risk management. Climate risk and its
impacts are being assessed in the Group’s 2020 Material
Risk Assessment process.
A credit risk working group was established to perform a
high level portfolio review on the impact of climate change
on the Group’s portfolios.
The Group’s new project finance policy sets out the rules
for financing of long term infrastructure, industrial projects
and public services. It identifies sectors which the Group is
keen to support with project finance (e.g. renewable energy)
as well as sectors which are excluded (e.g. oil and gas
exploration).
In addition, a number of other sectors considered to be
incongruent with the aims of sustainability were identified
for exclusion from future lending. The Group is working to
incorporate these exclusions into credit risk policy in 2020.
AIB UK is required to consider the Prudential Regulatory
Authority’s policy and supervisory statement on the financial
risks of climate change and incorporate these within the
context of the overall Group’s objective of supporting
customers to transition to a low carbon economy. Following
the publication of the Prudential Regulatory Authority Policy
Statement PS11/19 and Supervisory Statement SS3/19
concerning the management of the financial risks from
climate change, AIB UK submitted an action plan setting out
how they plan to achieve the overall management of climate
change risk.
Areas of development for 2020
In line with the Group’s 2022 strategy, risk management will
work to further integrate sustainability considerations into the
Group’s risk management approach as follows:
•
Aligned with the Group’s focus on climate action, the Group
views climate risk as a key area that continues to evolve due
to ongoing regulatory changes and increasing understanding
of its importance. The Risk functions will continue to
integrate climate risk into overall risk management and
monitor developments to support the Group’s ambition to
build a more sustainable business.
The Risk function will consider the impact of climate risk
scenario analysis in consultation with other stakeholders
and define the management information required to identify
a range of scenarios with a view to developing a climate risk
stress-testing capability.
Credit risk will review the impact of climate risk on credit
frameworks and policies and will enhance these where
required.
Compliance will continue to monitor relevant regulatory
guidance relating to climate risk and complete impact
assessments for all regulations which may impact the Group.
Operational risk will review new and changed products with
due consideration to sustainability elements.
Ongoing reviews of all other risk frameworks and policies to
consider environmental, social and governance principles
and in particular the impact of climate risk.
•
•
•
•
•
•
•
•
•
AIB Group plc Annual Financial Report 2019Risk Management Risk management – 2. Individual risk types
79
2.1 Credit Risk
Definition
Credit risk organisation and structure
Credit risk monitoring
Measurement, methodologies and judgements
Credit profile of the loan portfolio
Non-performing exposures to customers
Loans and advances to customers – Asset class analysis
Residential mortgages
Other personal
Property and construction
Non-property business
Gross loans and ECL movements
Investment securities
Credit ratings
Large exposures
Forbearance
Republic of Ireland residential mortgages by year of origination
Page
80
81
83
88
101
105
107
114
116
118
125
130
134
134
135
144
AIB Group plc Annual Financial Report 2019Risk Management 123456 80
Risk management – 2. Individual risk types
2.1 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 their
contractual obligations.
Based on the annual risk identification and materiality assessment, credit risk is grouped into the following four sub categories:
i.
Counterparty risk: The risk of losses arising as a result of the counterparty not meeting their contractual obligations in full and on
time;
Credit default risk: The current or prospective risk to capital arising from the obligors’ failure to meet the terms of any contract with
the Group;
ii.
iii. Concentration risk: The risk of excessive credit concentration including to an individual, counterparty, group of connected
iv.
counterparties, industry sector, a geographic region, country, a type of collateral or a type of credit facility; and
Country risk: The risk of having exposure to a country, arising from possible changes in the business environment that may
adversely affect operating profits or the value of assets related to the country.
Credit risk exposure derives from standard on-balance sheet products such as mortgages, loans, overdrafts and credit cards. However,
credit risk also arises from other products and activities including, but not limited to: “off-balance sheet” guarantees and commitments;
the trading portfolio (e.g. bonds and derivatives); investment securities; asset backed securities; and partial failure of a trade in a
settlement or payment system.
Credit risk management
The activities which govern the management of credit risk within the Group are as follows:
–
Formulate and implement a comprehensive credit risk strategy that is viable through various economic cycles, supported by a robust
suite of credit policies that support the Group’s approved Risk Appetite Statement and generate appropriate returns on capital within
acceptable levels of credit quality;
Establish governance authority fora to provide independent oversight and assurance to the Board with regards to credit risk
management activities and the quality of the credit portfolio;
Develop and continuously reinforce a strong, risk focused culture across the credit risk management functions through the credit
cycle, which supports the Group’s goals and enables business growth, provides constructive challenge and avoids risks that cannot
be adequately measured;
Ensure all management and staff involved in core credit risk activities across the three lines of defence are fully capable of
conducting their duties to the highest standard in compliance with the Group’s policies and procedures;
Operate within a sound and well defined credit granting process where risks for new and existing lending exposures are identified,
assessed, measured, managed and reported in line with risk appetite and the credit risk policy;
Establish and enforce an efficient internal review and reporting system to manage effectively the Group’s credit risk across various
portfolios including, establishing and enforcing internal controls and assurance practices to ensure that exceptions to policies,
deviations to credit standards, procedures and limits are monitored and reported in a timely manner for review and action;
Ensure a sound methodology exists to proactively assess risk and to identify deteriorating credit quality to minimise losses and
maximise recoveries in work out scenarios;
Utilise management information and risk data of appropriate quality, to ensure an effective credit risk measurement process when
reporting on the holistic risk profile of the Group including any changes in risk profile and emerging or horizon risks; and
Mitigate potential credit risk arising from new or amended products or activities.
–
–
–
–
–
–
–
–
The Group’s credit risk framework as outlined on pages 72 to 78 supports these credit activities and encompasses a suite of credit
policies and standards which support the credit risk sanctioning policies and policy guidance and provide a common and consistent
approach to the management of credit risk.
AIB Group plc Annual Financial Report 2019Risk Management 81
2.1 Credit risk
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, independent oversight of and challenge to
credit risk-taking.
Group Risk Appetite Statement
The Group’s Risk Appetite Statement (“RAS”) process sets the amount and nature of risks that the Group is willing to accept within
its risk capacity in pursuit of its financial objectives and informs both Group strategy and policies. As part of the overall framework
for risk governance, it forms a boundary condition to strategy and guides the Group in its risk-taking and related business activities.
Credit risk appetite is set at Board level and is described, reported and monitored through a suite of qualitative and quantitative metrics.
Risk appetite is stress tested to ensure limits are within the risk-taking capacity of the Group. The Group’s risk appetite for credit risk is
reviewed and approved at least annually.
Credit risk principles and policy*
The Group implements and operates policies to govern the identification, assessment, approval, monitoring and reporting of credit
risk. The Group Credit Risk Framework and Group Credit Risk Policy are overarching Board approved documents which set out, the
principles of how the Group identifies, assesses, approves, monitors and reports credit risk to ensure that robust credit risk management
is in place. These documents contain the minimum standards and principles that are applied across the Group to provide a common,
robust and consistent approach to the management of credit risk.
The Group Credit Risk Policy is supported by a suite of credit policies, standards and guidelines which define in greater detail the
minimum standards and credit risk metrics to be applied for specific products, business lines, and market segments.
Credit Risk, as an independent risk management function, monitors key credit risk metrics and trends, including policy exceptions and
breaches, reviews the overall quality of the loan book, challenges variances to planned outcomes and tracks portfolio performance
against agreed credit risk indicators. This allows the Group, if required, to take early and proactive mitigating actions for any potential
areas of concern.
Credit approval overview
The Group operates credit approval criteria which:
–
–
Include a clear indication of the Group’s target market(s), in line with Group and segment risk appetite statements;
Require 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
– Enforce compliance with minimum credit assessment and facility structuring standards.
Credit risk approval is undertaken by 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 Board is the ultimate credit approval authority in the Group. The Board has delegated credit authority to various credit committees
and to the Chief Credit Officer (CCO). The CCO is permitted to further delegate this credit authority to individuals within the Group on
a risk appropriate basis. Credit limits are approved in accordance with the Group’s written risk 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.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 123456 82
Risk management – 2. Individual risk types
2.1 Credit risk
Internal credit ratings*
As part of the credit approval process and the ongoing review of this process, 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 risk rating models is fundamental in
assessing the credit quality of loan exposures, with variants of these used for the calculation of regulatory capital. All relevant exposures
are assigned to a rating system and within that to an internal risk grade. A grade is assigned on the basis of rating criteria within each
rating model from which estimates of probability of default (PD through the cycle) are derived.
Internal 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. In line with the Group’s credit management lifecycle, heightened credit management and special
attention is paid to lower quality performing loans or ‘criticised’ loans and non-performing/defaulted loans which are defined below.
Using internal models, the Group has designed and implemented a credit grading masterscale that gives it the ability to categorise
credit risk across different rating models and portfolios in a consistent manner. The masterscale consolidates complex credit information
into a single attribute, aligning the output from the risk models with the Group’s Definition of Default policy. Credit grades are driven by
model appropriated PDs in order to provide the Group with a mechanism for ranking and comparing credit risk associated with a range
of customers. The masterscale categorises loans into a broad range of grades which can be summarised into the following categories:
strong/satisfactory grades; criticised grades; and non-performing/default loans. Page 101 and 102 sets out the profile of the Group’s
loan portfolio under each of the above grade categories.
Strong/satisfactory
Accounts are considered strong/satisfactory if they have no current or recent credit distress and the probability of default is typically less
than 6.95%, they are not in arrears and there are no indications that they are unlikely to repay.
Strong (typically with PD less than 0.99%): Strong credit with no weakness evident.
Satisfactory (typically with PD greater than or equal to 0.99% and less than 6.95%): Satisfactory credit with no weakness evident.
Criticised
Accounts of lower credit quality and considered as less than satisfactory are referred to as criticised and include the following:
Criticised watch: The credit is exhibiting weakness in terms of credit quality and may need additional management attention; the credit
may or may not be in arrears.
Criticised recovery: Includes forborne cases that are classified as performing including those which have transitioned from non-
performing forborne, but still require additional management attention to monitor for re-default and continuing improvement in terms of
credit quality.
In addition to the internal credit ratings as outlined above, the Group implemented IFRS 9 on 1 January 2018. The IFRS 9 PD modelling
approach uses a combination of rating grades and scores obtained from these credit risk models along with key factors such as age
of an account, the current/recent arrears status or the current/recent forbearance status and macroeconomic factors to obtain the
relevant IFRS 9 12 month and Lifetime PDs (i.e. point in time). The Group has set out its methodologies and judgements exercised in
determining its expected credit loss (“ECL”) under IFRS 9 on pages 88 to 98.
Non-performing/default
On 1 January 2018, the Group introduced a new definition of default aligned with the EBA ‘Guidelines on the application of the definition
of default’ under Article 178 of Capital Requirements Regulation and ECB Banking Supervision Guidance to Banks on Non-performing
loans. The Group has aligned the definitions of ‘non-performing’, ‘classification of default’ and IFRS 9 Stage 3 ‘credit impaired’, with
the exception of those loans which have been derecognised and newly originated in Stage 1 or POCI (purchased or originated credit
impaired). This alignment ensures consistency with the Group’s internal credit risk management and assessment practices.
These loans are identified as non-performing or defaulted by a number of characteristics. The key criteria resulting in a classification of
non-performing are:
–
Where the Group considers a credit obligor to be unlikely to pay his/her credit obligations in full without realisation of collateral,
regardless of the existence of any past-due amount; or
The credit obligor is 90 days or more past due on any material credit obligation. Day count starts when any amount of principal,
interest or fee has not been paid by a credit obligor on the due date.
–
The trigger for default is based on a calculation of the sum of all past due amounts related to the credit obligation for a retail credit
obligor or related to the credit obligations for a non-retail credit obligor. The Group’s definition of financial distress, forbearance,
non-performing exposures and unlikeliness to pay are included in the Group’s Definition of Default policy.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 83
2.1 Credit risk
Internal credit ratings* (continued)
Non-performing/default (continued)
Non-performing loans are analysed by the following categories on page 105:
Unlikely to pay – Where the Group considers a credit obligor to be unlikely to pay his/her credit obligations in full without realisation of
collateral, regardless of the existence of any past-due amount.
Greater than 90 days past due – Credit obligor that is past due by 90 days or more on any material obligation.
Collateral disposals – Post restructure cases requiring asset disposal as part of the restructure agreement. These loans will remain as
non-performing until the asset is sold and the loan cleared.
Non-performing loans probation – Where the credit obligor, as a result of financial distress, received a concession from the Group
on terms or conditions, and is currently operating in line with the post restructure arrangements, and will remain in the non-performing
probationary period for a minimum of 12 months before moving to a performing classification, subject to meeting defined probation
criteria.
Credit risk monitoring*
The Group has developed and implemented processes and information systems to monitor and report on individual credits and credit
portfolios in order to manage credit risk effectively. 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 to the Board Risk Committee. Credit
managers proactively manage the Group’s credit risk exposures at a transaction and relationship level. Monitoring includes 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 expected credit
losses including individual large non-performing 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. The Group allocates significant resources to ensure ongoing monitoring and compliance with approved risk limits.
Credit risk, including compliance with key credit risk limits, is reported monthly. Once an account has been placed on a watch/early
warning list, the exposure is carefully monitored and where appropriate, exposure reductions are effected. In addition, exceptions to
credit policy are reviewed regularly.
As a matter of policy, unless pre-approved documented exceptions arise, all facilities 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.
Criticised borrowers are subject to an ‘unlikely to pay’ test at the time of annual review, or earlier, if there is a material adverse change or
event in their credit risk profile.
Through a range of forbearance solutions as outlined on page 135, the Group employs a dedicated approach to loan workout,
monitoring and proactive management of non-performing loans. A specialised recovery function focuses on managing the majority of
criticised loans and deals with customers in default, collection or insolvency. Their mandate is to support customers in difficulty while
maximising the return on non-performing loans. 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.
Further details on forbearance are set out in ‘Risk management 2.1 Additional credit quality and forbearance disclosures on loans and
advances to customers’.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 123456 84
Risk management – 2. Individual risk types
2.1 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, the Group uses various
approaches to help mitigate risks relating to individual credits, including transaction structure, collateral and guarantees. Collateral and/
or guarantees are usually required as a secondary source of repayment in the event of a borrower’s default. The main types of collateral
for loans and advances 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 rating. Each bank is assessed for the appropriate maximum exposure limit in line with 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 credit obligation or commitment which has the potential to create interbank or country exposure.
Collateral
Credit risk mitigation may include a requirement to obtain collateral as set out in the Group’s lending policies. Where collateral and/or
guarantees are required, they are usually taken as a secondary source of repayment in the event of a borrower’s default. The Group
maintains policies which detail the acceptability of specific classes of collateral.
The principal collateral types for loans and advances are:
– Charges over business assets such as premises, inventory and accounts receivable;
– Mortgages over residential and commercial real estate; and
– Charges over financial instruments such as debt securities and equities.
The nature and level of collateral required depends on a number of factors such as the type of the credit facility, the term of the credit
facility and the amount of exposure. Collateral held as security for financial assets, other than for loans and advances, 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 advances to banks, 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.
For non-mortgage lending, where collateral is taken, it will typically include a charge over the business assets such as inventory and
accounts receivables. In some cases, a charge over property collateral or a personal guarantee supported by a lien over personal
assets may also be taken. Where cash flows arising from the realisation of collateral held are included in ECL assessments, in many
cases management rely on valuations or business appraisals from independent external professionals.
Methodologies for valuing collateral
As property loans, including residential mortgages, represent a significant concentration within the Group’s loans and advances to
customer’s portfolio, some key principles have been applied in respect of the valuation of property collateral held by the Group.
In accordance with the Group’s Property Valuation Policy and Guidelines, the Group uses a number of methods to assist in reaching
appropriate valuations for property collateral held. These include:
– Use of independent professional external valuations; and
– Use of internally developed methodologies, including residual valuations.
Use of independent professional external valuations represent circumstances where external firms are engaged to provide formal
written valuations in respect of the property. Up-to-date external independent professional valuations are sought in accordance with the
Group’s Property Valuation Policy and Guidelines. Available market indices for relevant assets, e.g. residential property are also used in
valuation assessments, where appropriate.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 85
2.1 Credit risk – Credit exposure
Credit risk mitigants* (continued)
Methodologies for valuing collateral (continued)
The residual value analysis methodology assesses the value of the 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 in this methodology include:
(i)
(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.
the development potential given the location of the asset;
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 values may be applied. Alternative use value
(subject to planning permission) may also be considered.
In the context of other internal methodologies, appropriate 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), or if available stabilised EBITDA.
When assessing the value of residential properties, recent transactional analysis of comparable sales in an area combined with the
Central Statistics Office (“CSO”) Residential Property Price index in the Republic of Ireland may be used.
The value of property collateral is assessed at loan origination and at certain stages throughout the credit life cycle e.g. including at
annual review where required, in accordance with the Property Valuation Policy and Guidelines.
Collateral and ECLs
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 remain a key factor in ECLs determination. Additionally, 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 ECL allowance 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.
When undertaking an ECL review for individually assessed cases that have been deemed unlikely to pay, the present value of future
cash flows, including the value of collateral held, and the likely time required to realise such collateral is estimated. An ECL allowance is
raised for the difference between this present value and the carrying value of the loan.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 123456 86
Risk management – 2. Individual risk types
2.1 Credit risk – Credit exposure
Credit risk mitigants* (continued)
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 99.
Loans and advances to customers – residential mortgages
The following table shows the estimated fair value of collateral held for the Group’s residential mortgage portfolio at 31 December 2019
and 2018:
At amortised cost
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
10,956
8,421
3,464
2,933
917
761
674
267
201
137
858
514
220
149
141
2019
Total
€ m
At amortised cost
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
POCI
€ m
2018
Total
€ m
12,604
10,187
9,676
3,982
3,308
1,214
8,241
3,300
2,377
1,047
1,290
1,065
416
305
203
835
700
312
263
255
28
75
39
30
25
12,340
10,081
4,067
2,975
1,530
POCI
€ m
29
67
31
25
19
26,691
2,040
1,882
171
30,784
25,152
3,279
2,365
197
30,993
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
232
81
201
10
524
405
137
501
14
1,057
Total collateral value
26,923
2,121
2,083
181
31,308
25,557
3,416
2,866
211
32,050
Gross residential mortgages
26,973
2,144
2,143
194
31,454
25,617
3,441
3,023
234
32,315
ECL allowance
(10)
(52)
(476)
(31)
(569)
(8)
(51)
(623)
(31)
(713)
Net residential mortgages
26,963
2,092
1,667
163
30,885
25,609
3,390
2,400
203
31,602
(1) The value of collateral held for residential mortgages which are fully collateralised has been capped at the carrying value of the loans outstanding at each
year end.
For residential mortgages, the Group takes collateral in support of lending transactions for the purchase of residential property.
Collateral valuations are required at the time of origination of each residential mortgage. The value at 31 December 2019 and 2018 is
estimated 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.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 87
2.1 Credit risk – Credit exposure
Credit risk mitigants* (continued)
Loans and advances to customers – other
In addition to the credit risk mitigants outlined on the previous page, the Group, from time to time, enters reverse repurchase
agreements with borrowers. At 31 December 2019, the Group had accepted collateral with a fair value of € 86 million in respect of
reverse repurchase agreements. There were no such agreements outstanding at 31 December 2018.
Derivatives
Derivative financial instruments are recognised in the statement of financial position at their fair value. Those with a positive fair value
are reported as assets which at 31 December 2019 amounted to € 1,271 million (2018: € 900 million) and those with a negative fair
value are reported as liabilities which at 31 December 2019 amounted to € 1,197 million (2018: € 934 million).
The enforcement of netting agreements would potentially reduce the statement of financial position carrying amount of derivative assets
and liabilities by € 575 million at 31 December 2019 (2018: € 325 million). The Group also has Credit Support Annexes (“CSAs”) in place
which provide collateral for derivative contracts. At 31 December 2019, € 643 million (2018: € 609 million) of CSAs are included within
financial assets as collateral for derivative liabilities and € 347 million (2018: € 266 million) of CSAs are included within financial liabilities
as collateral for derivative assets (note 46 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 advances to banks
Interbank placings, including central banks, are largely carried out on an unsecured basis apart from reverse repurchase agreements.
The collateral received in respect of repurchase agreements at 31 December 2019 had a fair value of € 151 million. There were no such
agreements outstanding at 31 December 2018.
Investment securities
At 31 December 2019, government guaranteed senior bank debt which amounted to € 268 million (2018: € 250 million) was held within
the investment securities portfolio.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 123456 88
Risk management – 2. Individual risk types
2.1 Credit risk
Measurement, methodologies and judgements*
Introduction
The Group has set out the methodologies used and judgements exercised in determining its expected credit loss (“ECL”) allowance for
the year to 31 December 2019.
International Financial Reporting Standard 9 (IFRS 9) introduced the expected credit loss impairment model that requires a more timely
recognition of ECL across the Group. The standard does not prescribe specific approaches to be used in estimating ECL allowances,
but stresses that the approach must reflect the following:
– An unbiased and probability weighted amount that is determined by evaluating a range of possible outcomes;
– Underlying models should be point in time – recognising economic conditions;
– The ECL must reflect the time value of money;
– A lifetime ECL is calculated for financial assets in Stages 2 and 3; and
–
Models used in the ECL calculation must incorporate reasonable and supportable information that is available without undue cost or
effort at the reporting date about past events, current conditions and forecasts of future economic conditions.
The standard defines credit loss as the difference between all contractual cash flows that are due to an entity in accordance with the
contract and all the cash flows that the entity expects to receive (i.e. all cash shortfalls), discounted at the original effective interest rate
(“EIR”) or an approximation thereof (see ‘Measurement’ section below).
ECLs are defined in IFRS 9 as the weighted average of credit losses across multiple macroeconomic scenarios, the probability of each
scenario occurring as weights and are an estimate of credit losses over the life of a financial instrument.
The ECL model applies to financial instruments measured at amortised cost or at fair value through other comprehensive income.
In addition, the ECL approach applies to lease receivables, loan commitments and financial guarantee contracts that are not measured
at fair value through profit or loss.
A key principle of the ECL model is to reflect any relative deterioration or improvement in the credit quality of financial instruments
occurring (e.g. change in the risk of a default). The ECL amount recognised as a loss allowance or provision depends on the extent of
credit deterioration since initial recognition together with the usual credit risk parameters.
Measurement bases
Under IFRS 9, there are two measurement bases:
1
12-month ECL (Stage 1), which applies to all financial instruments from initial recognition as long as there has been no significant
increase in credit risk; and
Lifetime ECL (Stages 2 and 3 and POCI), which applies when a significant increase in credit risk has been identified on an account
(Stage 2), an account has been identified as being credit-impaired (Stage 3) or when an account meets the POCI criteria.
2
Staging
Financial assets are allocated to stages dependent on credit quality relative to when assets were originated.
Credit risk at origination
Credit risk at origination (“CRAO”) is a key input into the staging allocation process. The origination date of an account is determined
by the date on which the Group became irrevocably committed to the contractual obligation and the account was first graded on an
appropriate model.
For undrawn credit facilities, the Group uses the date of origination as the date when it becomes party to the irrevocably contractual
arrangements or irrevocable commitment. For overdrafts which have both drawn and undrawn components, the date of origination is the
same for both.
The Group uses best available information for facilities which originated prior to a credit risk rating model or scorecard being in place.
For accounts that originated prior to 1 January 2018, a neutral view of the macroeconomic outlook at the time is used, i.e. where
macroeconomic variables are used in the Lifetime PD models, long-run averages are used instead of historical forecasts.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 89
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Stage 1 characteristics
Obligations are classified Stage 1 at origination, unless purchased or originated credit impaired (“POCI”), with a 12 month ECL being
recognised. These obligations remain in Stage 1 unless there has been a significant increase in credit risk.
Accounts can also return to Stage 1 if they no longer meet either the Stage 2 or Stage 3 criteria, subject to satisfaction of the
appropriate probation periods, in line with regulatory requirements.
Stage 2 characteristics
Obligations where there has been a ‘significant increase in credit risk’ (“SICR”) since initial recognition but do not have objective
evidence of credit impairment are classified as Stage 2. For these assets, lifetime ECLs are recognised.
The Group assesses at each reporting date whether a significant increase in credit risk has occurred on its financial obligations
since their initial recognition. This assessment is performed on individual obligations rather than at a portfolio level. If the increase is
considered significant, the obligation will be allocated to Stage 2 and a lifetime expected credit loss will apply to the obligation. If the
change is not considered significant, a 12 month expected credit loss will continue to apply and the obligation will remain in Stage 1.
SICR assessment
The Group’s SICR assessment is determined based on both quantitative and qualitative measures:
Quantitative measure: This measure reflects an arithmetic assessment of the change in credit risk arising from changes in the
probability of default. The Group compares each obligation’s annualised average probability weighted residual lifetime probability
of default (“LTPD”) at origination (see ‘Credit risk at origination’) to its annualised average probability weighted residual LTPD at the
reporting date. If the difference between these two LTPDs meets the quantitative definition of SICR, the Group transfers the financial
obligation into Stage 2. Increases in LTPD may be due to credit deterioration of the individual obligation or due to macroeconomic
factors or a combination of both. On adoption of IFRS 9, the Group determined that an account had met the quantitative measure if the
average residual LTPD at the reporting date was more than double the average residual LTPD at origination, and the difference between
the LTPDs was at least 50bps.
The impact of this measure is under regular review by the Group for items such as the (i) the volume of exposures moving frequently
between Stages 1 and 2, (ii) potential over-reliance on backstop and qualitative measures for identifying Stage 2 exposures and
(iii) comparison of Stage 1 and 2 exposures to the internal credit ratings view of exposures. In 2019, following an assessment of
mortgage exposures including the items above, a change to the quantitative SICR threshold from 50bps to 85bps was approved by the
Group. This was implemented in the Irish residential mortgage portfolio at December 2019.
Qualitative measure: This measure reflects the assessment of the change in credit risk based on the Group’s credit management
and the individual characteristics of the financial asset. This is not model driven and seeks to capture any change in credit quality that
may not be already captured by the quantitative criteria. The qualitative assessment reflects pro-active credit management including
monitoring of account activity on an individual or portfolio level, knowledge of client behaviour, and cognisance of industry and economic
trends.
The criteria for this trigger include, for example:
– A downgrade of the borrower’s/facility’s credit grade reflecting the increased credit management focus on these accounts; and/or
– Forbearance has been provided and the account is within the probationary period.
Backstop indicators: The Group has adopted the rebuttable presumption within IFRS 9 that credit obligations greater than 30 days past
due represent a significant increase in credit risk.
Where SICR criteria are no longer a trigger, the account can exit Stage 2 and return to Stage 1.
Stage 3 characteristics
Defaulted obligations (with the exception of newly originated loans that are in Stage 1 or POCI) are classified as credit impaired
and allocated to Stage 3. Where default criteria are no longer met, the obligor exits Stage 3 subject to probation period, in line with
regulatory requirements.
Two key criteria resulting in a classification of default are:
–
Where the Group considers a credit obligor to be unlikely to pay his/her credit obligations in full without realisation of collateral,
regardless of the existence of any past-due amount; or
The credit obligor is 90 days or more past due on any material credit obligation (count starts when any amount of principal, interest
or fee has not been paid by a credit obligor at the date it was due).
–
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 123456 90
Risk management – 2. Individual risk types
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
The trigger for default is based on a calculation of the sum of all past due amounts related to the credit obligation for a retail credit
obligor or related to the credit obligations for a non-retail credit obligor. The Group’s definition of financial distress, forbearance,
non-performing exposures and unlikeliness to pay are included in the Group’s Definition of Default policy.
Loans may return to Stage 3 if any of the default triggers reoccur.
Purchased or originated credit impaired (“POCI”)
POCIs are assets originated credit impaired where the difference between the discounted contractual cash flows and the fair value at
origination is greater than or equal to 5%. The Group uses an appropriate discount rate for measuring ECL in the case of POCIs which
is the credit-adjusted effective interest rate. This rate is used to discount the expected cash flows of such assets to fair value on initial
recognition.
POCI obligations remain outside of the normal stage allocation process for the lifetime of the obligation. The ECL for POCI obligations is
always measured at an amount equal to lifetime expected credit losses. The amount recognised as a loss allowance for these assets is
the cumulative changes in lifetime expected credit losses since the initial recognition of the assets rather than the total amount of lifetime
expected credit losses.
Measurement of expected credit loss
The measurement of ECL is estimated through one of the following approaches:
i.
Standard approach: This approach is used for the majority of exposures where each ECL input parameter (Probability of Default
- PD, Loss Given Default - LGD, Exposure at Default - EAD, and Prepayments - PP) is developed in line with standard modelling
methodology which is set out in the Group IFRS 9 ECL Model Framework and has been approved by the relevant governance
forum. The Group’s IFRS 9 models have been approved in line with the Group’s Model Governance Framework. (An overview of
credit risk models is outlined on pages 91 and 92).
ii.
Simplified approach: For portfolios not on the standard approach, the Group has followed a simplified approach. This approach
consists of applying portfolio level ECL averages, drawn from similar portfolios, where it is not possible to estimate individual
parameters. These generally relate to portfolios where specific IFRS 9 models have not been developed due to immateriality, low
volumes or where there are no underlying grading models. As granular PDs are not available for these portfolios, a non-standard
approach to staging is required with more reliance on the qualitative criteria (along with the 30 days past due back-stop).
iii. Discounted cash-flows (“DCFs”): Assets are grouped together and modelled based on asset classification and sector with the
exception of those Stage 3 assets where a DCF is used. DCFs are used as an input to the ECL calculation for Stage 3 credit
impaired exposures where gross credit exposure is ≥ € 1 million (Republic of Ireland) or ≥ £ 500,000 (UK).
Collateral valuations and the estimated time to realisation of collateral is a key component of the DCF model. The Group
incorporates forward looking information in the assessment of individual borrowers through the credit assessment process. The DCF
assessment produces a base case ECL. This is then adjusted to incorporate the impact of multiple scenarios on the base ECL, by
using a proportional uplift obtained from ECL modelled sensitivities in the same portfolio.
iv.
Management judgement: Where the estimate of ECL does not adequately capture all available forward looking information about
the range of possible outcomes, or where there is a significant degree of uncertainty, management judgement may be considered
appropriate for an adjustment to ECL. The management adjustment must consider all relevant and supportable information,
including but not limited to, historical data analysis, predictive modelling and management experience. The methodology to
incorporate the adjustment should consider the degree of over collateralisation (headroom) and should not result in a zero overall
ECL unless there is sufficient headroom to support this. The key judgements in the 2019 year end ECL estimates are outlined on
page 274.
Effective interest rate
The ECL must incorporate the time value of money discounted to the reporting date using the effective interest rate (“EIR”) determined
at initial recognition or an approximation thereof.
–
The Group uses an approximation approach based on the account level interest rate when calculating ECL which is applied to both
drawn and undrawn commitments.
This approach is subject to an annual assessment that all approximations remain appropriate and do not result in a material
misstatement of the ECL.
The Group has tested the appropriateness of using current interest rates as an approximation for the discount rates required for
measuring ECLs. This testing determined that using the current interest rates as the discount rates is an appropriate approximation.
–
–
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management
91
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Policy elections and simplifications
Low credit risk exemption
The Group utilises practical expedients, as allowed by IFRS 9, for the stage allocation of particular financial instruments which are
deemed ‘low credit risk’. This practical expedient permits the Group to assume, without more detailed analysis, that the credit risk on a
financial instrument has not increased significantly since initial recognition if the financial instrument is determined to have ‘low credit
risk’ at the reporting date. The Group allocates such assets to Stage 1.
Under IFRS 9, the credit risk on a financial instrument is considered low if:
–
–
–
the financial instrument has a low risk of default;
the borrower has a strong capacity to meet its contractual cash flow obligations in the near term; and
adverse changes in economic business conditions in the longer term may, (but will not necessarily) reduce the ability of the borrower
to fulfil its contractual cash flow obligations.
This low credit risk exemption is applied to particular assets within the investment debt securities portfolio and for loans and advances to
banks, specifically, assets which have an internal grade equivalent to an external investment grade (BBB-) or higher.
If an asset does not meet the above criteria for the low credit risk exemption, further assessment is required to determine stage
allocation. If such assets are on a watch list, they are categorised as Stage 2.
Short term cash
The Group policy does not calculate an ECL for short term cash at central banks and other banks which have a low risk of default (‘PD’)
with a very low risk profile. The calculation of the ECL at each reporting date would be immaterial given these exposures’ short term
nature and their daily management.
Lease receivables and trade receivables
For lease receivables, the Group has elected to use its standard methodology for both stage allocation and the ECL calculation and has
elected to use an expedient (simplified approach) for trade receivables.
Credit risk models
Probability of default
Probability of default (“PD”) is the likelihood that an account or borrower defaults over an observation period, given that they are
not currently in default. The PD modelling approach uses a combination of rating grades/scores obtained from credit risk models,
as outlined on page 82, along with key factors such as the age of an account, the current/recent arrears status or the current/recent
forbearance status and macroeconomic factors to obtain the relevant 12 month (Stage 1) and Lifetime (Stage 2) PD.
Loss given default
Loss given default (“LGD”) is a current assessment of the amount that will not be recovered in the event of default, taking account of
future conditions. It can be thought of as the difference between the amount owed to the Group (i.e. the exposure) and the net present
value of future cash flows less any costs expected to be incurred in the recovery process. If an account returns to performing from
default (absent any loss making concession) or if the discounted post-default recoveries are equal to or greater than the exposure, the
realised loss is zero.
The LGD modelling approach depends on whether the facility has underlying security and, if so, the nature of that security. The following
sets out the approaches to the portfolios:
Retail portfolios
For unsecured loans, a cash flow curve, which estimates the cumulative cash received following default until the loan is written-off or
returns to performing, is used to estimate the future recovery amount. This is discounted at the effective interest rate and compared to
the current outstanding balance. Any shortfall between the recovery amount and the outstanding balance is the ECL.
For secured loans, the value of underlying collateral is estimated at the forecasted time of disposal (taking into account forecasted
market price growth/falls and haircuts on market values that are expected at the date of sale) in order to calculate the future recovery
amount. Estimated costs of disposal are taken into account in this calculation.
Non-retail portfolios
For unsecured loans, characteristics such as borrower sector and nature of collateral linked to affiliated accounts under the same
customer group are used to determine future losses.
For secured loans, the value of the underlying collateral is estimated at the reporting date. This is used to estimate the ECL.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 123456 92
Risk management – 2. Individual risk types
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Exposure at default
Exposure at default (“EAD”) is defined as the exposure amount that will be owed by a customer at the time of default. This will comprise
changes in the exposure amount between the reporting date and the date that the customer defaults. This may be due to repayments,
interest and fees charged and additional drawdowns by the customer.
Prepayments
For term credit products, prepayment occurs where a customer fully prepays an account prior to the end of its contractual term.
For revolving credit products, ‘prepayment’ is defined as the cessation of use and withdrawal of the facility provided that the account
was not in default prior to closure.
Prepayment is used in the lifetime ECL calculation for Stage 2 loans to account for the proportion of the facilities/customers that prepay
each year.
Determining the period over which to measure ECL
Both the origination date and the expected maturity of a facility must be determined for ECL purposes. The origination date is used to
measure credit risk at origination (as explained above).
The expected maturity is used for assets in Stage 2, where the ECL must be estimated over the remaining life of the facility.
The expected maturity approach is:
–
Term credit products: the contractual maturity date, with exposure and survival probability adjusted to reflect behaviour i.e.
amortisation and prepayment;
Revolving credit products: the period may extend beyond the contractual period over which the Group is exposed to credit risk,
e.g. overdrafts and credit cards. The Group’s approach for these is to assume an appropriate remaining term based on the
characteristics of the portfolio and sensitivity of ECLs.
–
Forward looking indicators in models
For ECL calculations reliant on models in the standard and simplified approaches, forward looking indicators are incorporated into the
models through the use of macroeconomic variables. These have been identified statistically as the key macroeconomic variables that
drive the parameter being assessed (e.g. PD or LGD). The final model structure incorporates these as inputs with the 12 month and
lifetime calculations utilising the macroeconomic forecasts for each scenario. See ‘macroeconomic scenarios and weightings’ below for
more detail on the process for generating scenarios and associated key macroeconomic factors relevant for the models.
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 ECL will be written-off. The Group determines, based on specific criteria,
the point at which there is no reasonable expectation of recovery, e.g. inception of formal insolvency proceedings or receivership/other
formal recovery action. This is considered on a case-by-case basis.
Debt forgiveness may subsequently arise where there is a formal contract with the customer for the write-off of the loan. In addition,
certain forbearance solutions and restructuring agreements may include an element of debt write down (debt forgiveness). Details
of forbearance are set out in Risk management 2.1 Additional credit quality and forbearance disclosures on loans and advances to
customers.
The contractual amount outstanding of loans written-off during the year that are still subject to enforcement activity are outlined on page
124 and relate to non-contracted write-offs, both full and partial.
The Group recognises cash received from the customer in excess of the carrying value of the loan after a non-contracted write-off as
‘recoveries of amounts previously written-off’ in the income statement.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 93
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Macroeconomic scenarios and weightings
The macroeconomic scenarios used by the Group for ECL allowance calculations are subject to the Group’s governance process
covering the development and approval of macroeconomic scenarios for planning and stress testing i.e. through Stress Test Working
Group and Asset and Liability Committee (ALCo). The parameters used within the Group’s ECL models include macroeconomic
factors which are established drivers of the default risk and loss estimates. Therefore, a different credit loss estimate is produced for
each combination of macroeconomic factors within a particular scenario. These credit loss estimates for each given scenario are then
weighted by the assessed likelihood of occurrence of the respective scenarios to yield the ECL outcome.
Macroeconomic scenarios:
The Group’s approach is to use its base, downside (both ‘global slowdown’ and ‘disorderly’ Brexit) and upside macro-scenarios from
the financial planning and stress testing processes for IFRS 9 purposes. The inclusion of a fourth scenario in 2019 (‘global slowdown’)
was deemed necessary to ensure that different triggers of downside outcomes are available given the continued uncertainty over
the Brexit process. The use of current planning scenarios ensures that the scenarios used for IFRS 9 are consistent with the Group’s
expectations of potential outcomes at a point in time. Non-linear effects are captured in the development of risk parameters as well as
through the inclusion of both a single upside and two downside scenarios. The Group’s Economic Research Unit (ERU) provides base,
downside and upside forecasts over five years for planning/IFRS 9. These are then independently reviewed and challenged, on both a
quantitative and qualitative basis, by the Group Enterprise Risk Management (ERM) function. The base case is benchmarked against
the outlook available from official sources (e.g. Department of Finance, ESRI, IMF, etc.). Upside and downside scenarios are provided
based on realistic triggers for each scenario and represent sensitivities around the base. For IFRS 9 purposes, longer term projections
are sourced from a reputable external provider with the internal base/upside and downside scenarios converging on a linear basis
towards the external forecasts from years 5 to 8. External long term forecasts represent long term base line forecasts for the parameter/
economy in question. The forecasted scenarios are approved on a quarterly basis at Group ALCo and on an annual basis by the Board.
The scenarios are described below and reflect the views of the Group at the reporting date.
Base case: As at the reporting date, this reflects an ‘orderly’ Brexit outcome. Under this scenario, the Irish economy continues to
perform strongly in the absence of external shocks, helped by very low interest rates, mildly expansionary fiscal policy, solid growth in
exports, recovering construction sector and good growth in employment and real incomes. However, some deceleration from the very
robust growth rates seen in recent years is likely as the economy is now close to full employment and given the slowdown in growth in
Ireland’s key export markets. Irish house price inflation has decelerated over the past year reflecting the impact of the Central Bank’s
macro-prudential rules on mortgage lending and supply. House prices are expected to rise at low single digit levels, broadly in line with
wage inflation over the next five years. The rate of increase in commercial real estate prices is expected to run at low single digit levels
as the market moves closer to equilibrium.
Under an orderly Brexit, the UK economy is not expected to suffer any significant disruption and will perform at close to its long term
potential. In terms of the US economy, growth in GDP is expected to slow as a result of the diminishing effects of the significant fiscal
stimulus, a slower pace of global growth and capacity constraints in the ‘full-employment’ labour market. Growth in the eurozone is
expected to improve slightly over the forecast period.
Downside (‘disorderly’ Brexit): Under this scenario, the UK exits the EU in a disorderly manner and has to apply World Trade
Organisation (WTO) rules. There is a significant slowdown in Irish GDP in this period as a result of the deep links between the
two economies with 40% of indigenous Irish exports going to the UK, which is also the land bridge route for much of Irish exports
to mainland Europe. These exports (as well as imports from the UK) all become subject to customs checks, tariffs, increased
administration as well as regulatory costs and transport delays. As a result, this assumes that Irish GDP growth is lower in a ‘disorderly’
Brexit scenario than in the base case over the three years to 2022 although the adverse effects are offset somewhat by an expected rise
of inward investment into Ireland (as firms divert new or existing investments away from the UK).
A ‘disorderly’ Brexit results in a sharp decline in trade between the UK and EU as well as an outflow of investment from the UK,
especially from the financial sector and a decline in Foreign Direct Investment (“FDI”). The UK economy enters recession during this
period. The impact on the EU is limited as less than 10% of EU exports go to the UK and the impact on the US is even more limited.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 123456 94
Risk management – 2. Individual risk types
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Macroeconomic scenarios and weightings (continued)
Downside (‘global slowdown’): Under this scenario, the global economy continues to lose momentum. The key triggers under this
scenario are:
– a continued move towards protectionism, which would result in further escalation in trade tensions;
– an increase in risk aversion, which would cause large asset price shifts and financial market instability; and
– an ‘orderly’ Brexit outcome.
In the next three years, large developed European economies would enter a mild recession while activity in the US is subdued. For the
Irish economy, given the importance of exports as an engine of growth, the slowdown in the international economy has a significant
impact. FDI is also adversely affected with business and consumer confidence lowered as a result. There is a slowdown in the recovery
of house building and GDP growth over the first three years is significantly lower than in the base case. Irish house prices register
modest declines - the scarcity of supply and the fact that the economy continues to see some growth help support the market, although
some foreign institutional investors reduce their exposure.
Upside: Under this scenario, given the moderate pace of growth in the current cycle since the end of the 2008-2009 recession, there
is scope for stronger growth in activity over the next number of years than is forecast in the base case. The lagged effects of very loose
monetary conditions, with central banks able to maintain interest rates at low levels because of subdued inflation, would see growth
strengthen above trend in advanced economies, helped also by an improvement in productivity and a recovery in international trade
as tensions in this area subside. Additionally, other countries could follow the lead of the US and adopt a more expansionary fiscal
programme of increased capital spending and tax cuts to boost growth, most notably in Europe. The UK agrees an ‘orderly’ Brexit with
the EU.
Given Ireland’s exposure to international trade, a better than expected performance by its key trading partners would have a positive
knock-on impact on its exports and in turn, on the rate of growth of the economy. This results in stronger growth on the domestic
side of the economy also, helped by a more expansionary fiscal policy stance. House building would also pick up strongly, helped by
government measures. As a result, Irish growth rates would exceed the base case materially over the first three years of the forecast
period.
The table below sets out the average five year forecast for each of the key macroeconomic variables that are required to generate the
scenarios or are material drivers of the ECL under (i) base; (ii) downside (‘disorderly’ Brexit); (iii) downside (‘global slowdown’); and (iv)
upside scenarios at 31 December 2019 and 2018:
Macroeconomic factor (%)
Republic of Ireland
GDP growth
Residential property price growth
Unemployment rate
Commercial property price growth
Employment growth
Average disposable income growth
United Kingdom
GDP growth
Residential property price growth
Unemployment rate
Commercial property price growth
Base
Downside
(‘disorderly’
Brexit)
Downside
(‘global
slowdown’)
2019
Upside
Base
Downside
2018
Upside
2.9
2.6
4.7
2.0
1.7
3.7
1.5
3.3
3.6
2.6
1.8
0.2
7.8
(1.8)
0.6
1.5
0.3
(2.6)
7.1
(3.8)
1.7
0.5
7.4
(1.8)
0.6
1.5
0.6
0.3
6.1
(1.5)
4.1
4.6
4.0
3.9
2.5
5
2.4
5.3
3.3
5.9
3.3
4.9
4.9
4.0
1.9
3.6
1.6
4.0
4.0
3.4
2.2
2.7
7.1
0.6
0.9
1.8
0.4
(1.6)
6.6
(1.0)
4.4
7.4
4.5
6.1
2.3
4.2
2.4
6.0
3.5
6.7
The key changes to the scenario forecasts in the reporting period are:
–
Reductions in residential property price growth forecast in Ireland across all scenarios as a result of the increased impact of the
Central Bank’s macro-prudential rules on mortgage lending as the property price growth in recent years has resulted in the loan to
value (“LTV”) and loan to income (“LTI”) thresholds becoming more difficult to meet for purchasers;
Reductions in the commercial property price growth forecast in Ireland across all scenarios as the market has moved closer to
equilibrium; and
Reductions in residential and commercial property price growth forecast in the UK across all scenarios as a result of lower than
expected growth in 2019.
–
–
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 95
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Macroeconomic scenarios and weightings (continued)
The four scenarios detailed above are used to reflect a representative sample of possible outcomes (i.e. base, downside (‘disorderly’
Brexit), downside (‘global slowdown’) and upside scenarios). The ECL allowance reflects a weighted average of the credit loss estimates
under the four scenarios.
Similar to the scenario forecasts, the probability weight assigned to each scenario is proposed by the ERU, with a review and challenge
from ERM. These are subject to review and approval at Group ALCo and the probabilities described below reflect the views of the Group
at the reporting date.
The weights for the scenarios are derived based on the expert judgement, with reference to external market information, informed by a
quantitative analysis. The key quantitative analysis is a statistical distribution analysis of Irish GDP growth over different time horizons
informed by historic patterns in the economic data.
–
These weightings were reviewed regularly during 2019. There were two changes to the probability weightings during the reporting
period
–
The probability of the downside scenario (prior to the additional downside scenario being added) was increased by 5% in the third
quarter of 2019 to reflect the increased uncertainty in relation to the Brexit process;
A new downside scenario (‘global slowdown’) was introduced in the fourth quarter of 2019 which required a full review of the
probability weightings in order to incorporate this new scenario. As the UK election has brought increased certainty to the withdrawal
element of Brexit this was deemed to have reduced the risk of the ‘disorderly’ Brexit scenario. A review of the new ‘global slowdown’
scenario indicated that as risks to the global economy remain to the downside, that this new scenario along with the ‘disorderly’
Brexit scenario should continue to have a significant probability attached. This reflects the fact that uncertainty, evident at
31 December 2019, in relation to both Brexit and global economic conditions, continues to remain elevated.
The weights that have been applied as at the reporting date are:
Scenario
Base
Weighting
31 December
2019
50%
30 June
2019
50%
31 December
2018
50%
Downside (‘disorderly’ Brexit)
Downside (‘global slowdown’)
Upside
25%
15%
10%
35%
n/a
15%
35%
n/a
15%
In assessing the adequacy of the ECL allowance, the Group has considered all available forward looking information as of the balance
sheet date in order to estimate the future expected credit losses. The Group, through its risk management processes (including the
use of expert credit judgement and other techniques) assesses its ECL allowance for events that cannot be captured by the statistical
models it uses and for other risks and uncertainties. The assessment of ECL at the balance sheet date does not reflect the worst case
outcome, but rather a probability weighted outcome of the four scenarios. Should the credit environment deteriorate beyond the Group’s
expectation, the Group’s estimate of ECL would increase accordingly.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 123456 96
Risk management – 2. Individual risk types
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Sensitivities
The Group’s estimates of expected credit losses are responsive to varying economic conditions and forward looking information.
These estimates are driven by the relationship between historic experienced loss and the combination of macroeconomic variables.
Given the co-relationship of each of the macroeconomic variables to one another and the fact that loss estimates do not follow a linear
path, a sensitivity to any single economic variable is not meaningful. As such, the following sensitivities are provided which indicate the
approximate impact on the current ECL allowance before the application of probability weights to the forward looking macroeconomic
scenarios. The sensitivities provide an estimate of ECL movements driven by both changes in model parameters including current
management judgements, and quantitative ‘significant increase in credit risk’ (“SICR”) staging assignments.
Relative to the base scenario, in the 100% downside ‘disorderly’ Brexit and ‘global slowdown’ scenario, the ECL allowance increases
by 19% and 12% respectively. In the 100% upside scenario, the ECL allowance declines by 9%, showing that the ECL impact of the
two downside scenarios is greater than that of the upside scenario. For 31 December 2019, a 100% downside ‘disorderly’ Brexit and
‘global slowdown’ scenarios sees a higher ECL allowance sensitivity of € 235 million and € 146 million respectively compared to base
(€ 163 million and € 74 million respectively compared to reported).
Loans and advances to customers
Residential mortgages
Other personal
Property and construction
Non-property business
Total
Loan commitments
Financial guarantee contracts
Of which:
AIB UK segment
Loans and advances to customers
Residential mortgages
Other personal
Property and construction
Non-property business
Total
Loan commitments
Financial guarantee contracts
Reported
Total
€ m
569
175
189
305
1,238
19
23
1,280
133
ECL allowance at 31 December 2019
100% Base 100% downside
(‘disorderly’
Brexit)
Total
€ m
Total
€ m
100% downside
(‘global
slowdown’)
Total
€ m
521
172
182
292
1,167
18
23
1,208
125
687
183
200
328
1,398
22
23
1,443
148
617
180
197
317
1,311
20
23
1,354
137
100% upside
Total
€ m
442
167
171
284
1,064
17
22
1,103
125
ECL allowance at 31 December 2018
Reported
Total
€ m
100% Base
Total
€ m
100% downside
Total
€ m
100% upside
Total
€ m
713
253
480
593
2,039
25
34
2,098
691
248
460
576
1,975
24
35
2,034
789
262
521
631
2,203
27
32
2,262
607
248
451
565
1,871
24
31
1,926
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 97
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Management judgements
The Group reflects reasonable and supportable information that is available at the reporting date in the measurement of ECLs.
Management adjustments may be required to increase or decrease ECLs to reflect all available reasonable and supportable information
to include risk factors that have not been included in the risk measurement process or where there is insufficient time to appropriately
incorporate relevant new information. Experienced credit judgement may be used to determine the particular attributes of exposures
that have not been adequately captured in the impairment models. Adjustments are required to be directionally consistent with forward
looking forecasts, supported by appropriate documentation and subject to appropriate governance processes. If an ongoing adjustment
is required, the risk measurement methodology should be updated to eliminate the adjustment, and as such, should be temporary in
nature, where appropriate.
The ECL allowance at 31 December 2019 includes the following management adjustments:
1. Primary dwelling house (“PDH”) mortgage post model adjustments
Stage 3 PDH ECL
The Group’s strategy is to deliver sustainable long term solutions and to work with customers through their financial difficulties. This has
primarily been through work-out arrangements with customers, including split mortgages, low fixed interest rate, voluntary sale for loss,
negative equity trade down and positive equity solution or through loan recovery following realisation of collateral. The mortgage LGD
model is based on empirical internal data for such resolved cases, and represents the Group’s expected loss based on those expected
work-out strategies. However, it is recognised that alternative recovery strategies, such as portfolio sales, also need to be considered
which were not envisaged at the time of model development. Accordingly, a post model adjustment has been applied to a cohort of
loans to reflect the potential resolution outcomes not currently considered within the modelled outcome.
The post model adjustment is calculated on a range of alternative recovery assumptions (including portfolio sales). An independent
external benchmark exercise is undertaken to provide information to support the range of alternative recovery outcomes with reference
to collateral values of the loans and to the underlying market conditions. The cohort to which the overlay applies to is primarily those
PDH loans in Stage 3 and in deep arrears (greater than 180 days) and was widened in 2019 to include certain loans from the 90 to 180
days past due category (c. € 63 million).
Probability weightings are applied to reflect a range of possible outcomes, incorporating potential market uncertainty around the ultimate
execution, aligned to the Group’s four economic scenarios used for ECL calculations as outlined on pages 93 to 95.
The ECL allowance of € 552 million for residential mortgages in Ireland at 31 December 2019 includes € 208 million (after non-
contracted write-offs amounting to € 40 million in 2019) as a result of this management adjustment.
At 31 December 2018, the ECL allowance of € 686 million included a management adjustment of € 239 million.
In addition to the write-offs noted above, the main movements in the overlay during the year were due to:
• Increase in portfolio following widening of the criteria as noted above;
• Reduction in portfolio following sales;
• Revisions to collateral valuations and market conditions; and
• The impact of the outcome of the four economic scenarios compared to the outcome assessed in 2018.
The revised portfolio size and collateral valuations resulted in an income statement charge of € 16 million. The greater market and
economic uncertainty reflected in the four scenarios resulted in a further € 37 million charge. (Total income statement charge in 2019:
€ 53 million).
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 123456 98
Risk management – 2. Individual risk types
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Management judgements (continued)
Forbearance product
An element of forborne loans in Stage 3 (€ 160 million), may require an alternative treatment at loan expiry in line with the Group’s
current mortgage resolution strategy. This is not currently captured within the modelled ECL outcome for this product.
Management have considered the proportion of this cohort that may require alternative treatment and a range of quantitative outcomes
in determining the estimated loss amounts at loan expiry which has resulted in a post model adjustment of € 20 million in 2019
(2018: Nil).
Lifetime interest only
A cohort of non-defaulted lifetime interest only mortgages have been identified for individual assessment to confirm likeliness to pay
(€ 103 million). The loans within this cohort have been allocated to Stage 2, pending individual assessment, reflecting management’s
qualitative judgement of a significant increase in credit risk given the additional end of term risk not fully incorporated into modelled
outcomes. This has resulted in a post model adjustment of € 9 million in 2019 (2018: Nil).
Further information on the above overlays is not provided as the Group believes that such information could compromise the resolution
outcomes given the underlying nature of the portfolios.
2. Syndicated lending portfolio
A detailed review of the ECL model for the syndicated lending portfolio in the CIB business segment was carried out in late 2019 and
it was determined that historically observed relationships between default rates and macroeconomic factors in the model needed to be
revised. As a result, a management adjustment for this portfolio of € 16 million has been applied at 31 December 2019 to increase the
ECL allowance to € 20 million (Stage 1: € 15 million and Stage 2: € 5 million).
3. AIB UK
At 31 December 2019, the AIB UK ECL allowance of € 126 million includes a € 17 million portfolio overlay to take account of the political
and economic uncertainties that exist and that were not adequately captured in the output from the macroeconomic scenarios and
weightings.
ECL governance
The Board has put in place a framework, incorporating the governance and delegation structures commensurate with a material risk,
to ensure credit risk is appropriately managed throughout the Group.
The key governance points in the ECL allowance approval process during 2019 were:
– Model Risk Committee
– Asset and Liability Committee
– Business level ECL Committees
– Group Credit Committee, and
– Board Audit Committee
For ECL governance, the Group management employs its expert judgement on the adequacy of ECL allowance. The judgements are
supported by detailed information on the portfolios of credit risk exposures, and by the outputs of the measurement and classification
approaches described above, coupled with internal and external data provided on both short term and long term economic outlook.
Business segments and Group management are required to ensure that there are appropriate levels of cover for all of its credit
portfolios and must take account of both accounting and regulatory compliance when assessing the expected levels of loss.
Assessment of the credit quality of each business segment is initially informed by the output of the quantitative analytical models
but may be subject to management adjustments. This ECL output is then scrutinised and approved at individual business unit level
(ECL Committee) prior to onward submission to the Group Credit Committee (GCC). GCC reviews and challenges ECL levels for
onward recommendation to the Board Audit Committee.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 99
2.1 Credit risk – Credit exposure overview
Maximum exposure to credit risk*
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 is 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 2019 and 2018:
Maximum exposure to credit risk
Balances at central banks(3)
Items in course of collection
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Investment securities(4)
Included elsewhere:
Trade receivables
Accrued interest
Loan commitments and other credit
related commitments
Financial guarantees
Total
Amortised
cost(1)
€ m
11,323
57
–
1,478
60,811
Fair
value(2)
€ m
–
–
1,271
–
77
635
15,881
495
261
–
–
2019
Total
€ m
11,323
57
1,271
1,478
60,888
16,516
495
261
Amortised
cost(1)
€ m
5,908
73
–
1,443
60,721
Fair
value(2)
€ m
–
–
900
–
147
187
15,946
112
301
–
–
2018
Total
€ m
5,908
73
900
1,443
60,868
16,133
112
301
75,060
17,229
92,289
68,745
16,993
85,738
11,539
711
12,250
87,310
–
–
–
11,539
711
12,250
17,229
104,539
11,107
780
11,887
80,632
–
–
–
16,993
11,107
780
11,887
97,625
(1)All amortised cost items are loans and advances and investment securities which are in a ‘held-to-collect’ business model.
(2) All items measured at fair value except investment securities at FVOCI and cash flow hedging derivatives are classified as ‘fair value through profit or loss’.
(3)Included within cash and balances at central banks of € 11,982 million (2018: € 6,516 million).
(4)Excluding equity shares of € 815 million (2018: € 728 million).
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 123456 100
Risk management – 2. Individual risk types
2.1 Credit risk – Credit exposure overview (continued)
Credit risk exposure derives from standard on-balance sheet products such as mortgages, loans, overdrafts and credit cards.
In addition, credit risk arises from other products and activities including, but not limited to: “off-balance sheet” guarantees and
commitments; the trading portfolio (e.g. bonds and derivatives); investment securities; asset backed securities; and the failure/partial
failure of a trade in a settlement or payments system.
The following table summarises financial instruments in the statement of financial position at 31 December 2019 and 2018:
Statement
of financial
position
Exposure
ECL
allowance
Carrying
amount
€ m
11,982
57
1,478
€ m
–
–
–
€ m
11,982
57
1,478
62,049
1,238
60,811
77
62,126
16,516
11,539
711
n/a
1,238
–
(19)
(23)
77
60,888
16,516
(19)
(23)
2019*
Income
statement
Net credit
impairment
(charge)/
writeback
€ m
–
–
–
(27)
n/a
(27)
–
6
5
(16)
Statement
of financial
position
Exposure
ECL
allowance
Carrying
amount
€ m
6,516
73
1,443
€ m
–
–
–
€ m
6,516
73
1,443
62,760
(2,039)
60,721
147
62,907
16,133
11,107
780
n/a
(2,039)
–
(25)
(33)
147
60,868
16,133
(25)
(33)
2018*
Income
statement
Net credit
impairment
(charge)/
writeback
€ m
–
–
1
209
n/a
209
–
(9)
3
204
Cash and balances at central banks
Items in course of collection
Loans and advances to banks
Loans and advances to customers:
at amortised cost
at FVTPL
Investment debt securities(1)
Loan commitments
Financial guarantee contracts
Total
(1)ECL allowance amounting to € 4 million (2018: € 4 million) included in carrying amount of investment securities at FVOCI.
There was a € 16 million net credit impairment charge in the year to 31 December 2019. This comprised of a € 27 million charge on
loans and advances to customers (net re-measurement of ECL allowance charge of € 117 million, offset by recoveries of amounts
previously written-off of € 90 million) and a € 11 million writeback for off-balance sheet exposures.
Further details on the net credit impairment charge in the year to 31 December 2019 are set out on page 287.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 101
2.1 Credit risk – Credit profile of the loan portfolio
The 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 table analyses loans and advances to customers at amortised cost by segment, internal credit ratings and ECL staging at
31 December 2019 and 2018:
Amortised cost
Gross carrying amount
Residential mortgages
Other personal
Property and construction
Non-property business
Total
Analysed by internal credit ratings(1)
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
CIB AIB UK
Group
2019
Total
CIB
AIB UK
Group
2018
Total
Retail
Banking
€ m
29,565
2,747
€ m
632
100
868
4,179
3,389
11,253
36,569
16,164
24,693
11,561
6,034
4,220
30,727
15,781
1,856
938
2,794
3,048
173
193
366
17
€ m
1,257
128
2,252
5,558
9,195
6,186
2,437
8,623
246
44
290
282
€ m
€ m
31,454
30,361
Retail
Banking
€ m
2,821
1,750
4,093
€ m
619
87
3,872
10,546
39,025
15,124
23,747
10,178
6,158
4,346
29,905
14,524
2,225
1,425
3,650
5,470
235
232
467
133
–
9
–
112
121
14
107
121
–
–
–
–
2,984
7,299
20,312
62,049
42,454
12,798
55,252
2,275
1,175
3,450
3,347
€ m
1,335
147
2,182
4,847
8,511
6,072
1,658
7,730
363
41
404
377
€ m
€ m
–
20
–
80
32,315
3,075
7,804
19,566
100
62,760
77
23
40,074
12,185
100
52,259
–
–
–
–
2,823
1,698
4,521
5,980
Gross carrying amount
36,569
16,164
9,195
121
62,049
39,025
15,124
8,511
100
62,760
Analysed by ECL staging
Stage 1
Stage 2
Stage 3
POCI
Total
30,698
15,680
8,224
121
54,723
29,367
14,664
7,563
99
51,693
2,836
2,841
194
467
17
–
689
282
–
–
–
–
3,992
3,140
194
4,343
5,080
235
376
83
1
571
377
–
–
1
–
5,290
5,541
236
36,569
16,164
9,195
121
62,049
39,025
15,124
8,511
100
62,760
ECL allowance – statement of financial position
Stage 1
Stage 2
Stage 3
POCI
Total
ECL allowance cover percentage
Stage 1
Stage 2
Stage 3
POCI
Income statement
Net re-measurement of ECL allowance
Recoveries of amounts previously written-off
Net credit impairment charge/(writeback)
65
151
796
31
1,043
%
0.2
5.3
28.0
16.1
€ m
77
(87)
(10)
%
45
23
1
–
69
%
0.3
5.0
10.1
–
31
28
67
–
126
%
0.4
4.1
23.6
–
–
–
–
–
–
%
–
–
–
–
€ m
€ m
€ m
21
–
21
%
19
(3)
16
%
–
–
%
–
141
202
864
31
1,238
%
0.3
5.1
27.5
16.1
€ m
117
(90)
27
%
0.04
109
208
1,419
31
1,767
%
0.4
4.8
27.9
13.2
€ m
(129)
(116)
(245)
%
35
25
4
–
64
%
0.2
6.6
4.8
–
27
38
143
–
208
%
0.4
6.7
37.9
–
–
–
–
–
–
%
–
–
–
–
€ m
€ m
€ m
22
–
22
%
17
(4)
13
%
1
–
1
%
171
271
1,566
31
2,039
%
0.3
5.1
28.3
13.1
€ m
(89)
(120)
(209)
%
(0.57)
0.19
0.15
0.93
(0.33)
Net credit impairment charge/
(writeback) on average loans
(0.03)
0.13
0.19
(1)Further analysis of internal credit grade profile by ECL staging is set out on pages 104 and 105.
AIB Group plc Annual Financial Report 2019Risk Management 123456 102
Risk management – 2. Individual risk types
2.1 Credit risk – Credit profile of the loan portfolio
The following table analyses loans and advances to customers at FVTPL by segment and internal credit ratings at 31 December 2019
and 2018:
FVTPL
Carrying amount
Property and construction
Total
Analysed by internal credit ratings
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
Total
Retail
Banking
€ m
–
–
–
–
–
–
–
–
–
–
CIB AIB UK
Group
€ m
77
77
77
–
77
–
–
–
–
77
€ m
€ m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2019
Total
€ m
77
77
77
–
77
–
–
–
–
77
Retail
Banking
€ m
50
50
–
–
–
–
–
–
50
50
CIB
AIB UK
Group
€ m
97
97
73
–
73
–
–
–
24
97
€ m
€ m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2018
Total
€ m
147
147
73
–
73
–
–
–
74
147
Gross loans and advances to customers
Gross loans and advances to customers reduced by € 0.8 billion in the year to 31 December 2019. Of the total portfolio of € 62.1 billion,
€ 62.0 billion is measured at amortised cost with the remaining € 0.1 billion being measured at fair value through profit or loss.
The reduction was driven by redemptions net of interest credited and other miscellaneous movements of € 11.3 billion and disposals
of € 2.1 billion. In addition, there was a further reduction of € 0.3 billion due to write-offs. These reductions were offset against new
lending activity of € 12.3 billion in 2019 which was € 0.2 billion higher than 2018, and € 0.6 billion in foreign exchange movements.
The decrease in gross loans was evident across all asset classes with the exception of the non-property business sector which
increased by € 0.7 billion, primarily due to strong new lending volumes in the UK and CIB segments. Overall, from a segment
perspective, Retail Banking decreased by € 2.5 billion driven by the disposal of distressed loans. This was slightly offset by increases in
CIB and UK of € 1.0 billion, € 0.7 billion respectively.
The asset quality profile of the Group continues to improve and has benefited from the continued deleveraging activity on the non-
performing book, the strong quality profile of new business and lower levels of grade deterioration.
Of the total loans to customers of € 62.1 billion, € 55.3 billion or 89% are rated as either ‘strong’ or ‘satisfactory’ which is an increase of
€ 3.0 billion (2018: € 52.3 billion or 83%), and was evidenced across all segments. The ‘criticised’ classification includes ‘criticised watch’
of € 2.3 billion and ‘criticised recovery’ of € 1.2 billion, the total of which has decreased by € 1.1 billion. Overall, the total performing book
has increased by € 2.0 billion to € 58.8 billion or 95% of gross loans and advances to customers (2018: € 56.8 billion and 90%).
Stage 3 loans decreased by € 2.4 billion to € 3.1 billion. The reduction was primarily as a result of the portfolio sales completed
throughout the year which impacted all asset classes but predominately property (€ 0.6 billion), non-property business (€ 0.6 billion), and
mortgage portfolios (€ 0.4 billion). Redemptions net of interest credited across all asset classes accounted for € 0.7 billion.
Non-performing loans are aligned to the Group’s definition of default and Stage 3 credit impaired with the exception of those originating
in Stage 1 (€ 24 million) and POCI (€ 0.2 billion). Non-performing loans originating in Stage 1 decreased by € 188 million during the
year to 31 December 2019, primarily due to disposals and loan quality deterioration. Non-performing loans reduced by € 2.7 billion to
€ 3.3 billion or 5.4% of gross loans and advances to customers (2018: € 6.1 billion and 9.6%). The reduction in non-performing loans
was driven by disposals of € 1.8 billion with the remainder due to redemptions.
ECL allowance
The ECL allowance on loans and advances to customers reduced by € 0.8 billion to € 1.2 billion in the year. The reduction was
predominately in Stage 3 relating to the portfolio sales of distressed loans. The ECL cover rate decreased from 3.2% at 31 December
2018 to 2.0% at 31 December 2019. This was primarily driven by the reduction in Stage 3 cover as a result of higher cover loans being
disposed of and the increase in lower cover Stage 1 loans.
AIB Group plc Annual Financial Report 2019Risk Management 103
2.1 Credit risk – Credit profile of the loan portfolio
Income statement
There was a € 16 million net credit impairment charge for the year to 31 December 2019 (2018: credit impairment writeback of
€ 204 million).
This comprised of a € 27 million credit impairment charge for loans and advances to customers and an € 11 million writeback in relation
to off balance sheet exposures (2018: credit impairment writeback of € 209 million and a charge of € 6 million respectively).
The € 27 million charge comprised a € 117 million ECL re-measurement allowance offset by € 90 million recoveries of amounts
previously written-off. (2018: € 209 million writeback comprising of € 89 million and € 120 million respectively).
There were a number of drivers which contributed to the € 117 million charge, the most significant of which were: the additional ECL
allowance required for post model adjustments; the changes in macroeconomic factors; and the impact of the probability weightings
across four economic scenarios.
As outlined under the Management judgements section, the impact of the post model adjustments on the PDH ECL allowance resulted
in a charge of € 82 million in Retail Banking. The post model adjustment in relation to the syndicated lending portfolio in CIB, resulted in
a charge of € 16 million.
Enhancements in 2019 to Retail Banking models (i.e. the Retail Asset Finance LGD model and the Retail Loans and Overdrafts PD
model) resulted in a € 33 million writeback.
Changes to the macroeconomic factors and probability weightings, excluding their impacts in post model adjustments, resulted in a
€ 46 million charge, which predominantly impacted Retail Banking. In the first half year, the Group updated the House Price Index
forecast to reflect slower anticipated growth which resulted in a € 23 million charge. In the second half of 2019, a fourth macroeconomic
scenario was introduced to reflect a global slowdown accordingly, the probability weightings across the scenarios were changed, details
of which are set out on pages 93 to 95, and resulted in a charge of € 23 million.
Other than the impact of the model changes (€ 76 million) and macroeconomic factors (€ 46 million) there was a net writeback of
€ 5 million. The ECL allowance movements are outlined on pages 125 to 129.
Against a backdrop of favourable economic conditions and a strong performance by the Group’s specialised recovery function,
recoveries of amounts previously written-off amounted to € 90 million were reported in 2019 (2018: € 120 million). This relates to
€ 63 million of cash received on loans where recovery was previously considered unlikely (2018: € 76 million) and a further € 27 million
in cash receipts (2018: € 44 million) on loans, which had an element of partial write-down that cured from Stage 3 in the year without
any financial loss.
AIB Group plc Annual Financial Report 2019Risk Management 123456 104
Risk management – 2. Individual risk types
2.1 Credit risk – Credit profile of the loan portfolio
Internal credit grade profile by ECL staging
The table below analyses the internal credit grading profile by ECL staging for loans and advances to customers at 31 December 2019
and 2018:
Amortised cost
Total
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
POCI
€ m
2019*
Total
€ m
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
POCI
€ m
42,123
11,346
53,469
1,111
119
1,230
24
329
1,452
1,781
1,163
1,048
2,211
–
–
–
–
–
–
–
2
–
2
1
8
9
3,140
3,140
183
194
42,454
12,798
55,252
2,275
1,175
3,450
3,347
39,148
10,923
50,071
1,226
184
1,410
212
923
1,262
2,185
1,596
1,509
3,105
–
62,049
51,693
5,290
–
–
–
–
–
–
3
–
3
1
5
6
5,541
5,541
227
236
2018*
Total
€ m
40,074
12,185
52,259
2,823
1,698
4,521
5,980
62,760
Gross carrying amount
54,723
3,992
ECL allowance
Carrying amount
(141)
(202)
(864)
(31)
(1,238)
(171)
(271)
(1,566)
(31)
(2,039)
54,582
3,790
2,276
163
60,811
51,522
5,019
3,975
205
60,721
Analysis by asset class
Residential mortgages
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
23,766
2,795
26,561
405
4
409
3
162
610
772
668
704
1,372
–
Gross carrying amount
26,973
2,144
–
–
–
–
–
–
2
–
2
1
8
9
2,143
2,143
183
194
23,930
3,405
27,335
1,074
716
1,790
2,329
22,478
2,638
25,116
479
1
480
21
828
659
1,487
882
1,072
1,954
–
31,454
25,617
3,441
–
–
–
–
–
–
3
–
3
1
5
6
3,023
3,023
225
234
23,309
3,297
26,606
1,362
1,078
2,440
3,269
32,315
ECL allowance
Carrying amount
Other personal
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
Gross carrying amount
ECL allowance
Carrying amount
Property and construction
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
Gross carrying amount
ECL allowance
Carrying amount
(10)
(52)
(476)
(31)
(569)
(8)
(51)
(623)
(31)
(713)
26,963
2,092
1,667
163
30,885
25,609
3,390
2,400
203
31,602
1,312
1,074
2,386
117
–
117
1
2,504
(21)
2,483
4,983
1,313
6,296
114
86
200
9
6,505
(31)
6,474
29
106
135
103
50
153
–
288
(40)
248
78
166
244
115
68
183
–
427
(26)
401
–
–
–
–
–
–
192
192
(114)
78
–
–
–
–
–
–
367
367
(132)
235
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,341
1,180
2,521
220
50
270
193
2,984
(175)
2,809
5,061
1,479
6,540
229
154
383
376
7,299
(189)
7,110
1,201
1,062
2,263
68
1
69
2
2,334
(29)
2,305
4,286
1,458
5,744
141
158
299
157
6,200
(41)
6,159
43
159
202
128
68
196
–
398
(52)
346
23
82
105
201
109
310
–
415
(36)
379
–
–
–
–
–
–
343
343
(172)
171
–
–
–
–
–
–
1,187
1,187
(403)
784
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
2
–
2
1,244
1,221
2,465
196
69
265
345
3,075
(253)
2,822
4,309
1,540
5,849
342
267
609
1,346
7,804
(480)
7,324
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 2.1 Credit risk – Credit profile of the loan portfolio
Internal credit grade profile by ECL staging (continued)
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
POCI
€ m
2019*
Total
€ m
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
POCI
€ m
Non-property business
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
Gross carrying amount
ECL allowance
Carrying amount
12,062
6,164
18,226
475
29
504
11
60
570
630
277
226
503
–
18,741
1,133
(79)
(84)
18,662
1,049
–
–
–
–
–
–
438
438
(142)
296
–
–
–
–
–
–
–
–
–
–
12,122
6,734
18,856
752
255
1,007
449
11,183
5,765
16,948
538
24
562
32
29
362
391
385
260
645
–
20,312
17,542
1,036
(305)
(93)
20,007
17,449
(132)
904
–
–
–
–
–
–
988
988
(368)
620
–
–
–
–
–
–
–
–
–
–
Non-performing exposures (“NPE”) to customers
The table below analyses non-performing loans and advances to customers by asset class at 31 December 2019 and 2018:
Non-performing loans
At amortised cost
Collateral disposals
Unlikely to pay (including > 90 days past due)
Non-performing loans probation
Total gross carrying amount at amortised cost
Total carrying amount at FVTPL
Total non-performing loans and advances to customers
Total ECL allowance on non-performing loans and
advances to customers
Non-performing loans as % of total loans and
advances to customers
Non-performing loans
At amortised cost
Collateral disposals
Unlikely to pay (including > 90 days past due)
Non-performing loans probation
Total gross carrying amount at amortised cost
At FVTPL
Collateral disposals
Unlikely to pay (including > 90 days past due)
Non-performing loans probation
Total carrying amount at FVTPL
Total non-performing loans and advances to customers
Total ECL allowance on non-performing loans and
advances to customers
Non-performing loans as % of total loans and
advances to customers
Residential
mortgages
€ m
128
1,931
270
2,329
–
2,329
507
7.4%
Residential
mortgages
€ m
188
2,689
392
3,269
–
–
–
–
3,269
653
Other personal
€ m
10
168
15
193
–
193
115
Property and
construction
€ m
Non-property
business
€ m
67
248
61
376
–
376
132
21
345
83
449
–
449
144
6.4%
5.1%
2.2%
Other personal
€ m
49
261
35
345
–
–
–
–
345
173
Property and
construction
€ m
Non-property
business
€ m
398
808
140
1,346
14
53
7
74
112
758
150
1,020
–
–
–
–
1,420
1,020
412
370
5.2%
10.1%
11.2%
17.9%
105
2018*
Total
€ m
11,212
6,127
17,339
923
284
1,207
1,020
19,566
(593)
18,973
2019
Total
€ m
226
2,692
429
3,347
–
3,347
898
5.4%
2018
Total
€ m
747
4,516
717
5,980
14
53
7
74
6,054
1,608
9.6%
Non-performing loans reduced by € 2.7 billion or 45% to € 3.3 billion in the year to 31 December 2019. This reduction continues to be
reflective of proactive deleveraging activities primarily due to loan portfolio sales and redemptions. Of the total € 2.7 billion reduction,
€ 1.8 billion is directly attributable to distressed loan portfolio sales with the remainder due to redemptions. NPE reductions were evident
across all asset classes with reductions noted in the ‘unlikely to pay’ stock (including > 90 days past due), ‘collateral disposals’ and
loans in a probationary period.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 123456 106
Risk management – 2. Individual risk types
2.1 Credit risk – Credit profile of the loan portfolio
Non-performing off-balance sheet commitments
Total non-performing off-balance sheet commitments amounted to € 162 million (2018: € 183 million).
Summary of movements on ECL allowance
The following table summarises the movements on the ECL allowance on loans and advances to customers at 31 December 2019 and
2018:
At 1 January
Net re-measurement of ECL allowance – customers
Changes in ECL allowance due to write-offs
Changes in ECL allowance due to disposals
Exchange translation adjustments/other
At 31 December 2019
Residential
mortgages
€ m
Other
personal
€ m
Property and
construction
€ m
Non-property
business
€ m
713
129
(188)
(86)
1
569
253
32
(39)
(68)
(3)
175
480
(27)
(100)
(180)
16
189
593
(17)
(35)
(231)
(5)
305
For detailed analysis of ECL allowance movements, see pages 125 to 129.
At 31 December 2017 (IAS 39)
Impact of adopting IFRS 9 at 1 January 2018
At 1 January 2018 (IFRS 9)
Transfer in
Net re-measurement of ECL allowance – customers
Changes in ECL allowance due to write-offs
Changes in ECL allowance due to disposals
Exchange translation adjustments
At 31 December 2018
Residential
mortgages
€ m
Other
personal
€ m
Property and
construction
€ m
Non-property
business
€ m
1,418
(27)
1,391
–
(59)
(564)
(55)
–
713
246
83
329
–
13
(62)
(27)
–
253
1,064
42
1,106
–
(90)
(178)
(358)
–
480
617
173
790
14
47
(225)
(32)
(1)
593
2019*
Total
€ m
2,039
117
(362)
(565)
9
1,238
2018*
Total
€ m
3,345
271
3,616
14
(89)
(1,029)
(472)
(1)
2,039
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 107
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Loans and advances to customers – Residential mortgages
Residential mortgages amounted to € 31.5 billion at 31 December 2019, with the majority (96%) relating to residential mortgages in the
Republic of Ireland and the remainder relating to the United Kingdom. This compares to € 32.3 billion at 31 December 2018, of which
96% related to residential mortgages in the Republic of Ireland. The split of the residential mortgage portfolio was owner-occupier
€ 29.0 billion and buy-to-let € 2.5 billion (2018: owner-occupier € 29.1 billion and buy-to-let € 3.2 billion).
At 31 December 2019, a € 0.6 billion ECL allowance was held against the Group’s residential mortgages portfolio, or 1.8% total cover
rate.
During 2019, there was a net credit impairment charge of € 93 million to the income statement. This was primarily driven by the Republic
of Ireland portfolio as a result of post model adjustments i.e. management adjustments as outlined on pages 97 and 98, resulting in a
charge of € 82 million. In addition, the Group recovered € 36 million on loans previously written-off.
Residential mortgages – page 108
– Residential mortgage portfolio at amortised cost by segment, internal credit ratings and ECL staging
Republic of Ireland residential mortgages – pages 109 to 113
– By ECL staging
– Actual and weighted average indexed loan-to-value ratios by staging
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.
AIB Group plc Annual Financial Report 2019Risk Management 123456
108
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Loans and advances to customers – Residential mortgages
The following table analyses the residential mortgage portfolio at amortised cost by segment, internal credit ratings and ECL staging at
CIB AIB UK
Group
2019*
Total
CIB
AIB UK
Group
2018*
Total
€ m
€ m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
%
–
–
–
–
29,069
3,246
32,315
23,309
3,297
26,606
1,362
1,078
2,440
3,269
32,315
25,617
3,441
3,023
234
32,315
8
51
623
31
713
%
–
1.5
20.6
13.2
€ m
457
175
632
574
38
612
9
8
17
3
€ m
1,157
100
1,257
672
392
1,064
79
5
84
109
€ m
€ m
Retail
Banking
€ m
27,394
2,967
30,361
21,832
3,143
24,975
1,206
1,058
2,264
3,122
28,982
2,472
31,454
23,930
3,405
27,335
1,074
716
1,790
2,329
€ m
448
171
619
544
34
578
17
13
30
11
€ m
1,227
108
1,335
933
120
1,053
139
7
146
136
31,454
30,361
619
1,335
26,973
24,003
543
1,071
2,144
2,143
194
3,248
2,877
233
65
10
1
128
136
–
31,454
30,361
619
1,335
7
48
598
31
684
%
–
1.5
20.8
13.3
–
1
1
–
2
%
–
1.5
10
–
1
2
24
–
27
%
0.1
1.6
17.6
–
10
52
476
31
569
%
–
2.4
22.2
16.1
€ m
129
(36)
93
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
(58)
(24)
(82)
%
%
0.29
(0.26)
–
–
–
%
–
(1)
(1)
(2)
%
(0.14)
–
–
–
%
–
(59)
(25)
(84)
%
(0.26)
31 December 2019 and 2018:
Gross carrying amount
Owner occupier
Buy-to-let
Total
Analysed by internal credit ratings
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
Retail
Banking
€ m
27,368
2,197
29,565
22,684
2,975
25,659
986
703
1,689
2,217
Gross carrying amount
29,565
632
1,257
Analysed by ECL staging
Stage 1
Stage 2
Stage 3
POCI
Total
25,296
2,044
2,031
194
592
37
3
–
1,085
63
109
–
29,565
632
1,257
ECL allowance – statement of financial position
Stage 1
Stage 2
Stage 3
POCI
Total
ECL allowance cover percentage
Stage 1
Stage 2
Stage 3
POCI
Income statement
Net re-measurement of ECL allowance
Recoveries of amounts previously written-off
Net credit impairment charge/(writeback)
9
50
461
31
551
%
–
2.4
22.7
16.1
€ m
129
(36)
93
%
–
1
–
–
1
%
–
3.6
2.5
–
1
1
15
–
17
%
0.1
2.4
13.5
–
(1)
–
(1)
%
1
–
1
%
Net credit impairment charge/(writeback)
on average loans
0.31
(0.12)
0.07
*Forms an integral part of the audited financial statements
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
%
–
–
–
–
–
–
–
%
–
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 109
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Loans and advances to customers – Republic of Ireland residential mortgages
The following table analyses the Republic of Ireland residential mortgage portfolio at amortised cost by ECL staging at 31 December
2019 and 2018:
Gross carrying amount
Analysed as to ECL staging
Stage 1
Stage 2
Stage 3
POCI
Total
ECL allowance – statement of financial position
Stage 1
Stage 2
Stage 3
POCI
Total
Republic of Ireland residential mortgages
at amortised cost
ECL allowance cover percentage
Stage 1
Stage 2
Stage 3
POCI
Income statement
Net re-measurement of ECL allowance
Recoveries of amounts previously written-off
Net credit impairment charge/(writeback)
Owner-
occupier
€ m
27,825
Buy-to-let
€ m
2,372
2019*
Total
€ m
30,197
Owner-
occupier
€ m
27,841
Buy-to-let
€ m
3,139
2018*
Total
€ m
30,980
24,132
1,756
25,888
22,615
1,931
24,546
1,748
1,757
188
333
277
6
2,081
2,034
194
2,867
2,137
222
446
750
12
3,313
2,887
234
27,825
2,372
30,197
27,841
3,139
30,980
8
34
397
28
467
1
17
64
3
85
9
51
461
31
552
5
36
451
23
515
2
13
148
8
171
7
49
599
31
686
27,358
2,287
29,645
27,326
2,968
30,294
%
–
2.0
22.6
14.9
€ m
137
(26)
111
%
0.1
5.0
23.1
55.0
€ m
(9)
(10)
(19)
%
–
2.5
22.7
16.1
€ m
128
(36)
92
%
–
1.3
21.1
10.4
€ m
(13)
(16)
(29)
%
0.1
3.0
19.7
62.5
€ m
(45)
(8)
(53)
%
–
1.5
20.7
13.2
€ m
(58)
(24)
(82)
Net credit impairment charge/(writeback)
on average loans
0.40
(0.69)
0.30
(0.10)
(1.52)
(0.26)
%
%
%
%
%
%
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 123456 110
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Loans and advances to customers – Republic of Ireland residential mortgages (continued)
Residential mortgages in Ireland amounted to € 30.2 billion at 31 December 2019 compared to € 31.0 billion at 31 December 2018.
The decrease in the portfolio was primarily due to loan repayments and disposals, offset by new lending. Total drawdowns in the
year were € 3 billion, of which 98% were by owner occupiers, whilst the weighted average indexed loan-to-value for new residential
mortgages was 68%. New lending in the year increased by 8% driven by the favourable macroeconomic conditions.
The split of the Irish residential mortgage portfolio is 92% owner-occupier and 8% buy-to-let and comprises 27% tracker rate,
52% variable rate and 21% fixed rate mortgages.
Non-performing loans decreased from € 3.1 billion at 31 December 2018 to € 2.2 billion at 31 December 2019, impacted by the portfolio
sales of distressed loans and also partly due to repayments/redemptions and write-offs.
Income statement
There was a net credit impairment charge of € 92 million to the income statement for the year to 31 December 2019 compared to a net
credit impairment writeback of € 82 million for 2018. The ECL allowance provision cover level at 31 December 2019 is 2% (2018: 2%).
For the Stage 3 element of the portfolio, € 0.5 billion of ECLs are held providing cover of 23% (2018: € 0.6 billion and 21% respectively).
Residential mortgage arrears
Total loans in arrears (including non-performing loans) by value decreased by 26% during the year to 31 December 2019, a decrease of
16% in the owner-occupier portfolio and a decrease of 63% in the buy-to-let portfolio. The decrease in the buy-to-let arrears was driven
by the portfolio sale of distressed loans.
The number of loans in arrears (based on number of accounts) greater than 90 days was 4.1% at 31 December 2019 and remains
below the industry average of 6.8%(1). For the owner-occupier portfolio, the number of loans in arrears greater than 90 days at 3.8%
were below the industry average of 6%(1). For the buy-to-let portfolio, loans in arrears greater than 90 days at 7.5% were below the
industry average of 14%(1).
(1) Source: Central Bank of Ireland (“CBI”) Residential Mortgage Arrears and Repossessions Statistics as at 30 September 2019, based on numbers of
accounts.
Forbearance
Irish residential mortgages subject to forbearance measures decreased by € 1.1 billion from € 3.6 billion at 31 December 2018 to
€ 2.5 billion at 31 December 2019. A key feature of the forbearance portfolio is the level of advanced forbearance solutions driven by the
Group’s strategy to deliver sustainable long term solutions to customers and support customers in remaining in their family home.
Details of forbearance measures are set out in Risk Management 2.1 Additional credit quality and forbearance disclosures on loans and
advances to customers.
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management :
8
1
0
2
d
n
a
9
1
0
2
r
e
b
m
e
c
e
D
1
3
t
a
s
o
i
t
a
r
l
e
u
a
v
-
o
t
-
n
a
o
l
e
g
a
r
e
v
a
i
d
e
t
h
g
e
w
e
h
t
d
n
a
s
o
i
t
a
r
l
e
u
a
v
-
o
t
-
n
a
o
l
d
e
x
e
d
n
i
e
h
t
y
b
o
i
l
o
f
t
r
o
p
e
g
a
g
t
r
o
m
l
a
i
t
i
n
e
d
s
e
r
d
n
a
e
r
I
l
f
o
c
i
l
b
u
p
e
R
e
h
t
s
e
l
i
f
o
r
p
l
e
b
a
t
g
n
w
o
i
l
l
o
f
e
h
T
.
s
e
g
a
g
t
r
o
m
l
a
i
t
n
e
d
i
s
e
r
d
n
a
l
e
r
I
f
o
c
i
l
b
u
p
e
R
f
o
s
o
i
t
a
r
l
e
u
a
v
-
o
t
-
n
a
o
l
d
e
x
e
d
n
i
e
g
a
r
e
v
a
d
e
t
h
g
i
e
w
d
n
a
l
a
u
t
c
A
)
d
e
u
n
i
t
n
o
c
(
s
e
g
a
g
t
r
o
m
l
a
i
t
n
e
d
i
s
e
r
d
n
a
l
e
r
I
f
o
c
i
l
b
u
p
e
R
–
s
r
e
m
o
t
s
u
c
o
t
s
e
c
n
a
v
d
a
d
n
a
s
n
a
o
L
s
i
l
s
y
a
n
a
s
s
a
c
l
t
e
s
s
A
–
o
i
l
o
f
t
r
o
p
n
a
o
l
e
h
t
f
o
e
l
i
f
o
r
p
t
i
d
e
r
C
–
k
s
i
r
t
i
d
e
r
C
1
.
2
*
9
1
0
2
*
8
1
0
2
l
a
t
o
t
l
l
a
r
e
v
O
l
a
t
o
T
m
€
-
y
u
B
t
e
l
-
o
t
m
€
m
€
-
r
e
n
w
O
r
e
i
p
u
c
c
o
1
9
0
,
2
1
4
4
1
,
1
7
4
9
,
0
1
7
6
3
,
9
7
5
8
,
3
8
8
1
,
3
3
4
1
,
1
6
4
3
1
0
1
5
7
3
0
7
6
8
1
1
2
1
8
9
5
5
1
2
9
2
4
6
6
,
8
1
7
6
,
3
7
6
0
,
3
5
4
0
,
1
1
9
2
0
8
6
4
9
2
5
1
4
1
8
6
1
,
0
3
7
5
3
,
2
1
1
8
,
7
2
7
9
1
,
0
3
2
7
3
,
2
5
2
8
,
7
2
l
a
t
o
T
m
€
-
y
u
B
t
e
l
-
o
t
m
€
m
€
-
r
e
n
w
O
i
r
e
p
u
c
c
o
4
0
8
,
1
1
1
0
3
,
1
3
0
5
,
0
1
l
a
t
o
t
l
l
a
r
e
v
O
9
3
7
,
9
5
3
9
,
3
4
5
8
,
2
6
4
4
,
1
5
4
7
3
5
2
3
5
1
8
1
9
5
0
3
1
9
1
5
6
1
5
0
1
5
5
6
6
1
2
8
,
8
0
3
6
,
3
3
6
6
,
2
1
8
2
,
1
0
4
6
8
9
1
7
8
1
5
3
3
8
1
9
2
9
,
0
3
6
0
1
,
3
3
2
8
,
7
2
0
8
9
,
0
3
9
3
1
,
3
1
4
8
,
7
2
l
a
t
o
T
m
€
8
2
7
6
0
3
6
2
0
2
9
1
–
3
1
1
8
1
4
9
1
l
a
t
o
T
m
€
8
2
5
7
9
3
0
3
5
2
4
1
1
–
2
2
2
1
2
4
3
2
–
1
–
1
–
–
–
–
2
4
6
8
2
6
6
0
3
5
2
0
2
9
1
–
9
9
7
1
8
8
1
-
y
u
B
t
e
l
-
o
t
m
€
I
C
O
P
m
€
-
r
e
n
w
O
r
e
i
p
u
c
c
o
–
1
–
–
–
–
–
–
1
1
1
2
1
8
2
4
7
9
3
0
3
5
2
4
1
1
–
1
1
1
1
2
2
2
2
-
y
u
B
t
e
l
-
o
t
m
€
I
C
O
P
m
€
-
r
e
n
w
O
i
r
e
p
u
c
c
o
l
a
t
o
T
m
€
0
3
8
5
9
4
8
0
2
2
4
1
4
3
1
5
2
1
4
6
6
2
0
1
4
2
0
,
2
4
3
0
,
2
l
a
t
o
T
m
€
2
0
8
4
7
6
2
0
3
1
5
2
9
3
2
5
9
2
2
0
2
0
0
1
2
2
5
6
8
,
2
7
8
8
,
2
t
s
o
c
d
e
s
i
t
r
o
m
a
t
A
6
9
4
7
3
2
3
2
1
2
6
1
1
1
6
7
0
7
2
7
7
2
-
y
u
B
t
e
l
-
o
t
m
€
3
e
g
a
t
S
m
€
4
3
7
1
2
4
5
8
1
9
1
1
3
1
1
9
0
1
3
5
0
2
3
4
5
7
,
1
7
5
7
,
1
t
s
o
c
d
e
s
i
t
r
o
m
a
t
A
3
e
g
a
t
S
-
y
u
B
t
e
l
-
o
t
m
€
8
0
2
0
0
2
2
8
4
5
9
5
2
5
9
3
8
3
8
1
2
3
7
0
5
7
m
€
4
9
5
4
7
4
0
2
2
7
9
1
0
8
1
3
4
2
3
6
1
2
6
4
3
3
1
,
2
7
3
1
,
2
-
r
e
n
w
O
i
r
e
p
u
c
c
o
-
r
e
n
w
O
r
e
i
p
u
c
c
o
l
a
t
o
T
m
€
9
3
7
7
5
6
4
6
2
8
9
1
3
3
1
9
3
6
6
1
2
9
7
0
,
2
1
8
0
,
2
l
a
t
o
T
m
€
8
4
2
,
1
5
2
0
,
1
8
9
3
6
9
2
4
9
1
5
1
1
6
1
8
1
3
0
1
3
,
3
3
1
3
,
3
-
y
u
B
t
e
l
-
o
t
m
€
5
2
1
2
e
g
a
t
S
0
9
6
3
4
2
5
2
8
1
4
9
2
1
3
3
3
3
3
m
€
4
1
6
7
6
5
8
2
2
4
7
1
8
0
1
5
4
5
7
–
8
4
7
,
1
8
4
7
,
1
-
r
e
n
w
O
r
e
i
p
u
c
c
o
l
a
t
o
T
m
€
4
9
4
,
0
1
8
4
1
,
8
5
5
3
,
3
2
2
8
,
2
6
5
8
9
4
1
7
2
3
3
-
y
u
B
t
e
l
-
o
t
m
€
3
2
9
8
3
5
7
2
1
3
7
2
5
1
2
6
4
1
1
e
g
a
t
S
m
€
1
7
5
,
9
0
1
6
,
7
8
2
2
,
3
9
4
7
,
2
4
0
8
8
2
1
1
2
9
1
-
r
e
n
w
O
r
e
i
p
u
c
c
o
4
2
2
4
8
8
,
5
2
4
5
7
,
1
0
3
1
,
4
2
8
8
8
,
5
2
6
5
7
,
1
2
3
1
,
4
2
2
e
g
a
t
S
1
e
g
a
t
S
-
y
u
B
t
e
l
-
o
t
m
€
5
6
1
7
2
1
8
5
9
3
0
2
0
2
3
2
1
2
4
4
4
6
4
4
m
€
3
8
0
,
1
-
r
e
n
w
O
i
r
e
p
u
c
c
o
8
9
8
0
4
3
7
5
2
4
7
1
5
9
3
1
6
1
6
6
8
,
2
7
6
8
,
2
l
a
t
o
T
m
€
6
2
7
,
9
5
6
9
,
7
6
9
1
,
3
7
7
2
,
2
8
8
9
1
2
3
4
3
5
3
-
y
u
B
t
e
l
-
o
t
m
€
8
2
9
0
9
5
5
6
1
8
9
6
8
3
3
3
1
6
1
m
€
8
9
7
,
8
5
7
3
,
7
1
3
0
,
3
9
7
1
,
2
2
0
9
8
8
2
1
2
9
1
-
r
e
n
w
O
i
r
e
p
u
c
c
o
4
2
2
2
4
5
,
4
2
9
2
9
,
1
3
1
6
,
2
2
6
4
5
,
4
2
1
3
9
,
1
5
1
6
,
2
2
%
0
5
n
a
h
t
s
s
e
L
%
0
7
o
t
%
0
5
%
0
8
o
t
%
1
7
%
0
9
o
t
%
1
8
%
0
2
1
o
t
%
1
0
1
%
0
5
1
o
t
%
1
2
1
%
0
0
1
o
t
%
1
9
%
0
5
1
n
a
h
t
t
r
e
a
e
r
G
s
V
T
L
h
t
i
w
l
a
t
o
T
d
e
r
u
c
e
s
n
U
l
a
t
o
T
%
0
5
n
a
h
t
s
s
e
L
%
0
7
o
t
%
0
5
%
0
8
o
t
%
1
7
%
0
9
o
t
%
1
8
%
0
2
1
o
t
%
1
0
1
%
0
5
1
o
t
%
1
2
1
%
0
0
1
o
t
%
1
9
%
0
5
1
n
a
h
t
t
r
e
a
e
r
G
s
V
T
L
h
t
i
w
l
a
t
o
T
d
e
r
u
c
e
s
n
U
l
a
t
o
T
111
.
)
%
4
7
:
8
1
0
2
(
%
3
6
s
a
w
s
e
g
a
g
t
r
o
m
l
i
a
i
t
n
e
d
s
e
r
3
e
g
a
t
S
d
n
a
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
i
f
d
e
t
i
d
u
a
e
h
t
f
o
t
r
a
p
l
a
r
g
e
t
n
i
n
a
s
m
r
o
F
*
)
%
0
7
:
8
1
0
2
(
%
8
6
s
a
w
r
a
e
y
e
h
t
g
n
i
r
u
d
d
e
u
s
s
i
s
e
g
a
g
t
r
o
m
l
a
i
t
n
e
d
s
e
r
i
w
e
n
,
)
%
8
5
:
8
1
0
2
(
%
7
5
s
a
w
9
1
0
2
r
e
b
m
e
c
e
D
1
3
t
a
s
e
g
a
g
t
r
o
m
l
a
i
t
n
e
d
s
e
r
i
f
o
k
c
o
t
s
e
h
t
f
o
e
u
a
v
-
o
l
t
-
n
a
o
l
d
e
x
e
d
n
i
e
g
a
r
e
v
a
d
e
t
h
g
e
w
e
h
T
i
AIB Group plc Annual Financial Report 2019Risk Management 123456
112
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Republic of Ireland residential mortgages – aged analysis
The following table provides an age profile of the Republic of Ireland residential mortgage portfolio by ECL staging at 31 December 2019
and 2018:
Owner-occupier
Not past due
1 - 30 days
31 - 60 days
61 - 90 days
91 - 180 days
181 - 365 days
Over 365 days
Total
Buy-to-let
Not past due
1 - 30 days
31 - 60 days
61 - 90 days
91 - 180 days
181 - 365 days
Over 365 days
Total
Total
Not past due
1 - 30 days
31 - 60 days
61 - 90 days
91 - 180 days
181 - 365 days
Over 365 days
At amortised cost
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
24,057
1,490
575
75
–
–
–
–
–
195
47
16
–
–
–
91
66
56
119
114
736
24,132
1,748
1,757
1,751
5
–
–
–
–
–
307
20
5
1
–
–
–
1,756
333
25,808
1,797
80
–
–
–
–
–
215
52
17
–
–
–
108
9
7
3
11
12
127
277
683
100
73
59
130
126
863
POCI
€ m
143
14
4
4
4
4
15
188
5
–
–
–
–
–
1
6
148
14
4
4
4
4
16
2019
Total
€ m
26,265
375
117
76
123
118
751
At amortised cost
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
22,553
2,596
62
–
–
–
–
–
217
38
16
–
–
–
664
110
65
71
115
137
975
27,825
22,615
2,867
2,137
2,171
1,924
34
12
4
11
12
128
2,372
420
20
4
2
–
–
–
7
–
–
–
–
–
1,931
446
28,436
24,477
3,016
409
129
80
134
130
879
69
–
–
–
–
–
237
42
18
–
–
–
252
23
13
13
27
43
379
750
916
133
78
84
142
180
2018
Total
€ m
25,985
406
108
89
120
143
990
27,841
2,602
50
17
15
27
43
385
POCI
€ m
172
17
5
2
5
6
15
222
6
–
–
–
–
–
6
12
3,139
178
17
5
2
5
6
28,587
456
125
104
147
186
Total gross carrying amount
of residential mortgages
ECL allowance
Carrying amount
25,888
2,081
2,034
194
30,197
24,546
3,313
2,887
234
30,980
(9)
(51)
(461)
(31)
(552)
(7)
(49)
(599)
(31)
(686)
25,879
2,030
1,573
163
29,645
24,539
3,264
2,288
203
30,294
1,354
21
1,375
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 113
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Republic of Ireland residential mortgages – properties in possession(1)
The Group seeks to avoid repossession through working with customers. However, in situations where an agreement cannot be
reached, the Group proceeds with the repossession of the property or the appointment of a receiver. The Group uses 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 2019 and 2018 is set out below:
Owner-occupier
Buy-to-let
Total
Stock
492
23
515
2019
Balance
outstanding
€ m
112
5
117
Stock
547
46
593
2018
Balance
outstanding
€ m
131
10
141
(1)The number of residential properties in possession relates to those held as security for residential mortgages only.
The stock of residential properties in possession decreased by 78 properties in 2019 (2018: 62 properties). This decrease relates
to the disposal of 231 properties (2018: 53 properties) which were offset by the addition of 180 properties (2018: 43 properties), the
majority of which were voluntary surrenders or abandonments. In addition, a further 27 properties were removed from the stock in 2019
(2018: 52 properties), mainly due to the sale of a portfolio of loans.
The disposal of 231 residential properties in the Republic of Ireland resulted in a total loss on disposal of € 28 million at 31 December
2019 (before ECL allowance) and compares to 31 December 2018 when 53 residential properties were disposed of resulting in a total
loss of € 7 million. Losses on the sale of such properties are recognised in the income statement as part of the net credit impairment
losses.
Republic of Ireland residential mortgages – repossessions disposed of
The following table analyses the disposals of repossessed properties for the years ended 31 December 2019 and 2018:
Owner-occupier
Buy-to-let
Total
Owner-occupier
Buy-to-let
Total
(1)Before ECL allowance.
Number of
disposals
Outstanding
balance at
repossession
date
€ m
228
3
231
54
1
55
Gross sales
proceeds
on disposal
€ m
27
1
28
Costs
to sell
€ m
1
–
1
Costs
to sell
2019
(1)
Loss
on sale
€ m
28
–
28
2018
(1)
Loss
on sale
Gross sales
proceeds
on disposal
Number of
disposals
Outstanding
balance at
repossession
date
€ m
49
4
53
13
1
14
€ m
€ m
€ m
8
–
8
1
–
1
6
1
7
AIB Group plc Annual Financial Report 2019Risk Management 123456 114
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Loans and advances to customers – Other personal
The following table analyses other personal lending at amortised cost by segment, internal credit ratings and ECL staging at
31 December 2019 and 2018:
CIB AIB UK
Group
CIB
AIB UK
Group
€ m
6
81
87
46
26
72
8
3
11
4
87
73
10
4
–
87
–
2
–
–
2
%
–
20.0
–
–
2019*
Total
€ m
714
2,270
2,984
1,341
1,180
2,521
220
50
270
193
Retail
Banking
€ m
718
2,103
2,821
1,125
1,117
2,242
181
65
246
333
2,984
2,821
2,504
2,131
288
192
–
359
331
–
2,984
2,821
21
40
114
–
175
%
0.9
13.9
59.8
–
€ m
32
(22)
10
28
49
167
–
244
%
1.3
13.6
50.5
–
€ m
9
(24)
(15)
%
%
€ m
–
9
9
–
9
9
–
–
–
–
9
9
–
–
–
9
–
–
–
–
–
%
–
–
–
–
–
–
–
%
–
€ m
31
116
147
73
58
131
7
1
8
8
€ m
–
20
20
–
20
20
–
–
–
–
147
20
3,075
110
29
8
–
20
2,334
–
–
–
398
343
–
147
20
3,075
1
1
5
–
7
%
0.9
3.4
62.5
–
–
–
–
–
–
%
–
–
–
–
2018*
Total
€ m
755
2,320
3,075
1,244
1,221
2,465
196
69
265
345
29
52
172
–
253
%
1.2
13.1
50.1
–
€ m
13
(26)
(13)
%
(0.44)
€ m
€ m
€ m
€ m
€ m
€ m
1
–
1
%
3
(2)
1
%
–
–
–
%
–
0.32
(0.52)
3.03
0.64
Gross carrying amount
Credit cards
Loans/overdrafts
Total
Analysed by internal credit ratings
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
Retail
Banking
€ m
676
2,071
2,747
1,205
1,099
2,304
210
46
256
187
€ m
7
93
100
42
50
92
5
3
8
–
€ m
31
97
128
94
22
116
5
1
6
6
Gross carrying amount
2,747
100
128
Analysed by ECL staging
Stage 1
Stage 2
Stage 3
POCI
Total
2,297
264
186
–
90
10
–
–
108
14
6
–
2,747
100
128
ECL allowance – statement of financial position
Stage 1
Stage 2
Stage 3
POCI
Total
ECL allowance cover percentage
Stage 1
Stage 2
Stage 3
POCI
Income statement
Net re-measurement of ECL allowance
Recoveries of amounts previously written-off
Net credit impairment charge/(writeback)
21
39
111
–
171
%
0.9
14.7
59.9
–
€ m
33
(22)
11
%
–
1
–
–
1
%
0.3
7.1
–
–
–
–
3
–
3
%
0.3
3.2
57.0
–
(1)
–
(1)
%
–
–
–
%
Net credit impairment charge(writeback)/
on average loans
0.37
(0.96)
0.30
*Forms an integral part of the audited financial statements
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 115
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Loans and advances to customers – Other personal (continued)
At 31 December 2019, the other personal lending portfolio of € 3.0 billion comprises € 2.3 billion in loans and overdrafts and € 0.7 billion
in credit card facilities (2018: total € 3.1 billion and € 2.3 billion and € 0.8 billion respectively). The credit quality of the portfolio remains
strong and improved during the year, with 16% categorised as less than satisfactory, of which defaulted loans amounted to € 0.2 billion
(2018: 20% and € 0.4 billion).
The demand for personal loans, which accounts for the largest portion of the portfolio, continues to be strong which is due to the
favourable economic environment and the Group’s increased automated service offering. This has resulted in an increase in new
lending of € 0.2 billion or 13% to € 1.1 billion for the year (2018: € 0.9 billion).
Stage 3 loans, predominately in Retail Banking, decreased by € 0.2 billion in the year to 31 December 2019, primarily due to portfolio
sales of distressed loans and redemptions/repayments. At 31 December 2019, the ECL allowance cover was 6% with Stage 3 cover at
60% (2018: 8% and 50% respectively).
The net credit impairment charge in the income statement amounted to € 10 million for the year to 31 December 2019 compared to a
writeback of € 13 million for the year to 31 December 2018.
AIB Group plc Annual Financial Report 2019Risk Management 123456 116
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Loans and advances to customers – Property and construction
The following table analyses property and construction lending at amortised cost by segment, internal credit ratings and ECL staging at
31 December 2019 and 2018:
Retail
Banking
€ m
CIB AIB UK
Group
2019*
Total
€ m
€ m
€ m
€ m
Retail
Banking
€ m
CIB
AIB UK
Group
2018*
Total
€ m
€ m
€ m
€ m
Gross carrying amount
Investment:
Commercial investment
Residential investment
Land and development:
Commercial development
Residential development
Contractors
Housing associations
Total
Analysed by internal credit ratings
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
Gross carrying amount
Analysed by ECL staging
Stage 1
Stage 2
Stage 3
POCI
Total
ECL allowance – statement of financial position
Stage 1
Stage 2
Stage 3
POCI
Total
ECL allowance cover percentage
Stage 1
Stage 2
Stage 3
POCI
4
15
105
–
124
%
1.1
9.8
35.6
–
488
129
617
99
61
160
91
–
2,956
498
750
747
3,454
1,497
213
431
644
81
–
28
160
188
124
443
868
4,179
2,252
158
212
370
150
46
196
302
868
424
151
293
–
868
3,510
1,393
548
719
4,058
2,112
21
94
115
6
58
14
72
68
4,179
2,252
4,077
2,004
96
6
–
180
68
–
4,179
2,252
20
4
–
–
24
%
0.5
4.2
5.0
–
7
7
27
–
41
%
0.4
3.5
39.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
%
–
–
–
–
4,194
1,374
5,568
340
652
992
296
443
1,010
308
3,111
213
823
627
1,318
3,324
1,450
134
189
323
109
–
124
362
486
62
–
46
227
273
151
308
7,299
1,750
3,872
2,182
5,061
1,479
6,540
229
154
383
376
7,299
6,505
427
367
–
157
190
347
232
84
316
1,087
1,750
541
229
978
2
2,872
1,280
682
668
3,554
1,948
40
174
214
104
70
9
79
155
3,872
2,182
3,748
1,911
70
54
–
116
155
–
7,299
1,750
3,872
2,182
31
26
132
–
189
%
0.5
5.9
35.9
–
(27)
(19)
(46)
%
17
26
314
–
357
%
3.1
11.4
32.1
–
€ m
(82)
(33)
(115)
%
17
5
2
–
24
%
0.5
7.1
3.7
–
7
5
87
–
99
%
0.4
4.3
56.1
–
(1)
–
(1)
%
(7)
–
(7)
%
(0.62)
(4.33)
(0.03)
(0.31)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
%
–
–
–
–
–
–
–
%
–
4,944
1,148
6,092
304
778
1,082
322
308
7,804
4,309
1,540
5,849
342
267
609
1,346
7,804
6,200
415
1,187
2
7,804
41
36
403
–
480
%
0.7
8.7
34.0
–
€ m
(90)
(33)
(123)
%
(1.5)
Income statement
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
Net re-measurement of ECL allowance
Recoveries of amounts previously written-off
Net credit impairment (writeback)/charge
(34)
(19)
(53)
%
7
–
7
%
–
–
–
%
Net credit impairment (writeback)/charge
on average loans
(4.00)
0.17
0.01
–
–
–
%
–
*Forms an integral part of the audited financial statements
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 117
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Loans and advances to customers – Property and construction (continued)
The property and construction portfolio consists of € 7.3 billion in loans and advances measured at amortised cost together with
€ 0.1 billion of loans measured at FVTPL (total € 7.4 billion).
The portfolio measured at amortised cost amounted to 12% of total loans and advances. The portfolio comprised of 76% investment
loans (€ 5.6 billion), 14% land and development loans (€ 1.0 billion) and 10% other property and construction loans (€ 0.7 billion).
The CIB segment accounts for 57% of the portfolio, followed by the AIB UK segment at 31%.
The portfolio reduced by € 0.5 billion or 6% during the year to 31 December 2019. This reduction was driven by redemptions/
repayments net of interest credited of € 1.8 billion and disposals of € 0.7 billion as a result of the portfolio sales of distressed loans.
The reduction was mainly offset by new lending of € 2.0 billion, which was predominately in the CIB segment and is primarily to provide
senior secured funding. At 31 December 2019, € 6.5 billion of the portfolio was in a strong/satisfactory grade, which is an increase of
€ 0.7 billion in the year. The level of non-performing loans have reduced by € 1.0 billion as a result of the portfolio sales of distressed
loans and redemptions/repayments.
Property and construction loans measured at FVTPL reduced by € 70 million to € 77 million in the year to 31 December 2019, the
reduction being in non-performing loans as a result of a loan sale.
There was a net credit impairment writeback of € 46 million to the income statement in the year to 31 December 2019. This was due
to the recovery of € 19 million on loans previously written-off reflecting continued cash recoveries. There was a net re-measurement
writeback of € 27 million driven by a € 39 million writeback in Stage 3 which was mainly in individually assessed loans.
The portfolio held € 0.2 billion of ECL allowance which provide ECL allowance cover of 3%. For the Stage 3 portfolio, the ECL allowance
cover is 36% (2018: € 0.5 billion, 6% and 34% respectively).
Investment
Investment property loans amounted to € 5.6 billion at 31 December 2019 (2018: € 6.1 billion) of which € 4.2 billion related to
commercial investment. The geographic profile of the investment property portfolio is predominately in the Republic of Ireland
(€ 3.7 billion) and the United Kingdom (€ 1.6 billion).
At 31 December 2019, there was a net credit impairment writeback of € 47 million to the income statement on the investment property
element of the property and construction portfolio (2018: € 94 million).
Land and development
At 31 December 2019, land and development loans amounted to € 1.0 billion (2018: € 1.1 billion) of which € 0.2 billion related to loans in
the Retail Banking segment, € 0.6 billion in the CIB segment and € 0.2 billion in the AIB UK segment.
The income statement net credit impairment writeback for the year to 31 December 2019 was € 17 million (2018: € 26 million writeback).
Contractors
Loans to contractors remained unchanged at € 0.3 billion (2018: € 0.3 billion). However, there was a net credit impairment charge of
€ 18 million (2018: € 3 million) in the year relating to a small number of borrowers.
AIB Group plc Annual Financial Report 2019Risk Management 123456 118
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Loans and advances to customers – Non-property business
The following table analyses non-property business lending at amortised cost by segment, internal credit ratings and ECL staging at
31 December 2019 and 2018:
Gross carrying amount
Agriculture
Distribution:
Hotels
Licensed premises
Retail/wholesale
Other distribution
Other services
Other
Total
Analysed by internal credit ratings
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
CIB AIB UK
Group
CIB
AIB UK
Group
Retail
Banking
€ m
1,203
157
203
552
83
995
727
464
€ m
435
1,231
215
1,130
230
2,806
3,160
4,852
3,389
11,253
646
1,748
7,435
3,584
2,394
11,019
510
143
653
342
138
88
226
8
€ m
103
824
114
342
176
1,456
2,088
1,911
5,558
4,027
1,304
5,331
104
24
128
99
2019*
Total
€ m
1,741
2,212
532
2,024
489
5,257
5,981
7,333
Retail
Banking
€ m
1,344
259
305
718
93
1,375
871
503
€ m
–
–
–
–
–
–
6
106
112
€ m
396
1,136
215
1,244
247
2,842
3,090
4,218
€ m
96
644
141
336
180
1,301
1,960
1,490
4,847
20,312
4,093
10,546
14
98
12,122
6,734
633
1,708
6,716
3,604
3,786
812
112
18,856
2,341
10,320
4,598
–
–
–
–
752
255
1,007
449
606
218
824
928
170
42
212
14
147
24
171
78
2018*
Total
€ m
1,836
2,039
661
2,298
520
5,518
5,921
6,291
19,566
11,212
6,127
17,339
923
284
1,207
1,020
€ m
–
–
–
–
–
–
–
80
80
77
3
80
–
–
–
–
Gross carrying amount
3,389
11,253
5,558
112
20,312
4,093
10,546
4,847
80
19,566
Analysed by ECL staging
Stage 1
Stage 2
Stage 3
POCI
Total
2,681
10,921
5,027
112
18,741
2,692
10,300
4,471
79
17,542
377
331
–
324
8
–
432
99
–
–
–
–
1,133
438
–
507
894
–
231
15
–
298
78
–
–
1
–
1,036
988
–
3,389
11,253
5,558
112
20,312
4,093
10,546
4,847
80
19,566
ECL allowance – statement of financial position
Stage 1
Stage 2
Stage 3
POCI
Total
ECL allowance cover percentage
Stage 1
Stage 2
Stage 3
POCI
31
47
119
–
197
%
1.2
12.5
36.0
–
25
17
1
–
43
%
0.2
5.3
14.4
–
23
20
22
–
65
%
0.5
4.6
21.9
–
–
–
–
–
–
%
–
–
–
–
79
84
142
–
305
%
0.4
7.5
32.4
–
Income statement
€ m
€ m
€ m
€ m
€ m
Net re-measurement of ECL allowance
Recoveries of amounts previously written-off
Net credit impairment (writeback)/charge
(51)
(10)
(61)
%
16
–
16
%
18
(3)
15
%
Net credit impairment (writeback)/charge
on average loans
(1.61)
0.15
0.29
–
–
–
%
–
*Forms an integral part of the audited financial statements
(17)
(13)
(30)
%
57
85
340
–
482
%
2.1
16.8
38.0
–
€ m
2
(35)
(33)
%
18
17
1
–
36
%
0.2
7.4
6.7
–
18
30
27
–
75
%
0.4
10.1
34.6
–
–
–
–
–
–
%
–
–
–
–
€ m
€ m
€ m
22
–
22
%
22
(1)
21
%
1
–
1
%
93
132
368
–
593
%
0.5
12.7
37.2
–
€ m
47
(36)
11
%
(0.14)
(0.57)
0.27
0.46
0.96
0.06
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 119
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Loans and advances to customers – Non-property business (continued)
The non-property business portfolio comprises of small and medium enterprises (“SMEs”) which are reliant on the domestic economies
in which they operate and larger corporate and institutional borrowers which are impacted by global economic conditions. The portfolio
increased by 4% (€ 0.7 billion) to € 20.3 billion in the year to 31 December 2019 due to continued demand for credit across all segments
resulting in new lending of € 6.2 billion (2018: € 6.5 billion). However, this was offset by amortisation and portfolio sales of distressed
loans. The non-property business portfolio amounted to 33% of total Group loans and advances at 31 December 2019 (2018: 31%).
The majority of the portfolio exposure is to Irish borrowers with the UK and USA being the other main geographic concentrations.
Loans graded as strong/satisfactory increased during the year to 93%, continuing the positive trend experienced in 2018 (89%), with
new drawdowns exceeding repayments coupled with upward grade migration on existing loans. The level of less than satisfactory
grades (including non-performing loans) reduced from € 2.2 billion at 31 December 2018 to € 1.5 billion at 31 December 2019, mainly
due to a reduction of € 0.6 billion in defaulted loans following the portfolio sales of distressed loans.
The following are the key themes within the main sub-sectors of the non-property business portfolio:
–
The agriculture sub-sector comprises 9% of the portfolio at € 1.7 billion. A return to more normal weather conditions throughout
2019 helped significantly in reducing input expenditure after a challenging 2018. However, pressure on costs and output prices will
continue to be a concern in 2020 for overall farm incomes. The Group is proactively encouraging farmers to understand the impact
of future challenges on their farm business and to improve on-farm efficiencies;
The hotels sub-sector comprises 11% of the portfolio at € 2.2 billion. This sector continued to perform well in the year to
31 December 2019. Tourism performed well despite softening in growth of overseas visitors which was offset by sustained strength
in the local Irish economy. Increased supply is starting to come into the Dublin, Cork and Galway markets in order to meet the
current levels of demand which may have an impact on occupancy and rates;
The licensed premises sub-sector comprises 3% of the portfolio at € 0.5 billion. This sector performance is stable in areas of high
footfall, however, the challenge remains for licensed premises in more rural locations and in small towns where there is a lot of
competition;
The retail/wholesale sub-sector (10% of the portfolio at € 2.0 billion) was broadly stable in the Republic of Ireland. Challenges
include Brexit uncertainty and the growing adoption of online shopping. In the UK, a number of high profile retailers have been
impacted by a drop in consumer confidence and disposable income. These headwinds, and similar trends in the US, must be
considered when reviewing the sector within the Republic of Ireland, albeit current economic performance is strong and consumer
confidence is high;
The other services sub-sector comprises 29% of the portfolio at € 6.0 billion, 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 has continued to perform comparatively well in 2019; and
The category titled ‘Other’ totalling € 7.3 billion (36% of the portfolio) includes a broad range of sub-sectors such as energy,
manufacturing, transport and financial. The € 1.0 billion increase in the year to 31 December 2019 was driven by € 0.7 billion of new
lending in the energy sector.
–
–
–
–
–
The CIB segment includes € 4.8 billion (2018: € 4.6 billion) in syndicated lending exposures, an element of which is included in the
‘Other’ category referenced above. The Group has specialised lending teams which are involved in participating in the provision of
finance to US and European corporations for mergers, acquisitions, buy-outs and general corporate purposes. At 31 December 2019,
99% of the syndicated lending portfolio is in a strong/satisfactory grade. 65% of the customers in this portfolio are domiciled in the USA,
4% in the UK, and 31% in the Rest of the World (2018: 63% in the USA, 5% in the UK and 32% in the Rest of the World (primarily
Europe) respectively). The largest industry sub-sectors within the portfolio include telecoms, business services, healthcare and hotel/
leisure industries.
Strong economic growth in the Republic of Ireland has continued during 2019. Notwithstanding this, there are still challenges.
In particular, the nature of the future relationship between the UK and the EU following Brexit continues to be uncertain.
There was a net credit impairment writeback of € 30 million to the income statement for the year to 31 December 2019. This was
driven by a net re-measurement writeback of € 17 million and by recoveries of previously written-off loans of € 13 million. The net
re-measurement writeback of € 17 million was driven by a € 51 million writeback in the Retail Banking segment which was offset by a
€ 18 million charge in the UK segment and a € 16 million charge in the CIB segment. The charge in the UK reflects a small number of
borrowers and the charge in the CIB segment was driven by the management overlay in the syndicated lending portfolio.
The portfolio held € 0.3 billion in ECL allowance which provides ECL allowance cover of 2%. For the Stage 3 portfolio, the ECL
allowance cover is 32% (2018: € 0.6 billion, 3% and 37% respectively).
AIB Group plc Annual Financial Report 2019Risk Management 123456 120
2.1 Credit risk – Credit profile of the loan portfolio
The following tables set out the concentration of credit by industry sector and geography for loans and advances to customers and loan
commitments and financial guarantee contracts issued together with the related ECL allowance analysed by the ECL stage profile at
Gross carrying amount
Analysed by ECL stage profile
At amortised cost
2019
At FVTPL
Total
Stage 1 Stage 2 Stage 3
POCI
Total
Total
31 December 2019 and 2018:
Gross exposures to customers
Concentration by industry sector
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal: Residential mortgages
Other
Total
Concentration by location(1)
Republic of Ireland
United Kingdom
North America
Rest of the World
ECL allowance
Concentration by industry sector
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal: Residential mortgages
Other
Total
Concentration by location(1)
Republic of Ireland
United Kingdom
North America
Rest of the World
(1)Based on country of risk.
€ m
–
–
–
77
–
–
–
–
–
–
77
77
–
–
–
77
Loan
commitments
and financial
guarantees
issued
€ m
547
633
1,461
1,646
1,307
576
497
1,953
Loans and
advances to
customers
€ m
1,741
1,490
3,143
7,299
5,257
1,936
764
5,981
31,454
2,984
62,049
46,893
9,589
3,192
2,375
€ m
2,288
2,123
4,604
8,945
6,564
2,512
1,261
7,934
€ m
1,993
2,104
4,352
8,054
5,840
2,438
1,248
7,514
€ m
213
15
180
460
532
41
9
295
€ m
€ m
82
4
72
431
192
33
4
125
–
–
–
–
–
–
–
–
€ m
2,288
2,123
4,604
8,945
6,564
2,512
1,261
7,934
866
32,320
27,816
2,151
2,158
195
32,320
2,764
5,748
5,119
429
200
–
5,748
12,250
74,299
66,478
4,325
3,301
195
74,299
9,496
56,389
2,253
11,842
120
381
3,312
2,756
49,820
10,735
3,249
2,674
3,424
2,951
194
56,389
777
61
63
330
2
18
–
–
1
11,842
3,312
2,756
62,049
12,250
74,299
66,478
4,325
3,301
195
74,299
ECL allowance
Analysed by ECL stage profile
2019
Total
Stage 1 Stage 2 Stage 3
POCI
Total
Loans and
advances to
customers
€ m
40
7
41
189
125
14
6
72
569
175
Loan
commitments
and financial
guarantees
issued
€ m
2
1
3
20
4
1
–
5
–
6
€ m
42
8
44
209
129
15
6
77
569
181
€ m
€ m
€ m
€ m
€ m
8
4
8
34
34
6
3
24
10
23
11
1
12
26
45
3
1
17
52
43
23
3
24
149
50
6
2
36
476
115
884
814
68
–
2
–
–
–
–
–
–
–
–
31
–
31
42
8
44
209
129
15
6
77
569
181
1,280
31
1,121
–
–
–
132
15
12
1,238
42
1,280
154
211
1,087
125
15
11
1,238
34
1,121
7
–
1
132
15
12
103
35
9
7
173
29
6
3
42
1,280
154
211
884
31
1,280
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 2.1 Credit risk – Credit profile of the loan portfolio
Gross exposures to customers
Gross carrying amount
Analysed by ECL stage profile
At amortised cost
121
2018
At FVTPL
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Total
Loans and
advances to
customers
€ m
1,836
983
2,934
7,804
5,518
1,779
595
5,921
32,315
3,075
62,760
48,530
8,864
3,036
2,330
Concentration by industry sector
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal: Residential mortgages
Other
Total
Concentration by location(1)
Republic of Ireland
United Kingdom
North America
Rest of the World
Loan
commitments
and financial
guarantees
issued
€ m
556
609
1,227
1,528
1,298
414
303
€ m
2,392
1,592
4,161
9,332
6,816
2,193
898
2,450
8,371
€ m
2,018
1,547
3,947
7,602
5,879
2,099
836
7,856
€ m
196
31
152
460
450
73
28
261
€ m
178
14
62
1,268
487
21
34
254
€ m
–
–
–
2
–
–
–
–
€ m
2,392
1,592
4,161
9,332
6,816
2,193
898
8,371
€ m
–
–
–
147
–
–
–
–
–
–
356
32,671
25,940
3,450
3,047
234
32,671
3,146
6,221
5,347
516
358
–
6,221
11,887
74,647
63,071
5,617
5,723
236
74,647
147
8,496
57,026
2,441
11,305
94
856
3,130
3,186
46,635
10,269
3,125
3,042
4,899
5,258
234
57,026
147
659
2
57
376
3
86
1
–
1
11,305
3,130
3,186
–
–
–
62,760
11,887
74,647
63,071
5,617
5,723
236
74,647
147
ECL allowance
ECL allowance
Analysed by ECL stage profile
2018
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Loans and
advances to
customers
€ m
77
14
49
480
283
17
12
141
713
253
Loan
commitments
and financial
guarantees
issued
€ m
2
1
4
30
8
–
–
7
–
6
€ m
€ m
€ m
€ m
€ m
79
15
53
510
291
17
12
148
713
259
€ m
14
4
8
43
48
5
2
21
8
32
20
5
16
39
64
4
2
31
51
54
45
6
29
428
179
8
8
96
623
173
–
–
–
–
–
–
–
–
31
–
31
79
15
53
510
291
17
12
148
713
259
2,097
2,039
58
2,097
185
286
1,595
1,787
208
2
42
2,039
47
10
–
1
58
1,834
218
2
43
150
29
2
4
240
44
–
2
1,413
145
–
37
31
1,834
–
–
–
218
2
43
2,097
185
286
1,595
31
2,097
Concentration by industry sector
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal: Residential mortgages
Other
Total
Concentration by location(1)
Republic of Ireland
United Kingdom
North America
Rest of the World
(1)Based on country of risk.
AIB Group plc Annual Financial Report 2019Risk Management 123456 122
2.1 Credit risk – Credit profile of the loan portfolio
Aged analysis of contractually past due loans and advances to customers
The following table shows aged analysis of contractually past due loans and advances to customers by industry sector analysed by ECL
staging and segment at 31 December 2019 and 2018:
1–30 days
€ m
31–60 days
€ m
61–90 days
€ m
91–180 days 181–365 days
€ m
€ m
> 365 days
€ m
At amortised cost
Industry sector
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal:
Residential mortgages
Credit cards
Other
Total gross carrying amount
ECL staging
Stage 1
Stage 2
Stage 3
POCI
Segment
Retail Banking
CIB
AIB UK
Group
As a percentage of total gross
loans at amortised cost
At FVTPL
Industry sector
Property and construction
Total at FVTPL
Segment
Retail Banking
As a percentage of
total gross loans at FVTPL
29
4
7
33
37
3
1
26
416
19
63
638
196
300
127
15
638
551
41
46
–
638
%
1.03
€ m
–
–
€ m
–
–
%
–
2
–
1
15
4
1
–
3
136
6
15
183
–
90
89
4
183
164
2
17
–
183
%
0.29
€ m
–
–
€ m
–
–
%
–
2
–
3
3
2
–
–
4
86
3
13
116
–
33
79
4
116
106
–
10
–
116
%
0.19
€ m
–
–
€ m
–
–
%
–
3
–
3
12
5
1
–
10
141
5
22
202
–
–
198
4
202
185
–
17
–
202
%
0.33
€ m
–
–
€ m
–
–
%
–
6
–
4
12
7
1
1
8
141
14
28
222
–
–
217
5
222
200
1
21
–
222
%
0.36
€ m
–
–
€ m
–
–
%
–
2019
Total
€ m
54
8
25
216
86
10
4
71
1,832
47
212
2,565
196
423
1,897
49
2,565
12
4
7
141
31
4
2
20
912
–
71
1,204
–
–
1,187
17
1,204
1,114
2,320
–
90
–
44
201
–
1,204
2,565
%
1.94
€ m
–
–
€ m
–
–
%
–
%
4.14
€ m
–
–
€ m
–
–
%
–
The figures reported are inclusive of overdrafts, bridging loans and cases with expired limits.
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 2.1 Credit risk – Credit profile of the loan portfolio
Aged analysis of contractually past due loans and advances to customers (continued)
1–30 days
€ m
31–60 days
€ m
61–90 days
€ m
91–180 days 181–365 days
€ m
€ m
> 365 days
€ m
At amortised cost
Industry sector
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal:
Residential mortgages
Credit cards
Other
Total gross carrying amount
ECL staging
Stage 1
Stage 2
Stage 3
POCI
Segment
Retail Banking
CIB
AIB UK
Group
As a percentage of total gross
loans at amortised cost
At FVTPL
Industry sector
Property and construction
Total at FVTPL
Segment
Retail Banking
As a percentage of
total gross loans at FVTPL
36
–
11
75
66
4
2
23
463
21
52
753
221
323
191
18
753
651
64
38
–
753
%
1.20
€ m
–
–
€ m
–
–
%
–
5
2
1
20
8
1
–
4
136
4
13
194
–
79
110
5
194
168
1
25
–
194
%
0.31
€ m
–
–
€ m
–
–
%
0.13
4
–
1
21
6
1
–
3
112
3
15
166
–
37
127
2
166
152
–
14
–
166
%
0.26
€ m
–
–
€ m
–
–
%
–
10
–
3
32
9
1
–
8
154
6
19
242
–
–
237
5
242
230
–
12
–
242
%
0.39
€ m
–
–
€ m
–
–
%
–
11
3
3
51
25
3
–
16
195
17
31
355
–
–
349
6
355
331
–
24
–
355
%
0.57
€ m
–
–
€ m
–
–
%
–
123
2018
Total
€ m
147
13
40
731
307
18
5
159
2,486
51
286
4,243
221
439
3,524
59
4,243
81
8
21
532
193
8
3
105
1,426
–
156
2,533
–
–
2,510
23
2,533
2,352
3,884
2
179
–
67
292
–
2,533
4,243
%
4.04
€ m
2
2
€ m
2
2
%
1.31
%
6.76
€ m
2
2
€ m
2
2
%
1.44
In the year to 31 December 2019, total loans past due reduced by € 1.6 billion to € 2.6 billion or 4.1% of total loans and advances
to customers (2018: € 4.2 billion or 6.8%). The reduction was predominately in the greater than 365 days past due category which
decreased by € 1.3 billion primarily due to portfolio sales of distressed loans.
Residential mortgage loans which were past due at 31 December 2019 amounted to € 1.8 billion. This represents 71% of total loans
which were past due (2018: € 2.5 billion or 59%). The level of residential mortgage loans in early arrears (less than 30 days past due)
continues to decrease which is due to the active management of early arrears cases and the favourable economic environment.
Property and construction loans which were past due represent 8% or € 0.2 billion of total loans which were past due (2018: 17% or
€ 0.7 billion), with non-property business at 10% or € 0.3 billion (2018: 16% or € 0.7 billion) and other personal at 10% or € 0.3 billion
(2018: 8% or € 0.3 billion).
All loans past due by 90 days or more on any material obligation are considered non-performing/defaulted.
AIB Group plc Annual Financial Report 2019Risk Management 123456 124
2.1 Credit risk – Credit profile of the loan portfolio
Loans written-off and recoveries of previously written-off loans
The following table analyses loans written-off and recoveries of previously written-off loans by geography(1) and industry sector for the
years ended 31 December 2019 and 2018:
Loans written-off
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal – Residential mortgages
– Other
Recoveries of amounts
previously written-off
Agriculture
Energy
Manufacturing
Property and construction
Distribution
Transport
Financial
Other services
Personal – Residential mortgages
– Other
(1)By country of risk
Ireland
United Kingdom
Rest of the World
Total
2019
€ m
–
0.3
1.3
12.9
11.4
–
–
2.1
173.1
35.5
236.6
2018
€ m
19.0
5.1
19.8
112.0
37.3
3.2
0.1
83.0
543.2
56.0
878.7
2019
€ m
0.1
–
0.6
2018
€ m
0.1
5.5
5.4
61.2
65.9
8.0
0.7
–
8.8
14.1
3.1
96.6
9.7
–
5.2
4.9
15.8
6.2
118.7
2019
€ m
2018
€ m
–
–
–
26.1
–
1.4
–
–
1.1
–
28.6
–
–
–
–
5.8
–
1.6
19.8
4.5
0.2
31.9
2019
€ m
0.1
0.3
1.9
100.2
19.4
2.1
–
10.9
188.3
38.6
2018
€ m
19.1
10.6
25.2
177.9
52.8
3.2
6.9
107.7
563.5
62.4
361.8
1,029.3
Ireland
United Kingdom
Rest of the World
Total
2019
€ m
4.0
0.1
1.1
18.9
1.4
0.8
0.5
1.5
34.9
22.1
85.3
2018
€ m
7.4
0.7
1.7
28.1
10.5
0.8
0.2
12.1
24.2
23.0
108.7
2019
€ m
2018
€ m
2019
€ m
2018
€ m
–
–
–
0.5
2.2
–
–
0.5
0.8
–
4.0
–
–
–
0.9
0.4
–
–
2.6
0.8
2.6
7.3
–
–
–
–
–
–
–
0.4
–
–
0.4
–
–
–
4.1
–
–
–
–
0.2
–
4.3
2019
€ m
4.0
0.1
1.1
19.4
3.6
0.8
0.5
2.4
35.7
22.1
89.7
2018
€ m
7.4
0.7
1.7
33.1
10.9
0.8
0.2
14.7
25.2
25.6
120.3
The contractual amount outstanding of loans written-off during the year that are subject to enforcement activity amounted to
€ 202 million (2018: € 750 million) which includes both full and partial write-offs. Total cumulative non-contracted loans written-off at
31 December 2019 amounted to € 1,919 million (2018: € 3,414 million).*
*Forms an integral part of the audited financial statements
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 125
2.1 Credit risk – Credit profile of the loan portfolio
Gross loans(1) and ECL movements
The following tables set out the movements in the gross carrying amount and ECL allowance for loans and advances to customers by
ECL staging for the years to 31 December 2019 and 2018.
Accounts that triggered movements between Stage 1 and Stage 2 as a result of failing/curing a quantitative measure only (as disclosed
on page 89) and that subsequently reverted within the period to their original stage, are excluded from ‘Transferred from Stage 1 to
Stage 2 and ‘Transferred from Stage 2 to Stage 1’. The Group believes this presentation aids the understanding of the underlying credit
migration.
Gross carrying amount movements – total
At 1 January
Transferred from Stage 1 to Stage 2
Transferred from Stage 2 to Stage 1
Transferred to Stage 3
Transferred from Stage 3
New loans originated/top-ups
Redemptions/repayments
Interest credited
Write-offs
Derecognised due to disposals
Exchange translation adjustments
Impact of model, parameter and overlay changes
Other movements
At 31 December 2019
At 1 January
Transferred from Stage 1 to Stage 2
Transferred from Stage 2 to Stage 1
Transferred to Stage 3
Transferred from Stage 3
Other changes in net exposures
Write-offs
Derecognised due to disposals
Interest applied to accounts
Exchange translation adjustments
Other movements
At 31 December 2018
(17)
(13,042)
Stage 1
€ m
51,693
(3,287)
3,070
(254)
120
12,110
(11,124)
1,736
–
(326)
521
333
131
Stage 2
€ m
5,290
3,287
(3,070)
(655)
447
–
(1,111)
169
–
(47)
40
(333)
(25)
Stage 3
€ m
5,541
POCI
€ m
236
–
–
909
(567)
–
(790)
83
(357)
(1,673)
17
–
(23)
–
–
–
–
2
9
(5)
(6)
–
–
(25)
194
54,723
3,992
3,140
Stage 1
€ m
46,021
(2,777)
2,833
(302)
129
Stage 2
€ m
7,912
2,777
(2,833)
(658)
648
2,393
(1,543)
–
(3)
1,503
78
1,818
51,693
–
(21)
231
(12)
(1,211)
5,290
Stage 3
€ m
9,011
POCI
€ m
238
–
–
960
(777)
(1,251)
(1,029)
(1,013)
140
–
(500)
5,541
–
–
–
–
–
–
–
–
–
(2)
236
2019*
Total
€ m
62,760
–
–
–
–
12,112
1,997
(362)
(2,052)
578
–
58
62,049
2018*
Total
€ m
63,182
–
–
–
–
(401)
(1,029)
(1,037)
1,874
66
105
62,760
(1)Movements on the gross loans table have been prepared on a ‘sum of the months’ basis.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 123456 126
2.1 Credit risk – Credit profile of the loan portfolio
Gross loans and ECL movements (continued)
ECL allowance movements – total
At 1 January
Transferred from Stage 1 to Stage 2
Transferred from Stage 2 to Stage 1
Transferred to Stage 3
Transferred from Stage 3
Net re-measurement
New loans originated/top-ups
Redemptions/repayments
Impact of model and overlay changes
Impact of credit or economic risk parameters
Income statement net credit impairment charge/(writeback)
Write-offs
Derecognised due to disposals
Exchange translation adjustments
Other movements
At 31 December 2019
At 1 January
Net re-measurement of ECL allowance – income statement
Exchange translation adjustments
Other movements with no income statement impact:
Changes in ECL allowance due to write-offs
Changes in ECL allowance due to disposals
Transfer in
At 31 December 2018
Stage 3
€ m
1,566
POCI
€ m
31
Stage 1
€ m
Stage 2
€ m
171
(33)
59
(10)
10
(73)
40
(14)
(4)
1
(24)
–
(4)
2
(4)
271
235
(211)
(93)
21
(22)
–
(15)
5
10
(70)
–
(2)
2
1
141
202
Stage 1
€ m
Stage 2
€ m
156
18
–
–
(1)
(2)
303
(23)
–
–
(2)
(7)
–
–
203
(86)
(17)
–
–
72
32
204
(357)
(557)
5
3
864
Stage 3
€ m
3,136
(99)
(1)
(1,029)
(469)
28
171
271
1,566
2019*
Total
€ m
2,039
202
(152)
100
(55)
(110)
40
(30)
76
46
117
(362)
(565)
9
–
1,238
2018*
Total
€ m
3,616
(89)
(1)
(1,029)
(472)
14
2,039
–
–
–
–
2
–
(1)
3
3
7
(5)
(2)
–
–
31
POCI
€ m
21
15
–
–
–
(5)
31
Total exposures to which an ECL applies decreased during the year by € 0.7 billion from € 62.8 billion as at 1 January 2019 to
€ 62.1 billion as at 31 December 2019.
Stage transfers are a key component of ECL allowance movements (i.e. Stage 1 to Stage 2 to Stage 3) being the primary driver of a
higher income statement charge (and vice versa) in addition to the net re-measurement of ECL due to change in risk parameters within
a stage.
Transfers from Stage 1 to Stage 2 of € 3.3 billion represent the underlying credit activity where a significant increase in credit risk
occurred at some point during the year through either the quantitative or qualitative criteria for stage movement. The main driver of the
movements to Stage 2 was the doubling of PDs, subject to 50bps. 41% of the movements relied on a qualitative or backstop indicator of
significant increase in credit risk (e.g. forbearance or movement to a watch grade) of which 3% relied solely on the backstop of 30 days
past due to identify that a significant increase in credit risk had occurred. Of the € 3.3 billion which transferred from Stage 1 to Stage 2
during the year, approximately € 2.2 billion is reported as Stage 2 at 31 December 2019.
Similarly, transfers from Stage 2 to Stage 1 of € 3.1 billion represent those loans where the triggers for significant increase in credit risk
no longer apply or loans that have fulfilled a probation period. These transfers include loans which have been upgraded through normal
credit management process.
In 2019, following an assessment of the mortgage exposures, a change to the quantitative SICR threshold from 50bps to 85bps was
approved by the Group. This was implemented in the Irish residential mortgage portfolio as at December 2019. This change resulted
in a gross loan Stage 2 to Stage 1 transfer of € 0.4 billion reflected within other movements. 99% of the loans impacted carry a strong/
satisfactory risk rating with an immaterial impact on the ECL allowance.
*Forms an integral part of the audited financial statements
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 127
2.1 Credit risk – Credit profile of the loan portfolio
Gross loans and ECL movements (continued)
Transfers from Stage 2 to Stage 3 of € 0.7 billion represent those loans that defaulted during the period. These arose in cases where
it was determined that the customers were unlikely to pay their credit obligations in full without the realisation of collateral regardless
of the existence of any past due amount or the number of days past due. In addition, transfers also include all credit obligors that are
90 days or more past due on a material obligation. Of the transfers from Stage 2 to Stage 3 € 0.2 billion had transferred from Stage 1 to
Stage 2 earlier in the year.
Transfers from Stage 3 to Stage 2 of € 0.4 billion were mainly driven by resolution activity with the customer, through either restructuring
or forbearance previously granted and which subsequently adhered to default probation requirements. As part of the credit management
practices, active monitoring of loans and their adherence to default probation requirements is in place. Transfers from Stage 3 to Stage
1 of € 0.1 billion primarily reflect curing events from default where no forbearance measure was required.
Disposals of € 2.1 billion primarily reflects the portfolio sales of distressed loans during the year which was a key driver of the Stage 3
reductions across all sectors.
Reductions due to write-offs continue to reflect the utilisation of ECL stock as a result of the restructure of customer debt in line with the
Group’s strategy.
Recalibration and enhancements to take account of updated observed outcomes within the Group’s definition of default and the IFRS 9
staging process resulted in an increase in Stage 1 gross loans of € 50 million and a reduction in Stage 2 and Stage 3 gross loans of
€ 40 million and € 10 million respectively which are reflected within other movements.
The revision of the macroeconomic factors and probability weightings resulted in a € 46 million ECL charge.
In summary, the staging movements of the overall portfolio were as follows:
Stage 1 loans increased by € 3 billion in 2019 with an ECL of € 0.1 billion and resulting cover of 0.3%. This was primarily on foot of net
new lending and loans curing to Stage 1.
Stage 2 loans decreased by € 1.3 billion in 2019 with an ECL of € 0.2 billion and resulting cover of 5.1%. This was driven by repayments
and redemptions and loans for which a significant increase in credit risk no longer applied and/or which had completed a probation
period.
Stage 3 loans decreased by € 2.4 billion in 2019 with the ECL cover reducing from 28.3% to 27.5%. Key drivers were portfolio sales of
distressed loans and loans completing default probation periods. The reduction in cover reflects the disposal of loans which carried a
higher average ECL charge.
Further details on stage movements by asset class are set out in the tables on the following page.
AIB Group plc Annual Financial Report 2019Risk Management 123456 128
:
9
1
0
2
r
e
b
m
e
c
e
D
1
3
o
t
r
a
e
y
e
h
t
r
o
f
i
g
n
g
a
t
s
L
C
E
d
n
a
s
s
a
c
l
t
e
s
s
a
y
b
s
r
e
m
o
t
s
u
c
o
t
s
e
c
n
a
v
d
a
d
n
a
s
n
a
o
l
r
o
f
e
c
n
a
w
o
l
l
a
L
C
E
d
n
a
t
n
u
o
m
a
i
g
n
y
r
r
a
c
s
s
o
r
g
e
h
t
n
i
s
t
n
e
m
e
v
o
m
e
h
t
t
u
o
t
e
s
l
s
e
b
a
t
g
n
w
o
i
l
l
o
f
e
h
T
o
i
l
o
f
t
r
o
p
n
a
o
l
e
h
t
f
o
e
l
i
f
o
r
p
t
i
d
e
r
C
–
k
s
i
r
t
i
d
e
r
C
1
.
2
)
d
e
u
n
i
t
n
o
c
(
s
t
n
e
m
e
v
o
m
L
C
E
d
n
a
)
1
(
s
n
a
o
l
s
s
o
r
G
s
s
e
n
i
s
u
b
y
t
r
e
p
o
r
p
-
n
o
N
n
o
i
t
c
u
r
t
s
n
o
c
d
n
a
y
t
r
e
p
o
r
P
l
a
n
o
s
r
e
p
r
e
h
t
O
s
e
g
a
g
t
r
o
m
l
a
i
t
n
e
d
i
s
e
R
s
s
a
l
c
t
e
s
s
A
–
s
t
n
e
m
e
v
o
m
t
n
u
o
m
a
g
n
i
y
r
r
a
c
s
s
o
r
G
2
1
3
,
0
2
8
3
4
3
3
1
,
1
1
4
7
,
8
1
9
9
2
,
7
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
–
–
–
–
m
€
l
a
t
o
T
6
6
5
,
9
1
–
–
m
€
8
8
9
1
4
3
)
9
2
1
(
4
5
0
,
6
–
m
€
6
3
0
,
1
5
6
2
,
1
)
9
3
6
(
)
3
3
2
(
–
0
7
m
€
)
5
6
2
,
1
(
2
4
5
,
7
1
9
3
6
)
8
0
1
(
9
5
4
5
0
,
6
)
5
3
(
5
2
7
)
4
2
8
(
8
7
3
–
)
3
4
(
0
2
)
5
3
(
)
9
6
5
(
2
–
)
7
3
(
–
5
4
)
7
(
8
2
7
)
3
2
(
–
0
6
6
)
8
4
2
(
8
4
3
3
2
)
3
1
(
)
9
0
5
,
5
(
)
3
4
1
(
)
6
1
4
(
)
0
5
9
,
4
(
–
–
–
–
m
€
l
a
t
o
T
4
0
8
,
7
7
9
8
,
1
)
7
7
0
,
2
(
9
2
2
)
0
0
1
(
)
7
5
6
(
4
2
1
–
9
7
2
–
–
–
–
–
–
–
–
)
2
(
–
–
–
–
m
€
I
C
O
P
–
–
)
0
9
(
4
9
1
–
m
€
7
8
1
,
1
m
€
5
1
4
8
3
4
)
0
9
(
)
0
2
2
(
–
9
4
m
€
0
0
2
,
6
)
8
3
4
(
0
2
2
)
4
0
1
(
1
4
7
9
8
,
1
3
4
0
,
1
–
3
4
0
,
1
8
1
1
,
3
–
–
–
–
m
€
l
a
t
o
T
5
7
0
,
3
–
–
m
€
3
4
3
7
9
)
5
2
(
m
€
8
9
3
7
8
3
)
5
8
(
)
6
7
2
(
–
2
2
m
€
4
3
3
,
2
)
7
8
3
(
)
2
1
(
6
7
2
3
–
–
–
–
m
€
l
a
t
o
T
5
1
3
,
2
3
–
–
–
–
2
m
€
4
3
2
m
€
3
2
0
,
3
–
–
7
7
2
)
3
2
3
(
–
m
€
1
4
4
,
3
7
9
1
,
1
m
€
)
7
9
1
,
1
(
7
1
6
,
5
2
)
5
3
9
,
1
(
5
3
9
,
1
)
7
4
2
(
6
0
3
–
)
0
3
(
7
1
6
1
1
,
3
I
C
O
P
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
)
2
7
2
(
)
6
5
1
(
)
9
4
6
,
1
(
)
7
0
2
,
1
(
)
6
6
(
)
5
4
1
(
8
1
)
0
0
1
(
)
4
9
5
(
8
–
6
1
7
6
3
–
4
1
)
4
1
(
5
)
3
(
)
1
1
(
7
2
4
–
7
9
1
)
7
4
(
1
1
1
3
4
7
0
3
2
)
9
3
(
)
7
4
1
(
9
–
0
2
9
)
9
3
(
)
8
2
1
(
–
–
1
5
0
5
,
6
4
8
9
,
2
2
9
1
–
1
3
)
5
(
2
)
4
(
)
7
3
(
8
8
2
)
6
9
9
(
0
9
1
–
)
4
1
(
7
4
6
5
3
1
8
)
8
8
1
(
)
4
2
4
(
–
2
7
6
9
)
5
(
)
4
(
–
–
)
5
2
(
6
3
)
3
8
1
(
)
2
8
3
(
7
–
)
3
(
–
9
7
)
1
2
(
5
)
3
0
3
(
6
1
–
9
8
6
)
7
1
(
5
5
4
1
3
0
3
)
9
4
2
,
4
(
)
7
1
(
)
9
0
3
(
)
4
9
3
(
)
9
2
5
,
3
(
4
0
5
,
2
4
5
4
,
1
3
4
9
1
3
4
1
,
2
4
4
1
,
2
3
7
9
,
6
2
s
e
g
n
a
h
c
y
a
l
r
e
v
o
d
n
a
r
e
t
e
m
a
r
a
p
,
l
e
d
o
m
f
o
t
c
a
p
m
I
s
t
n
e
m
t
s
u
d
a
j
l
n
o
i
t
a
s
n
a
r
t
e
g
n
a
h
c
x
E
9
1
0
2
r
e
b
m
e
c
e
D
1
3
t
A
s
t
n
e
m
e
v
o
m
r
e
h
O
t
2
e
g
a
t
S
o
t
1
e
g
a
t
S
m
o
r
f
d
e
r
r
e
f
s
n
a
r
T
1
e
g
a
t
S
o
t
2
e
g
a
t
S
m
o
r
f
d
e
r
r
e
f
s
n
a
r
T
y
r
a
u
n
a
J
1
t
A
s
p
u
-
p
o
t
/
d
e
t
a
n
g
i
r
o
i
s
n
a
o
l
w
e
N
s
t
n
e
m
y
a
p
e
r
/
s
n
o
i
t
p
m
e
d
e
R
3
e
g
a
t
S
m
o
r
f
d
e
r
r
e
f
s
n
a
r
T
3
e
g
a
t
S
o
t
d
e
r
r
e
f
s
n
a
r
T
l
s
a
s
o
p
s
d
i
o
t
e
u
d
i
d
e
s
n
g
o
c
e
r
e
D
d
e
t
i
d
e
r
c
t
s
e
r
e
t
n
I
s
f
f
o
-
e
t
i
r
W
s
s
e
n
i
s
u
b
y
t
r
e
p
o
r
p
-
n
o
N
n
o
i
t
c
u
r
t
s
n
o
c
d
n
a
y
t
r
e
p
o
r
P
l
a
n
o
s
r
e
p
r
e
h
t
O
s
e
g
a
g
t
r
o
m
l
a
i
t
n
e
d
i
s
e
R
l
a
t
o
T
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
l
a
t
o
T
m
€
3
9
5
6
8
)
1
7
(
9
3
)
5
1
(
)
0
6
(
7
1
)
9
1
(
2
4
)
7
1
(
)
5
3
(
–
–
m
€
8
6
3
5
8
)
8
2
(
)
9
1
(
–
–
)
1
(
2
9
3
)
5
3
(
)
1
3
2
(
)
9
2
2
(
4
)
9
(
–
)
1
(
5
0
3
2
4
1
m
€
2
3
1
3
0
1
)
0
1
1
(
)
2
4
(
7
8
–
)
1
1
(
)
3
(
1
)
7
4
(
–
)
1
(
2
)
2
(
4
8
3
9
m
€
)
7
1
(
9
3
)
4
(
6
)
9
4
(
7
1
)
8
(
6
1
)
9
(
–
)
1
(
2
)
6
(
9
7
m
€
0
8
4
7
1
)
4
2
(
2
3
)
1
1
(
)
4
4
(
6
)
7
(
–
4
)
7
2
(
)
0
0
1
(
)
0
8
1
(
4
2
1
9
8
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
m
€
I
C
O
P
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
l
a
t
o
T
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
l
a
t
o
T
–
–
m
€
3
0
4
7
4
)
6
1
(
)
9
3
(
–
–
1
2
)
5
(
)
0
0
1
(
)
7
7
1
(
4
7
6
3
1
2
m
€
)
8
2
(
)
0
1
(
3
2
–
)
2
(
)
1
(
2
)
3
1
(
–
–
–
3
2
3
1
6
2
1
4
)
4
(
4
)
5
(
2
)
7
(
6
)
5
(
–
–
)
9
(
–
)
3
(
–
2
1
3
m
€
m
€
3
5
2
6
6
)
6
3
(
3
1
)
7
(
)
8
(
6
1
)
2
(
)
9
(
)
1
(
2
3
)
9
3
(
)
8
6
(
–
)
3
(
5
7
1
–
–
m
€
2
7
1
6
4
)
2
1
(
6
1
–
–
1
)
1
(
0
5
)
9
3
(
)
7
6
(
–
)
2
(
4
1
1
2
5
6
7
m
€
)
8
4
(
)
2
3
(
4
)
8
(
–
)
1
(
)
2
(
–
9
2
m
€
)
0
1
(
2
1
)
1
(
1
)
6
1
(
6
1
)
1
(
)
8
(
–
)
1
1
(
)
7
(
–
)
1
(
–
–
0
4
–
–
–
)
1
(
1
2
m
€
3
1
7
3
3
)
1
2
(
6
1
)
2
2
(
2
1
)
2
(
3
8
9
3
9
2
1
)
6
8
(
)
8
8
1
(
1
–
9
6
5
–
–
–
–
2
–
)
1
(
3
3
7
)
5
(
)
2
(
–
–
1
3
1
3
m
€
I
C
O
P
–
–
m
€
3
2
6
5
2
)
0
3
(
5
2
–
–
1
7
9
2
0
2
1
)
4
8
(
)
3
8
1
(
1
)
1
(
1
5
5
3
m
€
)
5
2
(
)
9
(
7
)
4
2
(
–
)
1
(
1
1
7
1
–
–
–
–
8
)
2
(
m
€
4
–
1
)
1
(
1
–
)
2
(
–
1
–
–
–
1
6
7
4
2
5
0
1
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
2
e
g
a
t
S
o
t
1
e
g
a
t
S
m
o
r
f
d
e
r
r
e
f
s
n
a
r
T
1
e
g
a
t
S
o
t
2
e
g
a
t
S
m
o
r
f
d
e
r
r
e
f
s
n
a
r
T
y
r
a
u
n
a
J
1
t
A
s
p
u
-
p
o
t
/
d
e
t
a
n
g
i
r
o
i
s
n
a
o
l
w
e
N
s
t
n
e
m
y
a
p
e
r
/
s
n
o
i
t
p
m
e
d
e
R
3
e
g
a
t
S
m
o
r
f
d
e
r
r
e
f
s
n
a
r
T
3
e
g
a
t
S
o
t
d
e
r
r
e
f
s
n
a
r
T
t
n
e
m
e
r
u
s
a
e
m
-
e
r
t
e
N
s
r
e
t
e
m
a
r
a
p
k
s
i
r
i
c
m
o
n
o
c
e
r
o
t
i
d
e
r
c
f
o
t
c
a
p
m
I
s
e
g
n
a
h
c
y
a
l
r
e
v
o
d
n
a
l
e
d
o
m
f
o
t
c
a
p
m
I
)
k
c
a
b
e
t
i
r
w
(
/
e
g
r
a
h
c
t
n
e
m
r
i
a
p
m
i
t
i
d
e
r
c
t
e
n
t
n
e
m
e
t
a
t
s
e
m
o
c
n
I
s
t
n
e
m
t
s
u
d
a
j
l
n
o
i
t
a
s
n
a
r
t
e
g
n
a
h
c
x
E
9
1
0
2
r
e
b
m
e
c
e
D
1
3
t
A
s
t
n
e
m
e
v
o
m
r
e
h
O
t
l
s
a
s
o
p
s
d
i
o
t
e
u
d
i
d
e
s
n
g
o
c
e
r
e
D
s
f
f
o
-
e
t
i
r
W
i
.
s
s
a
b
’
s
h
t
n
o
m
e
h
t
f
o
m
u
s
‘
a
n
o
d
e
r
a
p
e
r
p
n
e
e
b
e
v
a
h
e
b
a
t
l
s
n
a
o
l
s
s
o
r
g
e
h
t
n
o
s
t
n
e
m
e
v
o
M
)
1
(
s
s
a
c
l
t
e
s
s
A
–
s
t
n
e
m
e
v
o
m
e
c
n
a
w
o
l
l
a
L
C
E
AIB Group plc Annual Financial Report 2019Risk Management
129
2.1 Credit risk – Credit profile of the loan portfolio
Movements in off-balance sheet exposures
The following tables set out the movements in the nominal amount and ECL allowance for loan commitments and financial guarantees by
ECL staging for the year to 31 December 2019:
Nominal amount movements
Loan commitments
Financial guarantees
2019*
At 1 January
Transferred from Stage 1 to Stage 2
Transferred from Stage 2 to Stage 1
Transferred to Stage 3
Transferred from Stage 3
Net movement
Derecognised due to disposals
At 31 December 2019
ECL allowance movements
At 1 January
Transferred from Stage 1 to Stage 2
Transferred from Stage 2 to Stage 1
Transferred to Stage 3
Transferred from Stage 3
Net re-measurement
Income statement (credit)/charge
Derecognised due to disposals
Other movements
At 31 December 2019
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
Total
€ m
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
10,688
(241)
170
(39)
11
509
–
11,098
296
241
(170)
(7)
4
(41)
–
323
123
11,107
–
–
46
(15)
(36)
–
–
–
–
–
432
–
118
11,539
691
(5)
16
(3)
–
(44)
2
657
31
5
(16)
–
–
(9)
–
11
58
–
–
3
(1)
(26)
9
43
Total
€ m
780
–
–
–
(1)
(79)
11
711
2019*
Loan commitments
Financial guarantees
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
13
(4)
8
–
–
(6)
(2)
–
(1)
10
11
24
(26)
(2)
–
(1)
(5)
–
2
8
1
–
–
1
–
–
1
–
(1)
1
Total
€ m
25
20
(18)
(1)
–
(7)
(6)
–
–
19
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
3
–
1
–
–
(2)
(1)
–
1
3
1
1
(1)
–
–
–
–
–
1
2
29
–
–
–
–
(4)
(4)
(5)
(2)
18
The internal credit grade profile of loan commitments and financial guarantees is set out in the following table:
Strong
Satisfactory
Criticised watch
Criticised recovery
Default
Total
2019*
€ m
8,230
3,642
197
19
162
12,250
Non-performing off-balance sheet commitments
Total non-performing off-balance sheet commitments amounted to € 162 million (2018: € 183 million).
*Forms an integral part of the audited financial statements
Total
€ m
33
1
–
–
–
(6)
(5)
(5)
–
23
2018*
€ m
8,713
2,721
255
15
183
11,887
AIB Group plc Annual Financial Report 2019Risk Management 123456 130
2.1 Credit risk – Investment securities
The following table analyses the carrying value of investment securities by major classification together with the unrealised gains and
losses for those securities measured at FVOCI and FVTPL at 31 December 2019 and 2018:
Debt securities at FVOCI
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and government agencies
Collateralised mortgage obligations
Other asset backed securities
Euro bank securities
Non Euro bank securities
Euro corporate securities
Non Euro corporate securities
Total debt securities at FVOCI
Debt securities at amortised cost
Asset backed securities
Euro corporate securities
Non Euro corporate securities
Total debt securities at amortised cost
Equity securities
Equity investments at FVOCI(1)
Equity investments at FVTPL
Total investment securities
2019
2018
Carrying
value
€ m
Unrealised
gross gains
€ m
Unrealised
gross losses
€ m
Carrying
value
€ m
Unrealised
gross gains
€ m
Unrealised
gross losses
€ m
5,296
1,538
212
1,034
222
106
5,343
1,654
375
101
381
63
4
22
1
–
77
12
12
5
(1)
–
–
(1)
(2)
–
(3)
(2)
(1)
–
6,282
1,921
158
1,132
264
103
5,007
815
216
48
401
78
3
26
–
–
46
1
–
–
15,881
577
(10)
15,946
555
591
14
30
635
458
357
17,331
187
–
–
187
468
260
16,861
425
84
1,064
414
147
1,138
–
(4)
(14)
(6)
(4)
(2)
(7)
(11)
–
(11)
(6)
(2)
–
(49)
–
(3)
(52)
Debt securities and related ECL analysed by IFRS 9 staging at 31 December 2019 and 2018
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
At amortised cost – gross
ECL allowance
At amortised cost – carrying value
At FVOCI – carrying value
ECL allowance (included in carrying value)
Total carrying value
635
–
635
15,881
(4)
16,516
–
–
–
–
–
–
–
–
–
–
–
–
2019*
Total
€ m
635
–
635
15,881
(4)
16,516
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
187
–
187
15,946
(4)
16,133
–
–
–
–
–
–
–
–
–
–
–
–
2018
Total
€ m
187
–
187
15,946
(4)
16,133
(1) Includes NAMA subordinated bonds with a fair value of € 458 million (2018: € 468 million) of which unrealised gains amount to € 414 million
(2018: € 425 million).
*Forms an integral part of the audited financial statements
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 131
2.1 Credit risk – Investment securities (continued)
The following table categorises the debt securities portfolio by contractual residual maturity and weighted average yield at 31 December
2019 and 2018:
At FVOCI
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and government agencies
Collateralised mortgage obligations
Other asset backed securities
Euro bank securities
Non Euro bank securities
Euro corporate securities
Non Euro corporate securities
Total at FVOCI
At amortised cost
Asset backed securities
Euro corporate securities
Non Euro corporate securities
Total at amortised cost
At FVOCI
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and government agencies
Collateralised mortgage obligations
Other asset backed securities
Euro bank securities
Non Euro bank securities
Euro corporate securities
Non Euro corporate securities
Total at FVOCI
At amortised cost
Asset backed securities
Total at amortised cost
Within 1 year
€ m Yield %
After 1 but
within 5 years
After 5 but
within 10 years
€ m Yield %
€ m Yield %
1,217
115
21
111
–
–
988
54
–
6
2,512
–
–
–
–
4.4
2.4
3.3
0.8
–
–
0.8
1.1
–
1.3
2.6
–
–
–
–
1,349
1,155
124
438
–
–
3,433
1,454
100
11
8,064
–
–
10
10
3.2
1.6
2.0
1.3
–
–
0.5
1.7
0.5
2.1
1.4
–
–
3
3
1,710
260
67
92
7
–
922
146
257
84
3,545
30
14
20
64
0.9
0.5
1.5
1.0
2.1
–
0.6
2.1
1.0
2.8
0.9
2.9
1.6
3.6
2.8
Within 1 year
€ m Yield %
After 1 but
within 5 years
After 5 but
within 10 years
€ m Yield %
€ m Yield %
1,951
210
38
134
–
–
5.0
1.9
3.3
1.7
–
–
797
0.9
–
8
–
–
–
–
2,457
1,221
90
581
–
–
3,767
781
63
14
3,138
3.6
8,974
–
–
–
–
–
–
3.7
1.8
2.3
1.0
–
–
0.6
1.7
1.2
1.3
1.8
–
–
1,091
490
30
96
9
–
443
34
130
34
2,357
–
–
1.3
1.4
1.1
1.7
2.2
–
0.7
3.2
1.3
4.1
1.3
–
–
2019
After 10 years
€ m Yield %
1,020
8
–
393
215
106
–
–
18
–
1,760
0.9
0.7
–
2.8
2.4
0.1
–
–
1.2
–
1.5
561
2.2
–
–
–
–
561
2.2
2018
After 10 years
€ m Yield %
783
1.3
–
–
321
255
103
–
–
15
–
1,477
187
187
–
–
3.0
2.4
0.1
–
–
1.7
–
1.8
2.3
2.3
AIB Group plc Annual Financial Report 2019Risk Management 123456 132
2.1 Credit risk – Investment securities (continued)
The following tables analyse the investment securities portfolio by geography at 31 December 2019 and 2018:
Government securities
Republic of Ireland
Italy
France
Spain
Netherlands
Germany
Belgium
Austria
Portugal
Slovakia
United Kingdom
Czech Republic
Poland
Saudi Arabia
Kuwait
United Arab Emirates
Asset backed securities
United States of America
Republic of Ireland
Netherlands
France
Bank securities
Republic of Ireland
France
Netherlands
United Kingdom
Australia
Sweden
Canada
Finland
Norway
Belgium
Germany
Denmark
New Zealand
Switzerland
United States of America
Singapore
Spain
Irish
Government
€ m
Euro
government
€ m
Non Euro
government
€ m
Irish
Government
€ m
Euro
government
€ m
Non Euro
government
€ m
2019*
2018*
5,296
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
516
63
868
33
–
23
27
–
8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
21
11
43
73
29
35
6,282
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
497
117
1,048
138
53
23
28
17
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
60
11
43
44
–
–
5,296
1,538
212
6,282
1,921
158
2019*
Total
€ m
364
372
169
14
919
Euro
€ m
358
908
537
690
396
390
753
238
307
80
37
118
24
54
40
77
–
2018*
Total
€ m
292
158
85
19
554
2018*
Non Euro
€ m
–
86
55
165
124
80
184
–
40
–
–
–
–
22
42
17
–
Euro
€ m
2019*
Non Euro
€ m
284
985
451
764
377
398
855
178
338
102
141
142
69
59
48
113
39
–
212
62
389
245
136
347
–
82
–
25
–
–
36
58
47
15
*Forms an integral part of the audited financial statements
5,343
1,654
5,007
815
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 133
2.1 Credit risk – Investment securities (continued)
Debt securities at FVOCI
Debt securities held at fair value through other comprehensive income (“FVOCI”) remained at € 15.9 billion (nominal € 15.1 billion)
at 31 December 2019 with a fair value of € 15.9 billion (nominal € 15.2 billion) at 31 December 2018. Bank securities increased by
€ 1.2 billion offset by decreases in Irish Government securities of € 1 billion.
The external ratings profile remained relatively static with total investment grade ratings remaining at 100%. The profile of the
investment grade ratings was AAA: 31% (2018: 29%); AA: 42% (2018: 12%); A: 19% (2018: 46%); and BBB: 8% (2018: 13%).
Republic of Ireland securities
The fair value of Irish debt securities amounted to € 6.0 billion at 31 December 2019 (2018: € 6.8 billion) and consisted of sovereign
debt € 5.3 billion (2018: € 6.3 billion), senior unsecured bonds of € 0.1 billion (2018: € 0.1 billion), covered bonds of € 0.2 billion
(2018: € 0.2 billion) and others (corporate, and asset backed securities bonds) at € 0.2 billion (2018: € 0.2 billion). The reduction in Irish
sovereign debt was primarily driven by bond redemptions in 2019 which reduced the nominal holding by € 1.9 billion and net purchases
of € 0.9 billion.
United Kingdom securities
The fair value of United Kingdom securities amounted to € 1.2 billion at 31 December 2019 (2018: € 0.9 billion) and consisted of senior
unsecured bonds of € 0.5 billion (2018: € 0.2 billion) and covered bonds of € 0.7 billion (2018: € 0.6 billion).
Euro government securities
The fair value of government securities denominated in euros (excluding those issued by the Irish Government) decreased by
€ 0.4 billion to € 1.5 billion (2018: € 1.9 billion). This decrease was largely due to net sales of Spanish, French and German government
securities.
Bank securities
At 31 December 2019, the fair value of bank securities of € 7.0 billion (2018: € 5.8 billion) included € 3.6 billion in covered bonds
(2018: € 3.2 billion), € 3.1 billion in senior unsecured bank debt (2018: € 2.3 billion) and € 0.3 billion in government guaranteed
senior bank debt (2018: € 0.3 billion). The net purchases of covered bonds (nominal € 0.3 billion) and senior non preferred debt
(nominal € 0.9 billion) drove this increase.
Asset backed securities
Asset backed securities increased to € 0.9 billion (2018: € 0.6 billion).
Equity securities
The fair value of the NAMA subordinated bonds decreased to € 458 million (nominal € 437 million) at 31 December 2019 to 104.75%
from 107.20% of nominal. These bonds were repaid in March 2020.
AIB Group plc Annual Financial Report 2019Risk Management 123456 134
2.1 Credit risk
Credit ratings
External credit ratings of financial assets*
The following table sets out the credit quality of financial assets based on external credit ratings at 31 December 2019 and 2018.
These include loans and advances to banks, investment debt securities and trading portfolio financial assets.
At amortised cost
Bank Corporate
€ m
€ m
Other
€ m
840
592
45
1
–
1,478
1,478
–
–
–
–
–
44
–
44
44
–
–
383
198
10
–
–
591
591
–
–
Total
€ m
1,223
790
55
45
–
2,113
2,113
–
–
Bank
€ m
987
423
32
–
1
1,443
1,443
–
–
Other
€ m
98
79
10
–
–
187
187
–
–
Total
€ m
1,085
502
42
–
1
1,630
1,630
–
–
At FVOCI
Bank Corporate Sovereign
€ m
€ m
€ m
Other
€ m
328
–
–
–
–
Total
€ m
6,893
7,025
1,935
28
–
2019
Total
€ m
8,116
7,815
1,990
73
–
1,277
5,420
1,383
–
–
8,080(1)
328
15,881
17,994
8,080
328
15,881
17,994
–
–
–
–
–
–
–
–
2018
Total
€ m
7,698
7,769
2,079
29
1
Other
€ m
367
–
–
–
–
Total
€ m
6,613
7,267
2,037
29
–
1,551
6,381
1,561
–
–
9,493(1)
367
15,946
17,576
9,493
367
15,946
17,576
–
–
–
–
–
–
–
–
5,257
1,396
344
–
–
6,997
6,997
–
–
31
209
208
28
–
476
476
–
–
4,695
807
320
–
–
5,822
5,822
–
–
–
79
156
29
–
264
264
–
–
At amortised cost
At FVOCI
Bank Corporate Sovereign
€ m
€ m
€ m
AAA/AA
A/A-
BBB+/BBB/BBB-
Sub investment
Unrated
Total
Of which: Stage 1
Stage 2
Stage 3
AAA/AA
A/A-
BBB+/BBB/BBB-
Sub investment
Unrated
Total
Of which: Stage 1
Stage 2
Stage 3
(1)Includes supranational banks and government agencies.
Large exposures
The 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 2019, the Group’s top 50 drawn exposures amounted to € 4.7 billion, and accounted for 7.6% (2018: € 4.4 billion
and 7.1%) of the Group’s on-balance sheet total gross loans and advances to customers. In addition, these customers have undrawn
facilities amounting to € 485 million (2018: € 606 million). No single customer exposure exceeded regulatory requirements.
*Forms an integral part of the audited financial statements
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 135
2.1 Credit risk
Additional credit quality and forbearance disclosures on loans and advances to customers
Forbearance*
Overview
Forbearance occurs when a borrower is granted a temporary or permanent concession or an agreed change to the existing contracted
terms of a facility (‘forbearance measure’) for reasons relating to the actual or apparent financial stress or distress of that borrower. This also
includes a total or partial refinancing of existing debt due to a borrower availing of an embedded forbearance clause(s) in their contract.
A forbearance agreement is entered into where a borrower is in financial difficulty to the extent that they are unable currently to repay
both the principal and interest in accordance with the existing contracted terms of a facility. A concession or an agreed change to the
contracted terms 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 its customers. The Group considers requests from customers who are experiencing
cash flow difficulties on a case by case basis in line with the Group’s Forbearance Policy and relevant procedures, and completes an
affordability/repayment capacity assessment taking account of factors such as current and likely future financial circumstances, the
borrower’s willingness to resolve such difficulties, and all relevant legal and regulatory obligations to ensure sustainable measures are
put in place as appropriate.
Group credit policies, supported by relevant processes and procedures, are in place which set out the policy rules and principles
underpinning the Group’s approach to forbearance, ensuring the forbearance measure(s) provided to borrowers are affordable and
sustainable, and in line with relevant regulatory requirements. Key principles include supporting viable Small Medium Enterprises
(“SMEs”), and providing support to enable customers remain in their family home, whenever possible. The Group has implemented the
standards for the Codes of Conduct in relation to customers in actual or apparent financial stress or distress, as set out by the Central
Bank of Ireland, ensuring these customers are dealt with in a professional and timely manner.
A request for forbearance is a trigger event for the Group to undertake an assessment of the customer’s financial circumstances prior
to any decision to grant a forbearance measure. This may result in the downgrading of the credit grade assigned and an increase in
the expected credit loss. Facilities to which forbearance has been applied continue to be classified as forborne until the forbearance
measures expire or until an appropriate probation period has passed.
The effectiveness of forbearance measures over the lifetime of the arrangements are subject to ongoing management and review.
A forbearance measure is deemed to be effective if the borrower meets the revised or original terms of the contract over a sustained
period of time resulting in an improved outcome for the Group and the borrower.
Mortgage portfolio
Under the mandate of the Central Bank’s Code of Conduct on Mortgage Arrears (“CCMA”), the Group introduced a four-step process
called the Mortgage Arrears Resolution Process, or MARP. This process aims to engage with, support and find resolution for mortgage
customers (for their primary residence only) who are in arrears, or are at risk of going into arrears.
The four step process is summarised as follows:
– Communications – We are here to listen, support and provide advice;
– Financial information – To allow us to understand the customer’s finances;
– Assessment – Using the financial information to assess the customer’s situation; and
– Resolution – We work with the customer to find an appropriate resolution.
The core objective of the process is to determine sustainable solutions that, where possible, help to keep customers in their family
home. In addition to relevant short term measures, this includes the following long term forbearance measures which have been devised
to assist existing Republic of Ireland primary residential mortgage customers in financial difficulty. The types of existing forbearance
solutions currently include; low fixed interest rate sustainable solution, split mortgages, negative equity trade down, voluntary sale for
loss, arrears capitalisation and term extension.
Non-mortgage portfolio
The Group also has in place forbearance measures for customers in the non-mortgage portfolio who are in financial difficulty.
This approach is based on customer affordability and sustainability 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 appropriately provided where customers are co-operative, and are willing but unable to pay.
The forbearance process is one of structured engagement to assess the long term levels of sustainable and unsustainable debt.
The commercial aspects of this process require that customer affordability is viewed comprehensively, to include all available sources of
finance for debt repayment, including unencumbered assets.
Types of non-mortgage forbearance include short term measures (such as interest only and capital and interest moratorium) and long term
measures (such as term extension, debt consolidation, and collateral disposal). This process may result in debt write-off, where appropriate.
See accounting policy (s) ‘Impairment of financial assets’ in note 1 to the consolidated financial statements.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 123456 136
2.1 Credit risk
Additional credit quality and forbearance disclosures on loans and advances to customers
Forbearance
The following table sets out the internal credit ratings and ECL staging of forborne loans and advances to customers at 31 December
2019 and 2018:
Analysed by internal credit ratings
€ m
€ m
Residential
mortgages
Other
personal
Property
and
construction
€ m
Non-
property
business
€ m
At amortised cost
2019
At FVTPL
Total
Total
€ m
€ m
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
Gross carrying amount
Analysed by ECL staging
Stage 1
Stage 2
Stage 3
POCI
Total
–
–
–
–
716
716
1,867
2,583(1)
7
704
1,681
191
2,583(1)
–
–
–
–
51
51
80
131
1
50
80
–
131
–
–
–
–
154
154
156
310
95
68
147
–
310
–
–
–
–
255
255
172
427
40
226
161
–
427
–
–
–
–
1,176
1,176
2,275
3,451
143
1,048
2,069
191
3,451
–
–
–
–
–
–
–
–
–
–
–
–
–
Total gross carrying amount of loans and
advances to customers
31,454
2,984
7,299
20,312
62,049
77
Analysed by internal credit ratings
€ m
€ m
Residential
mortgages
Other
personal
At amortised cost
Property
and
construction
€ m
Non-
property
business
€ m
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
Gross carrying amount
Analysed by ECL staging
Stage 1
Stage 2
Stage 3
POCI
Total
–
3
3
–
1,078
1,078
2,586
3,667(1)
23
1,074
2,354
216
3,667(1)
–
–
–
–
69
69
190
259
4
68
187
–
259
–
–
–
1
268
269
772
1,041
317
109
613
2
1,041
–
–
–
1
283
284
516
800
57
260
483
–
800
2018
At FVTPL
Total
€ m
–
–
–
–
–
–
49
49
–
–
–
–
–
Total
€ m
–
3
3
2
1,698
1,700
4,064
5,767
401
1,511
3,637
218
5,767
Total gross carrying amount of loans and
advances to customers
32,315
3,075
7,804
19,566
62,760
147
(1)Republic of Ireland € 2,541 million (2018: € 3,615 million) and United Kingdom € 42 million (2018: € 52 million).
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 137
2.1 Credit risk
Additional credit quality and forbearance disclosures on loans and advances to customers
Forbearance
Republic of Ireland residential mortgages
The Group has a Mortgage Arrears Resolution Strategy (“MARS”) for dealing with mortgage customers in actual or apparent financial
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 relevant regulatory
requirements. MARS includes long term forbearance measures which have been devised to assist existing Republic of Ireland primary
residential mortgage customers in financial difficulty.
Under the definition of forbearance, which complies with that prescribed by the European Banking Authority, facilities subject to
forbearance measures remain in forbearance stock for a minimum period of two years from the date forbearance is granted regardless
of the forbearance type. Therefore, cases that receive a short term forbearance measure, such as interest only and return to a full
principal and interest repayment schedule at the end of the interest only period, will remain in the stock of forbearance for at least two
years.
The following table analyses movements in the stock of residential mortgages subject to forbearance at 31 December 2019 and 2018:
Total
At 1 January
Implementation of definition of default policy
Additions
Expired arrangements
Payments
Interest
Closed accounts(1)
Disposals
Advanced forbearance arrangements – valuation adjustments
Write-offs(2)
At 31 December
Of which:
Owner-occupier
At 1 January
Implementation of definition of default policy
Additions
Expired arrangements
Payments
Interest
Closed accounts(1)
Disposals
Advanced forbearance arrangements – valuation adjustments
Write-offs(2)
Transfer between owner-occupier and buy-to-let
Number
27,982
–
1,264
(4,134)
–
–
(1,208)
(2,496)
–
–
2019
Balance
€ m
3,615
–
153
(554)
(207)
66
(113)
(352)
1
(68)
Number
32,311
4,074
1,536
(7,224)
–
–
(1,819)
(896)
–
–
2018
Balance
€ m
4,692
550
190
(968)
(306)
88
(195)
(177)
(4)
(255)
21,408
2,541
27,982
3,615
Number
21,582
–
1,177
(3,355)
–
–
(654)
(204)
–
–
7
Balance
€ m
2,771
–
139
(444)
(167)
58
(56)
(39)
2
(65)
6
Number
25,067
1,850
1,372
(5,690)
–
–
(914)
(23)
–
–
(80)
21,582
Balance
€ m
3,549
240
173
(758)
(185)
71
(92)
(7)
(3)
(212)
(5)
2,771
At 31 December
18,553
2,205
(1)Accounts closed during the year were due primarily to customer repayments and redemptions.
(2)Includes contracted and non-contracted write-offs.
The stock of loans subject to forbearance measures decreased by € 1.1 billion from € 3.6 billion at 31 December 2018 to € 2.5 billion
at 31 December 2019. This decrease was driven by customers exiting the forbearance probation period and by lower numbers of
customers seeking new forbearance solutions which is reflective of improving customer ability to meet their mortgage terms.
AIB Group plc Annual Financial Report 2019Risk Management 123456 138
2.1 Credit risk
Additional credit quality and forbearance disclosures on loans and advances to customers
Forbearance
Republic of Ireland residential mortgages (continued)
Residential mortgages subject to forbearance measures by type of forbearance
The following table analyses, by type of forbearance and staging, residential mortgages based on current forbearance measures in the
Republic of Ireland at 31 December 2019 and 2018:
Gross at amortised cost
Total
Stage 1
Stage 2
Stage 3
POCI
2019
ECL
allowance
Number
Balance
Balance
Balance
Balance
Balance
Balance
Total
Interest only
Reduced payment
Payment moratorium
Fundamental restructure
Restructure
Arrears capitalisation
Term extension
Split mortgages
Voluntary sale for loss
Low fixed interest rate
Positive equity solutions
Other
Total forbearance
Of which: Performing
Non-performing
Of which:
Owner-occupier
Interest only
Reduced payment
Payment moratorium
Fundamental restructure
Restructure
Arrears capitalisation
Term extension
Split mortgages
Voluntary sale for loss
Low fixed interest rate
Positive equity solutions
Other
Total
5,414
1,301
954
138
531
7,772
864
829
541
1,192
1,489
383
€ m
651
195
104
15
21
961
88
117
10
173
152
54
21,408
2,541
5,433
15,975
711
1,830
4,574
1,065
782
6
190
7,093
727
807
345
1,184
1,468
312
541
153
85
1
9
865
68
113
7
172
150
41
18,553
2,205
€ m
–
–
–
2
–
–
–
–
–
–
–
5
7
4
3
–
–
–
–
–
–
–
–
–
–
–
5
5
€ m
140
36
29
–
4
390
36
51
–
1
3
9
699
699
–
112
21
26
–
1
346
27
50
–
1
3
9
€ m
507
159
75
13
17
532
50
65
1
37
149
39
1,644
–
1,644
425
132
59
1
8
480
39
62
1
37
147
26
€ m
4
–
–
–
–
39
2
1
9
135
–
1
191
8
183
4
–
–
–
–
39
2
1
6
134
–
1
€ m
137
46
23
2
8
127
13
18
10
19
28
8
439
20
419
120
39
14
–
3
117
10
17
7
19
28
6
596
1,417
187
380
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 2.1 Credit risk
Additional credit quality and forbearance disclosures on loans and advances to customers
Forbearance
Republic of Ireland residential mortgages (continued)
Residential mortgages subject to forbearance measures by type of forbearance (continued)
Total
Interest only
Reduced payment
Payment moratorium
Fundamental restructure
Restructure
Arrears capitalisation
Term extension
Split mortgages
Voluntary sale for loss
Low fixed interest rate
Positive equity solutions
Other
Total forbearance
Of which: Performing
Non-performing
Of which:
Owner-occupier
Interest only
Reduced payment
Payment moratorium
Fundamental restructure
Restructure
Arrears capitalisation
Term extension
Split mortgages
Voluntary sale for loss
Low fixed interest rate
Positive equity solutions
Other
Total
Total
Stage 1
Stage 2
Stage 3
POCI
Gross at amortised cost
Number
7,671
1,682
1,180
448
901
9,915
1,187
1,119
721
1,204
1,495
459
Balance
€ m
1,054
281
142
56
41
1,317
132
165
21
177
153
76
27,982
3,615
7,821
20,161
1,074
2,541
5,590
1,178
906
2
218
8,384
905
1,060
413
1,195
1,472
259
748
191
105
–
12
1,088
89
156
12
176
151
43
21,582
2,771
Balance
€ m
Balance
€ m
Balance
€ m
Balance
€ m
–
–
–
17
–
–
–
–
–
–
–
5
22
1
21
–
–
–
–
–
–
–
–
–
–
–
5
5
221
63
46
–
5
571
62
93
–
–
–
7
830
218
96
39
36
707
66
72
3
38
152
52
1,068
2,309
1,068
–
–
2,309
165
35
41
–
2
492
43
89
–
–
–
7
580
156
64
–
10
557
44
67
3
38
150
19
874
1,688
3
–
–
–
–
39
4
–
18
139
1
12
216
5
211
3
–
–
–
–
39
2
–
9
138
1
12
204
139
2018
ECL
allowance
Balance
€ m
211
55
25
9
19
138
15
18
17
14
9
10
540
25
515
164
41
14
–
5
111
9
16
10
14
9
5
398
AIB Group plc Annual Financial Report 2019Risk Management 123456 140
2.1 Credit risk
Additional credit quality and forbearance disclosures on loans and advances to customers
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 level of advanced forbearance measures (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 € 0.5 billion accounted for 18% of the total forbearance portfolio at
31 December 2019 (2018: € 0.5 billion, 14%). Following restructure, loans are reported as defaulted for a probationary period of at least
12 months.
Other permanent standard forbearance measures are term extensions and arrears capitalisation (which often include a term extension).
Permanent forbearance measures are reported within the stock of forbearance for five years, and therefore, represent in some cases
forbearance solutions which were agreed up to five years ago. These include loans where a subsequent interest only or other temporary
arrangement had expired at 31 December 2019, 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 2019, accounting for 38% by value
of the total forbearance portfolio (2018: 36%). While actually decreasing year on year, a high proportion of the arrears capitalisation
portfolio (55% by value) is Stage 3 at 31 December 2019. 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 default,
as described above.
Residential mortgages subject to forbearance measures – aged analysis.
The following table sets out gross residential mortgages subject to forbearance measures analysed by credit profile and by the number
of days past due status at 31 December 2019 and 2018:
Total
Not past due
1 - 30 days
31 - 60 days
61 - 90 days
91 - 180 days
181 - 365 days
Over 365 days
Total loans subject to forbearance
Of which:
Owner-occupier
Not past due
1 - 30 days
31 - 60 days
61 - 90 days
91 - 180 days
181 - 365 days
Over 365 days
Total
At amortised cost
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
7
–
–
–
–
–
–
7
5
–
–
–
–
–
–
5
627
65
5
2
–
–
–
613
92
67
48
99
100
625
699
1,644
531
58
5
2
–
–
–
524
85
60
45
90
92
521
596
1,417
2019
Total
€ m
1,392
171
76
54
103
104
641
At amortised cost
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
21
1
–
–
–
–
–
982
77
5
4
–
–
–
812
125
72
70
117
152
961
2,541
22
1,068
2,309
2018
Total
€ m
1,975
220
82
76
122
158
982
3,615
POCI
€ m
160
17
5
2
5
6
21
216
POCI
€ m
145
14
4
4
4
4
16
191
142
14
1,202
157
4
4
4
4
69
51
94
96
15
187
536
2,205
5
–
–
–
–
–
–
5
796
69
5
4
–
–
–
602
105
60
58
95
114
654
874
1,688
154
17
1,557
191
5
2
5
6
15
204
70
64
100
120
669
2,771
Within the forborne portfolio of € 2.5 billion at 31 December 2019, € 1.4 billion is currently performing in accordance with agreed terms.
Continued compliance will result in loans exiting forbearance after completion of their probationary period.
The remaining € 1.1 billion includes loans that have been subject to a temporary or short term forbearance solution. These loans will
remain classified as forborne and in arrears until a sustainable solution has been put in place.
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 2.1 Credit risk
Additional credit quality and forbearance disclosures on loans and advances to customers
Forbearance
Republic of Ireland residential mortgages (continued)
Republic of Ireland 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 2019 and 2018:
Less than 50%
50% – 70%
71% – 80%
81% – 90%
91% – 100%
101% – 120%
121% – 150%
Greater than 150%
Unsecured
Total forbearance
Owner-
occupier
€ m
763
602
261
193
170
136
49
20
11
Buy-to-let
€ m
111
90
36
30
21
22
12
3
11
2019
Total
€ m
874
692
297
223
191
158
61
23
22
Owner-
occupier
€ m
784
727
329
287
242
252
99
37
14
Buy-to-let
€ m
230
214
106
70
60
58
36
40
30
2,205
336
2,541
2,771
844
3,615
141
2018
Total
€ m
1,014
941
435
357
302
310
135
77
44
Negative equity in the residential mortgage portfolio in the Republic of Ireland that was subject to forbearance measures at
31 December 2019 was 9% of the owner-occupier portfolio (2018: 14%) and 11% of the buy-to-let portfolio (2018: 16%), due primarily to
the continued increase in property prices in 2019 and loan repayments.
AIB Group plc Annual Financial Report 2019Risk Management 123456 142
2.1 Credit risk
Additional credit quality and forbearance disclosures on loans and advances to customers
Forbearance
Non-mortgage
The following table analyses movements in the stock of loans subject to forbearance in the Republic of Ireland and the United Kingdom
at 31 December 2019 and 2018, excluding residential mortgages which are analysed on pages 137 to 141.
Other
personal
€ m
255
–
26
–
(7)
(30)
(54)
(67)
123
4
–
5
(3)
–
1
1
–
–
8
Property
and
construction
€ m
1,006
–
25
(2)
(17)
(80)
(361)
(293)
278
35
–
5
(2)
(2)
1
(5)
–
–
32
259
1,041
Non-
property
business
€ m
766
–
134
(5)
(2)
(133)
(213)
(144)
403
34
–
6
–
(2)
(11)
(3)
–
–
24
800
–
140
(5)
(2)
(135)
(224)
–
31
–
(10)
(30)
(53)
(66)
–
–
–
30
(2)
(19)
(82)
(360)
(298)
(147)
–
–
–
–
2019
Total
€ m
2,027
–
185
(7)
(26)
(243)
(628)
(504)
804
73
–
16
(5)
(4)
(9)
(7)
–
–
64
Other
personal
€ m
641
(211)
35
(11)
(22)
(111)
(42)
(24)
255
3
6
1
–
(5)
(1)
–
–
–
4
Property
and
construction
€ m
Non-
property
business
€ m
1,311
1,236
66
242
(4)
(40)
(84)
(347)
(138)
1,006
49
5
5
(1)
(3)
(8)
(12)
–
–
35
(22)
104
(11)
(59)
(351)
(96)
(35)
766
45
18
6
–
(12)
(18)
(5)
–
–
34
2018
Total
€ m
3,188
(167)
381
(26)
(121)
(546)
(485)
(197)
2,027
97
29
12
(1)
(20)
(27)
(17)
–
–
73
2,100
644
1,360
1,281
3,285
–
201
(7)
(31)
(247)
(637)
(511)
–
–
(205)
36
(11)
(22)
(116)
(43)
71
247
(4)
(41)
(87)
(355)
(4)
110
(11)
(59)
(363)
(114)
(24)
(150)
(40)
–
–
–
–
–
–
(138)
393
(26)
(122)
(566)
(512)
(214)
–
–
Republic of Ireland
At 1 January
Implementation of definition
of default policy
Additions
Fundamental restructures –
valuation adjustments
Write-offs
Expired arrangements
Closed accounts
Movements in the stock
of forbearance loans
At 31 December
United Kingdom
At 1 January
Implementation of definition
of default policy
Additions
Write-offs
Expired arrangements
Closed accounts
Movements in the stock
of forbearance loans
Disposals
Exchange translation
adjustments
At 31 December
Total
At 1 January
Implementation of definition
of default policy
Additions
Fundamental restructures –
valuation adjustments
Write-offs
Expired arrangements
Closed accounts
Movements in the stock
of forbearance loans
Disposals
Exchange translation
adjustments
At 31 December
131
310
427
868
259
1,041
800
2,100
The non-mortgage forbearance portfolio has reduced by € 1.2 billion to € 0.9 billion at 31 December 2019.
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 143
2.1 Credit risk
Additional credit quality and forbearance disclosures on loans and advances to customers
Forbearance
Non-mortgage subject to forbearance measures by type of forbearance
The Group has developed treatment strategies for customers in the non-mortgage portfolio who are experiencing financial difficulties.
The approach is based on assessing customer affordability and applying strategies that deliver a sustainable solution for the customer
and the Group.
Non-retail customers in difficulty may have exposures across a number of asset classes including SME debt, associated property
exposures and residential mortgages. The following table sets out an analysis of non-mortgage forbearance solutions at 31 December
2019 and 2018:
Amortised cost
Other personal
Interest only
Reduced payment
Payment moratorium
Arrears capitalisation
Term extension
Fundamental restructure
Restructure
Asset disposals
Other
Total
Property and construction
Interest only
Reduced payment
Payment moratorium
Arrears capitalisation
Term extension
Fundamental restructure
Restructure
Asset disposals
Other
Total
Non-property business
Interest only
Reduced payment
Payment moratorium
Arrears capitalisation
Term extension
Fundamental restructure
Restructure
Asset disposals
Other
Total
Total non-mortgage forbearance
at amortised cost
Of which: Performing
Non-performing
At amortised cost
–
At amortised cost
2019
2018
Total
Stage 1 Stage 2 Stage 3/
POCI(1)
ECL
allowance
Total
Stage 1
Stage 2 Stage 3/
POCI(1)
ECL
allowance
Balance
€ m
11
5
16
6
28
9
53
3
–
131
34
10
7
7
47
51
132
8
14
310
35
17
5
2
71
94
116
4
83
427
868
460
408
Balance Balance Balance
€ m
€ m
€ m
Balance
€ m
Balance
€ m
Balance Balance Balance
€ m
€ m
€ m
–
–
–
–
–
1
–
–
–
1
–
–
–
–
–
10
84
–
1
95
–
–
–
–
–
22
–
–
18
40
136
116
20
3
2
6
2
12
1
24
–
–
50
6
5
3
4
20
9
15
–
6
68
21
6
1
1
49
33
57
–
58
8
3
10
4
16
7
29
3
–
80
28
5
4
3
27
32
33
8
7
147
14
11
4
1
22
39
59
4
7
226
161
344
344
–
388
–
388
4
2
7
2
10
3
20
1
–
49
11
2
1
1
8
14
18
3
3
61
7
5
2
–
9
20
24
2
5
74
40
13
18
12
34
35
87
20
–
259
102
41
7
23
144
298
355
52
19
–
–
–
–
–
4
–
–
–
4
1
–
–
2
2
143
162
–
7
5
2
9
3
15
2
32
–
–
68
11
5
1
6
31
–
53
1
1
1,041
317
109
110
38
8
13
94
201
287
41
8
800
–
–
–
–
–
51
–
4
2
34
7
1
2
47
50
117
–
2
57
260
35
11
9
9
19
29
55
20
–
187
90
36
6
15
111
155
140
51
11
615
76
31
7
11
47
100
170
37
4
483
184
46
138
2,100
623
1,477
378
186
192
437
1,285
437
–
–
1,285
Balance
€ m
17
6
7
3
10
16
30
4
–
93
30
7
2
9
36
61
46
10
3
204
33
13
2
6
16
49
82
9
1
211
508
77
431
(1)POCI assets amounting to € 0.2 million are included in ‘Property and construction’ (2018: € 2 million ‘Property and construction’).
AIB Group plc Annual Financial Report 2019Risk Management 123456 144
2.1 Credit risk
Additional credit quality and forbearance disclosures on loans and advances to customers
Republic of Ireland residential mortgages by year of origination
The following table profiles the Republic of Ireland residential mortgage portfolio by year of origination at 31 December 2019 and 2018:
Total
Credit impaired/POCI
Number
Balance
€ m
Number
Balance
€ m
Total
Number
Balance
€ m
Credit impaired/POCI
Number
Balance
€ m
2019
2018
1996 and before
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total
1,787
718
961
1,450
3,504
4,168
6,487
9,435
13,136
19,322
25,868
26,149
25,291
16,191
11,479
3,410
5,042
4,363
6,054
8,671
10,144
11,831
14,258
15,434
48
20
32
57
109
181
359
636
1,128
1,834
3,046
3,275
3,295
2,014
1,427
408
638
568
818
1,231
1,610
2,032
2,595
2,836
347
126
186
281
396
442
684
1,096
1,630
2,496
3,716
4,041
3,388
1,568
596
89
52
30
39
75
48
30
19
20
10
4
7
11
18
27
48
88
152
243
410
464
415
194
73
10
6
9
5
14
7
5
3
5
2,158
809
1,145
2,991
3,985
4,606
7,166
10,361
15,076
21,309
28,268
28,273
27,100
17,730
12,328
3,679
5,420
4,724
6,565
9,315
10,873
12,437
14,626
–
62
24
40
77
145
222
436
760
1,337
2,178
3,549
3,759
3,732
2,277
1,597
461
718
640
919
1,386
1,796
2,227
2,638
–
429
155
238
375
493
546
910
1,396
2,113
3,219
4,776
4,909
4,066
1,841
674
109
60
40
40
108
95
51
27
–
15
5
8
17
27
37
70
126
215
362
599
637
565
255
89
14
11
10
5
22
16
10
6
–
245,153
30,197
21,395
2,228
250,944
30,980
26,670
3,121
A significant element (€ 11.4 billion or 38%) of the € 30.2 billion residential mortgage portfolio was originated between 2005 and 2008,
of which 13% (€ 1.5 billion) was credit impaired at 31 December 2019. This cohort was particularly impacted by reduced household
income and increased unemployment rates in the years during the financial crisis, as individual borrower exposure was higher than in
previous periods due to the property price peak in 2007. 8% of the residential mortgage portfolio was originated before 2005 of which
14% was credit impaired at 31 December 2019, while the remaining 54% of the portfolio was originated from 2009 onwards, of which
2% was credit impaired at 31 December 2019.
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 145
2.2 Funding and 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 fall due, without
incurring unacceptable costs or losses. Funding is the means by which liquidity is generated, e.g. secured or unsecured, wholesale,
corporate or retail. In this respect, funding risk is the risk that a specific form of liquidity cannot be obtained at an acceptable cost.
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.
Top and emerging risk drivers
The top and emerging risks to the Group are outlined in the Risk Summary Section on page 39. The below table outlines and describes
which of these are key risk drivers for funding and liquidity risk.
Material Risk
Regulatory
and legal
change
Financial,
macroeconomic
and geopolitical
volatility
Pace of change
in competition,
labour markets
and customer
expectations
Cyber
Climate
change
Changing
external
perceptions
of AIB
Funding and
liquidity risk
ü
ü
ü
ü
ü
•
Regulatory and legal change is a key risk due to its potential impact on customer behaviours, markets and internal Group processes
and resources.
•
•
•
•
Financial, macroeconomic and geopolitical volatility is a key risk driver as a negative macroeconomic environment can lead to
market instability and increased funding and liquidity risk. ‘Lower for longer’ interest rates will continue to suppress the Group’s
profitability.
Cyber is a key risk driver as an increased level of cyber attacks may result in negative media commentary which increases the risk
of deposit outflows.
Climate change is a key risk driver. In the event that the Group is not fully cognisant of climate change-related risks, this may
increase costs over the medium to long term (e.g. more significant weather events could begin to impact on government finances
and thereby impact sovereign bond prices).
Changing external perceptions is a key risk driver as a change in the Group’s credit rating and/or changing market perception may
lead to increased funding costs.
Key mitigating actions
Key mitigating actions aim to effectively reduce the threat of a risk and the likelihood of its occurrence. The Group uses various
approaches to help mitigate risks relating to funding and liquidity risk including:
• Board Approved Risk Appetite Statement covering key regulatory and internal liquidity requirements,
• Comprehensive Internal Liquidity Adequacy Assessment (“ILAAP”) Framework and supporting policies,
•
Regular forward looking assessment of liquidity adequacy through annual ILAAP and internal stress testing which considers a range
of scenarios,
• Funding contingency and Recovery Planning activities,
•
Independent second line of defence review and challenge of ILAAP and Funding and Liquidity Plan.
Identification and assessment
Funding and liquidity risk is measured and controlled using a range of metrics and methodologies including Liquidity Stress Testing and
ensuring adherence to limits based on both internal limits and the regulatory defined liquidity ratios, the Liquidity Coverage Ratio (“LCR”)
and the Net Stable Funding Ratio (“NSFR”). Liquidity stress testing consists of applying severe but plausible stresses to the Group’s
liquidity buffer through time in order to simulate a survival period. The LCR is designed to promote short term resilience of the Group’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.
These metrics are key risk metrics for the Group and are monitored against Board approved limits.
AIB Group plc Annual Financial Report 2019Risk Management 123456 146
2.2 Funding and liquidity risk (continued)
Management and measurement*
The Group operates a three lines of defence model for risk management. For funding and liquidity risk, the first line of defence
comprises of the Finance function reporting to the CFO, which is responsible for providing the necessary information for the
management of the Group’s liquidity gap and the efficient management of the liquidity buffer. This involves the identification,
measurement and reporting of funding and liquidity risk and the application of behavioural adjustments to assets and liabilities.
This function is the owner of the Group’s Funding and Liquidity Plan which sets out the strategy for funding and liquidity management for
the Group and is responsible for the day-to-day management of liquidity to meet payment obligations, execution of wholesale funding
requirements in line with the Funding and Liquidity Plan and the management of the foreign exchange funding gap.
First line management of funding and liquidity risk:
–
aims to ensure a balanced spread of repayment obligations through active management of the Group’s liability maturity profile.
Monitoring ratios also apply to longer periods for long term funding stability;
–
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-equivalent and price sensitivity; and
– monitors net inflows and outflows on a daily basis.
The second line of defence comprises of the Risk function reporting to the CRO, which provides second line assurance over the Group’s
funding and liquidity management. This function provides oversight on the effectiveness of the risk and control environment. It proposes
and maintains the ILAAP Framework and supporting policies as the basis of the Group’s control architecture for funding and liquidity risk
activities, including the annual agreement of funding and liquidity risk limits (subject to the Board approved Risk Appetite Statement).
This function is also responsible for the integrity of the Group’s liquidity risk methodologies.
The third line of defence comprises Group Internal Audit who provide third line assurance on funding and liquidity risk.
The Group’s 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. On an annual basis, the Board attests to the
Group’s liquidity adequacy via the liquidity adequacy statement as part of ILAAP.
Monitoring, escalating and reporting
The Group funding and liquidity position is reported regularly to the Finance and Risk functions, Group Asset and Liability Committee
(“ALCo”), Group Risk Committee (“GRC”) and Board Risk Committee (“BRC”). In addition, the Executive Committee and the Board are
briefed on funding and liquidity on an ongoing basis.
At 31 December 2019, the Group held € 32,045 million (2018: € 29,896 million) in qualifying liquid assets (“QLA”)(1)/contingent
funding of which € 2,617 million (2018: € 5,391 million) was not available due to repurchase, secured loans and other restrictions.
The available Group liquidity pool comprises the remainder and is held to cover contractual and stress outflows. At 31 December 2019,
the Group liquidity pool was € 29,428 million (2018: € 24,505 million). During 2019, the liquidity pool ranged from € 23,420 million to
€ 30,206 million and the average balance was € 26,754 million.
(1) QLA is an asset that can be readily converted into cash, either with the market or with the monetary authorities, and where there is no legal, operational or
prudential impediments to their use as liquid assets.
*Forms an integral part of the audited financial statements
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 147
2.2 Funding and liquidity risk (continued)
Composition of the Group liquidity pool
The following table shows the composition of the Group’s liquidity pool at 31 December 2019 and 2018. The liquidity amounts shown in
the table represent the clean prices after deduction of the ECB haircut.
2019
Liquidity pool
available
(ECB eligible)
High Quality Liquid
Assets (HQLA)(1) in
the liquidity pool
Liquidity pool
available
(ECB eligible)
Cash and deposits with
central banks
Total government bonds
Other:
Covered bonds
Other(3)
Total other
Total
Of which:
EUR
GBP
USD
Other
€ m
–
5,444
3,761
8,007
11,768
17,212
Liquidity pool
€ m
7,502(2)
6,506
4,576
10,844
15,420
29,428
26,217
1,549
1,655
7
Level 1
€ m
Level 2
€ m
Liquidity pool
€ m
9,897(2)
6,101
3,079
100
3,179
19,177
–
405
1,409
356
1,765
2,170
1,937(2)
8,626
4,153
9,789
13,942
24,505
22,143
935
1,427
–
€ m
–
8,112
4,153
9,011
13,164
21,276
2018
High Quality Liquid
Assets (HQLA)(1) in
the liquidity pool
Level 1
€ m
Level 2
€ m
4,063(2)
8,428
3,103
323
3,426
15,917
–
198
1,050
296
1,346
1,544
(1) Level 1 - High Quality Liquid Assets (“HQLAs”) include amongst others, domestic currency (euro) denominated bonds issued or guaranteed by European
Economic Area (“EEA”) sovereigns, very highly rated covered bonds, other very highly rated sovereign bonds and unencumbered cash at central banks.
Level 2 - HQLAs include highly rated sovereign bonds, highly rated covered bonds and certain other strongly rated securities.
(2) For Liquidity Coverage Ratio (“LCR”) purposes, assets outside the Liquidity function’s control can qualify as HQLAs in so far as they match outflows in the
same jurisdiction. For the Group, this means that UK HQLAs (cash held with the Bank of England) can qualify up to the amount of 30 days UK outflows
under LCR but are not included in the Group’s calculation of available QLA stocks.
(3) Includes unsecured bank bonds and self-issued covered bonds arising from the securitisation of residential mortgage assets.
Management of the Group liquidity pool
The Group manages the liquidity pool on a centralised basis. The composition of the liquidity pool is subject to limits set by the Board
and the Risk function. These pool assets primarily comprise government guaranteed bonds, central bank reserves and internal and
external covered bonds. The Group’s liquidity buffer increased in 2019 by € 4,923 million which was predominantly due to an increase in
Ireland customer deposits, proceeds from the portfolio sale of distressed loans, proceeds from senior unsecured note and subordinated
debt issuance during the period offset by the 2019 dividend payout, maturity of senior debt and a retained covered bond redemption.
Other contingent liquidity
The Group has access to other unencumbered assets providing a source of contingent liquidity which are not in the Group’s liquidity
pool. However, these assets may be monetised in a stress scenario to generate liquidity through use as collateral for secured funding or
outright sale.
Liquidity stress testing
Liquidity stress testing is a key component of the ILAAP framework. The Group undertakes liquidity stress testing that includes both firm
specific and systemic risk events and a combination of both as a key liquidity control. Stressed assumptions are applied to the Group’s
liquidity buffer and liquidity risk drivers. 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. Liquidity stress test results are reported to the ALCo, Executive Committee
and Board.
As part of its contingency and recovery planning the Group has identified a suite of potential funding and liquidity options which could be
exercised to help the Group to restore its liquidity position on the occurrence of a major stress event.
AIB Group plc Annual Financial Report 2019Risk Management 123456 148
2.2 Funding and liquidity risk (continued)
Liquidity regulation
The Group is required to comply with the liquidity requirements of the Single Supervisory Mechanism/Central Bank of Ireland and also
with the requirements of local regulators in jurisdictions in which it operates. In addition, the Group is required to carry out liquidity stress
testing capturing firm specific, systemic risk events and a combination of both. The Group adheres to these requirements.
The following table outlines the LCR, NSFR and Loan to Deposit Ratio (“LDR”) at 31 December 2019 and 2018:
Liquidity metrics
Liquidity Coverage Ratio
Net Stable Funding Ratio
Loan to Deposit Ratio
2019
%
157
129
85
2018
%
128
125
90
The Group monitors and reports its current and forecast position against CRD IV and other related liquidity metrics and has fully
complied with the minimum LCR requirement of 100% during 2019.
The calculated NSFR is based on the current Basel standard. The second Capital Requirements Regulation (CRR2), effective 27 June
2019, introduces a binding NSFR requirement of 100% and comes into force in June 2021.
Funding structure*
The Group’s funding strategy is to deliver a sustainable, diversified and robust customer deposit base at economic pricing and to further
enhance and strengthen the wholesale funding franchise with appropriate access to term markets to support core lending activities.
The strategy aims to deliver a solid funding structure that complies with internal and regulatory policy requirements and reduces the
probability of a liquidity stress, i.e. an inability to meet funding obligations as they fall due.
31 December 2019
31 December 2018
Sources of funds
Customer accounts
Of which:
Euro
Sterling
US dollar
Other currencies
Deposits by central banks and banks – secured
– unsecured
Asset covered securities (“ACS”)
Senior debt
Capital
Total source of funds
Other
%
76
–
1
3
4
16
100
€ m
71,803
58,507
11,316
1,803
177
294
529
3,025
3,806
15,529
94,986
3,576
98,562
%
76
1
1
3
3
16
100
€ m
67,699
54,885
11,001
1,698
115
424
420
3,090
2,655
14,653
88,941
2,595
91,536
Customer deposits represent the largest source of funding for the Group with the core retail franchises and accompanying deposit
base in both Ireland and the UK providing a stable and reasonably predictable source of funds. Customer accounts increased by
€ 4,104 million in 2019. This was mainly due to a € 3,622 million increase in Euro deposits, primarily in current and demand deposit
accounts reflecting strong economic activity. There was an increase in the value of GBP and USD deposits of € 587 million due to
currency movements which was offset by an underlying decline in GBP deposits of € 239 million on a constant currency basis.
The management of stable retail funds is paramount to the Group’s overall funding and liquidity strategy and will be a key factor in
the Group’s capacity for future asset growth. The Group maintains access to a variety of sources of wholesale funds, including those
available from money markets, repo markets and term investors.
During 2019, senior debt increased € 1,151 million primarily reflecting € 1,640 million in new issuances offset by a € 500 million maturity.
Outstanding asset covered securities (“ACS”) at 31 December decreased € 65 million to € 3,025 million due to contractual maturities.
For further details on debt securities, see ‘Debt securities in issue’ (note 38) to the consolidated financial statements.
Following the implementation of IFRS 16 on 1 January 2019, lease liabilities of € 429 million were recognised on the balance sheet and
were the primary driver of the increase in the ‘Other’ source of funds category in the table above. For further details see ‘Transition to
IFRS 16’ (note 3) and ‘Lease liabilities’ (note 37) to the consolidated financial statements.
*Forms an integral part of the audited financial statements
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 149
2.2 Funding and liquidity risk (continued)
Composition of wholesale funding
At 31 December 2019, total wholesale funding outstanding was € 8,953 million (2018: € 7,384 million). € 1,779 million of wholesale
funding matures in less than one year (2018: € 1,130 million). € 7,174 million of wholesale funding has a residual maturity of over one
year (2018: € 6,254 million).
Outstanding wholesale funding comprised € 3,319 million in secured funding (2018: € 3,514 million) and € 5,634 million in unsecured
funding (2018: € 3,870 million).
Deposits by central banks and banks
Senior debt
ACS/ABS
Subordinated liabilities and
other capital instruments
Total 31 December
Of which:
Secured
Unsecured
Senior debt
ACS/ABS
Subordinated liabilities and
other capital instruments
Total 31 December
Of which:
Secured
Unsecured
1–3
months
€ m
3–6
months
€ m
6–12
months
€ m
Total
< 1 year
€ m
< 1
month
€ m
351
–
–
–
–
500
–
–
178
–
–
–
351
500
178
–
351
351
–
500
500
–
178
178
–
–
–
–
–
–
–
500
–
–
325
240
500
81
244
325
64
176
240
–
500
500
1–3
years
€ m
294
–
1,250
3–5
years
€ m
–
1,916
1,000
–
–
529
500
750
–
565
500
65
–
1,779
1,544
2,916
750
1,029
1,779
1,544
–
1,544
1,000
1,916
2,916
1–3
years
€ m
–
500
1,250
3–5
years
€ m
279
1,155
1,750
–
–
1,130
1,750
3,184
210
920
1,130
1,250
500
1,750
2,029
1,155
3,184
> 5
years
€ m
–
1,390
25
1,299
2,714
25
2,689
2,714
> 5
years
€ m
–
500
25
795
1,320
25
1,295
1,320
2019
Total
€ m
823
3,806
3,025
1,299
8,953
3,319
5,634
8,953
2018
Total
€ m
844
2,655
3,090
795
7,384
3,514
3,870
7,384
–
–
750
–
750
750
–
750
–
–
65
–
65
65
–
65
Deposits by central banks and banks
325
240
< 1
month
€ m
1–3
months
€ m
3–6
months
€ m
6–12
months
€ m
Total
< 1 year
€ m
AIB Group plc Annual Financial Report 2019Risk Management 123456 150
2.2 Funding and liquidity risk (continued)
Currency composition of wholesale debt
At 31 December 2019, 76% (2018: 82%) of wholesale funding was in euro with the remainder held in GBP and USD. The Group
manages cross-currency refinancing risk against foreign exchange cash flow limits.
Deposits by central banks and banks
Senior debt
ACS/ABS
Subordinated liabilities and
other capital instruments
Total wholesale funding
% of total funding
EUR
€ m
287
2,249
3,025
1,260
6,821
%
76
GBP
€ m
313
–
–
39
352
%
4
USD
€ m
223
1,557
–
–
1,780
%
20
Other
€ m
–
–
–
–
–
%
–
2019
Total
€ m
823
3,806
3,025
1,299
8,953
%
100
EUR
€ m
186
2,000
3,090
760
6,036
%
82
GBP
€ m
284
–
–
35
319
%
4
USD
€ m
374
655
–
–
1,029
%
14
Other
€ m
–
–
–
–
–
%
–
2018
Total
€ m
844
2,655
3,090
795
7,384
%
100
Encumbrance
An asset is defined as encumbered if it has been pledged as collateral, and as a result is no longer available to the Group to secure
funding, satisfy collateral needs or to be sold. The Group manages encumbrance levels to ensure that the Group has sufficient
contingent collateral to maximise balance sheet flexibility.
The Group had an encumbrance ratio of 11% at 31 December 2019 (2018: 12%) with € 11,572 million of the Group’s assets
encumbered (2018: € 11,103 million). The movement in the metric was primarily driven by the increase in the overall balance sheet
of the Group. The encumbrance level is based on the amount of assets that are required in order to meet regulatory and contractual
commitments.
Interbank repurchase agreements and ECB refinancing operations
The following table analyses the interbank repurchase agreements and ECB refinancing operations as at 31 December 2019 and 2018:
Highly liquid
Less liquid
Maturity profile
<1 month 1–3 months
€ m
€ m
>3 months
€ m
–
–
–
–
–
–
–
–
–
2019
Total
€ m
–
–
–
<1 month
€ m
1–3 months
€ m
>3 months
€ m
81
–
81
64
–
64
–
–
–
2018
Total
€ m
145
–
145
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 151
2.2 Funding and liquidity risk (continued)
Financial assets and financial liabilities by contractual residual maturity*
The following table analyses financial assets and financial liabilities by contractual residual maturity at 31 December 2019 and 2018:
On demand
€ m
–
1,325
3,147
–
–
4,472
351
57,954
–
–
–
1,004
59,309
<3 months
but not on
demand
€ m
50
152
1,297
322
890
2,711
–
9,008
126
500
–
–
3 months
to 1 year
1–5 years
Over
5 years
2019
Total
€ m
36
1
2,068
2,190
–
€ m
292
–
17,323
8,073
–
€ m
€ m
893
–
38,291
5,931
–
1,271
1,478
62,126
16,516
890
4,295
25,688
45,115
82,281
178
3,615
140
750
–
–
294
1,160
166
4,167
–
–
–
66
765
1,414
1,299
–
823
71,803
1,197
6,831
1,299
1,004
9,634
4,683
5,787
3,544
82,957
On demand
€ m
–
1,440
4,647
–
–
<3 months
but not on
demand
€ m
22
3
626
387
640
3 months
to 1 year
1–5 years
Over
5 years
2018
Total
€ m
39
–
2,655
2,751
–
€ m
212
–
15,832
8,974
–
€ m
€ m
627
–
39,147
4,021
–
900
1,443
62,907
16,133
640
6,087
1,678
5,445
25,018
43,795
82,023
246
52,509
–
–
–
1,074
53,829
319
9,573
22
–
–
–
–
3,866
129
565
–
–
279
1,710
194
4,655
–
–
–
41
589
525
795
–
844
67,699
934
5,745
795
1,074
9,914
4,560
6,838
1,950
77,091
Financial assets
Derivative financial instruments(1)
Loans and advances to banks(2)
Loans and advances to customers(2)
Investment securities(3)
Other financial assets
Financial liabilities
Deposits by central banks and banks
Customer accounts
Derivative financial instruments
Debt securities in issue
Subordinated liabilities and other capital instruments
Other financial liabilities
Financial assets
Derivative financial instruments(1)
Loans and advances to banks(2)
Loans and advances to customers(2)
Investment securities(3)
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
(1)Shown by maturity date of contract.
(2)Shown gross of expected credit losses.
(3)Excluding equity shares.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 123456 152
2.2 Funding and liquidity risk (continued)
Financial liabilities by undiscounted contractual maturity*
The balances in the table below include the undiscounted cash flows relating to principal and interest on financial liabilities and as such
will not agree directly with the balances on the consolidated statement of financial position. All derivative financial instruments 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 2019 and
2018:
Financial liabilities
Deposits by central banks and banks
Customer accounts
Derivative financial instruments
Debt securities in issue
Subordinated liabilities and other capital instruments
Other financial liabilities
Financial liabilities
Deposits by central banks and banks
Customer accounts
Derivative financial instruments
Debt securities in issue
Subordinated liabilities and other capital instruments
Other financial liabilities
On demand
€ m
351
57,954
–
–
–
1,004
59,309
On demand
€ m
246
52,509
–
–
–
1,074
53,829
<3 months
but not on
demand
€ m
3 months
to 1 year
1–5 years
Over
5 years
2019
Total
€ m
€ m
€ m
€ m
5
9,032
166
563
–
–
181
3,624
252
822
82
–
297
1,164
439
4,556
200
–
–
66
357
1,449
1,466
–
834
71,840
1,214
7,390
1,748
1,004
9,766
4,961
6,656
3,338
84,030
<3 months
but not on
demand
€ m
329
9,604
70
48
–
–
3 months
to 1 year
1–5 years
Over
5 years
€ m
€ m
2
3,884
259
618
31
–
284
1,721
361
4,942
115
–
€ m
–
41
314
556
957
–
2018
Total
€ m
861
67,759
1,004
6,164
1,103
1,074
10,051
4,794
7,423
1,868
77,965
*Forms an integral part of the audited financial statements
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 153
2.2 Funding and liquidity risk (continued)
Financial liabilities by undiscounted contractual maturity* (continued)
The undiscounted cash flows potentially payable under guarantees and similar contracts
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 their 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.
The following table analyses undiscounted cash flows potentially payable under guarantees and similar contracts at 31 December 2019
and 2018:
Contingent liabilities
Commitments
Contingent liabilities
Commitments
On demand
€ m
711
11,539
12,250
On demand
€ m
780
11,107
11,887
<3 months
but not on
demand
€ m
–
–
–
<3 months
but not on
demand
€ m
–
–
–
3 months
to 1 year
1–5 years
Over
5 years
€ m
€ m
€ m
–
–
–
–
–
–
–
–
–
3 months
to 1 year
1–5 years Over 5 years
€ m
€ m
€ m
–
–
–
–
–
–
–
–
–
2019
Total
€ m
711
11,539
12,250
2018
Total
€ m
780
11,107
11,887
Analysis of loans and advances to customers by contractual residual maturity and interest rate sensitivity
The following table analyses gross loans and advances to customers by contractual residual maturity and interest rate sensitivity at
31 December 2019 and 2018. Overdrafts, which in the aggregate represent approximately 2% of the portfolio at 31 December 2019,
are classified as repayable within one year. Approximately 17% of AIB Group’s loan portfolio is provided on a fixed rate basis. Fixed
rate loans are defined as those loans for which the interest rate is fixed for the full term of the loan. The interest rate risk exposure is
managed within agreed policy parameters. The geographical concentrations are based primarily on the location of the office recording
the transaction.
Ireland
United Kingdom
Rest of the World
Total
Ireland
United Kingdom
Rest of the World
Total
Fixed
rate
Variable
rate
€ m
9,946
902
–
10,848
Fixed
rate
€ m
7,579
807
–
€ m
42,794
8,325
159
51,278
Variable
rate
€ m
46,711
7,730
80
Total
€ m
52,740
9,227
159
62,126
Total
€ m
54,290
8,537
80
Within
1 year
€ m
5,515
997
–
6,512
Within
1 year
€ m
7,099
823
6
After 1 year
but within
5 years
€ m
12,583
4,626
114
17,323
After 1 year
but within
5 years
€ m
11,434
4,324
74
After
5 years
€ m
34,642
3,604
45
38,291
After
5 years
€ m
35,758
3,389
–
2019
Total
€ m
52,740
9,227
159
62,126
2018
Total
€ m
54,291
8,536
80
8,386
54,521
62,907
7,928
15,832
39,147
62,907
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 123456 154
2.3 Capital adequacy risk*
Capital adequacy risk is the risk that the Group does not maintain sufficient capital to achieve its business strategy, support our
customers or to meet regulatory capital requirements.
Top and emerging risk drivers
The key risks impacting the capital adequacy position of the Group are business model risk, credit risk, market risk and operational risk,
although it should be noted that all material risks can to some degree, impact capital ratios.
Key mitigating actions
Key mitigating actions aim to effectively reduce the threat of a risk and the likelihood of its occurrence. The Group uses various
approaches to help mitigate risks relating to capital adequacy risk including:
• Board approved risk appetite, which includes appropriate management buffers to key regulatory and internal capital requirements;
Regular forward looking assessment of capital adequacy via annual ICAAP and quarterly internal stress testing which considers a
•
number of scenarios, ranging from a base case to a severe but plausible stress;
• Capital contingency and recovery planning activities;
• Comprehensive ICAAP framework and capital adequacy policy;
•
Independent second line of defence review and challenge of ICAAP and capital contingency plans.
Identification and assessment
Capital adequacy risk is primarily evaluated through the annual financial planning and ICAAP processes where the level of capital
required to support growth plans and meet regulatory requirements is assessed over the three year planning horizon. Plans are
assessed across a range of scenarios ranging from base case and moderate downside scenarios to a severe but plausible stress using
the Group’s stress testing methodologies. The impact of changing regulatory requirements, changes in the risk profile of the Group’s
balance sheet and other internal factors, and changing external risks are regularly assessed by first line of defence and second line of
defence teams via regular monitoring of performance against the agreed financial plan, monthly capital updates to ALCo and Group
Risk Committees and are also assessed via quarterly internal stress testing. An annual material risk assessment is conducted to identify
all relevant (current and anticipated) material risks which are then assessed from a capital perspective.
The Board reviews and approves the ICAAP on an annual basis and is also responsible for signing a capital adequacy statement
attesting that the Board has reviewed and is satisfied with the capital adequacy of the Group.
Management and measurement
The ICAAP is fully integrated and embedded in the strategic, financial and risk management processes of the Group. An ICAAP
Framework is in place which sets out the key processes, governance arrangements and roles and responsibilities which support the
ICAAP. Embedding of the ICAAP is facilitated through capital planning, the setting of risk appetite and risk adjusted performance
monitoring. In addition to the capital plan, a capital contingency plan is in place which identifies and quantifies actions which are
available to the Group in order to mitigate against the impact of a stress event. Trigger points at which these actions will be considered
are also identified. A further set of triggers and capital options are set out in the Group’s recovery plan, which presents the actions
available to the Group to restore viability in the event of extreme stress. Finally, the Group has an approved capital allocation
mechanism in place which seeks to ensure that capital is allocated on a risk-adjusted basis.
The Group uses risk adjusted return on capital for capital allocation purposes and as a behavioural driver of sound risk management.
The use of risk adjusted return on capital for portfolio management and in lending decisions continues to be an area of focus and a key
consideration for pricing of lending products, both at portfolio level and individually for large transactions.
Monitoring, escalating and reporting
The Group monitors its capital adequacy on a monthly basis when a capital reporting pack is presented to senior executive and Board
Committees setting out the evolution of the Group’s capital position. The output of quarterly stress tests is reviewed by the (“ALCo”) and
on an annual basis an ICAAP Report is produced which is a comprehensive analysis of the Group’s capital position in base and stress
scenarios over a three year horizon. This document is reviewed and approved by the Board and is submitted to the Joint Supervisory
Team, where it forms the basis of their supervisory review and evaluation process.
Further detail on the Group’s capital management, together with its overall capital position can be found in the capital management
section of the Annual Financial Report 2019.
*Forms an integral part of the audited financial statements
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 155
2.4 Financial risks (a) Market risk
Market risk refers to the risk of income and capital losses arising from adverse movements in wholesale market prices. The Group is
exposed to market risk through the following wholesale market risk factors: interest rates, foreign exchange rates, equity prices, inflation
rates and credit spreads. Changes in customer behaviours and the relationship between wholesale and retail rates give rise to changes
in the Group’s exposure to market risk factors and are also an important component of market risk.
The Group assumes market risk as a result of its banking and trading book activities. The main components of market risk are:
•
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 hold-to-collect-and-sell (“HTCS”) securities portfolio. Credit spreads are defined as the difference between bond yields
and interest rate swap rates of equivalent maturity. The HTCS bond portfolio is the principal source of credit spread risk. The Group
also monitors the credit spread risk in its hold-to-collect (“HTC”) bond portfolio;
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. 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 (NII) through interest-sensitive income and expense effects; and
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.
•
•
Top and emerging risk drivers
The top and emerging risks to the Group are outlined in the Risk Summary Section on page 39. The table below outlines and describes
which of these are key risk drivers for market risk.
Material Risk
Regulatory
and legal
change
Financial,
macroeconomic
and geopolitical
volatility
Pace of change
in competition,
labour markets
and customer
expectations
Cyber
Climate
change
Changing
external
perceptions
of AIB
Market risk
ü
ü
•
•
Financial, macroeconomic and geopolitical volatility is a key risk driver as a negative macroeconomic environment can lead to
market instability and increased market risk. ‘Lower for longer’ interest rates will continue to suppress the Group’s profitability.
The recent coronavirus (COVID-19) outbreak is also an emerging risk impacting market risk factors.
Climate change is increasingly a key risk driver of market prices, be that investor appetite for certain sectors or where weather
events could begin to impact on government finances and thereby impact sovereign bond prices, for example.
Key mitigating actions
• Board Approved Risk Appetite Statement covering key regulatory and internal capital requirements.
•
Regular forward looking assessment of market risk exposure via annual Internal Capital Adequacy Assessment (“ICAAP”) and
internal stress testing which considers a range of scenarios.
• Comprehensive ICAAP Framework and supporting policies.
•
Independent second line of defence review and challenge of ICAAP and market risk strategy.
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 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. In addition to VaR, Capital at Risk (“CaR”) is also measured to a one(1) year
time horizon, a 99% confidence level and a longer set of data.
(1) The Capital at Risk on core trading book positions is assessed using a ten day horizon, with the exception of foreign exchange which is assessed
using a one year horizon.
AIB Group plc Annual Financial Report 2019Risk Management 123456 156
2.4 Financial risks (a) Market risk (continued)
Management and measurement*
The Group operates a three lines of defence model for risk management. For market risk, the first line comprises the Finance function
reporting to the CFO which is responsible for the identification and reporting of the Group’s aggregate market risk profile, managing the
Group’s financial instruments valuation processes, making structural market risk management recommendations to ALCo and managing
market risk exposure.
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 which exists within Finance. 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 process.
The Financial Risk function is responsible for the development of the market risk measurement methodologies. 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 third line of defence comprises Group Internal Audit who provide third line assurance on market risk.
Market risk is managed against a range of Board approved VaR limits which cover market risk in the trading book, interest rate risk
in the banking book and credit spread risk in the banking book. The Board approved limits are supplemented by a range of ALCo
approved limits which include VaR limits, nominal and sensitivity limits and ‘stop loss’ limits. The first line documents an annual Market
Risk Strategy and Appetite statement as part of the annual financial planning cycle which ensures market risk aligns with the Group’s
strategic business plan.
Credit risk issues inherent in the market risk portfolios are also subject to the credit risk framework that was described in the previous
section.
*Forms an integral part of the audited financial statements
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 157
2.4 Financial risks (a) Market risk (continued)
Monitoring, escalating and reporting*
On a daily basis front office and risk functions receive a range of valuation, sensitivity and market risk measurement reports, while ALCo
receives a monthly market risk commentary and summary risk profile. Market risk exposures are reported to the Group Risk Committee
(“GRC”) and Board Risk Committee (“BRC”) on a monthly basis through the CRO Report.
The following table sets out financial assets and financial liabilities at 31 December 2019 and 2018 subject to market risk analysed
between trading and non-trading portfolios, showing the principal market risks to which the assets and liabilities are exposed:
Assets subject to market risk
Cash and balances at central banks
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Investment securities
Liabilities subject to market risk
Deposits by central banks and banks
Customer accounts
Derivative financial instruments
Debt securities in issue
Subordinated liabilities and other capital instruments
Assets subject to market risk
Cash and balances at central banks
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Investment securities
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
Market risk measures
Carrying
amount
€ m
Trading
portfolios
€ m
Non-trading
portfolios
€ m
Risk factors
2019
11,982
1,271
1,478
60,888
17,331
823
71,803
1,197
6,831
1,299
–
592
–
–
–
–
–
11,982
Interest rate, foreign exchange
679
Interest rate, foreign exchange,
credit spreads, equity, inflation
swap rates
1,478
Interest rate, foreign exchange
60,888
17,331
Interest rate, foreign exchange
Interest rate, foreign exchange,
credit spreads, equity
823
Interest rate, foreign exchange
71,803
Interest rate, foreign exchange
771
426
Interest rate, foreign exchange,
credit spreads, equity, inflation
swap rates
–
–
6,831
Interest rate, credit spreads,
foreign exchange
1,299
Interest rate, credit spreads
Market risk measures
Carrying
amount
€ m
Trading
portfolios
€ m
Non-trading
portfolios
€ m
Risk factors
2018
6,516
900
1,443
60,868
16,861
844
67,699
934
5,745
795
–
517
–
–
–
–
–
534
–
–
6,516
Interest rate, foreign exchange
383
Interest rate, foreign exchange, credit
spreads, equity, inflation swap rates
1,443
Interest rate, foreign exchange
60,868
16,861
Interest rate, foreign exchange
Interest rate, foreign exchange,
credit spreads, equity
844
Interest rate, foreign exchange
67,699
Interest rate, foreign exchange
400
5,745
Interest rate, foreign exchange, credit
spreads, equity, inflation swap rates
Interest rate, credit spreads,
foreign exchange
795
Interest rate, credit spreads
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 123456 158
2.4 Financial risks (a) Market risk (continued)
Market risk profile
The table below shows the sensitivity of the Group’s banking book to an immediate and sustained 100 basis point (“bp”) movement in
interest rates in terms of 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
2019
€ m
234
(274)
2018
€ m
211
(245)
The above sensitivity table is computed under the assumption that all official and market rates (Euribors/Swaps) move downwards in
parallel, however, for upward rates only, the ECB refinancing rate increases by 50% of the market rates.
The interest rate sensitivity increased during the year as a result of balance sheet change and reductions in strategic interest rate
hedges being made throughout 2019.
The above analysis is subject to certain simplifying assumptions such as all interest rate movements occurring simultaneously.
Additionally, it is assumed that no management action is taken in response to the rate movements.
The following table summarises Group’s interest rate VaR profile to a 95% confidence level with a one day holding period for the
financial years to 31 December 2019 and 2018. The Group recognises the limitations of VaR models, and supplements its VaR
measures with stress tests which draw from a longer set of historical data and also with sensitivity measures.
VaR (trading book)*
VaR (banking book)*
2019
€ m
2018
€ m
2019
€ m
2018
€ m
Total VaR*
2019
€ m
2018
€ m
Interest rate risk
1 day holding period:
Average
High
Low
At 31 December
0.3
0.9
0.2
0.4
0.1
1.4
–
0.1
8.3
10.8
5.1
9.8
6.7
9.1
3.5
8.1
8.6
11.2
5.4
9.8
6.7
9.2
3.7
8.2
The following table sets out the VaR for foreign exchange rate and equity risk for the financial years to 31 December 2019 and 2018:
1 day holding period:
Average
High
Low
At 31 December
Foreign exchange rate risk*
Equity risk*
VaR (trading book)
VaR (trading book)
2019
€ m
0.17
0.80
0.08
0.10
2018
€ m
0.39
0.85
0.06
0.24
2019
€ m
0.02
0.03
–
–
2018
€ m
0.01
0.03
–
–
The low level of VaR in the trading book throughout 2019 is as a result of very small discretionary positions managed by Treasury.
The higher banking book interest rate VaR is as a result of a more substantial level of interest rate risk existing in the Group’s banking
book.
Interest rate sensitivity*
The net interest rate sensitivity of the Group at 31 December 2019 and 2018 is illustrated in the following table. The table 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.
*Forms an integral part of the audited financial statements
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 3
<
2
m
€
s
r
a
e
Y
–
4
2
6
,
1
2
9
4
,
1
–
6
1
1
,
3
–
1
0
2
0
5
7
–
–
–
1
5
9
6
4
9
1
1
,
2
5
4
8
,
9
2
m
€
6
3
9
,
1
m
€
–
–
–
2
9
5
2
9
5
–
–
–
–
–
1
7
7
1
7
7
–
–
)
9
7
1
(
m
€
6
6
2
3
9
0
,
1
)
2
(
m
$
)
8
4
6
,
1
(
m
£
)
4
4
4
(
)
0
1
(
*
9
1
0
2
l
a
t
o
T
m
€
8
7
4
,
1
8
8
8
,
0
6
1
3
3
,
7
1
5
6
8
,
8
1
2
6
5
,
8
9
3
2
8
3
0
8
,
1
7
1
3
8
,
6
9
9
2
,
1
6
7
5
,
3
0
3
2
,
4
1
2
6
5
,
8
9
i
g
n
d
a
r
T
t
s
e
r
e
t
n
i
-
n
o
N
+
s
r
a
e
y
5
m
€
g
n
i
r
a
e
b
4
5
2
)
8
2
3
,
1
(
5
1
8
1
5
9
,
6
2
9
6
,
6
–
–
–
4
4
5
,
2
3
5
0
8
,
2
0
3
2
,
4
1
9
7
5
,
9
4
m
€
–
8
9
7
6
1
3
,
4
–
4
1
1
,
5
–
–
5
2
5
9
4
–
–
4
7
5
5
<
4
m
€
s
r
a
e
Y
–
0
0
1
,
2
6
8
5
,
1
–
6
8
6
,
3
–
9
–
–
0
0
5
9
3
6
,
1
4
<
3
m
€
s
r
a
e
Y
–
5
6
4
,
1
4
1
3
,
2
–
9
7
7
,
3
–
5
5
1
7
6
1
,
2
–
–
–
8
4
1
,
2
2
2
3
,
2
–
)
3
8
6
,
2
(
)
5
6
5
,
1
(
)
8
3
4
,
1
(
2
<
1
m
€
s
r
a
e
Y
–
3
1
1
,
2
9
4
2
,
1
–
2
6
3
,
3
–
9
3
6
0
0
5
–
–
–
m
€
2
1
<
3
s
h
t
n
o
M
3
<
1
m
€
s
h
t
n
o
M
1
7
6
5
,
2
6
8
0
,
2
–
4
5
6
,
4
8
7
1
5
3
6
,
3
0
5
7
0
5
7
–
–
–
1
5
1
2
9
5
,
8
3
2
6
,
1
6
6
3
,
0
1
–
–
–
–
0
0
5
2
4
1
,
1
1
<
0
m
€
h
t
n
o
M
2
7
0
,
1
7
5
9
,
2
4
0
5
8
,
1
2
2
3
,
1
1
1
0
2
,
7
5
5
4
6
8
7
4
,
3
3
–
–
–
–
9
3
1
,
1
3
1
3
,
5
2
4
6
,
1
3
2
1
,
4
3
s
t
n
e
m
u
r
t
s
n
i
l
a
t
i
p
a
c
r
e
h
t
o
d
n
a
s
e
i
t
i
l
i
b
a
i
l
i
d
e
t
a
n
d
r
o
b
u
S
s
k
n
a
b
d
n
a
s
k
n
a
b
l
a
r
t
n
e
c
y
b
s
t
i
s
o
p
e
D
e
u
s
s
i
n
i
s
e
i
t
i
r
u
c
e
s
t
b
e
D
s
t
n
u
o
c
c
a
r
e
m
o
t
s
u
C
y
t
i
u
q
e
d
n
a
s
e
i
t
i
l
i
b
a
i
l
l
a
t
o
T
s
e
i
t
i
l
i
b
a
i
l
r
e
h
O
t
y
t
i
u
q
E
s
r
e
m
o
t
s
u
c
o
t
s
e
c
n
a
v
d
a
d
n
a
s
n
a
o
L
s
k
n
a
b
o
t
s
e
c
n
a
v
d
a
d
n
a
s
n
a
o
L
s
e
i
t
i
r
u
c
e
s
t
n
e
m
t
s
e
v
n
I
s
t
e
s
s
A
s
t
e
s
s
a
r
e
h
O
t
s
t
e
s
s
a
l
a
t
o
T
s
e
i
t
i
l
i
b
a
L
i
)
6
6
6
(
)
8
2
9
,
1
(
)
9
0
1
,
2
(
3
4
3
,
0
1
y
t
i
v
i
t
i
s
n
e
s
e
t
a
r
t
s
e
r
e
t
n
i
g
n
i
t
c
e
f
f
a
s
e
v
i
t
a
v
i
r
e
D
)
d
e
u
n
i
t
n
o
c
(
y
t
i
v
i
t
i
s
n
e
s
e
t
a
r
t
s
e
r
e
t
n
I
–
k
s
i
r
t
e
k
r
a
M
)
a
(
s
k
s
i
r
l
a
i
c
n
a
n
F
4
.
2
i
9
7
1
m
€
)
7
8
8
,
2
4
(
)
2
9
8
,
4
3
(
7
2
8
m
$
)
8
3
1
,
2
(
)
6
4
6
,
1
(
m
£
)
9
2
4
,
6
(
4
3
4
3
2
2
,
7
6
6
0
,
3
4
m
€
0
1
6
,
6
3
0
1
,
3
3
4
8
,
5
3
m
€
8
0
0
,
3
5
9
8
,
2
0
4
7
,
2
3
m
€
6
9
6
,
2
9
8
8
,
2
6
2
7
,
7
2
m
€
9
5
2
,
2
9
6
2
,
1
7
3
8
,
4
2
m
€
4
9
1
3
3
8
,
0
1
8
6
5
,
3
2
m
€
0
5
3
,
6
9
1
7
,
5
3
9
0
1
,
9
2
1
0
1
,
6
2
5
0
4
,
3
2
9
6
4
,
1
2
0
1
2
,
9
1
6
1
0
,
9
1
m
$
)
4
2
(
2
9
4
m
£
7
3
6
3
6
8
,
6
m
$
)
8
5
(
6
1
5
m
£
3
5
1
6
2
2
,
6
m
$
9
5
4
7
5
m
£
0
4
1
3
7
0
,
6
m
$
)
0
8
(
5
1
5
m
£
3
6
2
3
3
9
,
5
m
$
7
8
5
9
5
m
£
3
4
5
0
7
6
,
5
m
$
)
7
2
1
(
8
0
5
m
£
3
0
2
,
1
7
2
1
,
5
m
$
9
4
4
5
3
6
m
£
1
1
0
,
4
4
2
9
,
3
5
3
7
,
2
1
5
3
7
,
2
1
m
€
6
6
6
,
2
1
6
6
6
,
2
1
m
$
6
8
1
6
8
1
m
£
)
7
8
(
)
7
8
(
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
i
e
v
i
t
l
a
u
m
u
C
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
I
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
i
e
v
i
t
l
a
u
m
u
C
)
s
t
n
u
o
m
a
y
c
n
e
r
r
u
c
o
r
u
E
(
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
I
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
i
e
v
i
t
l
a
u
m
u
C
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
I
l
)
s
t
n
e
a
v
u
q
e
i
o
r
u
e
n
i
$
(
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
i
e
v
i
t
l
a
u
m
u
C
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
I
l
)
s
t
n
e
a
v
u
q
e
i
o
r
u
e
n
i
£
(
159
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
i
f
d
e
t
i
d
u
a
e
h
t
f
o
t
r
a
p
l
a
r
g
e
t
n
i
n
a
s
m
r
o
F
*
1
5
6
5
2
7
5
4
6
5
–
)
8
(
–
)
8
(
–
)
8
(
–
)
8
(
–
)
8
(
)
1
(
)
8
(
)
7
(
3
2
)
0
3
(
)
0
3
(
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
l
)
s
t
n
e
a
v
u
q
e
i
o
r
u
e
n
i
i
s
e
c
n
e
r
r
u
c
r
e
h
O
t
(
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
I
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
i
e
v
i
t
l
a
u
m
u
C
AIB Group plc Annual Financial Report 2019Risk Management 123456
160
*
8
1
0
2
l
a
t
o
T
i
g
n
d
a
r
T
t
s
e
r
e
t
n
i
-
n
o
N
+
s
r
a
e
y
5
s
r
a
e
Y
5
<
4
s
r
a
e
Y
4
<
3
s
r
a
e
Y
3
<
2
s
r
a
e
Y
2
<
1
s
h
t
n
o
M
2
1
<
3
s
h
t
n
o
M
3
<
1
h
t
n
o
M
1
<
0
)
d
e
u
n
i
t
n
o
c
(
y
t
i
v
i
t
i
s
n
e
s
e
t
a
r
t
s
e
r
e
t
n
I
–
k
s
i
r
t
e
k
r
a
M
)
a
(
s
k
s
i
r
l
a
i
c
n
a
n
F
4
.
2
i
m
€
m
€
3
4
4
,
1
8
6
8
,
0
6
1
6
8
,
6
1
4
6
3
,
2
1
6
3
5
,
1
9
4
4
8
9
9
6
,
7
6
5
9
7
5
4
7
,
5
5
9
5
,
2
8
5
8
,
3
1
6
3
5
,
1
9
–
–
–
7
1
5
7
1
5
–
–
–
–
4
3
5
–
4
3
5
–
)
7
1
(
–
)
2
2
(
m
€
1
8
9
,
1
m
$
6
1
)
1
4
7
,
1
(
)
1
1
(
m
£
)
1
2
8
(
m
€
g
n
i
r
a
e
b
3
4
3
)
8
4
0
,
2
(
8
2
7
9
3
9
,
5
2
6
9
,
4
–
–
–
5
3
6
,
9
2
1
6
0
,
2
8
5
8
,
3
1
4
5
5
,
5
4
m
€
m
€
m
€
m
€
m
€
m
€
m
€
m
€
–
6
6
8
–
6
5
0
,
3
2
2
9
,
3
–
1
5
2
5
5
4
–
–
1
7
5
–
5
3
2
,
1
2
6
3
,
2
–
7
9
5
,
3
–
1
2
5
5
1
,
2
–
–
–
–
2
0
7
–
4
6
3
,
1
6
6
0
,
2
–
3
1
2
0
5
7
–
–
–
–
9
7
7
,
1
0
2
2
,
1
–
9
9
9
,
2
–
0
0
2
0
0
5
–
–
–
–
7
8
5
,
1
4
4
4
,
2
–
1
3
0
,
4
–
0
4
0
,
1
0
5
2
,
1
0
5
7
–
–
1
3
6
3
,
2
7
4
6
,
2
–
1
1
0
,
5
–
5
6
5
7
6
9
,
3
–
–
–
1
2
8
4
,
7
6
2
3
,
1
–
9
0
8
,
8
9
3
2
0
5
2
,
1
–
–
–
–
8
9
0
,
1
2
0
9
,
6
4
4
1
7
,
1
8
0
9
,
5
2
2
6
,
5
5
5
0
6
2
7
3
,
1
3
–
–
–
–
s
t
n
e
m
u
r
t
s
n
i
l
a
t
i
p
a
c
r
e
h
t
o
d
n
a
s
e
i
t
i
l
i
b
a
i
l
i
d
e
t
a
n
d
r
o
b
u
S
s
k
n
a
b
d
n
a
s
k
n
a
b
l
a
r
t
n
e
c
y
b
s
t
i
s
o
p
e
D
e
u
s
s
i
n
i
s
e
i
t
i
r
u
c
e
s
t
b
e
D
s
t
n
u
o
c
c
a
r
e
m
o
t
s
u
C
s
e
i
t
i
l
i
b
a
i
l
r
e
h
O
t
y
t
i
u
q
E
s
r
e
m
o
t
s
u
c
o
t
s
e
c
n
a
v
d
a
d
n
a
s
n
a
o
L
s
k
n
a
b
o
t
s
e
c
n
a
v
d
a
d
n
a
s
n
a
o
L
s
e
i
t
i
r
u
c
e
s
t
n
e
m
t
s
e
v
n
I
s
t
e
s
s
A
s
t
e
s
s
a
r
e
h
O
t
s
t
e
s
s
a
l
a
t
o
T
s
e
i
t
i
l
i
b
a
L
i
6
7
1
,
2
3
6
9
0
0
7
0
4
0
,
3
2
3
5
,
4
9
8
4
,
1
7
7
9
,
1
3
y
t
i
u
q
e
d
n
a
s
e
i
t
i
l
i
b
a
i
l
l
a
t
o
T
–
)
8
9
8
,
4
(
)
8
4
5
,
1
(
)
5
5
3
(
)
7
1
(
7
0
1
7
1
6
,
5
y
t
i
v
i
t
i
s
n
e
s
e
t
a
r
t
s
e
r
e
t
n
i
g
n
i
t
c
e
f
f
a
s
e
v
i
t
a
v
i
r
e
D
)
2
9
5
,
0
4
(
7
1
m
€
)
0
9
0
,
2
3
(
3
0
0
,
2
m
$
)
9
7
4
,
2
(
)
7
5
7
,
1
(
m
£
)
0
1
8
(
)
3
0
6
,
6
(
9
4
2
,
8
9
0
6
,
0
4
m
€
8
9
6
,
7
9
6
9
,
2
0
6
3
,
2
3
m
€
5
6
7
,
2
8
5
4
,
1
1
9
3
,
9
2
m
€
1
6
2
,
1
6
1
3
,
2
3
3
9
,
7
2
m
€
0
1
1
,
2
5
3
2
6
5
7
9
5
8
)
0
8
3
(
7
1
6
,
5
2
1
6
8
,
4
2
m
€
9
8
5
m
€
)
4
6
7
(
3
1
2
,
7
1
4
2
,
5
2
m
€
3
7
7
,
4
3
9
0
,
4
3
5
9
3
,
6
2
0
3
6
,
3
2
9
6
3
,
2
2
9
5
2
,
0
2
0
7
6
,
9
1
4
3
4
,
0
2
9
m
$
2
2
7
m
£
2
4
5
m
$
8
4
3
1
7
m
£
6
5
1
3
9
7
,
5
1
5
2
,
5
)
1
4
(
m
$
5
6
6
m
£
8
3
2
5
9
0
,
5
)
2
3
(
m
$
6
0
7
m
£
8
3
2
7
5
8
,
4
3
m
$
8
3
7
m
£
4
6
1
9
1
6
,
4
)
4
5
(
m
$
5
3
7
m
£
0
3
4
5
5
4
,
4
m
$
)
0
0
1
(
9
8
7
m
£
1
7
4
,
2
5
2
0
,
4
8
2
0
,
8
1
8
2
0
,
8
1
m
€
1
6
6
,
5
1
1
6
6
,
5
1
m
$
9
8
8
9
8
8
m
£
4
5
5
,
1
4
5
5
,
1
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
i
e
v
i
t
l
a
u
m
u
C
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
I
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
i
e
v
i
t
l
a
u
m
u
C
)
s
t
n
u
o
m
a
y
c
n
e
r
r
u
c
o
r
u
E
(
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
I
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
i
e
v
i
t
l
a
u
m
u
C
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
I
l
)
s
t
n
e
a
v
u
q
e
i
o
r
u
e
n
i
$
(
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
i
e
v
i
t
l
a
u
m
u
C
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
I
l
)
s
t
n
e
a
v
u
q
e
i
o
r
u
e
n
i
£
(
–
1
8
5
0
8
5
1
8
5
–
1
–
1
–
1
–
1
–
1
8
1
)
7
(
9
6
)
6
7
(
)
6
7
(
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
l
)
s
t
n
e
a
v
u
q
e
i
o
r
u
e
n
i
i
s
e
c
n
e
r
r
u
c
r
e
h
O
t
(
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
I
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
i
e
v
i
t
l
a
u
m
u
C
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
i
f
d
e
t
i
d
u
a
e
h
t
f
o
t
r
a
p
l
a
r
g
e
t
n
i
n
a
s
m
r
o
F
*
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management
161
2.4 Financial risks (a) Market risk (continued)
Interest rate benchmark reform
Authorities and regulators have requested that the market transition from interbank offered rates referred to as “IBOR” benchmark rates
(e.g. LIBOR) to alternative Risk Free Rates (RFRs) by end 2021. The reform was not contemplated when IAS 39 was published, and
consequently the IASB has published a set of temporary exceptions from applying specific hedge accounting requirements to provide
clarification on how the relevant standards should be applied in these circumstances.
The application of this set of temporary exceptions is mandatory for accounting periods starting on or after 1 January 2020, but early
adoption is permitted which the Group elected to do at 31 December 2019 (note 1 to the consolidated financial statements).
Significant judgement will be required in determining when uncertainty is expected to be resolved and, therefore, when the temporary
exceptions will cease to apply. However, at 31 December 2019, the uncertainty continued to exist and so the temporary exceptions
apply to all of the Group’s hedge accounting relationships that reference benchmarks subject to reform or replacement.
The Group has cash flow and fair value hedge accounting relationships that are exposed to different IBORs. The transition not
only impacts financial markets, but also many of the Group’s customers who have an IBOR referenced in their contract. IBORs are
extensively embedded within the Group’s processes, hence, this transformation will have far reaching impacts in terms of pricing,
operations, risk, accounting, data and technology infrastructure, along with potential conduct risk implications.
The Group mobilised an Interest Rate Benchmark Reform Transition Programme (“the Programme”) in 2018 to manage the successful
evolution to, and embedding of, RFRs. The Programme is sponsored by the Chief Financial Officer, overseen by a steering committee,
chaired by a senior Treasury executive, supported by a Project Management layer and working groups comprising representation
from customer-facing businesses, Finance, Treasury, Risk, Compliance, Legal, Operations and Customer and Strategic Affairs.
The programme is organised into four main workstreams, namely:
• Business readiness;
• Technology;
• Contract re-papering; and
• Customer communications and conduct.
The Programme is structured to deliver IBOR transition by the regulators’ deadline of 31 December 2021, with much of the recent action
focused on business readiness activities, agreeing new fallback clauses and preparing for awareness amongst the Group’s customers.
The Programme is also briefed on the activities associated with transitioning Euro OverNight Index Average (“EONIA”) to Euro short-
term rate (“€STER”).
In terms of exposures, IBORs are referenced to a significant cohort of the Group’s portfolio, including derivative and bond transactions
in the Treasury function and loans and deposits in the corporate and institutional businesses. Given the role of derivatives portfolios
in supporting interest rate risk management activities both in terms of the Group’s structural risk positions and providing solutions
to customers, the notional volumes involved are large. For example, within the derivative portfolios, there are approximately 1,700
contracts referencing Euribor, GBP LIBOR and USD LIBOR relating to approximately € 50 billion in notional principal.
The Group also has IBOR exposure within deposits and debt securities amounting to € 3.5 billion approximately. The loan portfolios
reference Euribor, GBP LIBOR and USD LIBOR (approximately € 19 billion exposure in total).
Structural foreign exchange risk
Structural foreign exchange risk is the exposure of the Group’s 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 comprehensive 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 table below shows the sensitivity of the Group’s fully loaded CET1 ratio to a hypothetical and sustained movement in GBP/EUR and
USD/EUR foreign exchange rates.
Sensitivity of CET1 fully loaded capital to foreign exchange movements (unaudited)
+ 10% move in GBP and USD FX rates
– 10% move in GBP and USD FX rates
31 December
2019
(0.20%)
0.19%
2018
(0.21%)
0.20%
The above analysis is subject to certain simplifying assumptions such as GBP/EUR and USD/EUR foreign exchange rates moving in the
same direction and at the same time.
AIB Group plc Annual Financial Report 2019Risk Management 123456 162
2.4 Financial risks* (b) 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 additional contributions would
be required to cover its funding obligations towards current and former employees;
– The capital position of the Group is negatively affected as funding deficits will be fully deductible from regulatory capital; and
– There could be a negative impact on industrial relations if the funding level of the scheme was to deteriorate significantly.
Identification and assessment
The IAS 19 valuation of the pension scheme assets and liabilities may vary which could impact on the Group’s capital. The Group
works with the Trustees of each scheme to monitor the performance of investments and estimates of future liability to identify deficits.
Given that variability in the value of the pension scheme assets and liabilities can impact on the Group’s capital the key processes
through which pension risk is evaluated are:
•
•
the Internal Capital Adequacy Assessment Process (“ICAAP”) as well as quarterly internal stress tests and
monthly reporting of Pension risk against risk appetite. The pension capital at risk metric is measured and reported monthly against
this watch trigger.
The Group maintains a number of defined benefit pension schemes for current and former employees. These defined benefit schemes
were closed to future accrual by the 31 December 2013 with all staff transferring to a defined contribution scheme for future service on a
standardised basis.
Each scheme has a separate trustee board and the Group has agreed funding plans to deal with deficits in each scheme. As part of
each funding agreement, the Group engages with each trustee regarding an appropriate investment strategy to reduce the risk in each
scheme.
Irish schemes that are deemed to have a deficit under the Minimum Funding Standard must prepare funding plans to address this
situation in a timely manner and submit them to the Pensions Authority for approval.
Management and measurement
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. Although the Group has interaction with the trustees, it cannot direct the investment strategy
of the schemes.
The Group has developed a strategy going forward for each of its defined benefit schemes which include the following steps;
1. All defined benefit schemes are closed to future accrual.
2.
They have funding plans (or are funded as required for the US schemes) and each defined benefit scheme has an investment
strategy in place.
All schemes have a strategy of de-risking in line with their regulatory requirements, funding positions and funding plans taking into
account the nature of their liabilities.
3.
The AIB Group Irish Pension Scheme exited its funding plan on target at 30 June 2018 and now meets the minimum funding standard
requirements. The AIB Group Irish Pension Scheme’s triennial actuarial valuation was also completed at 30 June 2018, resulting in an
actuarial surplus at that date. On this basis, the AIB Group Irish Pension Scheme’s actuary has concluded that the scheme requires no
deficit funding at this time.
In December 2019, the Group agreed a revised funding arrangement for the UK scheme with the Scheme Trustee to support the
purchase of the pensioner buy-in policy in respect of the pensioner members and an assured payment policy (“APP”) in respect of the
deferred members. A contribution of £ 10 million was made in December 2019 and an additional one-off £ 12 million contribution will
also be made in 2020. Under the revised funding arrangement, the Group also expects to make annual payments of £ 18.5 million each
year during 2020 to 2023, with a final balancing payment in 2024 which is currently expected to be c. £ 50 million.
*Forms an integral part of the audited financial statements
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 163
2.4 Financial risks* (b) Pension risk (continued)
Monitoring, escalating and reporting
Pension risk is monitored and controlled in line with the requirements of the Group’s pension risk framework and policy. The surplus or
deficit is monitored on a monthly basis by the Group’s risk team and is currently reported monthly in both the financial risk report to the
Group Assets and Liability Committee (“ALCo”) and the Group Chief Risk Officer report. The potential change in this value over a one-
year time period is assessed on a monthly basis and is reported versus a Group Risk Appetite Statement watch trigger. This pension
Capital at risk exposure against the watch trigger is reported in the CRO report each month.
Pension risk is also included in the quarterly internal stress test. The output of quarterly stress tests is reviewed by ALCo and on
an annual basis an ICAAP Report is produced which is a comprehensive analysis of the Group’s capital position in base and stress
scenarios over a three year horizon. This document is reviewed and approved by the Board and is submitted to the Joint Supervisory
Team.
The pension capital at risk exposure is reported against the watch trigger and is contained in the CRO report each month. 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.
2.5 Operational risk
Operational risk is the risk arising from inadequate or failed internal processes, people and systems, or from external events.
This includes legal risk – the potential for loss arising from the uncertainty of legal proceedings and potential legal proceedings,
but excludes strategic and reputational risk.
Top and emerging risk drivers
The top and emerging risks to the Group are outlined in the Risk Summary Section on page 39. The below table outlines and describes
which of these are key risk drivers for operational risk.
Material Risk
Regulatory
and legal
change
Financial,
macroeconomic
and geopolitical
volatility
Pace of change
in competition,
labour markets
and customer
expectations
Cyber
Climate
change
Changing
external
perceptions
of AIB
Operational
risk
ü
ü
ü
ü
•
•
•
•
Regulatory and legal change is a key risk due to its potential impact on customer behaviours, markets and internal Group processes
and resources.
Pace of change in competition, labour markets and customer expectations is a key risk driver as there is increased competition for
the appropriate skills in the market.
Cyber is a key risk driver as an increased level of cyber attacks may result in increased operational failures or resources being
diverted from core tasks.
Climate change is a key risk driver as the enviromental results of climate change could have a significant impact on staff, properties
and the availability of IT systems.
Key mitigating actions
Key mitigating actions aim to effectively reduce the threat of a risk and the likelihood of its occurrence. The Group uses various
approaches to help mitigate risks relating to operational risk including:
• Board approved and monitored risk appetite limits covering key dimensions of operational risk;
•
Operational Risk Framework and suite of policies, setting out principles, roles and responsibilities and governance arrangements for
the management of operational risk across the Group;
The Group continues to invest significantly in technology which includes cyber deterrents and defences with controls to predict,
•
prevent, detect and respond to cyber risk; and
•
The Group operates a risk and control assessment of our processes and people to deliver objectives and keep customers safe.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Risk Management 123456 164
2.5 Operational risk (continued)
Identification and assessment
Risk and Control Assessment (“RCA”) is a core process in the identification and assessment of operational risk across the Group.
The process serves to ensure that key 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 is recorded on SHIELD which is the Group’s governance,
risk and compliance system. SHIELD provides all areas with one consistent view of the risks, controls, actions and events across the
Group. SHIELD underpins an enhanced risk culture focused on ensuring better customer outcomes while helping to safeguard, protect
and support the Group. RCAs are regularly reviewed and updated by business unit management. A materiality matrix is in place to
enable the scoring of risks, and action plans must be developed to provide mitigants for the more significant risks. Monitoring processes
are in place at business unit and support level. The central operational risk team sets and maintains policies and procedures for self-
assessment and undertakes risk based reviews and testing to ensure the completeness and robustness of each business unit’s self-
assessment, and that appropriate attention is given to the more significant risks.
Management and measurement
Each business area is primarily responsible for managing its own risks. The operational risk framework includes policies specific to
key operational risks (such as information security; continuity and resilience; and third party management among others) to ensure an
effective and consistent approach to operational risk management across the Group. An important element of the Group’s operational
risk management framework is the ongoing monitoring of risks, control deficiencies and weaknesses, including tracking of operational
risk events. The Group also 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. 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 second line assurance process which sits within the Compliance function. 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/cyber/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).
Monitoring, escalating and reporting
The Head of Operational Risk reports to the Chief Risk Officer, and provides information to the Board through the Board Risk
Committee, Group Risk Committee and the Operational Risk Committee. The primary objective of operational risk reporting is to
provide the Board with a timely and pertinent update on the Operational Risk profile, in order to assist the Board in discharging its
responsibilities for the oversight of risk. A secondary objective is to provide senior management with an overview of the operational
risk profile, in order to support the effective management of risks. The profile update details the current status of the Group’s key
operational risks and includes an overview of current trends and an update on recent significant events. The reporting of the Operational
Risk profile, as required, at the Group Risk and Board Risk Committees supports these two objectives. In addition, the Group Risk
Committee receive summary information on the Group’s Operational Risk profile on a regular basis through the Chief Risk Officer
(“CRO”) report. Business units are required to review and update their assessment of operational risks on a regular basis. Operational
risk teams undertake review and challenge assessments of the business unit risk assessments. In addition, assurance teams which are
independent of the business, undertake reviews of the operational controls as part of a combined regulatory/compliance/operational risk
programme.
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 165
2.6 Regulatory compliance risk
Regulatory compliance risk is defined as the risk of legal or regulatory sanctions or failure to protect market integrity, could result in
material financial loss or reputational damage. Failure to comply with laws, regulations, or rules, for example Anti-Money Laundering,
Countering Terrorist Financing and modern slavery, as well as self regulatory standards and codes of conduct, could result in regulatory
sanction.
Top and emerging risk drivers
The top and emerging risks to the Group are outlined in the Risk Summary Section on page 39. The below table outlines and describes
which of these are key risk drivers for regulatory compliance risk.
Material Risk
Regulatory
and legal
change
Financial,
macroeconomic
and geopolitical
volatility
Pace of change
in competition,
labour markets
and customer
expectations
Cyber
Climate
change
Changing
external
perceptions
of AIB
Regulatory
compliance
risk
ü
ü
ü
ü
•
•
•
Regulatory and legal change is a key risk driver due to the pace and complexity of regulatory change including changes likely as a
result of Brexit.
Pace of change in competition, labour markets and customer expectations is a key risk driver due to depth of regulatory supervision
resulting in increased process complexity and increased competition for the appropriate skills in the market.
Climate change is a growing area of regulatory interest and together the financial, macroeconomic and geopolitical events have the
ability to quickly change the regulatory agenda.
Key mitigating actions
Key mitigating actions aim to effectively reduce the threat of a risk and the likelihood of its occurrence. The Group uses various
approaches to help mitigate risks relating to regulatory compliance risk. The principal compliance risk mitigants are risk identification,
assessment, measurement and the establishment of appropriate controls at business level. Compliance also provides continuous
training across the Group in relation to regulatory compliance risks, obligations and responsibilities of the business, therefore, reinforcing
a culture of compliance. The Group has insurance policies that cover certain consequences of risk events which fall under the regulatory
compliance umbrella, subject to policy terms and conditions.
Identification and assessment
The Regulatory Compliance function is specifically responsible for independently identifying and assessing current and forward
looking 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 and taxation law to Group
Taxation. Regulatory Compliance undertakes a periodic detailed assessment of the key 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 risk control assessments for the
relevant business unit.
Management and measurement
The Board, operating through the Board Risk Committee, approves the Group’s compliance policy and its 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 ensures 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.
AIB Group plc Annual Financial Report 2019Risk Management 123456 166
2.6 Regulatory compliance risk (continued)
Monitoring, escalating and reporting
Group risk assurance, within Regulatory Compliance undertakes risk-based assurance of compliance with relevant policies, procedures
and regulatory obligations. Assurance can be undertaken by either standalone independent assurance teams, or in collaboration with
other control functions such as Group Internal Audit and/or Operational Risk.
Risk prioritised annual assurance plans are prepared with assurance reviews undertaken on both a business unit and a process basis.
The annual assurance 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 assurance activity are escalated for management attention, and
action plans and implementation dates are agreed. The implementation of these action plans is monitored by group risk assurance.
Regulatory Compliance report to the Chief Risk Officer and independently to the Board, through the Board Risk Committee, on the
effectiveness of the processes established to ensure compliance with laws and regulations within its scope.
2.7 Conduct risk
Conduct risk is defined as the risk that inappropriate actions or inactions by the Group cause poor and unfair customer outcomes.
Customer complaints outstanding without proper investigation would lead to unfair customer outcomes.
Top and emerging risk drivers
The top and emerging risks to the Group are outlined in the Risk Summary Section on page 39. The below table outlines and describes
which of these are key risk drivers for conduct risk.
Material Risk
Regulatory
and legal
change
Financial,
macroeconomic
and geopolitical
volatility
Pace of change
in competition,
labour markets
and customer
expectations
Cyber
Climate
change
Changing
external
perceptions
of AIB
Conduct risk
ü
ü
ü
ü
•
•
•
•
Regulatory and legal change is a key risk driver due primarily to changing regulatory expectations which can drive an accelerated
process for product design.
Financial, macroeconomic and geopolitical volatility is a key risk driver as the volatility can result in suboptimal behaviour.
Pace of change in competition, labour markets and customer expectations is a key risk driver as there is increased competition for
the appropriate skills in the market.
Climate change is a key risk driver as the Group responds to climate risk, reviews current products and develops new products.
Key mitigating actions
Key mitigating actions aim to effectively reduce the threat of a risk and the likelihood of its occurrence. The Group uses various
approaches to help mitigate risks relating to conduct risk including a Conduct Risk Framework, aligned with the Group strategy, which
is embedded in the organisation and provides oversight of conduct risks at Executive Committee and Board level by way of two key
fora. The Group Conduct Committee provides the Executive Committee oversight of conduct through promoting and supporting a
‘customer first’ culture, and also oversees the key conduct risk appetite metrics for complaints management and product reviews.
The Group Product and Proposition Committee focus is exclusively in product oversight and management, including overseeing a rolling
programme of product reviews.
Identification and assessment
The compliance and risk assurance team identify upstream conduct risk and communicate to the relevant business areas.
Management and measurement
The points below outline the management and measurement of Conduct risk;
•
The Group Head of Customer Advocacy and team provides independent oversight and governance of conduct risk across the Group
(and is a mandatory approver of product/propositions proposals), including training and awareness building;
An approved Group conduct strategy, aligned with the Group’s purpose, strategy and core values, is supported by an annual Group
action plan delivering against key strategic objectives, ensuring continued progress on embedding conduct and meeting evolving
regulatory expectations;
A centralised customer care unit deals with complex complaints across the organisation;
Group customer advocacy drive the vulnerable customer strategy; and
Group Head of Customer Advocacy is a member of key strategic steering groups.
•
•
•
•
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 167
2.7 Conduct risk (continued)
Monitoring, escalating and reporting
The points below outline how Conduct risk is monitored, escalated and reported;
•
•
Quarterly Group conduct dashboard measures key management information trends under the five key conduct risk areas,
as reflected in the Group conduct action plan; and
Segment Conduct Committees (operating to standard terms of reference) actively drive the conduct agendas and manage conduct
risk within their businesses. Conduct risks are assessed and monitored across the Group in line with risk management procedures,
with annual business attestation provided by senior management.
2.8 People and culture risk
People and culture risk is the risk to achieving the Group’s strategic objectives as a result of an inability to recruit, retain or develop
resources, or as a result of behaviours associated with low levels of employee engagement. It also includes the risk that the business,
financial condition and prospects of the Group are materially adversely affected as a result of inadvertent or intentional behaviours or
actions taken or not taken by employees that are contrary to the overall strategy, culture and values of the Group.
Top and emerging risk drivers
The top and emerging risks to the Group are outlined in the Risk Summary Section on page 39. The below table outlines and describes
which of these are key risk drivers for people and culture risk.
Material Risk
Regulatory
and legal
change
Financial,
macroeconomic
and geopolitical
volatility
People and
culture risk
Pace of change
in competition,
labour markets
and customer
expectations
ü
Cyber
Climate
change
Changing
external
perceptions
of AIB
ü
•
•
Pace of change in competition, labour markets and customer expectations is a key risk driver as there is increased competition for
the appropriate skills in the market.
Changing external perceptions of AIB is a key risk driver in so far as sustained negative commentary could materially impact on staff
morale.
Key mitigating actions
Key mitigating actions aim to effectively reduce the threat of a risk and the likelihood of its occurrence. The Group uses various
approaches to help mitigate risks relating to people and culture risk including a continuous review of the market situation and the
introduction of new career mapping which will provide a transparent and consistent view of roles and also empower all employees to
take accountability and control of their own careers.
Identification and assessment
The Group identifies and reviews employee satisfaction and engagement, indicators of culture, through the staff engagement
programme, iConnect, which is facilitated by Gallup on an annual basis. The survey includes measures on our cultural ambitions of
accountability, collaboration, trust, diversity and inclusion and safe to speak. Initiatives are undertaken at team level to continuously
identify opportunities for further employee engagement. Engagement scores have continued to improve on an annual basis since the
staff engagement programme inception.
The Group’s performance is heavily dependent on the talents and efforts of highly skilled individuals, and the continued ability of the
Group to compete effectively and implement its strategy depends on its ability to attract new employees and retain and motivate existing
employees. Competition from within the financial services industry, including from other financial institutions, as well as from businesses
outside the financial services industry for key employees is intensifying. In particular, under the terms of the recapitalisation of the
Group by the Government, the Group is required to comply with certain executive pay and compensation arrangements, including a cap
on salaries as well as a ban on bonuses and similar incentive-based compensation applicable to employees of Irish banks who have
received financial support from the Government.
The Group uses the Aspire Performance Management Programme (“Aspire”) to facilitate quality performance discussions with staff that
contribute to delivering the Group’s strategic ambitions. Aspire is designed to allow employees identify “What” personal and business
objectives are to be achieved and “How” they will behave in the delivery of those objectives. The Board assesses the Aspire outputs on
a half-year and year-end basis. Aspire allows the Group embrace the right behaviours and outcomes with equal weighting, to achieve
the Group’s strategic ambition.
AIB Group plc Annual Financial Report 2019Risk Management 123456 168
2.8 People and culture risk (continued)
Management and measurement
In 2017 the Group launched its ‘Purpose’, which is supported and embedded by a clear set of ‘customer first’ values. These values drive
and influence activities of all employees, guiding the Group’s dealings with customers, each other and all stakeholders. The Group’s
Code of Conduct, incorporating the risk culture principles, places great emphasis on the integrity of employees and accountability for
both actions taken and inaction. The Code sets out how employees are expected to behave in terms of the business, customer and
employee. The Code is supported by a range of employee policies, including ‘Conflicts of Interest’ and ‘Speak up’. The Group has a
disciplinary policy which clearly lays out the consequences of inappropriate behaviours.
The Group’s ‘Speak Up’ policy and process also provides those working for the Group with a protected channel for raising concerns,
which is at the heart of fostering an open and transparent working culture. The Group’s iLearn training portal, provides employees with
dedicated and bespoke curricula that allow teams and individuals to invest in themselves and, therefore, the organisation.
Monitoring, escalating and reporting
The Group has made significant steps in increasing engagement and awareness of the Group’s risk management activities by
embedding the Risk Appetite Statement in policies and frameworks of the Group. The Risk Appetite Statement contains clear
statements of intent as to the Group’s appetite for taking and managing risk, including people and culture risk. It ensures that the Group
monitors and reports against key people and culture metrics when tracking people and culture risk and change.
Internal Audit include people and culture risk on their annual plan of activities, the outputs of which are reviewed by the Board.
The Group, through the Board Audit Committee, reports and monitors issues raised through a number of channels including conflicts of
interest, disciplinary policy and speak up policy. The Board monitors and reviews progress and oversight of senior management in relation
to our people and culture ambitions through a number of datasets including iConnect, the strategy scorecard and a culture dashboard.
2.9 Business model risk
The risk of not achieving the agreed strategy or approved business plan either as a result of an inadequate implementation plan, or
failure to execute the implementation plan as a result of inability to secure the required investment, or due to factors in the economic,
political, competitive or regulatory environment. This also includes the risk of implementing an unsuitable strategy, or maintaining an
obsolete business model, in light of known internal and external factors.
Top and emerging risk drivers
The top and emerging risks to the Group are outlined in the Risk Summary Section on page 39. The below table outlines and describes
which of these are key risk drivers for business model risk.
Material Risk
Regulatory
and legal
change
Financial,
macroeconomic
and geopolitical
volatility
Pace of change
in competition,
labour markets
and customer
expectations
Cyber
Climate
change
Changing
external
perceptions
of AIB
Business
model risk
ü
ü
ü
ü
ü
ü
•
•
•
Regulatory and legal change have the potential to significantly impact the business and operating model of the Group.
Financial, macroeconomic and geopolitical volatility is a key risk driver as it is more difficult to forecast accurately for planning purposes
in a volatile environment than in a stable environment. This volatility also increases the risk of changed circumstances over the planning
cycle. Changes in financial or macroeconomic or geopolitical events could impact the Group’s business model, specifically, its
capital utilisation, profitability or strategy.
The pace of change from competition has increased and, in particular, obtaining and retaining the right level of expertise in a
competitive labour market is a key risk driver.
• Cyber is a key risk driver as the volume and sophistication of cyber attacks could result in unexpected vulnerabilities being exposed.
• Changing external perceptions of AIB is a key risk driver as this may challenge the execution of the Group’s strategy.
Key mitigating actions
Key mitigating actions aim to effectively reduce the threat of a risk and the likelihood of its occurrence. The Group uses various
approaches to help mitigate risks relating to business model risk including:
•
•
•
•
Board approved Risk Appetite Statement sets the boundary for acceptable risk taking;
Detailed review and challenge of plan and strategy through governance process;
Independent second line of defence review and challenge of key planning and strategic assumptions;
The Board receives regular updates on performance against strategic objectives by way of a quarterly scorecard and
comprehensive reports setting out the current financial performance against budget, multi-year financial projections, capital plans
and economic updates; and
Risk report is produced monthly and reviewed by the Board and Group Risk Committees.
•
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 169
2.9 Business model risk (continued)
Identification and assessment
The Group identifies and assesses business model risk as part of its integrated planning process, which encapsulates strategic,
business and financial planning. This process drives delivery of strategic objectives aligned to the Group’s risk appetite and enables
measurable business objectives to be set for management aligned to the short, medium and long term strategy of the Group. The
outcomes of these processes form the basis of the Group’s Internal Capital Adequacy Assessment Process (“ICAAP”) and Internal
Liquidity Adequacy Assessment Process (“ILAAP”).
The Group reviews underlying assumptions on its external operating environment and, by extension, its strategic objectives on a
periodic basis, the frequency of which is determined by a number of factors including the speed of change of the economic environment,
changes in the financial services industry and the competitive landscape, regulatory change and deviations in actual business outturn
from strategic targets. In normal circumstances, this is annually. The Group’s business and financial planning process supports the
Group’s strategy. Every year, the Group prepares three-year business plans at a Group level based on macroeconomic and market
forecasts across a range of scenarios (including a range of “downside” scenarios). The plan includes an evaluation of planned
performance against a suite of key metrics, supported by detailed analysis and commentary on underlying trends and drivers, across
income statement, balance sheet and business targets. This assessment includes, but is not limited to discussion on new lending
volumes and pricing, deposits volumes and pricing, other income, cost management initiatives and credit performance. The plan is
subject to robust review and challenge through the governance process and including an independent second line of defence review
and challenge by the Risk function. The Group plan is supported by detailed business unit plans. Each business unit plan is aligned
to the Group strategy and risk appetite. The business plan typically describes the market in which the segment operates, market and
competitor dynamics, business strategy, financial assumptions underpinning the strategy, actions/investment required to achieve
financial outcomes and any risks/opportunities to the strategy.
Management and measurement
At a strategic level, the Group manages business model risk within its risk appetite framework, by setting limits in respect of measures
such as financial performance, portfolio concentration and risk-adjusted return. At a more operational level, the risk is mitigated
through periodic monitoring of variances to plan. Where performance against plan is outside agreed tolerances or risk appetite metrics,
proposed mitigating actions are presented and evaluated, and tracked thereafter. During the year, periodic forecast updates for the
full year financial outcome may also be produced. The frequency of forecast updates during each year will be determined based on
prevailing business conditions.
At an individual level, planning targets translate into accountable objectives to enable performance tracking across the Group and to
facilitate formulation and review of Executive Committee performance scorecards.
Monitoring, escalating and reporting
Performance against plan is monitored at segment level on a monthly basis and reported to senior management teams within the
business. At an overall Group level, performance against plan is monitored as part of the CFO Report which is discussed at Executive
Committee and Board on a monthly basis. Risk profile against risk appetite measures, some of which reference performance against
plan, is monitored by the Chief Risk Officer and reported on a monthly basis to the Executive Risk Committee and Board.
2.10 Model risk
The potential loss that the Group may incur, as a consequence of decisions that could be principally based on the output of models, due
to errors in the development, implementation or use of such models.
Top and emerging risk drivers
The top and emerging risks to the Group are outlined in the Risk Summary Section on page 39. The below table outlines and describes
which of these are key risk drivers for model risk.
Material Risk
Regulatory
and legal
change
Financial,
macroeconomic
and geopolitical
volatility
Pace of change
in competition,
labour markets
and customer
expectations
Cyber
Climate
change
Changing
external
perceptions
of AIB
Model risk
ü
ü
ü
ü
• Pace of regulatory change increases the difficulty in maintaining the Group’s suite of models.
•
Financial, macroeconomic and geopolitical volatility is a key risk driver as a volatile external environment is more difficult to model
accurately than a stable environment.
Pace of change in competition, labour markets and customer expectations is a key risk driver due to the difficulty in obtaining and
retaining the right level of expertise in a competitive labour market.
Climate change is a driver of model risk because of the lack of relevant historical data to accurately model climate impacts on the
Group’s exposures.
•
•
AIB Group plc Annual Financial Report 2019Risk Management 123456 170
2.10 Model risk (continued)
Key mitigating actions
Key mitigating actions aim to effectively reduce the threat of a risk and the likelihood of its occurrence. The Group uses various
approaches to help mitigate risks relating to model risk including:
• Model risk framework and policy;
• Model risk governance, notably the model committees of Model Risk Committee and Risk Measurement Committee;
• Group model risk inventory and reporting;
• Risk appetite statement monitoring and reporting; and
• Second line of defence review; model validation and control testing.
Identification and assessment
The Board has ultimate accountability for ensuring that models used by the Group are fit for purpose, meet all jurisdictional regulatory
and accounting standards, and ensuring that there is clarity on the model risk strategy and framework. It is responsible for the
appointment of organisational structures to implement and manage the model risk framework and for ensuring that there are appropriate
policies in place relating to capital assessment, measurement and allocation.
Operating to the principles outlined in the model risk framework supports the Group’s strategic objectives and provides comfort to the
Board on the integrity and completeness of the model risk governance.
Management and measurement
The Group mitigates model risk by having a framework, policies and standards in place in relation to model development, operation,
and validation together with suitable resources. The Group model risk management framework is designed to ensure that model risk
in the Group is properly identified and managed across each step of the model lifecycle within an appropriate control framework.
The framework, which is aligned to the Group risk appetite framework and the Group risk management framework, describes the key
processes undertaken and reports produced in support of the framework. Models are built and validated by suitably qualified analytical
personnel, informed by relevant business and finance functions.
Models are built using the best available data, both internal and external, using international industry standard techniques. All models
are validated by an appropriately qualified team, which is independent of the model build process.
Group Internal Audit act as the “third line of defence” providing independent assurance to the Board Audit Committee and the Board
on the adequacy, effectiveness and sustainability of the governance, risk management and control framework supporting model risk
through their periodic review of the model risk management processes.
Monitoring, escalating and reporting
The Model Risk Committee acts as a sub-committee of the Risk Measurement Committee and reviews and approves the use, or
recommends to a higher governance authority, the use of the Group’s credit, operational and financial risk models. It also monitors and
maintains oversight of the performance of these models. As a material risk, the status of model risk is reported on a monthly basis in the
CRO report.
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2019Risk Management 171
Governance and oversight
– 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
– Corporate Governance Remuneration statement
– Viability statement
–
Internal controls
– Other governance information
– Supervision and regulation
Page
172
175
178
194
200
204
208
212
219
220
221
222
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 172
Governance and oversight –
Group Directors’ report for the financial year ended 31 December 2019
The Directors of AIB Group plc (‘the Company’) present their
report and the audited financial statements for the financial
year ended 31 December 2019. The Directors’ Responsibility
Statement is shown on page 224.
For the purposes of this report ‘AIB Group’ or ‘the Group’
comprises the Company and its subsidiaries in the financial
year ended 31 December 2019.
Results
The Group’s profit attributable to the ordinary shareholders of
the Company amounted to € 327 million and was arrived at as
shown in the consolidated income statement on page 237.
Dividend
The Board is recommending a dividend of € 0.08 per share
payable on 7 May 2020 to shareholders on the Company’s
Register of Members at the close of business on 27 March
2020.
In accordance with the “Joint Decision of the European Central
Bank and Prudential Regulatory Authority” of 25 November
2016 as updated on 3 December 2019, the Company is
required to obtain prior approval from the European Central
Bank in order to distribute dividends to shareholders.
During 2019, the Company paid a final dividend of € 0.17 per
share on 3 May 2019 to its ordinary shareholders who were on
the Register of Members at the close of business on 22 March
2019.
Going concern
The financial statements for the financial year ended
31 December 2019 have been prepared on a going concern
basis as the Directors are satisfied, having considered the
principal 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 12 months
from the date of approval of these annual financial statements.
In making their assessment, the Directors considered a wide
range of information relating to present and future conditions.
These included financial plans covering the period 2020 to
2022, liquidity and funding forecasts and capital resources
projections, all of which were prepared under base and stress
scenarios.
In addition, the Directors considered the principal risks and
uncertainties which could materially affect the Group’s future
business performance and profitability and which are outlined on
pages 40 to 43.
Directors Compliance Statement
As required by section 225(2) of the Companies Act 2014, the
Directors acknowledge that they are responsible for securing
the Company’s compliance with its relevant obligations (as
defined in section 225(1)). The Directors confirm that:
(a) a compliance policy statement (as defined in section
225(3)(a)) has been drawn up that sets out the Company’s
policies and, in the Directors’ opinion, is appropriate to
ensure compliance with the Company’s relevant obligations;
(b) appropriate arrangements or structures that are, in the
Directors’ opinion, designed to secure material compliance
with the relevant obligations have been put in place; and
(c) a review of those arrangements or structures has been
conducted in the financial year to which this report relates.
Capital
Information on the structure of the Company’s share capital,
including the rights and obligations attaching to each class of
shares, is set out in the Schedule on pages 175 to 177 and is
part of note 42 to the consolidated financial statements.
Accounting policies
The principal accounting policies, together with the basis on
which the financial statements have been prepared, are set out
in note 1 to the consolidated financial statements.
Review of principal activities
The statement by the Chair on pages 10 to 13, the review
by the Chief Executive Officer on pages 14 to 19, and the
operating and financial review on pages 51 to 66 contain
an overview of the development of the business of the
Group during the year, of recent events, and of likely future
developments.
Directors
At 31 December 2019, the Board of Directors of the Company
was comprised of Mr Richard Pym, Mr Thomas (Tom) Foley,
Mr Basil Geoghegan, Dr Colin Hunt, Ms Sandy Kinney
Pritchard, Ms Carolan Lennon, Ms Elaine MacLean, Mr Brendan
McDonagh, Ms Helen Normoyle, Ms Ann O’Brien, Mr Tomás
O’Midheach and Mr Ranjit (Raj) Singh.
The following Board changes to the Company occurred with
effect from the dates shown:
–
Mr Bernard Byrne resigned as CEO and Executive Director
on 8 March 2019,
Dr Colin Hunt was appointed as CEO and Executive
Director on 8 March 2019,
Mr Mark Bourke resigned as CFO and Executive Director
on 1 March 2019,
Mr Tomás O’Midheach was appointed as Executive Director
on 13 March 2019,
Ms Sandy Kinney Pritchard was appointed as
Non-Executive Director on 22 March 2019,
Mr Simon Ball resigned as Non-Executive Director on
24 April 2019,
Ms Ann O’Brien and Mr Ranjit (Raj) Singh were each
appointed as Non-Executive Directors on 25 April 2019,
Mr Basil Geoghegan and Ms Elaine MacLean were
each appointed as Non-Executive Directors on
4 September 2019,
Mr Peter Hagan resigned as Non-Executive Director on
30 September 2019, and
Ms Catherine Woods and Mr Jim O’Hara each resigned as
Non-Executive Directors on 12 October 2019.
–
–
–
–
–
–
–
–
–
AIB Group plc Annual Financial Report 2019Governance and Oversight 173
There were no other interests disclosed to the Company in
accordance with the Market Abuse Regulation and Part 5 of the
Transparency Regulations and the related transparency rules
during the period from 31 December 2019 to 6 March 2020.
Corporate governance
The Directors’ Corporate Governance report is set out on pages
178 to 192 and forms part of this report. Additional information,
disclosed in accordance with the European Communities
(Takeover Bids (Directive 2004/25/EC)) Regulations 2006,
is included in the Schedule to the Group Directors’ report on
pages 175 to 177.
In accordance with Section 167 of the Companies Act
2014, the Directors confirm that a Board Audit Committee
is established. Details on the Board Audit Committee’s
membership and activities are shown on pages 194 to 199.
Political donations
The Directors of the Company have satisfied themselves that
there were no political contributions 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 within ‘Internal controls’ in the
Corporate Governance report on pages 220 and 221, and the
employment of competent persons. The accounting records are
kept at the Company’s Registered Office at AIB Bankcentre,
Ballsbridge, Dublin 4, Ireland and at the principal addresses
outlined on page 383.
Principal risks and uncertainties
Information concerning the principal risks and uncertainties
facing the Group, as required under the terms of the European
Accounts Modernisation Directive (2003/51/EEC) (implemented
in Ireland by the European Communities (International Financial
Reporting Standards and Miscellaneous Amendments)
Regulations 2005), is set out on pages 40 to 43.
Branches outside the State
The Company has not established any branches since
incorporation. However, the Company’s principal operating
subsidiary, Allied Irish Banks, p.l.c., 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.
Mr Richard Pym has informed the Board of his intention to
resign as Non-Executive Director and Chair on 6 March 2020.
The Group is in the process of identifying the next Chair and an
announcement will be made in due course.
A short biographical note on each Director is provided on pages
44 and 45.
The appointment and replacement of Directors, and their
powers, are governed by law and the Constitution of the
Company, and information on these is set out on pages 176
and 177.
Directors’ and Secretary’s Interests in the share
capital
The interests of the Directors and the Group Company
Secretary in the share capital of the Company are shown in the
Corporate Governance Remuneration statement on page 218.
Directors’ Remuneration
The Group’s policy with respect to Directors’ remuneration is
included in the Corporate Governance Remuneration statement
on pages 212 to 218. Details of the total remuneration of the
Directors in office during 2019 and 2018 are shown in the
Corporate Governance Remuneration statement on pages 216
to 218.
Non-Financial Statement
Regulations on non-financial information, which were
transposed into Irish law by the European Union (disclosure
of Non-Financial and Diversity Information by certain large
undertakings and groups) Regulations 2017, require that
the Group report on specific topics such as environmental
matters; social and employee matters; respect for human
rights; and bribery and corruption (‘key non-financial matters’).
The Group is committed to maintaining sustainable and ethically
responsible corporate and social practices in every aspect of its
business. The table included on pages 48 and 49 of the Annual
Financial Report, together with the information it refers to, is
intended to assist shareholders to understand our position on
key non-financial matters. A description of our business model
is included on pages 6 to 8 of the Annual Financial Report and
the table on pages 40 to 43 summarises the linkage between
the Group’s strategic pillars, the principal risks and uncertainties
and the Group’s material risks. The material risks primarily
impacted by key non-financial matters include conduct risk
and people and culture risk. Further details of the Group’s risk
management governance and organisational framework can be
found on pages 72 to 78.
Substantial interests in the share capital
At 31 December 2019, the Company had been notified that the
Minister for Finance of Ireland holds 1,930,436,543 ordinary
shares representing 71.12% of the total voting rights attached to
the issued share capital.
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 174
Governance and oversight –
Group Directors’ report for the financial year ended 31 December 2019
Auditors
The auditors, Deloitte, were appointed to the Group on
20 June 2013 following shareholder approval at the 2013
Annual General Meeting on that date. Furthermore, Deloitte
were re-appointed as auditors of the Company at the last
Annual General Meeting held on 24 April 2019 and shall hold
office until the conclusion of the next Annual General Meeting
of the Company pursuant to section 382 of the Companies
Act 2014 at which time their continued appointment will be
proposed to the shareholders for approval. Deloitte have
indicated a willingness to continue in office in accordance with
section 383(2) of the Companies Act 2014.
Statement of relevant audit information
Each of the persons who is a Director at the date of approval of
this report confirms that:
(a) so far as the Director is aware, there is no relevant audit
information of which the company’s auditor is unaware; and
(b) the Director has taken all the steps that he/she ought to
have taken as a Director in order to make himself/herself
aware of any relevant audit information and to establish that
the Company’s auditor is aware of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of section 330 of the Companies
Act 2014.
Other information
Other information relevant to the Group Directors’ report may be found in the following pages of the report:
2019 financial highlights
Risk management
Non-adjusting events after the reporting period
Page
4 and 5
71 to 170
365
The Group Directors’ report for the financial year ended 31 December 2019 comprises these pages and the sections of the report
referred to under ‘Other information’ above, which are incorporated into the Group Directors’ report by reference.
Richard Pym
Chair
5 March 2020
Colin Hunt
Chief Executive Officer
AIB Group plc Annual Financial Report 2019Governance and Oversight
Governance and oversight –
Schedule to the Group Directors’ report for the financial year ended 31 December 2019
175
Additional information required to be contained in the
Directors’ Annual Report by the European Communities
(Takeover Bids (Directive 2004/25/EC)) Regulations 2006.
As required by these Regulations, the information contained
below represents the position of the Company as of
31 December 2019.
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
2,714,381,237 Ordinary Shares of € 0.625 each.
Rights and obligations of each class of share
The following rights attach to 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 a 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), at least
21 days before the Annual General Meeting, a copy of the
Directors’ and Auditor’s reports accompanied by 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 such summary financial statements as
may be permitted by the Companies Act;
the right to receive notice of general meetings of the
Company; and
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
within 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 period specified, the shareholder shall
not be entitled to attend meetings of the Company, nor to
exercise the voting rights attached to such share, and, if the
shareholder holds 0.25% or more of the issued Ordinary
Shares, the Directors will be entitled to withhold payment of
any dividend payable on such shares, and the shareholder will
not be entitled to transfer such shares except by sale through
a Stock Exchange to a bona fide unconnected third party.
Such sanctions will cease to apply after not more than seven
days from the earlier of receipt by the Company of notice that
the member has sold the shares to an unconnected third party
or due compliance, to the satisfaction of the Company, with the
notice served as provided for above.
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 Ordinary Shares,
and there is no requirement to obtain the approval of the
Company, or of other holders of 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) 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) 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 Registrar 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 that 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 employee share schemes
The AIB Approved Employee 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. Following the establishment of the Company,
the shares previously held in trust in Allied Irish Banks, p.l.c.
were exchanged, on a one-for-one basis, for new shares in the
Company.
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 176
Governance and oversight –
Schedule to the Group Directors’ report for the financial year ended 31 December 2019
Deadlines for exercising voting rights
Voting rights at general meetings of the Company are exercised
–
One-third of the Directors for the time being (or, if their
number is not three or a multiple of three, not less than
when the Chair puts the resolution at issue to a vote of the
one-third) are obliged to retire from office at each Annual
meeting. A vote decided by a show of hands is taken forthwith.
General Meeting on the basis of the Directors who
A vote taken on a poll for the election of the Chair or on a
have been longest in office since their last appointment.
question of adjournment is also taken forthwith, and a poll on
While not obliged to do so, the Directors have, in recent
any other question is taken either immediately or at such time
years, adopted the practice of all (those wishing to continue
(not being more than 30 days from the date of the meeting at
in office) offering themselves for re-election at the Annual
which the poll was demanded or directed) as the Chair of the
General Meeting.
meeting directs. Where a person is appointed to vote for a
–
A person is disqualified from being a Director, and their
shareholder as proxy, the instrument of appointment must be
office as a Director ipso facto vacated, in any of the
received by the Company not less than 48 hours before the
following circumstances:
time appointed for holding the meeting or adjourned meeting at
–
if at any time the person has been adjudged bankrupt or
which the appointed proxy proposes to vote, or, in the case of a
has made any arrangement or composition with his or
poll, not less than 48 hours before the time appointed for taking
her creditors generally;
the poll.
Rules concerning amendment of the Company’s
Constitution
As provided in the Companies Act 2014, the Company may, by
special resolution, alter or add to its Constitution. A resolution is
a special resolution when it has been passed by not less than
three-fourths of the votes cast by shareholders entitled to vote
and voting in person or by proxy, at a general meeting at which
not less than 21 clear days’ notice specifying the intention to
propose the resolution as a special resolution, has been duly
given. A resolution may also be proposed and passed as a
special resolution at a meeting of which less than 21 clear days’
notice has been given if it is so agreed by a majority in number
of the members having the right to attend and vote at any such
meeting, being a majority together holding not less than 90% in
nominal value of the shares giving that right.
Rules concerning the appointment and replacement
of Directors of the Company
–
Other than in the case of a casual vacancy, Directors are
appointed on a resolution of the shareholders at a general
meeting, usually the Annual General Meeting.
–
No person, other than a Director retiring at a general
meeting is eligible for appointment as a Director without
a recommendation by the Directors for that person’s
appointment unless, not less than 42 days before the date
of the general meeting, written notice by a shareholder
duly qualified to be present and vote at the meeting of
the intention to propose the person for appointment, and
notice in writing signed by the person to be proposed of
willingness to act, if so appointed, have been given to the
Company.
–
A shareholder may not propose himself or herself for
appointment as a Director.
–
The Directors have the power to fill a casual vacancy or
to appoint an additional Director (within the maximum
number of Directors fixed by the Company in a general
meeting), and any Director so appointed holds office only
until the conclusion of the next Annual General Meeting
following his/her appointment, when the Director concerned
shall retire, but shall be eligible for reappointment at that
meeting.
–
if found to no longer have adequate decision making
capacity in accordance with law;
–
if the person be prohibited or restricted by law from
being a Director;
–
if, without prior leave of the Directors, he/she be absent
from meetings of the Directors for six successive
months (without an alternate attending) and the
Directors resolve that his/her office be vacated on that
account;
–
if, unless the Directors or a court otherwise determine,
he/she be convicted of an indictable offence;
–
if he/she be requested, by resolution of the Directors, to
resign his/her office as Director on foot of a unanimous
resolution (excluding the vote of the Director concerned)
passed at a specially convened meeting at which every
Director is present (or represented by an alternate)
and of which not less than seven days written notice of
the intention to move the resolution and specifying the
grounds therefor has been given to the Director; or
–
if he/she has reached an age specified by the
Directors as being that at which that person may not
be appointed a Director or, being already a Director, is
required to relinquish office and a Director who reaches
the specified age continues in office until the last day of
the year in which he/she reaches that age.
–
In addition, the office of Director is vacated, subject to any
right of appointment or reappointment under the Company’s
Constitution, if:
–
not being a Director holding for a fixed term an
executive office in his/her capacity as a Director, he/she
resigns their office by a written notice given to the
Company, upon the expiry of such notice; or
–
being the holder of an executive office other than for a
fixed term, the Director ceases to hold such executive
office on retirement or otherwise; or
–
the Director tenders his/her resignation to the Directors
and the Directors resolve to accept it; or
–
the Director ceases to be a Director pursuant to any
provision of the Company’s Constitution.
AIB Group plc Annual Financial Report 2019Governance and Oversight
177
–
Notwithstanding anything in the Company’s Constitution or
in any agreement between the Company and a Director,
the Company may, by ordinary resolution of which extended
notice has been given in accordance with the Companies
Act 2014, remove any Director before the expiry of his/her
period of office.
–
The Minister for Finance has the power to nominate
two Non-Executive Directors in accordance with the
Relationship Framework between the Group and the State
and certain provisions as outlined therein. The Relationship
Framework is available on the Group’s website at
https://aib.ie/investorrelations/about-aib/relationship-with-
irish-state
The powers of the Directors
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 may 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.
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 178
Governance and oversight –
Corporate Governance report
Corporate Governance arrangements and practices
The Group’s Governance Framework (the ’Framework’)
underpins effective decision-making and accountability and
is the basis on which the Group conducts its business and
engages with customers and other stakeholders. It ensures
that organisational and control arrangements are appropriate
to the governance of the Group’s strategy and operations
and the mitigation of related material risks. The Framework
encompasses AIB Group plc and its subsidiaries (collectively
referred to as ‘AIB Group’ or the ‘Group’).
The Framework takes account of the many statutory and
regulatory obligations that apply to the Group, including various
corporate governance codes, regulations and best practice
standards and guidelines, Irish company law, the Listing Rules
of the Main Securities Market of Euronext Dublin and the
London Stock Exchange, the UK Corporate Governance Code
2018 and, in relation to the UK businesses, UK company law.
Further detail on the Group’s governance practices is available
Chair’s introduction
Dear Shareholder,
I am pleased to present our Corporate Governance report for
2019. This report explains how corporate governance standards
on http://aib.ie/investorrelations.
are applied across the Group, how the Board implements and
oversees such standards, how the Board operates, and how
it performed in its 2019 effectiveness evaluation. This report
should be read in conjunction with the ‘Governance in AIB’
section which sets out examples of our corporate governance
standards being applied in practice during the year and also
with the reports of each Board Committee.
The Board as a whole is very cognisant of its accountability to
stakeholders for the overall direction and control of the Group.
Collectively, we remain committed to the principles of strong
corporate governance and to creating sustainable, long term
value for our shareholders and society. We recognise the
importance of a robust and effective corporate governance
framework which will provide us with the support to ensure
sound and timely decision-making.
To achieve these aims, it is imperative that we ensure
compliance with applicable legal and regulatory requirements.
This report provides statements of compliance with our
key corporate governance requirements. Key information
in this report is presented under the headings of the new
UK Corporate Governance Code 2018. Whilst the status
of compliance with the various requirements is of utmost
importance, the Board also seeks to adhere to the underlying
principles and ways of working recommended by those
The Group’s governance arrangements include:
•
a Board of Directors of sufficient size and expertise,
the majority of whom are independent Non-Executive
Directors, to oversee the operations of the Group, led by
a Chair who has the relevant qualifications, expertise and
background to effectively discharge that role;
•
a Chief Executive Officer to whom the Board has delegated
responsibility for the day-to-day running of the Group,
the selection, motivation and direction of senior executive
management, and for the operational management,
compliance and performance of all the Group’s businesses;
•
a clear organisational structure with well defined,
transparent and consistent lines of responsibility;
•
a framework and policy architecture which comprises a
comprehensive and coherent suite of frameworks, policies,
procedures and standards covering business and financial
planning, corporate governance and risk management;
•
effective structures and processes to identify, manage,
monitor and report the risks to which the Group is, or might
be exposed, including a three lines of defence risk
governance model; and
•
adequate internal control mechanisms, including sound
administrative and accounting procedures, IT systems and
controls, human resource policies and practices, including
remuneration, that are consistent with and promote sound
requirements in order to bring accountability, transparency and
and effective risk management.
integrity to the fore of our decision-making.
Richard Pym
Chair of the Board
AIB Group plc Annual Financial Report 2019Governance and Oversight 179
Statements of Compliance
This report, in conjunction with the Directors’ Responsibility
Statement, Corporate Governance Remuneration Statement,
UK Corporate Governance Code 2018 and Irish Corporate
Governance Annex
AIB Group plc, by virtue of its primary listing on the London
Risk Governance section of the Risk Management Framework
Stock Exchange, is subject to the provisions of the Code (which
report and the Statement on Internal Control sets out the
is publicly available on www.frc.org.uk). The Code is not a rigid
Group’s approach to governance in practice, the work of the
set of rules but instead consists of principles and provisions.
Board and its Committees and explains how the Group applied
The Listing Rules to which the Group is subject, require it to
the principles of the Central Bank of Ireland’s Corporate
apply the main principles and report to shareholders on how
Governance Requirements for Credit Institutions 2015 (the
it has complied with the Code, and where the Group has not,
‘2015 Requirements’), European Union (Capital Requirements)
explain the rationale for same.
Regulations 2014 (S.I. 158/2014) (‘CRD’) and UK Corporate
Governance Code 2018 (the ‘Code’) during 2019 under the
The ways in which the Group complied with the Code are
headings prescribed under the Code. Further detail is set out
detailed throughout this report and cross-referencing can
below.
Central Bank of Ireland’s Corporate Governance
Requirements for Credit Institutions 2015 and European
Union (Capital Requirements) Regulations 2014
As a financial holding company, AIB Group plc is not directly
be found on page 193. The areas of the Code with which
the Group did not comply, or where enhancements were
implemented to ensure full compliance, are set out below.
Additional obligations apply to the Group under the Irish
Corporate Governance Annex (publicly available on www.ise.ie),
required to comply with the 2015 Requirements (which is
which applies to relevant Irish companies with a primary listing
publicly available on www.centralbank.ie).
on the Main Securities Market of Euronext Dublin. The Group is
fully compliant with the Irish Corporate Governance Annex.
Allied Irish Banks, p.l.c., the principal subsidiary of AIB
Group plc, is a credit institution and is subject to the 2015
Requirements, including compliance with requirements
specifically relating to ‘high impact institutions’ and additional
corporate governance obligations on credit institutions deemed
significant for the purposes of CRD (which is publicly available
on www.irishstatutebook.ie).
The governance structures of AIB Group plc and Allied Irish
Banks, p.l.c. are mirrored. As such, the 2015 Requirements
and the applicable corporate governance aspects of CRD
are applied across both entities. During 2019, AIB Group was
materially compliant with the 2015 Requirements and applicable
corporate governance aspects of CRD.
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 180
Governance and oversight –
Corporate Governance report
UK Corporate Governance Code 2018 - Compliance and Enhancements
During 2019, the Group applied the main principles and complied with all provisions of the Code other than in instances related to
Section 5: Remuneration, in particular principle R and provisions 32, 36 and 37. The rationale for non-compliance with these principles,
and as such, the areas which the Group is required to explain, are set out below:
Principles and Provisions to ‘Explain’
Please note the Principles and Provisions detailed below have
Rationale
been shortened for ease of reference. For the full wording of the
Principles and Provisions below, please refer to the Code which
is available at www.frc.org.uk
Provision 32:
The board should establish a remuneration committee of
independent Non-Executive Directors, with a minimum
membership of three. Before appointment as chair of the
remuneration committee, the appointee should have served on
a remuneration committee for at least 12 months.
Principle R:
Exercise of independent judgement and discretion when
authorising remuneration outcomes.
Provision 36:
Remuneration schemes should promote long term
shareholdings by executive directors that support alignment
with long term shareholder interests.
Provision 37:
Remuneration schemes and policies should enable the use of
discretion to override formulaic outcomes.
Provision 38:
The pension contribution rates for executive directors, or
payments in lieu, should be aligned with those available to the
workforce.
At 31 December 2019, the Remuneration Committee was
composed of Ms Elaine MacLean (Chair), Mr Richard Pym,
Mr Brendan McDonagh and Ms Ann O’Brien.
Ms MacLean did not serve on a remuneration committee for
at least 12 months prior to her appointment as Remuneration
Committee Chair. This matter was considered at length upon
her appointment. By virtue of Ms MacLean’s strong human
resources and reward experience, coupled with her regular
attendance at remuneration committee meetings during her
career, the Board was of the view that she was eminently
qualified for the role of Remuneration Committee Chair.
Due to certain agreements in place with the Irish State,
the Remuneration Committee and the Board are restricted
in their ability to fully comply with Principle R and associated
provisions.
Under such agreements, the implementation of variable
remuneration structures is not permitted, the Board’s discretion
is limited and, as such, the Board cannot be in compliance with
the recommendation to exercise independent judgement.
Should variable remuneration be introduced, the Group notes
and will fully adhere to these principles and provisions in the
design, implementation and operation of any future variable
remuneration structures.
The current status of pension arrangements is considered to
be fair in light of the remuneration restrictions. The rates of
contribution for executive directors and all employee pensions
are fully transparent in the Remuneration Policy contained in
this Annual Financial Report.
AIB Group plc Annual Financial Report 2019Governance and Oversight 181
Having reviewed the Group’s existing governance arrangements against the Code and industry best practice, a number of
enhancements to documentation and practices have been introduced including updates to the Group’s Governance and Organisation
Framework, Board Governance Manual and a number of the Terms of Reference of Board Committees. Enhancements to practices,
including but not limited to those set out below, have been implemented:
Areas of Enhancements
Please note the Principles
and Provisions detailed
below have been shortened
for ease of reference. For the
full wording of the Principles
and Provisions below, please
refer to the Code which is
available at www.frc.org.uk
Provision 15:
Board Composition:
Additional external
appointments should not
be undertaken without
prior approval of the
board, with the reasons
for permitting significant
appointments explained in
the annual report.
Provision 17/23:
The Group is required to
develop a diverse pipeline
for succession, a policy
on diversity and inclusion,
detailing its objectives
and linkage to company
strategy, how it has been
implemented and progress
on achieving the objectives.
Stakeholder Engagement:
Implementation in AIB
Due to the time-sensitive nature of some additional commitments, the Board has agreed that
proposed additional commitments will be considered by the Chair and Group Company Secretary
in the first instance. Where the additional commitment results in an additional directorship as
defined by the Capital Requirements Directive IV, full Board pre-clearance will be required. All other
commitments will be assessed by the Chair and Group Company Secretary in the first instance
who will consider the time commitment involved and refer onwards, to the Board, if deemed
necessary. During 2019, no Executive Director held an external appointment in a FTSE 100
company.
The Board recognises Diversity and Inclusion (‘D&I’) as a cornerstone of culture within the
organisation and as such the D&I strategy was reviewed and integrated within the overall culture
evolution programme. It is the Board’s belief that a continued focus on D&I will fundamentally
improve the decision-making capability of the organisation, through better challenge, more
comprehensive analysis and mitigating the risk of group-think.
To achieve this, the Board has set medium-term D&I objectives supported by short term activities
and outcomes. As part of the Sustainable Business Advisory Committee’s responsibility to consider
and advise on D&I of the Group’s workforce, the Committee was provided with measurement data
in relation to gender balance at senior management and by business function.
The Board recognises the importance of Provision 5 of the Code relating to stakeholder
engagement with a particular focus on engagement with the workforce. The ways in which
the Board engages with the Group’s stakeholders are outlined on page 36. With regard to
engagement with the workforce, during 2019, the Board did not utilise the particular methods set
out in the Code. Rather, the Board engaged with, and considered the views of the workforce in its
discussions and decision-making, through a variety of means such as:
–
face-to-face meetings through the ‘Out and Abouts’ schedule of visits to branches and offices
around the Republic of Ireland and the United Kingdom as further detailed on page 187;
conversations with a number of employees whereby employees were invited to meet the Board
to provide their direct personal views of, and experiences in, AIB as further detailed on page 187;
taking account of the views of c. 800 employees across the Group who participated in a series
of ‘Culture Conversations’ to help inform the Board in defining the Group’s cultural ambition; and
taking an in-depth look at the results of the 2019 colleague engagement surveys ‘iConnect’ and
‘Pulse’ which gave the Board first-hand insights into the views of employees.
–
–
–
The Board believes that the foregoing has been effective in ensuring that it had a good
understanding of the views of the employees at different levels and locations throughout the Group
and these views inform the Board as part of its decision-making. The Board will consider any
enhancements required to these arrangements during 2020.
Other minor
enhancements:
Enhanced formality to the performance reviews of senior management by the Nomination and
Corporate Governance Committee on a regular basis.
Additional commentary in this Annual Financial Report on auditor independence and how their
objectivity is safeguarded.
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 182
Governance and oversight –
Corporate Governance report
Board Leadership and Company Purpose
Role of the Board
The Group is headed by an effective Board which is collectively
responsible for the long term, sustainable success of the Group,
generating value for shareholders and contributing to wider
society. The Board is supported by the Executive Committee,
being the most senior management committee of the Group
which is responsible for maintaining effective oversight of the
Group consistent with Board-approved policy.
The Group maintains a clear division of responsibilities,
including between the Chair, who is responsible for the overall
leadership of the Board and for ensuring its effectiveness,
and the CEO, who manages and leads the business. No one
individual has unfettered powers of decision. Key roles and
responsibilities and a formal schedule of matters specifically
reserved for Board decision are clearly defined, documented
and communicated to key stakeholders via the Group’s
website at https://aib.ie/investorrelations/about-aib/corporate-
governance
The Board is responsible for corporate governance,
encompassing leadership, direction and control of the Group.
It assesses the basis on which the Group generates and
preserves value over the long term and is accountable to
shareholders for financial performance. The Board is also
responsible for approving high-level policy and strategic
direction in relation to the nature and scale of risk that the
Group is prepared to assume in order to achieve its strategic
objectives, and for maintaining an appropriate system of
internal controls. The Board receives regular updates on the
Group’s risk profile through the Chief Risk Officer’s monthly
report, and relevant updates from the Chair of the Board
Risk Committee. An overview of the Board Risk Committee’s
activities is detailed on pages 200 to 203.
The Board supports and strives to operate in accordance
with the Group’s purpose and values at all times. The Board
regularly challenges Management as to whether the purpose,
values and strategic direction of the Group align with its desired
culture, or if they do not, whether there are options to mitigate
negative stakeholder impacts.
While arrangements have been made by the Directors for the
delegation of the management, organisation and administration
of the Group’s affairs, certain matters are reserved specifically
for decision by the Board. The schedule of matters reserved for
the Board is reviewed at least annually to ensure that it remains
relevant, and was recently updated to reflect any enhancements
required under evolving corporate governance requirements
and industry best practice.
Board Focus in 2019
While not intended to be exhaustive, below is a high level overview of a number of matters considered by the Board and Board
Committees during 2019.
Financial
Strategy
Risk Management
2020 – 2022 Financial Plan and
Investment Plan
Progress implementing the Group’s
strategy
2018 results and analyst presentations
Brexit
Approval of dividend
Funding and Liquidity Policy
ICAAP/ILAAP including Capital
Adequacy Statement, Liquidity
Adequacy Statement and the
Contingency Funding Plan
Governance
Board Effectiveness
Chair’s performance review
Board Diversity Policy
Corporate Governance frameworks
Investor Relations activities
AGM briefing
Subsidiary Governance
Board and Executive Succession
Planning
Deputy Chair and Chair Succession
Processes
Future environment and business
model
Strategy and integrated financial
planning 2020 – 2022
Property strategy
Non-Performing Exposure strategy and
progress against targets
Organisational Structure changes
Culture and Values
Culture Evolution Programme
(see page 183 for further details)
Updates on talent and culture across
the business
Sustainability Report and various matters
of importance to the sustainability
agenda such as climate action
Group Risk Appetite Statement
IRB Model Programme progress
Risk Policies and Frameworks
Group’s Remuneration Policy
Group Recovery Plan
General material risks, including those
related to Brexit and the wider macro-
economy
Regulatory
Regulatory updates
Regulatory inspections
AML and CTF updates
Market Abuse Regulation practices
Related Party Lending considerations
Outcome of Supervisory Review and
Evaluation Process
Regular Updates
Employee engagement
Business and Financial Performance
Customer First activities and
customer outcomes
Tracker Mortgage Review Programme
Risk Management
Chair’s activities
Board Committee activities
Group Company Secretary activities
AIB Group plc Annual Financial Report 2019Governance and Oversight 183
Board interaction with the Culture Evolution Programme
Following on from work in 2018 to enhance the Group’s culture and following the Central Bank of Ireland (“CBI”) culture review, the
Board devoted significant meeting time in 2019 to both the Behaviour and Culture (“B&C”) and Diversity & Inclusion (“D&I”) agendas.
This time included, but was not limited to:
Playback of the CBI feedback on the Group’s B&C and D&I
plans and the interpretation of findings from CBI review and
Irish Banking Culture Board (“IBCB”) survey results. This was
followed by an analysis of associated risks and underlying
behaviours across the Group.
Review and consideration of feedback provided by a wider
employee base through “Culture Conversations” which
took place across the Group facilitated by Senn Delaney,
an external firm which focuses on transforming cultures in large
organisations.
One-to-one engagement meetings between each Board
Director and the Executive Committee Culture sponsor, in
order to get individual Director perspectives on Culture across
the Group and the future plans.
In May, a number of AIB employees, with varying experiences,
tenure and roles with the Group were invited to meet the Board
to provide their direct personal views of, and experiences in AIB
to date, highlighting areas requiring enhancement and greater
focus. Key matters discussed by these employees included:
–
–
–
the importance of communication,
the effectiveness of conversations and connectivity,
the importance of listening to employees to ensure the
operation of effective teams,
the benefits to be derived from really understanding the
purpose and customer impact of key projects; and
the benefits of certain activities to the Group outside of the
need to meet regulatory requirements.
–
–
The Board noted the valuable input from the employees and
considered all feedback at length.
The Board requested that a behavioural psychologist be
commissioned to analyse the Group’s current culture through
available cultural data. As a result, an externally facilitated
training workshop was held in May by Denison Consulting on
best-practice in Culture evolution at which they provided their
independent analysis and insights on the Group’s existing
culture.
A programme activity update was included in the CEO Report
in months where a specific culture topic was not presented.
The Board was provided with information to facilitate
discussion on the outcomes of the initial review phase,
specifically, regarding the outcome of the culture conversations
referred to above.
The Board reviewed the cultural ambition road map, including
the evolution of the Group’s brand values and from/to model
regarding underlying behaviours across the Group.
In December 2019, the Board received a CBI letter closing
out the Behaviour and Culture Review Action Plan and
Diversity and Inclusion Assessment.
The Board will continue to focus on the delivery of the Culture
Evolution Programme in 2020.
Conflicts of Interest
The Board approved Code of Conduct and Conflicts of Interest
Policy sets out how actual, potential or perceived conflicts of
interest are to be evaluated, reported and managed to ensure
that Directors act at all times in the best interests of the Group
and its stakeholders. Executive Directors, as employees of the
Group, are also subject to the Group’s Code of Conduct and
Conflicts of Interests Policy for employees.
Stakeholder Engagement
The five designated stakeholder groups in AIB are customers,
employees, investors, society, and the Group’s regulators.
In order for the Group to meet its responsibilities to its
stakeholders, it is acknowledged that the Board should ensure
effective engagement with, and encourage participation from,
these parties.
Engaging with the Group’s stakeholders helps the Group
to learn about the issues that are important to them and
understand what they expect from the Group. In doing so,
the Group can consider the best course of action for all
stakeholders, evolve the Group’s approach and, where a
required course of action may negatively impact a stakeholder,
the Group can strive to limit the impact as far as practicable.
The Group engages with stakeholders through various means
such as face-to-face meetings including scheduled meetings
and out of course meetings on specific topics, research, media
engagement, the Group’s in-house experts liaising directly
with associated business, public and charitable groups and
participation in expert fora and events.
The Annual General Meeting (‘AGM’) is an opportunity for
shareholders to hear directly from the Board on the Group’s
performance and strategic direction, and importantly, to ask
questions. Details in relation to the 2020 AGM along with
other shareholder-related information can be found on pages
221 and 375 and on the Group’s website at https://aib.ie/
investorrelations/shareholder-information/annual-general-
meeting
Further details on the Group’s stakeholder engagement as
required under the UK Corporate Governance Code 2018 can
be found on page 36.
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 184
Governance and oversight –
Corporate Governance report
Division of Responsibilities
Key Roles and Responsibilities
Chair
Mr Richard Pym leads the Board, setting its agenda, ensuring
Directors receive adequate, accurate and timely information,
facilitating the effective contribution of the Non-Executive
Directors, ensuring the proper induction of new Directors,
the on going training and development of all Directors, and
reviewing the performance of individual Directors. Mr Pym was
appointed as Chair of the Group in 2014. Mr Pym currently
has no other external directorship commitments. Mr Pym
announced his intention to retire as Chair of the Group in March
2020. The Group is in the process of identifying the next Chair
and an announcement will be made in due course. Mr Pym’s
biographical details are available on page 44.
Senior Independent Director
As Senior Independent Director (‘SID’), Mr Tom Foley acts
as a conduit for the views of shareholders and is available
as an alternate point of contact to address any concerns or
issues they feel have not been adequately dealt with through
the usual channels of communication. The SID also leads
the annual review of the Chair’s performance and succession
planning for the Chair’s role. He attends meetings with major
shareholders as required, to listen to their views in order to
develop a balanced understanding of the issues of concern to
them. Mr Foley was appointed to the role of Senior Independent
Director on 12 October 2019, following Ms Catherine Woods’
retirement, and his biographical details are available on page 44.
Deputy Chair
Mr Brendan McDonagh was appointed as Deputy Chair
on 24 October 2019. In this role, Mr McDonagh steps in as
acting Chair of the Board wherever necessary, and ensures
continuity of the Chair role as required. He deputises for the
Chair, supporting the Chair in representing and acting as a
spokesperson for the Board. The Deputy Chair is available to
the Directors for consultation and advice. Ms Catherine Woods
held the position of Deputy Chair up to 12 October 2019 when
she retired from the Group.
Independent Non-Executive Directors
As an integral component of the Board, Independent Non-
Executive Directors represent a key layer of oversight of the
activities of the Group. In their role, Independent Non-Executive
Directors scrutinise the performance of management in meeting
agreed objectives and monitor their reporting on performance.
They bring an independent viewpoint to the deliberations of the
Board that is objective and independent of the activities of the
Management and of the Group. They constructively challenge
and help develop proposals on strategy and other key matters.
Biographical details for each of the Independent Non-Executive
Directors are available on pages 44 and 45.
Chief Executive Officer (CEO)
Dr Colin Hunt manages the Group on a day-to-day basis
and makes decisions on matters affecting the operation,
performance and strategy of the Group’s business.
The Executive Committee assists and advises him in reaching
decisions on the Group’s strategy, governance and internal
controls, performance and risk management. Dr Hunt was
appointed CEO of the Group with effect from 8 March 2019.
His biographical details are available on page 45.
Mr Bernard Byrne, the previous CEO, stepped down from his
executive duties and from the Board on 8 March 2019 and
resigned from the Company on 26 April 2019.
Executive Directors
Executive Directors have executive functions in the Group in
addition to their Board duties. The role of Executive Directors,
led by the CEO, is to propose strategies to the Board and,
following challenging Board scrutiny, to execute the agreed
strategies to the highest possible standards.
At 31 December 2019, the Board had two Executive Directors,
the CEO, who is referenced above, and the Chief Operating
Officer and Deputy CEO, Mr Tomás O’Midheach.
Mr Mark Bourke resigned as an Executive Director and Chief
Financial Officer (‘CFO’) with effect from 1 March 2019.
Executive Committee
The Executive Committee is the most senior management
committee of the Group and is accountable to the CEO.
Subject to financial and risk limits set by the Board, and
excluding those matters which are reserved specifically for
the Board, the Executive Committee, under the stewardship
of the CEO, has responsibility for the day-to-day management
of the Group’s operations. Biographical details of all Executive
Committee members can be found on pages 46 and 47.
Board Committees
The Board is assisted in the discharge of its duties by a number
of Board Committees, whose purpose is to consider, in greater
depth than would be practicable at Board meetings, matters for
which the Board retains responsibility. The composition of such
Committees is formally reviewed on an annual basis however,
as indicated throughout this Annual Financial Report this is, in
fact, a continuous process and aligns to the Board’s succession
planning process. Each Committee operates under Terms of
Reference approved by the Board and the Board Committee’s
Terms of Reference are available on the Group’s website at
https://aib.ie/investorrelations/about-aib/corporate-governance
AIB Group plc Annual Financial Report 2019Governance and Oversight 185
In considering the matters reserved for the Board, it should be
noted that certain of those matters require advance consultation
with, or consent from, the Minister for Finance. The conditions
under which such prior consultation or approvals are required
are outlined in the Relationship Framework which is available
on the Group’s website at https://aib.ie/investorrelations/about-
aib/relationship-with-irish-state
Board Meetings
In 2019, 12 scheduled meetings of the Board and 5 additional
out of course meetings were held. The Chair and the Chairs of
each Committee ensure Board and Committee meetings are
structured to facilitate open discussion, constructive challenge
and debate. The Board receives a comprehensive update from
the Chief Executive Officer, Chief Financial Officer, Chief Risk
Officer and Chief Operating Officer each month. The remainder
of the agenda is built from the indicative work programme
which includes strategic items, any activities out of the ordinary
course of business, requested in depth reviews and scheduled
updates on key projects. There is a set escalation process in
place through Executive and Board Committees which ensure
the Board receives the necessary information at the appropriate
time to enable the right decisions to be taken. The Chair leads
the agenda setting process, supported by the CEO and Group
Company Secretary.
In the rare event of a Director being unable to attend a meeting,
the Chair of the relevant meeting discusses the matters
proposed with the Director concerned in advance of the meeting
whenever possible, to determine their support and feedback
on the matters proposed. The Chair represents those views
on behalf of the Director at the meeting. The attendance of
Directors at meetings of the Board and Board Committees is
detailed on page 187.
In its work, the Board is supported by its Committees which
make recommendations, where appropriate, on matters
delegated to them under their respective Terms of Reference.
Each Committee Chair provides an update to the Board on
matters discussed at the preceding Committee meeting and an
annual report is provided from each Committee to the Board to
ensure appropriate oversight.
The minutes of all meetings of Board Committees are circulated
to all Directors for information and are formally noted by the
Board. The Chairs of the Committees brief the Board on the
activities of the Committee on a regular basis. Papers for all
Board Committee meetings are also made available to all
Directors, irrespective of membership. Access to minutes and
papers is carefully considered and is restricted where a conflict
of interest or confidentiality issue exists.
There is a Sustainable Business Advisory Committee in place,
which is an advisory committee to the Board. It is comprised of
Non-Executive Directors and members of senior management
in order to support the execution of the Group’s sustainability
strategy. Its remit includes the development and safeguarding
of the Group’s ‘social license to operate’, such that the Group
plays its part in helping its customers and society prosper as
an integral component of the Group’s business and operations.
Further details on the Group’s sustainability-related activities
are available in the Annual Review section of this Annual
Financial Report.
Reports from the Board Audit Committee, the Board Risk
Committee, the Nomination and Corporate Governance
Committee and the Remuneration Committee are presented
later in this Annual Financial Report.
Group Company Secretary
The Directors have access to the advice and services of
Ms Helen Dooley, the Group Company Secretary and Group
General Counsel, who advises the Board on all governance
matters, ensuring that Board procedures are followed and
that the Group is in compliance with applicable rules and
regulations. The Group Company Secretary facilitates
information flows within and between the Board and its
Committees and senior executive management. The Group
Company Secretary communicates with shareholders as
appropriate, and ensures that due regard is paid to their
interests. Both the appointment and removal of the Group
Company Secretary is a matter for the Board as a whole.
The previous Group Company Secretary, Ms Sarah McLaughlin,
resigned on 12 July 2019.
Relationship with the Irish State
The Group has received significant support from the Irish
State (the ‘State’) in the context of the financial crisis due to its
systemic importance to the Irish financial system. Following a
reduction in its shareholding during 2017, the State now holds
71.12% of the issued ordinary shares of AIB Group plc.
The relationship between the Group and the State is governed
by a Relationship Framework. Within the Relationship
Framework, with the exception of a number of important
items requiring advance consultation with or approval by the
State, the Board retains responsibility and authority for all of
the operations and business of the Group in accordance with
its legal and fiduciary duties and retains responsibility and
authority for ensuring compliance with the regulatory and legal
obligations of the Group.
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 186
Governance and oversight –
Corporate Governance report
How our Board Meetings work
In advance
of the next
calendar year
Meeting dates and locations are agreed in advance to ensure contributors/attendees etc. are well
prepared for required timelines and potential visits both at a senior management and operational level.
An indicative Work Programme including the Board’s Continuous Education Programme is prepared in
advance of the calendar year, informed by the Board’s agreed priorities, the integrated strategy, financial
planning and risk assessment process.
The Work Programme is shared with key internal stakeholders to ensure preparedness and alignment
across the Group.
Agenda setting
The Chair sets the agenda for each Board meeting in consultation with the Group Company Secretary
and the CEO.
Paper
preparation
Paper
distribution
Before the
Board meeting
The draft Board agenda is reviewed by the Executive Committee to seek input on any other matters of
relevance requiring the Board’s attention and to ensure any emerging issues receive adequate agenda
time.
Unless circumstances or the nature of the topic determine otherwise, matters requiring Board attention
are generally considered at an executive governance forum in advance.
All papers must be drafted within set templates and guidelines. Such templates include a requirement
to consider the implications of the paper content against the Group’s strategic pillars, with particular
reference to any risk considerations, with papers for decision generally being accompanied by a review
from the Risk function.
Meeting papers are typically distributed one week in advance via a secure electronic board portal to afford
Directors sufficient time to review papers in advance of the meeting.
Board Committee meetings are normally held in the days prior to the Board meeting.
Private sessions between the Non-Executive Directors and members of management may be held to
further explore matters.
Board education sessions usually take place on the evening before the Board meeting. These sessions
are provided by a mix of internal and external facilitators.
During the
Board meeting
In his opening remarks, the Chair sets the focus of each meeting. The Chair will then facilitate the
meeting with the support of the Group Company Secretary to ensure sufficient time is afforded to each
agenda item with all Directors’ views and, where relevant, challenge being aired. In bringing discussions
to a conclusion, the Chair will confirm the Board’s collective position.
Presenters are requested to take each paper as read, and highlight the key matters requiring the Board’s
attention to ensure sufficient time is spent on the key issues.
The Chair and the Chief Executive Officer provide updates on matters of relevance from their own internal
and external engagements in the recent period.
The Group Company Secretary will draw the Board’s attention to any matter of importance and remind
the Directors of their obligations under certain statutory or regulatory requirements, where necessary.
Any actual, potential or perceived conflicts of interest are monitored and managed appropriately
throughout the meeting.
After the
Meeting
Minutes and actions arising from the meeting are produced and circulated to the Chair for feedback,
review and agreement within agreed timeframes.
Actions are provided to action owners to ensure responses are prepared and updates provided for the
next meeting or within agreed time frames.
AIB Group plc Annual Financial Report 2019Governance and Oversight 187
Attendance at Board meetings of AIB Group plc is outlined
below. Attendance at Board Committees is reported in the
respective Committee reports which appear later in this report.
Board (scheduled)
Board (out of course)
Eligible
Eligible
Directors
to attend Attended
to attend Attended
Those in office at 31 December 2019
Richard Pym
12
Tom Foley
Basil Geoghegan
Colin Hunt
Carolan Lennon
Elaine MacLean
Brendan McDonagh
Helen Normoyle
Ann O’Brien
Tomás O’Midheach
Sandy Kinney Pritchard
Raj Singh
Former Directors
Simon Ball
Mark Bourke
Bernard Byrne
Peter Hagan
Jim O’Hara
Catherine Woods
12
4
9
12
4
12
12
8
9
9
8
4
3
3
9
9
9
12
12
4
9
11
4
12
11
8
9
8
7
3
2
3
9
7
9
5
5
0
4
5
0
5
5
4
4
4
4
1
1
1
5
5
5
5
5
0
4
2
0
5
4
4
3
3
2
1
0
1
4
4
5
of the Group’s other material regulated subsidiary companies,
namely AIB Group (UK) p.l.c., AIB Mortgage Bank, EBS d.a.c.
and EBS Mortgage Finance. This facilitates oversight of
subsidiary activities.
Outside of the Group’s Board Meetings
Attendance at Board and Board Committee meetings is only
one part of the role of a Non-Executive Director. In addition to
such meetings and other scheduled activities such as the Board
Continuous Education Programme, Non-Executive Directors
undertake a full programme of activities. Importantly, these
activities include regular meetings with senior management,
employees and the Regulator to increase their understanding
of the business and the regulatory environment in which the
Group operates.
In 2019, the Board wanted to meet employees in less formal
settings. To facilitate more informal meetings, members of the
Board accompanied Executive Committee members on ‘Out
and Abouts’ with visits to various sites, meeting with employees
informally, learning about their work, their views on the Group,
and ways in which the Board and Executive Committee could
help to enable the teams to fulfil their purpose in more simple
and efficient ways. Following these sessions, Board members
relayed their experiences to the Board as a whole commenting
on a variety of matters including the culture and behaviours
being displayed across the business and any feedback received
from employees.
During 2019, the Non-Executive Directors also met on a
number of occasions in the absence of the Executive Directors.
The composition of the Board of AIB Group plc and Allied Irish
Banks, p.l.c. is the same. Throughout 2019, a number of the
Non-Executive Directors were also Non-Executive Directors
Access to Advice
There is a procedure in place to enable the Directors to take
independent professional advice, at the Group’s expense.
The Group holds insurance cover to protect Directors and
Officers against liability arising from legal actions brought
against them in the course of their duties.
The Board’s Professional Development and Continuous Education Programme
The Board’s Professional Development programme is multi-faceted and facilitated through:
Formal Induction Programme: This was refreshed in 2019,
particularly due to the number of new directors joining the
Board. As an introduction, and to ensure all Directors receive
a similar understanding of how the Group operates and the
key issues that it faces, a suite of induction documentation is
furnished to all incoming Directors via an online Board portal.
In addition, a series of meetings with senior management
from across the organisation are also arranged. Thereafter,
the Head of Corporate Governance, the Chair and the
incoming Director design a bespoke additional induction
programme as required.
Access to an online Corporate Governance Library which
is a simple access point for all corporate governance
standards, requirements and internal documentation.
Access to the suite of AIB Group iLearn courses. Whilst
formal Board training is provided in a collaborative,
presentation setting, Directors have access to the AIB
Group online suite of training courses should they wish to
undertake additional self-learning.
Site visits across the Group including meetings with staff and
customers.
Formal Board training: The 2019 Continuous Education
Programme, the specific topics of which are noted below,
was developed in conjunction with the indicative Work
Programme to ensure that Directors receive up-to-date
training on topics prior to reviewing Board papers on
same. The programme of training topics was developed
by the Corporate Governance and Group Organisation
Effectiveness team. Sessions were delivered by both internal
and external presenters, in some cases jointly. The Irish
Management Institute was engaged to source external
presenters for a number of topics throughout the year:
•
Listing obligations, Corporate Governance requirements
and Conversations with an Investor;
• Corporate reputation;
• Culture;
• Resolution planning;
• Growth strategies;
• Anti-Money laundering; and
• Cyber security.
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 188
Governance and oversight –
Corporate Governance report
Composition, Succession and Evaluation
Board Composition
At 31 December 2019, the Board comprised the Chair who was independent on appointment, nine independent Non-Executive Directors
and two Executive Directors. The names of the Directors, with brief biographical notes, are shown on pages 44 and 45 and further
details on independence considerations are set out on page 189.
The Board deems the appropriate number of Directors to meet the requirements of the business to be between 10 and 14 but
acknowledges that this number may go beyond 14 in the short term to accommodate succession planning activities and to ensure the
timely induction and development of new Directors.
There was a significant amount of change to the Board in 2019 as illustrated below.
Appointments during 2019
Board and Committee Chair Role
Dr Colin Hunt
Chief Executive Officer
Mr Tomás O’Midheach
Chief Operating Officer and Deputy Chief Executive Officer
Ms Sandy Kinney Pritchard
Non-Executive Director
Ms Ann O’Brien
Mr Raj Singh
Mr Basil Geoghegan
Ms Elaine MacLean
Chair of Board Audit Committee
Non-Executive Director
Non-Executive Director
Non-Executive Director
When
March 2019
March 2019
March 2019
April 2019
April 2019
April 2019
September 2019
Non-Executive Director and Chair of Remuneration Committee
September 2019
Mr Brendan McDonagh*
Chair of Board Risk Committee
Deputy Chair
Mr Tom Foley*
Senior Independent Non-Executive Director
Resignations during 2019
Board and Committee Chair Role
Mr Mark Bourke
Mr Bernard Byrne
Mr Simon Ball
Mr Peter Hagan
Mr Jim O’Hara
Executive Director
Chief Executive Officer
Non-Executive Director
Non-Executive Director and Chair of Board Risk Committee
Non-Executive Director and Chair of Remuneration Committee
Ms Catherine Woods
Senior Independent Non-Executive Director,
Deputy Chair and Chair of Board Audit Committee
September 2019
October 2019
October 2019
When
March 2019
March 2019
April 2019
July 2019
October 2019
October 2019
*Existing Board members who assumed a new role.
Board Appointments
The review of the appropriateness of the composition of the
Board and Board Committees is a continuous process, and
recommendations are made based on merit and objective
criteria, having regard to the collective skills, experience,
independence and knowledge of the Board along with its
diversity requirements.
In addressing appointments to the Board, a role profile for
proposed new directors is prepared by the Group Company
Secretary on the basis of the criteria laid down by 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 where required
and deemed necessary by the Nomination and Corporate
Governance Committee. In all recruitment processes, the Group
aims to ensure a formal, rigorous and, acknowledging the need
for confidentiality, transparent process.
Prior to recommendations for appointment of a given candidate,
a comprehensive due diligence process is undertaken, which
includes the candidate’s self-certification of probity and financial
soundness, external references and external checks. The due
diligence process facilitates the Nomination and Corporate
Governance 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 Nomination and Corporate Governance
Committee.
The Relationship Framework specified by the Minister for
Finance (the ‘Minister’), which governs the relationship between
AIB and the Minister, on behalf of the Irish State as shareholder,
requires the Board to consult with the Minister before appointing,
reappointing or removing the Chair or Chief Executive Officer
and in respect of any other proposed Board appointments.
A Board-approved Policy for the Assessment of the Suitability of
Members of the Board, which outlines the Board appointment
process, is in place, and is in accordance with applicable joint
guidelines issued by the European Securities and Markets
Authority and European Banking Authority.
AIB Group plc Annual Financial Report 2019Governance and Oversight Terms of appointment and time commitment
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.
Following appointment, in accordance with the requirements
of the Company’s Constitution, Directors are required to retire
at the next Annual General Meeting (‘AGM’). Directors may
go forward for reappointment, and are subsequently required
to make themselves available for reappointment at intervals
of not more than three years. The 2020 AGM is scheduled
for 29 April 2020. The Board has adopted the practice that all
directors will retire from office at the date of the AGM and may
choose to offer themselves for reappointment.
Letters of appointment, as well as dealing with terms of
appointment and appointees’ responsibilities, stipulate that a
specific time commitment is required from Directors. Copies of
Directors’ letters of appointment are available to shareholders
for inspection at the AGM and at the Registered Office during
business hours on request from the Group Company Secretary.
Non-Executive Directors are required to devote such time as
is necessary for the effective discharge of their duties. The
estimated minimum time commitment set out in the terms of
appointment is 30 to 60 days per annum including attendance
at Committee meetings.
Before being appointed, Directors disclose details of their other
significant commitments along with a broad indication of the
time absorbed by such commitments. 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 Chair and the Group Company Secretary,
and in certain cases the Board as a whole and/or the Central
Bank of Ireland, must be sought.
Balance and Independence
The Board has determined that all of the Non-Executive
Directors in office at 31 December 2019, namely Mr Tom Foley,
Mr Basil Geoghegan, Ms Sandy Kinney Pritchard, Ms Carolan
Lennon, Ms Elaine MacLean, Mr Brendan McDonagh, Ms Helen
Normoyle, Ms Ann O’Brien and Mr Raj Singh are independent
in character and judgement and free from any business or other
relationships with the Company or the Group which could affect
their judgement.
In determining independence, the Board had particular regard
to the fact that Ms O’Brien and Mr Singh were appointed
following their nomination by the Minister for Finance in Ireland,
who controls c. 71% of the Group’s issued share capital.
In determining that they should properly be considered to
be independent, the Board gave due regard to the following
matters: the nature and history of the shareholding and the
alignment of the Irish State’s interests with other shareholders,
the nature of the individuals nominated and the process
followed in identifying them for nomination, their performance
and nature of their contribution to the business of and matters
189
discussed at the Board and the Relationship Framework with
the Irish State. The Board is satisfied that in carrying out of
their duties as Directors, Ms O’Brien and Mr Singh are able to
exercise independent and objective judgement without external
influence.
Responsibility has been delegated by the Board to the
Nomination and Corporate Governance Committee for ensuring
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.
Mr Richard Pym was determined as independent on
appointment as required under the UK Corporate Governance
Code 2018.
The independence of each Director is considered by the
Nomination and Corporate Governance Committee prior to
appointment and reviewed annually thereafter.
Diversity
Employee diversity and inclusion in the Group is addressed
through policy, practices and values which recognise that
a productive workforce comprises of different work styles,
cultures, generations, genders and ethnic backgrounds.
The Group opposes all forms of unlawful or unfair
discrimination. The efficacy of related policy and practices and
the embedding of the Group’s values is overseen by the Board.
The Board recognises and embraces the benefits of diversity
among its own members, including the 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.
Whilst the Board recognises that diversity is wider than gender,
in order to achieve its objective to build a diverse Board, it has
set measurable targets and objectives around the under-
represented gender in its Board Diversity Policy.
The original Board Diversity Policy for AIB Group was
introduced in 2015 with an initial target to ensure the
percentage of females on the Board reached or exceeded
25 per cent by the end of 2016. This target was met in October
2016. On review of the Board Diversity Policy in July 2019,
the Board set a new target to achieve 30 per cent female
representation by the end of 2020 and thereafter, to take
opportunities to increase the number of female directors over
time, where that is consistent with other skills and diversity
requirements.
At 31 December 2019, the percentage of females on the Board
stood at 41 per cent and the Board is confident it will continue to
exceed its target in 2020.
In terms of implementation of the Board Diversity Policy,
the Nomination and Corporate Governance Committee
(the ‘Committee’) reviews and assesses the Group Board
composition and has responsibility for leading the process
for identifying and nominating, for approval by the AIB Group
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 190
Governance and oversight –
Corporate Governance report
Board, candidates for appointment as directors. In reviewing
AIB Group Board composition, balance and appointments,
the Committee considers candidates on merit against objective
criteria and with due regard for the benefits of diversity,
in order to maintain an appropriate range and balance of skills,
experience and background on the Board. Where external
search firms are engaged to assist in a candidate search,
they will be requested to aim for a fair representation of both
genders to be included in the initial list of potential candidates
so that the Committee has a balanced list from which to select
candidates for interview.
The Board Diversity Policy and monitoring of performance
relative to targets set out therein is a matter for the Committee,
which discusses progress against agreed targets. A copy of the
Board Diversity Policy is available on the Group’s website at
https://aib.ie/investorrelations/about-aib/corporate-governance
The Board Sustainable Business Advisory Committee is tasked
with considering and advising on the Group’s policies relating to
employee diversity in the Group generally.
Board Effectiveness
The Board conducts an annual evaluation of its effectiveness,
and is required to have an external evaluation conducted once
every three years. Having conducted a successful external
evaluation in 2017, which was facilitated by Lintstock and
reported on in the 2017 Annual Financial Report, an internal
evaluation was carried out in 2018 and again, in 2019.
The Chair of the Board leads the annual review of the Board’s
effectiveness and that of its Committees and individual Directors
with the support of the Nomination and Corporate Governance
Committee, which he also chairs.
The objective of these evaluations is to review the Board’s
composition, expertise, diversity and how effectively members
work together to achieve objectives. It also reviews past
performance with the aim of identifying any opportunities
for improvement, determining whether the Board 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.
2019 Internal Effectiveness Evaluation
The 2019 evaluation was led by the Chair with the support
of the Head of Corporate Governance. Whilst the evaluation
was internal in nature, as with the 2018 evaluation, it was
facilitated by the provision of formal questionnaires by Lintstock.
Lintstock is an independent external consultancy firm, which
also conducted an effectiveness evaluation of the Group’s UK
subsidiary during 2019 but has no other connection to AIB
Group.
The provision of the questionnaires and production of a
consolidated results report facilitated comparison of the 2019
outcome to 2018 in order to ascertain the level of progress
made in the intervening period.
Each Director completed online questionnaires, which sought
their views on a range of topics including Board composition
and expertise, Board culture and dynamics, the Board’s
calendar and agenda, the quality and timeliness of information,
strategy and operational matters, risk management and internal
control, succession planning, human resource management,
and priorities. Similar questionnaires were completed for each
Board Committee, an evaluation of the Chair and individual
director self-assessment.
As a key part of the evaluation process, the Chair met with each
Director to review their individual performance. These reviews
included discussion of the Director’s individual contributions
and performance at the Board and relevant Board Committees,
the conduct of Board meetings, the performance of the Board
as a whole and its Committees, compliance with Director-
specific provisions of the relevant Central Bank of Ireland
Corporate Governance Requirements for Credit Institutions
2015, the requirements of the Central Bank’s Fitness and
Probity Regulations, and any other specific matters which the
Chair and/or Directors wished to raise.
The performance of the Chair was also assessed. It was led
by the SID, who met with the Board to discuss the Chair’s
performance in his absence. The SID subsequently provided an
update on the positive outcome of the review to the Chair.
The findings of the Board and Board Committee evaluations
were reviewed by the Group Company Secretary. The summary
findings were then shared and discussed with the Chair and
feedback on each of the Committees was shared with the
individual Committee chairs. Feedback on individual Directors
was shared directly by Lintstock with the Chair. The results
culminated in a consolidated report on the findings of the full
evaluation process being presented to the Board and the
Committees in November and December 2019.
Highlights from the 2019 internal Board
Effectiveness Evaluation
The outcome of the evaluation was generally positive,
particularly in light of the substantial change seen at Board
and Board Committee level. The evaluation concluded that the
Board continued to be effective, with all Directors demonstrating
very strong commitment to their roles which at times required
them to go above and beyond their required time commitment
to the role.
Overall the effectiveness of the Board and its Committees
improved year on year. The key themes identified through the
Board evaluation included succession planning and integrating
new appointments, the focus of the Board on strategy to include
devoting more time to market, technology and competitor
reviews and monitoring the execution of key projects and
ensuring lessons learned were taken and distilled through the
business.
AIB Group plc Annual Financial Report 2019Governance and Oversight 191
As a result of the evaluation, the Board agreed a new set of Board priorities to align with the Group embarking on a new three-year
strategy to include:
Simplification
Modernise and simplify the Group, reducing ‘cost to serve’ and error.
Sustainability
Create leadership of the sustainability agenda in Ireland benefitting customers and wider civil society.
Culture
Create a culture which encourages the right behaviours towards customers and colleagues.
Leadership
Build leadership and talent to develop and sustain the Group through generations.
Bring Resolution of
the Past to an end
With particular reference to non-performing exposures and conduct failures.
Returns
Create an operating model which delivers to shareholders an appropriately attractive return for the
use of their capital.
During the evaluation, many directors commented favourably on the performance of the Board as a whole, describing it as positively
diverse and benefiting from a good mix of skills.
Recommendations from the 2019 review and actions in respect of each which are actively underway, included:
Focus of meetings
Culture
Talent monitoring
The Board expressed an appetite for its work programme to be enhanced to increase information and
time spent on (i) strategic forward looking topics (ii) customers (including market research) particularly
Small and Medium Enterprise customer journeys, (iii) competitors, (iv) technology and (v) costs.
The Board highlighted the need to maintain an appropriate balance between legacy and forward
looking matters. In response to these requests, the indicative Work Programme has been enhanced
to allow increased time for these matters and additional Non-Executive Director only meetings.
Additionally, monthly reporting has been enhanced to deliver better engagement with Management on
core business objectives and strategic issues through the use of key performance indicators as well
as more forward looking analysis.
The Board wanted to ensure focus remained on enhancing the Boards’ monitoring of culture and
behaviours through (i) sustained engagement with the Executive Committee Culture Sponsor,
(ii) continued focus on culture in its own right, rather than embedded within larger topics, (iii) focus on
the Board’s own culture and how it impacts the organisation, (iv) enhancement of clarity across the
organisation in relation to the Group’s whistleblowing and “speak up” policies and procedures and
(v) KPIs to be developed to help measure and assess progress on culture. These actions have been
taken into consideration in agenda planning and in the work of the Culture Evolution Programme.
Whilst acknowledged as a matter for the Nomination and Corporate Governance Committee, it was
agreed that the executive succession plan should be shared with the Board in association with key
people risk and the appropriateness of processes for managing and developing talent. An action was
taken whereby training would be developed to assist attendees at Board and Board Committees to
make impactful presentations and contributions at the meetings and to improve visibility for the Board
of the management layer immediately below the Executive Committee and consider the inclusion of
middle management at Board events.
Board papers
Recognising the progress made in 2018, the Board requested the continuation of the action to
enhance the clarity and conciseness of papers through the use of key issues, summaries and
increased clarity on the recommendations in the papers from the business areas.
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456
192
Governance and oversight –
Corporate Governance report
Progress against the 2018 internal Board Effectiveness Evaluation
A summary of the Board’s progress against the actions arising from the 2018 external effectiveness review are set out below.
Board Papers –
Brevity and Clarity
Decision
Implementation
Board Work
Programme
Enhanced
Stakeholder
Engagement
While observations on the volume of papers did appear again during the 2019 effectiveness review,
improvements to the quality and consistency of papers were acknowledged. These improvements
were driven by enhancements to templates, paper drafting guidelines and workshops with regular
paper submitters. An ongoing drive to reduce the length of Board papers has also seen positive
results albeit continuous improvement is still required.
The Board was keen to implement a more formal process to assess the quality of implementation
of Board decisions and review their effectiveness. To facilitate this, the Board was provided with
a summary of key decisions taken from July 2018 to June 2019 with an updated status provided.
A similar look back exercise is scheduled for December 2020 to ensure the Board continues to have
oversight of the implementation of such decisions and their effectiveness.
Acknowledging that the focus of meetings arose again in the 2019 effectiveness evaluation, the
indicative Board Work Programme was reviewed in early 2019 to further consider the time spent by
the Board and ensure appropriate focus was placed on strategic matters, culture and behaviours.
In the 2018 review, Directors cited a desire to enhance engagement with key stakeholders with a
particular focus on customers and employees. Through a series of informal visits known as ‘Out
and Abouts’ as detailed in this Corporate Governance report, branch visits and various staff events,
the Board took the opportunity to increase face-to-face meetings with employees throughout 2019.
Further details on stakeholder engagement are outlined on page 36.
Audit, Risk and Internal Control
The Board has delegated responsibility for the consideration
Remuneration
The Board has delegated responsibility for the consideration
and approval of certain items pertaining to audit, risk and
and approval of the remuneration arrangements of the Chair,
internal control to the Board Audit Committee and Board Risk
Executive Directors, Executive Committee members, the Group
Committee. Where required, topics will be referred onward
Company Secretary and certain other senior executives to
to the Board as a whole for further discussion or approval.
the Remuneration Committee. The Board as a whole, with
Information on the activities of the Board Audit Committee and
the Non-Executive Directors abstaining, considers the fees
Board Risk Committee in 2019 can be found in the reports of
paid to Non-Executive Directors. Information on the activities
these Committees, which form part of this Governance and
of the Remuneration Committee in 2019 can be found in the
oversight section of the Report.
Remuneration report, which forms part of this Governance and
oversight section of the Report.
AIB Group plc Annual Financial Report 2019Governance and Oversight 193
UK Corporate Governance Code Disclosures Index
The ethos of the UK Corporate Governance Code 2018 (2018 Code) aligns with the Board’s focus on ensuring long-term sustainability
and the continued importance of the cultural evolution programme, stakeholder engagement and succession planning. Following the
Code’s publication in 2018, 2019 was a year of embedding new processes and implementing enhancements, where required.
Further to the information on UK Code Compliance and Enhancements set out on pages 180 and 181, including the rationale for certain
instances of non-compliance, the below table outlines where the disclosures on how AIB has applied the main principles of the 2018
Code can be found. The Group’s Statement of Compliance with the 2018 Code is on page 179.
Code Principle
Section
Page
Section 1. Board Leadership and Company Purpose
A.
A successful company is led by an effective and entrepreneurial board, whose role is
to promote the long term sustainable success of the company, generating value for
shareholders and contributing to wider society.
● Board Leadership and Company Purpose
B.
C.
D.
E.
The board should establish the company’s purpose, values and strategy, and satisfy
itself that these and its culture are aligned. All directors must act with integrity, lead by
example and promote the desired culture.
The board should ensure that the necessary resources are in place for the company
to meet its objectives and measure performance against them. The board should
also establish a framework of prudent and effective controls, which enable risk to be
assessed and managed.
In order for the company to meet its responsibilities to shareholders and stakeholders,
the board should ensure effective engagement with, and encourage participation
from, these parties.
The board should ensure that workforce policies and practices are consistent with
the company’s values and support its long term sustainable success. The workforce
should be able to raise any matters of concern.
● Corporate Governance in Action
● Board Leadership and Company Purpose
● Risk Governance and Oversight
● Corporate Governance arrangements and practices
● Internal Controls
● Engaging with Our Stakeholders
● UK Corporate Governance Code 2018 –
Compliance and Enhancements
● Stakeholder Engagement
● Board Leadership and Company Purpose
● Report of the Board Audit Committee
Section 2. Division of Responsibilities
F.
The chair leads the board and is responsible for its overall effectiveness in directing
the company. The chair should demonstrate objective judgement throughout their
tenure and promote a culture of openness and debate. In addition, the chair facilitates
constructive board relations and the effective contribution of all non-executive
directors, and ensures that directors receive accurate, timely and clear information.
G.
H
I.
The board should include an appropriate combination of executive and non-executive
(and, in particular, independent non-executive) directors, such that no one individual
or small group of individuals dominates the board’s decision-making. There should
be a clear division of responsibilities between the leadership of the board and the
executive leadership of the company’s business.
Non-executive directors should have sufficient time to meet their board
responsibilities. Non-executive directors should provide constructive challenge,
strategic guidance, offer specialist advice and hold management to account.
The board, supported by the company secretary, should ensure that it has the
policies, processes, information, time and resources it needs in order to function
effectively and efficiently.
Section 3. Composition, succession and evaluation
J.
Appointments to the board should be subject to a formal, rigorous and transparent
procedure, and an effective succession plan should be maintained for board and
senior management. Both appointments and succession plans should be based
on merit and objective criteria, and promote diversity of gender, social and ethnic
backgrounds, cognitive and personal strengths.
● Division of Responsibilities
● Balance and Independence
● Board Leadership and Company Purpose
● Division of Responsibilities
● Division of Responsibilities
● Board Appointments
● Division of Responsibilities
● Board Effectiveness
● Corporate Governance in Action
● Composition, succession and evaluation
● Report of the Nomination and
Corporate Governance Committee
K.
L.
The board and its committees should have a combination of skills, experience and
knowledge. Consideration should be given to the length of service of the board as a
whole and membership regularly refreshed.
● Composition, succession and evaluation
● Report of the Nomination and
Corporate Governance Committee
Annual evaluation of the board should consider its composition, diversity and how
effectively members work together to achieve objectives. Individual evaluation should
demonstrate whether each director continues to contribute effectively.
● Composition, succession and evaluation
● Board Effectiveness
Section 4. Audit, Risk and Internal Control
M.
The board should establish formal and transparent policies and procedures to ensure
the independence and effectiveness of internal and external audit functions and
satisfy itself on the integrity of financial and narrative statements.
● Report of the Board Audit Committee
N.
O.
The board should present a fair, balanced and understandable assessment of the
company’s position and prospects.
● Report of the Board Audit Committee
● Directors’ Responsibility Statement
The board should establish procedures to manage risk, oversee the internal control
framework, and determine the nature and extent of the principal risks the company is
willing to take in order to achieve its long term strategic objectives.
● Risk Governance and Oversight
● Report of the Board Audit Committee
● Report of the Board Risk Committee
Section 5. Remuneration
P.
Remuneration policies and practices should be designed to support strategy and
promote long term sustainable success. Executive remuneration should be aligned to
company purpose and values, and be clearly linked to the successful delivery of the
company’s long term strategy.
● Report of the Remuneration Committee
● Corporate Governance Remuneration Statement
Q.
R.
A formal and transparent procedure for developing policy on executive remuneration
and determining director and senior management remuneration should be established.
No director should be involved in deciding their own remuneration outcome.
● Report of the Remuneration Committee
● Corporate Governance Remuneration Statement
Directors should exercise independent judgement and discretion when authorising
remuneration outcomes, taking account of company and individual performance, and
wider circumstances.
● UK Corporate Governance Code 2018 –
Compliance and Enhancements
● Corporate Governance Remuneration Statement
182
32
182
73
178
220
36
180
183
182
194
184
189
182
184
184
188
184
190
32
188
204
188
204
188
190
194
194
224
73
194
200
208
212
208
212
180
212
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 194
Governance and oversight –
Report of the Board Audit Committee
With regard to the internal control environment, the Committee
continued to monitor the effectiveness of the three lines of
defence model across the Group, with a primary focus on
activity overseen by the third line of defence. To this end, the
Committee received regular reports from the Group Internal
Audit function regarding control issues identified through the
execution of the internal audit plan, as well as Management’s
response to those issues. Audit engagements were rated
based on the strength of both the control environment in
operation, and Management’s awareness of the risks facing
their business areas, and the controls in place to mitigate
those risks. The 2020 Audit Plan was subject to robust review
and challenge on a number of occasions by the Committee in
order to ensure the appropriate coverage and focus on the risk
profile of the Group. The Committee also considered reports
and presentations from the External Auditor, Chief Financial
Officer and the Risk function on the effectiveness of the control
environment.
In light of a sustained focus on the enhancement of the three
lines of defence model, the Committee continued to assess
control issues against a number of “Key Control Enhancement
Themes”, each owned by an accountable Executive
Committee Member. In 2019, the themes included Key Person
Succession, Oversight of Subsidiaries, IT Governance, Third
Party Management, Credit and Compliance Risk Management
including Anti Money Laundering.
The Committee has responsibility for ensuring that appropriate
arrangements are in place by which employees can, in
confidence, raise concerns regarding possible improprieties
in matters of financial reporting or other matters. We
received updates from Management regarding the Group’s
whistleblowing or “Speak Up” governance arrangements in
place. A deep dive review of whistleblowing governance and
support structures was undertaken in 2019, with a number
of enhancements proposed for implementation in 2020.
The Committee will monitor the progress of the delivery of those
enhancements, and will continue to ensure that appropriate
support and arrangements are in place for staff in this regard
throughout the coming year.
A primary role of the Committee is to consider the significant
matters relating to the annual and interim accounts. Key
accounting judgements are subject to in depth discussion
and challenge with Management and the External Auditor in
advance of recommending to the Board. This ensures that all
financial reports, including the annual report and accounts,
taken as a whole, are considered to be a fair, balanced and
understandable assessment of the Group’s financial position,
and provide the necessary information for shareholders to
assess the Company’s performance, risks, business model and
strategy.
Letter from Sandy Kinney Pritchard,
Chair of the Board Audit Committee
Dear Shareholder,
On behalf of the Board Audit Committee (‘the Committee’), I am
pleased to deliver my first report to you on the Committee’s
activities during the financial year ended 31 December 2019.
2019 was a year of significant change for the Committee.
Following my appointment to the Board in March 2019, I was
appointed Committee Chair in April 2019, taking the mantle
from Ms Catherine Woods following her eight year tenure as
Chair. I would like to take this opportunity to acknowledge the
positive contributions of Ms Catherine Woods, Mr Peter Hagan
and Mr Jim O’Hara who stepped down from the Committee this
year. In September, we were delighted to welcome Mr Basil
Geoghegan to the Committee. Basil’s considerable corporate
and non-executive experience is a valuable addition to the
Committee.
The Group Head of Internal Audit resigned from the Group
in April 2019, at which time an interim appointment to the
role was approved. Over the course of the year, a robust
selection process was conducted by the Committee to
appoint a successor to this role. I am pleased to note that we
have selected a strong internal candidate who is currently
progressing though the regulatory approval process. During
this period of substantial change, the Committee continuously
assessed the performance and independence of the Internal
Audit function, and the Committee is satisfied that all
appropriate structures remained in place throughout the year.
The Committee is tasked with ensuring that the Group operates
a strong control environment and acts independently of
Management so that the interests of shareholders and other
stakeholders are appropriately protected in relation to internal
control and financial reporting.
AIB Group plc Annual Financial Report 2019Governance and Oversight 195
In assessing the recognition of the deferred tax assets, the
Committee has considered the Group’s financial plan and the
growth assumptions and profitability levels underpinning the
plan. The Committee noted that reduced profitability forecasts in
the plan has resulted in the period of utilisation of the deferred
tax asset to increase. As a result, the Committee reassessed
the range of positive and negative evidence prepared by
Management and the inherent uncertainties in any long term
assumptions and projections. Based on this evidence, the
Committee agreed that the recognition basis for the deferred tax
asset remains appropriate and that the assumptions used by
Management in assessing the recognition of deferred tax assets
are reasonable.
Retirement benefit obligations
There is a high degree of estimation and judgement in the
calculation of retirement benefit liabilities. These liabilities
are highly sensitive to changes in the underlying actuarial
assumptions including the discount rate, pension in payment
increases and inflation rates.
In assessing the reasonableness of defined benefit obligation
assumptions, the Committee has reviewed reports by
Management setting out the processes for deriving the key
assumptions and how these assumptions are benchmarked
to external market data. The Committee has also reviewed
assessments by independent actuaries who have provided an
expert opinion to Management. Based on the work performed,
the Committee agreed that the assumptions supporting the
retirement benefit liabilities are reasonable.
Provisions for liabilities and commitments
The measurement of provisions, including those for customer
redress and related matters, is highly judgemental. Back in
2017, following review and analysis of the parameters of
the Central Bank of Ireland’s Tracker Mortgage Examination
framework, the Group concluded that a cohort of customers
who were never on a tracker rate would be paid compensation.
However, in January 2020, the Group received a preliminary
Financial Services and Pensions Ombudsman (“FSPO”)
decision which upheld a claim by an impacted customer
within this cohort and awarded further redress. The Group
considered this preliminary decision and recorded a provision
of € 265 million based on an initial assessment of the
likelihood that additional redress may be due to all customers
in this cohort. The Group recognises that there is a range of
possible outcomes and has created this provision, which was
subject to review and approval by the Board. This represents
Management’s best estimate of loss taking into account the
available evidence and assessment of the potential outcomes
in finalising this matter with the relevant stakeholders.
The Committee has reviewed the position and the process
for estimating the provision. Based on its assessment, the
Committee has concluded that this provision is reasonable
taking into account the inherent uncertainties in the calculation
and the judgemental nature of key assumptions, particularly
relating to the identification of impacted customers and related
redress costs. The Committee has also reviewed the disclosure
set out on pages 277 and 328 of this report.
The key matters of judgement considered by the Committee in
relation to the 2019 financial statements, and how they were
addressed, are set out below:
Impairment of financial assets
On 1 January 2018, the Group transitioned to the financial
instruments accounting standard IFRS 9. This accounting
standard requires losses to be reflected on an expected
credit loss (“ECL”) basis. Expected credit losses are required
to incorporate forward looking information, reflecting
Management’s view of potential future economic environments.
The complexity involved required Management to develop new
methodologies involving the use of subjective judgements as
well as significant changes to systems, processes and controls.
The key judgements include:
•
Determining the criteria for a significant increase in credit
risk relative to origination and for being classified as credit
impaired;
Developing the appropriate models, probability of default
(PD) and loss given default (LGD) assumptions for
measuring ECL;
Determining the life of a financial instrument and therefore,
the period over which to measure ECL;
Key assumptions, including collateral valuation and cash
flow timings, used in discounted cash-flows (‘DCFs’) of
individually assed loans. DCFs are the most significant
input to the ECL calculation for non-retail Stage 3 loans;
Post model adjustments determined by Management for
certain portfolios; and
Establishing the number and relative weightings for forward
looking macroeconomic scenarios for ECL.
•
•
•
•
•
The Committee obtained regular and detailed reports and
presentations from Management throughout 2019 on the ECL
outcomes and the process for updating the key assumptions
noted above. The Committee particularly focused on changes
to models and the criteria for determining a significant increase
in credit risk, as well as the full embedding of IFRS 9 processes
and controls in 2019. The Committee also considered the
reports of independent assurance processes within the Group
as well as reports from Internal Audit. In relation to forward
looking macroeconomic scenarios, the Committee considered
and challenged the process used by Management to determine
the assumptions and weightings, including the potential
impact of Brexit and a wider global economic slowdown.
The Committee has also reviewed the sensitivities and
disclosures in the Risk management section of this report and
and is satisfied that these are balanced and fair. Based on the
work performed, the Committee concurred that the judgements
and assumptions used in determining the ECL provision at
31 December 2019 were appropriate.
Deferred taxation
The Group has recognised deferred tax assets for unutilised
tax losses totalling € 2,771 million. It is assessed that it will
take in excess of 20 years for the deferred tax asset to be
utilised. The assessment of the conditions for the recognition
of a deferred tax asset is a critical judgement particularly given
the inherent uncertainties associated with projecting profitability
over a long time period.
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 196
Governance and oversight –
Report of the Board Audit Committee
Impairment of investment of AIB Group plc in
Allied Irish Banks, p.l.c.
The Group completed a corporate reorganisation during 2017
which included the creation of a new Group holding company,
AIB Group plc. The Company balance sheet included a
€ 12.9 billion investment in Allied Irish Banks, p.l.c. before
the impairment assessment. The Company reviews its equity
investment for impairment at the end of each reporting period if
there are indications that impairment may have occurred.
The testing for possible impairment involves comparing
the estimated recoverable amount of an investment with
its carrying amount. Where the recoverable amount is less
than the carrying amount, the difference is recognised as an
impairment provision in the Company’s financial statements.
The recoverable amount is the higher of fair value less costs to
sell and value-in-use (“VIU”).
At 31 December 2019, the Group has assessed an impairment
of € 3,444 million in the carrying value of its investment in Allied
Irish Banks, p.l.c. based on its VIU. There is a significant level
of judgement associated with the determination of the VIU
as it is predicated on the achievement of future projections.
The Committee has considered the key assumptions
determined by Management, including future growth and
discount rates. The Committee also considered reports
commissioned by Management from independent experts
which included benchmarking to external data. Based on
the assessment of this expert opinion, the Committee has
concluded that the judgements supporting the impairment
calculation are reasonable.
Further details on the Committee’s responsibilities, membership
and the record of attendance at meetings during 2019 are
outlined in the full report of the Committee.
I am honoured to take on the responsibility of the role of Chair
of the Board Audit Committee and appreciate the considerable
support afforded to me in my transition into the role from my
fellow Members, both past and current. I would like to extend
my heartfelt thanks to Catherine Woods, my predecessor, who
laid the strong foundations for the effective and robust manner
in which the Committee discharges its duties.
Sandy Kinney Pritchard,
Committee Chair
AIB Group plc Annual Financial Report 2019Governance and Oversight 197
Committee purpose
A full overview of the responsibilities of the Committee is set
out in its Terms of Reference. The Committee is appointed by
the Board to assist them in fulfilling its independent oversight
responsibilities in relation to:
•
the quality and integrity of the Group’s accounting policies,
financial and narrative reports, and disclosure practises;
the effectiveness of the Group’s internal control, risk
management and financial reporting systems;
the adequacy of arrangements by which staff may, in
confidence, raise concerns regarding possible improprieties
in matters of financial reporting or other matters;
the independence and performance of the Internal and
External Auditors.
•
•
•
The Committee’s Terms of Reference can be found on the
Group’s website at: https://aib.ie/investorrelations/about-aib/
corporate-governance
Report of the Board Audit Committee
Membership and meetings
In 2019, the composition of the Committee changed
significantly, with the resignation of three committee members
including the Committee Chair. Succession planning throughout
2018 and 2019 resulted in the appointment of two new Directors
to the Committee, including Ms Sandy Kinney Pritchard as
Committee Chair. The Committee, as at 31 December 2019,
comprised four Non-Executive Directors, all deemed to be
independent, and who the Board determined have the collective
skills, competence and relevant experience to enable the
Committee to discharge its responsibilities. To ensure co-
ordination of the work of the Board Risk Committee with the
risk related considerations of the Board Audit Committee, three
Members of the Committee are also members of the Board
Risk Committee. This common membership provides effective
oversight of relevant risk and finance issues. Details of each of
the Members are outlined on pages 44 and 45.
The Committee met on 13 occasions during 2019, ten of
which were scheduled, and three of which were out of course
meetings. In addition to the regular schedule of meetings, the
Committee met jointly on one occasion with the Board Risk
Committee to discuss a matter relevant to the remit of both
committees. The Members held an additional deep dive meeting
with the Interim Group Head of Internal Audit and members of
the senior Audit Management team to discuss the 2020 Group
Internal Audit plan. Scheduled meetings were attended by
the Chief Financial Officer, the Chief Risk Officer, the Interim
Group Head of Internal Audit and the Lead Audit Partner from
the External Auditor, Deloitte. Other senior Executives also
attended by invitation, where appropriate.
In the course of the year, the Committee also met with the Chief
Financial Officer, the Interim Group Head of Internal Audit,
the Chief Risk Officer and twice with the External Auditor in
the absence of Management. The Chair and Members of the
Committee, together with their attendance at meetings, are set
out below.
Current Committee members are shown below. Members who
retired during the year are shaded.
Member attendance during 2019*:
Sandy Kinney Pritchard
Tom Foley
Basil Geoghegan
Brendan McDonagh
Catherine Woods
Peter Hagan
Jim O’Hara
Eligible to attend
9
Attended
8
13
4
13
10
9
10
13
4
11
9
8
7
* As indicated in the Report, there were a number of membership
changes throughout the year which, in turn, led to differences in the
number of Committee meetings individual directors were eligible to
attend.
To ensure ongoing awareness of the work of the Committee by
all Directors, the Committee Chair provided an update to the
Board following each meeting on the key items discussed and
considered by the Committee.
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 198
Governance and oversight –
Report of the Board Audit Committee
Matters considered by the Committee
The following, while not intended to be exhaustive, is a summary of key items considered, reviewed and/or approved or recommended
by the Committee during the year:
Area of focus
Role of the Committee
Financial and
Narrative Reporting
Internal Control
Code of Conduct
and “Speak Up”
Policy
Internal Auditor
External Auditor
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Recommended to Board the approval of the Annual and Interim Financial Report.
Reviewed and recommended as appropriate significant financial reporting judgements and
accounting assumptions made by Management.
Reviewed and approved, as appropriate, new accounting policies and changes to existing policies
prior to implementation, including those supporting the application of IFRS 16 Leases.
Considered the minutes of the Group Disclosure Committee in advance of recommending the
financial statements to the Board.
Received reports from Management regarding the operation and effectiveness of the system of
controls over financial reporting. This includes Managements assessment of IT controls and the
mitigation of IT risks, including conclusions from reviews by Internal and External audit.
Received reports from Management regarding key internal controls in respect of fraud prevention
and detection.
Approved Directors’ statements concerning internal controls to be included in the Annual Financial
Report.
Reviewed the minutes of the subsidiary audit committees of AIB Group (UK) p.l.c., EBS d.a.c. and
AIB Mortgage Bank.
Received reports on the operation of the Group Code of Conduct and Conflicts of Interest Policy
across the Group.
Received reports regarding the operation of the “speak up” policy and all other whistleblowing
options available in the Group.
Considered proposed enhancements to the governance structures in place to support the Group’s
“speak up” arrangements.
Considered the findings of internal audit reports and special investigation reports, and
Management’s response to actions outlined therein.
Monitored progress against the agreed 2019 Group Internal Audit Plan, and progress against
issues raised.
Considered the annual and half year audit opinion in relation to the overall control environment.
Approved the Annual Internal Audit Plan for 2020.
Approved the Group Internal Audit Charter.
Approved the approach to compliance with Article 191 of the Capital Requirements Regulation,
including the output of the Annual General Risk Assessment relating to Internal Models.
Reviewed the scope of the statutory external audit, as well as the findings, conclusions and
recommendations of the External Auditor.
Reviewed and made recommendations to the Board regarding the Audit Representation Letter.
Reviewed the annual report from Management regarding the employment of former employees of
the External Auditor across the Group.
Reviewed the level of non-audit fees paid to the External Auditor.
Approved the fees paid to the External Auditor.
AIB Group plc Annual Financial Report 2019Governance and Oversight 199
In addition, the Committee provided oversight in monitoring the
effectiveness of the policy for the employment of individuals
previously employed by the Auditor. The Committee received
an update on the application of that policy, including the number
of former employees of the external auditor currently employed
in senior management positions in the Group, and assisted
the Committee in assessing the Auditor’s independence
and objectivity in respect of the audit. The policy for the
employment of individuals previously employed by the Auditor
was established in 2016 in accordance with the EU Audit
Regulations 537/2014 and Directive 2014/56/EU, which was
transposed into Irish law on 25 July 2018.
The Committee considered the detailed audit plan in respect of
the annual and interim financial statements and the Auditor’s
findings, conclusions and recommendations arising from the
half-yearly review and annual audit. The Committee satisfied
itself with regard to the Auditor’s effectiveness, independence
and objectivity through a number of mechanisms throughout
the year. These included consideration of the work undertaken,
confidential discussions with the Auditor and feedback received
from Management.
The Committee recommends that Deloitte should be
reappointed as the Auditors at the Annual General Meeting
on 29 April 2020. This recommendation is based on the
considerations set out above in addition to the Committee’s
determination of the Auditor’s effectiveness, independence and
objectivity.
Performance evaluation
An internal performance evaluation of the Board was conducted
in 2019, as noted on page 190; this included a review of the
Committee. The overall results of that review were positive
and concluded that the Committee continued to operate in an
efficient manner. Minor enhancements have been agreed by the
Committee and will be tracked for conclusion in 2020.
Internal Audit
The Committee provided assurance to the Board regarding the
independence and performance of the Group Internal Audit
function. It also considered and approved the annual audit plan
with reference to the material risks of the business and the
adequacy of resources allocated to the function. Throughout
the year, the Chair of the Committee met with Group Internal
Audit Management between scheduled meetings of the
Committee to discuss material issues arising as well as to plan
forthcoming agendas and the focus of upcoming Committee
meetings. The Committee also met with the Interim Group
Head of Internal Audit in private session during 2019, in the
absence of Management. The Group Head of Internal Audit has
unrestricted access to the Chair of the Board Audit Committee.
The Committee is responsible for making recommendations
in relation to the Group Head of Internal Audit, including their
appointment, replacement and remuneration, in conjunction
with the Remuneration Committee, and confirming the Group
Head of Internal Audit’s independence. To this end, following the
resignation of the Group Head of Internal Audit, the Committee
conducted a selection process to identify an appropriate
successor to that role. Following a robust and formal selection
process, an internal candidate was selected as the successful
candidate, and approved for the role by the Committee.
The Nomination and Corporate Governance Committee further
endorsed that appointment, subject to the required regulatory
approvals.
External Audit
Following a tender process in 2013, Deloitte were appointed
as the Group’s Auditor. Mr John McCarroll was appointed
lead Audit Partner in March 2018 and has continued in that
role throughout 2019. In line with the relevant EU Directive
requirements, and strong corporate governance practices, the
next tendering process for a new Group auditor will be no later
than 2023.
The Committee provided oversight in relation to the Auditor’s
effectiveness and relationship with the Group including
agreeing the Auditor’s terms of engagement, remuneration and
monitoring the independence and objectivity of the Auditor.
To help ensure the objectivity and independence of the Auditor,
the Committee has established a policy on the engagement
of the Auditor to supply non-audit services, which outlines the
quantum of non-audit fees for which the use of the Auditor is
pre-approved. It also provides guidance regarding which non-
audit services require specific approval from the Committee
before they are contracted and those from which the Auditor is
excluded. Further details on the approach can be found on the
Group’s website at: https://aib.ie/investorrelations/about-aib/
corporate-governance
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 200
Governance and oversight –
Report of the Board Risk Committee
junctures throughout the year. For instance, in response to
political uncertainty surrounding Brexit, a number of changes
to the Group Risk Appetite Statement (“RAS”) were proposed
via a standalone Brexit RAS, with a view to ensuring enhanced
monitoring and oversight of new lending, credit quality and
portfolio composition metrics. A full analysis of credit risk early
warning indicators on a sectoral basis was also undertaken,
in order to assess any evidence of weakness in specific sectors
in advance of Brexit. The Committee also obtained detailed
analysis from first and second line management regarding the
composition of specific loan portfolios in both the eurozone and
United States markets, in order to better understand overall
portfolio quality and composition, as well as the key risks and
related management controls underpinning the effective day-to-
day management of those portfolios.
The Group RAS formulation is an iterative process for the
Committee each year, whereby Management assesses the risk
profile of the Group, the macroeconomic environment, and the
overall position of the Group in an economic context. Following
that, the RAS is proposed to the Committee. After a number
of robust review and challenge sessions, the Committee
recommended the 2020 Risk Appetite Statement to the Board
for approval.
This year, the Committee was also pleased to observe the
continued embedding and enhancement of the three lines of
defence model across the Group. Clear examples of strong risk
review and oversight of key strategic matters by the second line
of defence were evidenced throughout the year.
As was the case in 2018, the ongoing development of the
Group’s modelling capabilities and key deliverables was
an area of sustained focus for both the Committee and the
Board, including the output of stress testing and economic
assumptions. A key focus of the Committee was on Internal
Ratings Based (“IRB”) modelling capabilities, and the
processes, infrastructure and governance in place to support
the delivery and use of those models. Engagement with the
Joint Supervisory Team (“JST”) will continue throughout 2020
regarding the Group’s IRB implementation plan.
The Committee also received regular reports regarding the
Group’s compliance with relevant Anti-Money Laundering and
Counter Terrorist Financing regulation, as well as compliance
with all relevant sanctions regimes.
Other areas of focus for the Committee during 2019 included:
–
Review of the output of inspections from the JST and other
regulatory bodies, with any Risk Mitigation Programme
(“RMP”) action points subject to review and approval by
the Committee. The Committee also maintained oversight
of open RMP actions on an ongoing basis throughout the
year;
Consideration of the evolving risk themes of cyber risk and
climate risk, and the actions underway to address same;
Progress against the implementation of Payment Services
Directive 2 regulatory requirements, with a focus on the
rollout of strong customer authentication to impacted
customers;
Oversight and approval of risk frameworks and policies, in
line with the Group risk policy architecture;
–
–
–
Letter from Brendan McDonagh,
Chair of the Board Risk Committee
Dear Shareholder,
On behalf of the Board Risk Committee (‘the Committee’),
I am pleased to deliver my first report to you on the Committee’s
activities throughout the financial year ended 31 December
2019.
The significant changes on the Group Board which have been
outlined to you within the Corporate Governance report of
this Annual Financial Report were mirrored at the Committee
level. Following a four year tenure as Committee Chair, and
seven years as Director, Mr Peter Hagan retired in September.
Peter strongly steered the Committee through a period where
its mandate continued to grow, with enhanced focus on the
material risks facing the Group. In addition, 2019 also saw
Ms Catherine Woods and Mr Simon Ball retire from the Group.
I would like to take this opportunity to thank them all for their
considerable contribution to the Committee.
We welcomed Ms Sandy Kinney Pritchard, Mr Raj Singh and
Mr Basil Geoghegan to the Committee in 2019, bringing with
them substantial corporate understanding and practical risk
management experience. I look forward to their continued
support in the coming year.
Throughout the year, the Committee continued to discharge
its roles and responsibilities, with detailed consideration given
to a wide range of both existing and emerging risks facing
the Group, whilst remaining cognisant of uncertainties within
the macroeconomic environment. To that end, the Committee
received regular reports from the Chief Risk Officer on the
foremost risks facing the Group, which focused on the material
risks, as well as a number of key matters, including the external
environment, the Group’s capacity for keeping pace with a
challenging regulatory change agenda, a focus on conduct risk
considerations, overall regulatory compliance and operational
risk.
Credit risk management was at the forefront of considerations
of the Committee throughout the year, particularly in light of
the possibility of a disorderly UK exit from the European Union.
The Credit Risk profile was reported to the Committee at each
of its meetings, with a focus on specific risk areas at appropriate
AIB Group plc Annual Financial Report 2019Governance and Oversight 201
–
–
The capital and liquidity position of the Group, with
particular reference to the contingent elements of the
Internal Capital Adequacy Assessment Process (“ICAAP”)
and Internal Liquidity Adequacy Assessment Process
(“ILAAP”);
Ongoing monitoring of the achievement of the Risk Function
Plan, Operational Risk Plan and Compliance Plan by the
Group Risk Function, with regular updates provided by the
CRO regarding same;
–
An assessment of the outsourcing and cloud policy and the
third party management framework put in place to ensure
consistent and robust application of that policy;
– Pillar 3 Disclosures; and
–
Consideration of the Group Equity Investment Framework
and Strategy.
The Committee’s focus throughout 2020 will continue to be on
ensuring appropriate oversight of the Group’s risk appetite, risk
management structure, policies and procedures, as well as
challenging as to whether the Management controls in place
are adequately robust to ensure the Group achieves its overall
purpose and strategic goals in an appropriately risk controlled
manner.
Brendan McDonagh
Committee Chair
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 202
Governance and oversight –
Report of the Board Risk Committee
To ensure the continued awareness of the Committee’s work
by all Directors, the Committee Chair provided an update to
the Board following each meeting on the key items discussed
and considered by the Committee. The Committee Chair
continued to remain satisfied that the skills and experience of
the Committee Members enable the Committee to provide the
independent risk oversight it is tasked with, while maintaining a
constructive relationship with Management.
Committee Purpose
A full overview of the responsibilities of the Committee is set out
in its Terms of Reference. The Committee assists the Board in
proactively fostering sound risk governance across the Group
by ensuring that risks are appropriately identified and managed,
and that the Group’s strategy is informed by, and aligned with,
the Board approved risk appetite. The remit of the Committee
continues to evolve year on year. However, its primary roles and
responsibilities are:
•
fostering sound risk governance across the Group’s
operations, encompassing all operations, legal entities
and branches in Ireland, the United Kingdom and the
USA, taking a forward looking perspective and anticipating
changes in business conditions;
discharging its responsibilities in ensuring that risks within
the Group are appropriately identified, reported, assessed,
managed and controlled to include commission, receipt and
consideration of reports on key strategic and operational
risk issues;
ensuring that the Group’s overall actual and future risk
appetite and strategy, taking into account all types of risks,
are aligned with the business strategy, objectives, corporate
culture and values of the institution; and
promoting a risk awareness culture within the Group.
•
•
•
The responsibilities of the Committee are discharged through
its meetings, and through the regular commissioning, receiving
and considering of reports from the Chief Risk Officer, the Chief
Credit Officer, the Chief Financial Officer and the Group Head of
Internal Audit, all of whom attend meetings of the Committee.
The Committee’s Terms of Reference can be found on the
Group’s website at: https://aib.ie/investorrelations/about-aib/
corporate-governance
Report of the Board Risk Committee
Membership and meetings
As at 31 December 2019, the Committee comprised five Non-
Executive Directors, all deemed to be independent. Further
details on independence considerations are located at page
189. The Board has determined that the Committee members
have the collective skills and relevant experience to enable
the Committee to discharge its responsibilities. To ensure
co-ordination of the work of the Committee with the risk related
considerations of the Board Audit Committee, Mr Brendan
McDonagh, Ms Sandy Kinney Pritchard and Mr Basil
Geoghegan are also members of the Board Audit Committee.
This common membership provides effective oversight of
relevant risk and finance issues. In addition, to ensure that
remuneration policies and practices are consistent with and
promote sound and effective risk management, common
membership between the Committee and the Remuneration
Committee is maintained through the joint membership of both
Committees of Mr Brendan McDonagh. Details of each of the
Members are outlined on pages 44 and 45.
The Committee met on eleven occasions during 2019, eight of
which were scheduled and one of which was a joint meeting
with the Remuneration Committee. All meetings were attended
by the Chief Financial Officer, the Chief Risk Officer, the Group
Head of Internal Audit, and the Lead Audit Partner from the
External Auditor, Deloitte. Other senior executives also attended
by invitation, where appropriate. The Chief Risk Officer
attended all meetings of the Committee and has unrestricted
access to the Chair of the Board Risk Committee, and met
twice in confidential session with the Committee, in the absence
of Management. Additionally, the Committee also met with
the Group Chief Compliance Officer, the Chief Credit Officer
and the Chief Financial Officer in confidential session on one
occasion each throughout the year. The Chair of AIB Group
(UK) p.l.c. also attends meetings of the Committee by invitation,
where appropriate.
The Chair and Members of the Committee, together with their
attendance at scheduled meetings, are shown below.
Current Committee members are shown below. Members who
retired during the year are shaded.
Member attendance during 2019*:
Brendan McDonagh
Basil Geoghegan
Sandy Kinney Pritchard
Raj Singh
Carolan Lennon
Peter Hagan
Simon Ball
Catherine Woods
Eligible to attend
12
Attended
12
4
9
7
12
9
4
9
4
9
7
11
9
4
9
* As indicated in the Report, there were a number of membership
changes throughout the year which, in turn, led to differences in the
number of Committee meetings individual directors were eligible to
attend.
AIB Group plc Annual Financial Report 2019Governance and Oversight 203
Matters considered by the Committee
The following, while not intended to be exhaustive, is a summary of the key items considered, reviewed and/or approved or
recommended by the Committee during the year:
Area of focus
Role of the Committee
Risk Appetite,
Risk Profile and Key
Risk Areas/Issues
Risk Frameworks
and Policies
Liquidity, Funding
and Capital
Compliance
Chief Risk Officer
and Group Risk
Function
Internal Ratings
Based Model and
Model Risk
–
–
–
–
–
–
–
–
–
Reviewed regular reports from the Chief Risk Officer which provide an overview of key material
risks, including funding and liquidity, capital adequacy, credit risk, market risk, regulatory risk,
business risk, conduct risk, cyber risk, model risk, operational risk and people and culture risk and
related mitigants.
Reviewed and recommended the Group Risk Appetite Statement (“RAS”) to the Board for
approval, whilst ensuring alignment to the Group’s business objectives, and that the subsequent
business and strategic plans were developed in line with agreed RAS metrics.
Monitored the Group’s risk profile against agreed Group RAS metrics on an ongoing basis, and
recommended changes to the Group RAS as appropriate.
Reviewed periodic reports and presentations from Management and the Chief Credit Officer
regarding the credit quality, performance, provision levels and outlook of key credit portfolios
within the Group.
Assessed credit risk performance and trends, including regular updates on significant credit
transactions.
Reviewed the ongoing operational risk profile, including significant operational risk events and
potential risks.
Received status updates regarding Brexit planning.
Reviewed and approved the Group’s Pillar 3 Report.
Approved and recommended risk frameworks and policies as appropriate, including those relating
to credit risk, model risk, people and culture risk and funding and liquidity.
–
Reviewed and recommended the Group Equity Strategy and Framework for approval.
–
–
–
Reviewed and recommended as appropriate capital, funding and liquidity planning, including
consideration of Group ICAAP and ILAAP reports and related Group wide stress test scenarios.
Received reports from the Money Laundering Reporting Officer regarding the status of the Anti-
Money Laundering/Counter Terrorist Financing control environment, and compliance with Anti-
Money Laundering/Financial Sanctions policies and frameworks.
Received reports regarding the structure and operation of the Risk and Compliance functions and
progress against deliverables.
–
Received reports from the Chief Risk Officer regarding the status of modelling capabilities across
the Group, as well as progress against set deliverables.
Regulatory
Engagement
–
–
Reviewed quarterly reports regarding the status of Risk Mitigation Programme action plans.
Reviewed and recommended as appropriate Management action plans put in place to address
failings identified as part of regulatory onsite inspections.
–
Considered any relevant regulatory correspondence which required the Committee’s attention.
Performance evaluation
An internal performance evaluation of the Board was conducted in 2019 as noted on page 190 and this included a review of the
Committee. The overall results of that review concluded that the Committee continued to operate in an efficient manner. Members noted
the importance of continuing to ensure that the Committee maintains appropriate focus and oversight of the material risks facing the
Group, and allow sufficient time to discharge those responsibilities. Some minor areas for enhancement have been set out in actions
which will be tracked for conclusion in 2020.
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 204
Governance and oversight – Report of the Nomination
and Corporate Governance Committee
With regard to my successor, a rigorous process has been
undertaken through which the Committee, in my absence,
has met with a number of internal and external candidates.
The Group is in the process of identifying the next Chair and an
announcement will be made in due course.
These changes and the continuous review of the Board
Succession Plan culminated in the identification of retail
banking and accountancy as two specific skill sets which may
require enhancement on the Board as we prepare for future
board rotation. In order to ensure the Board continues to
maintain its current high level of experience and suitability, the
Committee requested two searches be conducted to identify
the most appropriate candidates in these fields. The searches
are ongoing and further announcements will be made in due
course on selection of the preferred candidates and upon the
conclusion of the associated regulatory processes.
Through both past and current searches, candidates are
required to be of sufficient calibre and experience for
appointment to the Board as Non-Executive Directors and
also have the ability to facilitate a culture where there is a
commitment to high standards of conduct and customer
fairness. Importantly, through the Committee’s work, diversity
was also a key consideration and I am delighted that the Group
was highlighted as an organisation with one of the most gender
balanced boardrooms of companies in Ireland with a 50/50 split
between the genders of our Non-Executive Directors.
The developments at Board level were coupled with substantial
change to our Executive Committee (“ExCo”), the composition
of which was recommended to the Committee by the CEO to
align with a refreshed operating structure. Executive succession
planning is vital to ensuring the long term sustainability of the
business and I am encouraged to see a strong, diverse ExCo
in place, particularly given a backdrop of the remuneration
restrictions applied to the Group but not to many of our
competitors.
Moreover, the ExCo succession plan was reviewed at multiple
intervals throughout the year by the Committee to ensure
the Group has robust successors to the ExCo members and
importantly, to identify employees across the Group who may
be successors to senior management in the longer term and
thereby develop a strong succession pipeline.
Turning to the Committee’s corporate governance oversight
responsibilities, throughout 2019 we took time to ensure
we were fulfilling our obligations under existing corporate
governance requirements and that we were well positioned for
the introduction of new requirements with particular reference
to the UK Corporate Governance Code 2018 which is further
detailed in the Corporate Governance report.
Our work in 2019 also included a refresh of the Non-Executive
Directors’ induction plan, substantial oversight of subsidiary
board succession planning and governance standards, as well
as the annual requirements to complete a collective suitability
assessment of the Board, review the time committed to the
Group by each Non-Executive Director and to review the various
codes and policies which fall within the Committee’s remit.
Letter from Richard Pym,
Chair of the Nomination and
Corporate Governance Committee
Dear Shareholder,
On behalf of the Nomination and Corporate Governance
Committee (the “Committee”), I am pleased to present our
report on the Committee’s activity during the financial year
ended 31 December 2019.
The year was dominated by succession planning. Following on
from substantial change in 2018, 2019 brought about further
change with the appointments to the Board of Dr Colin Hunt,
Chief Executive Officer (“CEO”) and Mr Tomás O’Midheach,
Chief Operating Officer and Deputy CEO both as Executive
Directors, Ms Sandy Kinney Pritchard, Ms Ann O’Brien, Mr Raj
Singh, Mr Basil Geoghegan and Ms Elaine MacLean were each
appointed as Non-Executive Directors.
Regrettably, 2019 also brought the retirements of a number
of our long standing Non-Executive Directors: Mr Simon Ball,
Mr Peter Hagan, Ms Catherine Woods and Mr Jim O’Hara, as
well as the resignation of Mr Bernard Byrne, CEO and Mr Mark
Bourke, Chief Financial Officer as detailed in last year’s Annual
Financial Report.
These changes also impacted the Committee’s composition as
Mr Ball, Ms Woods and Mr O’Hara stepped down during the
year. Ms MacLean joined the Committee in September 2019,
Mr Foley in October and Mr Brendan McDonagh in November.
We believe that the current Committee composition is strong
with good diversity of experience augmented by Ms MacLean’s
extensive human resources background.
As noted earlier in this Annual Financial Report and as
announced in October 2019, I intend to retire as Chair of the
Group in March 2020. Prior to this decision, I had requested
the previous Deputy Chair, Ms Catherine Woods, to commence
a process to identify a potential Chair Designate. On review
of our current Board and following Catherine’s retirement,
current board member Mr Brendan McDonagh was appointed
as Deputy Chair and Mr Tom Foley was appointed as Senior
Independent Director, both effective from October 2019.
AIB Group plc Annual Financial Report 2019Governance and Oversight 205
As this is my final report to you in this role, I would like to thank
my fellow Committee Members both past and present for their
unwavering commitment in what was another extremely busy
year. I am very grateful to the Committee for the amount of time
and effort committed to finding the best possible candidates to
ensure a strong Board is in place to lead the Group in the years
ahead.
I am confident that my successor will continue to focus on
building the human resources to lead the business into a
positive and sustainable future.
Richard Pym
Committee Chair
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 206
Governance and oversight – Report of the Nomination
and Corporate Governance Committee
Report of the Nomination and Corporate Governance
Committee
The Committee composition changed significantly in 2019
with the retirement of Mr Simon Ball, Mr Jim O’Hara and
Ms Catherine Woods and the appointment of Ms Elaine
MacLean, Mr Tom Foley and Mr Brendan McDonagh as
Committee members.
As at 31 December 2019, the Committee was comprised of
three Non-Executive Directors, all deemed to be independent
and the Chair, who was independent on appointment.
Throughout the year, the Committee’s composition was
fully compliant with the Central Bank of Ireland’s Corporate
Governance Requirements for Credit Institutions 2015,
the UK Corporate Governance Code 2018 and the Capital
Requirements Directive IV.
The Chair of the Board is the Chair of the Committee and chairs
all meetings, other than when the Committee is dealing with
the process for appointing a successor to the role of Board
Chair. In such instances, the Senior Independent Director,
Ms Catherine Woods up to October 2019 and thereafter,
Mr Tom Foley, leads the Committee discussions.
Biographical details of each of the Committee Members are
outlined on pages 44 and 45.
The Committee met fourteen times during 2019, four of
which were scheduled meetings. The Chair and Members of
the Committee, together with their attendance at meetings,
are shown below. The Committee meets regularly with no
management present. The Chief Executive Officer, Chief
People Officer and other members of Management are invited
to attend meetings where the agenda item is relevant and their
attendance is requested by the Committee.
Current Committee members are shown below. Members who
retired during the year are shaded.
Member attendance during 2019*:
Richard Pym
Tom Foley
Elaine MacLean
Brendan McDonagh
Jim O’Hara
Catherine Woods
Simon Ball
Eligible to attend
12
Attended
12
2
4
1
12
12
4
2
4
0**
11
11
4
* As indicated in the Report, there were a number of membership
changes throughout the year which, in turn, led to differences in the
number of Committee meetings individual directors were eligible to
attend.
** Mr McDonagh was unable to attend this meeting due to his attendance
being required at a regulatory meeting at the same time.
•
•
During 2019, the Committee engaged Korn Ferry to facilitate
searches for a Chair Designate and Non-Executive Directors.
It should be noted that Korn Ferry have been engaged by the
Group for a number of candidate searches in recent years and
to conduct a number of internal management assessments.
Separately, Korn Ferry has been appointed by the Minister
for Finance to conduct a Remuneration Review; confirmation
was received that Korn Ferry employees who carried out the
candidate search processes were separate to those engaged
in the Minister’s Review. The Group is mindful at all times of the
need to avoid possible conflicts of interest.
The Institute of Directors were also engaged for a number of
candidate searches for Non-Executive Directors for the Group’s,
various Irish subsidiaries, and Heidrick and Struggles were
engaged similarly by AIB Group (UK) p.l.c. Whilst the search
firms were engaged by and for the subsidiaries, the results of
such searches were reported to the Committee.
Individual Directors do not have any material connections with
the aforementioned search firms. Notwithstanding that, it may
be the case that individual Directors may be considered within
candidate searches being conducted by those firms from time
to time for other clients or that individual directors may have
engaged these search firms through prior engagement in other
external executive or non-executive roles.
To ensure ongoing awareness of the Committee’s activities
by the full Board, the Chair provides an update to the Board
following each meeting on the key items discussed and
considered by the Committee. Additionally, Committee meeting
minutes are generally tabled for information at the next
scheduled Board meeting following their approval and the
Committee provides an annual written report to the Board on its
activities during the preceding twelve months.
Committee Purpose
A full overview of the responsibilities of the Committee is set
out in its Terms of Reference. Included among these are the
following:
•
to support and advise the Board in fulfilling its oversight
responsibilities in relation to the composition of the
Board by ensuring it is comprised of individuals who are
best able to discharge the duties and responsibilities of
Directors to include leading the process for nominations
and appointments to the Board and Board Committees
as appropriate, and making recommendations on these
matters to the Board for its approval;
to support and advise the Board in fulfilling its oversight
responsibilities in relation to the composition of the Group’s
Executive Committee and the composition of the boards of
its licensed subsidiaries; and
to keep Board governance arrangements, corporate
governance compliance and related policies under review
and make appropriate recommendations to the Board to
ensure corporate governance practices are consistent with
best practice corporate governance standards.
The Committee’s Terms of Reference can be found on the
Group’s website at: https://aib.ie/investorrelations/about-aib/
corporate-governance
AIB Group plc Annual Financial Report 2019Governance and Oversight 207
Matters considered by the Committee
The following, while not intended to be exhaustive, is a summary of the key items considered, reviewed and/or approved or
recommended by the Committee during the year:
Area of focus
Role of the Committee
Non-Executive
Board composition
and succession
planning
Executive
Committee
succession
planning
Subsidiary Director
Succession
Planning and
Subsidiary
Oversight
Corporate
Governance
considerations
–
–
–
Robustly considered the Board and Board Committee’s collective skillset, suitability and
composition. Reviewed and enhanced the three year Board succession plan to ensure
preparedness for anticipated changes over that period and provide additional coverage in the
event of unanticipated changes.
Conducted a robust internal and external search for a new Deputy Chair, Chair Designate and
additional Non-Executive Directors. The Committee engaged Korn Ferry, prepared candidate
specifications for the roles, oversaw the search processes for candidates, assessed potential
successors for Board roles, and kept the Board abreast of progress. Open advertising for the
Board positions was not used by AIB in 2019 as the Committee believes that targeted recruitment
is the optimal way of recruiting for such positions.
Shortlisted candidates were interviewed by Committee Members, or where necessary due
to changes in Committee membership, designated interview panel members. Thereafter, the
Committee met as a whole to discuss feedback and reach consensus prior to recommending to
the Board for consideration and approval.
– Reviewed the appointment of the Senior Independent Director.
–
–
–
Assessed collective suitability of the Board and the independence of individual Directors
against certain criteria, including whether Directors were demonstrably independent and free of
relationships and other circumstances that could affect their judgement, and whether they met
criteria set out in applicable Irish and UK codes, standards and regulations as detailed in the
Corporate Governance report.
Considered proposals for appointments to the Executive Committee on foot of changes brought
about under a new business operating model in November 2019.
Considered proposals for appointments to the roles of Group Head of Internal Audit and Chief
People Officer.
– Considered enhancements to the executive management succession strategy.
–
–
–
–
–
–
Considered the material subsidiary boards’ collective composition whilst acknowledging the final
approval of all appointments and succession planning for the subsidiary boards rested with each
separate board.
Engaged the Institute of Directors in Ireland to conduct searches for new Non-Executive Directors
to material subsidiaries in the Republic of Ireland.
Oversaw the engagement of Heidrick and Struggles to assist AIB Group (UK) p.l.c. in its searches
for new Non-Executive Directors.
Received regular updates regarding compliance by the material licensed subsidiaries with
applicable regulation and guidance.
Received regular updates on the compliance status of the Group with regard to the updated UK
Corporate Governance Code 2018, potential items for explanation and discussing the implications
of same.
Considered the Group’s corporate governance policies and procedures. Policies reviewed during
2019 included the Board Governance Manual and matters reserved for the Board, the Board
Code of Conduct and Conflicts of Interests Policy, the Board Diversity Policy, the Governance and
Organisation Framework and Committee Terms of Reference. Additionally, received bi-annual
corporate governance updates to include the compliance status of the Group and upcoming
compliance requirements.
Performance Evaluation
An internal performance evaluation of the Board and Board Committees was conducted during 2019 as noted in the Corporate
Governance report contained in this Annual Financial Report, and included a review of the Committee. The review concluded that the
Committee continued to operate in an efficient manner, particularly in light of the heightened level of change to the Board’s composition
during the year. During the evaluation, the Committee Members emphasised the importance of continued focus on executive succession
planning and ensuring upcoming corporate governance requirements were monitored to ensure the Group was appropriately positioned
for potential change. Consideration to the phasing of length of tenure of Non-Executive Directors was highlighted as an area of
consideration for 2020 to prevent concurrent retirement of directors in the future.
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 208
Governance and oversight –
Report of the Remuneration Committee
In line with its annual review cycle, the Committee reviewed
the Group Remuneration Policy in 2019 which continues to
be governed in accordance with the remuneration restrictions
contained in the State Agreements. The Committee’s desired
remuneration policy continues to be the implementation of a
competitive, market-aligned, performance-related remuneration
model, fully compliant with the Capital Requirements Directive
IV and EBA Guidelines on Sound Remuneration Policies,
which will mitigate the Group’s key people risks and align the
remuneration of our staff with the achievement of the Group’s
strategic objectives. However, due to the current restrictions,
this has yet to be achieved.
When the State’s remuneration review concludes and clarity is
provided on any potential recommendations that might arise,
the Committee will consider the Group’s Remuneration Policy
with, where required, the necessary presentation of an updated
Remuneration Policy to shareholders being arranged thereafter.
Further information on the Group Remuneration Policy is
contained in the Report following this letter.
Notwithstanding the aforementioned restrictions, during 2019,
the Committee continued its efforts to ensure it was well
positioned should the Group return to a variable remuneration
environment in the future whilst continuing its business as
usual. To that end, in January the Committee received specific
training alongside our Board Risk Committee colleagues on
the EBA Guidelines on Sound Remuneration Policies which
positioned both Committees for robust and challenging review
of the material risk taker processes, remuneration-associated
elements of the Risk Appetite Statement and the potential
future implementation of any new remuneration structures.
Additionally, the Committee spent a substantial amount of time
in 2019 reviewing the remuneration levels of members of the
Executive Committee and Heads of Control functions to ensure
all roles were appropriately remunerated and supported the
long term sustainability of the Group, whilst adhering to the
restrictions.
Compliance with the UK Corporate Governance Code 2018
was a key theme of the Committee’s work during 2019 and
compliance with the remuneration elements have been
independently assured by external consultants. Further
information on the compliance status of the Group as a whole
with the UK Corporate Governance Code is detailed in the
Corporate Governance report.
The Committee considered the Group’s preparation for the
introduction of the Gender Pay Gap Information Act in the
Republic of Ireland which is expected in 2020-21 following the
Irish Government approving the Gender Pay Gap Information
Bill in June 2018. This will facilitate the introduction of
mandatory Gender Pay Gap reporting. Upon the relevant
requirements being available, the Committee will consider any
required actions to ensure reporting is compliant.
Finally, the Committee appointed PricewaterhouseCoopers
as its new remuneration consultants. We thank Willis Towers
Watson for their support in recent years.
Letter from Elaine MacLean,
Chair of the Remuneration Committee
Dear Shareholder,
I am pleased to present my first report on the Remuneration
Committee’s (the “Committee”) activity during the financial year
ended 31 December 2019. I joined the Committee and was
appointed Chair in September 2019.
My report is provided on behalf of the Committee as a whole,
and on its behalf, I would like to acknowledge the steadfast
dedication of Mr Simon Ball who stepped down from the
Committee in April 2019 and Mr Jim O’Hara, who chaired the
Committee from 2012 to September 2019. Mr O’Hara was
a strong leader who made a significant contribution to the
Committee during his tenure.
The Committee composition further changed in 2019 with
Ms Ann O’Brien joining in April 2019 and her experience
gained through her career has provided helpful insights to the
Committee.
Acknowledging previous Remuneration Reports of the
Committee, through my own research into the Group and my
induction upon appointment, I have learned how the remit of
Management and the Committee with regard to remuneration
across the Group is impacted by the remuneration restrictions
contained in certain agreements with the Irish State following
the State’s recapitalisation of the Group in 2010 and 2011
(“State Agreements”). Such restrictions affect the ability of the
Group to implement a variable pay structure that would be
the norm for many of our comparative peers and, due to the
resultant increase risk of employee attrition, negatively impacts
on the long term sustainability of the Group.
Since joining the Board, I have seen first-hand the continuing
impact of these restrictions on the Group’s ability to retain and
attract key management, particularly as new competitors enter
the Irish financial services market who are not subject to the
same restrictions. The Committee and the Board as a whole
are acutely aware of, and concerned about, the impact of these
continuing restrictions and we await the outcome of the Minister
for Finance’s review on this matter as also noted in the 2018
Report of the Remuneration Committee.
AIB Group plc Annual Financial Report 2019Governance and Oversight 209
Looking ahead, the Committee will continue its work with
Management to oversee and, where required, challenge
proposals to ensure appropriate remuneration structures are
in place across the Group in line with our strategic aims, the
restrictions to which the Group is subject and ultimately create
a structure that operates in the best interests of the Group’s
employees, shareholders and other stakeholders.
I am eager to continue my learning about the Group in the next
year and fostering strong relationships with our stakeholders,
including seeing many of our shareholders at the AGM and
having the opportunity to hear their views on remuneration
matters.
Elaine MacLean
Committee Chair
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 210
Governance and oversight –
Report of the Remuneration Committee
Report of Remuneration Committee
Membership and Meetings
The Committee composition changed significantly in 2019 with
the resignation of two Committee members, Mr Simon Ball
and Mr Jim O’Hara, and the appointment of Ms Ann O’Brien
as a Committee member and Ms Elaine MacLean as the
new Committee Chair. At 31 December 2019, the Committee
comprised of three Independent Non-Executive Directors and
the Chair of the Board, who was independent on appointment.
Further details on independence considerations are set out on
page 189.
The Committee’s composition is fully compliant with the
Central Bank of Ireland’s Corporate Governance Requirements
for Credit Institutions 2015 and the Capital Requirements
Directive IV. The composition of the Committee is not in full
compliance with the UK Corporate Governance Code 2018 (the
“Code”) with particular reference to Provision 32 of the Code
regarding the tenure of Ms MacLean serving on a remuneration
committee. The Committee and the Board as a whole are
satisfied that the composition of the Committee is appropriate
and have chosen to explain this area of non-compliance
under the ‘comply and explain’ principle of the Code. Further
information on compliance with the Code is located in the
Corporate Governance report.
In order to ensure that remuneration policies and practices
are consistent with, and promote, sound and effective risk
management, common membership between the Remuneration
Committee and the Board Risk Committee is maintained, with
Mr Brendan McDonagh providing this overlap.
Biographical details of each of the Committee members are
outlined on pages 44 and 45.
The Committee met eleven times during 2019, five of which
were scheduled meetings and one being a joint meeting with
the Board Risk Committee. The Chair and Members of the
Committee, together with their attendance at meetings, are
shown below.
The Committee met on one occasion with no management
present. The Chief Executive Officer, the Chief People Officer,
Head of Reward and other members of Management are invited
to attend the meetings where the agenda item is relevant and
at the request of the Committee. The Chief Risk Officer is a
permanent attendee unless the topic under discussion relates
to her own remuneration or that of her executive colleagues.
No member of Management is permitted to attend where
a specific proposal relating to their own remuneration is
scheduled for discussion.
Current Committee members are shown below. Members who
retired during the year are shaded.
Member attendance during 2019*:
Elaine MacLean
Brendan McDonagh
Ann O’Brien
Richard Pym
Jim O’Hara
Simon Ball
Eligible to attend
3
Attended
3
11
6
11
9
5
10
5
11
8
5
* As indicated in the Report, there were a number of membership
changes throughout the year which, in turn, led to differences in the
number of Committee meetings individual directors were eligible to
attend.
During 2019, the Committee used the services of Willis Towers
Watson (“WTW”) and PricewaterhouseCoopers (“PwC”) for
advice on market-based remuneration practices, compliance
and training. WTW had a standing invitation to attend
Committee meetings up to December 2019.
In December 2019, the Committee appointed PwC as its
designated remuneration advisors. Prior to their appointment,
PwC were invited to attend a number of meetings in 2019 to
provide advice and guidance on matters of remuneration policy
and going forward, they have a standing invitation to attend
Committee meetings where their advice would enhance the
discussion at the Committee.
WTW, the designated remuneration advisors for the Committee
up to December 2019, are solely focused on Human Resources
and remuneration consultancy and have no other relationship
with the Group. PwC provide a range of consultancy services to
the Group.
To ensure ongoing awareness of the Committee’s activities by
the full Board, the Committee Chair provides an update to the
Board following each meeting on the key items discussed and
considered by the Committee.
Committee Purpose
A full overview of the responsibilities of the Committee is set out
in its Terms of Reference and include responsibility:
•
to oversee the design and implementation of the Group’s
overall Remuneration Policy for employees and directors,
designed to support the long term business strategy, values
and culture of the Group as well as to promote effective
risk management and comply with applicable legal and
regulatory requirements;
to oversee the operation of Group-wide remuneration
policies and practices for all employees, with specific
reference to Executive Directors, the Chief Executive
Officer, Executive Committee members, Heads of Control
Functions and Material Risk Takers; and
to perform any other functions appropriate to a
Remuneration Committee or assigned to it by the Board.
•
•
The Committee discharges its responsibility whilst operating
under the principle that no individual shall be involved in
deciding their own remuneration. The Committee’s Terms
of Reference can be found on the Group’s website at
https://aib.ie/investorrelations/about-aib/corporate-governance
AIB Group plc Annual Financial Report 2019Governance and Oversight 211
Matters considered by the Committee
The following, while not intended to be exhaustive, is a summary of the key items considered, reviewed and/or approved or
recommended by the Committee during the year:
Area of focus
Role of the Committee
Remuneration
Model and Key
Remuneration Risks
Compliance and
annual matters
for review
–
–
–
–
–
–
–
–
–
–
Considered the impact of the continuing remuneration constraints across the Group and the
associated heightened people risk.
Reviewed the total remuneration of each member of the Executive Committee and various Heads
of Control functions.
Considered the implementation of a commission scheme for staff of Payzone upon the
completion of the Group’s joint venture acquisition of Payzone.
Considered the continued appropriateness or otherwise of the Group’s Remuneration Policy
and the likely outcome of the Irish Minister for Finance’s review into remuneration in the banking
industry.
Considered the potential to introduce additional commission schemes across the Group
acknowledging the restrictions in certain State Agreements.
Reviewed the impact of the revised career structure on the employee base by both level and
location.
Received an update on the preparation for Gender Pay Gap reporting in anticipation of related
legislation being implemented in the Republic of Ireland in the coming years.
Reviewed the composition and remuneration components of Identified Staff and the process for
the identification of Material Risk Takers.
Reviewed the duties and responsibilities of the Committee in accordance with the requirements of
Capital Requirements Directive IV (“CRD IV”), EBA guidelines on sound remuneration practices
and monitored ongoing compliance with relevant statutory disclosures, regulatory requirements
and guidelines.
Reviewed the compliance status of the Group with the remuneration elements of the updated UK
Corporate Governance Code 2018 with any amendments being approved to the Remuneration
Policy and Terms of Reference as required.
Performance Evaluation
An internal performance evaluation of the Board and Board Committees was conducted during 2019 as noted in the Corporate
Governance report in this Annual Financial Report, and included a review of the Committee. The review concluded that the Committee
continued to operate in an efficient manner, with progress made when compared to the previous year. In particular, the composition
of the Committee and the support provided by in-house resources were strengthened throughout the year. The Committee Members
highlighted the need for further enhancements to the quality of external advice provided to the Committee and the appointment of PwC
was welcomed.
Directors’ Remuneration
Details of the total remuneration of the Directors in office during 2019 and 2018 are shown in the Corporate Governance Remuneration
statement on pages 216 and 217. Dr Hunt is a Non-Executive Director of The Ireland Funds, Ireland Chapter which is a charitable
organisation and company limited by guarantee. Dr Hunt receives no remuneration for this role. Mr O’Midheach does not currently hold
any external Non-Executive Directorships. Limitations on such external directorships are outlined in CRD IV and both of the Group’s
Executive Directors are fully compliant with these limitations.
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 212
Governance and oversight –
Corporate Governance Remuneration statement
Remuneration Constraints
The Group has been required to comply with certain executive
pay and compensation restrictions following the Group’s
re-capitalisation by the Irish Government in 2010 and 2011.
The application of market aligned remuneration policies
and practices are significantly constrained by the terms of
Subscription and Placing Agreements entered into between AIB
and the Irish Government. In particular, AIB is precluded from
introducing any new bonus or incentive schemes, allowances
or other fringe benefits without prior agreement with the State.
Consequently, the absence of performance based variable pay,
combined with the requirement to operate within an overall cap
on individual salaries and allowances of € 500,000, precludes
AIB from aligning the remuneration of key executives and other
key employees with the achievement of longer term customer,
financial and strategic targets.
Remuneration Policy and Governance
The Group Remuneration Policy sets the framework for all
remuneration related policies, procedures and practices for all
employees and directors of AIB Group. The principal aim of
the Remuneration Policy is to support AIB in becoming a bank
to believe in, recognised for outstanding customer experience
and superior financial performance. The Remuneration Policy
is designed to foster a truly customer focused culture; to
create long term sustainable value for our customers and
shareholders; to attract, develop and retain the best people and
to safeguard the Group’s capital, liquidity and risk positions.
The Board recognises that the long term success of the Group
is dependent on the talent of employees and, in particular, the
ability to consistently perform at the highest level in the best
interests of our customers. The Board aims to ensure that
remuneration is aligned with performance and that employees
are rewarded fairly and competitively within the remuneration
constraints, for their contribution to the Group’s future success
and growth. The Group is committed to a simple, transparent
and affordable reward structure which is fair, performance
based, externally aligned and risk aligned. The scope of the
Remuneration Policy applies to all employees and directors of
the Group.
The Remuneration Policy is governed by the Remuneration
Committee on behalf of the Board. The Committee is
responsible for determining the Remuneration Policy and
for overseeing its implementation. The Committee oversees
the operation and effectiveness of the Remuneration Policy,
including the process for the identification of material risk
takers. The Committee’s governance role in this respect is
outlined in its Terms of Reference. The Committee further
ensures that the Remuneration Policy and practices are subject
to a review at least annually, taking into account the alignment
of remuneration to the Group’s culture for all employees
and executive directors. The annual review is informed by
appropriate input from the Group’s risk and internal audit
functions to ensure that remuneration policies and practices
are operating as intended, are consistently applied across the
Group and are compliant with regulatory requirements.
During 2019, the Remuneration Policy and the Committee’s
Terms of Reference were updated to incorporate amendments
relating to the UK Corporate Governance Code 2018.
Regarding provision 40 of the Code, the Remuneration Policy
sets the framework which underpins remuneration policies and
practices equally for executive directors and all employees.
In particular:
Clarity
Simplicity
Risk
Predictability
Proportionality
Alignment to
culture
Remuneration arrangements are
clearly outlined and the policy is
publicly available;
The Group is committed to a simple
reward structure as outlined in the
policy;
The Group’s fixed remuneration
arrangements operate under strict
remuneration constraints. If variable
schemes were introduced in the future,
the design of any such schemes would
include full risk assessment measures;
If variable schemes were introduced
in the future, specific details, including
worked examples, of directors
remuneration would be included in
the policy;
The Group’s existing remuneration
structure does not provide for the
awarding of any individual awards; and
The Group does not currently operate
any incentive schemes other than a
small number of limited commission
schemes.
These schemes are designed to
ensure that the rights and interests
of customers are protected at all
times through robust customer centric
performance criteria, the prevention
of conflicts of interest and the
assessment and mitigation of risks to
the customer.
In relation to provision 41 of the Code:
•
Executive director remuneration is governed by the policy
and determined by the Committee;
In 2019, new career levels were introduced with market
related pay ranges for each level. All employees were
mapped to a career level and associated pay range based
on their level of accountability;
The Report of the Remuneration Committee describes the
operation of the policy;
As the same remuneration restrictions remained in place
and there were no material changes to remuneration policy
during 2019, shareholder engagement was not required in
this area;
The Corporate Governance report references engagement
with the workforce; and
In the absence of variable remuneration, discretion is not a
material factor.
•
•
•
•
•
AIB Group plc Annual Financial Report 2019Governance and Oversight 213
Reward Structure and Operation in 2019
The continued existence of remuneration constraints
significantly impedes the Group’s ability to apply its desired
remuneration policy and to implement market aligned
remuneration policies and practices. In particular, the Group
is precluded from introducing any new bonus or incentive
schemes, allowances or other fringe benefits without prior
agreement with the State. Consequently, the absence
of performance based variable pay, combined with the
requirement to operate within an overall cap on individual
salaries and allowances of € 500,000, precludes the Group
from aligning the remuneration of key executives and other
key employees with the achievement of longer term customer,
financial and strategic targets.
During 2019, remuneration across the Group continued to be
principally comprised of fixed pay elements encompassing
base salary, allowances and employer pension contributions.
Base salary endeavours to reflect the size and level of
responsibilities attaching to individual roles while allowances
are paid in lieu of benefits generally available in the external
market. The Group operates defined contribution pension
schemes which followed the closure of all Group defined
benefit schemes to future accrual on 31 December 2013.
Further details in respect of the Group’s fixed pay elements are
provided in the table below.
Increases to salary in 2019 were awarded following the annual
pay review process, through promotion, progression and, in
exceptional cases, through out-of-course increases to retain
business critical staff and key skills. A number of employees
also received increases to align their salary to the new ranges
that were introduced.
Pay increases under the 2019 annual pay review comprised
of two individual components: a flat rate increase to base pay,
as well as an increase aligned to individual performance ratings.
These increases represented a one year agreement with
employee representatives arising from the recommendations
of the Workplace Relations Commission (WRC). Separate
recommendations were issued for each of the jurisdictions of
the Republic of Ireland, Northern Ireland and Great Britain.
The next annual pay review is due to take place in April 2020.
The remuneration of Executive Directors and members of ExCo
was determined and approved by the Remuneration Committee
within the remuneration constraints set by the State.
There were no general short or long term variable incentive
schemes or share incentive schemes in operation during 2019.
The Group operates three local business commission schemes.
These schemes are designed to protect the rights and interests
of customers through customer centric performance criteria,
the prevention of conflicts of interest and the assessment and
mitigation of risks to the customer. The maximum amount
payable to any individual per year is € 20,000.
It should be noted that some of the provisions of the Code
(including provisions 36 and 37) are not currently applicable to
the Group, as the Group does not operate variable incentive
arrangements, other than a small number of limited commission
schemes.
European Banking Authority (EBA) Guidelines
Remuneration policies, procedures and practices reflect the
provisions, where applicable, of national and EU legislation,
State Agreements and commitments provided to the Irish
Government, the Capital Requirements Directive (CRD IV) and
relevant guidelines issued by the European Banking Authority
(EBA) and other regulatory authorities. In the absence of
variable incentive schemes, there was little scope in practice
to apply the provisions of the EBA Guidelines pertaining to
variable remuneration. The Remuneration Policy incorporates
the provisions of the EBA Guidelines in relation to the ongoing
design, implementation and governance of remuneration.
Pillar 3 and Other Remuneration Disclosures
The Group publishes additional remuneration disclosures in the
annual Group Pillar 3 Report. These disclosures provide further
details in relation to the Group’s decision making process
and governance of remuneration, the link between pay and
performance, the remuneration of those employees whose
professional activities are considered to have a material impact
on the Group’s risk profile and the key components of the
Group’s remuneration structure. The Group’s Pillar 3 Report is
available on the Group website.
EBA remuneration benchmarking requirements require the
Group to disclose remuneration data in respect of material risk
takers and high earners (those earning above € 1 million) to
the Central Bank of Ireland. The Group continued to comply
with these reporting requirements during 2019. There were
no employees whose total remuneration exceeded € 1 million
during 2019.
The Group published its gender pay gap report for 2018 in 2019
in relation to its UK based employees. The disclosures are
available on the AIB (GB) website, www.aibgb.co.uk.
Identified Staff and Risk Oversight
The Group is required to maintain a list of employees whose
professional activities have a material impact on the Group’s
risk profile (“Identified Staff”). The list of Identified Staff is
prepared using a combination of qualitative and quantitative
criteria in accordance with the relevant EU regulations and
guidelines together with additional criteria specific to the
Group’s structure, business activities and risk profile. The list
is prepared at Group and subsidiary levels for the Republic of
Ireland and the United Kingdom.
A key principle of the Remuneration Policy is the promotion
of a strong risk culture and risk taking which is aligned to the
Group’s Risk Appetite Statement. The Remuneration Committee
is supported by the Chief Risk Officer in its assessment of
the key risks that should be considered in the context of the
Group’s remuneration structure and future remuneration
strategy. The Chief Risk Officer attends all meetings of the
Remuneration Committee.
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 214
Governance and oversight –
Corporate Governance Remuneration statement
Remuneration of Executive Directors and ExCo
The remuneration of Executive Directors and members of the
ExCo is determined by the Remuneration Committee. The level of
remuneration aims to provide an appropriate level of competitive
remuneration commensurate with the size and functional
responsibilities attaching to roles.
In line with current remuneration restrictions on the introduction
of variable pay and a cap on individual salaries and allowances
of € 500,000, remuneration principally consists of base salary,
allowances and pension contributions. Allowances consist of
non-pensionable cash allowances of up to € 30,000, subject to
salary and allowances remaining within the € 500,000 cap, while
employer pension contributions of 20% of base salary are payable
in respect of Executive Directors and ExCo members.
Following a review of compliance with the UK Corporate
Governance Code, the pension arrangements of Executive
Directors and ExCo members were considered by the Committee
and deemed to be appropriate, due to the remuneration
restrictions in place at this time.
The Group appointed a new Chief Executive Officer in March
2019. In line with the cap on salaries and allowances imposed
by existing remuneration restrictions, the Chief Executive Officer
was appointed on a base salary of € 500,000 together with an
employer pension contribution of 20% (€ 100,000) to a defined
contribution scheme.
The Chief Operating Officer (who is also Deputy Chief Executive
Officer) was appointed as an Executive Director in March 2019.
His base salary is € 485,000, with a non-pensionable allowance of
€ 15,000 and an employer pension contribution of 20% (€ 97,000)
to a defined contribution scheme.
There were no bonuses, shares or other incentive schemes paid
or awarded to Executive Directors or ExCo members in 2019.
The Committee undertakes a periodic review of the remuneration
of Executive Directors and ExCo members against external
benchmark data.
AIB Group plc Annual Financial Report 2019Governance and Oversight 215
Fixed Pay Elements
The principal fixed pay design elements are outlined below.
Pay Element
Rationale and
alignment to Strategy
Design and Operation
Performance Assessment and
Maximum Potential Value
Base Salary
To attract, motivate and
retain the right calibre
of individuals to support
the Group’s future
success and growth.
Allowances
To provide a contribution
to market aligned
benefits and allowances
generally available in
the market.
Base salary is designed to reflect
individual experience, contribution and
the size and level of responsibilities
attached to each role.
Base salaries are typically reviewed
annually as part of the annual pay
review process with increases taking
effect from 1 April.
Base salaries of Executive Directors
and members of the Executive
Committee are reviewed annually
by the Remuneration Committee on
behalf of the Board.
Increases in base salary are performance
based, determined by performance against
objectives which reflect the Group’s strategy,
goals and values and typically occur as part
of the annual pay review process.
Increases may also arise through progression
and promotion and, in exceptional cases,
through out of-course increases to retain key
talent and skills.
Base salaries of all employees, including
Executive Directors, are managed in
accordance with existing remuneration
restrictions.
The annual base salary for each Executive
Director is set out in the Directors
Remuneration Report.
Non-pensionable cash allowances
are provided to eligible employees
according to their career level.
Non-pensionable allowances for senior
career levels range from € 10,000 to € 20,000
per annum (£ 8,300 to £ 11,000 in the UK).
Allowances of up to € 30,000 per annum
(£ 14,000 in the UK) are payable to Executive
Directors and ExCo members.
Pension
To enable employees
plan for an appropriate
standard of living in
retirement.
Employees are entitled to participate
in the Group’s Defined Contribution
Scheme with a monthly contribution
based on a percentage of base salary.
A standard contribution of 10% of base salary
plus an additional matching contribution
of up to 8%, depending on the age of the
employee.
Executive Directors and Executive
Committee members are also
entitled to participate in the Defined
Contribution Scheme.
The employer pension contribution
for Executive Directors and Executive
Committee members is up to 20% of base
salary.
In the UK, employees may elect to
receive cash in lieu of their pension
contribution.
Other
Benefits
To provide affordable
benefits in accordance
with general market
practice.
Benefits include medical insurance
(US and UK employees only), income
protection, death-in-service cover and
free banking services.
The Group does not operate a company car
scheme. A functional car policy is in place
based on role requirements.
Relocation costs, including tax advice,
accommodation and flight allowances,
may be provided in line with market
practice.
The Remuneration Committee retains
the right to provide additional benefits
subject to current remuneration
restrictions.
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 216
Governance and oversight –
Corporate Governance Remuneration statement
Directors’ remuneration*
The following tables detail the total remuneration of the Directors in office during 2019 and 2018:
Directors’ fees
Parent and
Irish subsidiary
companies(1)
€ 000
Directors’
fees
AIB Group
(UK) p.l.c.(2)
€ 000
Salary
Annual
taxable
benefits(3)
Pension
contribution(4)
2019
Total
€ 000
€ 000
€ 000
€ 000
34
34
93
28
73
80
26
109
75
51
365
55
955
47
70
98
147
407
379
786
–
22
22
81
76
157
105
93
–
–
17
19
488
477
965
127
28
73
80
26
109
75
51
365
55
989
47
122
112
70
41
98
147
11
1,637
Remuneration
Executive Directors
Colin Hunt
Tomás O’Midheach
Non-Executive Directors
Tom Foley(2)
Basil Geoghegan
Sandy Kinney Pritchard
Carolan Lennon
Elaine MacLean
Brendan McDonagh
(Deputy Chair)
Helen Normoyle
Ann O’Brien
Richard Pym(1(a))
(Chair)
Raj Singh
Former Directors
Simon Ball
Mark Bourke
Bernard Byrne
Peter Hagan
Anne Maher(5)
Jim O’Hara
Catherine Woods
Other(6)
Total
(1)Fees paid to Non-Executive Directors in 2019 were as follows:
(a) Mr Richard Pym, Chair, was paid a non-pensionable flat fee of € 365,000, which includes remuneration for all services as a Director;
(b) All other Non-Executive Directors were paid a basic, non-pensionable fee in respect of service as a Director of € 65,000 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 Deputy Chair, Senior Independent Non-Executive Director;
(2) Current or former Non-Executive Directors of AIB Group plc and Allied Irish Banks, p.l.c., as applicable, 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, Mr Foley earned fees as quoted during 2019;
(3)‘Annual taxable benefits’ represents a non-pensionable cash allowance in lieu of company car, medical insurance and other contractual benefits;
(4) ‘Pension contribution’ represents agreed payments to a defined contribution scheme to provide post-retirement pension benefits for Executive Directors
from normal retirement date. The fees of the Chair, Deputy Chair 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; and
(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.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Governance and Oversight
Directors’ remuneration* (continued)
Directors’ fees
Parent and
Irish subsidiary
companies
€ 000
Directors’
fees
AIB Group
(UK) p.l.c.
€ 000
95
88
95
80
94
75
115
365
180
1,187
39
34
34
7
Remuneration
Executive Directors
Mark Bourke
Bernard Byrne
Non-Executive Directors
Simon Ball
Tom Foley
Peter Hagan
Carolan Lennon
Brendan McDonagh
Helen Normoyle
Jim O’Hara
Richard Pym
(Chair)
Catherine Woods
(Deputy Chair)
Former Directors
Declan Collier
Anne Maher
Other
Total
217
2018
Total
Salary
Annual
taxable
benefits
Pension
contribution
€ 000
€ 000
€ 000
€ 000
490
500
990
10
–
10
98
100
198
598
600
1,198
95
122
95
80
94
75
115
365
180
1,221
7
39
11
1,278
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 218
Governance and oversight –
Corporate Governance Remuneration statement
Directors’ remuneration* (continued)
Interests in shares
The beneficial interests of the Directors and the Group
Company Secretary in office at 31 December 2019, and of their
spouses and minor children, in the Company’s ordinary shares
are as follows:
Ordinary shares
Directors:
Tom Foley
Basil Geoghegan
Colin Hunt
Sandy Kinney Pritchard
Carolan Lennon
Elaine MacLean
Brendan McDonagh
Helen Normoyle
Ann O'Brien
Tomas O'Midheach
Richard Pym
Raj Singh
Group Company Secretary:
Helen Dooley
**or date of appointment, if later
31 December
2019
1 January
2019**
2,501
–
12,500
–
7,700
–
10,000
2,000
–
4
2,501
–
–
–
7,700
–
10,000
2,000
–
4
30,000
2,000
–
–
–
–
The following table sets out the beneficial interests of the
Directors and Executive Committee (Members of the Executive
Committee at 31 December 2019) members of AIB as a group
(including their spouses and minor children):
Title
of class
Ordinary
shares
Identity of person
or group
Number
owned
Percent
of class
Directors and Executive
Committee members of
AIB as a group
64,784
***
*** The total ordinary shares in issue at 31 December 2019 was
2,714,381,237.
Share options
No share options were granted or exercised during 2019,
and there were no options to subscribe for ordinary shares
outstanding in favour of the Executive Directors or Group
Company Secretary at 31 December 2019.
Performance shares
There were no conditional grants of awards of ordinary shares
outstanding to Executive Directors or the Group Company
Secretary at 31 December 2019.
Apart from the interests set out above, the Directors and Group
Company Secretary in office at 31 December 2019 and their
spouses and minor children, have no other interests in the
shares of the Company.
There were no changes in the interests of the Directors and
the Group Company Secretary shown above between 31
December 2019 and 5 March 2020.
The year end closing price of the Company’s ordinary shares on
the Main Market of Euronext Dublin was € 3.106 per share.
Service contracts
All Executive Directors have a service contract whereas all Non-
Executive Directors have a letter of appointment.
In respect of Executive Directors, no service contract exists
between the Company and any Director which provides for a
notice period from AIB Group of greater than one year.
Non-Executive Directors are appointed for an initial term of
three years. Terms of office for Non-Executive Directors will not
be extended beyond nine years in total unless the Board, on the
recommendation of the Nomination and Corporate Governance
Committee, concludes that such extension is necessary and
appropriate.
All Directors, should they choose to stand, are subject to annual
re-election by shareholders.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2019Governance and Oversight Governance and oversight –
Viability statement
Viability statement
In accordance with provision 31 of the UK Corporate
Governance Code published in July 2018, the Directors have
assessed the viability of the Group taking into account its
current position, the prevailing economic and trading conditions
and principal risks facing the Group over the next three years to
31 December 2022.
Horizon period
The Directors concluded that three years was an appropriate
period to assess the viability of the Group for the following
reasons:
•
It is the same period used within the Group for the strategic
and financial planning process;
The Group prepares its annual Internal Capital Adequacy
Assessment (“ICAAP”) and Internal Liquidity Adequacy
Assessment (“ILAAP”) on an annual basis using a three
year time horizon;
A three year time horizon is used for both internal and
regulatory stress testing. Where certain impacts can be
assessed reliably beyond the 3 year forecast horizon, a
quantification is performed (for example the ECB Prudential
provisioning backstop for non-performing exposures) and
considered;
A three year time horizon is consistent with the internal risk
management practices within the Group, including but not
limited to: setting of the Risk Appetite, the Material Risk
Assessment as well as Recovery and Resolution planning.
•
•
•
Considerations in assessing viability of the Group
Assessment of prospects
The assessment of the Group’s prospects is built up based on
the current financial position of the Group including its funding
and liquidity on pages 145 to 153 and capital position as set out
on pages 67 to 70.
The Group has completed a review of its Strategy, covering the
period of assessment which is described on pages 24 to 29.
The Board participated fully in the strategic process by means
of regular updates during the year and an extended Board
meeting in November 2019. Furthermore, the Directors robustly
assessed the risks facing the Group including those that would
threaten the competitive position of the business, its operational
capacity as well as the Group’s governance and internal control
systems.
During the year, the Directors rely on the following processes to
identify and assess risks which could impact on the continued
viability of the Group:
•
The Group’s Material Risk Assessment process seeks
to ensure that all significant risks to which the Group is
exposed have been identified and are being appropriately
managed. New and emerging risks are also identified and
mitigating actions are put in place.
As part of the setting of the Group’s risk appetite,
consideration is given to the amount of risk the Group is
willing to accept in pursuit of its strategic objectives.
On a quarterly basis, internal stress testing of the Group’s
capital and liquidity position is performed. This is conducted
using a variety of different macroeconomic scenarios.
•
•
219
•
•
In recovery and resolution planning, consideration is given
to market factors and the operational resiliency of the Group
The regular reporting of the Group’s financial performance
by the Chief Financial Officer and the reporting of the
Group’s risk profile by the Chief Risk Officer.
A full description of the principal risks facing the Group is
provided in the Risk management section – Individual risk types
pages 79 to 170.
Assessment of viability
The financial planning process is the main tool for assessing
the continued financial prospects of the Group. The plan is
a detailed three year financial forecast for each division, and
includes forecasts of operating results, headcount, investment
expenditure and new strategic initiatives. Progress against
the plan is reported monthly to the Executive Committee and
the Board. Updated forecasts are prepared as required and
mitigating management actions are taken where required.
The Board considers the independent review of the plan by
the Risk function covering the alignment of the plan with Group
strategy and the risk appetite. This review also identifies the key
risks to delivery of the Group’s plan.
The plan uses the Group’s base case forecast, but also
includes consideration of downside scenarios. In 2019, the
Group considered three downside scenarios; (i) a global
downturn impacting on the Group’s core markets in Ireland, UK
and USA; (ii) a Brexit scenario, comprising of a disorderly exit of
the UK from the European Union; and (iii) a severe but plausible
scenario which is used for internal stress testing of the Group’s
capital position. The Group’s severe scenario is typically more
severe than the regulatory stress tests. In addition, the Group
performs regular stress testing of its liquidity position, and
during 2019 conducted specific liquidity stress tests in response
to changing Brexit conditions.
As part of the internal capital adequacy assessment process,
material risks and emerging risks to the Group’s financial
performance are considered in terms of their potential impact
on the Group’s position. These risks are set out on pages 38 to
43. Stress testing not only includes changes in macroeconomic
forecasts but also other factors such as; financial crime losses,
disruption to IT systems or cost of a cyber incident as well as
financial loss arising from compliance or conduct issues.
After considering these risks, and reviewing the financial plan
for the Group as well as the results of stress testing scenarios,
the Group continues to;
•
Demonstrate internal capital generation through continued
profitability in each of the forecast years;
Remain in excess of its regulatory capital requirements;
Have significant liquidity over its liquidity coverage ratio and
net stable funding ratio.
•
•
Statement of viability
On the basis of the above, the Directors believe, taking into
account the Group’s current position, and subject to the
identified risks, the Group will be able to continue in operation
and meet its liabilities as they fall due over the three year period
of assessment.
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 220
Governance and oversight –
Internal controls
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
that the Group is able 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 financial statements, and which accords with the Central
Bank of Ireland’s Corporate Governance requirements for Credit
Institutions 2015 and the UK Corporate Governance Code.
Supporting this process, the Group’s system of internal controls
is based on the following:
Board Governance and Oversight
–
–
–
–
–
–
The Board has ultimate responsibility for reviewing
the effectiveness of the system of internal control on a
continuous basis and is supported by a number of sub-
committees including Board Audit Committee (“BAC”),
Board Risk Committee (“BRC”), Remuneration Committee
and Nomination and Corporate Governance Committee.
The BRC is responsible for fostering sound risk governance
across all of the Group’s entities and operations, 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 and tolerance for future strategy.
The BAC reviews various aspects of internal control,
including the design and operating effectiveness of the
internal controls in place supporting the application of the
Group’s accounting policies, provision of statutory accounts
and financial and narrative reports, and financial reporting
systems. It also ensures that no restrictions are placed on
the scope of the statutory audit or the independence of the
internal audit function.
The Chief Financial Officer (“CFO”), the Chief Risk Officer
(“CRO”) and the Group Internal Auditor are involved in all
meetings of the BAC and BRC.
The Group’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, leading the
process for Board appointments and making the
recommendations to the Board in this regard, monitoring
succession planning at Board and Executive Committee
levels and reviewing the Group’s corporate governance
practices.
Executive Risk management and controls
–
The Executive Committee (“ExCo”) is the most senior
management committee of the Group and accountable
to the CEO, 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 Group Risk Committee (“GRC”) which is a sub-
committee of the ExCo 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 ExCo and acts as the Group’s
strategic balance sheet management forum that combines a
business decisioning and risk governance mandate.
There is a centralised risk control function headed by
the CRO who is responsible for ensuring that risks are
identified, measured, monitored and reported on, and for
reporting on risk mitigation actions.
The Risk function is responsible for establishing and
embedding risk management frameworks, ensuring that
material risk policies are reviewed, and reporting on
adherence to risk limits as set by the Board of Directors.
The Group’s risk profile is measured against its risk appetite
on a monthly basis and exceptions are reported to the
GRC and BRC through the monthly CRO report. Elements
of the CRO report are also contained in the Executive
Management Report reported to the full Group Board
monthly. Material breaches of risk appetite are escalated to
the Board and reported to the Central Bank of Ireland/Joint
Supervisory Team (“JST”).
The centralised credit function is headed by a Chief Credit
Officer who reports to the CRO.
Compliance, which is part of the Risk function, provides
advisory services to the Group and monitors and reports
on conduct of business and financial crime compliance
and forthcoming regulations across the Group, and on
Management’s focus on compliance matters.
There is an independent Group Internal Audit function which
is responsible for independently assessing the effectiveness
of the Group’s corporate governance, risk management
and internal controls and reports directly to the Chair of the
BAC.
AIB employees who perform pre-approved controlled
functions/controlled functions meet the required standards
as outlined in AIB’s Fitness and Probity programme.
–
–
–
–
–
–
–
–
–
–
For further information, on the Risk management framework of
the Group, see pages 72 to 78 of this report.
AIB Group plc Annual Financial Report 2019Governance and Oversight Governance and oversight –
Internal controls / Other governance information
221
Internal controls (continued)
Executive risk management and controls (continued)
In the event that material failings or weaknesses in the
systems of risk management or internal control are identified,
Management are required to attend the relevant Board forum to
provide an explanation of the issue and to present a proposed
remediation plan. Agreed remediation plans are tracked to
conclusion, with regular status updates provided to the relevant
Board forum.
Given the work of the Board, BRC, BAC and representations
made by the ExCo 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.
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.
Other governance information
Relations with shareholders
The Group has a number of procedures in place to allow its
shareholders and other stakeholders to stay informed about
matters affecting their interests. In addition to this Annual
Financial Report, which is available on the Group’s website
at www.aib.ie/investorrelations and sent in hard copy to those
shareholders who request it, the following communication tools
are used by the Group:
Shareholders’ Report
The Shareholders’ Report (‘the Report’) is a summary version
of AIB’s Annual Financial Report. The Report, which covers the
Group’s performance in the previous year, is available on the
Group’s website and sent in hard copy to those shareholders
who request it. The Report does not form part of the Annual
Financial Report and is for reference purposes only.
Website
The Group’s website, contains, for the years since 2000,
the Annual Financial Report, the Interim 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 Group’s website. None of
the information on the Group’s website is incorporated in, or
otherwise forms part of, this Annual Financial Report.
Annual General Meeting (“AGM”)
The AGM is an opportunity for shareholders to hear directly
from the Board on the Group’s performance and developments
of interest for the year to date and, importantly, to ask
questions.
All shareholders of the Company are invited to attend the AGM.
Separate resolutions are proposed on each separate issue
and voting is conducted by way of poll. The votes for, against
and withheld on each resolution, including proxies lodged, are
subsequently published on the Group’s website. Proxy forms
provide the option for shareholders to direct their proxies to
withhold their vote. It is usual for all Directors to attend the AGM
and to be available to meet shareholders before and after the
meeting. The Chairs of the Board Committees are available to
answer questions about the Committee’s activities. A help desk
facility is available to shareholders attending. The Company’s
2020 AGM is scheduled to be held on 29 April 2020, at the
Ballsbridge Hotel, Ballsbridge, Dublin 4 and it is intended that
Notice of the Meeting will be made available on the Group’s
website and sent in hard copy to those shareholders who
request it, at least 20 working days before the meeting, in
accordance with UK Code requirements.
AIB Group plc Annual Financial Report 2019Governance and Oversight 123456 222
Governance and oversight –
Supervision and Regulation
Throughout 2019, the Group continued to work with its
regulators, which include the European Central Bank (“ECB”),
the Central Bank of Ireland (“CBI”), the Prudential Regulation
Authority (“PRA”), the Financial Conduct Authority (“FCA”) in
the United Kingdom (“UK”), the New York State Department of
Financial Services (“NYSDFS”) and the Federal Reserve Bank
of New York in the United States of America (“USA”).
AIB Group plc is the holding company of Allied Irish Banks,
p.l.c. (the principal operating company of AIB Group) and as
such AIB Group plc is subject to consolidated supervision with
respect to Allied Irish Banks, p.l.c. and other credit institutions
and investment firms in the Group.
Current climate of regulatory change
The level of regulatory change remained high in 2019 as
the regulatory landscape for the banking sector continued to
evolve, with a large volume of significant regulatory initiatives
becoming effective. There was an increased focus on regulatory
supervision.
The Regulatory focus on Conduct and Culture will continue in
2020 and beyond, with anticipated regulatory developments in
the form of the Senior Executive Accountability Regime, and
review of the Fitness and Probity requirements.
The Group is committed to proactively identifying regulatory
obligations arising in each of the Group’s operating markets
in Ireland, the UK and the USA and ensuring the timely
implementation of regulatory change.
Throughout 2019, the Group continued cross-functional
programmes to ensure the Group met its new regulatory
requirements. In particular, the Group focused on the EU
directives on the prevention of the use of the financial system
for the purpose of money laundering and terrorist financing
the “4th AML Directive, the implementation of PSD2 Strong
Customer Authentication requirements; the Credit Reporting Act
2013 asset finance reporting to the central credit register; the
EBA Guidelines on Outsourcing, EBA Guidelines on connected
clients/large exposures and the EU Regulations on Cross
Border Payments.
2020 will continue to see regulators and supervisors
assessing how recent key regulatory requirements have been
implemented, the level of regulatory change is expected to
remain at high levels in 2020 and beyond.
United Kingdom
During 2019, AIB Group (UK) p.l.c. continued to prioritise
compliance with its regulatory obligations in Great Britain and
Northern Ireland and will remain focused on this throughout
2020.
Regulatory change horizon – UK
AIB Group (UK) p.l.c. is subject to the European Regulation
described under “Current climate of regulatory change” above
and works closely with AIB Group to ensure the requirements
are implemented compliantly taking into consideration UK
regulatory requirements. During the transition period, as set
out in the Withdrawal Bill, the UK will remain aligned to EU
regulations until at least 31 December 2020. Post the transition
period, there may well be areas of regulatory divergence.
As further regulatory reforms continue to emerge from the
regulators, AIB Group (UK) p.l.c. will continue to focus on
the management of regulatory change and its compliance
obligations.
In addition, AIB Group (UK) p.l.c. continues to focus on the
implementation of the retail banking market investigation order
(2017) (the “Order”). The Order will provide for remedies to
market-wide issues identified as part of the Competition and
Markets Authority’s Retail Banking Market Investigation into the
Personal Current Accounts and SME Banking markets in the
UK, in particular, the creation of an Open Banking infrastructure
aimed at fostering competition.
2019 saw a focus on regulatory interventions to limit the cost
of credit, particularly unauthorised overdrafts and anti-fraud
measures such as ‘Confirmation of Payee’ and this focus will
continue throughout 2020. In addition, UK regulators are placing
a focus on enhancing operational resilience in the UK financial
services sector and requiring banks to make plans to take
account of climate change.
United States
Compliance with federal and state banking laws and
regulations
During 2019, AIB’s state-licensed branch in New York continued
to prioritise compliance with its regulatory obligations in the USA
and will remain focused on this throughout 2020. In particular,
it will continue to monitor ongoing business activities with
regard to the Dodd Frank Act 2010. In addition, particular focus
will be given to the new Transaction Monitoring and Filtering
Programme Regulation and Cybersecurity Regulation from the
NYSDFS.
AIB Group plc Annual Financial Report 2019Governance and Oversight Financial statements
1 Directors' Responsibility Statement
2
Independent Auditor's Report
3 Consolidated financial statements
4 Notes to the consolidated financial statements
5 AIB Group plc company financial statements
6 Notes to AIB Group plc company financial statements
223
Page
224
225
237
243
366
369
AIB Group plc Annual Financial Report 2019123456Financial Statements 224
Directors’ Responsibility Statement
The following statement which should be read in conjunction with the statement of Auditor’s responsibilities set out with their Audit
Report, is made with a view to 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 are required to prepare the Group financial statements in accordance with International Financial Reporting Standards
(“IFRSs”) as adopted by the EU and have elected to prepare the Company financial statements in accordance with IFRSs as adopted
by the EU and as applied in accordance with the provisions of the Companies Act 2014.
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
–
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 and corporate governance requirements, the Directors are also
responsible for preparing the Directors’ Report and the reports relating to the Directors’ remuneration and corporate governance that
comply with that law and the relevant listing rules of Euronext Dublin (the Irish Stock Exchange) and the UK Listing Authorities.
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 whose names and functions are listed on pages 44 and 45 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 adopted by the EU, give a true and fair view of the state of
the Group’s affairs as at 31 December 2019 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 2019;
–
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 and the company’s position and performance, business model and strategy.
For and on behalf of the Board
Richard Pym
Chairman
5 March 2020
Colin Hunt
Chief Executive Officer
AIB Group plc Annual Financial Report 2019Financial Statements 225
Independent Auditor’s Report
Independent auditor’s report to the members of AIB Group plc
Report on the audit of the financial statements
Opinion on the financial statements of AIB Group plc (the “Company”)
In our opinion, the Group and Company financial statements:
–
give a true and fair view of the assets, liabilities and financial position of the Group and Company as at 31 December 2019 and of
the profit of the Group 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 we have audited comprise:
The Group financial statements:
–
–
–
–
the Consolidated Income Statement;
the Consolidated Statement of Comprehensive Income;
the Consolidated Statement of Financial Position;
the Consolidated Statement of Cash Flows;
–
–
the Consolidated Statement of Changes in Equity; and
the related notes 1 to 59, including a summary of significant accounting policies as set out in note 1.
The Company financial statements:
–
–
–
the Company Statement of Financial Position;
the Company Statement of Cash Flows;
the Company Statement of Changes in Equity; and
–
the related notes a to m, including a summary of significant accounting policies as set out in note a.
The relevant financial reporting framework that has been applied in the preparation of the Group and Company financial statements is
the Companies Act 2014 and International Financial Reporting Standards (“IFRS”) as adopted by the European Union
(“the relevant financial reporting framework”).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (Ireland) (“ISAs (Ireland)”) and applicable law.
Our responsibilities under those standards are described below in the “Auditor's responsibilities for the audit of the financial statements”
section of our report.
We are independent of the Group and Company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in Ireland, including the Ethical Standard issued by the Irish Auditing and Accounting Supervisory Authority
(“IAASA”), as applied to public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
– Expected credit losses on loans and advances to customers;
– Recoverability of deferred tax asset;
– Defined benefit obligations;
– Provision for tracker mortgage examination;
–
–
Impairment of investment in subsidiary (Company only key audit matter); and
IT systems and controls.
Within this report, any new key audit matters are identified with
and any key audit matters
which are the same as the prior year are identified with
.
Materiality
We determined materiality for:
–
the Group to be € 55 million based on approximately 7% of adjusted Profit Before Tax (“PBT”); and
–
the Company to be € 54 million which is 0.5% of total equity of the Company.
AIB Group plc Annual Financial Report 2019123456Financial Statements 226
Independent Auditor’s Report
Scoping
We focused the scope of our Group audit primarily on the audit work in AIB Group plc and four
Significant changes
in our approach
legal entities all of which were subject to individual statutory audit work, whilst the other legal
entities were subject to specified audit procedures, where the extent of our testing was based
on our assessment of the risks of material misstatement and of the materiality of the Group’s
operations in those entities. These audits and specified audit procedures covered over 94% of the
Group’s total assets and 92% of the Group’s total operating income.
Key audit matters
As part of our 2019 audit we have identified two new key audit matters:
–
Impairment of investment in subsidiary (Company only key audit matter): An impairment test
was performed by the Company on its investment in its subsidiary. A value in use (“VIU”)
model was used to calculate an estimated recoverable amount. We regard this area as a key
audit matter due to the fact that the assumptions used in the VIU model involve significant
Management judgement and estimation.
–
IT systems and controls: We regard this area as a key audit matter owing to the high level of IT
dependency within the Group, the associated complexity and the risk that automated controls
are not designed and operating effectively.
Materiality
For the current year we have considered adjusted PBT to be the critical component for determining
materiality. The adjusted PBT is normalised to remove the effect of certain restitution items which
are considered not to reflect the long-term performance of the Group.
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the Annual Financial Report, in relation to which ISAs (Ireland) or the
Listing Rules require us to report to you whether we have anything material to report, add or draw attention to:
–
the Directors’ confirmation in the Annual Financial Report on page 219 that they have carried out a robust assessment of the
principal and emerging risks facing the Group and the Company, including those that would threaten its business model, future
performance, solvency or liquidity;
–
the disclosures on pages 38 to 43 in the Annual Financial Report that describe the principal risks, procedures to identify emerging
risks, and an explanation of how they are being managed or mitigated;
–
the Directors’ statement on page 172 in the Annual Financial Report about whether the Directors considered it appropriate to
adopt the going concern basis of accounting in preparing the financial statements and the Directors’ identification of any material
uncertainties to the Group’s and the Company’s ability to continue to do so over a period of at least twelve months from the date of
approval of the financial statements;
–
whether the Directors’ statement relating to going concern required in accordance with Listing Rules 6.1.82(3) is materially
inconsistent with our knowledge obtained in the audit; or
–
the Directors’ explanation on page 219 in the Annual Financial Report as to how they have assessed the prospects of the Group
and the Company, 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 and the Company 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.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit for the financial
statements of the current financial year and include the most significant assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
AIB Group plc Annual Financial Report 2019Financial Statements 227
Expected credit losses on loans and advances to customers
Key audit matter
description
In line with IFRS 9, losses on financial assets which are classified at amortised cost are recognised
on an Expected Credit Loss (“ECL”) basis. ECLs are required to incorporate forward looking
information, reflecting Management’s view of potential future economic environments. The complexity
involved in the calculations require Management to develop methodologies involving the use of
significant judgements.
Expected credit loss allowances on loans and advances to customers was € 1,238 million at
31 December 2019 (2018: € 2,039 million).
Measurement of the ECL allowance on loans and advances to customers is a key audit matter as the
determination of assumptions for ECLs is highly subjective due to the level of judgement applied by
Management. The most significant judgements include:
–
Determining the criteria for a significant increase in credit risk (“SICR”), and for being classified
as credit impaired;
How the scope of our
audit responded to the
key audit matter
– Accounting interpretations and assumptions used to build the models that calculate the ECL;
–
The determination of key assumptions, including collateral valuation and cashflow timings, used
in discounted cash flows (“DCFs”) of individually assessed loans;
– The completeness and accuracy of data used to calculate the ECL;
–
The completeness and valuation of post-model adjustments determined by Management for
certain higher risk portfolios and to address known model limitations; and
Establishing the number and relative weightings for forward looking macroeconomic scenarios
applied in measuring the ECL. This is highly subjective given that such assumptions are subject
to significant uncertainty related to future economic outcomes, including the impact of Brexit.
This results in a wide range of possible outcomes.
–
Please also refer to page 194 (Audit Committee Report), page 263 (Accounting Policy (s) –
Impairment of financial assets), Note 2 – Critical accounting judgements and estimates, Note 15 –
Net credit impairment (charge)/writeback and Note 26 – ECL allowance on financial assets.
We tested key controls supporting the calculation of ECLs on loan and advances to customers
focusing on:
–
– model development, validation and approval to ensure compliance with IFRS 9 requirements;
review and approval of key assumptions, judgements and macroeconomic forward looking
–
information used in the models;
the integrity of data used as input to the models including the transfer of data between source
systems and the ECL models;
the application of SICR criteria and the definition of default used to determine stage outcomes;
–
– governance and approval of post-model adjustments recorded by Management;
– governance and approval of the output of IFRS 9 models; and
–
front line credit monitoring and assessment controls including annual case file reviews.
Our testing included an evaluation of the design and implementation of these key controls. Where
control deficiencies were identified we tested compensating controls implemented to produce the
ECLs and financial statement disclosures. We also assessed Management review controls and
governance controls including attendance at and observation of Board Risk Committee and Group
Credit Committee meetings.
We evaluated IT system controls including assessing data inputs and general IT controls. We tested
the completeness and accuracy of key data inputs and reconciled to source systems, where
appropriate.
We critically assessed the ECL models developed by the Group. In conjunction with Deloitte credit
modelling specialists, we challenged judgements and assumptions supporting the ECL requirements
of IFRS 9. These included assumptions used in the ECL models applied in stage allocation,
calculation of lifetime probability of default and methods applied to derive loss given default rates.
We evaluated the methodology and performed code reviews for a sample of models.
AIB Group plc Annual Financial Report 2019123456Financial Statements
228
Independent Auditor’s Report
We assessed the reasonableness of forward looking information incorporated into the impairment
calculations. We challenged the macroeconomic scenarios chosen and changes to the weightings
applied. This included benchmarking the economic data used to recognised external data sources.
We also considered the impact of key uncertainties, including Brexit as well as assumptions made by
Management around a ‘Global Slowdown’ scenario.
We considered material post-model adjustments applied by Management to address model and
data limitations. We challenged the rationale for these adjustments and performed testing on their
calculation and application.
In examining a risk based sample of DCF individually assessed loan cases, we challenged Management
on the judgements made regarding the application of the default policy, status of loan restructures,
collateral valuation and realisation time frames and examined the credit risk functions analysis of data
at a portfolio level. 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 used and to assess the objectivity of the external experts used.
We considered significant items impacting the ECL allowance balance. This included portfolio sales
and non-contracted write-offs, as well as recoveries on amounts previously written-off.
We evaluated the adequacy of disclosures made in the financial statements. In particular, we focused
on challenging Management that the disclosures were sufficiently clear in highlighting the significant
uncertainties that exist in respect of the ECL allowance and the sensitivity of the allowance to
changes in the underlying assumptions.
Based on the evidence obtained, we found that the ECLs on loans and advances to customers are
within a range we consider to be reasonable.
Recoverability of deferred tax asset
Key audit matter
description
The key audit matter relates to the incorrect recognition or measurement of the deferred tax asset.
Deferred tax assets of € 2,771 million (2018: € 2,808 million) are recognised for unutilised tax losses
to the extent that it is probable that there will be sufficient future taxable profits against which the
losses can be used.
The assessment of the conditions for the recognition of a deferred tax asset is a critical Management
judgement, given the inherent uncertainties associated with projecting profitability over a long time
period. This is highly subjective given the significant uncertainty related to future economic outcomes,
including the impact of Brexit and a potential global economic slowdown. The Group has reassessed
profitability and growth forecasts for the period 2020 to 2022. This forecast has been revised
downwards and results in an increase in the expected deferred tax utlisation period.
Please refer to page 194 (Audit Committee Report), page 253 (Accounting Policy (k) – Income tax,
including deferred income tax), Note 2 – Critical accounting judgements and estimates and Note 33 –
Deferred taxation.
How the scope of our
audit responded to the
key audit matter
We have evaluated the design and determined the implementation of key controls over the
preparation of financial plans and budgets.
We assessed whether the level of forecasted profits were appropriate by challenging the growth,
profitability and economic assumptions. We tested the accuracy of Management’s forecasting
process by reviewing previous forecasts and comparing to actual results.
We reviewed the model used by Management to assess the likelihood of future profitability and
challenged Management’s assessment of a range of positive and negative evidence for the projection
of long-term future profitability.
We compared Management’s assumptions to industry norms and other economic metrics where
possible. We reviewed Management’s analysis of the “more likely than not” test and assessed the
adequacy of the financial statement disclosures.
Based on the evidence obtained, we found that the assumptions used by Management in the
recognition of the deferred tax asset is within a range we consider to be reasonable.
AIB Group plc Annual Financial Report 2019Financial Statements
229
Defined benefit obligations
Key audit matter
description
The key audit matter is that the recognition and measurement of defined benefit obligations of
€ 5,904 million (2018: € 5,323 million) is inappropriate.
There is a high degree of estimation and judgement in the calculation of defined benefit obligations.
A material change in the liability can result from small movements in the underlying actuarial
assumptions, specifically the discount rates, pension in payment increases and inflation rates.
Please refer to page 194 (Audit Committee Report), page 252 (Accounting Policy (j) – Employee
benefits), and Note 2 – Critical accounting judgements and estimates and Note 34 – Retirement
benefits.
How the scope of our
audit responded to the
key audit matter
We understood the key controls over the completeness and accuracy of data extracted and supplied
to the Group’s actuary, which is used in the valuation of the Group’s defined benefit obligations.
We also evaluated the design and implementation of the relevant controls for determining the
actuarial assumptions and the approval of those assumptions by Management.
We have utilised Deloitte actuarial specialists as part of our team to assist us in challenging the
appropriateness of actuarial assumptions with particular focus on discount rates, pension in payment
increases and inflation rates.
Our work included inquiries with Management and their actuaries to understand the processes and
assumptions used in calculating the defined benefit obligations. We benchmarked economic and
demographic assumptions against market data and assessed Management adjustments to market
rates for Company and scheme specific information. For scheme specific assumptions we considered
the scheme rules, historic practice and other information relevant to the selection of the assumption.
We evaluated and assessed the adequacy of disclosures made in the financial statements, including
disclosures of the assumptions and sensitivity of the defined benefit obligation to changes in the
underlying assumptions.
Based on the evidence obtained, we concluded that assumptions used by Management in the
actuarial valuations for defined benefit obligations are within a range we consider to be reasonable.
Provision for tracker mortgage examination
Key audit matter
description
The calculation of provisions for the tracker mortgage examination is highly judgemental and involves
the use of several Management assumptions including the identification of relevant impacted
customers, related redress costs and potential enforcement fines. There is also a risk that known
and emerging issues may not be appropriately disclosed in the financial statements. As a result, we
consider this a key audit matter.
Included in Note 40 - Provisions for liabilities and commitments the Group has recorded a provision of
€ 271 million (2018: € 10 million) for customer redress and compensation and € 70 million (2018: Nil)
for related enforcement fines expected to be imposed.
Please refer to page 194 (Audit Committee Report), page 269 (Accounting Policy (z) – Non-credit risk
provisions), Note 2 – Critical accounting judgements and estimates, Note 40 - Provisions for liabilities
and commitments, and Note 47 – Memorandum items: contingent liabilities and commitments, and
contingent assets.
How the scope of our
audit responded to the
key audit matter
We have evaluated the design and determined the implementation of the Group’s relevant controls
over the identification, measurement and the disclosure of the provision. We also assessed
Management review and governance controls.
We reviewed the correspondence with regulators, the Financial Services and Pensions Ombudsman
(“FSPO”) and legal advice obtained. We assessed Management’s interpretation of the impact of this
decision. We reviewed the basis for recording a provision taking into consideration the information
available and the requirements of IAS 37. We also considered Management’s interactions with
regulators including the status of the enforcement process.
AIB Group plc Annual Financial Report 2019123456Financial Statements
230
Independent Auditor’s Report
Given the inherent uncertainty in the calculation of the provision and its judgemental nature, we
evaluated the adequacy of disclosures made in the financial statements. We challenged Management
on the disclosures, in particular, whether they are sufficiently clear in highlighting the exposures that
remain, the significant uncertainties that exist in respect of the provisions and the sensitivity of the
provisions to changes in the underlying assumptions.
Based on the evidence obtained, we found that the assumptions used by Management in
measurement of the provision for the tracker mortgage examintions are within a range we consider to
be reasonable.
Impairment of investment in subsidiary (Company only Key Audit Matter)
Key audit matter
description
The key audit matter relates to the recoverability of the Company’s investment in its subsidiary
undertaking and the significant judgements and estimates required to determine its recoverable
amount.
Following a corporate reorganisation during 2017, the Group implemented a new holding company,
AIB Group plc, which holds the Group’s investment in Allied Irish Banks, p.l.c. The Company accounts
for its investment in subsidiary at cost less provisions for impairment. At the end of each reporting
period, the Company reviews its investment for impairment if there are indications that impairment
may have occurred.
As at 31 December 2019, the market capitalisation of the Company’s investment was lower than
the carrying amount of the investment. This is considered an indicator of potential impairment.
An impairment test was performed by the Company using a VIU model to calculate an estimated
recoverable amount.
The assumptions used in the VIU model involved significant Management judgement and estimation.
This includes determining future cash flow projections during the period of the financial plan and the
choice of growth and discount rates.
The carrying amount of the Company’s investment in subsidiary at 31 December 2019 was
€ 9,996 million (2018: € 12,940 million). As a result of the impairment test the recoverable
amount was calculated at € 9,496 million and this resulted in an impairment charge for 2019 of
€ 3,444 million.
Please refer to page 194 (Audit Committee Report), page 249 (Accounting Policy (d) – Basis of
consolidation), Note 2 – Critical accounting judgements and estimates and Note e – Investment in
subsidiary undertaking (AIB Group Company financial statements).
How the scope of our
audit responded to the
key audit matter
We evaluated the design and determined the implementation of key controls over the preparation of
financial plans and budgets.
We assessed whether the level of forecasted profits was appropriate by challenging the growth,
profitability and economic assumptions. We tested the accuracy of Management’s forecasting
process by reviewing previous forecasts and comparing to actual results.
In conjunction with our Deloitte Banking valuation specialist we evaluated the methodology utilised by
the Company in preparing the VIU calculation. In particular, we challenged the assumptions used in
assessing the recoverability of the investment. We independently sourced market information around
discount rates and growth rates. We determined a range of estimates around these assumptions and
the resulting impairment charge.
Given the inherent uncertainty in the calculation of a recoverable amount for the investment,
we evaluated adequacy of the disclosures made in the financial statements. We challenged
Management on the disclosures, in particular, whether they are sufficiently clear in highlighting the
key assumptions and the sensitivity of the investment to changes in the underlying assumptions.
Based on the evidence obtained, we concluded that the assumptions used by Management in
assessing the recoverability of the investment in Allied Irish Banks, p.l.c. are within a range we
consider reasonable.
AIB Group plc Annual Financial Report 2019Financial Statements
231
IT systems and controls
Key audit matter
description
The Group’s financial reporting processes are reliant on processes, controls and data managed by
IT systems. The IT environment is complex and pervasive to the operations of the Group due to
the large volume of transactions processed daily and the reliance on automated and IT dependent
manual controls. This risk is also impacted by dependency on third parties and outsourced
arrangements as well as migration to new systems.
Our planned audit approach relies extensively on IT applications and the operating effectiveness of
the control environment. As part of our assessment of the IT environment, we considered privileged
user access management controls to be critical in ensuring that only appropriately authorised
changes are made to relevant IT systems. Moreover, appropriate access controls contribute to
mitigating the risk of potential fraud or error as a result of changes to applications or processing
unauthorised transactions.
We regard this area as a key audit matter owing to the high level of IT dependency within the Group,
as well as the associated complexity and the risk that automated controls are not designed and
operating effectively.
How the scope of our
audit responded to the
key audit matter
We examined the design of the governance framework associated with the Group’s IT architecture
We gained an understanding and tested relevant General IT Controls for systems we considered
relevant to the financial reporting process, including access management, programme development
and change management.
We gained an understanding of relevant IT controls over applications, operating systems
and databases that are relevant for the financial reporting process and tested their operating
effectiveness.
We assessed the relevent automated controls within business processes and the reliability of relevant
reports used as part of manual controls. This included assessing the integrity of system interfaces,
the completeness and accuracy of data feeds and automated calculations.
We tested user access by assessing the controls in place for in-scope applications and verifying the
addition and removal of users.
While we identified certain design and operating effectiveness deficiencies in relation to user access
controls, we tested validation activities performed by Management and compensating controls to
mitigate the risk of fraud or error as a result of unauthorised transactions. Based on this testing we
were able to place reliance on IT controls for the purpose of our audit.
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.
AIB Group plc Annual Financial Report 2019123456Financial Statements
232
Independent Auditor’s Report
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 € 55 million, which is approximately 7% of adjusted PBT. In the prior year, we determined
materiality with reference to an unadjusted PBT. For the current year, we have considered adjusted PBT to be the critical component for
determining materiality. We used an adjusted PBT normalised to remove the effect of certain restitution items which are considered not
to reflect the long-term performance of the Group. We have considered quantitative and qualitative factors such as understanding the
entity and its environment, history of misstatements, complexity of the Group and the reliability of the control environment.
We determined materiality for the Company to be € 54 million which is 0.5% of Company total equity. We have selected total equity as
an appropriate benchmark for Company materiality as the Company’s primary purpose is to act as a holding company with investments
in the Group’s primary subsidiary and therefore a profit based measure is not relevant.
Group materiality
€ 55 m
Component materiality
range € 9 m to € 15 m
Audit Committee reporting
threshold € 2.75 m
Adjusted PBT € 799 m
Group materiality
We agreed with the Board Audit Committee that we would report to them any audit differences in excess of € 2.75 million, as well
as differences below that threshold which, in our view, warranted reporting on qualitative grounds. We also report to the Board Audit
Committee on material disclosure matters that we identified when assessing the overall presentation of the financial statements.
An overview of the scope of our audit
We determined the scope of our Group audit by obtaining an understanding of the Group and its environment, including Group-wide
controls, and assessing the risks of material misstatement at the Group level.
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 the audit work at those
components to be able to conclude whether sufficient 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 focused our Group audit work in AIB Group plc and the four legal entities as disclosed in Note 48 to the
consolidated financial statements, all of which were subject to individual statutory audits, whilst the other legal entities were subject to
specified audit procedures, where the extent of our testing was based on our assessment of the risks of material misstatement and of
the materiality of the Group’s operations in those entities. These audits and specified audit procedures covered over 94% of the Group’s
total assets and 92% of the Group’s total operating income. In addition, audits will be performed for statutory purposes for all legal
entities.
We also tested the consolidation process and carried out analytical procedures to assess there were no additional significant risks of
material misstatement arising from the aggregated financial information of the remaining entities not subject to audit or specified audit
procedures.
AIB Group plc Annual Financial Report 2019Financial Statements
233
An overview of the scope of our audit (continued)
The Group audit team sent component auditors detailed instructions on audit procedures to be undertaken and the information to be
reported back to the Group audit team. Regular contact was maintained throughout the course of the audit with component auditors
which included holding Group planning meetings, maintaining communications on the status of the audits and continuing with a
programme of planned visits designed so that the Group audit team met each significant component audit team during the year.
The levels of coverage of key financial aspects of the Group by type of audit procedures as set out below:
Total operating income
Total assets
Full audit scope
92%
Specified audit
procedures
8%
Full audit scope
94%
Specified audit
procedures
5%
Review at
Group level
1%
Specified audit procedures
5%
Other information
The Directors are responsible for the other information. The other information comprises the information included in the Annual Financial
Report other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required
to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to
report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other
information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the
following conditions:
–
–
–
Fair, balanced and understandable – the statement given by the Directors that they consider the Annual Financial Report and
financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders
to assess the Group’s and the Company’s position and performance, business model and strategy is materially inconsistent with our
knowledge obtained in the audit; or
Board Audit Committee reporting – the section describing the work of the Board Audit Committee does not appropriately address
matters communicated by us to the Board Audit Committee; or
Directors’ statement of compliance with the UK Corporate Governance Code and the Irish Corporate Governance Annex – the
parts of the Directors’ statement required under the Listing Rules relating to the Company’s compliance with the UK Corporate
Governance Code and the Irish Corporate Governance Annex containing provisions specified for review by the auditor in
accordance with Listing Rule 6.1.85 and Listing Rule 6.1.86 do not properly disclose a departure from a relevant provision of the UK
Corporate Governance Code or the Irish Corporate Governance Annex.
AIB Group plc Annual Financial Report 2019123456Financial Statements
234
Independent Auditor’s Report
Responsibilities of Directors
As explained more fully in the Directors’ Responsibility Statement, 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, and for such
internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group and Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (Ireland) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs (Ireland), we exercise professional judgement and maintain professional scepticism
throughout the audit. We also:
–
–
–
–
–
–
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform
audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group and Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by the Directors.
Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group and
Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention
in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of the auditor’s report. However, future events or
conditions may cause the Company (or where relevant, the Group) to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the
financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the business activities within the Group to express
an opinion on the consolidated financial statements. The Group auditor is responsible for the direction, supervision and performance
of the Group audit. The Group auditor remains solely responsible for the audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that the auditor identifies during the audit.
For listed entities and public interest entities, the auditor also provides those charged with governance with a statement that the auditor
has complied with relevant ethical requirements regarding independence, including the Ethical Standard for Auditors (Ireland) 2016, and
communicates with them all relationships and other matters that may reasonably be thought to bear on the auditor’s independence, and
where applicable, related safeguards.
AIB Group plc Annual Financial Report 2019Financial Statements 235
Where the auditor is required to report on key audit matters, from the matters communicated with those charged with governance, the
auditor determines those matters that were of most significance in the audit of the financial statements of the current period and are
therefore, the key audit matters. The auditor describes these matters in the auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, the auditor determines that a matter should not be communicated
in the auditor’s report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
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 auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have
formed.
Report on other legal and regulatory requirements
Opinion on other matters prescribed by the Companies Act 2014
Based solely on the work undertaken in the course of the audit, we report that:
– 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.
– The Company Statement of Financial Position is in agreement with the accounting records.
–
In our opinion the information given in those parts of the Directors’ report as specified for our review is consistent with the financial
statements and the Directors’ report has been prepared in accordance with the Companies Act 2014.
Corporate Governance
We report, in relation to information given in the Governance and oversight section of the Annual Financial Report on pages 171 to 222
that:
–
–
–
In our opinion, based on the work undertaken during the course of the audit, the information given in the Governance and oversight
section of the Annual Financial Report pursuant to subsections 2(c) and (d) of section 1373 of the Companies Act 2014 is consistent
with the Company’s statutory financial statements in respect of the financial year concerned and such information has been
prepared in accordance with section 1373 of the 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, based on the work undertaken during the course of the audit, the Governance and oversight section of the Annual
Financial Report contains the information required by Regulation 6(2) of the European Union (Disclosure of Non-Financial and
Diversity Information by certain large undertakings and groups) Regulations 2017 (as amended); and
In our opinion, based on the work undertaken during the course of the audit, the information required pursuant to section 1373(2)
(a), (b), (e) and (f) of the Companies Act 2014 is contained in the Governance and oversight section of the Annual Financial Report.
AIB Group plc Annual Financial Report 2019123456Financial Statements 236
Independent Auditor’s Report
Matters on which we are required to report by exception
Based on the knowledge and understanding of the Group and the Company and its environment obtained in the course of the audit, we
have not identified material misstatements in those parts of the Directors’ report as specified for our review.
The Companies Act 2014 also requires us to report to you if, in our opinion, the Company has not provided the information required by
Regulation 5(2) to 5(7) of the European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and
Groups) Regulations 2017 (as amended) for the financial year ended 31 December 2019. We have nothing to report in this regard.
We have nothing to report in respect of the provisions in the Companies Act 2014 which require us to report to you if, in our opinion, the
disclosures of Directors’ remuneration and transactions specified by law are not made.
The Listing Rules of Euronext Dublin require us to review six specified elements of disclosures in the report to shareholders by the
Board of Directors’ Remuneration Committee. We have nothing to report in this regard.
Other matters which we are required to address
Following the recommendation of the Board Audit Committee of Allied Irish Banks, p.l.c., we were appointed at the Annual General
Meeting on 20 June 2013 to audit the financial statements for the financial year ended 31 December 2013. The period of total
uninterrupted engagement including previous renewals and reappointments of the firm is 7 years, covering the years ending 2013 to
2019.
Following the corporate restructure of AIB Group plc in 2017 which led to the implementation of AIB Group plc, we were appointed on
21 September 2017 to audit the financial statements of AIB Group plc for the financial year ended 31 December 2017 and subsequent
financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 3 years,
covering the years ending 2017 to 2019.
The non-audit services prohibited by IAASA’s Ethical Standard were not provided and we remained independent of the Company in
conducting the audit.
Our audit opinion is consistent with the additional report to the Board Audit Committee that we are required to provide in accordance
with ISA (Ireland) 260.
John McCarroll
For and on behalf of Deloitte Ireland LLP
Chartered Accountants and Statutory Audit Firm
Deloitte & Touche House, Earlsfort Terrace, Dublin 2
Dublin
5 March 2020
Notes: An audit does not provide assurance on the maintenance and integrity of the website, including controls used to achieve this,
and in particular on whether any changes may have occurred to the financial statements since first published. These matters are the
responsibility of the Directors but no control procedures can provide absolute assurance in this area.
Legislation in Ireland governing the preparation and dissemination of financial statements differs from legislation in other jurisdictions.
AIB Group plc Annual Financial Report 2019Financial Statements Consolidated income statement
for the financial year ended 31 December 2019
Interest income calculated using the effective interest method
Other interest income and similar income
Interest and similar income
Interest and similar expense
Net interest income
Dividend income
Fee and commission income
Fee and commission expense
Net trading (loss)/income
Net gain on other financial assets measured at FVTPL
Net (loss)/gain on derecognition of financial assets measured at amortised cost
Other operating income
Other income
Total operating income
Operating expenses
Impairment and amortisation of intangible assets
Impairment and depreciation of property, plant and equipment
Total operating expenses
Operating profit before impairment losses
Net credit impairment (charge)/writeback
Operating profit
Associated undertakings
Profit on disposal of property
Loss on disposal of business
Profit before taxation
Income tax charge
Profit for the year
Attributable to:
– Equity holders of the parent
– Non-controlling interests
Profit for the year
Basic earnings per share
Basic earnings per ordinary share
Diluted earnings per share
Diluted earnings per ordinary share
Notes
5
5
5
6
7
8
8
9
10
11
12
13
29
30
15
28
16
17
19
44
20(a)
20(b)
237
2018
€ m
2,289
77
2,366
(266)
2,100
26
498
(41)
5
146
121
19
774
2,874
(1,661)
(110)
(52)
(1,823)
1,051
204
1,255
12
2
(22)
1,247
(155)
1,092
1,092
–
1,092
38.9c
38.9c
2019
€ m
2,291
79
2,370
(294)
2,076
26
543
(71)
(57)
140
(48)
46
579
2,655
(1,935)
(146)
(100)
(2,181)
474
(16)
458
20
21
–
499
(135)
364
327
37
364
12.1c
12.1c
AIB Group plc Annual Financial Report 2019123456Financial Statements 238
Consolidated statement of comprehensive income
for the financial year ended 31 December 2019
Notes
19
19
19
19
19
Profit for the year
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss:
Net actuarial (losses)/gains in retirement benefit schemes, net of tax
Net change in fair value of equity investments at FVOCI, net of tax
Total items that will not be reclassified subsequently to profit or loss
Items that will be reclassified subsequently to profit or loss
when specific conditions are met
Net change in foreign currency translation reserves
Net change in cash flow hedges, net of tax
Net change in fair value of investment debt securities at FVOCI, net of tax
Total items that will be reclassified subsequently to profit or loss
when specific conditions are met
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Attributable to:
– Equity holders of the parent
– Non-controlling interests
Total comprehensive income for the year
2019
€ m
364
(188)
(9)
(197)
66
184
(44)
206
9
373
336
37
373
2018
€ m
1,092
26
2
28
10
28
(291)
(253)
(225)
867
867
–
867
AIB Group plc Annual Financial Report 2019Financial Statements 239
2018
€ m
6,516
73
10
900
1,443
60,868
16,861
90
682
330
356
10
2,702
454
241
91,536
844
67,699
–
934
5,745
74
107
49
887
325
219
795
77,678
1,696
11,668
13,364
494
–
13,858
91,536
2019
€ m
11,982
57
20
1,271
1,478
60,888
17,331
83
917
803
655
8
2,666
364
39
98,562
823
71,803
429
1,197
6,831
70
109
60
869
339
503
1,299
84,332
1,696
11,543
13,239
496
495
14,230
98,562
Consolidated statement of financial position
as at 31 December 2019
Notes
22
23
24
25
27
28
29
30
32
33
34
35
36
37
23
38
33
34
39
40
41
42
43
44
Assets
Cash and balances at central banks
Items in course of collection
Disposal groups and non-current assets held for sale
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Investment securities
Interests in associated undertakings
Intangible assets and goodwill
Property, plant and equipment
Other assets
Current taxation
Deferred tax assets
Prepayments and accrued income
Retirement benefit assets
Total assets
Liabilities
Deposits by central banks and banks
Customer accounts
Lease liabilities
Derivative financial instruments
Debt securities in issue
Current taxation
Deferred tax liabilities
Retirement benefit liabilities
Other liabilities
Accruals and deferred income
Provisions for liabilities and commitments
Subordinated liabilities and other capital instruments
Total liabilities
Equity
Share capital
Reserves
Total shareholders' equity
Other equity interests
Non-controlling interests
Total equity
Total liabilities and equity
Richard Pym
Chairman
5 March 2020
Colin Hunt
Chief Executive Officer
AIB Group plc Annual Financial Report 2019123456Financial Statements 240
Consolidated statement of cash flows
for the financial year ended 31 December 2019
Cash flows from operating activities
Profit before taxation for the year
Adjustments for:
– Non-cash and other items
– Change in operating assets
– Change in operating liabilities
– Taxation paid
Net cash inflow from operating activities
Cash flows from investing activities
Purchase of investment securities
Proceeds from sales and maturity of investment securities
Additions to property, plant and equipment
Disposal of property, plant and equipment
Additions to intangible assets
Acquisition cost of subsidiary
Investment in associated undertakings
Disposal of associated undertakings
Dividends received from associated undertakings
Net cash outflow from investing activities
Cash flows from financing activities
Net proceeds on issue of Additional Tier 1 Securities
Net proceeds on issue of € 500 million Tier 2 Notes
Proceeds on issue of debt securities – MREL(1)
Dividends paid on ordinary shares
Distributions paid to other equity interests
Distributions paid to non-controlling interests
Repayment of lease liabilities
Interest paid on debt securities – MREL
Interest paid on subordinated liabilities and other capital instruments
Net cash inflow 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
52
52
52
27
27
30
29
31/52
28
43
41
38
21
21
44
30
52
2019
€ m
499
780
247
2,581
(56)
4,051
(4,937)
4,689
(69)
30
(259)
(60)
–
–
27
2018
€ m
1,247
(4)
(740)
(345)(1)
(44)
114
(3,276)
2,392
(65)
8
(223)
–
(10)
2
10
(579)
(1,162)
496
500
1,640
(461)
–
(37)
(59)
(70)
(31)
1,978
5,450
7,246
227
12,923
–
–
1,651
(326)
(37)
–
–
–
(31)
1,257
209
7,058
(21)
7,246
(1) 2018 has been re-presented to align the balance sheet classification. MREL was previously presented in operating activities and is now presented in
financing activities.
AIB Group plc Annual Financial Report 2019Financial Statements l
a
t
o
T
y
t
i
u
q
e
s
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
N
l
a
t
o
T
s
e
v
r
e
s
e
r
n
o
i
t
a
l
s
n
a
r
t
i
g
n
g
d
e
h
s
e
i
t
i
r
u
c
e
s
s
e
v
r
e
s
e
r
n
o
i
t
s
e
v
r
e
s
e
r
s
e
v
r
e
s
e
r
s
e
v
r
e
s
e
r
s
t
s
e
r
e
t
n
i
n
g
i
e
r
o
F
y
c
n
e
r
r
u
c
e
u
n
e
v
e
R
s
e
v
r
e
s
e
r
w
o
l
f
h
s
a
C
t
n
e
m
-
t
s
e
v
n
I
-
l
a
v
e
R
n
o
i
t
a
u
l
a
t
i
p
a
C
-
p
m
e
d
e
r
r
e
g
r
e
M
e
v
r
e
s
e
r
l
a
t
i
p
a
C
s
e
v
r
e
s
e
r
r
e
h
t
O
y
t
i
u
q
e
e
r
a
h
S
l
a
t
i
p
a
c
t
n
e
r
a
p
f
o
s
r
e
d
o
h
y
t
i
u
q
e
o
t
l
e
l
b
a
t
u
b
i
r
t
t
A
m
€
m
€
m
€
m
€
8
5
8
,
3
1
–
8
5
8
,
3
1
)
5
9
5
(
m
€
3
6
7
,
3
1
9
4
6
3
3
7
3
–
7
3
7
3
7
2
3
9
6
3
3
–
6
6
6
6
–
1
6
9
4
)
1
6
4
(
–
)
7
3
(
4
9
4
)
4
9
4
(
1
–
–
–
)
7
3
(
–
6
9
4
)
1
6
4
(
–
–
)
1
(
8
5
4
)
9
5
4
(
–
–
–
–
–
–
–
7
2
3
)
8
8
1
(
9
3
1
–
–
–
–
–
)
1
6
4
(
)
1
6
4
(
m
€
5
8
2
–
4
8
1
4
8
1
–
–
–
–
–
–
–
m
€
6
7
6
–
)
3
5
(
)
3
5
(
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
)
4
9
4
(
–
6
9
4
–
–
–
2
–
–
–
–
–
–
–
–
–
–
4
1
m
€
4
1
m
€
m
€
)
2
2
6
,
3
(
m
€
3
3
1
,
1
m
€
4
9
4
m
€
6
9
6
,
1
y
t
i
u
q
e
n
i
y
l
t
c
e
r
i
d
d
e
d
r
o
c
e
r
,
s
r
e
n
w
o
h
t
i
w
s
n
o
i
t
c
a
s
n
a
r
T
:
p
u
o
r
G
e
h
t
f
o
s
r
e
n
w
o
o
t
s
n
o
i
t
i
u
b
i
r
t
s
d
d
n
a
y
b
s
n
o
i
t
u
b
i
r
t
n
o
C
s
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
n
o
t
d
e
r
r
e
f
s
n
a
r
T
r
a
e
y
e
h
t
r
o
f
e
m
o
c
n
i
e
v
i
s
n
e
h
e
r
p
m
o
c
l
a
t
o
T
r
a
e
y
e
h
t
r
o
f
t
i
f
o
r
P
r
a
e
y
e
h
t
r
o
f
e
m
o
c
n
i
e
v
i
s
n
e
h
e
r
p
m
o
c
l
a
t
o
T
)
9
1
e
t
o
n
(
e
m
o
c
n
i
i
e
v
s
n
e
h
e
r
p
m
o
c
r
e
h
t
O
9
1
0
2
y
r
a
u
n
a
J
1
t
A
i
y
r
a
d
s
b
u
s
i
f
o
n
o
i
i
t
i
s
u
q
c
a
n
o
s
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
N
)
4
4
t
e
o
n
(
)
4
4
d
n
a
3
4
t
s
e
o
n
(
)
3
4
t
e
o
n
(
s
e
i
t
i
r
u
c
e
S
1
r
e
T
i
l
a
n
o
i
t
i
d
d
A
f
o
e
u
s
s
I
)
4
4
t
e
o
n
(
s
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
-
n
o
n
o
t
)
1
2
t
e
o
n
(
s
t
s
e
r
e
t
n
i
y
t
i
u
q
e
r
e
h
t
o
o
t
i
d
a
p
s
n
o
i
t
u
b
i
r
t
s
D
i
i
d
a
p
s
n
o
i
t
u
b
i
r
t
s
D
i
i
s
n
o
i
t
u
b
i
r
t
s
d
d
n
a
y
b
s
n
o
i
t
u
b
i
r
t
n
o
c
l
a
t
o
T
p
u
o
r
G
e
h
t
f
o
s
r
e
n
w
o
o
t
)
1
2
e
t
o
n
(
s
e
r
a
h
s
i
y
r
a
n
d
r
o
n
o
d
a
p
i
s
d
n
e
d
v
D
i
i
241
0
3
2
,
4
1
5
9
4
5
3
7
,
3
1
)
9
2
5
(
1
4
4
,
3
1
9
6
4
3
2
6
4
1
4
1
)
2
2
6
,
3
(
3
3
1
,
1
6
9
4
6
9
6
,
1
9
1
0
2
r
e
b
m
e
c
e
D
1
3
t
A
y
t
i
u
q
e
n
i
s
e
g
n
a
h
c
f
o
t
n
e
m
e
a
t
s
t
d
e
t
a
d
i
l
o
s
n
o
C
9
1
0
2
r
e
b
m
e
c
e
D
1
3
d
e
d
n
e
r
a
e
y
l
i
a
c
n
a
n
i
f
e
h
t
r
o
f
AIB Group plc Annual Financial Report 2019123456Financial Statements
242
y
t
i
u
q
e
n
i
s
e
g
n
a
h
c
f
o
t
n
e
m
e
a
t
s
t
d
e
t
a
d
i
l
o
s
n
o
C
8
1
0
2
r
e
b
m
e
c
e
D
1
3
d
e
d
n
e
r
a
e
y
l
i
a
c
n
a
n
i
f
e
h
t
r
o
f
8
5
8
,
3
1
)
5
9
5
(
3
6
7
,
3
1
5
8
2
6
7
6
4
1
4
1
)
2
2
6
,
3
(
3
3
1
,
1
4
9
4
6
9
6
,
1
l
a
t
o
T
y
t
i
u
q
e
0
1
)
7
6
2
(
m
€
2
1
6
,
3
1
–
–
m
€
)
5
0
6
(
i
n
g
e
r
o
F
y
c
n
e
r
r
u
c
s
e
v
r
e
s
e
r
l
n
o
i
t
a
s
n
a
r
t
e
u
n
e
v
e
R
s
e
v
r
e
s
e
r
w
o
l
f
h
s
a
C
0
1
)
1
5
2
(
m
€
9
4
2
,
3
1
–
–
m
€
7
5
2
i
g
n
g
d
e
h
s
e
v
r
e
s
e
r
5
5
3
,
3
1
)
5
0
6
(
8
0
0
,
3
1
7
5
2
)
5
2
2
(
7
6
8
2
9
0
,
1
)
1
(
)
7
3
(
)
6
2
3
(
)
4
6
3
(
–
0
1
0
1
–
–
–
–
2
9
0
,
1
6
2
8
1
1
,
1
–
)
7
3
(
)
6
2
3
(
)
3
6
3
(
–
8
2
8
2
–
–
–
–
–
m
€
5
6
9
–
5
6
9
–
)
9
8
2
(
)
9
8
2
(
–
–
–
–
t
n
e
r
a
p
f
o
s
r
e
d
o
h
l
y
t
i
u
q
e
o
t
l
e
b
a
t
u
b
i
r
t
t
A
t
n
e
m
-
t
s
e
v
n
I
s
e
i
t
i
r
u
c
e
s
s
e
v
r
e
s
e
r
l
e
a
s
r
o
f
l
e
b
a
l
i
a
v
A
s
e
i
t
i
r
u
c
e
s
s
e
v
r
e
s
e
r
s
e
v
r
e
s
e
r
n
o
i
t
s
e
v
r
e
s
e
r
-
l
a
v
e
R
n
o
i
t
a
u
l
a
t
i
p
a
C
-
p
m
e
d
e
r
r
e
g
r
e
M
e
v
r
e
s
e
r
l
a
t
i
p
a
C
s
e
v
r
e
s
e
r
r
e
h
t
O
y
t
i
u
q
e
s
t
s
e
r
e
t
n
i
e
r
a
h
S
l
a
t
i
p
a
c
m
€
1
8
9
)
1
8
9
(
–
–
–
–
–
–
–
–
–
–
4
1
m
€
–
–
4
1
–
–
–
–
–
–
–
4
1
m
€
–
–
4
1
–
–
–
–
–
–
–
–
–
m
€
)
2
2
6
,
3
(
–
–
m
€
3
3
1
,
1
–
–
m
€
4
9
4
–
–
m
€
7
9
6
,
1
8
1
0
2
y
r
a
u
n
a
J
1
t
a
5
1
S
R
F
I
g
n
i
t
p
o
d
a
f
o
t
c
a
p
m
I
8
1
0
2
y
r
a
u
n
a
J
1
t
a
9
S
R
F
I
g
n
i
t
p
o
d
a
f
o
t
c
a
p
m
I
7
1
0
2
r
e
b
m
e
c
e
D
1
3
t
A
)
2
2
6
,
3
(
3
3
1
,
1
4
9
4
7
9
6
,
1
8
1
0
2
y
r
a
u
n
a
J
1
t
a
e
c
n
a
l
a
b
d
e
t
a
t
s
e
R
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
)
1
(
)
1
(
y
t
i
u
q
e
n
i
y
l
t
c
e
r
i
d
d
e
d
r
o
c
e
r
,
s
r
e
n
w
o
h
t
i
w
s
n
o
i
t
c
a
s
n
a
r
T
:
p
u
o
r
G
e
h
t
f
o
s
r
e
n
w
o
o
t
s
n
o
i
t
i
u
b
i
r
t
s
d
d
n
a
y
b
s
n
o
i
t
u
b
i
r
t
n
o
C
r
a
e
y
e
h
t
r
o
f
e
m
o
c
n
i
e
v
i
s
n
e
h
e
r
p
m
o
c
l
a
t
o
T
r
a
e
y
e
h
t
r
o
f
t
i
f
o
r
P
r
a
e
y
e
h
t
r
o
f
e
m
o
c
n
i
e
v
i
s
n
e
h
e
r
p
m
o
c
l
a
t
o
T
)
9
1
e
t
o
n
(
e
m
o
c
n
i
i
e
v
s
n
e
h
e
r
p
m
o
c
r
e
h
t
O
)
1
2
t
e
o
n
(
s
t
s
e
r
e
t
n
i
y
t
i
u
q
e
r
e
h
t
o
o
t
i
d
a
p
s
n
o
i
t
u
b
i
r
t
s
D
i
i
s
n
o
i
t
u
b
i
r
t
s
d
d
n
a
y
b
s
n
o
i
t
u
b
i
r
t
n
o
c
l
a
t
o
T
p
u
o
r
G
e
h
t
f
o
s
r
e
n
w
o
o
t
8
1
0
2
r
e
b
m
e
c
e
D
1
3
t
A
s
t
n
e
m
e
v
o
m
r
e
h
t
O
)
1
2
e
t
o
n
(
s
e
r
a
h
s
i
y
r
a
n
d
r
o
n
o
d
a
p
i
s
d
n
e
d
v
D
i
i
AIB Group plc Annual Financial Report 2019Financial Statements
Notes to the consolidated financial statements
Note
1 Accounting policies
2 Critical accounting judgements and estimates
3 Transition to IFRS 16
4 Segmental information
5
6
Interest and similar income
Interest and similar expense
7 Dividend income
8 Net fee and commission income
9 Net trading (loss)/income
10 Net gain on other financial assets measured
at FVTPL
11 Net (loss)/gain on derecognition of financial
assets measured at amortised cost
12 Other operating income
13 Operating expenses
14 Share-based compensation schemes
15 Net credit impairment (charge)/writeback
16 Profit on disposal of property
17 Loss on disposal of business
18 Auditors' fees
19 Taxation
20 Earnings per share
21 Distributions on equity shares and
other equity interests
22 Disposal groups and non-current assets
held for sale
23 Derivative financial instruments
24 Loans and advances to banks
25 Loans and advances to customers
26 ECL allowance on financial assets
27 Investment securities
28 Interests in associated undertakings
29 Intangible assets and goodwill
30 Property, plant and equipment
31 Acquisition of subsidiary
Page
Note
244
273
278
280
284
284
284
285
285
285
286
286
286
287
287
287
287
288
289
291
292
292
293
302
303
304
305
308
309
310
313
32 Other assets
33 Deferred taxation
34 Retirement benefits
35 Deposits by central banks and banks
36 Customer accounts
37 Lease liabilities
38 Debt securities in issue
39 Other liabilities
40 Provisions for liabilities and commitments
41 Subordinated liabilities and
other capital instruments
42 Share capital
43 Other equity interests
44 Non-controlling interests in subsidiaries
45 Capital reserves, merger reserve and
capital redemption reserves
46 Offsetting financial assets and
financial liabilities
47 Memorandum items: contingent liabilities and
commitments, and contingent assets
48 Subsidiaries and consolidated
structured entities
49 Off-balance sheet arrangements and
transferred financial assets
50 Classification and measurement of
financial assets and financial liabilities
51 Fair value of financial instruments
52 Statement of cash flows
53 Related party transactions
54 Employees
55 Regulatory compliance
56 Financial and other information
57 Dividends
58 Non-adjusting events after the reporting
period
59 Approval of financial statements
243
Page
315
316
318
324
325
325
326
327
327
329
330
331
332
333
333
337
339
340
344
345
353
355
364
364
365
365
365
365
AIB Group plc Annual Financial Report 2019123456Financial Statements 244
1 Accounting policies
Index
(a) Reporting entity
(b) Statement of compliance
(c)
Basis of preparation
(d) Basis of consolidation
(e)
(f)
Foreign currency translation
Interest income and expense recognition
(g) Dividend income
(h)
Fee and commission income
(i)
(j)
(k)
(l)
Net trading income
Employee benefits
Income tax, including deferred income tax
Financial assets
(m) Financial liabilities and equity
(n)
Leases
(o) Determination of fair value of financial instruments
(p) Sale and repurchase agreements (including stock borrowing and lending)
(q) Derivatives and hedge accounting
(r)
(s)
(t)
(u)
(v)
(w)
(x)
Derecognition
Impairment of financial assets
Collateral and netting
Financial guarantees and loan commitment contracts
Property, plant and equipment
Intangible assets and goodwill
Impairment of property, plant and equipment, goodwill and intangible assets
(y) Disposal groups and non-current assets held for sale
(z) Non-credit risk provisions
(aa) Equity
(ab) Cash and cash equivalents
(ac) Segment reporting
(ad) Prospective accounting changes
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 245
1 Accounting policies (continued)
The significant accounting policies that the Group applied in the preparation of the financial statements are set out in this section.
(a) Reporting entity
AIB Group plc (‘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. AIB Group plc is registered under the Companies Act 2014 as a public limited
company under the company number 594283 and is the holding company of the Group.
The consolidated financial statements for the year ended 31 December 2019 include the financial statements of AIB Group plc and
its subsidiary undertakings, collectively referred to as ‘AIB Group’ or ‘the Group’, where appropriate, including certain special purpose
entities and the Group’s interest in associates using the equity method of accounting and are prepared to the end of the financial period.
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 adopted by the European Union (“EU”) and applicable for the financial year
ended 31 December 2019. The consolidated financial statements also comply with those parts of the Companies Act 2014 and the
European Union (Credit Institutions: Financial Statements) Regulations 2015 applicable to companies reporting under IFRS, 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, apart from policy adopted as a result of the implementation of IFRS 16 Leases.
(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 investment securities at FVOCI.
The financial statements comprise the consolidated income statement, the consolidated statement of comprehensive income, the
consolidated and the holding company’s separate statements of financial position, the consolidated and the holding company’s separate
statements of cash flows, and the consolidated and the holding company’s separate 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 ongoing
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 expected credit losses on 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.
A description of these judgements and estimates is set out in ‘Critical accounting judgements and estimates’ on pages 273 to 277.
AIB Group plc Annual Financial Report 2019123456Financial Statements 246
1 Accounting policies (continued)
(c) Basis of preparation (continued)
Going concern
The financial statements for the financial year ended 31 December 2019 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.
First time adoption of new accounting standard/amendments to standards
The following new standard and amendments to standards have been adopted by the Group during the year ended 31 December 2019.
IFRS 16 Leases
The effective date for IFRS 16 Leases was 1 January 2019 and was adopted by the Group on that date. The new standard replaces
IAS 17 Leases.
The Group is applying this standard using the modified retrospective approach. Therefore, the comparative financial information for
2018 is not being restated as allowed in IFRS 16 paragraph C7 and continues to be reported under IAS 17. Accordingly, accounting
policy (n) ‘Leases’ as set out in the Annual Financial Report 2018 applies for comparative information.
The total impact of IFRS 16 over the life of a lease will be neutral on the income statement, however, its implementation will result in a
higher charge in the earlier years following implementation with a lower charge in later years. This impact is not material in the financial
year to 31 December 2019.
Details on the impact of adopting IFRS 16 are set out in note 3 to these financial statements.
Interest Rate Benchmark Reform
Amendments to IFRS 9 Financial Instruments; Amendments to IAS 39 Financial Instruments: Recognition and Measurement; and
Amendments to IFRS 7 Financial Instruments: Disclosures.
In September 2019, the IASB amended some of its requirements for hedge accounting in order to support the provision of useful
financial information by companies during the period of uncertainty arising from the phasing out of interest-rate benchmarks such as
interbank offered rates (IBORs) and their replacement with alternative nearly risk-free interest rates. These amendments allow hedging
relationships affected by the IBOR reform to be accounted for as continuing hedges.
The Group has early adopted these amendments for the financial year to 31 December 2019. The Group will continue to apply the
amendments to IFRS 9 and IAS 39 until the uncertainty arising from interest rate benchmark reform with respect to the timing and
amount of underlying cash flows ends. The Group has assumed that this uncertainty will not end until the Group’s contracts that
reference IBORs are amended or fallback clauses are added to existing contracts.
For further details of Interest Rate Benchmark Reform see page 161.
Definition of Material (Amendments to IAS 1 and IAS 8)
The amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policy, Changes in Accounting Estimates
and Errors which were issued in October 2018 and effective for reporting periods beginning on or after 1 January 2020 with earlier
application permitted, clarify the definition of material as follows:
“Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary
users of general purpose financial statements make on the basis of those financial statements, which provide financial information about
a specific reporting entity”.
The amendments are aimed at improving the understanding of the existing requirements rather than to significantly impact current
materiality judgements. The new definition of material is to be used to assess whether information, either individually or in combination
with other information, is material in the context of the financial statements.
The amendments are not expected to significantly impact on the Group’s interpretation of material.
The Group early adopted these amendments with effect from 1 January 2019.
Other amendments resulting from Improvements to IFRSs which the Group adopted in 2019 did not have a material impact on the
accounting policies, financial position or performance of the Group.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 247
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 IFRS 9 Financial Instruments,
or when appropriate, IAS 28 Investments in Associates and Joint Ventures.
Structured entities
A structured entity is an entity designed so that its activities are not governed by way of voting rights. The Group assesses whether it
has control over such an entity by considering factors such as the purpose and design of the entity; the nature of its relationship with the
entity; and the size of its exposure to the variability of returns of the entity.
Business combinations
The Group accounts for the acquisition of businesses using the acquisition method except for those businesses under common control.
Under the acquisition method, the consideration transferred in a business combination is measured at fair value, which is calculated as
the sum of:
–
–
–
the acquisition date fair value of assets transferred by the Group;
liabilities incurred by the Group to the former owners of the acquiree; and
the equity interests issued by the Group in exchange for control of the acquiree.
Acquisition related costs are recognised in the income statement as incurred.
Goodwill is measured as the excess of the sum of:
the fair value of the consideration transferred;
–
–
–
–
the amount of any non-controlling interests in the acquiree; and
the fair value of the acquirer’s previously held equity interest in the acquiree, if any; less
the net of the acquisition date fair value of the identifiable assets acquired and liabilities assumed.
The Group commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of
individuals, trusts, retirement benefit plans and other institutions. These assets, and income arising thereon, are excluded from the
financial statements, as they are not assets of the Group.
AIB Group plc Annual Financial Report 2019123456Financial Statements 248
1 Accounting policies (continued)
(d) Basis of consolidation (continued)
Non-controlling interests
For each business combination, the Group recognises any non-controlling interest in the acquiree either:
– at fair value; or
– at their proportionate share of the acquiree’s identifiable net assets.
For changes in the Group’s interest in a subsidiary that do not result in a loss of control, the Group adjusts the carrying amounts of the
controlling and non-controlling interests to reflect the changes in their relative interests in the subsidiary. The difference between the
change in value of the non-controlling interest and the fair value of the consideration paid or received is recognised directly in equity and
attributed to the equity holders of the parent.
Common control transactions
The Group accounts for the acquisition of businesses and 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 (aa)
‘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 IFRS 9 Financial Instruments.
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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 249
1 Accounting policies (continued)
(d) Basis of consolidation (continued)
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.
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.
The Company reviews its equity investment for impairment at the end of each reporting period if there are indications that impairment
may have occurred.
The testing for possible impairment involves comparing the estimated recoverable amount of an investment with its carrying amount.
Where the recoverable amount is less than the carrying amount, the difference is recognised as an impairment provision in the
Company’s financial statements. The recoverable amount is the higher of fair value less costs to sell and value-in-use (“VIU”).
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.
(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 designated at FVOCI, together with exchange differences on a
financial liability designated as a hedge of the net investment in a foreign operation are reported in other comprehensive income.
Foreign operations
The results and financial position of all Group entities that have a functional currency different from the euro are translated into euro as
follows:
–
assets and liabilities including goodwill and fair value adjustments arising on consolidation of foreign operations are translated at the
closing rate;
–
income and expenses are translated into euro at the average rates of exchange during the period where these rates approximate to
–
–
the foreign exchange rates ruling at the dates of the transactions;
foreign currency translation differences are recognised in other comprehensive income; and
since 1 January 2004, the Group’s date of transition to IFRS, all such exchange differences are included in the foreign currency
cumulative translation reserve within shareholders’ equity. When a foreign operation is disposed of in full, the relevant amount of this
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. In the case of a partial disposal, a pro-rata amount of the foreign
currency cumulative translation reserve is transferred to the income statement. This also applies in the case where there has not
been a reduction in the overall percentage holding, i.e. repayment of capital.
AIB Group plc Annual Financial Report 2019123456Financial Statements 250
1 Accounting policies (continued)
(f) Interest income and expense recognition
Interest income and expense is recognised in the income statement using the effective interest method.
Effective interest rate
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 gross carrying amount of the financial asset; or
the amortised cost of the 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 for financial
instruments other than credit impaired assets, the Group estimates cash flows (using projections based on its experience of customers’
behaviour) considering all contractual terms of the financial instrument but excluding expected 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.
Amortised cost and gross carrying amount
The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at
initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any
difference between that initial amount and the maturity amount and, for financial assets, adjusted for any loss allowance.
The gross carrying amount of a financial asset is the amortised cost before adjusting for any loss allowance.
Calculation of interest income and interest expense
In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the
asset is not credit impaired) or to the amortised cost of the liability.
For financial assets that have become credit impaired subsequent to initial recognition, interest income is calculated by applying the
effective interest rate to the amortised cost of the financial asset. If the asset is no longer credit impaired, the calculation of interest
income reverts to the gross basis.
However, for financial assets that were credit impaired on initial recognition, interest income is calculated by applying the credit adjusted
effective interest rate to the amortised cost of the financial asset. The calculation of interest income does not revert to a gross basis,
even if the credit risk of the asset improves.
When a financial asset is no longer credit impaired or has been repaid in full (i.e. cured without financial loss), the Group presents
previously unrecognised interest income as a reversal of credit impairment/recovery of amounts previously written-off.
Interest income and expense on financial assets and liabilities classified as held for trading or at FVTPL is recognised in ‘other interest
income and similar income’ or ‘interest expense’ in the income statement, as applicable.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 251
1 Accounting policies (continued)
(f) Interest income and expense recognition (continued)
Presentation
Interest income and expense presented in the consolidated income statement include:
–
–
–
–
Interest on financial assets and financial liabilities measured at amortised cost calculated on an effective interest basis;
Interest on investment debt securities measured at FVOCI calculated on an effective interest basis;
Interest on financial assets measured at FVTPL;
Net interest income and expense on qualifying hedge derivatives designated as cash flow hedges or fair value hedges which are
recognised in interest income or interest expense; and
–
Interest income and funding costs of trading portfolio financial assets.
The Group policy for the recognition of leasing income is set out in accounting policy (n).
(g) Dividend income
Dividends on equity investments measured at FVTPL are recognised in the income statement when the entity's right to receive payment
is established. Dividends on equity investments measured at FVOCI are recognised in the income statement provided that they
represent a return on capital.
(h) Fee and commission income
The measurement and timing of recognition of fee and commission income is based on the core principles of IFRS 15 Revenue from
Contracts with Customers.
The principles in IFRS 15 are applied using the following 5 step model:
–
–
Identify the contract(s) with a customer;
Identify the performance obligations in the contract;
– Determine the transaction price;
– Allocate the transaction price to the performance obligations in the contract; and
– Recognise revenue when or as the Group satisfies its performance obligations.
Fee and commission income is recognised when the performance obligation in the contract has been performed, ‘point in time’
recognition, or ‘over time’ recognition if the performance obligation is performed over a period of time unless the income has been
included in the effective interest rate calculation.
The Group includes in the transaction price, some or all of an amount of variable consideration estimated only to the extent that it
is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty
associated with the variable consideration is subsequently resolved.
The majority of the Group’s fee and commission income arises from retail banking activities. Loan syndication fees are recognised as
revenue when the syndication has been completed and the Group has retained no part of the loan package for itself or retained a part at
the same effective interest rate as applicable to the other participants.
Foreign exchange income is fee income that is derived from arranging foreign exchange transactions on behalf of customers.
Such income is recognised when the individual performance obligation has been fulfilled.
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 time in line with the performance obligation. 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 over time
in line with the performance obligation except arrangement fees where it is likely that the facility will be drawn down, and which are
included in the effective interest rate calculation.
AIB Group plc Annual Financial Report 2019123456Financial Statements 252
1 Accounting policies (continued)
(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. Interest revenue and dividend income on trading assets are shown in ‘interest income’ and ‘dividend income’
respectively.
(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, except for insurance policies acquired as part of a
buy in. If the policies are qualifying policies under IAS 19 and if the timing and amount of payments under the policies exactly match
some or all of the benefits payable under the scheme, then the present value of the related obligation is determined and is deemed to
be the fair value of the insurance policies to be included in plan assets.
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. A surplus is only recognised as an asset to the extent that it is recoverable through a
refund from the scheme or through reduced contributions in the future. Actuarial gains and losses are recognised immediately in other
comprehensive income.
The cost of providing defined benefit pension schemes to employees, comprising the net interest on the net defined benefit liability/
(asset), calculated by applying the discount rate to the net defined benefit liability/(asset) at the start of the annual reporting period,
taking into account contributions and benefit payments during the period, is charged to the income statement within personnel
expenses.
Re-measurements 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 defined benefit liability/(asset)) are recognised in other comprehensive income.
Amounts recognised in other comprehensive income in relation to re-measurements of the net defined benefit liability/(asset) will not be
reclassified to profit or loss in a subsequent period.
In early 2017, the Board reassessed its obligation to fund increases in pensions in payment. The Board confirmed that funding of
increases in pensions in payment is a decision to be made by the Board each year where increases are discretionary. This was based
on actuarial and external legal advice obtained.
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.
A settlement is a transaction that eliminates all further legal or constructive obligations for part or all of the benefits provided under a
defined benefit scheme. Gains or losses on plan amendments, curtailments and settlements are recognised in the income statement.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 253
1 Accounting policies (continued)
Retirement benefit obligations (continued)
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 past service cost. These are recognised in the income statement.
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 the income statement 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.
(k) 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. However, the income tax consequences of payments on financial instruments that are
classified as equity but treated as liabilities for tax purposes are recognised in profit or loss if those payments are distributions of profits
previously recognised in profit or loss.
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.
AIB Group plc Annual Financial Report 2019123456Financial Statements 254
1 Accounting policies (continued)
(k) Income tax, including deferred income tax (continued)
The principal temporary differences arise from depreciation of property, plant and equipment, revaluation of certain financial assets
and 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.
(l) Financial assets
Recognition and initial measurement
The Group initially recognises financial assets on the trade date, being the date on which the Group commits to purchase the assets.
Loan assets are recognised when cash is advanced to borrowers.
Financial assets measured at amortised cost or at fair value through other comprehensive income (“FVOCI”) are recognised initially at
fair value adjusted for direct and incremental transaction costs. Financial assets measured at fair value through profit or loss (“FVTPL”)
are recognised initially at fair value and transaction costs are taken directly to the income statement.
Derivatives are measured initially at fair value on the date on which the derivative contract is entered into. 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.
Classification and subsequent measurement
On initial recognition, a financial asset is classified and subsequently measured at amortised cost, FVOCI or FVTPL.
The classification and subsequent measurement of financial assets depend on:
– The Group's business model for managing the asset; and
– The cash flow characteristics of the asset (for assets in a ‘hold-to-collect’ or ‘hold-to-collect-and-sell’ business model).
Based on these factors, the Group classifies its financial assets into one of the following categories:
– Amortised cost
Assets that have not been designated as at FVTPL, and are held within a ‘hold-to-collect’ business model whose objective is to hold
assets to collect contractual cash flows; and whose contractual terms give rise on specified dates to cash flows that are solely payments
of principal and interest. The carrying amount of these assets is calculated using the effective interest method and is adjusted on each
measurement date by the expected credit loss allowance for each asset, with movements recognised in profit or loss.
– Fair value through other comprehensive income (“FVOCI”)
Assets that have not been designated as at FVTPL, and are held within a ‘hold-to-collect-and-sell’ business model whose objective
is achieved by both collecting contractual cash flows and selling financial assets; and whose contractual terms give rise on specified
dates to cash flows that are solely payments of principal and interest (“SPPI”). Movements in the carrying amount of these assets are
taken through other comprehensive income (“OCI”), except for the recognition of credit impairment gains or losses, interest revenue or
foreign exchange gains and losses, which are recognised in profit or loss. When a financial asset is derecognised, the cumulative gain
or loss previously recognised in OCI is reclassified from equity to profit or loss other than in the case of equity instruments designated at
FVOCI.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 255
1 Accounting policies (continued)
(l) Financial Assets (continued)
– Fair value through profit or loss (“FVTPL”)
Financial assets that do not meet the criteria for amortised cost or FVOCI are measured at FVTPL. Gains or losses (excluding interest
income or expense) on such assets are recognised in profit or loss on an ongoing basis.
In addition, the Group may irrevocably designate a financial asset as at FVTPL that otherwise meets the requirements to be measured
at amortised cost or at FVOCI if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
– Embedded derivatives
Certain hybrid contracts may contain both a non-derivative host and an ‘embedded derivative’. Under IFRS 9, there is no bifurcation
of embedded derivatives from the host financial asset. As a result, such financial assets will generally fail the SPPI test unless the
embedded derivative does not substantially modify the cash flows that would otherwise be required by the contract. Those failing the
SPPI test will be classified and measured at FVTPL.
Business model assessment
The Group makes an assessment of the objective of the business model at a portfolio level, as this reflects how portfolios of assets are
managed to achieve a particular objective, rather than management's intentions for individual assets.
The assessment considers the following:
– The strategy for the portfolio as communicated by management;
– How the performance of the portfolio is evaluated and reported to senior management;
– The risks that impact the performance of the business model, and how those risks are managed;
–
How managers of the business are compensated (i.e. based on fair value of assets managed or on the contractual cash flows
collected); and
– The frequency, value and timing of sales in prior periods, reasons for those sales, and expectations of future sales activity.
Financial assets that are held for trading or managed within a business model that is evaluated on a fair value basis are measured at
FVTPL because the business objective is neither hold-to-collect contractual cash flows nor hold-to-collect-and-sell contractual cash
flows.
Characteristics of the contractual cash flows
An assessment (‘SPPI test’) is performed on all financial assets at origination that are held within a ‘hold-to-collect’ or ‘hold-to-collect-
and-sell’ business model to determine whether the contractual terms of the financial assets give rise on specified dates to cash flows
that are solely payments of principal and interest on the principal outstanding. For the purposes of this assessment, ‘principal’ is defined
as the fair value of the financial asset at initial recognition. ‘Interest’ is defined as consideration for the time value of money, for the credit
risk associated with the principal amount outstanding, and for other basic lending risks and costs (i.e. liquidity, administrative costs),
and profit margin.
The SPPI test requires an assessment of the contractual terms and conditions to determine whether a financial asset contains any
terms that could modify the timing or amount of contractual cash flows of the asset, to the extent that they could not be described as
solely payments of principal and interest. In making this assessment, the Group considers:
–
Features that modify the time value of money element of interest (e.g. tenor of the interest rate does not correspond with the
frequency within which it resets);
– Terms providing for prepayment and extension;
– Leverage features;
– Contingent events that could change the amount and timing of cash flows;
– Terms that limit the Group's claim to cash flows from specified assets; and
– Contractually linked instruments.
Contractual terms that introduce exposure to risks or volatility in the contractual cash flows that are unrelated to a basic lending
arrangement do not give rise to contractual cash flows that are solely payments of principal and interest on the principal amount
outstanding.
AIB Group plc Annual Financial Report 2019123456Financial Statements 256
1 Accounting policies (continued)
(l) Financial Assets (continued)
Reclassifications
Reclassifications of financial assets to alternative measurement categories, (e.g. from amortised cost to FVOCI), should be very
infrequent, and will only occur when, and only when, the Group changes its business model for managing a specific portfolio of financial
assets.
Investments in equity instruments
Equity instruments are classified and measured at FVTPL with gains and losses reflected in profit or loss.
On initial recognition, the Group may elect to irrevocably designate at FVOCI, an equity instrument that is not held for trading.
This election is made on an instrument-by-instrument basis. When this election is used, fair value gains and losses are recognised in
OCI and are not subsequently reclassified to profit or loss on derecognition of the equity instrument.
(m) Financial liabilities and equity
The Group categorises financial liabilities as at amortised cost or as at fair value through profit or loss.
The Group recognises a financial liability when it becomes party to the contractual provisions of the contract.
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 subsequent 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 re-measurement 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.
(n) 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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 257
1 Accounting policies (continued)
(n) Leases (continued)
Lessee
Leases are recognised, measured and presented in line with IFRS 16 Leases.
Identifying a lease
The Group assesses whether a contract is, or contains, a lease at inception of the contract. A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. This assessment
involves the exercise of judgement about whether it depends on a specified asset, whether the Group obtains substantially all the
economic benefits from the use of that asset, and whether the Group has the right to direct the use of the asset.
This policy is applied to all of its contracts that meet the definition of a lease.
The Group has elected to apply the practical expedient to account for each lease component and any non-lease component as a single
lease component.
Lease term
The lease term comprises the non-cancellable period of the lease contract for which the Group has the right to use an underlying asset
together with:
– periods covered by an option to extend the lease if the Group is reasonably certain to exercise that option; and
– periods covered by an option to terminate the lease if the Group is reasonably certain not to exercise that option.
Recognition
The Group recognises a right-of-use asset and a lease liability at the commencement date of the contract for all leases except for short
term leases of 12 months or less or leases where the underlying asset is of low value i.e. the value of the underlying asset, when new,
is less than € 5,000/£ 5,000. The commencement date is the date on which a lessor makes an underlying asset available for use by the
Group.
Initial measurement of right-of-use asset
Right-of-use assets are initially measured at cost, which comprises:
–
the amount of the initial measurement of the lease liability;
– any lease payments made at or before the commencement date, less any lease incentives;
– any initial direct costs incurred by the Group; and
–
an estimate of costs to be incurred by the Group in dismantling and removing the underlying assets or restoring the site on which
the assets are located.
The Group provides for dilapidations/restoration costs where it has been identified or planned that it intends on exiting the premises,
and/or where it has completed extensive modifications. The Group recognises asset restoration obligations mainly in relation to leased
head office locations and branches and any other space which would need to be restored to their previous condition when the lease
ends. Asset restoration obligations are capitalised as part of the cost of right-of-use assets and depreciated over the asset’s estimated
useful life on a straight-line basis.
Subsequent measurement of right-of-use asset
After the commencement date, a right-of-use asset is measured at cost less any accumulated depreciation and any accumulated
impairment losses and adjusted for any re-measurement of the lease liability. The Group applies IAS 36 Impairment of Assets as set out
in the Group’s accounting policy (x) ‘Impairment of property, plant and equipment, goodwill and intangible assets’ to determine whether
the right-of-use asset is impaired and to account for any impairment loss identified.
The Group depreciates the right-of-use asset from the commencement date to the earlier of the end of the useful life of the right-of-
use asset and the end of the lease term on a straight-line basis. When determining the relevant time period to calculate depreciation,
the Group uses the lease term as determined in the initial recognition calculation.
AIB Group plc Annual Financial Report 2019123456Financial Statements 258
1 Accounting policies (continued)
(n) Leases (continued)
Initial measurement of lease liability
The lease liability is initially measured at the present value of the lease payments that are payable over the lease term, discounted using
the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the
Group uses its incremental borrowing rate as the discount rate.
Lease payments included in the measurement of the lease liability comprise the following:
–
fixed payments, including in-substance fixed payments;
– variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
– amounts expected to be payable by the Group under a residual value guarantee;
–
–
the exercise price of a purchase option if the Group is reasonably certain to exercise;
lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option; and
– payments of penalties for terminating the lease, if the lease term reflects the Group exercising an option to terminate the lease.
Lease payments exclude variable elements which are dependent on external factors, e.g. payments that are based on transaction
volume/usage. Variable lease payments that are not included in the initial measurement of the lease liability are recognised directly in
the income statement in the period in which the event or condition that triggers these payments occurs.
VAT payments are not included in the calculation of the lease liability. These are expensed to the income statement when incurred and
are included in ‘Operating expenses’ (note 13) within ‘General and administrative expenses’.
Where a lease agreement contains a clause to restore the asset to a specified condition i.e. restoration/dilapidation costs, the Group
recognises a provision for restoration costs under IAS 37 in its statement of financial position under ‘Provisions for liabilities and
commitments’.
Subsequent measurement of lease liability
After the commencement date, the Group measures the lease liability by:
–
–
–
increasing the carrying amount to reflect interest on the lease liability;
reducing the carrying amount to reflect lease payments made; and
re-measuring the carrying amount to reflect any reassessment or lease modifications.
The lease liability is measured at amortised cost using the effective interest method. It is re-measured when there is a change in future
lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be
payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or
termination option.
When the lease liability is re-measured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset,
or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to Nil.
Lease modifications
Lease modifications arise from changes to the underlying contract between the Group and the lessor. The accounting for the
modification is dependent on whether the modification is considered a separate lease or not.
A lease modification is accounted for as a separate lease if both the modification increases the scope of the lease by adding the right to
use one or more underlying assets and the consideration for the lease increases by an amount commensurate with the standalone price
for the increase in scope. If both criteria are met, the Group adopts the accounting policy on the initial recognition and measurement of
lease liabilities and right-of-use assets.
If a lease modification fails the test above or the modification is of any other type (e.g. a decrease in scope from the original contract),
the Group must modify the initially recognised components of the lease contract.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 259
1 Accounting policies (continued)
(n) Leases (continued)
The accounting treatment required for lease modifications that are not accounted for as separate leases is as follows:
Decrease in scope:
(a) Re-measure lease liability using revised discount rate*;
(b) Decrease right-of-use asset by its relative scope compared to the original lease; and
(c) Difference between (a) and (b) recognised as a gain or loss in the income statement in ‘Profit on disposal of leases’.
All other lease modifications:
(a) Re-measure lease liability using the revised discount rate*; and
(b) Re-measure right-of-use asset by same amount.
* The interest rate implicit in the lease for the remainder of the lease term is used. If this cannot be readily determined, the incremental borrowing rate at the
effective date of the modification is used.
Sublease accounting
Where the Group sub-leases an asset (intermediate lessor) which it has leased from another lessor (the ‘head lessor’ who ultimately
owns the asset from a legal perspective), the Group, assesses whether the sub-lease is a finance or operating lease in the context of
the right-of-use asset being leased, not the actual underlying asset.
Statement of financial position
The Group presents right-of-use assets in ‘Property, plant and equipment’ and lease liabilities as a separate line item in the statement of
financial position.
Practical expedients
The Group has elected to apply the practical expedient not to recognise right-of-use assets and lease liabilities for short term leases
i.e. leases that have a lease term of 12 months or less and for leases of low-value assets (i.e. leases where the value of the underlying
asset when new is less than € 5,000/£ 5,000). The lease payments associated with these leases are recognised as an expense on
a straight-line basis over the lease term. The election to adopt the recognition exemption for short term leases is made by class of
underlying asset to which the right-of-use relates.
The Group has elected to apply the practical expedient, as allowed by IFRS 16, to apply the Standard to a portfolio of leases with
similar characteristics when it expects that the effects on the financial statements of applying the Standard to the portfolio would not
differ materially from applying this Standard to the individual leases within the portfolio. The Group has applied the portfolio approach
to its leases of motor vehicles and the spaces in which its offsite ATMs are located. On this basis, the Group has made estimates and
assumptions that reflect the size and composition of the portfolio.
Under IAS 17
Until 31 December 2018, under the requirements of IAS 17, the Group’s policy for operating leases for the comparative period for
the year ended 31 December 2018 was as follows: Operating lease rentals payable were recognised as an expense in the income
statement on a straight-line basis over the lease term unless another systematic basis is more appropriate.
(o) 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.
AIB Group plc Annual Financial Report 2019123456Financial Statements 260
1 Accounting policies (continued)
(o) 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 ask
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 ask 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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 261
1 Accounting policies (continued)
(o) 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.
(p) 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.
(q) Derivatives and hedge accounting
Derivatives, such as interest rate swaps, options and forward rate agreements, futures, 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
re-measured 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.
AIB Group plc Annual Financial Report 2019123456Financial Statements 262
1 Accounting policies (continued)
(q) Derivatives and hedge accounting (continued)
Hedging
The Group has opted to remain with the IAS 39 hedge accounting requirements until macro hedge accounting is addressed by the IASB
as part of a separate project. This is an accounting policy choice allowed by IFRS 9.
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.
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 debt securities measured at FVOCI, 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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 263
1 Accounting policies (continued)
(q) Derivatives and hedge accounting (continued)
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.
(r) Derecognition
Financial assets
The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers
the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the
financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership
and it does not retain control of the financial asset.
On derecognition of a financial asset, the difference between the carrying amount of the asset and the sum of (i) the consideration
received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been
recognised in OCI is recognised in profit or loss. Relevant costs incurred with the disposal of a financial asset are deducted in computing
the gain or loss on disposal.
Any cumulative gain/loss recognised in OCI in respect of equity investment securities designated as at FVOCI is not recognised in
profit or loss on derecognition of such securities. However, the amount held in investment securities reserves is transferred to revenue
reserves on derecognition. Any interest in transferred financial assets that qualify for derecognition that is created or retained by the
Group is recognised as a separate asset or liability.
The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all
or substantially all of the risks and rewards of the transferred assets or a portion of them. In such cases, the transferred assets are not
derecognised. Examples of such transactions are securities lending and sale-and-repurchase transactions.
In transactions in which the Group neither retains nor transfers substantially all of the risks and rewards of ownership of a financial asset
and it retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement, determined
by the extent to which it is exposed to changes in the value of the transferred asset.
In certain transactions, the Group retains the obligation to service the transferred financial asset for a fee. The transferred asset is
derecognised if it meets the derecognition criteria. An asset or liability is recognised for the servicing contract if the servicing fee is more
than adequate or is less than adequate for performing the servicing.
The write-off of a financial asset constitutes a derecognition event. Where a financial asset is partially written-off, and the portion written-
off comprises specifically identified cash flows, this will constitute a derecognition event for that part written-off.
(s) Impairment of financial assets
The Group recognises loss allowances for expected credit losses at each balance sheet date for the following financial instruments that
are not measured at FVTPL:
– Financial assets at amortised cost;
– Financial assets at FVOCI (except for equity instruments);
– Lease receivables;
– Financial guarantee contracts issued; and
– Loan commitments issued.
Investments in equity instruments are recognised at fair value, accordingly, expected credit losses are not recognised separately for
equity instruments.
AIB Group plc Annual Financial Report 2019123456Financial Statements 264
1 Accounting policies (continued)
(s) Impairment of financial assets (continued)
ECLs are the weighted average of credit losses. These are an estimate of credit losses over the life of a financial instrument.
When measuring ECLs, the Group takes into account:
– probability-weighted outcomes;
–
–
the time value of money so that ECLs are discounted to the reporting date; and
reasonable and supportable information that is available without undue cost or effort at the reporting date about past events,
current conditions and forecasts of future economic conditions.
The amount of ECLs recognised as a loss allowance depends on the extent of credit deterioration since initial recognition. There are two
measurement bases:
–
12-month ECLs (Stage 1), which applies to all items as long as there is no significant deterioration in credit quality since initial
recognition; and
–
Lifetime ECLs (Stages 2 and 3), which applies when a significant increase in credit risk has occurred on an individual or collective
basis.
The 12 month ECL is the portion of lifetime expected credit losses that represent the expected credit losses that result from default
events on a financial instrument that are possible within the 12 months after the reporting date. Lifetime ECL is the expected credit
losses that result from all possible default events over the expected life of a financial instrument.
In the case of Stage 2, credit risk on the financial instrument has increased significantly since initial recognition but the instrument is not
considered credit impaired. For a financial instrument in Stage 3, credit risk has increased significantly since initial recognition and the
instrument is considered credit impaired.
Financial assets are allocated to stages dependent on credit quality relative to when the asset was originated.
A financial asset can only originate in either Stage 1 or as purchased or originated credit impaired (“POCI”). The ECL held against an
asset depends on a number of factors, one of which is its stage allocation. Assets allocated to Stage 2 and Stage 3 have lifetime ECLs.
Collateral and other credit enhancements are not considered as part of stage allocation. Collateral is reflected in the Group’s loss given
default models (‘LGD’).
Purchased or originated credit impaired
Purchased or originated credit impaired (“POCI”) financial assets are those that are credit-impaired on initial recognition. The Group
may originate a credit-impaired financial asset following a substantial modification of a distressed financial asset that resulted in
derecognition of the original financial asset.
POCIs are assets originated credit impaired where the difference between the discounted contractual cash flows and the fair value at
origination is greater than or equal to 5%. The Group uses an appropriate discount rate for measuring ECL in the case of POCIs which
is the credit-adjusted EIR. This rate is used to discount the expected cash flows of such assets to fair value on initial recognition.
POCIs remain outside of the normal stage allocation process for the lifetime of the obligation. The ECL for POCIs is always measured
at an amount equal to lifetime expected credit losses. The amount recognised as a loss allowance for these assets is the cumulative
changes in lifetime expected credit losses since the initial recognition of the assets rather than the total amount of lifetime expected
credit losses.
At each reporting date, the Group recognises the amount of the change in lifetime expected credit losses as a credit impairment gain or
loss in the income statement. Favourable changes in lifetime expected credit losses are recognised as a credit impairment gain, even if
the favourable changes exceed the amount previously recognised in profit or loss as a credit impairment loss.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 265
1 Accounting policies (continued)
(s) Impairment of financial assets (continued)
Modification
From time to time, the Group will modify the original terms of a customer’s loan either as part of the ongoing relationship or arising from
changes in the customer’s circumstances such as when that customer is unable to make the agreed original contractual repayments.
A modification refers to either:
– A change to the previous terms and conditions of a debt contract; or
– A total or partial refinancing of a debt contract.
Modifications may occur for both customers in distress and for those not in distress. Any financial asset that undergoes a change or
renegotiation of cash flows and is not derecognised is a modified financial asset.
When modification does not result in derecognition, the modified assets are treated as the same continuous lending agreement
but requires a modification gain or loss to be taken to profit or loss immediately. The gross carrying amount of the financial asset is
recalculated as the present value of the renegotiated or modified contractual cash flows discounted at the financial asset’s original
effective interest rate. Any costs or fees incurred adjust the carrying amount of the modified financial asset and are amortised over the
remaining term of the modified financial asset.
The stage allocation for modified assets which are not derecognised is by reference to the credit risk at initial recognition of the original,
unmodified contractual terms i.e. the date of initial recognition is not reset.
Where renegotiation of the terms of a financial asset 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.
Derecognition occurs if a modification or restructure is substantial on a qualitative or quantitative basis. Accordingly, certain forborne
assets are derecognised. The modified/restructured asset (derecognised forborne asset (‘DFA’)) is considered a ‘new financial
instrument’ and the date that the new asset is recognised is the date of initial recognition from this point forward. DFAs are allocated to
Stage 1 on origination and follow the normal staging process, thereafter.
If there is evidence of credit impairment at the time of initial recognition of a DFA, and the fair value at recognition is at a discount to the
contractual amount of the obligation, the asset is deemed to be a POCI. POCIs are not allocated to stages but are assigned a lifetime
PD and ECL for the duration of the obligation’s life. Where the modification/restructure of a non-forborne credit obligation results in
derecognition, the new loan is originated in Stage 1 and follows the normal staging process thereafter.
Collateralised financial assets – Repossessions
The ECL calculation for 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 that are credit impaired, the Group may repossess collateral previously pledged as security in order to achieve an orderly
realisation of the loan. The Group 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 that asset and not as a credit impairment of the original loan.
Financial assets at FVOCI
The ECL allowance for financial assets measured at FVOCI does not reduce the carrying amount in the statement of financial position
because the carrying amount of these assets is fair value. However, an amount equal to the ECL allowance that would arise if the assets
were measured at amortised cost is recognised in other comprehensive income (‘OCI’) as an accumulated credit impairment amount,
with a corresponding charge to profit or loss. The accumulated loss recognised in OCI is recycled to the profit or loss upon derecognition
of the assets (together with other accumulated gains and losses in OCI).
AIB Group plc Annual Financial Report 2019123456Financial Statements 266
1 Accounting policies (continued)
(s) Impairment of financial assets (continued)
Write-offs and debt forgiveness
The Group reduces the gross carrying amount of a financial asset either partially or fully when there is no reasonable expectation of
recovery.
Where there is no formal debt forgiveness agreed with the customer, the Group may write-off a loan either partially or fully when there
is no reasonable expectation of recovery. This is considered a non-contracted write-off. In this case, the borrower remains fully liable for
the credit obligation and is not advised of the write-off.
Once a financial asset is written-off either partially or fully, the amount written-off cannot subsequently be recognised on the balance
sheet. It is only when cash is received in relation to the amount written-off that income is recognised in the income statement as a
‘recovery of bad debt previously written-off’.
Debt forgiveness arises where there is a formal contract agreed with the customer for the write-off of a loan.
(t) 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 advances 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 advances continues to be recorded on the statement of financial position. Collateral paid away in the form
of cash is recorded in loans and advances to banks or customers. Any interest payable or receivable arising is recorded as interest
expense or interest income respectively.
Netting
Financial assets and financial liabilities are offset and the net amount reported on 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.
(u) Financial guarantees and loan commitment contracts
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 principal operating company) issues financial guarantees to other Group entities.
A loan commitment is a contract with a borrower to provide a loan or credit on specified terms at a future date. The contract may or may
not be cancelled unconditionally at any time without notice depending on the terms of the contract.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 267
1 Accounting policies (continued)
(u) Financial guarantees and loan commitment contracts (continued)
Financial guarantees and loan commitment contracts are initially recognised in the financial statements at fair value on the date that the
guarantee or loan commitment is given. Subsequent to initial recognition, the Group applies the impairment provisions of IFRS 9 and
calculates an ECL allowance for financial guarantees and loan commitment contracts that are not measured at FVTPL.
The origination date for such contracts is the date when the contracts become irrevocable. The credit risk at this date is used to
determine if a significant increase in credit risk has subsequently occurred.
The ECL allowance calculated on financial guarantees and loan commitment contracts is reported within IAS 37 Provisions, Contingent
Liabilities and Contingent Assets.
(v) 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 depreciates right-of-use assets arising under lease obligations from the commencement date of a lease to the earlier of the
end of the useful life of the right-of-use asset and the end of the lease term on a straight-line basis. When determining the relevant time
period to calculate depreciation, the Group uses the lease term as determined in the initial recognition calculation.
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.
(w) Intangible assets and goodwill
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.
AIB Group plc Annual Financial Report 2019123456Financial Statements
268
1 Accounting policies (continued)
(w) Intangible assets and goodwill (continued)
Acquired intangible assets
Customer related intangible assets and brands acquired in a business combination are recognised at fair value at acquisition date.
Customer related intangible assets and brands have a finite useful life and are carried at cost less accumulated amortisation.
Amortisation is calculated using the straight-line basis to allocate the cost over their estimated useful life (6 years).
Goodwill
Goodwill is not amortised but is tested for impairment in accordance with accounting policy (x) as set out below.
(x) 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, goodwill 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 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, goodwill 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.
(y) 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 re-measurement. However, financial assets within the scope of IFRS 9 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 re-measurement 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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 269
1 Accounting policies (continued)
(z) 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.
(aa) 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 and Subscriber 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 equity.
AIB Group plc Annual Financial Report 2019123456Financial Statements 270
1 Accounting policies (continued)
(aa) Equity (continued)
Dividends and distributions
Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Company’s shareholders, or in
the case of the interim dividend when they become irrevocable having already been approved for payment by the Board of Directors.
The interim dividend may be cancelled at any time prior to the actual payment.
Dividends declared after the end of the reporting date are disclosed in note 57.
Other equity interests
Other equity interests include
– Additional Tier 1 Perpetual Contingent Temporary Write Down Securities (AT1s) (note 43); and
–
Warrants to acquire a fixed number of the company shares for a fixed amount of currency are classified as equity instruments and
are recognised on initial recognition at the fair value of consideration received.
Distributions on the AT1s are recognised in equity when approved for payment by the Board of Directors.
Other capital reserves
Other capital reserves represent transfers from retained earnings in accordance with relevant legislation.
Capital contributions
Capital contributions represent the receipt of non-refundable considerations arising from transactions with the Irish Government
(note 53). 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 in the statement
of financial position arose during 2011 from (a) EBS transaction and (b) non-refundable receipts from the Irish Government and the
NPRFC.
The capital contribution from the EBS transaction is treated as non-distributable as the related net assets received were largely non-
cash in nature.
Non-refundable receipts of € 6,054 million from the Irish Government and the NPRFC are distributable. These are included in revenue
reserves.
Capital redemption reserves
Capital redemption reserves arose in 2015 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 2018, Subscriber Shares were redeemed resulting in a transfer of € 25,000 from revenue reserves to capital redemption reserves.
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.
Investment securities reserves
Investment securities reserves represent the net unrealised gain or loss, net of tax, arising from the recognition in the statement of
financial position of investment securities at FVOCI.
On disposal of equity securities which had been designated at FVOCI on initial recognition, any amounts held in the investment
securities reserves account is transferred directly to revenue reserves without recycling through profit or loss.
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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 271
1 Accounting policies (continued)
(aa) Equity (continued)
Revenue reserves
Revenue reserves represent retained earnings of the parent company, subsidiaries and associated undertakings together with amounts
transferred from issued share capital, share premium and capital redemption reserves following Irish High Court approval. They also
include amounts arising from the capital reduction which followed the ‘Scheme of Arrangement’ undertaken by the Group in December
2017.
The cumulative surplus/deficit within the defined benefit pension schemes and other appropriate adjustments are included in/offset
against revenue reserves.
Foreign currency cumulative translation reserves
The foreign currency cumulative 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.
Merger reserve
The merger reserve arose following the Scheme of Arrangement approved by the Irish High Court in December 2017 where a new
company, AIB Group plc (“the Company”), was introduced as the holding company of AIB Group (note 45).
In the consolidated financial statements of AIB Group plc, the carrying value of the investment in Allied Irish Banks, p.l.c. by AIB Group
plc was eliminated against the share capital and share premium account in Allied Irish Banks, p.l.c. and the merger reserve in AIB Group
plc resulting in a negative merger reserve.
In AIB Group plc’s company financial statements, impairment losses which arise from AIB Group plc’s investment in Allied Irish Banks,
p.l.c. will be charged to the profit or loss account and transferred to the merger reserve in so far as a credit balance remains in the
merger reserve.
Non-controlling interests
Non-controlling interests comprise equity interests which relate to the interests of outside shareholders in consolidated subsidiaries.
They also include other equity instruments such as additional tier 1 securities issued by consolidated subsidiaries.
(ab) 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.
(ac) 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 Executive Committee. The Executive Committee 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.
AIB Group plc Annual Financial Report 2019123456Financial Statements 272
1 Accounting policies (continued)
(ad) Prospective accounting changes
The following amendments to IFRS 3 which have been approved by the IASB, but not early adopted by the Group, may impact the
Group’s financial reporting in future periods. However, their impact can only be assessed as a situation arises.
Amendments to IFRS 3 Business Combinations
The amendments to IFRS 3 Business Combinations, which were issued in October 2018, clarify the definition of a business through the
following changes:
–
To be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive
process;
–
They narrow the definitions of a business and outputs by focusing on goods and services provided to customers and by removing
the reference to an ability to reduce costs.
Effective date: Business combinations where the acquisition date is on or after annual reporting periods beginning on or after
1 January 2020.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 273
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 the Group’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.
Significant judgements
The significant judgements made by the Group in applying its accounting policies are set out below. The application of these judgements
also necessarily involves estimations, apart from that relating to retirement benefit obligations, which are discussed separately.
– Deferred taxation;
–
Impairment of financial assets;
– Retirement benefit obligations;
– Provisions for liabilities and commitments; and
– Determination of fair value of financial instruments.
Deferred taxation
The Group’s accounting policy for deferred tax is set out in accounting policy (k) in note 1. Details of the Group’s deferred tax assets and
liabilities are set out in note 33.
A key judgement in relation to the recoverability of deferred tax assets is that it is probable that there will be sufficient future taxable
profits against which the losses can be used.
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 assets relies on the assessment of future profitability and the sufficiency of those profits to absorb
losses carried forward. It requires significant judgements to be made about the projection of long term future profitability because of the
period over which recovery extends.
In assessing the future profitability of the Group, the Board has considered a range of positive and negative evidence for this purpose.
Among this evidence, the principal positive factors include:
– AIB as a Pillar Bank, with a strong Irish franchise;
–
–
the absence of any expiry dates for Irish and UK tax losses;
the turnaround evident in the financial performance over the past number of years and the continuing growth in the Irish economy
since 2014;
– external forecasts for Ireland which indicate continued economic growth through the period of the medium–term financial plans;
–
the introduction of the bank resolution framework under the BRRD and the establishment in 2017 of AIB Group plc as the new
holding company of the Group provides greater confidence in relation to the future viability of Allied Irish Banks, p.l.c. (as the
principal operating bank subsidiary) as there are now effective tools in place that should facilitate its recapitalisation in a future crisis;
and
–
the non-enduring nature of the loan impairments at levels which resulted in the losses in prior years (2009-2013).
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 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;
–
the impact of Brexit;
– potential instability in the eurozone and global economies over an extended period; and
–
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.
AIB Group plc Annual Financial Report 2019123456Financial Statements 274
2 Critical accounting judgements and estimates (continued)
Deferred taxation (continued)
Profitability and growth were reassessed in the annual planning exercise covering the period 2020 to 2022 undertaken by the Group in
the second half of 2019. Growth assumptions and profitability levels underpinning the plan have been revised downwards compared to
previous years reflecting the lower for longer interest rate environment in particular, however, these are within current 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. Using the Group’s financial plan 2020 to 2022 as a base and a profit growth rate of
3% from 2022, it was assessed that it will take in excess of 20 years for the deferred tax asset (€ 2.7 billion) to be utilised. Furthermore,
under this scenario, it is expected that 77% of the deferred tax asset will be utilised within 20 years and 51% utilised within 15 years
(2018: 83%). If the growth rate assumption was decreased by 1%, then the utilisation period increases by a further 4 years. The Group’s
analysis of this and other scenarios examined would not alter the basis of recognition or the current carrying value. In 2018, the Group
reported that it expected that it would take less than 20 years for the deferred tax asset to be utilised.
Notwithstanding the absence of any expiry date for tax losses in the UK, the Group has concluded that the recognition of deferred tax
assets in its UK subsidiary be limited to the amount projected to be realised within a time period of 15 years. This is the timescale within
which the Group believes that it can assess the likelihood of its UK profits arising as being more likely than not. The deferred tax asset
for unutilised tax losses in the UK amounts to £ 87 million at 31 December 2019, following a write down of £ 22 million as the expected
profitability level over the 15 years has reduced.
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 the recognition of deferred tax assets. The amount of recognised deferred tax assets arising from unused
tax losses amounts to € 2,771 million of which € 2,669 million relates to Irish tax losses and € 102 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.
Impairment of financial assets
The Group’s accounting policy for impairment of financial assets is set out in accounting policy (s) in note 1. The expected credit loss
(‘ECL’) allowance for financial assets at 31 December 2019 represents Management’s best estimate of the expected credit losses on the
various portfolios at the reporting date.
The calculation of the ECL allowance is complex and therefore, an entity must consider large amounts of information in their
determination. This process requires significant use of a number of accounting judgements, estimates and assumptions, some of which,
by their nature, are highly subjective and very sensitive to risk factors such as changes to economic conditions. Changes in the ECL
allowance can materially affect net income.
The most significant judgements applied by the Group in estimating the ECL allowance are as follows:
– determining the criteria for a significant increase in credit risk and for being classified as credit impaired;
– definition of default;
–
choosing the appropriate models and assumptions for measuring ECL, e.g. PD, LGD and EAD and the parameters to be
included within the models;
–
–
determining the life of a financial instrument and therefore, the period over which to measure ECL;
establishing the number and relative weightings for forward looking scenarios for each asset class and ECL, particularly, in
relation to Brexit uncertainty;
– determining post-model adjustments using an appropriate methodology; and
– assessing the impact of forbearance strategies on cash flows and therefore, the ECL allowance for restructured loans.
The management process for the calculation of the ECL allowance is underpinned by independent tiers of review. The ECL allowance is,
in turn, reviewed and approved by the Group Credit Committee on a quarterly basis with final Group levels being approved by the Board
Audit Committee. Further detail on the ECL governance process is set out on page 98.
All the Group’s segments assess and approve their ECL allowance and their adequacy on a quarterly basis. Credit quality and ECL
provisioning are independently monitored by credit and risk management on a regular basis. On an ongoing basis, the various
judgements, estimates and assumptions are reviewed in light of differences between actual and previously calculated expected losses.
These are then recalibrated and refined to reflect current and evolving economic conditions.
The significant accounting judgements noted above and made by Management in estimating the ECL allowance are outlined on pages
97 and 98 in the Risk management section of this report.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 275
2 Critical accounting judgements and estimates (continued)
Retirement benefit obligations
The Group’s accounting policy for retirement benefit schemes is set out in accounting policy (j) in note 1.
The significant judgement is that a constructive obligation has not been created, notwithstanding the decision by the Group in the
recent past, following an annual process, to fund discretionary increases in pensions in payment.
In 2017, the Board, having taken actuarial and external legal advice, determined that the funding of discretionary increases in pensions
in payment is a decision to be made by the Board annually for the Group’s main Irish schemes. A process, taking account of all relevant
interests and factors has been implemented by the Board. These interests and factors include the advice of the Actuary; the interests
of the members of the scheme; the interests of the employees; the Group’s financial circumstances and ability to pay; the views of the
Trustees; the Group’s commercial interests and any competing obligations to the State.
In early 2017, the Board implemented this process which has continued to date. The Group completed the same process early in 2020
taking account of all relevant factors and decided that funding of discretionary increases to pensions in payment was not appropriate for
2020.
The above process is a formal annual process that is carried out on a standalone basis. Therefore, no constructive obligation is being
created on behalf of scheme members with regard to future funding by the Group of increases in pensions in payment. Accordingly,
the assumption for long term rate of increases in pensions in payment is Nil. This does not reflect the ability of the Trustee to grant
increases at any point in the future when the financial position of the scheme would enable such an increase at that point in time.
Provisions for liabilities and commitments
The Group’s accounting policy for provisions for liabilities and commitments is set out in accounting policy number (z) ‘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.
Significant management judgement is involved in this process which, of its nature, may require revisions to earlier judgements and
estimates as matters progress towards resolution, particularly, in establishing provisions and the range of reasonably possible losses.
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. 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.
The judgements employed in determining potential losses will change over time and the actual losses may vary significantly.
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 (o) in note 1.
The best evidence of fair value is quoted prices in an active market but in the absence of quoted prices increased reliance is placed on
valuation techniques.
Significant judgement is required in the estimation of fair value in the absence of quoted prices. 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 than those based wholly on observable data require a higher
level of subjective management judgement relating to the applicability and functionality of internal valuation models, the significance
of inputs to the valuation of an instrument and the degree of illiquidity in certain markets to calculate a fair value. Financial instruments
which are classified under the fair value hierarchy as level 3 require a higher level of management judgement in their valuation.
AIB Group plc Annual Financial Report 2019123456Financial Statements 276
2 Critical accounting judgements and estimates (continued)
Determination of fair value of financial instruments (continued)
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, the income statement.
A sensitivity analysis to possible changes in key variables of the fair value of financial instruments classified under the fair value
hierarchy as level 3 is set out in note 51.
Critical accounting estimates
The accounting estimates with a significant risk of material adjustment to the carrying amounts of assets and liabilities within the next
financial year were in relation to:
– ECL allowance;
– Retirement benefit obligations;
– Provisions for liabilities and commitments; and
–
Impairment of investments in subsidiaries in the separate financial statements.
ECL allowance
ECL allowances at 31 December 2019 amounted to € 1,238 million (2018: € 2,039 million). As noted above, there are significant
judgements involved in estimating ECL allowance. Certain of these estimates together with estimates which do not involve accounting
judgements may have a significant risk of material adjustment to carrying amounts of assets within the next financial year. In particular,
discounted cash-flows (‘DCFs’) are the most significant input to the ECL calculation for Stage 3 credit impaired obligors where the
gross credit exposure is ≥ € 1 million for Ireland or ≥ £ 500,000 for the UK. Collateral valuations and the estimated time to realisation of
collateral is a key component of the DCF model. The DCF assessment produces a base case ECL which is then adjusted to incorporate
the impact of multiple scenarios on the base ECL. The size of the adjustment must consider all relevant and supportable information,
including but not limited to, historical data analysis, predictive modelling and management judgement.
The macroeconomic variables used in models to calculate ECL allowance are based on assumptions, forecasts and estimates. These
are subject to change as the economic landscape changes. Accordingly, changes in local and international factors could have a material
bearing on the ECL allowance within the next financial year. The Group’s sensitivity to a range of macroeconomic factors under (i) base
forecast; (ii) upside; and (iii) downside scenarios is set out on pages 93 to 95 of the Risk Management section of this report.
Retirement benefit obligations
The Group’s accounting policy for retirement benefit obligations is set out in accounting policy (j) in note 1.
Details of the assumptions adopted by the Group in calculating the schemes’ liabilities are set out in note 34 to the financial statements.
The actuarial valuation of the schemes’ liabilities is dependent upon a number of financial and demographic assumptions which are
inherently uncertain. Changes to those assumptions could materially impact the reported amount for schemes’ liabilities and the
actuarial gains/losses reported in equity. A sensitivity analysis for the principal assumptions used to measure the schemes’ liabilities is
set out in note 34 to the financial statements.
Provisions for liabilities and commitments
Provisions for liabilities and commitments are set out in note 40 to the financial statements and their recognition involves a significant
degree of estimation. The overall provision amounting to € 503 million comprising: € 265 million in respect of tracker mortgage
customers - the ‘06-09 Ts & Cs who never had a tracker’ cohort; € 70 million in respect of potential CBI penalties; € 11 million residual
provision for tracker mortgages in respect of previous settlements and related matters; and a number of separate provisions, the
majority of which are not individually significant. The Group has not disclosed a range of outcomes for such provisions given their
diverse nature and the number of provisions involved.
In relation to the ‘06-09 Ts & Cs who never had a tracker’ cohort, in 2017, following review and analysis of the parameters of the Central
Bank of Ireland’s Tracker Mortgage Examination framework, the Group concluded that a cohort of customers who were never on a
tracker rate would be paid compensation. These customers had the option within the terms and conditions of their loan offer to choose a
prevailing tracker rate at the end of their fixed rate period. However, between October 2008 and December 2013, AIB had withdrawn the
prevailing tracker rate and as such these customers were not provided with this choice. These customers are referred to as the ’06-09
Ts & Cs who never had a tracker’ cohort. AIB paid each of these customers (c. 5,900) compensation of € 1,000 plus € 615 towards
independent advice. The customers also had the option for a 12 month period to avail of the then prevailing tracker rate at the time of the
compensation payment on a go forward basis and the right to appeal through the Independent Appeals process, being an integral part of
the CBI Tracker Mortgage Examination framework.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 277
2 Critical accounting judgements and estimates (continued)
Provisions for liabilities and commitments (continued)
At 31 December 2018, a provision amounting to € 10 million was held against, what was then considered to be, the practical completion
of the identification of all impacted accounts subject to ‘customer redress and compensation’ and the on going appeals process.
In determining this provision, the Group assessed other possible redress scenarios and concluded that the possibility of a further outflow
of economic resources was remote.
However, following a complaint to the Financial Services and Pensions Ombudsman (“FSPO”) by a customer from the ‘06-09 Ts & Cs
who never had a tracker’ cohort as outlined above, the Group received a preliminary decision in January 2020 which upheld a claim for
further redress due to this impacted customer.
The Group has considered this preliminary decision and recorded a provision of € 265 million based on an initial assessment of the
likelihood that additional redress may be due to all customers in this cohort. The Group is continuing to engage and consider its position
with regard to the impact of this preliminary decision and the methodology applied by the FSPO. There are a number of issues that need
to be resolved. Accordingly, there is a range of possible outcomes, however, the provision represents the Group’s best estimate based
on the available information at this stage.
As detailed in notes 40 and 47, AIB and EBS were advised in 2018 by the CBI of the commencement of investigations as part of an
administrative sanctions procedure in connection with the Tracker Mortgage Examination. In this regard, the Group created a provision
of € 70 million for the impact of potential monetary penalties that are expected to be imposed on the Group by the CBI being its best
estimate based on external developments in the industry at 31 December 2019. This matter is still considered to be at a relatively early
stage, and the amount provided for is subject to uncertainty with a range of outcomes possible with the final outcome being higher or
lower depending on finalisation of all matters associated with the investigation. Accordingly, this is a critical accounting estimate which
could result in a material adjustment in the next financial year but it is difficult to quantify a range of outcomes.
Other than as outlined above, there is no individually significant provision that is expected to result in a material adjustment in the next
financial year.
Impairment of investments in subsidiaries in the separate financial statements
The Group’s accounting policy for the impairment of investments in subsidiaries is set out in accounting policy (d) in note 1 and in note e
to the Company’s financial statements.
Investments in subsidiaries in the separate financial statements of the Company are reviewed for impairment when there are indications
that impairment losses may have occurred. If any such indications exist, the Company undertakes an impairment review by comparing
the carrying value of the investment in the subsidiary with its estimated recoverable amount with any shortfall being reported as
an impairment charge in the Company’s financial statements. The estimated recoverable amount is based on value-in-use (“VIU”)
calculations.
The Company tested its investment in Allied Irish Banks, p.l.c. for impairment as the carrying value was higher than the fair value.
In determining the VIU, the estimated pre-tax cash flow projections in the Company’s financial plan for the period 2020 to 2022 were
used as a base and a growth rate of 3% from 2022 was assumed into perpetuity. These projections were discounted at a risk adjusted
interest rate of 9%. The VIU was calculated at € 9,496 million which resulted in an impairment charge of € 3,444 million.
Testing for impairment inherently involves both significant estimations which involve a high degree of uncertainty (cash flow projections
during the period of the financial plan) and judgements (choice of appropriate discount and growth rates).
Given the uncertainties and the high level of subjectivity involved in the estimation process, it is possible that the outcomes in the next
financial year could differ from the expectations on which Company’s estimates are based resulting in the recognition and measurement
of material different amounts from those estimated in these financial statements.
Details of the VIU calculation and the sensitivity of current estimates to possible changes in key variables are set out in note e.
AIB Group plc Annual Financial Report 2019123456Financial Statements 278
3 Transition to IFRS 16
(a) Summary
On 1 January 2019, the Group implemented the requirements of IFRS 16 Leases, a new accounting standard which replaced IAS 17
Leases. The new standard brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between
operating 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.
Details of the Group’s accounting policy for lessee accounting are set out in note 1 (n) ‘Leases’ to these financial statements.
The information set out below provides details relevant to understanding the impact of IFRS 16 on the Group’s financial position at
1 January 2019.
(b) Principal impacts of IFRS 16
As permitted by IFRS 16, the Group transitioned to the standard in accordance with the modified retrospective approach, and
accordingly, the information presented for 2018 has not been restated. It remains as previously reported under IAS 17 and related
interpretations. There was no impact on retained earnings arising from the adoption of IFRS 16 on 1 January 2019.
As a lessee
On initial application of IFRS 16 for operating leases, right-of-use assets were generally measured at the amount of the lease liability,
using the Group’s incremental borrowing rate at the time of initial application. The weighted average rate applied was c. 3.0%. For the
measurement of the right-of-use assets at the date of initial application, initial direct costs were not taken into account in accordance
with IFRS 16 C10 (d).
The Group elected to apply the practical expedient that allows a single discount rate to be applied to a portfolio of leases with
reasonably similar characteristics and a similar remaining lease term. The Group applied single discount rates to its leases of motor
vehicles and its leases of ATM locations.
The Group also elected to apply the practical expedient where the lease term ends within 12 months of the date of initial application to
account for such leases as short term leases with the associated lease payments being recognised as an expense for short term leases.
In addition, the Group elected to apply the practical expedient that allows an entity to rely on its assessment of whether leases were
onerous by applying IAS 37 Provisions, Contingent Liabilities and Contingent Assets immediately before the date of initial application as
an alternative to performing an impairment review. This resulted in right-of-use assets being reduced by € 3 million on initial application
(note 40).
Contracts that qualified as leases as defined by IFRS 16 related primarily to property, motor vehicles and ATM locations. On initial
application of IFRS 16, the Group recognised assets and liabilities for its leases previously classified as operating leases under IAS 17,
resulting in an increase in total assets under property, plant and equipment and total liabilities at 1 January 2019. On transition to
IFRS 16, the principal impacts were the recognition of right-of-use assets of € 479 million (includes € 12 million for future dilapidation
provisions (note 40)) and lease liabilities of € 465 million. There was no impact to the reported EPS in 2019 following the adoption of
IFRS 16.
Comparative data in these financial statements has been prepared under IAS 17 Leases as allowed in IFRS 16.
As a lessor
The Group was not required to make any adjustment on transition to IFRS 16 for leases where it is a lessor, except for subleases.
At the date of initial application, the Group reassessed subleases that were classified as operating leases under IAS 17 to determine
whether these should be reclassified under IFRS 16. The Group concluded that the subleases in existence require classification as
finance leases under IFRS 16 and as a result € 4 million was recognised as finance leases in ‘Other assets’.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 279
3 Transition to IFRS 16 (continued)
(c) Financial statement impacts at 1 January 2019
Opening statement of financial position
The following table reconciles the statement of financial position under IAS 17 at 31 December 2018 to that under IFRS 16 at 1 January 2019.
31 December
2018
(IAS 17)
€ m
IFRS 16
Impact
€ m
1 January
2019
(IFRS 16)
€ m
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 advances to banks
Loans and advances to customers
Investment securities
Interests in associated undertakings
Intangible assets
Property, plant and equipment(1)
Other assets
Current taxation
Deferred tax assets
Prepayments and accrued income
Retirement benefit assets
Total assets
Liabilities
Deposits by central banks and banks
Customer accounts
Lease liabilities
Trading portfolio financial liabilities
Derivative financial instruments
Debt securities in issue
Current taxation
Deferred tax liabilities
Retirement benefit liabilities
Other liabilities
Accruals and deferred income
Provisions for liabilities and commitments(2)
Subordinated liabilities and other capital instruments
Total liabilities
Total equity
Total liabilities and equity
6,516
73
10
–
900
1,443
60,868
16,861
90
682
330
356
10
2,702
454
241
91,536
844
67,699
–
–
934
5,745
74
107
49
887
325
219
795
77,678
13,858
91,536
–
–
–
–
–
–
–
–
–
–
479
4
–
–
(9)
–
474
–
–
465
–
–
–
–
–
–
–
–
9
–
474
–
474
6,516
73
10
–
900
1,443
60,868
16,861
90
682
809
360
10
2,702
445
241
92,010
844
67,699
465
–
934
5,745
74
107
49
887
325
228
795
78,152
13,858
92,010
(1) Right-of-use assets include provisions for future dilapidations amounting to € 12 million and are net of impairment provisions of € 3 million (previously
reported as onerous contracts).
(2)Provisions for future dilapidations of € 12 million offset by a transfer of onerous lease provisions of € 3 million to right-of-use assets.
(d) Reconciliation of operating lease obligations
The following table reconciles the Group’s operating lease obligations at 31 December 2018, as previously disclosed in the consolidated
financial statements, to the lease obligations recognised on initial application of IFRS 16 at 1 January 2019:
Operating lease commitments at 31 December 2018
Extension options reasonably certain to be exercised – gross
Discounting effect – using the incremental borrowing rate at 1 January 2019
Recognition exemption for short term/other
Lease obligations recognised at 1 January 2019
2019
€ m
405
157
562
(95)
(2)
465
AIB Group plc Annual Financial Report 2019123456Financial Statements 280
4 Segmental information
Segment overview
Following changes to the Group’s operating model in 2019 performance is now managed and reported across Retail Banking,
Corporate, Institutional & Business Banking (“CIB”), AIB UK and Group segments. The allocation of costs by segment has been
amended to reflect the revised operating model. In addition the Group has revised the methodology used to allocate funding and liquidity
income/ charges by segment. Figures for the prior year have been restated on a comparative basis. Segment performance excludes
exceptional items.
Retail Banking
Retail Banking comprises Homes & Consumer, SME and Financial Solutions Group (“FSG”) in a single integrated segment, focused on
meeting the current, emerging and future needs of our personal and SME customers.
•
Homes & Consumer is responsible for meeting the homes needs of customers in Ireland across the AIB, EBS and Haven brands
and delivering innovative and differentiated products, propositions and services to meet our customers’ everyday banking needs
through an extensive range of physical and digital channels. Our purpose is to achieve a seamless, transparent and simple
customer experience in all of our propositions across current accounts, personal lending, payments and credit cards, deposits,
insurance and wealth to maintain and grow our market leading position.
•
SME is a leading provider of financial services to micro and small SMEs through our sector-led strategy and local expertise with
an extensive product and proposition offering across a number of channels. Our purpose is to help our customers create and build
sustainable businesses in their communities.
FSG is a standalone dedicated workout unit to which the Group has migrated the management of the majority of its non-performing
•
exposures (“NPEs”), predominantly consisting of homes, consumer and SME products, with the objective of delivering the Group’s
NPE strategy to reduce NPEs in line with European norms.
Corporate Institutional & Business Banking (“CIB”)
CIB provides institutional, corporate and business banking services to the Group’s larger customers and customers requiring specific
sector or product expertise. CIB’s relationship driven model serves customers through sector specialist teams including: corporate
banking; real estate finance; business banking and energy; climate action and infrastructure. In addition to traditional credit products,
CIB offers customers foreign exchange and interest rate risk management products, cash management products, trade finance,
mezzanine finance, structured and specialist finance, equity investments and corporate finance advisory services, as well as Private
Banking services and advice. CIB also has syndicated and international finance teams based in Dublin and in New York.
AIB UK
AIB UK offers retail and business banking services in two distinct markets, a sector-led corporate and commercial bank supporting
businesses in Great Britain (“Allied Irish Bank (GB)”), and a retail and business bank in Northern Ireland (“AIB (NI)”).
Group
Group comprises wholesale treasury activities and Group control and support functions. As part of the Finance function, treasury
manages the Group’s liquidity and funding positions and provides customer treasury services and economic research. The Group
control and support functions include Business & Customer Services, Risk, Group Internal Audit, Finance, Legal & Corporate
Governance, Human Resources and Corporate Affairs & Strategy.
Segment allocations
The segments’ performance statements include all income and directly related costs, excluding overheads which are managed centrally
and the costs of which are included in the Group segment. Funding and liquidity income/ 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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 281
2019
Total
€ m
2,076
472
107
579
2,655
Excep-
tional
items(1)
€ m
–
–
(40)
(40)(2)
(40)
4 Segmental information (continued)
Retail
Banking
CIB
AIB UK
Group
Total
€ m
€ m
€ m
€ m
€ m
Operations by business segment
Net interest income
Net fee and commission income*
Other
Other income
Total operating income
Other operating expenses
Of which: Personnel expenses
General and administrative expenses
Depreciation, impairment and amortisation
Bank levies and regulatory fees
Total operating expenses
Operating profit/(loss) before impairment losses
Net credit impairment writeback/(charge)
Operating profit/(loss)
Associated undertakings
Profit on disposal of property
Profit/(loss) before taxation
1,234
335
63
398
1,632
(923)
(458)
(313)
(152)
(2)
(925)
707
17
724
17
–
741
471
78
9
87
558
268
59
9
68
336
103
2,076
–
66
66
472
147
619
169
2,695
(115)
(176)
(83)
(25)
(7)
–
(90)
(65)
(21)
–
(115)
(176)
(290)
(143)
(98)
(49)
(102)
(392)
(1,504)
(573)
(2,077)
(774)
(501)
(229)
(56)(3)(4)
(500)(4)-(7)
(17)
(830)
(1,001)
(246)
(104)
(1,608)
–
(104)
(573)
(2,181)
443
(18)
425
–
–
160
(15)
145
3
–
(223)
1,087
–
(16)
(223)
1,071
–
–
20
–
(613)
–
(613)
–
21(5)
425
148
(223)
1,091
(592)
474
(16)
458
20
21
499
(1) Exceptional and one-off items are shown separately above. These are items that Management view as distorting comparability of performance from
period to period. Exceptional items include:
(2)Loss on disposal of loan portfolios;
(3)Termination benefits;
(4)Restitution costs;
(5)Property strategy;
(6)Restructuring costs; and
(7)Provision for regulatory fines.
For further information on these items see page 56.
*Analysis of net fee and commission income
Retail banking customer fees
Foreign exchange fees
Credit related fees
Other fees and commissions
Fee and commission income
Fee and commission expense
Retail
Banking
€ m
258
40
11
87
396
(61)
335
CIB
AIB UK
Group
€ m
€ m
27
21
21
11
80
(2)
78
35
9
18
2
64
(5)
59
€ m
18
1
–
(16)(1)
3
(3)
–
2019
Total
€ m
338
71
50
84
543
(71)
472
(1) Reflects the allocation of the Group’s segment fee and commission income to Retail Banking and CIB segments.
Further information on ‘Net fee and commission income’ is set out in note 8.
AIB Group plc Annual Financial Report 2019123456Financial Statements
282
4 Segmental information (continued)
Operations by business segment
Net interest income
Net fee and commission income*
Other
Other income
Total operating income
Other operating expenses
Of which: Personnel expenses
General and administrative expenses
Depreciation, impairment and amortisation
Bank levies and regulatory fees
Total operating expenses
Operating profit/(loss) before impairment losses
Net credit impairment writeback/(charge)
Operating profit/(loss)
Associated undertakings
Profit on disposal of property
Loss on disposal of business
Profit/(loss) before taxation
1,335
319
71
390
1,725
(875)
(431)
(358)
(86)
(1)
(876)
849
247
1,096
10
–
–
Retail
Banking
CIB
AIB UK
Group
Total
€ m
€ m
€ m
€ m
€ m
387
76
39
115
502
255
58
(7)
51
306
123
2,100
4
66
70
457
169
626
193
2,726
Excep-
tional
items(1)
€ m
–
–
148
148(2)
148
2018
Total
€ m
2,100
457
317
774
2,874
(108)
(152)
(296)
(1,431)
(293)
(1,724)
(78)
(24)
(6)
–
(89)
(62)
(1)
1
(108)
(151)
394
(22)
372
–
–
–
155
(21)
134
2
2
–
(132)
(119)
(45)
(99)
(395)
(202)
–
(202)
–
–
–
(730)
(563)
(138)
(34)(3)(4)
(235)(4)-(7)
(24)
(764)
(798)
(162)
(99)
–
(99)
(1,530)
(293)
(1,823)
1,196
204
1,400
12
2
–
(145)
–
(145)
–
–
(22)(8)
1,051
204
1,255
12
2
(22)
1,106
372
138
(202)
1,414
(167)
1,247
(1) Exceptional and one-off items are shown separately above. These are items that Management view as distorting comparability of performance from
period to period. Exceptional items include:
(2)Gain on disposal of financial instruments;
(3)Termination benefits;
(4)Restitution and restructuring costs;
(5)Property strategy costs;
(6)Customer redress;
(7)IFRS 9 and associated regulatory costs; and
(8)Loss on disposal of business activities.
For further information on these items see page 56.
*Analysis of net fee and commission income
Retail banking customer fees
Foreign exchange fees
Credit related fees
Other fees and commissions
Fee and commission income
Fee and commission expense
Retail
Banking
€ m
245
31
13
60
349
(30)
319
CIB
AIB UK
Group
€ m
€ m
21
29
17
12
79
(3)
76
39
11
14
–
64
(6)
58
€ m
21
–
–
(15)(1)
6
(2)
4
2018
Total
€ m
326
71
44
57
498
(41)
457
(1) Reflects the allocation of the Group’s segment fee and commission income to Retail Banking and CIB segments.
Further information on ‘Net fee and commission income’ is set out in note 8.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements
4 Segmental information (continued)
Other amounts – statement of financial position
Loans and advances to customers:
– measured at amortised cost
– measured at FVTPL
Total loans and advances to customers
Customer accounts
Loans and advances to customers:
– measured at amortised cost
– measured at FVTPL
Total loans and advances to customers
Customer accounts
Geographic information(1)(2)
Gross external revenue
Inter-geographical segment revenue
Total revenue
Geographic information(1)(2)
Gross external revenue
Inter-geographical segment revenue
Total revenue
283
Retail
Banking
€ m
31 December 2019
CIB
AIB UK
Group
Total
€ m
€ m
€ m
€ m
35,526
16,095
9,069
121
60,811
–
77
–
–
77
35,526
48,636
16,172
9,069
11,347
10,364
121
1,456
60,888
71,803
Retail
Banking
€ m
31 December 2018
CIB
AIB UK
Group
Total
€ m
€ m
€ m
€ m
37,258
15,060
8,303
100
60,721
50
37,308
45,262
97
15,157
10,798
–
8,303
9,911
–
100
1,728
147
60,868
67,699
Ireland
€ m
2,154
139
2,293
Ireland
€ m
2,528
26
2,554
Year to 31 December 2019
United
Kingdom
€ m
Rest of the
World
€ m
467
(109)
358
34
(30)
4
Total
€ m
2,655
–
2,655
Year to 31 December 2018
United
Kingdom
€ m
Rest of the
World
€ m
329
(18)
311
17
(8)
9
Total
€ m
2,874
–
2,874
Revenue from external customers comprises interest and similar income (note 5) and interest and similar expense (note 6), and all other
items of income (notes 7 to 12).
Geographic Information
Non-current assets(3)
Geographic Information
Non-current assets(3)
Ireland
€ m
1,608
Ireland
€ m
951
31 December 2019
United
Kingdom
€ m
Rest of the
World
€ m
107
5
Total
€ m
1,720
31 December 2018
United
Kingdom
€ m
60
Rest of the
World
€ m
1
Total
€ m
1,012
(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 goodwill and property, plant and equipment.
AIB Group plc Annual Financial Report 2019123456Financial Statements 284
5 Interest and similar income
Interest on loans and advances to customers at amortised cost
Interest on loans and advances to banks at amortised cost
Interest on investment securities
Negative interest on financial liabilities at amortised cost
Interest income calculated using the effective interest method
Interest income on finance leases and hire purchase contracts
Interest income on financial assets at FVTPL
Other interest income and similar income
Total interest and similar income
2019
€ m
2,038
38
195
2,271
20
2,291
76
3
79
2018
€ m
2,005
33
226
2,264
25
2,289
71
6
77
2,370
2,366
Interest income includes a credit of € 115 million (2018: a credit of € 143 million) transferred from other comprehensive income in
respect of cash flow hedges which is included in ‘Interest on loans and advances to customers’.
The Group presents interest resulting from negative effective interest rates on financial liabilities as interest income rather than as offset
against interest expense.
6 Interest and similar expense
Interest on deposits by central banks and banks
Interest on customer accounts
Interest on lease liabilities
Interest on debt securities in issue
Interest on subordinated liabilities and other capital instruments
Negative interest on financial assets at amortised cost
Interest expense calculated using the effective interest method
2019
€ m
12
128
14
91
33
278
16
294
2018
€ m
21
157
–
45
32
255
11
266
Interest expense includes a charge of € 31 million (2018: a charge of € 56 million) transferred from other comprehensive income in
respect of cash flow hedges which is included in ‘Interest on customer accounts’.
Interest expense reported above, calculated using the effective interest rate method, relates to financial liabilities not carried at fair value
through profit or loss.
The Group presents interest resulting from negative effective interest rates on financial assets as interest expense rather than as offset
against interest income.
7 Dividend income
NAMA subordinated bonds at FVOCI
Equity investments at FVTPL
Total
2019
€ m
23
3
26
2018
€ m
23
3
26
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 8 Net fee and commission income
Retail banking customer fees
Foreign exchange fees
Credit related fees
Other fees and commissions
Fee and commission income
Fee and commission expense
285
2018
€ m
326
71
44
57(1)
498
(41)(3)
457
2019
€ m
338
71
50
84(1)(2)
543
(71)(3)(4)
472
(1) Other fees and commissions includes wealth commissions € 25 million (2018: € 25 million), insurance commissions € 20 million (2018: € 20 million),
and other commissions € 12 million (2018: € 12 million). Following a reclassification of income within ‘Net fee and commission income’, income of
€ 15 million previously reported in ‘Retail banking customer fees’ is now reported as ‘Other fees and commissions’ for the year 2018.
(2) Includes consideration received or receivable amounting to € 27 million in respect of services and prepaid credits for cellular phones and utilities sold to
third parties.
(3) Fee and commission expense includes credit card commissions of € 36 million (2018: € 25 million), and ATM expenses of € 4 million (2018: € 5 million),
both of which relate to ‘Retail banking customer fees’. This also includes € 6 million (2018: € 11 million) relating to ‘Other fees and commissions’.
(4) Includes expenses amounting to € 25 million in respect of services and prepaid credits for cellular phones and utilities sold to third parties.
Fees and commissions which are an integral part of the effective interest rate are recognised as part of interest and similar income
(note 5) or interest and similar expense (note 6).
9 Net trading (loss)/income
Foreign exchange contracts
Interest rate contracts and debt securities(1)
Credit derivative contracts
Equity investments, index contracts and warrants(2)
2019
€ m
(26)
25
(11)
(45)
(57)
(1)Includes a gain of € 10 million (2018: gain of € 8 million) in relation to XVA adjustments.
(2)Includes a loss amounting to € 45 million on a total return swap, which is hedging equities measured at FVTPL (2018: loss of € 10 million).
The total hedging ineffectiveness on cash flow hedges reflected in the consolidated income statement amounted to Nil (2018: Nil).
10 Net gain on other financial assets measured at FVTPL
Loans and advances to customers(1)
Investment securities – equity(2)
Total
(1)Excludes interest income (note 5).
(2)Includes unrealised gain of € 62 million on equities hedged by a trading total return swap (2018: € 18 million).
2019
€ m
66
74
140
2018
€ m
(12)
24
2
(9)
5
2018
€ m
105
41
146
AIB Group plc Annual Financial Report 2019123456Financial Statements 286
11 Net (loss)/gain on derecognition of financial assets measured at amortised cost
Loans and advances to customers
Loans and advances to customers
Carrying
value at
derecognition
€ m
1,487
Carrying
value at
derecognition
€ m
781
Gain on
derecognition
Loss on
derecognition
€ m
254(1)
€ m
(302)(1)
Gain on
derecognition
Loss on
derecognition
€ m
200(1)
€ m
(79)(1)
2019
Net loss
on
derecognition
€ m
(48)
2018
Net gain
on
derecognition
€ m
121
(1)The gain/loss on derecognition has been based on the sales proceeds, net of costs, computed at a customer connection level.
Loans and advances to customers were derecognised due mainly to the sale of distressed loan portfolios.
12 Other operating income
Gain on disposal of investment securities at FVOCI – debt
Loss on termination of hedging swaps(1)
Miscellaneous operating income(2)
2019
€ m
93
(48)
1
46
2018
€ m
24
(9)
4
19
(1) The majority of the loss on termination of hedging swaps relates to the disposal of investment securities at FVOCI – debt. In 2018, it also includes
€ 1 million transferred from other comprehensive income in respect of cash flow hedges.
(2)Profit in relation to the disposal of finance leases amounted to € 1 million (2018: € 1 million).
13 Operating expenses
Personnel expenses:
Wages and salaries
Termination benefits(1)
Retirement benefits(2)
Social security costs
Other personnel expenses(3)
Less: staff costs capitalised(4)
Personnel expenses
General and administrative expenses(5)(6)
Restitution and associated costs
Bank levies and regulatory fees(8)
Operating expenses
2019
€ m
2018
€ m
619
48
100
69
23
859
(29)
830
585
416(7)
1,001
104
1,935
587
21
92
65
21
786
(22)
764
678
120
798
99
1,661
(1) Voluntary severance programme charge of € 48 million (2018: € 21 million).
(2) Comprises a defined contribution charge of € 80 million (2018: a charge of € 75 million), a charge of € 11 million in relation to defined benefit expense
(2018: a charge of € 8 million), and a long term disability payments/death in service benefit charge of € 9 million (2018: a charge of € 9 million). For details
of retirement benefits, see note 34.
(3)Includes staff training, recruitment and various other staff costs.
(4)Staff costs capitalised relate to intangible assets.
(5) In 2018, operating lease expenses (€ 63 million) were included. Following the implementation of IFRS 16 Leases in 2019, operating lease expenses have
been replaced by (a) interest expense on lease liabilities (note 6) and (b) depreciation on right-of-use assets (note 30).
(6) Includes provisions for regulatory fines of € 70 million for the CBI investigation with regard to the Tracker Mortgage Examination (2018: Nil). See note 40.
(7) Includes € 265 million provisions for the ‘06-09 Ts & Cs who never had a tracker’ mortgage cohort. See note 40.
(8) Includes € 20 million relating to supervisory fees which were previously included in ‘General and administrative expenses’. December 2018 has been
represented to report € 17 million in supervisory fees within ‘Bank levies and regulatory fees’.
The average number of employees for 2019 and 2018 is set out in note 54 ‘Employees’.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 287
14 Share-based compensation schemes
Employees’ Profit Sharing Scheme
The Group 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.
Income statement expense
The expense arising from share-based payment transactions amounted to Nil for the year ended 31 December 2019 (2018: Nil).
15 Net credit impairment (charge)/writeback
The following table analyses the income statement net credit impairment (charge)/writeback on financial instruments for the years to
31 December 2019 and 2018.
Credit impairment (charge)/writeback
on financial instruments
Net re-measurement of ECL allowance
Loans and advances to banks
Loans and advances to customers
Loan commitments
Financial guarantee contracts
Investment securities – debt
Credit impairment (charge)/writeback
Recoveries of amounts previously written-off
Net credit impairment (charge)/writeback
Measured at
amortised
cost
€ m
2019
Total
Measured
at FVOCI
€ m
€ m
Measured at
amortised
cost
€ m
2018
Total
Measured
at FVOCI
€ m
€ m
–
(117)
6
5
–
(106)
90
(16)
–
–
–
–
–
–
–
–
–
(117)
6
5
–
(106)
90
(16)
1
89
(9)
3
–
84
120
204
–
–
–
–
–
–
–
–
1
89
(9)
3
–
84
120
204
16 Profit on disposal of property
Profit on disposal of property amounted to € 21 million, principally, the gain arising on disposal of Bankcentre land (2018: € 2 million).
17 Loss on disposal of business
Loss on disposal of business amounted to Nil. In 2018, the loss of € 22 million followed the repatriation of part of the capital of certain
foreign subsidiaries in the Group which had ceased trading. A pro-rata amount of the related foreign currency cumulative translation
reserve was transferred to the income statement.
AIB Group plc Annual Financial Report 2019123456Financial Statements 288
18 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 Auditor only (Deloitte Ireland LLP) for services relating to the audit of the Group and relevant subsidiary financial
statements in the categories set out below.
Auditors’ fees (excluding VAT):
Audit of Group financial statements
Other assurance services
Other non-audit services
Taxation advisory services
2019
€ m
2.6
0.9
0.8
–
4.3
2018
€ m
2.6
0.6
1.1
–
4.3
All the above amounts were paid to the Group Auditor for services provided to the Group and its subsidiaries including Allied Irish Banks,
p.l.c.
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, provide 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 LLP):
Auditors’ fees excluding Deloitte Ireland LLP (excluding VAT):
2019
€ m
0.71
2018
€ m
0.58
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 19 Taxation
AIB Group plc and subsidiaries
Corporation tax in 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
Deferred tax assets written down
Reduction in carrying value of deferred tax assets in respect of carried forward losses
Total tax charge for the year
Effective tax rate
289
2019
€ m
2018
€ m
(21)
–
(21)
(33)
–
(33)
(54)
(42)
2
(25)
(16)
(81)
(135)
27.1%
(21)
(3)
(24)
(21)
1
(20)
(44)
(10)
13
–
(114)
(111)
(155)
12.4%
Factors affecting the effective tax rate
The following table sets out 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 before tax
Tax charge at standard corporation tax rate in Ireland of 12.5%
Effects of:
Foreign profits 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 tax rates
Tax legislation on equity distributions – current and prior years
(Deferred tax assets not recognised)/reversal
of amounts previously not recognised
Deferred tax assets written down
Other differences
Change in tax rates
Adjustments to tax charge in respect of prior years
Tax charge
2019
2018
%
€ m
1,247
%
12.5
(156)
12.5
2.6
4.4
(0.8)
(0.6)
6.0
(1.0)
(2.4)
5.0
1.0
0.8
(0.4)
27.1
(8)
(17)
2
1
(14)
14
11
–
10
–
2
(155)
0.6
1.4
(0.2)
(0.1)
1.1
(1.1)
(0.9)
–
(0.7)
–
(0.2)
12.4
€ m
499
(62)
(13)
(22)
4
3
(30)
5
12
(25)
(5)
(4)
2
(135)
As noted in accounting policy note 1 (k), ‘Income tax, including deferred income tax’, current and deferred tax is provided for based on
legislation and rates expected to apply when income taxes become payable/refundable or deferred tax assets are realised/deferred tax
liabilities are settled. This necessarily involves some estimation because the tax law is uncertain and its application requires a degree of
judgement, which authorities may dispute.
Liabilities are recognised based on best estimates of the probable outcome, taking into account all available evidence and external
advice, where appropriate.
The Group does not expect significant liabilities to arise in excess of the amounts provided. Any difference between the final outcome
and the amounts provided will affect the income tax charge in the period when the matter is resolved.
AIB Group plc Annual Financial Report 2019123456Financial Statements 290
19 Taxation (continued)
Analysis of selected other comprehensive income
Property revaluation reserves
Net change in property revaluation reserves
Total
Retirement benefit schemes
Actuarial (losses)/gains in retirement benefit schemes
Total
Foreign currency translation reserves
Foreign currency translation losses transferred to income statement
Change in foreign currency translation reserves recognised
in other comprehensive income
Total
Cash flow hedging reserves
Amounts reclassified from the cash flow hedging reserves to the
income statement as a reclassification adjustment:
– amounts for which hedge accounting had previously been used,
but for which the hedged future cash flows are no longer
expected to occur
– amounts that have been transferred because the hedged item
has affected the income statement
Hedging gains recognised in other comprehensive income
Total
Investment debt securities at FVOCI reserves
Fair value (gains) transferred to income statement
Fair value gains/(losses) recognised in other comprehensive income
Total
Investment equity securities measured at FVOCI reserves
Fair value (losses)/gains recognised in other comprehensive income
Total
Gross
€ m
Tax
€ m
–
–
(251)
(251)
–
66
66
–
–
63
63
–
–
–
2019
Net
€ m
–
–
(188)
(188)
–
66
66
Gross
€ m
Tax
€ m
2018
Net
€ m
–
–
35
35
22
(12)
10
–
–
(9)
(9)
–
–
–
–
–
26
26
22
(12)
10
–
–
–
–
–
–
(84)
295
211
(93)
43
(50)
(11)
(11)
10
(37)
(27)
(74)
258
184
(86)
118
32
10
(14)
(4)
(76)
104
28
12
(6)
6
2
2
(81)
37
(44)
(9)
(9)
(24)
(308)
(332)
2
2
3
38
41
–
–
(21)
(270)
(291)
2
2
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 291
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 own shares held.
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 own shares held, adjusted for the effect of dilutive potential ordinary shares.
(a) Basic
Profit attributable to equity holders of the parent
Distributions on other equity interests (note 21)
Profit attributable to ordinary shareholders of the parent
Weighted average number of ordinary shares in issue during the year
Earnings per share – basic
(b) Diluted
Profit attributable to ordinary shareholders of the parent (note 20 (a))
Weighted average number of ordinary shares in issue during the year
Potential weighted average number of shares
Earnings per share – diluted
2019
€ m
327
–
327
2018
€ m
1,092
(37)
1,055
Number of shares (millions)
2,714.4
2,714.4
EUR 12.1c
EUR 38.9c
2019
€ m
327
2018
€ m
1,055
Number of shares (millions)
2,714.4
2,714.4
2,714.4
2,714.4
EUR 12.1c
EUR 38.9c
The ordinary shares are included in the weighted average number of shares on a time apportioned basis.
Warrants
The Minister for Finance was issued warrants in 2017 to subscribe for 271,166,685 ordinary shares of AIB Group plc.
The warrants are exercisable during the period commencing 27 June 2018 and ending 27 June 2027 (see note 42 for further detail).
These warrants were not included in calculating the diluted earnings per share as they were antidilutive.
AIB Group plc Annual Financial Report 2019123456Financial Statements 292
21 Distributions on equity shares and other equity interests
Ordinary shares – dividends paid
Other equity interests – distributions
2019
€ m
461
–
2018
€ m
326
37
Final dividends are not accounted for until they have been approved at the Annual General Meeting of shareholders or in the case of the
interim dividend, when they become irrevocable having already been approved for payment by the Board of Directors. Interim dividends
may be cancelled at any time prior to the actual payment.
On 24 April 2019, a final dividend of € 0.17 per ordinary share, amounting in total to € 461 million (2018: € 326 million), was approved at
the Annual General Meeting of AIB Group plc and subsequently paid on 3 May 2019.
There were no distributions paid on the AT1 Securities issued in 2019. Distributions in 2019 which amounted to € 37 million related to
AT1 Securities now classified as non-controlling interests (note 44) but in 2018 were reported above under ‘Other equity interests -
distributions’.
22 Disposal groups and non-current assets held for sale
Property and non-financial assets held for sale(1)
Other
Total disposal groups and non-current assets held for sale
2019
€ m
19
1
20
2018
€ m
10
–
10
(1)Includes property surplus to requirements and repossessed assets which are expected to be disposed of within one year.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 293
23 Derivative financial instruments
Derivatives are used to service customer requirements, to manage the Group’s interest rate, exchange rate, equity and credit exposures
and for trading purposes. Derivative instruments are contractual agreements whose value is derived from price movements in underlying
assets, interest rates, foreign exchange rates or indices.
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 notional principal amount of interest rate, exchange rate, equity and credit derivative contracts together
with the positive and negative fair values attaching to those contracts at 31 December 2019 and 2018:
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
2019
€ m
51,330
1,230
(998)
6,710
36
(180)
354
5
(6)
240
–
(13)
58,634
1,271
(1,197)
2018
€ m
44,488
848
(901)
4,369
38
(24)
479
14
(5)
355
–
(4)
49,691
900
(934)
(1)Interest rate, exchange rate, equity and credit derivative contracts are entered into for both hedging and trading purposes.
(2)At 31 December 2019, 30% of fair value relates to exposures to banks (2018: 39%).
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 of this report.
AIB Group plc Annual Financial Report 2019123456Financial Statements 294
23 Derivative financial instruments (continued)
The following table analyses the 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:
Residual maturity
Less than
1 year
€ m
1 to 5
years
€ m
5 years +
2019
Total
€ m
€ m
Less than
1 year
€ m
1 to 5
years
€ m
5 years +
2018
Total
€ m
€ m
Notional principal amount
17,901
20,638
20,095
58,634
11,843
18,694
19,154
49,691
Positive fair value
86
293
892
1,271
61
212
627
900
The 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.
Ireland
United Kingdom
United States of America
Notional principal amount
2018
€ m
2019
€ m
Positive fair value
2018
€ m
2019
€ m
55,604
2,856
174
58,634
47,366
2,129
196
49,691
857
400
14
1,271
547
341
12
900
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. The level of credit
risk is minimised by dealing with counterparties of good credit standing, by the use of Credit Support Annexes and ISDA Master Netting
Agreements and increased clearing of derivatives through Central Counterparties (CCPs). As the traded instruments are recognised at
market value, any changes in market value directly affect reported income for a given period.
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.
Market risk within the banking book is also controlled through limits approved by the Board and monitored by an independent second
line risk function.
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 interest rate risk management objectives. Similarly, foreign exchange
derivatives can be used to hedge the Group’s exposure to foreign exchange risk.
The fair values of derivatives fluctuate as the underlying market interest rates or foreign exchange rates change. If the derivatives are
purchased or sold as hedges of statement of financial position items, the change in fair value 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 2019 and 2018, are presented within this note.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 295
23 Derivative financial instruments (continued)
The following table shows the notional principal amount and the fair value of derivative financial instruments analysed by product and
purpose at 31 December 2019 and 2018. A description of how the fair values of derivatives are determined is set out in note 51.
Notional
principal
amount
€ m
2019
Fair values
Assets Liabilities
€ m
€ m
Notional
principal
amount
€ m
2018
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 rates derivatives – OTC – central clearing
Interest rate swaps
Total interest rate derivatives – OTC –
central clearing
Interest rate derivatives – exchange traded
Interest rate futures bought and sold
Total interest rate derivatives – exchange traded
5,115
731
1,919
7,765
5,147
5,147
1,430
1,430
506
29
1
536
15
15
–
–
(474)
(37)
–
(511)
(62)
(62)
–
–
4,736
381
1,270
6,387
2,814
2,814
1,124
1,124
414
31
1
446
19
19
–
–
(446)
(31)
(1)
(478)
(23)
(23)
–
–
Total interest rate derivatives
14,342
551
(573)
10,325
465
(501)
Foreign exchange derivatives – OTC
Foreign exchange contracts
Currency options bought and sold
Total foreign exchange derivatives
Equity derivatives – OTC
Equity index options bought and sold
Equity total return swaps
Total equity derivatives
Credit derivatives – OTC
Credit derivatives
Total credit derivatives
6,657
54
6,711
182
171
353
240
240
35
1
36
5
–
5
–
–
Total derivatives held for trading
21,646
592
(180)
–
(180)
(4)
(2)
(6)
(12)
(12)
(771)
4,274
95
4,369
376
103
479
355
355
36
2
38
5
9
14
–
–
(24)
–
(24)
(5)
–
(5)
(4)
(4)
15,528
517
(534)
AIB Group plc Annual Financial Report 2019123456Financial Statements 296
23 Derivative financial instruments (continued)
2019
Notional
principal
amount
€ m
Fair values
Assets Liabilities
€ m
€ m
Notional
principal
amount
€ m
2018
Fair values
Assets
Liabilities
€ m
€ m
Derivatives held for hedging
Derivatives designated as fair value hedges – OTC
Interest rate swaps
Total derivatives designated as fair value hedges
– OTC
Derivatives designated as fair value hedges –
OTC – central clearing
Interest rate swaps
Total interest rate fair value hedges – OTC –
central clearing
Total derivatives designated as fair value hedges
Derivatives designated as cash flow hedges – OTC
Interest rate swaps
Cross currency interest rate swaps
Total interest rate cash flow hedges – OTC
Derivatives designated as cash flow hedges –
OTC – central clearing
Interest rate swaps
Total interest rate cash flow hedges – OTC –
central clearing
7,617
7,617
10,639
10,639
18,256
5,504
1,824
7,328
11,404
11,404
Total derivatives designated as cash flow hedges
18,732
Total derivatives held for hedging
Total derivative financial instruments
36,988
58,634
75
75
116
116
191
187
14
201
287
287
488
679
(95)
(95)
(208)
(208)
(303)
(93)
(10)
(103)
(20)
(20)
(123)
(426)
1,271
(1,197)
10,486
10,486
5,178
5,178
15,664
7,134
1,965
9,099
9,400
9,400
18,499
34,163
49,691
86
86
53
53
139
158
4
162
82
82
244
383
900
(176)
(176)
(28)
(28)
(204)
(116)
(57)
(173)
(23)
(23)
(196)
(400)
(934)
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, debt securities at FVOCI and fixed rate liabilities. The fair values of financial instruments are set out
in note 51. The net mark to market on fair value hedging derivatives, excluding accrual and risk adjustments at 31 December 2019 is
negative € 138 million (2018: negative € 79 million) and the net mark to market on the related hedged items at 31 December 2019 is
positive € 136 million (2018: positive € 78 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 46.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 23 Derivative financial instruments (continued)
Nominal values and average interest rates by residual maturity
At 31 December 2019 and 2018, the Group held the following hedging instruments of interest rate risk in fair value and cash flow
hedges respectively:
Less than
1 month
1 to 3
months
3 months
to 1 year
1 to 5
years
5 years +
297
2019
Total
Fair value hedges – Interest rate swaps
Assets
Hedges of investment securities – debt
Nominal principal amount (€ m)
Average interest rate (%)(1)
Liabilities
Hedges of debt securities in issue
Nominal principal amount (€ m)
Average interest rate (%)(1)
Hedges of subordinated debt
Nominal principal amount (€ m)
Average interest rate (%)(1)
Cash flow hedges – Interest rate swaps(2)
Hedges of financial assets
Nominal principal amount (€ m)
Average interest rate (%)(3)
Hedges of financial liabilities
Nominal principal amount (€ m)
Average interest rate (%)(3)
Fair value hedges – Interest rate swaps
Assets
Hedges of investment securities – debt
Nominal principal amount (€ m)
Average interest rate (%)(1)
Liabilities
Hedges of debt securities in issue
Nominal principal amount (€ m)
Average interest rate (%)(1)
Hedges of subordinated debt
Nominal principal amount (€ m)
Average interest rate (%)(1)
Cash flow hedges – Interest rate swaps(2)
Hedges of financial assets
Nominal principal amount (€ m)
Average interest rate (%)(3)
Hedges of financial liabilities
Nominal principal amount (€ m)
Average interest rate (%)(3)
73
0.74
–
–
–
–
205
1.84
482
0.72
84
1.02
500
1.38
–
–
149
0.92
583
0.28
848
1.81
4,711
0.57
4,457
0.65
10,173
0.72
750
0.63
750
4.13
2,330
1.18
918
1.26
5,058
2.20
500
1.88
4,812
0.91
1,143
0.89
525
2.39
–
–
6,833
1.98
1,250
3.23
7,539
0.67
15,035
0.84
571
2.79
3,697
1.16
2018
Total
Less than
1 month
1 to 3
months
3 months
to 1 year
1 to 5
years
5 years +
125
0.99
114
0.74
1,459
4.24
4,430
0.85
3,041
0.97
9,169
1.43
–
–
–
–
147
0.25
3
1.60
–
–
–
–
452
0.35
240
0.77
565
3.02
4,655
1.61
525
2.39
5,745
1.82
–
–
750
4.13
–
–
750
4.13
2,067
0.24
1,550
0.90
2,250
0.59
1,800
1.03
9,401
0.78
14,317
0.65
589
2.84
4,182
1.22
(1)Represents the fixed rate on the hedged item which is being swapped for a variable rate.
(2)Includes interest rate swaps and cross currency swaps used to hedge interest rate risk on variable rate EUR/GBP and EUR/USD assets and liabilities.
(3) This is the average interest rate on the fixed leg of swap agreements where the variable rate on the assets and liabilities in cash flow hedges is being
swapped for a fixed rate.
AIB Group plc Annual Financial Report 2019123456Financial Statements 298
23 Derivative financial instruments (continued)
Fair value hedges of interest rate risk
The tables below set out the amounts relating to items designated as (a) hedging instruments and (b) hedged items in fair value hedges
of interest rate risk together with the related hedge ineffectiveness at 31 December 2019 and 2018:
Carrying amount(1)
Nominal
Assets Liabilities
(a) Hedging instruments
€ m
€ m
€ m
2019
Line item in
SOFP* where
the hedging
instrument is
included
Change in fair
value used for
calculating hedge
ineffectiveness for
the year
€ m
Hedge
ineffectiveness
recognised in
the income
statement
€ m
Line item in
the income
statement that
includes hedge
ineffectiveness
Interest rate swaps hedging:
Investment securities – debt
Debt securities in issue
Subordinated debt
10,173
6,833
1,250
12
174
5
(298) Derivative financial
instruments
–
Derivative financial
instruments
(5) Derivative financial
instruments
(108)
43
6
(2) Net trading
income
–
–
Net trading
income
Net trading
income
Carrying amount
of hedged items
recognised in
the SOFP*
Accumulated amount
of fair value hedge
adjustments on the
hedged items included
in the carrying amount
of the hedged items
Line item in
SOFP* where
hedged item
is included
Change in fair
value of hedged
items used for
calculating hedge
ineffectiveness
for the year
(b) Hedged items
Assets Liabilities
€ m
€ m
Assets Liabilities
€ m
€ m
Investment securities – debt
10,789
249
Investment securities
Debt securities in issue
Subordinated debt
(6,936)
(1,258)
(105) Debt securities in issue
(8) Subordinated liabilities
and other capital
instruments
€ m
106
(43)
(6)
2019
Accumulated amount
of fair value hedge
adjustments remaining in
the SOFP* for any hedged
items that have ceased to
be adjusted for hedging
gains and losses
€ m
–
–
–
2018
Carrying amount(1)
Nominal
Assets
Liabilities
(a) Hedging Instruments
€ m
€ m
€ m
Line item in
SOFP* where
the hedging
instrument is
included
Change in fair
value used for
calculating hedge
ineffectiveness for
the year
€ m
Hedge
ineffectiveness
recognised in
the income
statement
€ m
Line item in
the income
statement that
includes hedge
ineffectiveness
Interest rate swaps hedging:
Investment securities – debt
9,169
Debt securities in issue
Subordinated debt
5,745
750
17
117
5
(204) Derivative financial
instruments
–
–
Derivative financial
instruments
Derivative financial
instruments
31
17
3
Carrying amount
of hedged items
recognised in
the SOFP*
Accumulated amount
of fair value hedge
adjustments on the
hedged items included
in the carrying amount
of the hedged items
Line item in
SOFP* where
hedged item is
included
Change in fair
value of hedged
items used for
calculating hedge
ineffectiveness
for the year
(b) Hedged items
Investment securities – debt
Debt securities in issue
Subordinated debt
Liabilities
€ m
Assets
€ m
9,453
Assets
€ m
142
(5,806)
(753)
Liabilities
€ m
Investment securities
(61) Debt securities in issue
(3) Subordinated liabilities
and other capital
instruments
€ m
(32)
(17)
(3)
(1)The mark to market of these instruments, excluding accruals of € 64 million, is € 176 million (2018: € 14 million is € 79 million).
*Statement of financial position
(1) Net trading
income
–
–
Net trading
income
Net trading
income
2018
Accumulated amount
of fair value hedge
adjustments remaining in
the SOFP* for any hedged
items that have ceased to
be adjusted for hedging
gains and losses
€ m
–
–
–
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements e
h
t
n
i
m
e
t
i
e
n
L
i
t
a
h
t
s
t
n
u
o
m
A
r
o
f
s
t
n
u
o
m
A
e
m
o
c
n
i
n
e
e
b
e
v
a
h
e
g
d
e
h
h
c
i
h
w
t
n
e
m
e
t
a
t
s
d
e
r
r
e
f
s
n
a
r
t
d
a
h
g
n
i
t
n
u
o
c
c
a
n
i
m
e
t
i
e
n
L
i
e
m
o
c
n
i
e
h
t
t
n
e
m
e
t
a
t
s
n
o
i
t
a
c
i
f
i
s
s
a
l
c
e
r
m
e
t
i
d
e
g
d
e
h
d
e
g
d
e
h
e
h
t
h
c
i
h
w
e
g
d
e
h
e
h
t
y
b
d
e
t
c
e
f
f
a
e
h
t
e
s
u
a
c
e
b
r
o
f
t
u
b
d
e
s
u
n
e
e
b
s
e
d
u
l
c
n
i
t
a
h
t
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
e
h
t
e
g
d
e
H
n
i
d
e
s
i
n
g
o
c
e
r
s
s
e
n
e
v
i
t
c
e
f
f
e
n
I
d
e
t
c
e
f
f
a
s
a
h
s
w
o
l
f
h
s
a
c
e
r
u
t
u
f
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
s
t
n
e
m
u
r
t
s
n
i
g
n
i
t
a
l
u
c
l
a
c
r
o
f
f
o
e
u
l
a
v
r
i
a
f
i
g
n
g
d
e
h
f
o
e
u
l
a
v
i
g
n
g
d
e
h
e
h
t
d
e
s
u
s
t
n
e
m
u
r
t
s
n
i
d
e
s
i
n
g
o
c
e
r
e
g
d
e
h
n
i
I
C
O
n
i
r
a
e
y
e
h
t
r
a
e
y
e
h
t
n
i
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
*
P
F
O
S
e
h
t
i
g
n
g
d
e
h
e
r
e
h
w
s
t
n
e
m
u
r
t
s
n
i
d
e
d
u
l
c
n
i
e
r
a
n
i
e
g
n
a
h
C
r
i
a
f
n
i
e
g
n
a
h
C
n
i
m
e
t
i
e
n
L
i
s
e
i
t
i
l
i
b
a
i
L
s
t
e
s
s
A
i
l
a
n
m
o
N
t
n
u
o
m
a
t
a
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
e
g
d
e
h
d
e
t
a
e
r
l
e
h
t
h
t
i
w
r
e
h
t
e
g
o
t
k
s
i
r
e
t
a
r
t
s
e
r
e
t
n
i
f
o
s
e
g
d
e
h
w
o
l
f
h
s
a
c
n
i
s
m
e
t
i
d
e
g
d
e
h
e
h
t
)
b
(
d
n
a
s
t
n
e
m
u
r
t
s
n
i
i
g
n
g
d
e
h
s
a
d
e
t
a
n
g
s
e
d
i
s
m
e
t
i
)
a
(
o
t
g
n
i
t
l
a
e
r
s
t
n
u
o
m
a
e
h
t
t
u
o
l
t
e
s
w
o
e
b
s
e
b
a
t
l
e
h
T
9
1
0
2
w
o
l
f
h
s
a
c
m
o
r
f
d
e
i
f
i
s
s
a
l
c
e
r
s
t
n
u
o
m
A
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
e
h
t
o
t
s
e
v
r
e
s
e
r
g
n
g
d
e
h
i
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
e
g
d
e
H
t
n
u
o
m
a
g
n
i
y
r
r
a
C
:
8
1
0
2
d
n
a
9
1
0
2
r
e
b
m
e
c
e
D
1
3
)
d
e
u
n
i
t
n
o
c
(
s
t
n
e
m
u
r
t
s
n
i
l
a
i
c
n
a
n
i
f
e
v
i
t
a
v
i
r
e
D
3
2
e
t
a
r
t
s
e
r
e
t
n
i
f
o
s
e
g
d
e
h
w
o
l
f
h
s
a
C
e
s
n
e
p
x
e
t
s
e
r
e
t
n
I
)
1
3
(
e
m
o
c
n
i
r
a
l
i
m
i
s
d
n
a
t
s
e
r
e
t
n
I
5
1
1
m
€
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
e
h
t
–
–
m
€
r
e
g
n
o
l
o
n
e
r
a
r
u
c
c
o
o
t
d
e
t
c
e
p
x
e
i
g
n
d
a
r
t
t
e
N
e
m
o
c
n
i
i
g
n
d
a
r
t
t
e
N
e
m
o
c
n
i
–
–
m
€
m
€
6
1
2
)
5
(
m
€
4
4
2
3
7
s
t
n
e
m
u
r
t
s
n
i
l
a
i
c
n
a
n
i
f
e
v
i
t
a
v
i
r
e
D
)
8
1
(
6
8
4
5
3
0
,
5
1
)
1
(
s
p
a
w
s
e
t
a
r
t
s
e
r
e
t
n
I
s
t
e
s
s
a
e
v
i
t
a
v
i
r
e
D
s
t
n
e
m
u
r
t
s
n
i
l
a
i
c
n
a
n
i
f
e
v
i
t
a
v
i
r
e
D
)
5
0
1
(
2
7
9
6
,
3
s
e
i
t
i
l
i
b
a
i
l
e
v
i
t
a
v
i
r
e
D
m
€
m
€
m
€
s
t
n
e
m
u
r
t
s
n
I
i
g
n
g
d
e
H
)
a
(
.
k
s
i
r
e
t
a
r
t
s
e
r
e
t
n
i
i
g
n
g
d
e
h
e
r
a
h
c
h
w
i
f
o
h
t
o
b
,
s
p
a
w
s
e
t
a
r
t
s
e
r
e
t
n
i
y
c
n
e
r
r
u
c
s
s
o
r
c
d
n
a
s
p
a
w
s
e
t
a
r
t
s
e
r
e
t
n
i
h
t
o
b
e
d
u
c
n
l
i
e
s
e
h
T
.
k
s
i
r
e
t
a
r
t
s
e
r
e
t
n
i
i
g
n
g
d
e
H
)
1
(
n
o
i
t
i
s
o
p
l
i
a
c
n
a
n
i
f
f
o
t
n
e
m
e
a
S
*
t
t
299
i
g
n
g
d
e
h
w
o
l
f
h
s
a
c
i
g
n
g
d
e
h
w
o
l
f
h
s
a
c
i
g
n
g
d
e
h
9
1
0
2
s
t
n
u
o
m
A
s
t
n
u
o
m
A
e
h
t
n
i
i
g
n
n
i
a
m
e
r
e
h
t
n
i
i
g
n
n
i
a
m
e
r
n
i
s
t
n
u
o
m
A
w
o
l
f
h
s
a
c
e
h
t
m
€
7
0
1
–
m
€
4
2
1
–
x
a
t
t
s
o
p
i
g
n
g
d
e
h
y
n
a
m
o
r
f
s
e
v
r
e
s
e
r
e
g
d
e
h
h
c
i
h
w
i
r
o
f
p
h
s
n
o
i
t
a
l
e
r
d
e
i
l
p
p
a
r
e
g
n
o
l
o
n
s
i
g
n
i
t
n
u
o
c
c
a
x
a
t
e
r
p
i
g
n
g
d
e
h
y
n
a
m
o
r
f
s
e
v
r
e
s
e
r
e
g
d
e
h
h
c
i
h
w
i
r
o
f
p
h
s
n
o
i
t
a
l
e
r
d
e
i
l
p
p
a
r
e
g
n
o
l
o
n
s
i
g
n
i
t
n
u
o
c
c
a
m
€
2
4
4
)
0
8
(
x
a
t
t
s
o
p
)
1
(
s
e
g
d
e
h
i
g
n
u
n
i
t
n
o
c
r
o
f
s
e
v
r
e
s
e
r
n
i
t
n
u
o
m
A
w
o
l
f
h
s
a
c
e
h
t
x
a
t
e
r
p
i
g
n
g
d
e
h
)
1
(
s
e
g
d
e
h
i
g
n
u
n
i
t
n
o
c
r
o
f
s
e
v
r
e
s
e
r
r
a
e
y
e
h
t
r
o
f
r
i
a
f
n
i
e
g
n
a
h
C
r
o
f
d
e
s
u
s
m
e
t
i
d
e
g
d
e
h
f
o
e
u
l
a
v
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
e
g
d
e
h
g
n
i
t
a
l
u
c
l
a
c
d
e
d
u
l
c
n
i
s
i
m
e
t
i
d
e
g
d
e
h
h
c
i
h
w
n
i
*
P
F
O
S
n
i
m
e
t
i
e
n
L
i
m
€
5
0
5
)
1
9
(
m
€
)
4
4
2
(
)
3
7
(
s
r
e
m
o
t
s
u
c
o
t
s
e
c
n
a
v
d
a
d
n
a
s
n
a
o
L
k
s
i
r
e
t
a
r
t
s
e
r
e
t
n
I
s
t
n
u
o
c
c
a
r
e
m
o
t
s
u
C
k
s
i
r
e
t
a
r
t
s
e
r
e
t
n
I
s
m
e
t
i
d
e
g
d
e
H
)
b
(
n
o
i
t
i
s
o
p
l
i
a
c
n
a
n
i
f
f
o
t
n
e
m
e
t
t
a
S
*
.
e
g
d
e
h
e
h
t
f
o
n
o
i
t
p
e
c
n
i
m
o
r
f
m
e
t
i
d
e
g
d
e
h
e
h
t
f
o
)
e
u
a
v
l
t
n
e
s
e
r
p
(
e
u
a
v
l
r
i
a
f
n
i
e
g
n
a
h
c
l
e
v
i
t
a
u
m
u
c
e
h
t
r
o
s
s
o
l
r
o
n
a
g
i
l
e
v
i
t
a
u
m
u
c
e
h
t
r
e
h
t
i
e
f
o
r
e
w
o
l
e
h
t
o
t
d
e
t
s
u
d
a
j
e
r
a
s
e
v
r
e
s
e
r
i
g
n
g
d
e
h
w
o
l
f
h
s
a
c
e
h
T
)
1
(
.
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
e
h
t
n
i
i
d
e
s
n
g
o
c
e
r
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
e
g
d
e
h
y
n
a
h
t
i
w
e
m
o
c
n
i
i
e
v
s
n
e
h
e
r
p
m
o
c
r
e
h
t
o
n
i
i
d
e
s
n
g
o
c
e
r
s
i
s
e
v
r
e
s
e
r
i
g
n
g
d
e
h
w
o
l
f
h
s
a
c
e
h
t
n
i
e
g
n
a
h
c
e
h
t
y
b
t
e
s
f
f
o
s
i
t
a
h
t
n
o
i
t
r
o
p
e
h
T
AIB Group plc Annual Financial Report 2019123456Financial Statements
e
h
t
n
i
m
e
t
i
e
n
L
i
t
a
h
t
s
t
n
u
o
m
A
e
m
o
c
n
i
n
e
e
b
e
v
a
h
r
o
f
s
t
n
u
o
m
A
e
g
d
e
h
h
c
h
w
i
t
n
e
m
e
t
a
t
s
d
e
r
r
e
f
s
n
a
r
t
d
a
h
g
n
i
t
n
u
o
c
c
a
n
i
m
e
t
i
e
n
L
i
e
m
o
c
n
i
e
h
t
t
n
e
m
e
t
a
t
s
n
o
i
t
a
c
i
f
i
s
s
a
c
e
r
l
m
e
t
i
d
e
g
d
e
h
d
e
g
d
e
h
e
h
t
h
c
h
w
i
e
g
d
e
h
e
h
t
y
b
d
e
t
c
e
f
f
a
e
h
t
e
s
u
a
c
e
b
r
o
f
t
u
b
d
e
s
u
n
e
e
b
s
e
d
u
c
n
l
i
t
a
h
t
d
e
t
c
e
f
f
a
s
a
h
s
w
o
l
f
h
s
a
c
e
r
u
t
u
f
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
e
h
t
e
g
d
e
H
n
i
i
d
e
s
n
g
o
c
e
r
s
s
e
n
e
v
i
t
c
e
f
f
e
n
I
n
i
e
g
n
a
h
C
f
o
e
u
a
v
l
r
i
a
f
i
g
n
g
d
e
h
e
h
t
s
t
n
e
m
u
r
t
s
n
i
i
d
e
s
n
g
o
c
e
r
n
i
I
C
O
n
i
r
a
e
y
e
h
t
l
g
n
i
t
a
u
c
a
c
l
r
o
f
e
r
a
s
t
n
e
m
u
r
t
s
n
i
e
g
d
e
h
r
a
e
y
e
h
t
n
i
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
d
e
d
u
c
n
l
i
r
i
a
f
n
i
e
g
n
a
h
C
i
g
n
g
d
e
h
f
o
e
u
a
v
l
d
e
s
u
s
t
n
e
m
u
r
t
s
n
i
e
r
e
h
w
*
P
F
O
S
i
g
n
g
d
e
h
e
h
t
n
i
m
e
t
i
e
n
L
i
s
e
i
t
i
l
i
b
a
L
i
s
t
e
s
s
A
l
i
a
n
m
o
N
t
n
u
o
m
a
300
8
1
0
2
w
o
l
f
h
s
a
c
m
o
r
f
d
e
i
f
i
s
s
a
c
e
r
l
s
t
n
u
o
m
A
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
e
h
t
o
t
s
e
v
r
e
s
e
r
g
n
g
d
e
h
i
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
e
g
d
e
H
t
n
u
o
m
a
i
g
n
y
r
r
a
C
)
d
e
u
n
i
t
n
o
c
(
s
t
n
e
m
u
r
t
s
n
i
l
a
i
c
n
a
n
i
f
e
v
i
t
a
v
i
r
e
D
3
2
)
d
e
u
n
i
t
n
o
c
(
e
t
a
r
t
s
e
r
e
t
n
i
f
o
s
e
g
d
e
h
w
o
l
f
h
s
a
C
e
s
n
e
p
x
e
t
s
e
r
e
t
n
I
)
6
5
(
e
m
o
c
n
i
r
a
l
i
m
s
i
d
n
a
t
s
e
r
e
t
n
I
3
4
1
m
€
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
e
h
t
–
–
m
€
r
e
g
n
o
l
o
n
e
r
a
r
u
c
c
o
o
t
d
e
t
c
e
p
x
e
i
g
n
d
a
r
t
t
e
N
e
m
o
c
n
i
i
g
n
d
a
r
t
t
e
N
e
m
o
c
n
i
–
–
)
7
1
(
9
4
)
5
7
1
(
5
5
l
i
a
c
n
a
n
i
f
e
v
i
t
a
v
i
r
e
D
)
0
8
(
s
t
n
e
m
u
r
t
s
n
i
l
i
a
c
n
a
n
i
f
e
v
i
t
a
v
i
r
e
D
)
6
1
1
(
s
t
n
e
m
u
r
t
s
n
i
m
€
m
€
m
€
m
€
m
€
2
3
2
2
1
m
€
s
t
n
e
m
u
r
t
s
n
I
i
g
n
g
d
e
H
)
a
(
7
1
3
,
4
1
2
8
1
,
4
)
1
(
s
p
a
w
s
e
t
a
r
t
s
e
r
e
t
n
I
s
t
e
s
s
a
e
v
i
t
a
v
i
r
e
D
s
e
i
t
i
l
i
b
a
i
l
e
v
i
t
a
v
i
r
e
D
e
h
t
n
i
i
i
g
n
n
a
m
e
r
e
h
t
n
i
i
i
g
n
n
a
m
e
r
i
g
n
g
d
e
h
y
n
a
m
o
r
f
s
e
v
r
e
s
e
r
i
g
n
g
d
e
h
y
n
a
m
o
r
f
s
e
v
r
e
s
e
r
i
g
n
g
d
e
h
w
o
l
f
h
s
a
c
i
g
n
g
d
e
h
w
o
l
f
h
s
a
c
i
r
o
f
p
h
s
n
o
i
t
a
e
r
l
i
r
o
f
p
h
s
n
o
i
t
a
e
r
l
m
€
2
3
1
–
m
€
1
5
1
–
x
a
t
t
s
o
p
e
g
d
e
h
h
c
h
w
i
d
e
i
l
p
p
a
r
e
g
n
o
l
o
n
s
i
g
n
i
t
n
u
o
c
c
a
x
a
t
e
r
p
e
g
d
e
h
i
h
c
h
w
d
e
i
l
p
p
a
r
e
g
n
o
l
o
n
s
i
g
n
i
t
n
u
o
c
c
a
8
1
0
2
s
t
n
u
o
m
A
s
t
n
u
o
m
A
.
k
s
i
r
e
t
a
r
t
s
e
r
e
t
n
i
i
g
n
g
d
e
h
e
r
a
h
c
h
w
i
f
o
h
t
o
b
,
s
p
a
w
s
e
t
a
r
t
s
e
r
e
t
n
i
y
c
n
e
r
r
u
c
s
s
o
r
c
d
n
a
s
p
a
w
s
e
t
a
r
t
s
e
r
e
t
n
i
h
t
o
b
e
d
u
c
n
l
i
e
s
e
h
T
.
k
s
i
r
e
t
a
r
t
s
e
r
e
t
n
i
i
g
n
g
d
e
H
)
1
(
n
o
i
t
i
s
o
p
l
i
a
c
n
a
n
i
f
f
o
t
n
e
m
e
a
S
*
t
t
m
€
8
2
2
)
5
7
(
n
i
s
t
n
u
o
m
A
w
o
l
f
h
s
a
c
e
h
t
i
g
n
g
d
e
h
r
o
f
s
e
v
r
e
s
e
r
x
a
t
t
s
o
p
)
1
(
s
e
g
d
e
h
i
g
n
u
n
i
t
n
o
c
m
€
1
6
2
)
6
8
(
n
i
t
n
u
o
m
A
w
o
l
f
h
s
a
c
e
h
t
i
g
n
g
d
e
h
r
o
f
s
e
v
r
e
s
e
r
x
a
t
e
r
p
)
1
(
s
e
g
d
e
h
i
g
n
u
n
i
t
n
o
c
r
i
a
f
n
i
e
g
n
a
h
C
r
o
f
d
e
s
u
s
m
e
t
i
d
e
g
d
e
h
f
o
e
u
a
v
l
e
g
d
e
h
l
g
n
i
t
a
u
c
a
c
l
m
€
5
7
1
)
5
5
(
r
a
e
y
e
h
t
r
o
f
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
d
e
d
u
c
n
l
i
s
i
m
e
t
i
d
e
g
d
e
h
i
h
c
h
w
n
i
*
P
F
O
S
n
i
m
e
t
i
e
n
L
i
s
r
e
m
o
t
s
u
c
o
t
s
e
c
n
a
v
d
a
d
n
a
s
n
a
o
L
k
s
i
r
e
t
a
r
t
s
e
r
e
t
n
I
s
t
n
u
o
c
c
a
r
e
m
o
t
s
u
C
k
s
i
r
e
t
a
r
t
s
e
r
e
t
n
I
s
m
e
t
i
d
e
g
d
e
H
)
b
(
.
e
g
d
e
h
e
h
t
f
o
n
o
i
t
p
e
c
n
i
m
o
r
f
m
e
t
i
d
e
g
d
e
h
e
h
t
f
o
)
e
u
a
v
l
t
n
e
s
e
r
p
(
e
u
a
v
l
r
i
a
f
n
i
e
g
n
a
h
c
l
e
v
i
t
a
u
m
u
c
e
h
t
r
o
s
s
o
l
i
r
o
n
a
g
e
v
i
t
a
u
m
u
c
l
e
h
t
r
e
h
t
i
e
f
o
r
e
w
o
l
e
h
t
o
t
d
e
t
s
u
d
a
j
e
r
a
s
e
v
r
e
s
e
r
i
g
n
g
d
e
h
w
o
l
f
h
s
a
c
e
h
T
)
1
(
n
o
i
t
i
s
o
p
l
i
a
c
n
a
n
i
f
f
o
t
n
e
m
e
t
t
a
S
*
.
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
e
h
t
n
i
i
d
e
s
n
g
o
c
e
r
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
e
g
d
e
h
y
n
a
h
t
i
w
e
m
o
c
n
i
i
e
v
s
n
e
h
e
r
p
m
o
c
r
e
h
t
o
n
i
i
d
e
s
n
g
o
c
e
r
s
i
s
e
v
r
e
s
e
r
i
g
n
g
d
e
h
w
o
l
f
h
s
a
c
e
h
t
n
i
e
g
n
a
h
c
e
h
t
y
b
t
e
s
f
f
o
s
i
t
a
h
t
n
o
i
t
r
o
p
e
h
T
AIB Group plc Annual Financial Report 2019Financial Statements
23 Derivative financial instruments (continued)
Cash flow hedges
The table below sets out the hedged cash flows which are expected to occur in the following periods:
Forecast receivable cash flows
Forecast payable cash flows
Forecast receivable cash flows
Forecast payable cash flows
Within 1 year
€ m
66
50
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
21
42
25
49
55
17
Within 1 year
€ m
64
44
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
19
33
122
36
231
29
301
2019
Total
€ m
167
158
2018
Total
€ m
436
142
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
66
97
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
21
85
25
80
55
20
Within 1 year
€ m
64
105
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
19
72
122
81
231
35
2019
Total
€ m
167
282
2018
Total
€ m
436
293
Ineffectiveness reflected in the income statement that arose from cash flow hedges at 31 December 2019 amounted to Nil
(31 December 2018: Nil).
Pay fixed cash flow hedges are used to hedge the cash flows on variable rate liabilities and 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 at 31 December 2019 was a gain
of € 184 million (2018: a gain of € 28 million).
AIB Group plc Annual Financial Report 2019123456Financial Statements 302
24 Loans and advances to banks
At amortised cost
Funds placed with central banks
Funds placed with other banks
ECL allowance
Total loans and advances to banks
Amounts include:
Reverse repurchase agreements
Loans and advances to banks by geographical area(1)
Ireland
United Kingdom
United States of America
2019
€ m
468
1,010
–
1,010
1,478
151
2019
€ m
881
595
2
1,478
2018
€ m
589
854
–
854
1,443
–
2018
€ m
752
689
2
1,443
(1)The classification of loans and advances to banks by geographical area is based primarily on the location of the office recording the transaction.
Loans and advances to banks include cash collateral of € 631 million (2018: € 570 million) placed with derivative counterparties in
relation to net derivative positions and placed with repurchase agreement counterparties. In addition, these include € 4 million relating to
restricted balances held in trust in respect of certain payables which are included in ‘other liabilities’ (note 39).
Under reverse repurchase agreements, the Group accepts collateral that it is permitted to sell or repledge in the absence of default
by the owner of the collateral. At 31 December 2019, the collateral received consisted of non-government securities with a fair value
of € 151 million, none of which had been resold or repledged. These transactions were conducted under terms that are usual and
customary to standard reverse repurchase agreements.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 25 Loans and advances to customers
Amortised cost
Loans and advances to customers
Reverse repurchase agreements
Amounts receivable under finance leases and hire purchase contracts
ECL allowance
Mandatorily at fair value through profit or loss
Loans and advances to customers
Total loans and advances to customers
Of which repayable on demand or at short notice
Amounts include:
Due from associated undertakings
303
2018
€ m
61,309
–
1,451
62,760
(2,039)
60,721
147
60,868
4,647
2019
€ m
60,359
87
1,603
62,049
(1,238)
60,811
77
60,888
3,147
1(1)
–
(1)Undrawn commitments amount to € 104 million and are for less than one year.
Loans and advances to customers include cash collateral amounting to € 18 million (2018: € 79 million) placed with derivative
counterparties.
Under reverse repurchase agreements, the Group has accepted collateral with a fair value of € 86 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 of loans and advances to customers, including forbearance, refer to the ‘Risk management’ section of this
report.
Amounts receivable under finance leases and hire purchase contracts
The following balances principally comprise of leasing arrangements and hire purchase agreements involving vehicles, plant, machinery
and equipment:
Gross receivables
Not later than 1 year
Later than 1 year and not later than 2 years
Later than 2 years and not later than 3 years
Later than 3 years and not later than 4 years
Later than 4 years and not later than 5 years
Later than five years
Total
Unearned future finance income
Deferred costs incurred on origination
Present value of minimum payments
ECL allowance for uncollectible minimum payments receivable(1)
Net investment in new business
(1)Included in ECL allowance on financial assets (note 26).
2019
€ m
601
448
329
206
104
16
1,704
(116)
15
1,603
39
888
2018
€ m
582
390
287
179
90
18
1,546
(107)
12
1,451
41
805
AIB Group plc Annual Financial Report 2019123456Financial Statements 304
26 ECL allowance on financial assets
The following table shows the movements on the ECL allowance on financial assets. Further information is disclosed in the 'Risk
management' section of this report.
At 1 January
Exchange translation adjustments
Transfer in
Net re-measurement of ECL allowance – banks
Net re-measurement of ECL allowance – customers
Changes in ECL allowance due to write-offs
Changes in ECL allowance due to disposals
At 31 December
Amounts include ECL allowance on:
Loans and advances to banks measured at amortised cost
Loans and advances to customers measured at amortised cost
2019
€ m
2,039
9
–
–
117
(362)
(565)
1,238
–
1,238
1,238
2018
€ m
3,617
(1)
14
(1)
(89)
(1,029)
(472)
2,039
–
2,039
2,039
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 305
27 Investment securities
The following table analyses the carrying value of investment securities by major classification together with the unrealised gains and
losses for those securities measured at FVOCI and FVTPL at 31 December 2019 and 2018.
Carrying
value
Unrealised
gross
gains
Unrealised
gross
losses
€ m
€ m
€ m
Net
unrealised
gains/
(losses)
€ m
Debt securities at FVOCI
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and government agencies
Collateralised mortgage obligations
Other asset backed securities
Euro bank securities
Non Euro bank securities
Euro corporate securities
Non Euro corporate securities
Total debt securities at FVOCI
Debt securities at amortised cost
Asset back securities
Euro corporate securities
Non Euro corporate securities
Total debt securities at amortised cost
Equity securities
Equity investments at FVOCI
Equity investments at FVTPL
Total equity securities
Total investment securities
5,296
1,538
212
1,034
222
106
5,343
1,654
375
101
15,881
591
14
30
635
458
357
815
17,331
381
63
4
22
1
–
77
12
12
5
577
414
147
561
(1)
–
–
(1)
(2)
–
(3)
(2)
(1)
–
(10)
380
63
4
21
(1)
–
74
10
11
5
567
–
(4)
(4)
414
143
557
(52)
(46)
(98)
Carrying
value
Unrealised
gross
gains
Unrealised
gross
losses
Debt securities at FVOCI
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and government agencies
Collateralised mortgage obligations
Other asset backed securities
Euro bank securities
Non Euro bank securities
Euro corporate securities
Non Euro corporate securities
Total debt securities at FVOCI
Debt securities at amortised cost
Asset back securities
Total debt securities at amortised cost
Equity securities
Equity investments at FVOCI
Equity investments at FVTPL
Total equity securities
Total investment securities
€ m
6,282
1,921
158
1,132
264
103
5,007
815
216
48
15,946
187
187
468
260
728
16,861
€ m
401
78
3
26
–
–
46
1
–
–
555
425
84
509
€ m
(6)
(4)
(2)
(7)
(11)
–
(11)
(6)
(2)
–
(49)
–
(3)
(3)
Net
unrealised
gains/
(losses)
€ m
395
74
1
19
(11)
–
35
(5)
(2)
–
506
425
81
506
Tax
effect
€ m
(47)
(8)
(1)
(3)
–
–
(9)
(1)
(1)
(1)
(71)
Tax
effect
2019
Net
after
tax
€ m
333
55
3
18
(1)
–
65
9
10
4
496
362
97
459
2018
Net
after
tax
€ m
€ m
(49)
(9)
–
(3)
5
–
(4)
1
–
–
(59)
(53)
(24)
(77)
346
65
1
16
(6)
–
31
(4)
(2)
–
447
372
57
429
AIB Group plc Annual Financial Report 2019123456Financial Statements 306
27 Investment securities (continued)
The Group has designated its investment in NAMA subordinated bonds as measured at FVOCI since this investment was held for
strategic purposes. Dividends received during the year amounted to € 23 million (2018: € 23 million) (note 7).
All equity investments apart from the NAMA subordinated bonds above are classified and measured at FVTPL.
Credit impairment losses recognised in the income statement at 31 December 2019 amounted to Nil (31 December 2018: Nil).
The following table sets out an analysis of movements in investment securities:
At 1 January
Exchange translation adjustments
Purchases/acquisitions
Sales/disposals
Maturities
Amortisation of discounts net of premiums
Movement in unrealised gains/(losses)
At 31 December
Of which:
Listed
Unlisted
At 1 January
Exchange translation adjustments
Purchases/acquisitions
Sales/disposals
Maturities
Amortisation of discounts net of premiums
Movement in unrealised (losses)/gains
At 31 December
Of which:
Listed
Unlisted
Debt
securities
at FVOCI
€ m
15,946
68
4,441
(2,192)
(2,472)
(62)
152
15,881
15,881
–
15,881
Debt
securities at
FVOCI
€ m
15,642
25
3,061
(1,425)
(945)
(71)
(341)
15,946
15,946
–
15,946
Debt
securities
at amortised
cost
€ m
187
–
449
–
(1)
–
–
635
635
–
635
Debt
securities at
amortised
cost
€ m
–
–
187
–
–
–
–
187
187
–
187
Equity investments
measured at
FVOCI
FVTPL
€ m
468
–
–
–
–
–
(10)
458
–
458
458
€ m
260
–
47
(24)
–
–
74
357
46
311
357
Equity investments
measured at
FVOCI
FVTPL
€ m
466
–
–
–
–
–
2
468
–
468
468
€ m
213
–
28
(22)
–
–
41
260
23
237
260
2019
Total
€ m
16,861
68
4,937
(2,216)
(2,473)
(62)
216
17,331
16,562
769
17,331
2018
Total
€ m
16,321
25
3,276
(1,447)
(945)
(71)
(298)
16,861
16,156
705
16,861
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 307
27 Investment securities (continued)
The following table sets out at 31 December 2019 and 2018, 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
unrealised
losses of
less than
12 months
€ m
Fair value
Investments
with
unrealised
losses of
more than
12 months
€ m
Debt securities at FVOCI
Irish Government securities
Euro government securities
Supranational banks and government agencies
Collateralised mortgage obligations
Euro bank securities
Non Euro bank securities
Euro corporate securities
Non Euro corporate securities
56
93
144
–
412
268
48
11
–
–
123
160
73
350
–
–
Total
€ m
56
93
267
160
485
618
48
11
Total debt securities at FVOCI
1,032
706
1,738
Equity securities
Equity securities at FVTPL
Total
14
1,046
22
728
36
1,774
Investments
with
unrealised
losses of
less than
12 months
€ m
Fair value
Investments
with
unrealised
losses of
more than
12 months
€ m
Debt securities at FVOCI
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and government agencies
Collateralised mortgage obligations
Euro bank securities
Non Euro bank securities
Euro corporate securities
Total debt securities at FVOCI
Equity securities
Equity securities at FVTPL
Total
91
174
–
49
–
740
662
208
1,924
5
1,929
147
49
44
247
272
101
22
8
890
30
920
Total
€ m
238
223
44
296
272
841
684
216
2,814
35
2,849
2019
Total
Unrealised
losses
of less
than
12 months
Unrealised losses
Unrealised
losses
of more
than
12 months
€ m
€ m
€ m
(1)
–
(1)
–
(3)
(1)
(1)
–
(7)
(2)
(9)
–
–
–
(2)
–
(1)
–
–
(3)
(2)
(5)
Unrealised losses
Unrealised
losses
of less
than
12 months
Unrealised
losses
of more
than
12 months
(1)
–
(1)
(2)
(3)
(2)
(1)
–
(10)
(4)
(14)
2018
Total
€ m
€ m
€ m
–
(2)
–
–
–
(11)
(6)
(2)
(21)
(1)
(22)
(6)
(2)
(2)
(7)
(11)
–
–
–
(28)
(2)
(30)
(6)
(4)
(2)
(7)
(11)
(11)
(6)
(2)
(49)
(3)
(52)
For details of the credit quality of the investment securities portfolio, see the ‘Risk management’ section of this report.
AIB Group plc Annual Financial Report 2019123456Financial Statements 308
28 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
Share of net assets including goodwill
At 1 January
Income for the year
Dividends received from associated undertakings(2)
Investments in associated undertakings
Disposals
At 31 December(5)
Of which listed on a recognised stock exchange
(1)Includes AIB Merchant Services € 19 million (2018: € 12 million).
(2)Dividends received from AIB Merchant Services € 27 million (2018: € 10 million).
(3)During 2018, the Group invested € 10 million in Fulfil Holdings Limited (25% equity interest).
(4)In 2018, the Group realised its investment amounting to € 2 million in Aviva Undershaft Five Limited which was liquidated.
(5)Comprises the Group’s investment in AIB Merchant Services and Fulfil Holdings Limited.
The following is the principal associate company of the Group at 31 December 2019 and 2018:
Name of associate
Principal activity
Place of incorporation
and operation
Zolter Services d.a.c.
trading as AIB Merchant Services
Provider of merchant
payment solutions
Registered Office: Unit 6,
Belfield Business Park,
Clonskeagh, Dublin 4,
Ireland
All associates are accounted for using the equity method in these consolidated financial statements.
2019
€ m
20
20(1)
2019
€ m
90
20
(27)
–
–
83
–
2018
€ m
12
12(1)
2018
€ m
80
12
(10)
10(3)
(2)(4)
90
–
Proportion of ownership
interest and voting power
held by the Group
2018
%
2019
%
49.9
49.9
Banking transactions between the Group and its associated undertakings are entered into in the normal course of business. For further
information see notes 25 and 36.
In accordance with Sections 316 and 348 of the Companies Act 2014 and the European Communities (Credit Institutions: Financial
Statements) Regulations 2015, AIB Group plc 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 at 31 December 2019 or 2018.
Change in the Group’s ownership interest in associates
During 2019, the ownership interest in Fulfil Holdings Limited changed from 25% to 23.8%. There was no other 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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 309
2019
Total
Goodwill
Other
€ m
€ m
€ m
29 Intangible assets and goodwill
Cost
At 1 January
Additions
Acquisition of subsidiary
Transfers in/(out)
Amounts written-off(4)
Exchange translation adjustments
At 31 December
Amortisation/impairment
At 1 January
Amortisation for the year
Impairment for the year(5)
Amounts written-off(4)
At 31 December
Carrying value at 31 December
Software
externally
purchased
€ m
Software
internally
generated
€ m
Software
under
construction
€ m
329
7
–
–
(40)
–
296
307
11
1
(40)
279
17
957
132
13(1)
167
(117)
1
1,153
523
122
1
(117)
529
624
226
120
–
(167)
(10)
1
170
–
–
10
(10)
–
170
–
–
70(2)
–
–
–
70
–
–
–
–
–
70
Cost
At 1 January
Additions
Transfers in/(out)
Amounts written-off(4)
Exchange translation adjustments
At 31 December
Amortisation/impairment
At 1 January
Amortisation for the year
Impairment for the year(5)
Amounts written-off(4)
At 31 December
Carrying value at 31 December
Software
externally
purchased
€ m
Software
internally
generated
€ m
Software
under
construction
€ m
323
6
–
–
–
329
293
14
–
–
307
22
794
40
123
–
–
957
428
91
4
–
523
434
183
177
(123)
(11)
–
226
10
–
1
(11)
–
226
3
–
37(3)
–
–
–
40
3
1
–
–
4
36
Other
1,515
259
120
–
(167)
2
1,729
833
134
12
(167)
812
917
2018
Total
€ m
€ m
3
–
–
–
–
3
3
–
–
–
3
–
1,303
223
–
(11)
–
1,515
734
105
5
(11)
833
682
(1)Relates to the fair value of software acquired on the acquisition of subsidiary (note 31).
(2) Relates to the acquisition of subsidiary (note 31). The goodwill was tested for impairment at 31 December 2019 and no impairment was identified.
(3)Relates to the customer contracts and related customer relationships acquired on the acquisition of subsidiary (note 31).
(4)Relates to assets which are no longer in use with a Nil carrying value.
(5)Included in ‘Impairment and amortisation of intangible assets’ in the consolidated income statement.
Future capital expenditure in relation to both intangible assets and property, plant and equipment is set out in note 30.
AIB Group plc Annual Financial Report 2019123456Financial Statements 310
30 Property, plant and equipment
Freehold
€ m
213
–
213
2
–
–
–
–
(49)
1
167
84
–
84
5
1
(49)
–
1
42
125
Cost
At 31 December 2018
Impact of adopting
IFRS 16(1)
Restated balance at
1 January 2019
Transfers in/(out)
Additions
Acquisition of subsidiary
(note 31)
Re-measurement
Transferred to
held for sale
Amounts written-off(2)
Exchange translation
adjustments
At 31 December
Depreciation/impairment
At 31 December 2018
Impact of adopting
IFRS 16(1)
Restated balance at
1 January 2019
Depreciation charge
for the year
Impairment charge
for the year(3)
Amounts written-off(2)
Transferred to
held for sale
Exchange translation
adjustments
At 31 December
Carrying value at
31 December
Owned assets
Property
Long
leasehold
€ m
Leasehold
under
50 years
€ m
84
–
84
–
–
–
–
(5)
(36)
–
43
51
–
51
1
1
(36)
(4)
–
13
30
139
–
139
26
28
–
–
(3)
(69)
1
122
101
–
101
9
1
(69)
(2)
–
40
82
Equipment
Assets
under
construction
Leased assets
Right-of-use assets
Other
Property
2019
Total
€ m
530
–
530
11
15
2
–
(10)
(183)
2
367
457
–
457
21
1
(183)
(9)
1
288
79
€ m
€ m
€ m
€ m
57
–
57
(39)
26
–
–
–
–
–
–
473
473
–
25
–
1
–
–
2
44
501
–
–
–
–
2
–
–
–
2
42
–
–
–
57
–
–
–
–
57
444
–
6
6
–
–
–
(4)
–
–
–
2
–
–
–
1
–
–
–
–
1
1
1,023
479
1,502
–
94
2
(3)
(18)
(337)
6
1,246
693
–
693
94
6
(337)
(15)
2
443
803
(1)For details of the impact of adopting IFRS 16, see note 3.
(2)Relates to assets which are no longer in use with a Nil carrying value.
(3)Included in ‘Impairment and depreciation of property, plant and equipment’ in the consolidated income statement.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 30 Property, plant and equipment (continued)
Cost
At 1 January
Transfers in/(out)
Additions
Transferred to held for sale
Amounts written-off(1)
Exchange translation adjustments
At 31 December
Depreciation/impairment
At 1 January
Depreciation charge for the year
Impairment charge for the year(2)
Reversal of impairment charge for the year(2)
Amounts written-off(1)
Exchange translation adjustments
At 31 December
Carrying value at 31 December
Freehold
€ m
215
1
1
(3)
(1)
–
213
74
5
10
(4)
(1)
–
84
129
Property
Long
leasehold
€ m
Leasehold
under 50
years
€ m
88
–
1
(1)
(4)
–
84
52
1
2
–
(4)
–
51
33
137
5
3
–
(6)
–
139
95
8
4
–
(6)
–
101
38
311
2018
Total
Equipment
Assets
under
construction
€ m
539
4
14
–
(27)
–
530
458
23
3
–
(27)
–
457
73
€ m
€ m
21
(10)
46
–
–
–
57
–
–
–
–
–
–
–
57
1,000
–
65
(4)
(38)
–
1,023
679
37
19
(4)
(38)
–
693
330
(1)Relates to assets which are no longer in use with a Nil carrying value.
(2)Included in ‘impairment and depreciation of property, plant and equipment’ in the consolidated income statement.
The carrying value of property occupied by the Group for its own activities was € 236 million (2018: € 199 million) in relation to owned
assets and € 444 million in relation to right-of-use assets, excluding those held as disposal groups and non-current assets held for sale.
Property leased to others by the Group had a carrying value of € 1 million (2018: € 1 million).
Future capital expenditure
The table below shows future capital expenditure in relation to both property, plant and equipment and intangible assets (excluding right-
of-use assets).
Estimated outstanding commitments for capital expenditure not provided for in the financial statements
Capital expenditure authorised but not yet contracted for
2019
€ m
2
44
2018
€ m
5
80
AIB Group plc Annual Financial Report 2019123456Financial Statements 312
30 Property, plant and equipment (continued)
Leased assets
Property
The Group leases property for its offices and retail branch outlets. The property lease portfolio consists of 197 leases, made up of
8 head office locations and 189 branch outlets. Lease terms are negotiated on an individual basis and contain a wide range of different
terms and conditions. Both head office properties and retail branch lease terms are typically for periods of 10 to 20 years. Most of these
leases carry statutory renewal rights, or include an option to renew the lease for an additional period after the end of the contract term.
Where the Group is likely to exercise these options, this has been taken into account in determining the lease liability and likewise,
the right-of-use asset.
The minimum lease terms remaining on the most significant leases range from 7 years to 13 years. The average lease term until a
break clause in the lease arrangements is approximately 10 years with the final contractual remaining terms ranging from 5 years to
8 years.
The most significant lease entered into in 2019 was for Heuston South Quarter in Dublin 8 with a lease term of 14 years.
Other leases
Motor vehicles
The Group leases motor vehicles, mainly for its sales staff throughout the branch network. The average lease term for motor vehicles is
3 years.
ATM offsite locations
These relate to leases for locations to house ATMs held offsite (outside of the branch network), in both the Republic of Ireland and
Northern Ireland.
Lease liabilities
A maturity analysis of lease liabilities is shown in note 37.
Amounts recognised in income statement
Depreciation expense on right-of-use assets
Interest on lease liabilities (note 6)
Expense relating to short term leases
Income from sub-leasing right-of-use assets
Amounts recognised in statement of cash flows
Total cash outflow for leases during the year(1)
(1)Includes interest expense on lease liabilities of € 13 million and principal repayments on lease liabilities of € 59 million.
2019
€ m
58
14
2
2
2019
€ m
72
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements
313
31 Acquisition of subsidiary
The accounting policy for the acquisition of subsidiaries is set out in note 1 (d) to the financial statements in ‘Basis of consolidation’.
On 31 October 2019, Augmentum Limited (‘Augmentum’), of which 75% is owned by AIB and 25% by a non-controlling interest, First
Data Global Services Limited (part of First Data Corporation which is owned by Fiserv Inc.), acquired 96.77% of the equity share capital
and voting rights of Semeral Limited (‘Semeral’), the holding company for Payzone Ireland Limited (‘Payzone’). Total consideration
paid to 31 December 2019 amounted to € 68.9 million (excluding contingent consideration). Accordingly, Semeral is now controlled by
Augmentum which, in turn, is controlled by AIB Group.
In addition to the consideration paid/payable to Semeral shareholders, Semeral issued 407,104 ordinary shares of € 1 each to
Augmentum in October 2019 for a subscription price of € 22 million, the proceeds of which were used to repay long term debt in
Semeral. This transaction was not part of the business combination, however, it was accounted for as an investment in subsidiary
undertakings by Augmentum and consolidated accordingly.
Payzone owns a nationwide branded terminal network that distributes a wide variety of electronic products and services. It distributes
such products and services on behalf of a broad range of clients which include government agencies, local authorities, utility companies
and mobile network operators.
Payzone is the parent company of Feepay Limited (‘Feepay’) acquired in 2017 in which it holds 100% of the equity share capital.
Feepay operates on an online payment platform, under the brands of Easy Payments Plus and MyEasyPay, offering online payment
solutions to schools and sports clubs.
The acquisition of Semeral/Payzone is consistent with the Group’s strategy to make selective investments to evolve its customer service
and product proposition in its core market. It will bring significant fintech capability to AIB and will further strengthen its digital agenda in
a post PSD2/Open Banking economy.
Semeral’s consolidated financial statements are prepared for accounting periods beginning 1 October 2019 and ending 30 September
2020, accordingly, the Group has consolidated its share of results from the date of acquisition, 1 November 2019 to 31 December 2019.
In due course, the financial period of Semeral will be aligned with that of AIB.
For the two months to 31 December 2019, Semeral contributed gross revenue amounting to € 27 million (net revenue € 2 million) and
a profit of Nil million to the Group’s results. If the acquisition had occurred on 1 January 2019, Management estimates that consolidated
gross revenue would have been € 158 million (net revenue € 14 million), and consolidated profit for the year would have been Nil million.
In determining these amounts, Management has assumed that the fair value adjustments, that arose on the date of acquisition would
have been the same if the acquisition had occurred on 1 January 2019.
Semeral/Payzone was reported in the Retail Banking segment for the 2 months to 31 December 2019.
Consideration transferred
Augmentum’s investment to 31 December 2019 amounted to € 68.9 million which was funded by way of long term loans from its two
shareholders at a rate of 7.5% per annum.
Contingent consideration
Deferred consideration amounting to c. € 10 million has been agreed by Augmentum with the selling shareholders of Semeral, subject to
certain conditions. At 31 December 2019, this amount is expected to be paid in full.
Acquisition related costs
The Group incurred acquisition-related costs amounting to € 2 million on legal fees and due diligence costs of which € 0.8 million
was expensed in 2019 (2018: € 1.2 million). These are included in ‘Operating expenses’ (note 13) within ‘General and administrative
expenses’.
AIB Group plc Annual Financial Report 2019123456Financial Statements 314
31 Acquisition of subsidiary (continued)
Identifiable assets acquired and liabilities assumed
The following table summarises the amounts recognised at the acquisition date of assets acquired and liabilities assumed in Semeral/
Payzone:
Intangible assets
Property, plant and equipment
Other assets
Cash/restricted cash
Borrowings
Other liabilities
Deferred tax liabilities
Accruals and deferred income
Total identifiable net assets assumed
Note
29
30
33
€ m
50
2
14
9
(23)
(25)
(5)
(12)
10
Trade receivables with gross contractual amounts receivable of € 10 million have a fair value of € 10 million. At acquisition date, it was
estimated that all contractual cash flows were expected to be collected.
Measurement of fair values
The acquisition date fair value of the identifiable net assets of Semeral/Payzone acquired amounted to € 10 million and comprised of:
• intangible assets – € 50 million;
• property, plant and equipment and other assets – € 16 million;
• cash – € 9 million;
• borrowings and other liabilities – € 48 million; and
• accruals, deferred income and deferred tax – € 17 million.
Assets less liabilities (other than intangible assets)
The fair value of the acquired net assets on acquisition date, apart from intangible assets, was considered to be their carrying value
since these assets and liabilities were materially short term in nature.
Intangible assets
Intangible assets acquired consisted of (i) customer contracts and customer relationships; and (ii) internally generated software.
In Semeral’s financial statements, these had not been attributed a value apart from certain software. However, as required by IFRS 3
Business Combinations, all identifiable assets acquired and liabilities assumed must be measured at fair value.
(a) Customer contracts and customer relationships (fair value € 37 million)
In order to measure the fair value of customer contracts and customer relationships, the Group used, as a valuation technique,
the income approach given the unique nature the intangible assets acquired. The income approach is a valuation technique used
to convert future amounts to a single present value. The measurement is based on the value indicated by current management
expectations about those future amounts.
Payzone acts as the payments processor for end users on behalf of customers. 70% of Payzone revenue is earned through
customer relationships which are either contracted or with a customer with whom it had a relationship for over 10 years. A further
20% of revenues are with customers that have been with Payzone for over 5 years. Access to the customer relationships was
acquired through the transaction.
The valuation of customer contracts and customer relationships was principally based on the planned EBITDA cash flows as
provided by Payzone management. A customer annual drain rate was then applied, given the nature of the customer, which gave
an average 10 year life to customers acquired. This adjustment was to cover the natural attrition of customers currently in place. In
addition, tax was deducted from the cash flows at the effective tax rate. The net cash flows were discounted at the Group’s weighted
average cost of capital of 8.8%.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 315
31 Acquisition of subsidiary (continued)
Intangible assets (continued)
(b) Internally generated software (fair value € 13 million)
The Group used the ‘relief-from-royalty’ method to value internally generated software. This method considers the discounted
estimated royalty payments that are expected to be avoided as a result of the patents or trademarks being owned. A royalty rate of
15% was assumed which was based on the actual 2019 IT value divided by actual revenues. The royalty rate of 15% was applied to
planned revenue as provided by Payzone management.
Measurement of non-controlling interests
Augmentum, as the immediate parent company of Semeral/Payzone, has measured the existing non-controlling interests on the basis of
their proportionate share in the recognised amounts of Semeral/Payzone’s identifiable net assets (€ 1 million).
Allied Irish Banks, p.l.c. has measured the non-controlling interests in Augmentum on the basis of their proportionate share of the
acquisition date fair value of the identifiable net assets of Augmentum (Nil).
Goodwill arising from the acquisition has been recognised as follows:
Consideration transferred, including contingent consideration
Non-controlling interest, based on their proportionate interest in the
recognised amounts of assets and liabilities of Semeral/Payzone
Fair value of identifiable net assets acquired
Goodwill
€ m
79
1
(10)
70
The goodwill is mainly attributable to Payzone’s fintech capability and its substantial payments footprint in Ireland. The Group believes
that the skills and technical talent of Payzone’s work force will complement the Group’s existing relevant workforce and that synergies
will be achieved through the combined talents of both.
The goodwill recognised is not expected to be deductible for tax purposes.
32 Other assets
Proceeds due from disposal of loan portfolio(1)
Other(2)
Total
2019
€ m
427
228
655
2018
€ m
13
343
356
(1)ECL – Nil.
(2)Includes items in transit € 75 million and sundry debtors € 67 million (2018: Items in transit € 124 million and sundry debtors € 80 million).
AIB Group plc Annual Financial Report 2019123456Financial Statements
316
33 Deferred taxation
Deferred tax assets:
Transition to IFRS 9
Assets used in the business
Retirement benefits
Assets leased to customers
Unutilised tax losses
Other
Total gross deferred tax assets
Deferred tax liabilities:
Transition to IFRS 9
Transition to IFRS 15
Cash flow hedges
Retirement benefits
Amortised income on loans
Assets used in the business
Investment securities
Acquisition of subsidiary (note 31)
Other
Total gross deferred tax liabilities
Net deferred tax assets
Represented on the statement of financial position:
Deferred tax assets
Deferred tax liabilities
2019
€ m
33
7
10
12
2,771
11
2,844
(4)
(1)
(67)
(7)
(1)
(21)
(93)
(5)
(88)
(287)
2,557
2,666
(109)
2,557
2018
€ m
43
9
12
10
2,808
14
2,896
(10)
(1)
(40)
(58)
(3)
(21)
(101)
–
(67)
(301)
2,595
2,702
(107)
2,595
For each of the years ended 31 December 2019 and 2018, full provision has been made for capital allowances and other temporary
differences.
Analysis of movements in deferred taxation
At 1 January
Exchange translation and other adjustments
Deferred tax through other comprehensive income
Income statement (note 19)
At 31 December
2019
€ m
2,595
(1)
44
(81)
2,557
2018
€ m
2,678
–
28
(111)
2,595
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 273 and 274. Information on the regulatory capital treatment of deferred tax assets is included in
‘Principal risks’ on page 40 to 43.
At 31 December 2019, recognised deferred tax assets on tax losses and other temporary differences, net of deferred tax liabilities,
totalled € 2,557 million (31 December 2018: € 2,595 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 financial assets at FVOCI, cash flow
hedges and actuarial gains/losses on retirement benefit schemes. Temporary differences recognised in the income statement consist
of provisions for expected credit losses on financial instruments, amortised income, assets leased to customers, and assets used in the
course of the business.
Net deferred tax assets at 31 December 2019 of € 2,504 million (31 December 2018: € 2,489 million) are expected to be recovered after
more than 12 months.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 317
33 Deferred taxation (continued)
For the Group’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.
The Group has not recognised deferred tax assets in respect of: Irish tax on unused tax losses at 31 December 2019 of € 122 million
(31 December 2018: € 122 million); overseas tax (UK and USA) on unused tax losses of € 3,309 million (31 December 2018:
€ 3,015 million); and foreign tax credits for Irish tax purposes of € 13 million (31 December 2018: € 13 million). Of these tax losses
totalling € 3,431 million for which no deferred tax is recognised: € 19 million expires in 2032; € 39 million in 2033; € 26 million in 2034;
and € 5 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 (31 December 2018: Nil).
Deferred tax recognised directly in equity amounted to Nil (31 December 2018: Nil).
Analysis of income tax relating to other comprehensive income
Profit for the year
Exchange translation adjustments
Net change in cash flow hedging reserves
Net change in fair value of investment securities at FVOCI
Net actuarial (losses) in retirement benefit schemes
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Profit for the year
Exchange translation adjustments
Net change in cash flow hedging reserves
Net change in fair value of investment securities at FVOCI
Net actuarial gains in retirement benefit schemes
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Gross
Tax
Net of tax
Non-
controlling
interests
net of tax
€ m
499
66
211
(61)
(251)
464
427
37
€ m
(135)
–
(27)
8
63
(91)
(91)
–
€ m
364
66
184
(53)
(188)
373
336
37
€ m
37
–
–
–
–
37
–
37
Gross
Tax
Net of tax
€ m
1,247
10
32
(330)
35
994
€ m
(155)
–
(4)
41
(9)
(127)
€ m
1,092
10
28
(289)
26
867
2019
Net amount
attributable
to equity
holders of
the parent
€ m
327
66
184
(53)
(188)
336
336
–
2018
Net amount
attributable
to equity
holders of
the parent
€ m
1,092
10
28
(289)
26
867
994
(127)
867
867
AIB Group plc Annual Financial Report 2019123456Financial Statements 318
34 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 accrue future pension benefits on a defined contribution (“DC”) basis with a standard employer
contribution of 10%. An additional matched employer contribution, subject to limits based on age bands of 2%, 5% or 8% is also paid
into the schemes.
The amount included in operating expenses in respect of DC schemes is € 80 million (2018: € 75 million) (note 13).
Defined benefit schemes
All defined benefit schemes operated by the Group closed to future accrual no later than 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.
In the main Irish Scheme, there are 16,038 members comprising 4,121 pensioners and 11,917 deferred members at 31 December
2019. 7,903 members have benefits accrued from 2007 to 2013 under a hybrid arrangement. In addition, there are 990 members
comprising 120 pensioners and 870 deferred members at 31 December 2019 in EBS Defined Benefit Schemes.
Responsibilities for governance
The Trustees of each Group pension scheme are ultimately responsible for the governance of the schemes.
Risks
Details of the pension risk to which the Group is exposed are set out in the Risk section on page 162 of this report.
Valuations
Independent actuarial valuations for the AIB Group Irish Pension Scheme (‘Irish scheme’) and the AIB Group UK Pension Scheme
(‘UK scheme’) are carried out on a triennial basis by the Schemes’ actuary, Mercer. The most recent valuation of the Irish scheme was
carried out at 30 June 2018 and reported the scheme to be in surplus. No deficit funding is required at this time as the Irish scheme
meets the minimum funding standard. The most recent valuation of the UK scheme was carried out at 31 December 2017. The Group
and the Trustee of the UK scheme have agreed funding payments under a new arrangement agreed in December 2019 which is
described in detail below.
De-risking of the UK scheme
During the second half of 2019, the Group and the Trustee undertook a substantial de-risking of the UK scheme which significantly
impacted the reported IAS 19 surplus of the scheme. The reported IAS 19 surplus of the UK scheme reduced from € 232 million
at 31 December 2018 to € 32 million at 31 December 2019. A transaction entered into involved the acquisition of two insurance
contracts from Legal and General Assurance Society (“LGAS”) using all of the assets of the UK scheme. These insurance contracts
are: a pensioner buy-in contract in respect of the pensioner members and an assured payment policy (“APP”) in respect of deferred
members. The ultimate obligation to pay the members benefits still remains with the scheme.
The pensioner buy-in contract removes financial and demographic risk attaching to the current UK pensioners. This pensioner buy-in
contract is effectively a qualifying insurance contract, and exactly matches the amount and timing of the benefits covered. Accordingly, the
fair value of the pensioner buy-in contract is set equal to the corresponding value of the liabilities, using the same assumptions with the
difference of c. £ 0.2 billion reported in net actuarial losses in retirement benefit schemes in the statement of comprehensive income.
The APP significantly reduces the inflation and interest rate risk attaching to UK deferred members although demographic risks remain.
The APP can (at the UK Trustee’s election) be partially surrendered on an annual basis for the purpose of wholly or partially funding
buy-in of further tranches of deferred members over a defined period of time. This will remove exposure to the risks not covered by the
APP over time. The fair value of the APP is measured as the estimated cost of purchasing the contract on the open market.
The Group agreed with the Scheme Trustee a revised funding arrangement for the UK scheme to support the purchase of the
pensioner buy-in contract and the APP. A contribution of £ 10 million was made in December 2019 and an additional one-off £ 12 million
contribution will also be made in 2020. Under the revised funding arrangement, the Group expects to make annual payments of
£ 18.5 million each year during 2020 to 2023, with a final balancing payment in 2024 which is currently expected to be c. £ 50 million.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 319
34 Retirement benefits (continued)
Contributions
Total contributions to all defined benefit pension schemes operated by the Group in 2019 amounted to € 43 million (2018: € 72 million).
A contribution of € 12 million was made to the Irish scheme (2018: € 9 million) to fund a discretionary increase in pensions in payment.
Contributions of £ 27 million were made to the UK scheme (2018: £ 19.1 million) as a combination of the pre-existing asset backed
funding plan and the revised funding arrangement described above which was implemented in December 2019.
Total contributions to all defined benefit pension schemes operated by the Group for the year to 31 December 2020 are estimated to be
€ 37 million.
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 2019 and 2018. 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(1)
Discount rate
Inflation assumptions(2)
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
2019
%
0.00
1.42
1.05
2.90
2.10
2.90
2018
%
0.00
2.14
1.25
3.20
2.90
3.20
0.00 – 2.90
1.40 – 3.15
1.05 – 2.90
0.00 – 3.20
2.14 – 4.20
1.25 – 3.20
(1) Having taken actuarial and external legal advice, the Board determined that the funding of discretionary increases in pensions in payment is a decision to
be made by the Board annually. Accordingly, the long term rate of increases of pensions in payment is Nil. This does not reflect the ability of the Trustee to
grant increases at any point in the future when the financial position of the scheme would enable such an increase at that point in time.
(2)The inflation assumption applies to the revaluation of deferred members’ benefits up to their retirement date.
AIB Group plc Annual Financial Report 2019123456Financial Statements 320
34 Retirement benefits (continued)
Funding of increases in pensions in payment for the Irish defined benefit schemes
The Board has determined that the funding of discretionary increases to pensions in payment is a decision to be made by the Board
each year. A process, taking account of all relevant interests and factors has been implemented by the Board. These interests and
factors include: the advice of the Actuary; the interests of the members of the scheme; the interests of the employees; the Group’s
financial circumstances and ability to pay; the views of the Trustees; the Group’s commercial interests and any competing obligations to
the State.
The Group completed this process early in 2020 taking account of all relevant factors and decided that the funding of discretionary
increases was not appropriate for 2020.
In 2019, under this process, the Group agreed to provide a level of funding for discretionary increases in pensions in payment for 2019
for certain schemes. The Trustees of these schemes awarded an increase in the range of 0.5% to 0.6% in respect of pensions eligible
for discretionary pension increases. This resulted in a past service cost of € 12 million in 2019.
As the decision to fund discretionary increases to pensions in payment is an annual process, the Board will go through this process
again in early 2021 for 2021.
Mortality assumptions
The life expectancies underlying the value of the scheme liabilities for the Irish and UK schemes at 31 December 2019 and 2018 are
shown in the following table:
Retiring today age 63
Retiring in 10 years at age 63
Life expectancy – years
Irish scheme
2019
2018
UK scheme
2019
2018
25.2
27.1
26.0
28.1
25.2
27.1
26.0
28.1
25.0
26.7
25.4
27.7
25.0
27.0
25.8
27.9
Males
Females
Males
Females
The mortality assumptions for the Irish and UK schemes were updated in 2017 and 2019 respectively, to reflect emerging market
experience. The table shows that a member of the Irish scheme retiring at age 63 on 31 December 2019 is assumed to live on average
for 25.2 years for a male (25.0 years for the UK scheme) and 27.1 years for a female (26.7 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 2019 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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 321
2018
Net
defined
benefit
(liabilities)
assets
€ m
96
(12)
–
5
(1)
(8)
105
6
145
(149)
(72)
35(2)
(3)
32
72
–
72
192
34 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 2019 and 2018:
Defined
benefit
obligation
Fair
value of
scheme
assets
Asset
ceiling/
minimum
funding(1)
€ m
€ m
(5,323)
6,136
€ m
(621)
2019
Net
defined
benefit
(liabilities)
assets
€ m
Defined
benefit
obligation
Fair
value of
scheme
assets
Asset
ceiling/
minimum
funding(1)
At 1 January
Included in profit or loss
Past service cost
Settlement
Interest (cost) income
Administration costs
(12)
3
(119)
–
(128)
–
(5)
139
(3)
131
–
–
–
Included in other comprehensive income
Re-measurements gain/(loss):
– Actuarial gain/(loss) arising from:
– Experience adjustments
– Changes in demographic
assumptions
(9)
2
– Changes in financial assumptions
(620)
– Return on scheme assets excluding
interest income
–
332
– Asset ceiling/minimum funding
adjustments
Translation adjustment on
non-euro schemes
Other
Contributions by employer
Benefits paid
(52)
(679)
–
226
226
58
390
43
(226)
(183)
(14)
(14)
44
44
€ m
(538)
(11)
(11)
(72)
(72)
€ m
€ m
192
(5,694)
6,328
(12)
(2)
6
(3)
(11)
(9)
2
(620)
332
44
(251)(2)
6
(245)
43
–
43
(12)
–
(120)
–
(132)
105
6
145
–
–
136
(1)
135
–
–
–
–
(149)
6
262
–
241
241
(9)
(158)
72
(241)
(169)
At 31 December
(5,904)
6,474
(591)
(21)
(5,323)
6,136
(621)
31 December
2019
€ m
31 December
2018
€ m
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)/surplus
32
7
39
–
(35)
(25)
(60)
(21)
232
9
241
–
(29)
(20)
(49)
192
(1) In recognising the net surplus or deficit on a pension scheme, the funded status of each scheme is adjusted to reflect any minimum funding requirement
and any ceiling on the amount that the sponsor has a right to recover from a scheme.
(2)After tax € 188 million (2018: € 26 million), see page 290.
AIB Group plc Annual Financial Report 2019123456Financial Statements 322
34 Retirement benefits (continued)
Scheme assets
The following table sets out an analysis of the scheme assets:
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
Real estate(1)(2)
Derivatives
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)
Insurance contracts
Fair value of scheme assets at 31 December
(1)Located in Europe.
(2)A quoted market price in an active market is not available.
(3)For valuation see page 318.
2019
€ m
74
78
134
151
125
294
179
166
222
121
58
1,528
13
1,541
624
1,589
2,213
278
(28)
25
375
7
248
114
38
111
122
1
1,041
1,041
297
1,058(3)
6,474
2018
€ m
133
66
115
134
129
253
162
147
167
98
42
1,313
12
1,325
1,117
1,430
2,547
202
20
24
387
1
214
103
37
594
215
1
1,576
1,576
333
–
6,136
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 323
34 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 2019.
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 change in life expectancy)
Irish scheme
defined benefit obligation
UK scheme
defined benefit obligation
Increase
€ m
Decrease
€ m
Increase
€ m
Decrease
€ m
(190)
51
118
203
(47)
(118)
(46)
46
40
49
(43)
41
Maturity of the defined benefit obligation
The weighted average duration of the Irish scheme at 31 December 2019 is 17 years and of the UK scheme at 31 December 2019 is
18 years.
Asset-liability matching strategies
The investment strategy of de-risking the Irish scheme continued during 2019 as there was a further increase in the level of bonds and
liability matching assets. The scheme maintained its level of equities in a range of c. 30 to 32% (with an equity protection strategy in
place).
The investment strategy of de-risking the UK scheme continued in 2019 when the Scheme entered into two insurance contracts with
LGAS as described above (a pensioner buy-in contract in respect of the pensioner members and an APP contract in respect of the
deferred members).
Other long term employee benefits
Includes additional benefits which the Group provides to employees who suffer prolonged periods of sickness, subject to the qualifying
terms of the insurer. It provides for the partial replacement of income in event of illness or injury resulting in the employee’s long term
absence from work.
Furthermore, on the death of an employee before their normal retirement date, the Group has in place insurance policies to cover the
additional financial costs to the Group under the terms of the defined benefit/defined contribution schemes.
In 2019, the Group contributed € 9 million (2018: € 9 million) towards insuring these benefits which are included in Operating expenses
(note 13).
AIB Group plc Annual Financial Report 2019123456Financial Statements 324
35 Deposits by central banks and banks
Central Banks
Borrowings – secured
– unsecured
Banks
Securities sold under agreements to repurchase
Other borrowings – unsecured
Amounts include:
Due to associated undertakings
2019
€ m
294
178
472
–
351
351
823
2018
€ m
279
175
454
145
245
390
844
–
–
Securities sold under agreements to repurchase mature within six months and are secured by Irish Government bonds, other
marketable securities and eligible assets. These agreements are completed under market standard Global Master Repurchase
Agreements. There were no repurchase agreements outstanding at 31 December 2019 (2018: € 145 million).
Deposits by central banks and banks include cash collateral at 31 December 2019 of € 285 million (2018: € 177 million) received from
derivative counterparties in relation to net derivative positions (note 46) and also from repurchase agreement counterparties.
Financial assets pledged
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
Of which:
Government securities
Other securities(1)
Central
banks
€ m
1,452
–
1,452
Banks
€ m
17
17
–
2019
Total
€ m
1,469
17
1,452
Central
banks
€ m
1,689
–
1,689
Banks
€ m
200
107
93
2018
Total
€ m
1,889
107
1,782
(1) The Group has issued covered bonds secured on pools of residential mortgages, through its subsidiaries, AIB Mortgage Bank and EBS Mortgage
Finance. Securities, other than those issued to external investors, have been pledged as collateral in addition to other securities held by the Group.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 36 Customer accounts
Current accounts
Demand deposits
Time deposits
Securities sold under agreements to repurchase(1)
Other – non-controlling interests (note 44)
Of which:
Non-interest bearing current accounts
Interest bearing deposits, current accounts and short term borrowings
Amounts include:
Due to associated undertakings
325
2018
€ m
36,853
15,728
15,117
1
–
2019
€ m
40,283
17,742
13,755
–
23
71,803
67,699
32,544
39,259
71,803
29,635
38,064
67,699
208
253
(1) At 31 December 2018, the Group had pledged government investment securities with a fair value of € 1 million as collateral for these facilities (see note
46 for further information).
Customer accounts include cash collateral of € 89 million (2018: € 113 million) received from derivative counterparties in relation to net
derivative positions (note 46).
At 31 December 2019, the Group’s five largest customer deposits amounted to 1% (2018: 1%) of total customer accounts.
37 Lease liabilities
At 31 December
Maturity analysis – contractual undiscounted cash flows:
Not later than one year
Later than one year and not later than five years
Later than five years
Total undiscounted lease liabilities at end of year
Analysis of movements in lease liabilities
At 1 January (note 3)
Lease payments(1)
Interest expense(1)
Additions
Re-measurement
Foreign exchange translation adjustments
At 31 December
(1)Repayment of lease liabilities amount to € 59 million, i.e. lease payments net of interest expense.
2019
€ m
429
61
193
281
535
2018
€ m
–
–
–
–
–
2019
€ m
465
(72)
13
23
(2)
2
429
AIB Group plc Annual Financial Report 2019123456Financial Statements 326
37 Lease liabilities (continued)
On 1 January 2019, the Group implemented the requirements of IFRS 16 Leases, a new accounting standard which replaced IAS 17.
Under IFRS 16, the lease liability is initially measured at the present value of the lease payments payable over the lease term,
discounted at a rate based on the cost of funding. Under IAS 17, leases classified as operating leases and were not recognised in the
Group’s statement of financial position. Payments made under operating leases were recognised in profit or loss on a straight-line basis
over the term of the lease. The total of future minimum lease payments under non-cancellable operating leases at 31 December 2018 is
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
2018
€ m
65
58
47
41
38
156
405
See note 3 for a reconciliation of the Group’s operating lease obligations at 31 December 2018 to the lease obligations recognised on
initial application of IFRS 16 at 1 January 2019.
38 Debt securities in issue
Issued by AIB Group plc(1)
Euro Medium Term Note Programme
Global Medium Term Note Programme
Issued by subsidiaries
Bonds and medium term notes:
Euro Medium Term Note Programme
Bonds and other medium term notes
Analysis of movements in debt securities in issue
At 1 January
Issued during the year(1)
Matured
Amortisation of discounts net of premiums
Exchange translation adjustments
At 31 December
(1)MREL
2019
€ m
1,750
1,556
3,306
500
3,025
3,525
6,831
2019
€ m
5,745
1,640
(565)
–
11
6,831
2018
€ m
1,000
655
1,655
1,000
3,090
4,090
5,745
2018
€ m
4,590
1,651
(500)
–
4
5,745
In April 2019, AIB Group plc issued US $ 1 billion Fixed-to-Floating Rate Notes maturing on 10 April 2025. The notes bear interest on the
outstanding nominal amount as follows:
–
Fixed rate period from (and including) the issue date 10 April 2019 to (but excluding) the optional redemption date 10 April 2024,
at an interest rate of 4.263% per annum payable semi-annually on 10 April and 10 October each year;
Floating rate period from (and including) the optional redemption date to (but excluding) the maturity date, at an interest rate of three
month U.S. dollar LIBOR plus 187.4 bps per annum payable 10 July 2024, 10 October 2024, 10 January 2025 and the maturity date.
–
In May 2019, AIB Group plc issued € 750 million Senior Unsecured 1.250% Notes maturing on 28 May 2024. The notes bear interest on
the outstanding nominal amount, payable annually in arrears on 28 May each year.
All issuances above by AIB Group plc are eligible to meet the Group’s MREL requirements. These instruments are redeemable for tax or
for regulatory reasons, subject to the permission of the relevant resolution authority.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 39 Other liabilities
Notes in circulation
Items in transit
Creditors
Fair value of hedged liability positions
Other(1)
327
2018
€ m
313
65
17
64
428
887
2019
€ m
213
94
46
113
403
869
(1) Includes bank drafts € 153 million (2018: € 154 million), items in course of collection € 14 million (2018: € 79 million), the purchase of debt securities
awaiting settlement € 38 million (2018: € 13 million).
40 Provisions for liabilities and commitments
At 31 December 2018
Impact of adopting IFRS 16 at
1 January 2019 (note 3)
Restated balance at 1 January 2019
Transfers in
Charged to income statement
Released to income statement
Dilapidation provisions
Provisions utilised
Unwind of discount
At 31 December 2019
Onerous
contracts
Legal
claims
ROU(1)
commit-
ments
Other
provisions
€ m
65
€ m
39
(3)
62
–
1(2)
(1)(2)
–
(52)
–
10
–
39
(1)
6(2)
(3)(2)
–
(4)
–
37
€ m
–
12
12
–
–
–
2
–
1
15
€ m
57
–
57
1
430(2)
(8)(2)
–
(81)
–
399
Liabilities
and charges
Onerous
contracts
Legal
claims
Other
provisions
At 31 December 2017
Impact of adopting IFRS 9 at
1 January 2018
Reclassification
Re-measurement
Restated balance at 1 January 2018
Transfers out
Charged to income statement
Released to income statement
Provisions utilised
At 31 December 2018
€ m
31
(31)
–
–
–
–
–
–
–
€ m
59
€ m
37
€ m
104
–
–
59
–
89(2)
(54)(2)
(29)
65
–
–
37
–
8(2)
(4)(2)
(2)
39
(1)
–
103
–
85(2)
(7)(2)
(124)
57
ECLs
on loan
commit-
ments
€ m
ECLs
on financial
guarantee
contracts
€ m
25
–
25
–
13(3)
(19)(3)
–
–
–
19
33
–
33
–
6(3)
(16)(3)
–
–
–
23
ECLs
on loan
commit-
ments
€ m
ECLs
on financial
guarantee
contracts
€ m
–
–
16
16
–
19(3)
(10)(3)
–
25
–
32
20
52
(14)
6(3)
(11)(3)
–
33
2019
Total
€ m
219
9
228
–
456
(47)
2
(137)
1
503(4)
2018
Total
€ m
231
–
36
267
(14)
207
(86)
(155)
219(4)
(1)Provisions for dilapidations included in measurement of right-of-use assets (‘ROU’).
(2)Included in ‘Operating expenses’ (note 13) within ‘General and administrative expenses’.
(3) Included in ‘Net credit impairment (charge)/writeback’ (note 15), other than a credit of € 5 million (2018: a credit of € 2 million) which is included in
‘Net (loss)/gain on derecognition of financial assets measured at amortised cost’ (note 11).
(4) Excluding ECLs on loan commitments and financial guarantee contracts, the total provisions for liabilities and commitments expected to be settled within
one year amount to € 380 million (31 December 2018: € 71 million).
AIB Group plc Annual Financial Report 2019123456Financial Statements 328
40 Provisions for liabilities and commitments (continued)
(a) Other provisions
Includes the provisions for customer redress and related matters, other restitution provisions, and miscellaneous provisions.
Tracker Mortgage Examination
The provisions at 31 December 2019 for ‘Customer redress and compensation’, including payments arising on appeals, amounted to
a) € 265 million in respect of tracker mortgage customers - the ‘06-09 who never had a tracker’ cohort; and b) € 6 million (31 December
2018: € 10 million) for previously identified impacted accounts.
Following a complaint to the Financial Services and Pensions Ombudsman (“FSPO”) by a customer from the ‘06-09 Ts & Cs who never
had a tracker’ cohort, the Group received a preliminary decision in January 2020 which upheld a claim for further redress due to this
impacted customer.
The Group has considered this preliminary decision and recorded a provision of € 265 million based on an initial assessment of the
likelihood that additional redress may be due to all customers in this cohort. The Group is continuing to engage and consider its position
with regard to the impact of this preliminary decision and the methodology applied by the FSPO. There are a number of issues that need
to be resolved. For further information see ‘Critical accounting judgements and estimates’ (note 2).
The provision of € 6 million for previously identified impacted accounts reflects the practical conclusion of impacted accounts and the
ongoing appeals process. Provisions amounting to € 181 million were created in the period 2015 to 31 December 2019 (€ 11 million in
the year to 31 December 2019). Over € 175 million of these provisions have now been utilised (€ 15 million in the year to 31 December
2019).
The provision at 31 December 2019 for ‘Other costs’ amounted to € 5 million (31 December 2018: € 5 million). Provisions amounting to
€ 94 million were created in the period 2015 to 31 December 2019 (€ 1 million in the year to 31 December 2019). Over € 89 million of
these provisions have now been utilised (€ 1 million in the year to 31 December 2019).
In March 2018, AIB and EBS were advised by the CBI of the commencement of investigations as part of an administrative sanctions
procedure in connection with the Tracker Mortgage Examination. The investigations relate to alleged breaches of the relevant consumer
protection legislation, principally, regarding inadequate controls or instances where AIB or EBS acted with a lack of transparency,
unfairly or without due skill and care. The investigations are ongoing and AIB and EBS are co-operating with the CBI.
In this regard, the Group created a provision of € 70 million for the impact of potential monetary penalties that is expected to be imposed
on the Group by the CBI being its best estimate at this time. However, this matter is ongoing and the amount provided for is subject
to uncertainty with a range of outcomes possible with the final outcome being higher or lower depending on finalisation of all matters
associated with the investigation.
Further disclosures in relation to the wider impact of Tracker Mortgage Examination are contained in note 47: Memorandum items:
contingent liabilities and commitments, contingent assets in the section ‘Legal Proceedings’.
(b) Onerous contracts
Provisions for onerous contracts at 31 December 2019 amount to € 10 million and include the unavoidable cost of leases that the Group
will exit in the short term.
At 31 December 2018, provisions for onerous contracts amounted to € 65 million. On initial application of IFRS 16 on 1 January 2019,
€ 3 million of this provision was transferred as an impairment provision against the right-of-use assets where the lease term was greater
than 12 months (note 3).
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 41 Subordinated liabilities and other capital instruments
Dated loan capital – European Medium Term Note Programmes:
Issued by AIB Group plc
€ 500 million Subordinated Tier 2 Notes due 2029, Callable 2024
Issued by subsidiaries
€ 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)
(a)
(b)
(c)
(c)
(c)
Maturity of dated loan capital
Dated loan capital outstanding is repayable as follows:
5 years or more
329
2019
€ m
2018
€ m
500
750
10
38
1
799
1,299
2019
€ m
1,299
–
750
10
34
1
795
795
2018
€ m
795
Dated loan capital
The dated loan capital in this section is subordinated in right of payment to senior creditors, including depositors, of the respective
issuing entities. Following the implementation in Ireland of the EU (Bank Recovery and Resolution) Regulations 2015, these notes are
loss absorbing at the point of non-viability.
(a) € 500 million Subordinated Tier 2 Notes due 2029, Callable 2024
On 19 November 2019, AIB Group p.l.c. issued € 500 million Subordinated Tier 2 Notes due 2029, Callable 2024.
These notes mature on 19 November 2029 but may be redeemed in whole, but not in part, at the option of AIB Group p.l.c. on the
optional redemption date on 19 November 2024, subject to the approval of the regulatory authorities, with approval being conditional on
meeting the requirements of the EU Capital Requirements Regulation.
The notes bear interest on the outstanding nominal amount at a fixed rate of 1.875%, payable annually in arrears on 19 November each
year. The interest rate will be reset on 19 November 2024 to Eur 5 year Mid Swap rate plus the initial margin of 215 basis points.
(b) € 750 million Subordinated Tier 2 Notes due 2025, Callable 2020
On 26 November 2015, Allied Irish Banks, p.l.c. issued € 750 million Subordinated Tier 2 Notes due 2025, Callable 2020.
These notes mature on 26 November 2025 but may be redeemed in whole, but not in part, at the option of Allied Irish Banks, p.l.c. on
the optional redemption date on 26 November 2020, subject to the approval of the regulatory authorities, with approval being conditional
on meeting the requirements of the EU Capital Requirements Regulation.
The notes 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.
(c) Other dated subordinated loan capital
Following the liability management exercises and the Subordinated Liabilities Order (“SLO”) in 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 capital instruments. The original liabilities were derecognised and new liabilities were recognised, with their
initial measurement based on the fair value at the SLO effective date. The contractual maturity date changed to 2035 as a result of the
SLO, and payment of coupons became optional at the discretion of the Group. The Board of Allied Irish Banks, p.l.c. has considered the
matter and as at the date of this report, the Group’s position is that coupons are not paid on these instruments. These instruments will
amortise to their nominal value in the period to their maturity in 2035.
AIB Group plc Annual Financial Report 2019123456Financial Statements 330
42 Share capital
Authorised
Ordinary share capital
31 December 2019
31 December 2018
Number of
shares
€
–
Number of
shares
€
40,000
25,000
Subscriber Shares of € 0.625 each
–
Ordinary shares of € 0.625 each
4,000,000,000
2,500,000,000
4,000,000,000
2,500,000,000
Total
4,000,000,000
2,500,000,000
4,000,040,000
2,500,025,000
Issued and fully paid
Ordinary share capital
At 1 January
2,714,381,237
1,696,488,273
2,714,421,237
1,696,513,273
Redemption of Subscriber Shares of € 0.625 each
–
–
(40,000)
(25,000)
At 31 December
2,714,381,237
1,696,488,273
2,714,381,237
1,696,488,273
The table above is summarised as follows:
Authorised
Ordinary share capital
31 December 2019
31 December 2018
Number of
shares
m
Number of
shares
m
€ m
€ m
Ordinary shares of € 0.625 each
4,000.0
2,500
4,000.0
2,500
Issued and fully paid
Ordinary share capital
Ordinary shares of € 0.625 each
2,714.4
1,696
2,714.4
1,696
2018
In November 2018, the Subscriber Shares were cancelled and redeemed at par.
2019
There were no movements in issued share capital during 2019.
Warrants
In 2017, AIB issued warrants to the Minister for Finance to subscribe for 271,166,685 ordinary shares of AIB representing 9.99% of
the issued share capital. The exercise price for the warrants is 200% of the Offer Price of € 4.40 per ordinary share, the Offer Price
being the price in euro per ordinary share which was payable under the IPO. This price may be adjusted in accordance with the terms
of the Warrant Instrument and the warrants will be capable of exercise by the holder of the warrants during the period commencing on
27 June 2018 and ending on 27 June 2027.
In accordance with the terms of the Warrant Agreement, no cash consideration was payable by the Minister to AIB in respect of the
issue of the warrants.
Structure of the Company’s share capital
The following table shows the structure of the Company’s share capital:
Class of share
Ordinary share capital
31 December 2019
31 December 2018
Authorised
share
capital
%
Issued
share
capital
%
Authorised
share
capital
%
Issued
share
capital
%
100
100
100
100
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 42 Share capital (continued)
Capital resources
The following table shows the Group's capital resources:
Equity
Dated capital notes (note 41)
Total capital resources
43 Other equity interests
At 1 January
Transferred to non-controlling interests
Additional Tier 1 Securities issued during year
Transaction costs
At 31 December
331
31 December
2019
€ m
14,230
1,299
15,529
2019
€ m
494
(494)
500
(4)
496
496
2018
€ m
13,858
795
14,653
2018
€ m
494
–
–
–
–
494
AT1 securities (carrying value € 494 million) issued by Allied Irish Banks, p.l.c. in 2015 were classified as ‘other equity interests’ in the
consolidated financial statements of the overall Group both before and after the corporate restructure in 2017.
During 2019, it was determined that these securities should more correctly be classified as ‘non-controlling interests’ in the AIB Group
plc consolidated financial statements since they were issued by a subsidiary of AIB Group plc and are no longer attributable to the
owners of the parent in the Group. This reclassification is considered not to be a material presentation error.
Additional Tier 1 Perpetual Contingent Temporary Write Down Securities
In 2019, AIB Group plc (‘the Company’) 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 the
Group’s capital base.
Interest on the securities, at a fixed rate of 5.250% per annum, is payable semi-annually in arrears on 9 April and 9 October,
commencing on 9 April 2020. On the first reset date on 9 April 2025, in the event that the securities are not redeemed, interest will
be reset to the relevant 5 year fixed rate plus a margin of 570.2 bps per annum. The interest payment is fully discretionary and
non-cumulative and conditional upon the Company being solvent at the time of payment, having sufficient distributable reserves and not
being required by the regulatory authorities to cancel an interest payment.
The securities are perpetual securities with no fixed redemption date. The Company may, in its sole and full discretion, subject to
regulatory approval, redeem all (but not some only) of the securities on any day falling in the period commencing on (and including)
9 October 2024 and ending on (and including) the first reset date or on any interest payment date thereafter at the prevailing principal
amount together with accrued but unpaid interest. In addition, the securities are redeemable at the option of the Company for certain
regulatory or tax reasons, subject to regulatory approval.
The securities, which do not carry voting rights, rank pari passu with holders of other tier 1 instruments (excluding the Company’s
ordinary shares). They rank ahead of the holders of ordinary share capital of the Company but junior to the claims of senior creditors
and to Tier 2 capital of the Company.
Following the implementation in Ireland of the EU (Bank Recovery and Resolution) Regulations 2015, these securities are loss absorbing at
the point of non-viability.
Furthermore, if the CET1 ratio of the Group at any time falls below 7%, subject to certain conditions, the Company shall write down the
AT1s by the write-down amount and irrevocably cancel any accrued and unpaid interest up to (but excluding) the write-down date. To the
extent permitted, in order to comply with regulatory capital and other requirements, the Company may reinstate any previously written down
amount.
AIB Group plc Annual Financial Report 2019123456Financial Statements 332
44 Non-controlling interests in subsidiaries
At 1 January
Transferred from other equity interests – Additional Tier 1 Securities
Acquisition of subsidiary
Non-controlling interests share of net profit
Distributions paid on Additional Tier 1 Securities issued by subsidiary
At 31 December
Of which:
Equity interests in subsidiary
Additional Tier 1 Securities
2019
€ m
–
494
1
37
(37)
495
1
494
2018
€ m
–
–
–
–
–
–
–
–
Additional Tier T 1 securities (carrying value € 494 million) issued by Allied Irish Banks, p.l.c. in 2015 were classified as ‘other equity
interests’ in the consolidated financial statements of Group both before and after the corporate restructure in 2017 (note 43).
During 2019, it was determined that these securities should more correctly be classified as ‘non-controlling interests’ in the AIB Group
plc consolidated financial statements since they were issued by a subsidiary of AIB Group plc and are no longer attributable to the
owners of the parent in the Group. This reclassification is considered not to be a material presentation error.
(a) Additional Tier 1 Perpetual Contingent Temporary Write-down Securities
In 2015, Allied Irish Banks, p.l.c. issued € 500 million nominal value of Additional Tier 1 Perpetual Contingent Temporary Write-down
Securities (‘AT1s’). The securities, which are accounted for as non-controlling interests in the statement of financial position, are
included in the Group’s capital base.
Interest is payable semi-annually in arrears on 3 June and 3 December at a fixed rate of 7.375% per annum. 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%. The interest payment is fully discretionary and non-cumulative and conditional upon Allied Irish Banks, p.l.c. being solvent at
the time of payment, having sufficient distributable reserves and not being required by the regulatory authorities to cancel an interest
payment.
The securities are perpetual securities with no fixed redemption date. Allied Irish Banks, p.l.c. may, in its sole and full discretion, subject
to regulatory approval, 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. In addition, the securities are redeemable at the option of
Allied Irish Banks, p.l.c. 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 Allied Irish Banks,
p.l.c. ordinary shares). They rank ahead of the holders of ordinary share capital of Allied Irish Banks, p.l.c. but junior to the claims of
senior creditors and Tier 2 capital of Allied Irish Banks, p.l.c.
Following the implementation in Ireland of the EU (Bank Recovery and Resolution) Regulations 2015, these securities are loss absorbing at
the point of non-viability.
Furthermore, if the CET1 ratio of Allied Irish Banks, p.l.c. or of the Group at any time falls below 7% (a Trigger Event) and is not in
winding-up, subject to certain conditions AIB will 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, Allied Irish Banks, p.l.c. may reinstate any
previously written down amount.
(b) Non-controlling interests in subsidiary undertaking
Augmentum Limited with issued share capital of 619,761 ordinary shares of € 1.25 each, is 75% owned by AIB and 25% owned by
First Data Global Services Limited. Augmentum Limited, in turn, holds 96.77% of the equity share capital of Semeral Limited with
non-controlling interests holding the residual (note 31).
Semeral/Payzone place of business: 4 Heather Road, Sandyford Industrial Estate, Dublin 18.
For details, see note 31.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 45 Capital reserves, merger reserve and capital redemption reserves
Capital
contribution
reserves
€ m
955(1)
Other
capital
reserves
€ m
178
2019
Total
€ m
1,133
Capital
contribution
reserves
€ m
Other
capital
reserves
€ m
955(1)
178
Capital reserves
At beginning and end of year
(1)Relates to the acquisition of EBS d.a.c.
333
2018
Total
€ m
1,133
For details regarding the capital contribution reserves, refer to accounting policy (aa) in note 1.
Merger reserve
At beginning and end of year
For details regarding merger reserve, refer to accounting policy (aa) in note 1.
Capital redemption reserve
At beginning and end of year
2019
€ m
2018
€ m
(3,622)
(3,622)
2019
€ m
14
2018
€ m
14
46 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 advances 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 € 575 million at
31 December 2019 (2018: € 325 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
–
– securities lending and borrowing
reverse sale and repurchase agreements
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 CSAs in place
provide collateral for derivative contracts. At 31 December 2019, € 643 million (2018: € 609 million) of CSAs are included within financial
assets and € 347 million (2018: € 266 million) of CSAs are included within financial liabilities.
AIB Group plc Annual Financial Report 2019123456Financial Statements 334
46 Offsetting financial assets and financial liabilities (continued)
The following table shows financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and
similar agreements at 31 December 2019 and 2018:
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
Gross
amounts of
recognised
financial
assets
€ m
Note
2019
Net
amount
€ m
1,131
–
1,131
(575)
(268)
288
5,116
(4,965)
151
(151)
(21)
(21)
87
6,334
–
(4,965)
87
1,369
(86)
(812)
–
(289)
Financial assets
Derivative financial instruments
Loans and advances to banks –
Reverse repurchase agreements
Loans and advances to customers –
Reverse repurchase agreements
Total
23
24
25
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
Note
35
4,965
(4,965)
36
23
–
1,181
6,146
–
–
(4,965)
–
–
1,181
1,181
–
–
(575)
(575)
–
–
(564)
(564)
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
Total
1
268
2019
Net
amount
€ m
–
–
42
42
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 46 Offsetting financial assets and financial liabilities (continued)
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
Gross
amounts of
recognised
financial
assets
€ m
Related amounts not
offset in the statement of
financial position
Financial
collateral
(including
cash
collateral)
received
€ m
Financial
instruments
€ m
586
–
3,500
4,086
(3,500)
(3,500)
586
–
586
(325)
(201)
–
(325)
–
(201)
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
Gross
amounts of
recognised
financial
liabilities
€ m
Related amounts not
offset in the statement of
financial position
Financial
collateral
(including
cash
collateral)
pledged
€ m
Financial
instruments
€ m
Financial assets
Derivative financial instruments
Loans and advances to banks –
Note
23
Reverse repurchase agreements
24
Total
Financial liabilities
Note
335
2018
Net
amount
€ m
60
–
60
2018
Net
amount
€ m
Deposits by central banks and banks –
Securities sold under agreements
to repurchase
Customer accounts –
Securities sold under agreements
to repurchase
Derivative financial Instruments
Total
35
3,645
(3,500)
145
(157)
(16)
(28)
36
23
1
875
–
–
1
875
4,521
(3,500)
1,021
(1)
(325)
(483)
–
(544)
(560)
–
6
(22)
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 advances to banks – amortised cost;
loans and advances to customers – amortised cost;
– deposits by central banks and banks – amortised cost; and
– customer accounts – amortised cost.
AIB Group plc Annual Financial Report 2019123456Financial Statements 336
46 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 2019 and
2018:
Net amounts of
financial assets
presented in the
statement of
financial position
€ m
Line item in
statement of
financial position
Carrying
amounts in
statement
of financial
position
€ m
2019
Financial
assets not
in scope of
offsetting
disclosures
€ m
1,131
Derivative financial instruments
1,271
140
151
Loans and advances to banks
1,478
1,327
87
Loans and advances to customers
60,888
60,801
Net amounts of
financial liabilities
presented in
the statement of
financial position
€ m
Line item in
statement of
financial position
Carrying
amounts in
statement
of financial
position
€ m
2019
Financial
liabilities not
in scope of
offsetting
disclosures
€ m
Financial assets
Derivative financial instruments
Loans and advances to banks –
Reverse repurchase agreements
Loans and advances to customers –
Reverse repurchase agreements
Financial liabilities
Deposits by central banks and banks –
Securities sold under agreement to repurchase
Customer accounts –
Securities sold under agreement to repurchase
–
–
Customer accounts
Derivative financial instruments
1,181
Derivative financial instruments
Deposits by central banks and banks
823
823
71,803
1,197
71,803
16
Carrying
amounts in
statement
of financial
position
€ m
2018
Financial
assets not
in scope of
offsetting
disclosures
€ m
Net amounts of
financial assets
presented in
the statement of
financial position
€ m
Line item in
statement of
financial position
586
Derivative financial instruments
900
314
–
–
Loans and advances to banks
1,443
1,443
Loans and advances to customers
60,868
60,868
Net amounts of
financial liabilities
presented in
the statement of
financial position
€ m
Line item in
statement of
financial position
Carrying
amounts in
statement
of financial
position
€ m
2018
Financial
liabilities not
in scope of
offsetting
disclosures
€ m
Financial assets
Derivative financial instruments
Loans and advances to banks –
Reverse repurchase agreements
Loans and advances to customers –
Reverse repurchase agreements
Financial liabilities
Deposits by central banks and banks –
Securities sold under agreement to repurchase
145
Deposits by central banks and banks
844
699
Customer accounts –
Securities sold under agreement to repurchase
1
Customer accounts
Derivative financial instruments
875
Derivative financial instruments
67,699
934
67,698
59
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 337
47 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 table gives 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
2019
€ m
596
115
711
84
8,129
3,326
11,539
12,250
2018
€ m
627
153
780
91
7,932
3,084
11,107
11,887
(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)An original maturity of more than 1 year.
For details of the internal credit ratings and geographic concentration of contingent liabilities and commitments, see pages 120 and 129
in the ‘Risk management’ section of this report.
Provisions for ECLs on loan commitments and financial guarantee contracts are set out in note 40.
AIB Group plc Annual Financial Report 2019123456Financial Statements 338
47 Memorandum items: contingent liabilities and commitments, and contingent assets (continued)
Legal proceedings
The 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 Group is aware, (other than as set out in the following paragraphs), pending or threatened by or against the 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 the Group.
Specifically, litigation has been served on the Group by customers that are pursuing claims in relation to tracker mortgages. Customers
have also lodged complaints to the Financial Services and Pensions Ombudsman (“FSPO”) in relation to tracker mortgages issues.
In relation to one of these complaints, the FSPO has recently issued a preliminary decision which upheld a claim by a customer for
further redress – see ‘Critical accounting judgements and estimates’ (note 2).
Further claims may also be served in the future in relation to tracker mortgages. The Group will also receive further decisions by the
FSPO in relation to complaints concerning tracker mortgages.
Based on the facts currently known and the current stages that the litigation and the FSPO’s complaints process are at, it is not
practicable at this time to predict the final outcome of this litigation/FSPO complaints, nor the timing and possible impact on the Group.
Contingent liability/contingent asset – NAMA
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.
Participation in TARGET 2 – Ireland
AIB participates in the TARGET 2 – Ireland system, the Irish component of TARGET 2, which is the real time gross settlement system
for large volume interbank payments in euro. The following disclosures relate to charges provided by AIB to secure its payment
obligations arising from participation in TARGET 2.
On 15 February 2008, AIB executed a deed of charge pursuant to which it created a first floating charge in favour of the Central Bank
of Ireland (Central Bank) over all of its right, title, interest and benefit, present and future, in and to the balances then or at any time
standing to the accounts held by AIB with any Eurosystem central bank for the purpose of participation in TARGET 2.
In addition, AIB and the Central Bank entered into a Framework Agreement in respect of Eurosystem Operations (dated 7 April 2014),
which include the credit line facility for intra-day credit in TARGET 2-Ireland. In order to secure its obligations under the Framework
Agreement, AIB executed a deed of charge (dated 7 April 2014). Pursuant to the deed, AIB created a first fixed charge in favour of
the Central Bank over all of its right, title, interest and benefit, present and future, in and to eligible assets (as identified as such by the
Central Bank) which are held in a designated collateral account.
Both deeds of charge contain provisions that 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 property subject to the floating
charge 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.
In addition, under the 2014 charge, AIB undertakes not to sell, transfer, lend or otherwise dispose of or deal in the assets subject to the
fixed charge or any part thereof or, in each case, 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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 48 Subsidiaries and consolidated structured entities
The material Group subsidiary companies at 31 December 2019 and 2018 are:
Name of company
Principal activity
Allied Irish Banks, p.l.c.
A direct subsidiary of AIB Group plc
and the principal operating company
of the Group and holds the majority
of the subsidiaries within the Group.
Its activities include banking and
financial services – a licensed bank
Place of
incorporation
Ireland
AIB Mortgage Bank
Issue of mortgage covered securities
– a licensed bank
Ireland
EBS d.a.c.
Mortgages and savings
– a licensed bank
Ireland
339
Registered
Office
Bankcentre,
Ballsbridge,
Dublin 4,
Ireland.
Bankcentre,
Ballsbridge,
Dublin 4,
Ireland.
The EBS Building,
2 Burlington Road,
Dublin 4,
Ireland.
AIB Group (UK) p.l.c. trading
as Allied Irish Bank (GB) in
Great Britain and AIB (NI) in
Northern Ireland
Banking and financial services
– a licensed bank
Northern Ireland
92 Ann Street,
Belfast BT1 3HH.
The proportion of ownership interest and voting power held by AIB Group plc in Allied Irish Banks, p.l.c. is 100%. All subsidiaries of Allied
Irish Banks, p.l.c., being the immediate subsidiary of AIB Group plc, are wholly owned apart from Augmentum Limited in which there are
non-controlling interests (note 44). Practically all subsidiaries in the Group are involved in the provision of financial services or ancillary
services.
Significant restrictions
Each of the subsidiaries listed above which is a licensed bank is required by its respective financial regulator to maintain capital ratios
above a certain minimum level. These minimum ratios restrict the payment of dividend by the subsidiary and, where the ratios fall below
the minimum requirement, will require the parent company to inject capital to make up the shortfall.
Consolidated structured entities
The Group has acted as sponsor and invested in a number of special purpose entities (“SPEs”) 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 SPEs are consolidated by the Group:
– Emerald Mortgages No. 5 d.a.c. (liquidator appointed in 2019);
– Mespil 1 RMBS d.a.c (liquidator appointed in 2019);
– AIB PFP Scottish Limited Partnership.
The liquidation of Emerald Mortgages No. 4 Public Limited Company was completed in 2019.
Further details on these SPEs are set out in note 49.
There are no contractual arrangements that could require AIB Group plc or its subsidiaries to provide financial support to the
consolidated structured entities listed above. During the year, neither AIB Group plc 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 interests in unconsolidated structured entities.
AIB Group plc Annual Financial Report 2019123456Financial Statements 340
49 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 principal forms of SPE utilised by the Group are securitisations and employee compensation trusts.
Securitisations
The Group utilises securitisations primarily to support the following business objectives:
–
as an investor, the Group has primarily been an investor in securitisations issued by other credit institutions as part of the
management of its interest rate and liquidity risks through the Treasury function;
–
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.
The Group controls certain special purpose entities which were set up to support its funding activities. Details of these special purpose
entities are set out below under the heading ‘Special purpose entities’. The Group 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 is included in trading income.
Employee compensation trusts
The Group 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. All outstanding shares held by Trustees were disposed of during 2018.
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 IFRS 9 Financial Instruments:
(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 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 transaction. A fee is
generated for the Group under this transaction.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 341
49 Off-balance sheet arrangements and transferred financial assets (continued)
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 held by external investors 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 € 11.9 billion, internal Group companies hold € 8.9 billion which are eliminated on
consolidation.
Special purpose entities
Securitisations are transactions in which the Group sells loans and advances to customers (mainly mortgages) to special purpose
entities (“SPEs”), which, in turn, issue notes to external investors. The notes 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 in 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). 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.
Arising from the acquisition of EBS on 1 July 2011, the Group took control of three special purpose entities which had previously been
set up by EBS: Emerald Mortgages No. 4 Public Limited Company; Emerald Mortgages No. 5 d.a.c.; and Mespil 1 RMBS d.a.c.
Emerald Mortgages No. 4 Public Limited Company
The liquidation of this company was completed in 2019.
Emerald Mortgages No. 5 d.a.c.
The total carrying amount of original residential mortgages transferred by EBS d.a.c. to Emerald Mortgages No.5 d.a.c. (‘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 2019 is Nil (2018: € 967 million). Bonds were issued by Emerald 5 to EBS d.a.c. but these were not shown in the
Group’s financial statements as they were eliminated on consolidation. The Emerald 5 mortgage portfolio was repurchased on 31 July
2019 and outstanding bonds were redeemed on 15 August 2019. A liquidator was appointed to the company on 11 December 2019.
Mespil 1 RMBS d.a.c.
The total carrying amount of secured loans that the Group has recognised at 31 December 2019 is Nil (2018: € 636 million) in relation
to the transfers from EBS d.a.c. and Haven Mortgages Limited to Mespil 1 RMBS d.a.c. The bonds issued by Mespil 1 RMBS d.a.c. to
EBS d.a.c. are not shown in the Group’s financial statements, as these bonds were eliminated on consolidation. The Mespil mortgage
portfolio was repurchased on 31 October 2019 and the bonds were redeemed on 22 November 2019. A liquidator was appointed to the
company on 5 December 2019.
AIB Group plc Annual Financial Report 2019123456Financial Statements 342
49 Off-balance sheet arrangements and transferred financial assets (continued)
The following table summarises as at 31 December 2019 and 2018, 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
€ m
5,222(1)(2)
Carrying
amount of
associated
liabilities
€ m
Fair
value of
transferred
assets
€ m
Fair
value of
associated
liabilities
€ m
–(1)
5,222
–
2019
Net fair
value
position
€ m
5,222
4,599(3)
3,025(4)
4,698
3,104
1,594
Sale and repurchase agreements/similar products
Covered bond programmes
Residential mortgage backed
Carrying
amount of
transferred
assets
€ m
Carrying
amount of
associated
liabilities
€ m
Fair
value of
transferred
assets
€ m
Fair
value of
associated
liabilities
€ m
Sale and repurchase agreements/similar products
3,285(1)(2)
146(1)
3,285
146
2018
Net fair
value
position
€ m
3,139
Covered bond programmes
Residential mortgage backed
4,298(3)
3,090(4)
4,234
3,183
1,051
(1)See notes 35 and 36.
(2)Includes € 5,205 million of assets pledged in relation to securities lending arrangements (2018: € 3,084 million).
(3) The asset pools of € 18 billion (2018: € 18 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 the Group companies. The € 4,599 million (2018: € 4,298 million) above refers to those assets
apportioned to external investors.
(4) Included in ‘Bonds and other medium term notes’ issued by subsidiaries (note 38).
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 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
per annum from 2016 until 2032, with a potential termination payment in 2032 of up to £ 60 million. Following the approval of the 2017
triennial valuation in May 2019, the annual payments were set at £ 15 million per annum, commencing 1 January 2019. However,
this funding plan was replaced in December 2019, as part of the de-risking of the UK Scheme (note 34), with annual payments set at
£ 18.5 million for five years from 1 January 2020 to 31 December 2024, and a final additional payment of £ 31 million expected in 2024.
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 the 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 the
Group through UKLM’s junior partnership interest. As UKLM continues to bear substantially all the risks and rewards of the loans, the
loans are not derecognised from UKLM’s balance sheet and accordingly, the Group has determined that the SLP should be consolidated
into the Group.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 343
49 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 advances
previously transferred at fair value from the Group. The loans and advances 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 advances transferred. Under the servicing
agreement, the Group subsidiary company collects the cash flows on the transferred loans and advances 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 advances 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 2019, the Group recognised € 0.7 million
(cumulative € 7.6 million) (2018: € 0.8 million (cumulative € 6.9 million)) in the income statement for the servicing of the loans and
advances 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 exposure to loss, if any, 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 advances 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 2019, the Group recognised € 3 million (cumulative
€ 94 million) (2018: € 3 million (cumulative € 91 million)) in the income statement for the servicing of financial assets transferred to
NAMA.
AIB Group plc Annual Financial Report 2019123456Financial Statements 344
50 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 in note 1 (l) and financial liabilities in note 1 (m), 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 measurement category and by
statement of financial position heading at 31 December 2019 and 2018.
At fair value through
profit or loss
At fair value through other
comprehensive income
At amortised cost
2019
Total
Mandatorily
Debt
investments
Equity
investments
€ m
€ m
€ m
Cash flow
hedge
derivatives
€ m
Loans
and
advances
€ m
Other
€ m
€ m
Financial assets
Cash and balances at central banks
Items in course of collection
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Investment securities
Other financial assets
Financial liabilities
Deposits by central banks and banks
Customer accounts
Derivative financial instruments
Debt securities in issue
Subordinated liabilities and
other capital instruments
Other financial liabilities
Financial assets
Cash and balances at central banks
Items in course of collection
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Investment securities
Other financial assets
Financial liabilities
Deposits by central banks and banks
Customer accounts
Derivative financial instruments
Debt securities in issue
Subordinated liabilities and
other capital instruments
Other financial liabilities
–
–
783(2)
–
77
357
–
–
–
–
–
–
15,881
–
1,217
15,881
–
–
1,074(3)
–
–
–
1,074
–
–
–
–
–
–
–
–
–
–
–
–
458
–
458
–
–
–
–
–
–
–
€ m
€ m
€ m
–
–
656(2)
–
147
260
–
1,063
–
–
738(3)
–
–
–
738
–
–
–
–
–
15,946
–
15,946
–
–
–
–
–
–
–
–
–
–
–
–
468
–
468
–
–
–
–
–
–
–
–
–
488
–
–
–
–
11,323
659(1) 11,982
57
–
1,478
60,811
–
–
–
–
–
–
635
890
57
1,271
1,478
60,888
17,331
890
488
73,669
2,184
93,897
–
–
123
–
–
–
123
€ m
–
–
244
–
–
–
–
–
–
–
–
–
–
–
823
823
71,803
71,803
–
6,831
1,299
1,004
1,197
6,831
1,299
1,004
81,760
82,957
€ m
€ m
2018
€ m
5,908
608(1)
6,516
73
–
1,443
60,721
–
–
–
–
–
–
187
640
73
900
1,443
60,868
16,861
640
244
68,145
1,435
87,301
–
–
196
–
–
–
196
–
–
–
–
–
–
–
844
844
67,699
67,699
–
5,745
795
1,075
934
5,745
795
1,075
76,158
77,092
(1)Comprises cash on hand.
(2)Held for trading € 592 million (2018: € 517 million) and fair value hedges € 191 million (2018: € 139 million).
(3)Held for trading € 771 million (2018: € 534 million) and fair value hedges € 303 million (2018: € 204 million).
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 345
51 Fair value of financial instruments
The term ‘financial instruments’ includes both financial assets and financial liabilities. The fair value of a financial instrument is the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date in the principal, or in its absence, the most advantageous market to which the Group has access at that date.
The Group’s accounting policy for the ‘determination of fair value of financial instruments’ is set out in accounting policy number 1 (o).
The valuation of financial instruments, including loans and advances, involves the application of judgement and estimation. Market and
credit risks are key assumptions in the estimation of the fair value of loans and advances. The Group 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; and
Level 3 – financial assets and liabilities measured using valuation techniques which use unobservable market inputs.
All financial instruments are initially recognised at fair value. Financial instruments held for trading, those whose contractual terms do
not give rise on specified dates to cash flows that are solely payments of principal and interest (“SPPI”), and financial instruments in
fair value hedge relationships are subsequently measured at fair value through profit or loss. Financial assets in a held-to-collect-and-
sell business model which pass the SPPI test and cash flow hedge derivatives are subsequently measured at fair value through other
comprehensive income (‘FVOCI’).
All valuations are carried out within the Finance function and valuation methodologies are validated by the independent Risk function
within the Group.
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 2019.
The methods used for calculation of fair value in 2019 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. The combination of CVA and FVA is referred to as XVA.
CVA is calculated as: Expected positive exposure (“EPE”) multiplied by probability of default (“PD”) multiplied by loss given default
(“LGD”). EPE profiles are generated at a counterparty netting set through simulation. PDs are derived from market based credit default
swaps (“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 the valuation of
offsetting security, where applicable. For unsecured counterparties, an LGD of 60% is applied (2018: 60%).
AIB Group plc Annual Financial Report 2019123456Financial Statements 346
51 Fair value of financial instruments (continued)
FVA is calculated as: Expected exposure (“EE”) multiplied by funding spread (“SF”) multiplied by counterparty survival probability
(1-PD). EE profiles (net of expected positive and negative exposures) are generated at a counterparty netting set through simulation.
Funding spreads used are an average implied by CDSs for the Group’s most active external derivative counterparties. The rationale in
applying these spreads 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 352. 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 a downgrade in the CDS of the reference entities used to
derive funding spreads.
Investment securities
The fair value of investment securities 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.
Loans and advances 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 and taking credit risk into account.
In addition to the assumptions set out above under valuation techniques regarding cash flows and discount rates, a key assumption
for loans and advances 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.
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.
The majority of loans and advances to customers are held at amortised cost, however, the Group has a small number of loans and
advances which are required to be measured at fair value through profit or loss (‘FVTPL’) having failed the SPPI test. The valuation
techniques used apply equally to those held at FVTPL and those held at amortised cost.
Financial instruments not measured at fair value but with fair value information presented separately in the
notes to the financial statements
Loans and advances to banks
The fair value of loans and advances 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 advances to customers at amortised cost
See methodology above under the heading ‘Loans and advances to customers’.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 347
51 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.
Subordinated liabilities and 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 (including amounts awaiting settlement and
accounts payable). 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 47. 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 table on the following pages sets out the carrying amount and fair value of financial instruments across the three levels of the fair
value hierarchy at 31 December 2019 and 2018:
AIB Group plc Annual Financial Report 2019123456Financial Statements 348
51 Fair value of financial instruments (continued)
Carrying amount
Fair Value
Fair value hierarchy
€ m
Level 1
€ m
Level 2
€ m
Level 3
€ m
1,230
36
5
77
7,046
1,034
328
6,997
476
458
357
–
–
–
–
7,046
1,034
237
6,997
476
–
46
783
36
5
–
–
–
91
–
–
–
–
447
–
–
77
–
–
–
–
–
458
311
2019
Total
€ m
1,230
36
5
77
7,046
1,034
328
6,997
476
458
357
18,044
15,836
915
1,293
18,044
11,982
57
1,478
30,972
29,839
60,811
635
890
75,853
998
180
6
13
1,197
529
294
40,283
17,742
13,778
6,831
1,299
1,004
81,760
659(1)
–
–
–
–
–
45
–
704
–
–
–
–
–
–
–
–
–
–
7,060
1,281
–
8,341
11,323
–
468
–
–
–
–
–
–
57
1,010
30,890
29,943
60,833
590
890
11,982
57
1,478
30,890
29,943
60,833
635
890
11,791
63,380
75,875
892
180
6
12
106
–
–
1
998
180
6
13
1,090
107
1,197
178
294
–
–
–
36
84
–
592
351
–
40,283
17,742
13,813
–
–
1,004
73,193
529
294
40,283
17,742
13,813
7,096
1,365
1,004
82,126
Financial assets measured at fair value
Derivative financial instruments:
Interest rate derivatives
Exchange rate derivatives
Equity derivatives
Loans and advances to customers at FVTPL
Investment debt securities at FVOCI:
Government securities
Supranational banks and government agencies
Asset backed securities
Bank securities
Corporate securities
Equity investments at FVOCI
Equity investments at FVTPL
Financial assets not measured at fair value
Cash and balances at central banks
Items in the course of collection
Loans and advances to banks
Loans and advances to customers:
Mortgages(2)
Non-mortgages
Total loans and advances to customers
Investment debt securities measured at amortised cost
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
Debt securities in issue
Subordinated liabilities and other capital instruments
Other financial liabilities
(1)Comprises cash on hand.
(2)Includes residential and commercial mortgages.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements
349
2018
Total
€ m
848
38
14
147
8,361
1,132
367
5,822
264
468
260
Fair Value
Fair value hierarchy
Level 1
€ m
Level 2
€ m
Level 3
€ m
–
–
–
–
8,361
1,132
284
5,755
224
–
23
489
38
14
–
–
–
83
67
31
–
1
359
–
–
147
–
–
–
–
9
468
236
€ m
848
38
14
147
8,361
1,132
367
5,822
264
468
260
17,721
15,779
723
1,219
17,721
6,516
73
1,443
31,715
29,006
60,721
187
640
608(1)
–
–
–
–
–
–
–
5,908
–
589
–
–
–
–
–
–
73
854
30,656
29,095
59,751
184
640
6,516
73
1,443
30,656
29,095
59,751
184
640
69,580
608
6,497
61,502
68,607
901
24
5
4
934
420
424
36,853
15,728
15,117
1
5,745
795
1,075
76,158
–
–
–
–
–
–
–
–
–
–
–
5,717
762
–
6,479
779
24
5
4
812
175
274
–
–
–
–
101
76
–
626
122
–
–
–
122
245
145
36,853
15,728
15,146
1
–
–
1,075
69,193
901
24
5
4
934
420
419
36,853
15,728
15,146
1
5,818
838
1,075
76,298
51 Fair value of financial instruments (continued)
Carrying amount
Financial assets measured at fair value
Derivative financial instruments:
Interest rate derivatives
Exchange rate derivatives
Equity derivatives
Loans and advances to customers at FVTPL
Investment debt securities at FVOCI:
Government securities
Supranational banks and government agencies
Asset backed securities
Bank securities
Corporate securities
Equity investments at FVOCI
Equity investments at FVTPL
Financial assets not measured at fair value
Cash and balances at central banks
Items in the course of collection
Loans and advances to banks
Loans and advances to customers:
Mortgages(2)
Non-mortgages
Total loans and advances to customers
Investment debt securities measured at amortised cost
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
Subordinated liabilities and other capital instruments
Other financial liabilities
(1)Comprises cash on hand.
(2)Includes residential and commercial mortgages.
AIB Group plc Annual Financial Report 2019123456Financial Statements 350
51 Fair value of financial instruments (continued)
Significant transfers between Level 1 and Level 2 of the fair value hierarchy
There were no significant transfers between Level 1 and Level 2 of the fair value hierarchy for the years ended 31 December 2019 and
2018.
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:
Financial assets
Loans and
advances
at FVTPL
Equities
at
FVTPL
2019
Financial liabilities
Total
Derivatives
Total
Derivatives
At 1 January 2019
Transfers into/out of level 3(1)
Total gains or (losses) in:
Profit or loss:
Net trading income
Net change in FVTPL
Other comprehensive income:
Net change in fair value of
investment securities
Net change in fair value of
cash flow hedges
Purchases/additions
Sales/disposals
Cash received:
Principal
At 31 December 2019
At 31 December 2017
IFRS 9 transition adjustments
at 1 January 2018
Total gains or (losses) in:
Profit or loss:
Net trading income
Net change in FVTPL
Other comprehensive income:
Net change in fair value of
investment securities
Net change in fair value of
cash flow hedges
Purchases/additions
Sales/disposals
Cash received:
Principal
€ m
359
–
88
–
88
–
–
–
–
–
–
447
€ m
427
–
(68)
–
(68)
–
–
–
–
–
–
At 31 December 2018
359
Investment
securities
Debt
€ m
9
(9)
Equities
at FVOCI
€ m
468
–
–
–
–
–
–
–
–
–
–
–
€ m
–
–
–
–
–
–
–
–
9
–
–
9
–
–
–
(10)
–
(10)
–
–
–
458
€ m
662
(196)
–
–
–
2
–
2
–
–
–
468
€ m
147
–
–
66
66
–
–
–
5
(54)
(87)
77
€ m
–
156
–
105
105
–
–
–
32
(53)
(93)
147
€ m
236
1
–
72
72
–
–
–
26
(24)
–
311
€ m
–
196
–
41
41
–
–
–
21
(22)
–
236
€ m
1,219
(8)
88
138
226
(10)
–
(10)
31
(78)
(87)
1,293
€ m
1,089
156
(68)
146
78
2
–
2
62
(75)
(93)
1,219
€ m
122
–
(15)
–
(15)
–
–
–
–
–
–
107
€ m
119
–
3
–
3
–
–
–
–
–
–
€ m
122
–
(15)
–
(15)
–
–
–
–
–
–
107
2018
€ m
119
–
3
–
3
–
–
–
–
–
–
122
122
(1) Transfers between levels of the fair value hierarchy are recognised at the end of the reporting period during which the change occurred. There were no
transfers into/out of Level 3 during 2018.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 351
51 Fair value of financial instruments (continued)
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 2019 and 2018:
Net trading income – gains
Gains on equity investments at FVTPL
Gains on loans and advances at FVTPL
2019
€ m
155
70
1
226
2018
€ m
40
41
22
103
Significant unobservable inputs
The table below sets out information about significant unobservable inputs used in measuring financial instruments categorised as
Level 3 in the fair value hierarchy:
Fair value
2019
€ m
2018
€ m Valuation
technique
Asset
Liability
447
107
359 CVA
122
Range of estimates
Significant
unobservable
input
LGD
PD
31 December
2019
43% – 63%
(Base 53%)
0.2% – 0.7%
31 December
2018
43% – 67%
(Base 54%)
0.4% – 1.1%
(Base 0.4%, 1 year PD)
(Base 0.7%, 1 year PD)
FVA
Funding spreads
(0.2%) to 0.3%
Asset
458
468 Discounted
Discount rate
Asset
171
Asset
77
cash flows
109 Quoted market
price (to which
a discount has
been applied)
147 Discounted
cash flows*
Collateral
values
Final
conversion rate
Discount on
market value
Collateral
changes
1% – 4%
(Base 1.94%)
(0.3%) to 0.6%
1% – 5%
(Base 2.49%)
0% – 75%
0% – 80%
(1%) – 7%
0% – 6%
n/a
(3%) – 12%
Financial
instrument
Uncollateralised
customer
derivatives
NAMA
subordinated
bonds
Visa Inc.
Series B
Preferred
Stock
Loans and
advances to
customers
measured at
FVTPL
*Expected cash flows discounted at market rates, taking into consideration the fair value of collateral where relevant.
Uncollateralised customer derivatives
The fair value measurement sensitivity to unobservable inputs at 31 December 2019 ranges from (i) negative € 29 million to positive
€ 14 million for CVA (31 December 2018: negative € 35 million to positive € 19 million) and (ii) negative € 7 million to positive € 5 million
for FVA (31 December 2018: negative € 10 million to positive € 5 million).
A number of other derivatives are subject to valuation methodologies which use unobservable inputs. As the variability of the valuation is
not greater than € 1 million in any individual case or collectively, the detail is not disclosed here.
NAMA subordinated bonds
The fair value measurement sensitivity to unobservable discount rates ranges from negative € 2 million to positive € 1 million at
31 December 2019 (31 December 2018: negative € 14 million to positive € 9 million).
Visa Inc. Series B Preferred Stock
In June 2016, the Group received Series B Preferred Stock in Visa Inc. with a fair value of € 65 million as part consideration for its
holding of shares in Visa Europe. 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. In addition, the stock,
being denominated in US dollars, is subject to foreign exchange risk.
–
Valuation technique: Quoted market price of Visa Inc. Class A Common Stock to which a discount has been applied for the
illiquidity and the conversion rate variability of the preferred stock of Visa Inc. 41% haircut (2018: 45%). This was converted at the
year end exchange rate.
– Unobservable input: Final conversion rate of Visa Inc. Series B Preferred Stock into Visa Inc. Class A Common Stock.
–
Range of estimates: Estimates range from (a) no discount for conversion rate variability with a discount for illiquidity only;
to (b) 75% discount for conversion rate variability.
AIB Group plc Annual Financial Report 2019123456Financial Statements 352
51 Fair value of financial instruments (continued)
Loans and advances to customers measured at FVTPL
The fair value measurement sensitivity to unobservable collateral values and interest rates ranges from negative € 1 million to positive
€ 5 million at 31 December 2019 (31 December 2018: negative € 2 million to positive € 13 million).
Fair value is applied in respect of secondary facilities arising on restructured loans subject to forbearance measures, on the likelihood
that additional cash flows, in excess of their primary facilitates, will be received from customers. Given the significant uncertainty with
regard to such cash flows, the Group does not attribute a fair value unless it is reasonably certain that this value will be realised.
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 at 31 December 2019 and 2018:
Classes of financial assets
Derivative financial instruments
Investment securities – equity
Loans and advances to customers measured at FVTPL
Total
Classes of financial liabilities
Derivative financial liabilities
Total
Classes of financial assets
Derivative financial instruments
Investment securities – equity
Loans and advances to customers measured at FVTPL
Total
Classes of financial liabilities
Derivative financial liabilities
Total
Level 3
2019
Effect on income
statement
Effect on other
comprehensive income
Favourable Unfavourable
€ m
€ m
Favourable Unfavourable
€ m
€ m
19
46(1)
5
70
–
–
(37)
(99)(1)
(1)
(137)
–
–
–
1
–
1
–
–
–
(2)
–
(2)
–
–
2018
Level 3
Effect on income
statement
Effect on other
comprehensive income
Favourable
€ m
Unfavourable
€ m
Favourable
€ m
Unfavourable
€ m
22
40(1)
13
75
1
1
(43)
(60)(1)
(2)
(105)
(2)
(2)
–
9
–
9
–
–
–
(14)
–
(14)
–
–
(1) Relates to the largest equity investment, the carrying value of which was € 171 million at 31 December 2019 (2018: € 109 million). Sensitivity information
has not been provided for other equities as the portfolio comprises several investments, none of which is individually material.
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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 52 Statement of cash flows
Non-cash and other items included in profit before taxation
Non-cash items
Profit on disposal of property
Loss on disposal of business
Net (loss)/gain on derecognition of financial assets measured at amortised cost
Dividends received from equity investments
Dividends received from associated undertakings
Associated undertakings
Net credit impairment charge/(writeback)
Change in other provisions
Retirement benefits – defined benefit expense
Depreciation, amortisation and impairment
Interest on subordinated liabilities and other capital instruments
Interest on debt securities – MREL
Gain on disposal of investment securities
Loss on termination of hedging swaps
Amortisation of premiums and discounts
Net gain on equity investments measured at FVTPL
Net gain on loans and advances to customers at FVTPL
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 investments
Total other items
Non-cash and other items for the year ended 31 December
353
2018
€ m
(2)
22
(121)
(26)
(10)
(12)
(84)
117
8
162
32
18
(24)
9
71
(41)
(22)
5
(44)
(16)
42
(72)
26
(46)
(4)
2019
€ m
(21)
–
48
(26)
(27)
(20)
106
425
11
246
33
84
(93)
48
62
(70)
(1)
93
(17)
(84)
797
(43)
26
(17)
780
(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.
AIB Group plc Annual Financial Report 2019123456Financial Statements 354
52 Statement of cash flows (continued)
Change in operating assets(1)
Change in items in course of collection
Change in trading portfolio financial assets
Change in derivative financial instruments
Change in loans and advances to banks
Change in loans and advances to customers
Change in other assets
Change in operating liabilities(1)
Change in deposits by central banks and banks
Change in customer accounts
Change in trading portfolio financial liabilities
Change in debt securities in issue
Change in notes in circulation
Change in other liabilities
2019
€ m
17
–
(63)
219
(72)
146
247
2019
€ m
(65)
3,504
–
(565)
(100)
(193)
2,581
2018
€ m
30
33
94
(98)
(884)
85
(740)
2018
€ m
(2,831)
3,140
(30)
(500)
(20)
(104)
(345)
(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.
Acquisition of subsidiary
During 2019, the Group obtained control of Semeral/Payzone (note 31). The fair values of the assets acquired and liabilities assumed were
as follows:
Intangible assets
Goodwill
Property, plant and equipment
Other assets
Cash/restricted cash
Borrowings
Other liabilities
Deferred tax liabilities
Accruals and deferred income
Non-controlling interests
Consideration transferred, including deferred consideration
Less: Deferred consideration
Cash acquired in subsidiary
Cash paid at 31 December 2019 to obtain control net of cash acquired
Note
29
29
30
33
44
31
€ m
50
70
2
14
9
(23)
(25)
(5)
(12)
(1)
79
79
(10)
(9)
60
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 355
52 Statement of cash flows (continued)
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 advances to banks(1)
2019
€ m
11,982
941(2)
12,923
2018
€ m
6,516
730
7,246
(1)Included in ‘Loans and advances to banks’ total of € 1,478 million (2018: € 1,443 million) set out in note 24.
(2)Includes € 4 million relating to restricted balances held in trust in respect of certain payables which are included in ‘other liabilities’ (note 39).
The Group is required by law to maintain reserve balances with the Bank of England. At 31 December 2019, these amounted to
€ 468 million (31 December 2018: € 589 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.
53 Related party transactions
Related parties in the Group include the parent company, AIB Group plc, subsidiary undertakings including their non-controlling
interests, associated undertakings, 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. The immediate holding company and
controlling party is AIB Group plc with its Registered Office at Bankcentre, Ballsbridge, Dublin 4.
(a) Transactions with subsidiary undertakings
AIB Group plc is the ultimate parent company of the Group. Banking transactions between the parent company and its subsidiaries and
between subsidiaries are entered into in the normal course of business. These include loans, deposits, provision of derivative contracts,
foreign currency contracts and the provision of guarantees on an ‘arm’s length basis’. In 2017, a review was completed of pricing
arrangements between Allied Irish Banks, p.l.c. and certain Irish subsidiaries. Arising from this review, new pricing agreements were
signed and implemented during 2017. The new agreements reflect OECD guidelines on transfer pricing which are the internationally
accepted principles in this area, and take account of the functions, risks and assets involved. Details of related party transactions
and balances between AIB Group plc and its subsidiaries are set out in note k to AIB Group plc Company financial statements.
In accordance with IFRS 10, ‘Consolidated Financial Statements’, transactions between the parent company and its subsidiaries and
between 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 25 to the consolidated financial statements, while deposits from
associates are set out in note 35.
(c) Non-controlling interests
The Group has accepted a deposit from the non-controlling interests in a subsidiary which is detailed in note 44.
(d) Provision of banking and related services and funding to Group Pension schemes
The Group provides certain banking and financial services including money transmission services for the AIB Group Pension schemes.
Such services are provided in the ordinary course of business, on substantially the same terms, including interest rates, as those
prevailing at the time for comparable transactions with other persons.
During 2013, the Group established a pension funding partnership, AIB PFP Scottish Limited Partnership (“SLP”) in the UK. Following
this, a subsidiary of Allied Irish Banks, p.l.c. transferred loans to the SLP for the purpose of ring-fencing the repayments of these loans to
fund future deficit payments of the AIB UK Defined Benefit Pension Scheme (note 49).
During 2012, AIB agreed to make certain contributions to the pension scheme which were settled through the transfer to the AIB Group
Irish Pension Scheme of interests in a special purpose entity owning loans and advances previously transferred at fair value from the
Group. A subsidiary of AIB was appointed as a service provider for the loans and advances transferred in return for a servicing fee at a
market rate (note 49).
AIB Group plc Annual Financial Report 2019123456Financial Statements 356
53 Related party transactions (continued)
(e) IAS 24 Related Party Disclosures
The following disclosures are made in accordance with the provisions of IAS 24 Related Party Disclosures. Under IAS 24, Key
Management Personnel (“KMP”) are defined as comprising Executive and Non-Executive Directors together with Senior Executive
Officers, namely, the members of the Executive Committee (see pages 44 to 47). As at 31 December 2019, the Group had 20 KMP
(2018: 19 KMP).
(i) Compensation of Key Management Personnel
Details of compensation paid to KMP are provided below. The figures shown include the figures separately reported in respect of
Directors’ remuneration on pages 216 to 218.
Short term compensation(1)
Post-employment benefits(2)
Termination benefits
Total
2019
€ m
6.1
0.7
–
6.8
2018
€ m
6.8
0.9
–
7.7
(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 Group.
(2) Comprises payments to defined benefit or defined contribution pension schemes, in accordance with actuarial advice, to provide post-retirement pensions.
The Group’s defined benefit pension schemes closed to future accrual with effect from 31 December 2013 and all employee pension benefits have
accrued on the basis of defined contributions since that date.
(ii) Transactions with Key Management Personnel
Loans to KMP and their close family members 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 Directors and Senior Executive Officers are made 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 amounts outstanding, in respect of all loans, quasi loans and credit transactions between the Group and KMP, as defined
above, together with members of their close families and entities controlled by them are shown in the following table:
Loans outstanding
At 1 January
Loans issued during the year
Loan repayments during the year/change of KMP/other
At 31 December
2019
€ m
4.58
0.16
(1.74)
3.00
2018
€ m
4.69
0.57
(0.68)
4.58
Total commitments outstanding refer to the total of any undrawn amounts on credit cards and/or overdraft facilities provided to KMP.
Total commitments outstanding as at 31 December 2019 were € 0.16 million (2018: € 0.20 million).
Deposit and other credit balances held by KMP and their close family members as at 31 December 2019 amounted to € 3.37 million
(2018: € 6.88 million).
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 357
53 Related party transactions (continued)
(f) Companies Act 2014 disclosures
(i) Loans to Directors
The following information is presented in accordance with the Companies Act 2014. For the purposes of the Companies Act disclosures,
Director means the Board of Directors and any past Directors who are Directors during the relevant period.
There were 18 Directors in office during the year, 11 of whom availed of credit facilities (2018: 8). Of the Directors who availed of credit
facilities, 7 had balances outstanding at 31 December 2019 (2018: 4 of 8).
Details of transactions with Directors for the year ended 31 December 2019 are as follows:
Balance at
31 December
2018
€ 000
Amounts
advanced
during 2019
€ 000
Amounts
repaid
during 2019
€ 000
Balance at
31 December
2019
€ 000
Mark Bourke:
Loans
Overdraft/credit card*
Total
Interest charged during the year
Maximum debit balance during the year**
Simon Ball:
Loans
Overdraft/credit card*
Total
Interest charged during the year
Maximum debit balance during the year**
Colin Hunt
Loans
Overdraft/credit card*
Total
Interest charged during the year
Maximum debit balance during the year**
Carolan Lennon:
Loans
Overdraft/credit card*
Total
Interest charged during the year
Maximum debit balance during the year**
Ann O'Brien:
Loans
Overdraft/credit card*
Total
Interest charged during the year
Maximum debit balance during the year**
416
–
416
–
–
–
839
16
855
–
5
5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
33
–
33
–
–
–
49
–
49
–
–
–
–
–
–
383
–
383
4
416
–
1
1
–
1
790
10
800
3
860
–
4
4
–
15
–
–
–
–
2
AIB Group plc Annual Financial Report 2019123456Financial Statements 358
53 Related party transactions (continued)
(f) Companies Act 2014 disclosures
(i) Loans to Directors (continued)
Tomás O'Midheach:
Loans
Overdraft/credit card*
Total
Interest charged during the year
Maximum debit balance during the year**
Catherine Woods:
Loans
Overdraft/credit card*
Total
Interest charged during the year
Maximum debit balance during the year**
Balance at
31 December
2018
€ 000
Amounts
advanced
during 2019
€ 000
Amounts
repaid
during 2019
€ 000
Balance at
31 December
2019
€ 000
402
8
410
40
–
40
–
–
–
–
–
–
41
–
41
10
–
10
361
7
368
5
417
30
–
30
–
40
* 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.
Mr Richard Pym had a credit card facility which was not used during the year. Ms Helen Normoyle and Mr Jim O’Hara also held
overdraft facilities which were not used during the year. Mr Tom Foley held a credit card facility with the Group, which held an opening
and closing balance of less than € 500 at the beginning and end of the reporting period. Ms Ann O’Brien held a credit card facility with
the Group, which had a closing balance of less than € 500, and a maximum debit balance as represented in the preceding table.
Mr Bernard Byrne, Mr Peter Hagan, Mr Brendan McDonagh, Mr Raj Singh, Ms Sandy Kinney Pritchard, Mr Basil Geoghegan and
Ms Elaine MacLean had no credit facilities with the Group in 2019.
An expected credit loss allowance is held for all loans and advances. Accordingly, an ECL allowance of c. € 164,000 is held on the
above facilities at 31 December 2019.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 359
53 Related party transactions (continued)
(f) Companies Act 2014 disclosures
(i) Loans to Directors (continued)
Details of transactions with Directors for the year ended 31 December 2018 are as follows:
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**
Carolan Lennon:
Loans
Overdraft/credit card*
Total
Interest charged during the year
Maximum debit balance during the year**
Catherine Woods:
Loans
Overdraft/credit card*
Total
Interest charged during the year
Maximum debit balance during the year**
Balance at
31 December
2017
€ 000
Amounts
advanced
during 2018
€ 000
Amounts
repaid
during 2018
€ 000
Balance at
31 December
2018
€ 000
466
–
466
–
–
–
–
3
3
50
–
50
–
–
–
–
–
–
–
2
2
–
–
–
50
–
50
–
–
–
–
–
–
10
–
10
416
–
416
5
466
–
–
–
–
2
–
5
5
–
11
40
–
40
–
50
* 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.
Richard Pym had a credit card facility which was not used during the year. Helen Normoyle and Jim O’Hara also held overdraft facilities
which were not used during the year. Simon Ball had a credit card facility which held an opening and closing balance of under € 500
at the beginning and end of the reporting period. Tom Foley had a Nil balance at 31 December 2018 and a maximum debit balance as
represented in the preceding table.
Bernard Byrne, Peter Hagan and Brendan McDonagh had no facilities with the Group during 2018.
As required on transition to IFRS 9, an expected credit loss allowance was created for all loans and advances. Accordingly, an ECL
allowance of c. € 21,000 was created on 1 January 2018 and is held on the above facilities at 31 December 2018. All facilities are
performing to their terms and conditions.
AIB Group plc Annual Financial Report 2019123456Financial Statements 360
53 Related party transactions (continued)
(f) Companies Act 2014 disclosures
(ii) Connected persons
The aggregate of loans to connected persons of Directors, in office during the year, at 31 December, as defined in Section 220 of the
Companies Act 2014, are as follows (aggregate of 22 persons; 2018: 17 persons):
Loans
Overdraft/credit card*
Total
Interest charged during the year
Maximum debit balance during the year**
Balance at
31 December
2019
€ 000
Balance at
31 December
2018
€ 000
2,015
47
2,062
49
3,238
2,013
51
2,064
41
2,216
An expected credit loss allowance is held for all loans and advances. Accordingly, an ECL allowance of c. € 26,000 was held on the
above facilities at 31 December 2019.
* 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.
(iii) Aggregate balance of loans and guarantees held by Directors and their connected persons
The aggregate balance of loans and guarantees held by Directors and their connected persons as at 31 December 2019 represents
less than 0.02% of the net assets of the Group (2018: 0.02%).
(g) Summary of relationship with the Irish Government
The Irish Government, as a result of both its investments in AIB and AIB’s participation in Government guarantee schemes became
a related party of AIB in 2009. 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.
The Irish Government holds 71.12% of the issued ordinary share capital of AIB, accordingly, AIB is under the control of the Irish
Government. During 2019, the Irish Government received dividends amounting to € 328 million on its shareholding.
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.
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 stabilisation measures
included the Credit Institutions (Eligible Institutions Guarantee) Scheme 2009, and whilst the Group no longer has any guaranteed
liabilities, certain of the covenants of the scheme continue to apply.
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 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.
– 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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 361
53 Related party transactions (continued)
(g) Summary of relationship with the Irish Government
The relationship of the Irish Government with AIB is outlined under the following headings:
– Capital investments;
– Guarantee schemes;
– NAMA; and
– Relationship Framework.
There were no significant changes to the various aspects of the relationship in the year to 31 December 2019.
– Capital investments
In the years since 2008, the Irish Government implemented a number of recapitalisation measures to support the Irish banking
system including AIB Group. Certain of this capital invested in AIB Group has since been repaid, restructured or reorganised.
There were no capital transactions during 2019 or 2018.
Equity holdings
The Irish Government holds 1,930,436,543 ordinary shares in AIB Group plc (71.12% of total). These shares are traded on the
Euronext Dublin and London Stock Exchanges.
Capital contributions
In 2011, capital contributions totalling € 6.054 billion were made by the Irish State to AIB for Nil consideration.
Issue of warrants to the Minister for Finance
As part of the 2015 Capital Reorganisation, AIB entered into a Warrant Agreement with the Minister and granted the Minister the
right to receive warrants to subscribe for additional ordinary shares.
Following the admission to listing on the Irish Stock Exchange (now trading as Euronext Dublin) and the London Stock Exchange,
AIB issued warrants to the Minister on 4 July 2017 to subscribe for 271,166,685 ordinary shares of AIB representing 9.99% of the
issued share capital. The exercise price for the warrants is 200% of the Offer Price of € 4.40 per ordinary share, the Offer Price
being the price in euro per ordinary share which was payable under the Initial Public Offering (“IPO”). This price may be adjusted
in accordance with the terms of the Warrant Instrument and the warrants will be capable of exercise by the holder of the warrants
during the period commencing on 27 June 2018 and ending on 27 June 2027.
In accordance with the terms of the Warrant Agreement, no cash consideration was payable by the Minister to AIB in respect of the
issue of the warrants.
– 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.
– 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 which were fully repaid during 2017 and
NAMA subordinated bonds which are detailed in note 27.
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.
AIB Group plc Annual Financial Report 2019123456Financial Statements
362
53 Related party transactions (continued)
(g) Summary of relationship with the Irish Government
Investment in National Asset Management Agency Investment d.a.c. (“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 2019: € 13 million; 31 December 2018: € 12 million), with the remainder
invested on behalf of clients.
– 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. The Relationship Framework was amended and restated on 12 June 2017. Furthermore, the AIB Group plc Relationship
Framework was put in place on 8 December 2017 in substitution for the Relationship Framework dated 12 June 2017. Under the
relationship frameworks, 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 and AIB’s management team.
Balances held with the Irish Government and related entities
The following table outlines the balances held at 31 December 2019 and 2018 with Irish Government entities(1) together with the highest
balances held at any point during the year.
Assets
Cash and balances at central banks
Trading portfolio financial assets
Derivative financial instruments
Loans and advances to customers
Investment securities
Total assets
Liabilities
Deposits by central banks and banks
Customer accounts
Trading portfolio financial liabilities
Derivative financial instruments
Total liabilities
Balance
€ m
2019
Highest(2)
balance held
€ m
Balance
2018
Highest(2)
€ m
balance held
€ m
6,953
7,934
1,303
5,360
–
–
6
5,754
12,713
Balance
€ m
–
336
–
–
336
43
5
6
7,327
2019
Highest(2)
balance held
€ m
–
1,050
34
4
–
2
6
6,750
8,061
Balance
€ m
–
454
–
–
454
68
2
7
7,506
2018
Highest(2)
balance held
€ m
1,900
1,057
66
11
a
b
c
(1) Includes all departments of the Irish Government located in the State and embassies, consulates and other institutions of the Irish Government located
outside the State. The Post Office Savings Bank (“POSB”) and the National Treasury Management Agency (“NTMA”) are included.
(2) The highest balance during the period, 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.
a
b
c
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 2019 was € 622 million (2018: € 596 million).
Investment securities at FVOCI at 31 December 2019 comprise € 5,296 million (2018: € 6,282 million) in Irish Government securities
held in the normal course of business and NAMA subordinated bonds of € 458 million (2018: € 468 million).
Includes € 215 million (2018: € 295 million) borrowed from the Strategic Banking Corporation of Ireland (“SBCI”), the ordinary share
capital of which is owned by the Minister for Finance.
All other balances, both assets and liabilities are carried out in the ordinary course of banking business on normal terms and conditions.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements
363
53 Related party transactions (continued)
(g) Summary of relationship with the Irish Government
Local government(1)
During 2019 and 2018, 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.
(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.
Commercial semi-state bodies(1)
During 2019 and 2018, 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 and clearing transactions.
(1) 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 debt securities and repurchase agreements.
The following balances were outstanding in total to these financial institutions at 31 December 2019 and 2018:
Assets
Derivative financial instruments
Loans and advances to banks(1)
Investment securities
Liabilities
Deposits by central banks and banks(2)
Derivative financial instruments
2019
€ m
1
2
284
–
–
2018
€ m
6
2
339
–
–
(1)The highest balance in loans and advances to banks amounted to € 43 million in respect of funds placed during the year (2018: € 2 million).
(2) The highest balance in deposits by central banks and banks by these financial institutions amounted to € 48 million in respect of funds received during the
year (2018: € 30 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). AIB Group is currently engaging with the Joint Special Liquidators in relation to the claim. Given AIB’s
aggregate liability to IBRC at the date of Special Liquidation exceeded these claims, no financial loss is expected to occur.
AIB Group plc Annual Financial Report 2019123456Financial Statements 364
53 Related party transactions (continued)
(g) Summary of relationship with the Irish Government
Irish bank levy
The bank levy, introduced on certain Irish financial institutions in 2014, is calculated based on each financial institution’s Deposit Interest
Retention Tax (“DIRT”) payment in a base year. This base year changes every two years with 2017 being the base year for 2019 and
2020. The annual levy paid by the Group for 2019 and reflected in operating expenses (note 13) in the income statement amounted to
€ 35 million (2018: € 49 million).
(h) Indemnities
The Group has indemnified the Directors of Allied Irish Banks Pensions Limited and AIB DC Pensions (Ireland) Limited, the trustees
of the Group’s 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.
54 Employees
The following table shows the geographical analysis of average employees for 2019 and 2018:
Average number of staff (Full time equivalents)
Ireland
United Kingdom
United States of America
Total
2019
8,770
1,026
59
9,855
2018
8,681
1,066
54
9,801
A new operating structure was implemented in 2019, with staff numbers reported under the new segments. Prior period numbers have
not been restated under the new segment structure. The following tables show the segmental analysis of average employees for 2019
and 2018:
Retail Banking
CIB
AIB UK
Group(1)
Total
2019
4,686
610
792
3,767
9,855
RCB
WIB
AIB UK
Group
Total
2018
5,268
332
820
3,381
9,801
(1) Group comprises wholesale treasury activities and Group control and support functions. Treasury manages the Group’s liquidity and funding positions
and provides customer treasury services and economic research. The Group control and support functions include business and customer services, risk,
audit, finance, legal and corporate governance, human resources and corporate affairs.
The average number of employees for 2019 and 2018 set out above excludes employees on career breaks and other unpaid long term
leaves.
Actual full time equivalent numbers at 31 December 2019 were 9,520 (2018: 9,831).
55 Regulatory compliance
During the years ended 31 December 2019 and 2018, the Group and its regulated subsidiaries complied with their externally imposed
capital ratios.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2019Financial Statements 56 Financial and other information
Operating ratios
Operating expenses/operating income
Other income/operating income
Rates of exchange
€/$*
Closing
Average
€/£*
Closing
Average
365
2018
%
63.4
26.9
2019
%
82.1
21.8
2019
2018
1.1234
1.1194
0.8508
0.8777
1.1450
1.1808
0.8945
0.8847
*Throughout this report, US dollar is denoted by $ and Pound sterling is denoted by £.
Currency Information
Euro
Other
Assets
Liabilities and equity
2019
€ m
77,213
21,349
98,562
2018
€ m
70,756
20,780
91,536
2019
€ m
77,824
20,738
98,562
2018
€ m
70,888
20,648
91,536
57 Dividends
On 3 May 2019, following approval by the shareholders at the Annual General Meeting held on 24 April 2019, AIB Group plc paid a final
dividend of € 0.17 per ordinary share amounting in total to € 461 million. The financial statements for the year ended 31 December 2019
reflect this in shareholders’ equity as an appropriation of distributable reserves.
On 4 May 2018, AIB Group plc, paid a final dividend to its shareholders of € 0.12 per ordinary share amounting in total to € 326 million.
The Board is recommending that a final dividend of € 0.08 per ordinary share, amounting in total to € 217 million, be paid on
7 May 2020. The financial statements for the year ended 31 December 2019 do not reflect this dividend which will be accounted for in
shareholders' equity as an appropriation of distributable reserves in 2020.
58 Non-adjusting events after the reporting period
No significant non-adjusting events have taken place since 31 December 2019.
59 Approval of financial statements
The financial statements were approved by the Board of Directors on 5 March 2020.
AIB Group plc Annual Financial Report 2019123456Financial Statements 366
AIB Group plc company statement of financial position
as at 31 December 2019
Notes
d
e
f
g
h
i
2019
€ m
3,811
9,996
–
35
13,842
3,306
500
49
3,855
1,696
2,791
5,000
9,487
500
9,987
13,842
2018
€ m
1,653
12,940
1
19
14,613
1,655
–
25
1,680
1,696
6,235
5,002
12,933
–
12,933
14,613
Assets
Loans and advances to banks – subsidiary
Investment in subsidiary undertaking
Current taxation
Prepayments and accrued income
Total assets
Liabilities
Debt securities in issue
Subordinated liabilities and other capital instruments
Accruals and deferred income
Total liabilities
Equity
Share capital
Merger reserve
Revenue reserves
Total shareholders' equity
Other equity interests
Total equity
Total liabilities and equity
Richard Pym
Chairman
5 March 2020
Colin Hunt
Chief Executive Officer
AIB Group plc Annual Financial Report 2019Financial Statements AIB Group plc company statement of cash flows
for the financial year ended 31 December 2019
Cash flows from operating activities
(Loss)/profit before taxation for the year
Adjustments for:
– Non-cash and other items
Dividend income
Net credit impairment charge
Interest on subordinated liabilities and other capital instruments
Interest on debt securities – MREL
Change in prepayments and accrued income
Change in accruals and deferred income
Impairment of subsidiary undertaking (note e)
– Change in operating assets
Change in loans and advances to banks
– Taxation refund
Net cash (outflow) from operating activities
Cash flows from investing activities
Dividends received from subsidiary
Investment in subsidiary undertaking (note e)
Net cash (outflow)/inflow from investing activities
Cash flows from financing activities
Net proceeds on issue of Additional Tier 1 Securities (note j)
Net proceeds on issue of € 500 million Tier 2 Notes due 2029 (note g)
Proceeds on issue of debt securities – MREL (note f)(1)
Dividends paid on ordinary shares
Interest paid on debt securities – MREL
Interest paid on subordinated liabilities and other capital instruments
Net cash inflow from financing activities
Change in cash and cash equivalents
Opening cash and cash equivalents
Effect of exchange translation adjustments
Closing cash and cash equivalents
367
2018
€ m
319
(326)
1
–
18
(19)
7
–
(319)
(1,651)
–
(1,651)
326
–
326
–
–
1,651
(326)
–
–
1,325
–
–
–
–
2019
€ m
(2,985)
(461)
1
1
84
(16)
10
3,444
3,063
(2,145)
1
(2,066)
461
(500)
(39)
500
500
1,640
(461)
(70)
–
2,109
4
–
–
4
(1) 2018 has been re-presented to align the balance sheet classification. MREL was previously presented in operating activities and is now presented in
financing activities.
The impact of foreign exchange translation for relevant lines in the statement of financial position is removed in order to show the
underlying cash impact.
AIB Group plc Annual Financial Report 2019123456Financial Statements 368
AIB Group plc company statement of changes in equity
for the financial year ended 31 December 2019
Attributable to equity holders of the parent
Merger
reserve
Revenue
reserves
At 1 January 2019
Total comprehensive income for the year
Loss after tax
Other comprehensive income
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Issue of Additional Tier 1 Securities (note j)
Dividends paid on ordinary shares
(note 21 to the consolidated financial statements)
Transfer between merger and revenue reserves (note i)
Total contributions by and distribution to owners
Share
capital
€ m
1,696
–
–
–
–
–
–
–
–
At 31 December 2019
1,696
Other
equity
interests
€ m
–
–
–
–
–
500
–
–
500
500
€ m
6,235
–
–
–
–
–
–
(3,444)
(3,444)
2,791
Attributable to equity holders of the parent
At 1 January 2018
Total comprehensive income for the year
Profit after tax
Other comprehensive income
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Dividends paid on ordinary shares
Redemption of Subscriber Shares(1)
Other movements
Total contributions by and distributions to owners
Share
Capital
€ m
1,697
Merger
reserve
€ m
6,235
–
–
–
–
–
–
(1)
(1)
–
–
–
–
–
–
–
–
At 31 December 2018
1,696
6,235
(1)Redemption of 40,000 Subscriber Shares of € 0.625 each at par.
(2,985)
(2,985)
–
–
(2,985)
(2,985)
–
500
€ m
5,002
–
(461)
3,444
2,983
5,000
2019
Total
€ m
12,933
–
(461)
–
39
9,987
2018
Total
€ m
5,008
12,940
–
320
–
320
–
320
–
320
(326)
(326)
–
–
–
(1)
(326)
5,002
(327)
12,933
Revenue
reserves
€ m
AIB Group plc Annual Financial Report 2019Financial Statements Notes to AIB Group plc company financial statements
369
Background
AIB Group plc is a company domiciled in Ireland with its Registered Office address at Bankcentre, Ballsbridge, Dublin 4, Ireland.
AIB Group plc is registered under the Companies Act 2014 as a public limited company under the company number 594283 and is the
holding company of the Group.
a Accounting policies
Where applicable, the accounting policies adopted by AlB Group plc (‘the parent company’ or ‘the Company’) are the same as those of
the Group as set out in note 1 to the consolidated financial statements on pages 244 to 272.
The parent company financial statements and related notes set out on pages 366 to 374 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 2019. They also comply with those parts of the Companies Act 2014 and with the
European Union (Credit Institutions: Financial Statements) Regulations 2015 applicable to companies reporting under lFRS.
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
273 to 277.
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 Company’s loss after taxation for the financial year ended
31 December 2019 is € 2,985 million (2018: profit € 320 million).
b Operating expenses
Amounts payable to subsidiary under Master Service Agreement
2019
€ m
6
6
2018
€ m
7
7
c 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 Auditor only (Deloitte Ireland LLP) for services relating to the audit of the Group and relevant subsidiary financial
statements. No audit fees were paid/payable to the Group Auditor (Deloitte Ireland LLP) for services relating to the audit of the financial
statements of AIB Group plc during the year to 31 December 2019.
d Loans and advances to banks
At amortised cost
Funds placed with subsidiary, Allied Irish Banks, p.l.c.
ECL allowance
2019
€ m
3,813
(2)
3,811
2018
€ m
1,654
(1)
1,653
The following transactions occurred between AIB Group plc and its subsidiary, Allied Irish Banks, p.l.c. during 2019:
(i)
In April 2019, AIB Group plc lent US $ 1 billion to Allied Irish Banks, p.l.c.
(ii) In May 2019, AIB Group plc lent € 750 million to Allied Irish Banks, p.l.c.
(iii) In November 2019, AIB Group plc lent € 500 million to Allied Irish Banks, p.l.c.
These borrowings are unsecured and subordinated.
AIB Group plc Annual Financial Report 2019123456Financial Statements 370
Notes to AIB Group plc company financial statements
e Investment in subsidiary undertaking
At 1 January
Additions – Additional Tier 1 Securities
Impairment of equity shares
At 31 December
2019
€ m
12,940
500
(3,444)
9,996
2018
€ m
12,940
–
–
12,940
AIB Group plc (‘the Company’) holds the entire ordinary share capital of Allied Irish Banks, p.l.c. (‘the subsidiary’) which it acquired in
2017 (2,714,381,237 ordinary shares of nominal value € 0.625 each) and which had a book value at acquisition of € 12,940 million.
Allied Irish Banks, p.l.c. is a financial services company incorporated and registered in Ireland with a Registered Office at Bankcentre,
Ballsbridge, Dublin 4. It is the parent company of a number of subsidiaries, both credit institutions and others, all of which are 100%
owned. It operates predominantly in Ireland, providing a comprehensive range of services to retail customers, as well as business and
corporate customers. Allied Irish Banks, p.l.c. and its subsidiaries offer a full suite of products for retail customers, including mortgages,
personal loans, credit cards, current accounts, insurance, pensions, financial planning, investments, savings and deposits. Its products
for business and corporate customers include finance and loans, business current accounts, deposits, foreign exchange and interest
rate risk management products, trade finance products, invoice discounting, leasing, credit cards, merchant services, payments and
corporate finance.
Allied Irish Banks, p.l.c. together with its principal subsidiaries in Ireland, AIB Mortgage Bank, EBS d.a.c. and EBS Mortgage Finance,
are regulated by the Central Bank of Ireland/Single Supervisory Mechanism. Its principal subsidiary outside the Republic of Ireland,
AIB Group (UK) p.l.c., is regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Additions
In October 2019, the Company invested € 500 million in Additional Tier 1 Securities (“AT1”) issued by Allied Irish Banks, p.l.c. (note j).
Impairment of equity shares
The Company reviews its equity investment for impairment at the end of each reporting period if there are indications that impairment
may have occurred.
The testing for possible impairment involves comparing the estimated recoverable amount of an investment with its carrying amount.
Where the recoverable amount is less than the carrying amount, the difference is recognised as an impairment provision in the
Company’s financial statements. The recoverable amount is the higher of fair value less costs to sell and value-in-use (“VIU”).
The subsidiary’s fair value is largely that of the Company since the net assets of the subsidiary are, in effect, the same as those of the
Company. Accordingly, AIB Group plc’s market capitalisation is a proxy for the fair value of Allied Irish Banks, p.l.c.
At 31 December 2019, the market capitalisation of AIB Group plc was € 8.5 billion. This was below the carrying amount of its equity
investment in the subsidiary and had been below that carrying amount throughout 2019. Accordingly, AIB Group plc considered that this
was an indication of impairment and performed an impairment test which compared the carrying amount with the estimated recoverable
amount as determined by a VIU calculation.
The Company uses a discounted cash flow to equity model to derive a VIU, in line with industry practice. Under this approach,
recoverable value is determined by the present value of future distributable items which takes into consideration the requirement to
retain earnings in line with relevant target capital ratios and risk-weighted assets. Accordingly, the principal inputs to the model are
(a) future profitability; (b) risk-weighted asset levels; (c) the discount rate used; and (d) target capital ratios.
The VIU was determined at € 9,496 million which was lower than the carrying amount but higher than the fair value, accordingly,
the Company recognised an impairment loss provision amounting to € 3,444 million.
AIB Group plc Annual Financial Report 2019Financial Statements 371
e Investment in subsidiary undertaking (continued)
Basis used to calculate recoverable amount
In determining VIU, the Company used discounted cash flow projections attributable to equity shareholders. These projections were the
output arising from the recent three year Strategic Plan (2020 to 2022) approved by the Board. This output from the Plan will be used by
the Company on an on going basis during the three year planning cycle. The Strategic Plan involved significant judgements which were
subject to review and validation at a number of levels of governance and is the current best estimate of the expected cash flows over the
planning period. For cash flows beyond the planning period, the Company extrapolated into perpetuity the year 3 expected cash flows
as a base, using a long term growth rate to derive a terminal value. Risk-weighted assets are assumed to grow at the same rate as that
for long term profit growth.
The Company used the following key assumptions in the VIU calculation:
Long term profit/risk-weighted asset growth rate after 2022: 3%;
Discount rate: 9%; and
Common equity Tier 1 target: 14%.
Future profitability and growth rates are dependent on several factors, including the economic environment both local and international,
the impact of Brexit and the United Kingdom’s future relationship with Ireland and the EU, the impact of regulatory requirements on
the banking industry and the continuing developments in the financial services sector. Accordingly, there are significant uncertainties
and a high level of subjectivity involved in the estimation process. Profitability and growth were reassessed in the annual planning
exercise covering the period 2020 to 2022 undertaken by the Group in the second half of 2019. Growth assumptions and profitability
levels underpinning the plan have been revised downwards compared to previous years reflecting the ‘lower for longer’ interest rate
environment in particular, however, these are within current market norms.
The discount rate to be used in future periods may increase/decrease due to changes to the risk free rate or to the risk premium.
Changes to these inputs may increase or decrease the impairment loss provision in future periods.
The following table sets out the sensitivity of the VIU calculation to key input variables. The table reflects the impact of the variables
individually and not any interrelationships. It is possible that more than one favourable and/or unfavourable change will occur at the
same time.
Long term profit/risk-weighted assets growth rate
Discount rate
Favourable change
bps
Increase in VIU
€ m
100
(100)
286
1,678
31 December 2019
Unfavourable change
bps
Decrease in VIU
€ m
(100)
100
(239)
(1,218)
In addition, if year 3 expected cash flows that are used as a base to derive a terminal value were increased/decreased by € 100 million,
the VIU calculation would increase/decrease by c. € 1,260 million.
Given the interrelationship of changes set out in the sensitivity table above, the Company estimates that the reasonable possible range
of estimates for VIU is € 8,280 million to € 11,171 million.
AIB Group plc Annual Financial Report 2019123456Financial Statements 372
Notes to AIB Group plc company financial statements
f Debt securities in issue
Euro Medium Term Note Programme
Global Medium Term Note Programme
Analysis of movements in debt securities in issue
At 1 January
Issued during the year(1)
Exchange translation adjustments
At 31 December
(1)MRELs
2019
€ m
1,750
1,556
3,306
2019
€ m
1,655
1,640
11
3,306
For details of debt securities issued by the Company during 2019, refer to note 38 to the consolidated financial statements.
The instruments issued by AIB Group plc were issued for the purpose of meeting Group MREL requirements.
g Subordinated liabilities and other capital instruments
Dated loan capital – European Medium Term Note Programme:
€ 500 million Subordinated Tier 2 Notes due 2029, Callable 2024
2019
€ m
500
500
2018
€ m
1,000
655
1,655
2018
€ m
–
1,651
4
1,655
2018
€ m
–
–
The dated loan capital above issued under the European Medium Term Note Programme, is subordinated in right of payment to the
ordinary creditors, including depositors, of the Group.
For details of the above issuance, refer to note 41 to the consolidated financial statements.
h Share capital
The ordinary share capital of AIB Group plc is detailed in note 42 to the consolidated financial statements.
i Merger reserve
At 1 January
Transfer to revenue reserves
At 31 December
2019
€ m
6,235
(3,444)
2,791
2018
€ m
6,235
–
6,235
Under the Scheme of Arrangement (“the Scheme”) approved by the Irish High Court on 6 December 2017 which became effective on
8 December 2017, a new company, AIB Group plc (‘the Company’), was introduced as the holding company of AIB Group. The share
capital of Allied Irish Banks, p.l.c., other than a single share owned by AIB Group plc, was cancelled and an equal number of new shares
were issued by the Company to the shareholders of Allied Irish Banks, p.l.c. The difference between the carrying value of the net assets
of Allied Irish Banks, p.l.c. entity on acquisition by the Company and the nominal value of the shares issued on implementation of the
Scheme amounting to € 6,235 million was accounted for as a merger reserve.
In the Company’s financial statements, impairment losses which arise from the Company’s investment in Allied Irish Banks, p.l.c. will be
charged to the profit or loss account and transferred to the merger reserve in so far as a credit balance remains in the merger reserve.
At 31 December 2019, an impairment loss provision of € 3,444 million was recognised (note e). Accordingly, this resulted in a transfer of
€ 3,444 million between merger reserve and revenue reserves.
AIB Group plc Annual Financial Report 2019Financial Statements j Other equity interests
At 1 January
Issued during year
At 31 December
373
2018
€ m
–
–
–
2019
€ m
–
500
500
Additional Tier 1 Perpetual Contingent Temporary Write-down Securities
In 2019, AIB Group plc issued € 500 million nominal value of Additional Tier 1 Perpetual Contingent Temporary Write-down Securities
(‘AT1s’). For further details in relation to AT1s issued by the Company, see note 43 to the consolidated financial statements.
k Related party transactions
Related parties of AIB Group plc include subsidiary undertakings including their non-controlling interests, associated undertakings,
joint undertakings, post-employment benefit schemes, Key Management Personnel and connected parties. The Irish Government is also
considered a related party by virtue of its effective control of AIB Group plc.
Under a Master Service Agreement, Allied Irish Banks, p.l.c. provides various services which include accounting, taxation and
administrative services to AIB Group plc (note b);
The following were the principal transactions during 2019 between AIB Group plc (the parent company) and Allied Irish Banks, p.l.c.
(the subsidiary company):
Amounts included in AIB Group plc company’s income statement in relation to transactions with its immediate subsidiary, Allied Irish
Banks, p.l.c. are as follows:
Interest income
Operating expenses
Dividend received
Notes
b
2019
€ m
90
6
461
2018
€ m
19
7
326
Amounts included in AIB Group plc company's statement of financial position in relation to balances with its immediate subsidiary,
Allied Irish Banks, p.l.c. are as follows:
Investment in subsidiary undertaking
Loans and advances to banks
Prepayments and accrued income
Accruals and deferred income
Notes
e
d
2019
€ m
9,996
3,811
35
13
2018
€ m
12,940
1,653
19
7
The following transactions occurred between AIB Group plc and its subsidiary, Allied Irish Banks, p.l.c. during 2019.
(a) AIB Group plc invested € 500 million in AT1 Securities (note j).
(b) AIB Group plc lent € 2,145 million to Allied Irish Banks, p.l.c. (note d).
AIB Group plc Annual Financial Report 2019123456Financial Statements 374
Notes to AIB Group plc company financial statements
l Credit risk information
The following table sets out the maximum exposure to credit risk for financial assets all of which are carried at amortised cost(1) at
31 December 2019 and 2018:
Maximum exposure to credit risk
Loans and advances to banks
Included elsewhere:
Accrued interest
Total
(1)All amortised cost items are loans and advances which are in a ‘held to collect’ business model.
2019
Total
€ m
3,811
35
3,846
2018
Total
€ m
1,653
19
1,672
m Funding and liquidity risk
Financial assets and financial liabilities by contractual residual maturity
The following table analyses financial assets and financial liabilities by contractual residual maturity at 31 December 2019 and 2018:
On demand
€ m
4
–
4
–
–
49
49
<3 months
but not on
demand
€ m
3 months
to 1 year
1–5 years
Over
5 years
2019
Total
€ m
€ m
€ m
€ m
–
35
35
–
–
–
–
–
–
–
–
–
–
–
1,919
–
1,919
1,890
–
1,890
3,813
35
3,848
1,917
1,389
3,306
–
–
1,917
500
–
1,889
500
49
3,855
2018
Total
On demand
€ m
–
–
–
–
25
25
<3 months
but not on
demand
€ m
–
19
19
–
–
–
3 months
to 1 year
1–5 years
Over
5 years
€ m
€ m
€ m
€ m
–
–
–
–
–
–
1,154
–
1,154
1,155
–
1,155
500
–
500
500
–
500
1,654
19
1,673
1,655
25
1,680
Financial assets
Loans and advances to banks(1)
Other financial assets
Financial liabilities
Debt securities in issue
Subordinated liabilities and other
capital instruments
Other financial liabilities
Financial assets
Loans and advances to banks(1)
Other financial assets
Financial liabilities
Debt securities in issue
Other financial liabilities
(1)Shown gross of expected credit losses.
AIB Group plc Annual Financial Report 2019Financial Statements General information
375
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 your address and view your shareholding by signing into Investor Centre on
www.computershare.com/ie/InvestorCentre. You will need your unique user ID and password which you created during registration,
or register at www.computershare.com/ie/investor/register to become an Investor Centre member.
To register you will be required to enter the name of the company in which you hold shares, your Shareholder Reference Number
(“SRN”), your family or company name and security code (provided on screen); and
download standard forms required to initiate changes in details held by the Registrar on the Investor Centre accessed above or via
the Investor Relations section of AIB’s website at www.aib.ie/investorrelations, clicking on the Shareholder Information and Personal
Shareholder Information option, and following the on-screen instructions.
–
Shareholders may also use AIB’s website to access the Company’s Annual Financial Report.
Stock Exchange Listings
AIB Group plc is an Irish registered company. Its ordinary shares are traded on the primary listing segment of the official list of the Irish
Stock Exchange/Euronext Dublin and the premium listing segment of the Official List of the London Stock Exchange.
Migration of Securities
The Irish Stock Exchange (now trading as Euronext Dublin) has to date relied on a Central Securities Depository (“CSD”) based in the
United Kingdom. This CSD is operated by Euroclear UK and Ireland and utilises a system called CREST to settle on-market trades of
shares in Irish listed companies like AIB.
Post Brexit, Euroclear UK and Ireland are considered a third country based CSD and therefore, not covered by the European regulatory
regime. A temporary and conditional equivalence was granted in December 2018, however, the Irish market may only continue using the
current settlement system until March 2021. Following a series of consultations with the Irish market, Euronext Dublin announced that
it will transfer the settlement of trades in Irish equities from CREST to Euroclear Bank, which is a CSD based in Belgium, before March
2021. This issue affects all companies listed on Euronext Dublin, not just AIB.
To facilitate the migration to Euroclear Bank, the Irish Government passed the Migration of Participating Securities Act in December 2019.
This legislation requires the passing of certain resolutions at an Extraordinary General Meeting (“EGM”) of the Company. At the time of
date of this Annual Financial Report a number of key issues relating to the migration remain outstanding. AIB intends to convene an EGM
to consider the migration resolutions at an appropriate time during 2020, once certainty around those key issues has been established.
Registrar
The Company’s Registrar is:
Computershare Investor Services (Ireland) Ltd.,
3100 Lake Dr, Citywest Business Campus, Dublin 24,
Telephone: +353-1-247 5411. Facsimile: +353-1-216 3151.
Website: www.computershare.com or www.investorcentre.com/ie/contactus
Major shareholdings
The issued share capital of the AIB Group plc is 2,714,381,237 ordinary shares of € 0.625 each.
The Minister for Finance of Ireland holds 1,930,436,543 ordinary shares representing 71.12% of the total voting rights attached to issued
share capital.
Financial calendar
Annual General Meeting: 29 April 2020, at the Ballsbridge Hotel, Ballsbridge, Dublin 4.
Interim results
The unaudited Half-Yearly Financial Report 2020 will be announced on 29 July 2020 and will be available on the Company’s website –
www.aib.ie.
Shareholder’s enquiries regarding Ordinary Shares should be addressed to:
Computershare Investor Services (Ireland) Ltd.,
3100 Lake Dr, Citywest Business Campus, Dublin 24, Ireland.
Telephone: +353 1 247 5411
Facsimile: +353 1 216 3151
Website: www.computershare.com
AIB Group plc Annual Financial Report 2019General Information 123456
376
General information
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 Principal risks on pages 40 to 43 in the 2019 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 40 to 43 of the 2019 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.
AIB Group plc Annual Financial Report 2019General Information Glossary of terms
377
Additional Tier 1
Capital
Additional Tier 1 Capital (“AT1”) are securities issued by AIB and included in its capital base as fully CRD IV compliant additional tier
1 capital on a fully loaded basis.
Arrears
Arrears relates to 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.
Bank Recovery
and Resolution
Directive
The Bank Recovery and Resolution Directive (“BRRD”) is a European legislative package issued by the European Commission and
adopted by EU Member States. 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 a hold to collect and sell basis.
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
Buy-to-let
mortgage
Capital
Requirements
Directive
Capital
Requirements
Directive IV
A type of market risk that refers to the possibility that the change in the price of an instrument (e.g. asset, liability, derivative) may
not match the change in price of the associated hedge, resulting in losses arising in the Group's portfolio of financial instruments.
A residential mortgage loan approved for the purpose of purchasing a residential investment property.
Capital Requirements Directive (“CRD”): Capital adequacy legislation implemented by the European Union and adopted by Member
States 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 Capital Requirements
Directive and a 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 obligation
A collateralised bond obligation (“CBO”)/collateralised debt obligation (“CDO”) is an investment vehicle (generally an SPE) which
allows third party investors to make debt and/or equity investments in a vehicle containing a portfolio of loans and bonds with
certain common features. In the case of synthetic CBOs/CDOs, the risk is backed by credit derivatives instead of the sale of assets
(cash CBOs/CDOs).
Commercial
paper
Commercial
property
Common equity
tier 1 capital
(“CET1”)
Commercial paper is similar to a deposit and is a relatively low-risk, short term, unsecured promissory note traded on money
markets and issued by companies or other entities to finance their short-term expenses. In the USA, commercial paper matures
within 270 days maximum, while in Europe, it may have a maturity period of up to 365 days; although maturity is commonly 30 days
in the USA and 90 days in Europe.
Commercial property lending focuses primarily on the following property segments:
a) Apartment complexes;
b) Office projects;
c) Retail projects;
d) Hotels; and
e) Selective mixed-use projects and special purpose properties.
The highest quality form of regulatory capital under Basel III that comprises ordinary shares issued and related share premium,
retained earnings and other reserves excluding cash flow hedging reserves, and deducting specified regulatory adjustments.
Common equity
tier 1 ratio
Common equity tier 1 ratio – A measurement of a bank’s common equity tier 1 capital expressed as a percentage of its total risk-
weighted assets.
Concentration
risk
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.
AIB Group plc Annual Financial Report 2019General Information 123456 378
Glossary of terms
Contractual
maturity
Contractual
residual maturity
Credit default
swaps
The period when a scheduled payment is due and payable in accordance with the terms of a financial instrument.
The time remaining until the expiration or repayment of a financial instrument in accordance with its contractual terms.
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.
Credit
derivatives
Financial instruments where credit risk connected with loans, bonds or other risk-weighted assets or market risk positions is
transferred to counterparties providing credit protection. The credit risk might be inherent in a financial asset such as a loan or might
be a generic credit risk such as the bankruptcy risk of an entity.
Credit impaired
Under IFRS 9, these are Stage 3 financial assets where there is objective evidence of impairment and, therefore, considered to be
in default. A lifetime ECL is recognised for such assets.
Credit risk
The risk that one party to a financial instrument will cause a financial loss to the other party by failing to discharge an obligation.
Credit risk
mitigation
Techniques used by lenders 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
Accounts of lower quality and considered as less than satisfactory are referred to as criticised and include the following;
Criticised watch:
The credit is exhibiting weakness and is deteriorating in terms of credit quality and may need additional attention.
Criticised recovery:
Includes forborne cases that are classified as performing having transitioned from default, but still requires additional management
attention to monitor for re-default and continuing improvement in terms of credit quality.
Customer
accounts
A liability of the Group where the counterparty to the financial contract is typically a personal customer, a corporation (other than a
financial institution) or the government. This caption includes various types of deposits and credit current accounts, all of which are
unsecured.
Debt
restructuring
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 an equity stake in the
counterparty.
Debt securities
Assets on the Group’s balance sheet representing certificates of indebtedness of credit institutions, public bodies and other
undertakings.
Debt securities
in issue
Liabilities of the Group which are represented by transferable certificates of indebtedness of the Group to the bearer of the
certificates.
Default
Default is considered to have occurred with regard to a credit obligor when either or both of the following events have taken place:
i.
ii.
a credit obligor is past due 90 days or more on any material credit obligation to the Group; and/or
the Group considers that the credit obligor is unlikely to pay their credit obligations, without recourse by the Group to actions
such as realising collateral (if held), or if for any other reason, the Group determines that the credit obligor is unlikely to pay
their credit obligations in full.
Derecognition
The removal of a previously recognised financial asset or financial liability from the Group’s statement of financial position.
AIB Group plc Annual Financial Report 2019General Information 379
EBITDA
Earnings before interest, tax, depreciation and amortisation.
ECB refinancing
rate
The main refinancing rate or minimum bid rate is the interest rate which banks have to pay when they borrow from the ECB under
its main refinancing operations.
ECLs
Expected credit loss (“ECLs”) – The weighted average of credit losses with the respective risks of a default occurring as the weights.
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
Exposure value
The expected or actual amount of exposure to the borrower at the time of default.
For on balance sheet exposures, it is the amount outstanding less provisions and collateral held taking into account relevant netting
agreements. For off-balance sheet exposures, including commitments and guarantees, it is the amount outstanding less provisions
and collateral held taking into account relevant netting agreements and credit conversion factors.
First/second lien
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 used when repayment terms of a loan contract have been renegotiated in order to make these terms
more manageable for borrowers. Standard 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
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
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.
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 Capital
Adequacy
Assessment
Process
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.
Internal liquidity
adequacy
assessment
process
The Internal Liquidity Adequacy Assessment Processes (“ILAAP”) is a key element of the risk management framework for credit
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 Ratings
Based Approach
The Internal Ratings Based Approach (“IRBA”) allows banks, subject to regulatory approval, to use their own estimates of
certain risk components to derive regulatory capital requirements for credit risk across different asset classes. The relevant risk
components are: Probability of Default (“PD”); Loss Given Default (“LGD”); and Exposure at Default (“EAD”).
ISDA Master
Agreements
Standardised contracts, developed by the International Swaps and Derivatives Association (“ISDA”), used as an umbrella under
which bilateral derivatives contracts are entered into.
Leverage ratio
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.
AIB Group plc Annual Financial Report 2019General Information 123456 380
Glossary of terms
Liquidity
Coverage Ratio
Liquidity Coverage Ratio (“LCR”): The ratio of the stock of high quality liquid assets to expected net cash outflows over the next
30 days under a stress scenario. CRD IV requires that this ratio exceeds 100% on 1 January 2018.
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 advances expressed as a percentage of customer accounts, as presented in the statement of financial
position.
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
Loss Given
Default
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:
–
–
–
When a borrower is past due, the entire exposure is reported as past due, rather than the amount of any excess or arrears.
has breached an advised limit;
has been advised of a limit lower than the then current amount outstanding; or
has drawn credit without authorisation.
Loss Given Default (“LGD”) is the expected or actual loss in the event of default, expressed as a percentage of ‘exposure at default’.
Medium term
notes
Medium term notes (“MTNs”) are notes issued by the Group across a range of maturities under the European Medium Term Notes
(“EMTN”) Programme.
National Asset
Management
Agency
Net interest
income
Net interest
margin
Net Stable
Funding Ratio
National Asset Management Agency (“NAMA”) was established in 2009 as one of a number of initiatives taken by the Irish
Government to address the serious problems which arose in Ireland’s banking sector as the result of excessive property lending.
The amount of interest received or receivable on assets net of interest paid or payable on liabilities.
Net interest margin (“NIM”) is a measure of the difference between the interest income generated on average interest earning
financial assets (lendings) and the amount of interest paid on average interest bearing financial liabilities (borrowings) relative to the
amount of interest-earning assets.
Net Stable Funding Ratio (“NSFR”): The ratio of available stable funding to required stable funding over a 1 year time horizon.
New transaction
lendings
New transaction lending is defined as incremental increase in drawn balances against facilities granted for a specific period of time
whereby the borrower can draw down or repay amounts as required to manage cash flow. It includes revolving credit facilities,
overdrafts and invoice discounting facilities.
Non-performing
exposures
Non-performing exposures are defined by the European Banking Authority to include material exposures which are more than
90 days past due (regardless of whether they are credit impaired) and/or exposures in respect of which the debtor is assessed as
unlikely to pay its credit obligations in full without realisation of collateral, regardless of the existence of any past due amount or the
number of days the exposure is past due.
Off-balance
sheet items
Off-balance sheet items include undrawn commitments to lend, guarantees, letters of credit, acceptances and other items as listed
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.
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, people risk and legal risk.
AIB Group plc Annual Financial Report 2019General Information 381
Optionality risk
A type of market risk associated with option features that are embedded within assets and liabilities on the Group's balance sheet.
The embedded option features can significantly change the cash flows (and/or redemption) of the contract and can, therefore, effect
its duration, yield and pricing. Examples include bonds with early call provisions or prepayment risk on a mortgage portfolio. Where
these risks are left unhedged, it can result in losses arising in the Group's portfolio.
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.
Principal
components
analysis
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 “demeaned”; 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 shift, twist and bow).
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.
Probability of
Default
Probability of Default (“PD”) is the likelihood that a borrower will default on an obligation to repay.
Regulatory
capital
Regulatory capital is 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.
Residential
mortgage-backed
securities
Residential mortgage-backed securities (“RMBS”) are debt obligations that represent claims to the cash flows from pools of
mortgage loans, most commonly on residential property.
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.
Securitisation
Securitisation is the process of aggregation and repackaging of non-tradable financial instruments such as loans and advances, or
company cash flows into securities that can be issued and traded in the capital markets.
Single
Supervisory
Mechanism
The Single Supervisory Mechanism ("SSM") is a system of financial supervision comprising the European Central Bank (“ECB”) and
the national competent authorities of participating EU countries. 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.
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).
Stage allocation:
Under IFRS 9, loans and advances to customers are classified into one of three stages:
Stage 1
Stage 2
Stage 3
Includes newly originated loans and loans that have not had a significant increase in credit risk since initial recognition.
Includes loans that have had a significant increase in credit risk since initial recognition but do not have objective evidence of being
credit impaired.
Includes loans that are defaulted or are otherwise considered to be credit impaired.
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.
AIB Group plc Annual Financial Report 2019General Information 123456 382
Glossary of terms
Structured
securities
This involves non-standard lending arrangements through the structuring of assets or debt issues in accordance with customer and/
or market requirements. The requirements may be concerned with funding, liquidity, risk transfer or other needs that cannot be met
by an existing off the shelf product or instrument. To meet this requirement, existing products and techniques must be engineered
into a tailor-made product or process.
Syndicated and
international
lending
Syndicated and international 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. Syndicated and international lending is extended typically to
non-investment grade borrowers and carries commensurate rates of return.
Tier 1 capital
A measure of a bank’s financial strength defined by the Basel Accord. It captures common equity tier 1 capital and other instruments
in issue that meet the criteria for inclusion as additional tier 1 capital. These are subject to certain regulatory deductions.
Tier 2 capital
Broadly includes qualifying subordinated debt and other tier 2 securities in issue. It is subject to adjustments relating to the excess
of expected loss on the IRBA portfolios over the accounting expected credit losses 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.
Trade date and
settlement date
accounting
1.
2.
Trade date accounting records the transaction on the date on which an agreement has been entered (the trade date),
instead of on the date the transaction has been finalised (the settlement date).
Under the settlement date accounting approach, the asset is recognised on the date on which it is received by the Group,
on disposal, the asset is not derecognised until the asset is delivered to the buyer.
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).
Wholesale
funding
Wholesale funding refers to funds raised from wholesale market sources. Examples of wholesale funding include senior unsecured
bonds, covered bonds, securitisations, repurchase transactions, interbank deposits and deposits raised from non-bank financial
institutions.
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.
AIB Group plc Annual Financial Report 2019General Information Principal addresses
383
Ireland and Britain
Registered Office
Bankcentre, PO Box 452,
Ballsbridge, Dublin 4.
USA
AIB Commercial Finance Limited
10 Molesworth Street,
Dublin 2.
AIB Corporate Banking
North America
1345 Avenue of the Americas,
Telephone: + 353 1 660 0311
Telephone: + 353 1 772 5861
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
Group Headquarters
10 Molesworth Street,
Dublin 2.
AIB Corporate Banking (GB)
St Helen’s, 1 Undershaft,
London EC3A 8AB.
Telephone: + 353 1 772 5861
Telephone: + 44 207 863 6950
Retail Banking
10 Molesworth Street,
Dublin 2.
EBS d.a.c.
The EBS Building,
2 Burlington Road,
Telephone: + 353 1 772 5861
Dublin 4.
Corporate, Institutional &
Business Banking
10 Molesworth Street,
Dublin 2.
Telephone: + 353 1 665 9000
AIB Financial Solutions Group
10 Molesworth Street,
Dublin 2.
Telephone: + 353 1 772 5861
Telephone: + 353 1 772 5861
AIB (NI)
92 Ann Street,
Belfast BT1 3HH.
AIB Arrears Support Unit
10 Molesworth Street,
Dublin 2.
Telephone: + 44 345 600 5925
Telephone: + 353 1 772 5861
Allied Irish Bank (GB)
St Helen’s, 1 Undershaft,
London EC3A 8AB.
AIB Third Party Servicing
10 Molesworth Street,
Dublin 2.
Telephone: + 44 20 7647 3300
Telephone: + 353 1 772 5861
AIB Finance and Leasing
10 Molesworth Street,
Dublin 2.
Telephone: + 353 1 772 5861
AIB Customer Treasury Services
10 Molesworth Street,
Dublin 2.
Telephone: + 353 1 772 5861
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.
AIB Group plc Annual Financial Report 2019General Information 123456 384
Index
A
Accounting policies
Page
244
E
Earnings per share
Annual General Meeting
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
Business model risk
C
Capital
Capital adequacy risk
Capital contributions
Capital reserves
Capital redemption reserves
Chair’s statement
Chief Executive’s review
Conduct risk
Contingent liabilities and
commitments
Corporate Governance report
Credit impairment –
income statement
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
Directors’ Responsibility Statement
Disposal groups and non-current
assets held for sale
Disposal of business
Distributions on equity shares
Dividend income
Dividends
375
365
308
288
53
194
184
182
168
67
154
333
333
333
10
14
166
337
178
287
79
273
365
325
326
316
324
293
44
218
216
224
292
287
292
284
365
ECL
ECL allowance on financial assets
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 liabilities by undiscounted
contractual maturity
Financial statements
Forbearance
Foreign exchange risk
Forward looking information
Funding and liquidity risk
Page
291
88
304
364
365
345
303
365
151
375
152
237
135
161
376
145
M
Market risk
Page
155
Memorandum items: contingent
liabilities and commitments and
contingent assets
Model risk
N
Net fee and commission income
Net trading (loss)/income
Nomination and Corporate
Governance Committee
Non-adjusting events
after the reporting period
Notes to the financial statements
O
Off-balance sheet arrangements and
transferred financial assets
Offsetting financial assets and
financial liabilities
Operating and financial review
Operating expenses
Operational risk
Other equity interests
G
Gain on financial assets
Glossary
Going concern
Governance and oversight
Group Internal Audit
I
Income statement
Independent auditor’s report
Intangible assets
Interest and similar income
Interest and similar expense
285 and 286
Other liabilities
Other operating income
P
Pension risk
People and culture risk
Principal addresses
Property, plant and equipment
Prospective accounting changes
Provisions for liabilities and
commitments
377
246
171
185
199
237
225
309
284
284
Interest rate risk in the banking book 155
Interest rate sensitivity
Investment securities
158
305
Investments in Group undertakings 339
Irish Government
L
Lease liabilities
Liquidity risk
Loans and advances to banks
360
325
145
302
Loans and advances to customers 303
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
337
169
285
285
204
365
243
340
333
52
286
163
331
327
286
162
167
383
310
272
327
67
364
165
355
172
318
75
72
38
72
79
220
82 and 134
Group Company secretary
AIB Group plc Annual Financial Report 2019General Information
385
S
Schedule to the
Group Directors’ report
Segmental information
Share-based
compensation schemes
Share capital
Statement of cash flows
Page
175
280
287
330
353
Statement of comprehensive income 238
Statement of changes in equity
Statement of financial position
Stock exchange listings
Subordinated liabilities and
other capital instruments
Subsidiaries and
consolidated structured entities
Supervision and regulation
T
Taxation
Transferred financial assets
V
Viability statement
W
Website
241
239
375
329
339
222
289
340
219
375
AIB Group plc Annual Financial Report 2019General Information 123456 ANNUAL FINANCIAL REPORT
Designed and produced by Originate.
Print Management by Custodian Consultancy.
The paper used in this production has been sourced from a sustainably managed forest.
© AIB GROUP 2020
AIB Group plc
Bankcentre, PO Box 452, Dublin 4, Ireland, D04 NV02
+353 (1) 660 0311
aib.ie/investorrelations